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G.R. No. 164349 January 31, 2006

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI),Petitioner,

vs.
ALFONSO VERCHEZ, GRACE VERCHEZ-INFANTE, MARDONIO INFANTE, ZENAIDA VERCHEZ-CATIBOG, AND
FORTUNATO CATIBOG, Respondents.

DECISION

CARPIO MORALES, J.:

On January 21, 1991, Editha Hebron Verchez (Editha) was confined at the Sorsogon Provincial Hospital due to an
ailment. On even date, her daughter Grace Verchez-Infante (Grace) immediately hied to the Sorsogon Branch of the
Radio Communications of the Philippines, Inc. (RCPI) whose services she engaged to send a telegram to her sister
Zenaida Verchez-Catibog (Zenaida) who was residing at 18 Legal St., GSIS Village, Quezon City 1 reading: "Send check
money Mommy hospital." For RCPIs services, Grace paid P10.502 for which she was issued a receipt.3

As three days after RCPI was engaged to send the telegram to Zenaida no response was received from her, Grace sent a
letter to Zenaida, this time thru JRS Delivery Service, reprimanding her for not sending any financial aid.

Immediately after she received Graces letter, Zenaida, along with her husband Fortunato Catibog, left on January 26,
1991 for Sorsogon. On her arrival at Sorsogon, she disclaimed having received any telegram.

In the meantime, Zenaida and her husband, together with her mother Editha left for Quezon City on January 28, 1991 and
brought Editha to the Veterans Memorial Hospital in Quezon City where she was confined from January 30, 1991 to
March 21, 1991.

The telegram was finally delivered to Zenaida 25 days later or on February 15, 1991. 4 On inquiry from RCPI why it took
that long to deliver it, a messenger of RCPI replied that he had nothing to do with the delivery thereof as it was another
messenger who previously was assigned to deliver the same but the address could not be located, hence, the telegram
was resent on February 2, 1991, and the second messenger finally found the address on February 15, 1991.

Edithas husband Alfonso Verchez (Verchez), by letter of March 5, 1991, 5 demanded an explanation from the manager of
the Service Quality Control Department of the RCPI, Mrs. Lorna D. Fabian, who replied, by letter of March 13, 1991, 6 as
follows:

Our investigation on this matter disclosed that subject telegram was duly processed in accordance with our standard
operating procedure. However, delivery was not immediately effected due to the occurrence of circumstances which were
beyond the control and foresight of RCPI. Among others, during the transmission process, the radio link connecting the
points of communication involved encountered radio noise and interferences such that subject telegram did not initially
registered (sic) in the receiving teleprinter machine.

Our internal message monitoring led to the discovery of the above. Thus, a repeat transmission was made and
subsequent delivery was effected. (Underscoring supplied)

Verchezs lawyer thereupon wrote RCPIs manager Fabian, by letter of July 23, 1991, 7 requesting for a conference on a
specified date and time, but no representative of RCPI showed up at said date and time.

On April 17, 1992, Editha died.

On September 8, 1993, Verchez, along with his daughters Grace and Zenaida and their respective spouses, filed a
complaint against RCPI before the Regional Trial Court (RTC) of Sorsogon for damages. In their complaint, the plaintiffs
alleged that, inter alia, the delay in delivering the telegram contributed to the early demise of the late Editha to their
damage and prejudice,8 for which they prayed for the award of moral and exemplary damages9 and attorneys fees.10

After its motion to dismiss the complaint for improper venue11 was denied12 by Branch 5 of the RTC of Sorsogon, RCPI
filed its answer, alleging that except with respect to Grace, 13 the other plaintiffs had no privity of contract with it; any delay
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in the sending of the telegram was due to force majeure, "specifically, but not limited to, radio noise and interferences
which adversely affected the transmission and/or reception of the telegraphic message"; 14 the clause in the Telegram
Transmission Form signed by Grace absolved it from liability for any damage arising from the transmission other than the
refund of telegram tolls;15 it observed due diligence in the selection and supervision of its employees; and at all events,
any cause of action had been barred by laches.16

The trial court, observing that "although the delayed delivery of the questioned telegram was not apparently the proximate
cause of the death of Editha," ruled out the presence of force majeure. Respecting the clause in the telegram relied upon
by RCPI, the trial court held that it partakes of the nature of a contract of adhesion.

Finding that the nature of RCPIs business obligated it to dispatch the telegram to the addressee at the earliest possible
time but that it did not in view of the negligence of its employees to repair its radio transmitter and the concomitant delay
in delivering the telegram on time, the trial court, upon the following provisions of the Civil Code, to wit:

Article 2176 Whoever by act or omission causes damage to another, there being at fault or negligence, is obliged to pay
for the damage done. Such fault or negligence if there is no pre-existing contractual relation between the parties, is called
quasi-delict and is governed by the provisions of this Chapter.

Article 1173 defines the fault of (sic) negligence of the obligor as the "omission of the diligence which is required by the
nature of the obligation and corresponds with the circumstances of the person, of the time, or the place."

In the instant case, the obligation of the defendant to deliver the telegram to the addressee is of an urgent nature. Its
essence is the early delivery of the telegram to the concerned person. Yet, due to the negligence of its employees, the
defendant failed to discharge of its obligation on time making it liable for damages under Article 2176.

The negligence on the part of the employees gives rise to the presumption of negligence on the part of the
employer.17 (Underscoring supplied),

rendered judgment against RCPI. Accordingly, it disposed:

WHEREFORE, in the light of the foregoing premises, judgment is hereby rendered in favor of the plaintiffs and against the
defendant, to wit:

Ordering the defendant to pay the plaintiffs the following amount:

1. The amount of One Hundred Thousand (P100,000.00) Pesos as moral damages;

2. The amount of Twenty Thousand (P20,000.00) Pesos as attorneys fees; and

3. To pay the costs.

SO ORDERED.18

On appeal, the Court of Appeals, by Decision of February 27, 2004, 19 affirmed the trial courts decision.

Hence, RCPIs present petition for review on certiorari, it raising the following questions: (1) "Is the award of moral
damages proper even if the trial court found that there was no direct connection between the injury and the alleged
negligent acts?"20 and (2) "Are the stipulations in the Telegram Transmission Form, in the nature "contracts of adhesion"
(sic)?21

RCPI insists that respondents failed to prove any causal connection between its delay in transmitting the telegram and
Edithas death.22

RCPIs stand fails. It bears noting that its liability is anchored on culpa contractual or breach of contract with regard to
Grace, and on tort with regard to her co-plaintiffs-herein-co-respondents.
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Article 1170 of the Civil Code provides:

Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages. (Underscoring supplied)

Passing on this codal provision, this Court explained:

In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify, prima
facie, a corresponding right of relief. The law, recognizing the obligatory force of contracts, will not permit a party to be set
free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. A
breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or
suffered. The remedy serves to preserve the interests of the promissee that may include his "expectation
interest," which is his interest in having the benefit of his bargain by being put in as good a position as he would have
been in had the contract been performed, or his "reliance interest," which is his interest in being reimbursed for loss
caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been
made; or his "restitution interest," which is his interest in having restored to him any benefit that he has conferred on the
other party. Indeed, agreements can accomplish little, either for their makers or for society, unless they are made the
basis for action. The effect of every infraction is to create a new duty, that is, to make recompense to the one who has
been injured by the failure of another to observe his contractual obligation unless he can show extenuating circumstances,
like proof of his exercise of due diligence x x x or of the attendance of fortuitous event, to excuse him from his
ensuing liability.23 (Emphasis and underscoring supplied)

In the case at bar, RCPI bound itself to deliver the telegram within the shortest possible time. It took 25 days, however, for
RCPI to deliver it.

RCPI invokes force majeure, specifically, the alleged radio noise and interferences which adversely affected the
transmission and/or reception of the telegraphic message. Additionally, its messenger claimed he could not locate the
address of Zenaida and it was only on the third attempt that he was able to deliver the telegram.

For the defense of force majeure to prosper,

x x x it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. An act of
God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of
such a loss. Ones negligence may have concurred with an act of God in producing damage and injury to another;
nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not
exempt one from liability. When the effect is found to be partly the result of a persons participation whether by
active intervention, neglect or failure to act the whole occurrence is humanized and removed from the rules
applicable to acts of God.

xxxx

Article 1174 of the Civil Code states that no person shall be responsible for a fortuitous event that could not be foreseen
or, though foreseen, was inevitable. In other words, there must be an exclusion of human intervention from the
cause of injury or loss.24 (Emphasis and underscoring supplied)

Assuming arguendo that fortuitous circumstances prevented RCPI from delivering the telegram at the soonest possible
time, it should have at least informed Grace of the non-transmission and the non-delivery so that she could have taken
steps to remedy the situation. But it did not. There lies the fault or negligence.

In an earlier case also involving RCPI, this Court held:

Considering the public utility of RCPIs business and its contractual obligation to transmit messages, it should exercise
due diligence to ascertain that messages are delivered to the persons at the given address and should provide a system
whereby in cases of undelivered messages the sender is given notice of non-delivery. Messages sent
by cable or wireless means are usually more important and urgent than those which can wait for the mail.25

xxxx
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People depend on telecommunications companies in times of deep emotional stress or pressing financial needs.
Knowing that messages about the illnesses or deaths of loved ones, births or marriages in a family, important business
transactions, and notices of conferences or meetings as in this case, are coursed through the petitioner and similar
corporations, it is incumbent upon them to exercise a greater amount of care and concern than that shown in this
case. Every reasonable effort to inform senders of the non-delivery of messages should be undertaken.26

(Emphasis and underscoring supplied)

RCPI argues, however, against the presence of urgency in the delivery of the telegram, as well as the basis for the award
of moral damages, thus:27

The request to send check as written in the telegraphic text negates the existence of urgency that private respondents
allegations that time was of the essence imports. A check drawn against a Manila Bank and transmitted to Sorsogon,
Sorsogon will have to be deposited in a bank in Sorsogon and pass thru a minimum clearing period of 5 days before it
may be encashed or withdrawn. If the transmittal of the requested check to Sorsogon took 1 day private respondents
could therefore still wait for 6 days before the same may be withdrawn. Requesting a check that would take 6 days before
it could be withdrawn therefore contradicts plaintiffs claim of urgency or need. 28

At any rate, any sense of urgency of the situation was met when Grace Verchez was able to communicate to Manila via a
letter that she sent to the same addressee in Manila thru JRS.29

xxxx

As far as the respondent courts award for moral damages is concerned, the same has no basis whatsoever since private
respondent Alfonso Verchez did not accompany his late wife when the latter went to Manila by bus. He stayed behind in
Sorsogon for almost 1 week before he proceeded to Manila. 30

When pressed on cross-examination, private respondent Alfonso Verchez could not give any plausible reason as to the
reason why he did not accompany his ailing wife to Manila.31

xxxx

It is also important to consider in resolving private respondents claim for moral damages that private respondent Grace
Verchez did not accompany her ailing mother to Manila.32

xxxx

It is the common reaction of a husband to be at his ailing wifes side as much as possible. The fact that private respondent
Alfonso Verchez stayed behind in Sorsogon for almost 1 week convincingly demonstrates that he himself knew that his
wife was not in critical condition.33

(Emphasis and underscoring supplied)

RCPIs arguments fail. For it is its breach of contract upon which its liability is, it bears repeating, anchored. Since RCPI
breached its contract, the presumption is that it was at fault or negligent. It, however, failed to rebut this presumption.

For breach of contract then, RCPI is liable to Grace for damages.

And for quasi-delict, RCPI is liable to Graces co-respondents following Article 2176 of the Civil Code which provides:

Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict
and is governed by the provisions of this Chapter. (Underscoring supplied)

RCPIs liability as an employer could of course be avoided if it could prove that it observed the diligence of a good father
of a family to prevent damage. Article 2180 of the Civil Code so provides:
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The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions, but also for those of
persons for whom one is responsible.

xxxx

The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their
employees in the service of the branches in which the latter are employed or on the occasion of their functions.

Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of
their assigned tasks, even though the former are not engaged in any business or industry.

xxxx

The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the
diligence of a good father of a family to prevent damage. (Underscoring supplied)

RCPI failed, however, to prove that it observed all the diligence of a good father of a family to prevent damage.

Respecting the assailed award of moral damages, a determination of the presence of the following requisites to justify the
award is in order:

x x x firstly, evidence of besmirched reputation or physical, mental or psychological suffering sustained by the
claimant; secondly, a culpable act or omission factually established; thirdly, proof that the wrongful act or omission of the
defendant is the proximate cause of damages sustained by the claimant; and fourthly, that the case is predicated on any
of the instances expressed or envisioned by Article 2219 and Article 2220 of the Civil Code. 34

Respecting the first requisite, evidence of suffering by the plaintiffs-herein respondents was correctly appreciated by the
CA in this wise:

The failure of RCPI to deliver the telegram containing the message of appellees on time, disturbed their filial tranquillity.
Family members blamed each other for failing to respond swiftly to an emergency that involved the life of the late Mrs.
Verchez, who suffered from diabetes.35

As reflected in the foregoing discussions, the second and third requisites are present.

On the fourth requisite, Article 2220 of the Civil Code provides:

Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the
circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant
acted fraudulently or in bad faith. (Emphasis and underscoring supplied)

After RCPIs first attempt to deliver the telegram failed, it did not inform Grace of the non-delivery thereof and waited for
12 days before trying to deliver it again, knowing as it should know that time is of the essence in the delivery of
telegrams. When its second long-delayed attempt to deliver the telegram again failed, it, again, waited for another 12 days
before making a third attempt. Such nonchalance in performing its urgent obligation indicates gross negligence amounting
to bad faith. The fourth requisite is thus also present.

In applying the above-quoted Article 2220, this Court has awarded moral damages in cases of breach of contract where
the defendant was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligation.36

As for RCPIs tort-based liability, Article 2219 of the Civil Code provides:

Moral damages may be recovered in the following and analogous cases:

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(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. (Emphasis supplied)

Article 26 of the Civil Code, in turn, provides:

Every person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons. The
following and similar acts, though they may not constitute a criminal offense, shall produce a cause of action for damages,
prevention, and other relief:

xxxx

(2) Meddling with or disturbing the private life or family relations of another. (Emphasis supplied)

RCPIs negligence in not promptly performing its obligation undoubtedly disturbed the peace of mind not only of Grace but
also her co-respondents. As observed by the appellate court, it disrupted the "filial tranquillity" among them as they
blamed each other "for failing to respond swiftly to an emergency." The tortious acts and/or omissions complained of in
this case are, therefore, analogous to acts mentioned under Article 26 of the Civil Code, which are among the instances of
quasi-delict when courts may award moral damages under Article 2219 of the Civil Code.

In fine, the award to the plaintiffs-herein respondents of moral damages is in order, as is the award of attorneys fees,
respondents having been compelled to litigate to protect their rights.

Clutching at straws, RCPI insists that the limited liability clause in the "Telegram Transmission Form" is not a contract of
adhesion. Thus it argues:

Neither can the Telegram Transmission Form be considered a contract of adhesion as held by the respondent court. The
said stipulations were all written in bold letters right in front of the Telegram Transmission Form. As a matter of fact they
were beside the space where the telegram senders write their telegraphic messages. It would have been different if the
stipulations were written at the back for surely there is no way the sender will easily notice them. The fact that the
stipulations were located in a particular space where they can easily be seen, is sufficient notice to any sender (like Grace
Verchez-Infante) where she could manifest her disapproval, leave the RCPI station and avail of the services of the other
telegram operators.37 (Underscoring supplied)

RCPI misunderstands the nature of a contract of adhesion. Neither the readability of the stipulations nor their physical
location in the contract determines whether it is one of adhesion.

A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which the
other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract,
while the other party merely affixes his signature or his "adhesion" thereto, giving no room for negotiation and
depriving the latter of the opportunity to bargain on equal footing.38 (Emphasis and underscoring supplied)

While a contract of adhesion is not necessarily void and unenforceable, since it is construed strictly against the party who
drafted it or gave rise to any ambiguity therein, it is stricken down as void and unenforceable or subversive of public policy
when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of
taking it or leaving it, completely deprived of the opportunity to bargain on equal footing. 39

This Court holds that the Court of Appeals finding that the parties contract is one of adhesion which is void is, given the
facts and circumstances of the case, thus well-taken.

WHEREFORE, the petition is DENIED, and the challenged decision of the Court of Appeals is AFFIRMED.

Costs against petitioner.

SO ORDERED.
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G.R. No. 115129 February 12, 1997

IGNACIO BARZAGA, petitioner,

vs.COURT OF APPEALS and ANGELITO ALVIAR, respondents.

BELLOSILLO, J.:

The Fates ordained that Christmas 1990 be bleak for Ignacio Barzaga and his family. On the nineteenth of December
Ignacio's wife succumbed to a debilitating ailment after prolonged pain and suffering. Forewarned by her attending
physicians of her impending death, she expressed her wish to be laid to rest before Christmas day to spare her family
from keeping lonely vigil over her remains while the whole of Christendom celebrate the Nativity of their Redeemer.

Drained to the bone from the tragedy that befell his family yet preoccupied with overseeing the wake for his departed wife,
Ignacio Barzaga set out to arrange for her interment on the twenty-fourth of December in obedience semper fidelis to her
dying wish. But her final entreaty, unfortunately, could not be carried out. Dire events conspired to block his plans that
forthwith gave him and his family their gloomiest Christmas ever.

This is Barzaga's story. On 21 December 1990, at about three o'clock in the afternoon, he went to the hardware store of
respondent Angelito Alviar to inquire about the availability of certain materials to be used in the construction of a niche for
his wife. He also asked if the materials could be delivered at once. Marina Boncales, Alviar's storekeeper, replied that she
had yet to verify if the store had pending deliveries that afternoon because if there were then all subsequent purchases
would have to be delivered the following day. With that reply petitioner left.

At seven o'clock the following morning, 22 December, Barzaga returned to Alviar's hardware store to follow up his
purchase of construction materials. He told the store employees that the materials he was buying would have to be
delivered at the Memorial Cemetery in Dasmarinas, Cavite, by eight o'clock that morning since his hired workers were
already at the burial site and time was of the essence. Marina Boncales agreed to deliver the items at the designated
time, date and place. With this assurance, Barzaga purchased the materials and paid in full the amount of P2,110.00.
Thereafter he joined his workers at the cemetery, which was only a kilometer away, to await the delivery.

The construction materials did not arrive at eight o'clock as promised. At nine o'clock, the delivery was still nowhere in
sight. Barzaga returned to the hardware store to inquire about the delay. Boncales assured him that although the delivery
truck was not yet around it had already left the garage and that as soon as it arrived the materials would be brought over
to the cemetery in no time at all. That left petitioner no choice but to rejoin his workers at the memorial park and wait for
the materials.

By ten o'clock, there was still no delivery. This prompted petitioner to return to the store to inquire about the materials. But
he received the same answer from respondent's employees who even cajoled him to go back to the burial place as they
would just follow with his construction materials.

After hours of waiting which seemed interminable to him Barzaga became extremely upset. He decided to dismiss
his laborers for the day. He proceeded to the police station, which was just nearby, and lodged a complaint against Alviar.
He had his complaint entered in the police blotter. When he returned again to the store he saw the delivery truck already
there but the materials he purchased were not yet ready for loading. Distressed that Alviar's employees were not the least
concerned, despite his impassioned pleas, Barzaga decided to cancel his transaction with the store and look for
construction materials elsewhere.

In the afternoon of that day, petitioner was able to buy from another store. But since darkness was already setting in and
his workers had left, he made up his mind to start his project the following morning, 23 December. But he knew that the
niche would not be finish in time for the scheduled burial the following day. His laborers had to take a break on Christmas
Day and they could only resume in the morning of the twenty-sixth. The niche was completed in the afternoon and
Barzaga's wife was finally laid to rest. However, it was two-and-a-half (2-1/2) days behind schedule.
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On 21 January 1991, tormented perhaps by his inability to fulfill his wife's dying wish, Barzaga wrote private respondent
Alviar demanding recompense for the damage he suffered. Alviar did not respond. Consequently, petitioner sued him
before the Regional Trial Court.1

Resisting petitioner's claim, private respondent contended that legal delay could not be validly ascribed to him because no
specific time of delivery was agreed upon between them. He pointed out that the invoices evidencing the sale did not
contain any stipulation as to the exact time of delivery and that assuming that the materials were not delivered within the
period desired by petitioner, the delivery truck suffered a flat tire on the way to the store to pick up the materials. Besides,
his men were ready to make the delivery by ten-thirty in the morning of 22 December but petitioner refused to accept
them. According to Alviar, it was this obstinate refusal of petitioner to accept delivery that caused the delay in the
construction of the niche and the consequent failure of the family to inter their loved one on the twenty-fourth of
December, and that, if at all, it was petitioner and no other who brought about all his personal woes.

Upholding the proposition that respondent incurred in delay in the delivery of the construction materials resulting in undue
prejudice to petitioner, the trial court ordered respondent Alviar to pay petitioner (a) P2,110.00 as refund for the purchase
price of the materials with interest per annum computed at the legal rate from the date of the filing of the complaint, (b)
P5,000.00 as temperate damages, (c) P20,000.00 as moral damages, (d) P5,000.00 as litigation expenses, and (e)
P5,000.00 as attorney's fees.

On appeal, respondent Court of Appeals reversed the lower court and ruled that there was no contractual commitment as
to the exact time of delivery since this was not indicated in the invoice receipts covering the sale. 2

The arrangement to deliver the materials merely implied that delivery should be made within a reasonable time but that
the conclusion that since petitioner's workers were already at the graveyard the delivery had to be made at that precise
moment, is non-sequitur. The Court of Appeals also held that assuming that there was delay, petitioner still had sufficient
time to construct the tomb and hold his wife's burial as she wished.

We sustain the trial court. An assiduous scrutiny of the record convinces us that respondent Angelito Alviar was negligent
and incurred in delay in the performance of his contractual obligation. This sufficiently entitles petitioner Ignacio Barzaga
to be indemnified for the damage he suffered as a consequence of delay or a contractual breach. The law expressly
provides that those who in the performance of their obligation are guilty of fraud, negligence, or delay and those who in
any manner contravene the tenor thereof, are liable for damages. 3

Contrary to the appellate court's factual determination, there was a specific time agreed upon for the delivery of the
materials to the cemetery. Petitioner went to private respondent's store on 21 December precisely to inquire if the
materials he intended to purchase could be delivered immediately. But he was told by the storekeeper that if there were
still deliveries to be made that afternoon his order would be delivered the following day. With this in mind Barzaga decided
to buy the construction materials the following morning after he was assured of immediate delivery according to his time
frame. The argument that the invoices never indicated a specific delivery time must fall in the face of the positive verbal
commitment of respondent's storekeeper. Consequently it was no longer necessary to indicate in the invoices the exact
time the purchased items were to be brought to the cemetery. In fact, storekeeper Boncales admitted that it was her
custom not to indicate the time of delivery whenever she prepared invoices.4

Private respondent invokes fortuitous event as his handy excuse for that "bit of delay" in the delivery of petitioner's
purchases. He maintains that Barzaga should have allowed his delivery men a little more time to bring the construction
materials over to the cemetery since a few hours more would not really matter and considering that his truck had a flat
tire. Besides, according to him, Barzaga still had sufficient time to build the tomb for his wife.

This is a gratuitous assertion that borders on callousness. Private respondent had no right to manipulate petitioner's
timetable and substitute it with his own. Petitioner had a deadline to meet. A few hours of delay was no piddling matter to
him who in his bereavement had yet to attend to other pressing family concerns. Despite this, respondent's employees still
made light of his earnest importunings for an immediate delivery. As petitioner bitterly declared in court " . . . they
(respondent's employees) were making a fool out of me."5

We also find unacceptable respondent's justification that his truck had a flat tire, for this event, if indeed it happened, was
forseeable according to the trial court, and as such should have been reasonably guarded against. The nature of private
respondent's business requires that he should be ready at all times to meet contingencies of this kind. One piece of
testimony by respondent's witness Marina Boncales has caught our attention - that the delivery truck arrived a little late
 9

than usual because it came from a delivery of materials in Langcaan, Dasmarinas, Cavite.6Significantly, this information
was withheld by Boncales from petitioner when the latter was negotiating with her for the purchase of construction
materials. Consequently, it is not unreasonable to suppose that had she told petitioner of this fact and that the delivery of
the materials would consequently be delayed, petitioner would not have bought the materials from respondent's hardware
store but elsewhere which could meet his time requirement. The deliberate suppression of this information by itself
manifests a certain degree of bad faith on the part of respondent's storekeeper.

The appellate court appears to have belittled petitioner's submission that under the prevailing circumstances time was of
the essence in the delivery of the materials to the grave site. However, we find petitioner's assertion to be anchored on
solid ground. The niche had to be constructed at the very least on the twenty-second of December considering that it
would take about two (2) days to finish the job if the interment was to take place on the twenty-fourth of the month.
Respondent's delay in the delivery of the construction materials wasted so much time that construction of the tomb could
start only on the twenty-third. It could not be ready for the scheduled burial of petitioner's wife. This undoubtedly
prolonged the wake, in addition to the fact that work at the cemetery had to be put off on Christmas day.

This case is clearly one of non-performance of a reciprocal obligation.7 In their contract of purchase and sale, petitioner
had already complied fully with what was required of him as purchaser, i.e., the payment of the purchase price of
P2,110.00. It was incumbent upon respondent to immediately fulfill his obligation to deliver the goods otherwise delay
would attach.

We therefore sustain the award of moral damages. It cannot be denied that petitioner and his family suffered wounded
feelings, mental anguish and serious anxiety while keeping watch on Christmas day over the remains of their loved one
who could not be laid to rest on the date she herself had chosen. There is no gainsaying the inexpressible pain and
sorrow Ignacio Barzaga and his family bore at that moment caused no less by the ineptitude, cavalier behavior and bad
faith of respondent and his employees in the performance of an obligation voluntarily entered into.

We also affirm the grant of exemplary damages. The lackadaisical and feckless attitude of the employees of respondent
over which he exercised supervisory authority indicates gross negligence in the fulfillment of his business obligations.
Respondent Alviar and his employees should have exercised fairness and good judgment in dealing with petitioner who
was then grieving over the loss of his wife. Instead of commiserating with him, respondent and his employees contributed
to petitioner's anguish by causing him to bear the agony resulting from his inability to fulfill his wife's dying wish.

We delete however the award of temperate damages. Under Art. 2224 of the Civil Code, temperate damages are more
than nominal but less than compensatory, and may be recovered when the court finds that some pecuniary loss has been
suffered but the amount cannot, from the nature of the case, be proved with certainty. In this case, the trial court found
that plaintiff suffered damages in the form of wages for the hired workers for 22 December 1990 and expenses incurred
during the extra two (2) days of the wake. The record however does not show that petitioner presented proof of the actual
amount of expenses he incurred which seems to be the reason the trial court awarded to him temperate damages instead.
This is an erroneous application of the concept of temperate damages. While petitioner may have indeed suffered
pecuniary losses, these by their very nature could be established with certainty by means of payment receipts. As such,
the claim falls unequivocally within the realm of actual or compensatory damages. Petitioner's failure to prove actual
expenditure consequently conduces to a failure of his claim. For in determining actual damages, the court cannot rely on
mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evidence
obtainable regarding the actual amount of loss.8

We affirm the award of attorney's fees and litigation expenses. Award of damages, attorney's fees and litigation costs is
left to the sound discretion of the court, and if such discretion be well exercised, as in this case, it will not be disturbed on
appeal.9

WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE except insofar as it GRANTED on a
motion for reconsideration the refund by private respondent of the amount of P2,110.00 paid by petitioner for the
construction materials. Consequently, except for the award of P5,000.00 as temperate damages which we delete, the
decision of the Regional Trial Court granting petitioner (a) P2,110.00 as refund for the value of materials with interest
computed at the legal rate per annum from the date of the filing of the case; (b) P20,000.00 as moral damages; (c)
P10,000.00 as exemplary damages; (d) P5,000.00 as litigation expenses; and (4) P5,000.00 as attorney's fees, is
AFFIRMED. No costs. SO ORDERED.
 10

G.R. No. 165662 May 3, 2006

SELEGNA MANAGEMENT AND DEVELOPMENT CORPORATION; and Spouses EDGARDO and ZENAIDA
ANGELES, Petitioners,
vs. UNITED COCONUT PLANTERS BANK,* Respondent.

DECISION

PANGANIBAN, CJ:

A writ of preliminary injunction is issued to prevent an extrajudicial foreclosure, only upon a clear showing of a violation of
the mortgagors unmistakable right. Unsubstantiated allegations of denial of due process and prematurity of a loan are not
sufficient to defeat the mortgagees unmistakable right to an extrajudicial foreclosure.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the May 4, 2004 Amended Decision2 and
the October 12, 2004 Resolution3 of the Court of Appeals (CA) in CA-GR SP No. 70966. The challenged Amended
Decision disposed thus:

"WHEREFORE, the Motion for Reconsideration is GRANTED. The July 18, 2003 Decision is hereby REVERSED and
SET ASIDE and another one entered GRANTING the petition and REVERSING and SETTING ASIDE the March 15,
2002 Order of the Regional Trial Court, Branch 58, Makati City in Civil Case No. 99-1061."4

The assailed Resolution denied reconsideration.

The Facts

On September 19, 1995, Petitioners Selegna Management and Development Corporation and Spouses Edgardo and
Zenaida Angeles were granted a credit facility in the amount of P70 million by Respondent United Coconut Planters Bank
(UCPB). As security for this credit facility, petitioners executed real estate mortgages over several parcels of land located
in the cities of Muntinlupa, Las Pias, Antipolo and Quezon; and over several condominium units in Makati. Petitioners
were likewise required to execute a promissory note in favor of respondent every time they availed of the credit facility. As
required in these notes, they paid the interest in monthly amortizations.

The parties stipulated in their Credit Agreement dated September 19, 1995, 5 that failure to pay "any availment of the
accommodation or interest, or any sum due" shall constitute an event of default, 6 which shall consequently allow
respondent bank to "declare [as immediately due and payable] all outstanding availments

of the accommodation together with accrued interest and any other sum payable." 7

In need of further business capital, petitioners obtained from UCPB an increase in their credit facility. 8 For this purpose,
they executed a Promissory Note for P103,909,710.82, which was to mature on March 26, 1999. 9 In the same note, they
agreed to an interest rate of 21.75 percent per annum, payable by monthly amortizations.

On December 21, 1998, respondent sent petitioners a demand letter, worded as follows:

"Gentlemen:

"With reference to your loan with principal outstanding balance of [P103,909,710.82], it appears from the records of United
Coconut Planters Bank that you failed to pay interest amortizations amounting to [P14,959,525.10] on the Promissory
Note on its due date, 30 May 1998.

"x x x xxx xxx

 11

"Accordingly, formal demand is hereby made upon you to pay your outstanding obligations in the total amount of
P14,959,525.10, which includes unpaid interest and penalties as of 21 December 1998 due on the promissory note, eight
(8) days from date hereof."10

Respondent decided to invoke the acceleration provision in their Credit Agreement. Accordingly, through counsel, it
relayed its move to petitioners on January 25, 1999 in a letter, which we quote:

"Gentlemen:

"x x x xxx xxx

"It appears from the record of [UCPB] that you failed to pay the monthly interest due on said obligation since May 30,
1998 as well as the penalty charges due thereon. Despite repeated demands, you refused and continue to refuse to pay
the same. Under the Credit Agreements/Letter Agreements you executed, failure to pay when due any installments of the
loan or interest or any sum due thereunder, is an event of default.

"Consequently, we hereby inform you that our client has declared your principal obligation in the amount of
[P103,909,710.82], interest and sums payable under the Credit Agreement/Letter Agreement/Promissory Note to be
immediately due and payable.

"Accordingly, formal demand is hereby made upon you to please pay within five (5) days from date hereof or up to
January 29, 1999 the principal amount of [P103,909,710.82], with the interest, penalty and other charges due thereon,
which as of January 25, 1999 amounts to [P17,351,478.55]."11

Respondent sent another letter of demand on March 4, 1999. It contained a final demand on petitioners "to settle in full
[petitioners] said past due obligation to [UCPB] within five (5) days from [petitioners] receipt of [the] letter." 12

In response, petitioners paid respondent the amount of P10,199,473.96 as partial payment of the accrued
interests.13 Apparently unsatisfied, UCPB applied for extrajudicial foreclosure of petitioners mortgaged properties.

When petitioners received the Notice of Extra Judicial Foreclosure Sale on May 18, 1999, they requested UCPB to give
them a period of sixty (60) days to update their accrued interest charges; and to restructure or, in the alternative, to
negotiate for a takeout of their account.14

On May 25, 1999, the Bank denied petitioners request in these words:

"This is to reply to your letter dated May 20, 1999, which confirms the request you made the previous day when you paid
us a visit.

"As earlier advised, your account has been referred to external counsel for appropriate legal action. Demand has also
been made for the full settlement of your account.

"We regret that the Bank is unable to grant your request unless a definite offer is made for settlement." 15

In order to forestall the extrajudicial foreclosure scheduled for May 31, 1999, petitioners filed a Complaint16(docketed as
Civil Case No. 99-1061) for "Damages, Annulment of Interest, Penalty Increase and Accounting with Prayer for
Temporary Restraining Order/Preliminary Injunction." All subsequent proceedings in the trial court and in the CA involved
only the propriety of issuing a TRO and a writ of preliminary injunction.

Judge Josefina G. Salonga,17 then executive judge of the Regional Trial Court (RTC) of Makati City, denied the Urgent
Ex-parte Motion for Immediate Issuance of a Temporary Restraining Order (TRO), filed by petitioners. Judge Salonga
denied their motion on the ground that no great or irreparable injury would be inflicted on them if the parties would first be
heard.18 Unsatisfied, petitioners filed an Ex-Parte Motion for Reconsideration, by reason of which the case was eventually
raffled to Branch 148, presided by Judge Oscar B. Pimentel.19
 12

After due hearing, Judge Pimentel issued an Order dated May 31, 1999, granting a 20-day TRO on the scheduled
foreclosure of the Antipolo properties, on the ground that the Notice of Foreclosure had indicated an inexistent auction
venue.20 To resolve that issue, respondent filed a Manifestation21 that it would withdraw all its notices relative to the
foreclosure of the mortgaged properties, and that it would re-post or re-publish a new set of notices. Accordingly, in an
Order dated September 6, 1999,22 Judge Pimentel denied petitioners application for a TRO for having been rendered
moot by respondents Manifestation.23

Subsequently, respondent filed new applications for foreclosure in the cities where the mortgaged properties were
located. Undaunted, petitioners filed another Motion for the Issuance of a TRO/Injunction and a Supplementary Motion for
the Issuance of TRO/Injunction with Motion to Clarify Order of September 6, 1999. 24

On October 27, 1999, Judge Pimentel issued an Order 25 granting a 20-day TRO in favor of petitioners. After several
hearings, he issued his November 26, 1999 Order, 26 granting their prayer for a writ of preliminary injunction on the
foreclosures, but only for a period of twenty (20) days. The Order states:

"Admitted by defendant witness is the fact that in all the notices of foreclosure sale of the properties of the plaintiffs x x x it
is stated in each notice that the property will be sold at public auction to satisfy the mortgage indebtedness of plaintiffs
which as of August 31, 1999 amounts to P131,854,773.98.

"x x x xxx xxx

"As the court sees it, this is the problem that should be addressed by the defendant in this case and in the meantime, the
notice of foreclosure sale should be held in abeyance until such time as these matters are clarified and cleared by the
defendants x x x Should the defendant be able to remedy the situation this court will have no more alternative but to allow
the defendant to proceed to its intended action.

"x x x xxx xxx

"WHEREFORE, premises considered, and finding compelling reason at this point in time to grant the application for
preliminary injunction, the same is hereby granted upon posting of a preliminary injunction bond in the amount of
P3,500,000.00 duly approved by the court, let a writ of preliminary injunction be issued."27

The corresponding Writ of Preliminary Injunction28 was issued on November 29, 1999.

Respondent moved for reconsideration. On the other hand, petitioners filed a Motion to Clarify Order of November 26,
1999. Conceding that the November 26 Order had granted an injunction during the pendency of the case, respondent
contended that the injunctive writ merely restrained it for a period of 20 (twenty) days.

On December 29, 2000, Judge Pimentel issued an Order 29 granting respondents Motion for Reconsideration and
clarifying his November 26, 1999 Order in this manner:

"There may have been an error in the Writ of Preliminary Injunction issued dated November 29, 1999 as the same
[appeared to be actually] an extension of the TRO issued by this Court dated 27 October 1999 for another 20 days period.
Plaintiffs seeks to enjoin defendants for an indefinite period pending trial of the case.

"Be that as it may, the Court actually did not have any intention of restraining the defendants from foreclosing plaintiff[s]
property for an indefinite period and during the entire proceeding of the case x x x.

"x x x xxx xxx

"What the [c]ourt wanted the defendants to do was to merely modify the notice of [the] auction sale in order that the
amount of P131,854,773.98 x x x would not appear to be the value of each property being sold on auction. x x x. 30

"WHEREFORE, premises considered and after finding merit on the arguments raised by herein defendants to be
impressed with merit, and having stated in the Order dated 26 November 1999 that no other alternative recourse is
available than to allow the defendants to proceed with their intended action, the Court hereby rules:
 13

"1.] To give due course to defendant[]s motion for reconsideration, as the same is hereby GRANTED, however, with
reservation that this Order shall take effect upon after its[] finality[.]" 31

Consequently, respondent proceeded with the foreclosure sale of some of the mortgaged properties. On the other hand,
petitioners filed an "[O]mnibus [M]otion [for Reconsideration] and to [S]pecify the [A]pplication of the P92 [M]illion
[R]ealized from the [F]oreclosure [S]ale x x x."32 Before this Omnibus Motion could be resolved, Judge Pimentel inhibited
himself from hearing the case.33

The case was then re-raffled to Branch 58 of the RTC of Makati City, presided by Judge Escolastico U. Cruz. 34 The
proceedings before him were, however, all nullified by the Supreme Court in its En Banc Resolution dated September 18,
2001.35 He was eventually dismissed from service.36

The case was re-raffled to the pairing judge of Branch 58, Winlove M. Dumayas. On March 15, 2002, Judge Dumayas
granted petitioners Omnibus Motion for Reconsideration and Specification of the Foreclosure Proceeds, as follows:

"WHEREFORE, premises considered, the Motion to Reconsider the Order dated December 29, 2000 is hereby granted
and the Order of November 26, 1999 granting the preliminary injunction is reinstated subject however to the condition that
all properties of plaintiffs which were extrajudicially foreclosed though public bidding are subject to an accounting. [A]nd
for this purpose defendant bank is hereby given fifteen (15) days from notice hereof to render an accounting on the
proceeds realized from the foreclosure of plaintiffs mortgaged properties located in Antipolo, Makati, Muntinlupa and Las
Pias."37

The aggrieved respondent filed before the Court of Appeals a Petition for Certiorari, seeking the nullification of the RTC
Order dated March 15, 2002, on the ground that it was issued with grave abuse of discretion. 38

The Special Fifteenth Division, speaking through Justice Rebecca de Guia-Salvador, affirmed the ruling of Judge
Dumayas. It held that petitioners had a clear right to an injunction, based on the fact that respondent had kept them in the
dark as to how and why their principal obligation had ballooned to almost P132 million. The CA held that respondents
refusal to give them a detailed accounting had prevented the determination of the maturity of the obligation and precluded
the possibility of a foreclosure of the mortgaged properties. Moreover, their payment of P10 million had the effect of
updating, and thereby averting the maturity of, the outstanding obligation. 39

Respondent filed a Motion for Reconsideration, which was granted by a Special Division of Five of the Former Special
Fifteenth Division.

Ruling of the Court of Appeals

Citing China Banking Corporation v. Court of Appeals,40 the appellate court held in its Amended Decision41 that the
foreclosure proceedings should not be enjoined in the light of the clear failure of petitioners to meet their obligations upon
maturity.42

Also citing Zulueta v. Reyes,43 the CA, through Justice Jose Catral Mendoza, went on to say that a pending question on
accounting did not warrant an injunction on the foreclosure.

Parenthetically, the CA added that petitioners were not without recourse or protection. Further, it noted their pending
action for annulment of interest, damages and accounting. It likewise said that they could protect themselves by causing
the annotation of lis pendens on the titles of the mortgaged or foreclosed properties.

In his Separate Concurring Opinion, 44 Justice Magdangal M. de Leon added that a prior accounting was not essential to
extrajudicial foreclosure. He cited Abaca Corporation v. Garcia, 45 which had ruled that Act No. 3135 did not require
mortgaged properties to be sold by lot or by only as much as would cover just the obligation. Thus, he concluded that a
request for accounting -- for the purpose of determining whether the proceeds of the auction would suffice to cover the
indebtedness -- would not justify an injunction on the foreclosure.

Petitioners filed a Motion for Reconsideration dated May 31, 2004, which the appellate court denied. 46

Hence, this Petition.47

 14

Issues

Petitioners raise the following issues for our consideration:

p align="center">"I

"Whether or not the Honorable Court of Appeals denied the petitioners of due process.

"II

"Whether or not the Honorable Court of Appeals supported its Amended Decision by invoking jurisprudence not applicable
and completely identical with the instant case.

"III

"Whether or not the Honorable Court of Appeals failed to establish its finding that RTC Judge Winlove Dumayas has acted
with grave abuse of discretion."48

The resolution of this case hinges on two issues: 1) whether petitioners are in default; and 2) whether there is basis for
preliminarily enjoining the extrajudicial foreclosure. The other issues raised will be dealt with in the resolution of these two
main questions.

The Courts Ruling

The Petition has no merit.

First Issue:

Default

The resolution of the present controversy necessarily begins with a determination of respondents right to foreclose the
mortgaged properties extrajudicially.

It is a settled rule of law that foreclosure is proper when the debtors are in default of the payment of their obligation. In
fact, the parties stipulated in their credit agreements, mortgage contracts and promissory notes that respondent was
authorized to foreclose on the mortgages, in case of a default by petitioners. That this authority was granted is not
disputed.

Mora solvendi, or debtors default, is defined as a delay49 in the fulfillment of an obligation, by reason of a cause imputable
to the debtor.50 There are three requisites necessary for a finding of default. First, the obligation is demandable and
liquidated; second, the debtor delays performance; third, the creditor judicially or extrajudicially requires the debtors
performance.51

Mortgagors Default of Monthly Interest Amortizations

In the present case, the Promissory Note executed on March 29, 1998, expressly states that petitioners had an obligation
to pay monthly interest on the principal obligation. From respondents demand letter,52 it is clear and undisputed by
petitioners that they failed to meet those monthly payments since May 30, 1998. Their nonpayment is defined as an
"event of default" in the parties Credit Agreement, which we quote:

"Section 8.01. Events of Default. Each of the following events and occurrences shall constitute an Event of Default of this
AGREEMENT:

"1. The CLIENT shall fail to pay, when due, any availment of the Accommodation or interest, or any other sum due
thereunder in accordance with the terms thereof;1avvphil.net
 15

"x x x xxx x x x"

"Section 8.02. Consequences of Default. (a) If an Event of Default shall occur and be continuing, the Bank may:

"1. By written notice to the CLIENT, declare all outstanding availments of the Accommodation together with accrued
interest and any other sum payable hereunder to be immediately due and payable without presentment, demand or notice
of any kind, other than the notice specifically required by this Section, all of which are expressly waived by the
CLIENT[.]"53

Considering that the contract is the law between the parties,54 respondent is justified in invoking the acceleration clause
declaring the entire obligation immediately due and payable. 55 That clause obliged petitioners to pay the entire loan on
January 29, 1999, the date fixed by respondent.56

Petitioners failure to pay on that date set into effect Article IX of the Real Estate Mortgage,57 worded thus:

"If, at any time, an event of default as defined in the credit agreements, promissory notes and other related loan
documents referred to in paragraph 5 of ARTICLE I hereof (sic), or the MORTGAGOR and/or DEBTOR shall fail or refuse
to pay the SECURED OBLIGATIONS, or any of the amortization of such indebtedness when due, or to comply any (sic) of
the conditions and stipulations herein agreed, x x x then all the obligations of the MORTGAGOR secured by this
MORTGAGE and all the amortizations thereof shall immediately become due, payable and defaulted and the
MORTGAGEE may immediately foreclose this MORTGAGE judicially in accordance with the Rules of Court, or
extrajudicially in accordance with Act No. 3135, as amended, and Presidential Decree No. 385. For the purpose of
extrajudicial foreclosure, the MORTGAGOR hereby appoints the MORTGAGEE his/her/its attorney-in-fact to sell the
property mortgaged under Act No. 3135, as amended, to sign all documents and perform any act requisite and necessary
to accomplish said purpose and to appoint its substitutes as such attorney-in-fact with the same powers as above
specified. x x x[.]"58

The foregoing discussion satisfactorily shows that UCPB had every right to apply for extrajudicial foreclosure on the basis
of petitioners undisputed and continuing default.

Petitioners Debt Considered Liquidated Despite the Alleged

Lack of Accounting

Petitioners do not even attempt to deny the aforementioned matters. They assert, though, that they have a right to a
detailed accounting before they can be declared in default. As regards the three requisites of default, they say that the first
requisite -- liquidated debt -- is absent. Continuing with foreclosure on the basis of an unliquidated obligation allegedly
violates their right to due process. They also maintain that their partial payment of P10 million averted the maturity of their
obligation.59

On the other hand, respondent asserts that questions regarding the running balance of the obligation of petitioners are not
valid reasons for restraining the foreclosure. Nevertheless, it maintains that it has furnished them a detailed monthly
statement of account.

A debt is liquidated when the amount is known or is determinable by inspection of the terms and conditions of the relevant
promissory notes and related documentation.60 Failure to furnish a debtor a detailed statement of account does not ipso
facto result in an unliquidated obligation.

Petitioners executed a Promissory Note, in which they stated that their principal obligation was in the amount of
P103,909,710.82, subject to an interest rate of 21.75 percent per annum. 61 Pursuant to the parties Credit Agreement,
petitioners likewise know that any delay in the payment of the principal obligation will subject them to a penalty charge of
one percent per month, computed from the due date until the obligation is paid in full.62

It is in fact clear from the agreement of the parties that when the payment is accelerated due to an event of default, the
penalty charge shall be based on the total principal amount outstanding, to be computed from the date of acceleration
until the obligation is paid in full.63 Their Credit Agreement even provides for the application of payments. 64 It appears from
the agreements that the amount of total obligation is known or, at the very least, determinable.
 16

Moreover, when they made their partial payment, petitioners did not question the principal, interest or penalties demanded
from them. They only sought additional time to update their interest payments or to negotiate a possible restructuring of
their account.65 Hence, there is no basis for their allegation that a statement of account was necessary for them to know
their obligation. We cannot impair respondents right to foreclose the properties on the basis of their unsubstantiated
allegation of a violation of due process.

In Spouses Estares v. CA,66 we did not find any justification to grant a preliminary injunction, even when the mortgagors
were disputing the amount being sought from them. We held in that case that "[u]pon the nonpayment of the loan, which
was secured by the mortgage, the mortgaged property is properly subject to a foreclosure sale." 67

Compared with Estares, the denial of injunctive relief in this case is even more imperative, because the present petitioners
do not even assail the amounts due from them. Neither do they contend that a detailed accounting would show that they
are not in default. A pending question regarding the due amount was not a sufficient reason to enjoin the foreclosure in
Estares. Hence, with more reason should injunction be denied in the instant case, in which there is no dispute as to the
outstanding obligation of petitioners.

At any rate, whether respondent furnished them a detailed statement of account is a question of fact that this Court need
not and will not resolve in this instance. As held in Zulueta v. Reyes, 68 in which there was no genuine controversy as to
the amounts due and demandable, the foreclosure should not be restrained by the unnecessary question of accounting.

Maturity of the Loan Not Averted by Partial Compliance with Respondents Demand

Petitioners allege that their partial payment of P10 million on March 25, 1999, had the effect of forestalling the maturity of
the loan;69 hence the foreclosure proceedings are premature. 70 We disagree.

To be sure, their partial payment did not extinguish the obligation. The Civil Code states that a debt is not paid "unless the
thing x x x in which the obligation consists has been completely delivered x x x."71 Besides, a late partial payment could
not have possibly forestalled a long-expired maturity date.

The only possible legal relevance of the partial payment was to evidence the mortgagees amenability to granting the
mortgagor a grace period. Because the partial payment would constitute a waiver of the mortgagees vested right to
foreclose, the grant of a grace period cannot be casually assumed; 72 the banks agreement must be clearly shown.
Without a doubt, no express agreement was entered into by the parties. Petitioners only assumed that their partial
payment had satisfied respondents demand and obtained for them more time to update their account. 73

Petitioners are mistaken. When creditors receive partial payment, they are not ipso facto deemed to have abandoned their
prior demand for full payment. Article 1235 of the Civil Code provides:

"When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any
protest or objection, the obligation is deemed fully complied with."

Thus, to imply that creditors accept partial payment as complete performance of their obligation, their acceptance must be
made under circumstances that indicate their intention to consider the performance complete and to renounce their claim
arising from the defect.74

There are no circumstances that would indicate a renunciation of the right of respondent to foreclose the mortgaged
properties extrajudicially, on the basis of petitioners continuing default. On the contrary, it asserted its right by filing an
application for extrajudicial foreclosure after receiving the partial payment. Clearly, it did not intend to give petitioners
more time to meet their obligation.

Parenthetically, respondent cannot be reproved for accepting their partial payment. While Article 1248 of the Civil Code
states that creditors cannot be compelled to accept partial payments, it does not prohibit them from accepting such
payments.

Second Issue:

Enjoining the Extrajudicial Foreclosure

 17

A writ of preliminary injunction is a provisional remedy that may be resorted to by litigants, only to protect or preserve their
rights or interests during the pendency of the principal action. To authorize a temporary injunction, the plaintiff must show,
at least prima facie, a right to the final relief.75 Moreover, it must show that the invasion of the right sought to be protected
is material and substantial, and that there is an urgent and paramount necessity for the writ to prevent serious damage. 76

In the absence of a clear legal right, the issuance of the injunctive writ constitutes grave abuse of discretion. Injunction is
not designed to protect contingent or future rights. It is not proper when the complainants right is doubtful or disputed. 77

As a general rule, courts should avoid issuing this writ, which in effect disposes of the main case without trial. 78 In Manila
International Airport Authority v. CA,79 we urged courts to exercise caution in issuing the writ, as follows:

"x x x. We remind trial courts that while generally the grant of a writ of preliminary injunction rests on the sound discretion
of the court taking cognizance of the case, extreme caution must be observed in the exercise of such discretion. The
discretion of the court a quo to grant an injunctive writ must be exercised based on the grounds and in the manner
provided by law. Thus, the Court declared in Garcia v. Burgos:

It has been consistently held that there is no power the exercise of which is more delicate, which requires greater caution,
deliberation and sound discretion, or more dangerous in a doubtful case, than the issuance of an injunction. It is the
strong arm of equity that should never be extended unless to cases of great injury, where courts of law cannot afford an
adequate or commensurate remedy in damages.

Every court should remember that an injunction is a limitation upon the freedom of action of the defendant and should not
be granted lightly or precipitately. It should be granted only when the court is fully satisfied that the law permits it and the
emergency demands it."80 (Citations omitted)

Petitioners do not have any clear right to be protected. As shown in our earlier findings, they failed to substantiate their
allegations that their right to due process had been violated and the maturity of their obligation forestalled. Since they
indisputably failed to meet their obligations in spite of repeated demands, we hold that there is no legal justification to
enjoin respondent from enforcing its undeniable right to foreclose the mortgaged properties.

In any case, petitioners will not be deprived outrightly of their property. Pursuant to Section 47 of the General Banking
Law of 2000,81 mortgagors who have judicially or extrajudicially sold their real property for the full or partial payment of
their obligation have the right to redeem the property within one year after the sale. They can redeem their real estate by
paying the amount due, with interest rate specified, under the mortgage deed; as well as all the costs and expenses
incurred by the bank.82

Moreover, in extrajudicial foreclosures, petitioners have the right to receive any surplus in the selling price. This right was
recognized in Sulit v. CA,83 in which the Court held that "if the mortgagee is retaining more of the proceeds of the sale
than he is entitled to, this fact alone will not affect the validity of the sale but simply gives the mortgagor a cause of action
to recover such surplus."84

Petitioners failed to demonstrate the prejudice they would probably suffer by reason of the foreclosure. Also, it is clear that
they would be adequately protected by law. Hence, we find no legal basis to reverse the assailed Amended Decision of
the CA dated May 4, 2004.

WHEREFORE, the Petition is DENIED and the assailed Amended Decision and Resolution AFFIRMED. Costs against
petitioners.

SO ORDERED.
 18

G.R. No. 193723 July 20, 2011

GENERAL MILLING CORPORATION, Petitioner,

vs. SPS. LIBRADO RAMOS and REMEDIOS RAMOS, Respondents.

DECISION

VELASCO, JR., J.:

The Case

This is a petition for review of the April 15, 2010 Decision of the Court of Appeals (CA) in CA-G.R. CR-H.C. No. 85400
entitled Spouses Librado Ramos & Remedios Ramos v. General Milling Corporation, et al., which affirmed the May 31,
2005 Decision of the Regional Trial Court (RTC), Branch 12 in Lipa City, in Civil Case No. 00-0129 for Annulment and/or
Declaration of Nullity of Extrajudicial Foreclosure Sale with Damages.

The Facts

On August 24, 1989, General Milling Corporation (GMC) entered into a Growers Contract with spouses Librado and
Remedios Ramos (Spouses Ramos). Under the contract, GMC was to supply broiler chickens for the spouses to raise on
their land in Barangay Banaybanay, Lipa City, Batangas. 1 To guarantee full compliance, the Growers Contract was
accompanied by a Deed of Real Estate Mortgage over a piece of real property upon which their conjugal home was built.
The spouses further agreed to put up a surety bond at the rate of PhP 20,000 per 1,000 chicks delivered by GMC. The
Deed of Real Estate Mortgage extended to Spouses Ramos a maximum credit line of PhP 215,000 payable within an
indefinite period with an interest of twelve percent (12%) per annum. 2

The Deed of Real Estate Mortgage contained the following provision:

WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the full and faithful compliance of
[MORTGAGORS] obligation/s with the MORTGAGEE by a First Real Estate Mortgage in favor of the MORTGAGEE, over
a 1 parcel of land and the improvements existing thereon, situated in the Barrio/s of Banaybanay, Municipality of Lipa City,
Province of Batangas, Philippines, his/her/their title/s thereto being evidenced by Transfer Certificate/s No./s T-9214 of the
Registry of Deeds for the Province of Batangas in the amount of TWO HUNDRED FIFTEEN THOUSAND (P 215,000.00),
Philippine Currency, which the maximum credit line payable within a x x x day term and to secure the payment of the
same plus interest of twelve percent (12%) per annum.

Spouses Ramos eventually were unable to settle their account with GMC. They alleged that they suffered business losses
because of the negligence of GMC and its violation of the Growers Contract. 3

On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMC would institute foreclosure proceedings on
their mortgaged property.4

On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage. On June 10, 1997, the property subject of
the foreclosure was subsequently sold by public auction to GMC after the required posting and publication. 5 It was
foreclosed for PhP 935,882,075, an amount representing the losses on chicks and feeds exclusive of interest at 12% per
annum and attorneys fees.6 To complicate matters, on October 27, 1997, GMC informed the spouses that its
Agribusiness Division had closed its business and poultry operations. 7

On March 3, 2000, Spouses Ramos filed a Complaint for Annulment and/or Declaration of Nullity of the Extrajudicial
Foreclosure Sale with Damages. They contended that the extrajudicial foreclosure sale on June 10, 1997 was null and
void, since there was no compliance with the requirements of posting and publication of notices under Act No. 3135, as
amended, or An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate
Mortgages. They likewise claimed that there was no sheriffs affidavit to prove compliance with the requirements on
posting and publication of notices. It was further alleged that the Deed of Real Estate Mortgage had no fixed term. A
prayer for moral and exemplary damages and attorneys fees was also included in the complaint. 8Librado Ramos alleged
that, when the property was foreclosed, GMC did not notify him at all of the foreclosure. 9
 19

During the trial, the parties agreed to limit the issues to the following: (1) the validity of the Deed of Real Estate Mortgage;
(2) the validity of the extrajudicial foreclosure; and (3) the party liable for damages.10

In its Answer, GMC argued that it repeatedly reminded Spouses Ramos of their liabilities under the Growers Contract. It
argued that it was compelled to foreclose the mortgage because of Spouses Ramos failure to pay their obligation. GMC
insisted that it had observed all the requirements of posting and publication of notices under Act No. 3135. 11

The Ruling of the Trial Court

Holding in favor of Spouses Ramos, the trial court ruled that the Deed of Real Estate Mortgage was valid even if its term
was not fixed. Since the duration of the term was made to depend exclusively upon the will of the debtors-spouses, the
trial court cited jurisprudence and said that "the obligation is not due and payable until an action is commenced by the
mortgagee against the mortgagor for the purpose of having the court fix the date on and after which the instrument is
payable and the date of maturity is fixed in pursuance thereto."12

The trial court held that the action of GMC in moving for the foreclosure of the spouses properties was premature,
because the latters obligation under their contract was not yet due.

The trial court awarded attorneys fees because of the premature action taken by GMC in filing extrajudicial foreclosure
proceedings before the obligation of the spouses became due.

The RTC ruled, thus:

WHEREFORE, premises considered, judgment is rendered as follows:

1. The Extra-Judicial Foreclosure Proceedings under docket no. 0107-97 is hereby declared null and void;

2. The Deed of Real Estate Mortgage is hereby declared valid and legal for all intents and puposes;

3. Defendant-corporation General Milling Corporation is ordered to pay Spouses Librado and Remedios Ramos
attorneys fees in the total amount of P 57,000.00 representing acceptance fee of P30,000.00 and P3,000.00
appearance fee for nine (9) trial dates or a total appearance fee of P 27,000.00;

4. The claims for moral and exemplary damages are denied for lack of merit.

IT IS SO ORDERED.13

The Ruling of the Appellate Court

On appeal, GMC argued that the trial court erred in: (1) declaring the extrajudicial foreclosure proceedings null and void;
(2) ordering GMC to pay Spouses Ramos attorneys fees; and (3) not awarding damages in favor of GMC.

The CA sustained the decision of the trial court but anchored its ruling on a different ground. Contrary to the findings of
the trial court, the CA ruled that the requirements of posting and publication of notices under Act No. 3135 were complied
with. The CA, however, still found that GMCs action against Spouses Ramos was premature, as they were not in default
when the action was filed on May 7, 1997.14

The CA ruled:

In this case, a careful scrutiny of the evidence on record shows that defendant-appellant GMC made no demand to
spouses Ramos for the full payment of their obligation. While it was alleged in the Answer as well as in the Affidavit
constituting the direct testimony of Joseph Dominise, the principal witness of defendant-appellant GMC, that demands
were sent to spouses Ramos, the documentary evidence proves otherwise. A perusal of the letters presented and offered
as evidence by defendant-appellant GMC did not "demand" but only request spouses Ramos to go to the office of GMC to
"discuss" the settlement of their account.15
 20

According to the CA, however, the RTC erroneously awarded attorneys fees to Spouses Ramos, since the presumption
of good faith on the part of GMC was not overturned.

The CA disposed of the case as follows:

WHEREFORE, and in view of the foregoing considerations, the Decision of the Regional Trial Court of Lipa City, Branch
12, dated May 21, 2005 is hereby AFFIRMED with MODIFICATION by deleting the award of attorneys fees to plaintiffs-
appellees spouses Librado Ramos and Remedios Ramos.16

Hence, We have this appeal.

The Issues

A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT ALLEGED AND DISCUSSED IN THE LOWER COURT
AND LIKEWISE NOT RAISED BY THE PARTIES ON APPEAL, THEREFORE HAD DECIDED THE CASE NOT
IN ACCORD WITH LAW AND APPLICABLE DECISIONS OF THE SUPREME COURT.

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

The Ruling of this Court

Can the CA consider matters not alleged?

GMC asserts that since the issue on the existence of the demand letter was not raised in the trial court, the CA, by
considering such issue, violated the basic requirements of fair play, justice, and due process. 18

In their Comment,19 respondents-spouses aver that the CA has ample authority to rule on matters not assigned as errors
on appeal if these are indispensable or necessary to the just resolution of the pleaded issues.

In Diamonon v. Department of Labor and Employment, 20 We explained that an appellate court has a broad discretionary
power in waiving the lack of assignment of errors in the following instances:

(a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject matter;

(b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law;

(c) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision
and complete resolution of the case or to serve the interests of a justice or to avoid dispensing piecemeal justice;

(d) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record
having some bearing on the issue submitted which the parties failed to raise or which the lower court ignored;

(e) Matters not assigned as errors on appeal but closely related to an error assigned;

(f) Matters not assigned as errors on appeal but upon which the determination of a question properly assigned, is
dependent.

Paragraph (c) above applies to the instant case, for there would be a just and complete resolution of the appeal if there is
a ruling on whether the Spouses Ramos were actually in default of their obligation to GMC.

Was there sufficient demand?

 21

We now go to the second issue raised by GMC. GMC asserts error on the part of the CA in finding that no demand was
made on Spouses Ramos to pay their obligation. On the contrary, it claims that its March 31, 1997 letter is akin to a
demand.

We disagree.

There are three requisites necessary for a finding of default. First, the obligation is demandable and liquidated; second,
the debtor delays performance; and third, the creditor judicially or extrajudicially requires the debtors performance. 21

According to the CA, GMC did not make a demand on Spouses Ramos but merely requested them to go to GMCs office
to discuss the settlement of their account. In spite of the lack of demand made on the spouses, however, GMC proceeded
with the foreclosure proceedings. Neither was there any provision in the Deed of Real Estate Mortgage allowing GMC to
extrajudicially foreclose the mortgage without need of demand.

Indeed, Article 1169 of the Civil Code on delay requires the following:

Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands
from them the fulfilment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declares; x x x

As the contract in the instant case carries no such provision on demand not being necessary for delay to exist, We agree
with the appellate court that GMC should have first made a demand on the spouses before proceeding to foreclose the
real estate mortgage.

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

The issue of whether demand was made before the foreclosure was effected is essential.1avvphi1 If demand was made
and duly received by the respondents and the latter still did not pay, then they were already in default and foreclosure was
proper. However, if demand was not made, then the loans had not yet become due and demandable. This meant that
respondents had not defaulted in their payments and the foreclosure by petitioner was premature. Foreclosure is valid
only when the debtor is in default in the payment of his obligation. 22

In turn, whether or not demand was made is a question of fact. 23 This petition filed under Rule 45 of the Rules of Court
shall raise only questions of law. For a question to be one of law, it must not involve an examination of the probative value
of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the law
provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the
question posed is one of fact.24 It need not be reiterated that this Court is not a trier of facts.25 We will defer to the factual
findings of the trial court, because petitioner GMC has not shown any circumstances making this case an exception to the
rule.

WHEREFORE, the petition is DENIED. The CA Decision in CA-G.R. CR-H.C. No. 85400 is AFFIRMED.

SO ORDERED.
 22

G.R. No. 167346 April 2, 2007

SOLIDBANK CORPORATION/ METROPOLITAN BANK AND TRUST COMPANY,* Petitioner,

vs. SPOUSES PETER and SUSAN TAN, Respondents.

DECISION

CORONA, J.:

Assailed in this petition for review by certiorari under Rule 45 of the Rules of Court are the decision 1 and resolution2of the
Court of Appeals (CA) dated November 26, 2004 and March 1, 2005, respectively, in CA-G.R. CV No. 58618,3 affirming
the decision of the Regional Trial Court (RTC) of Manila, Branch 31.4

On December 2, 1991, respondents representative, Remigia Frias, deposited with petitioner ten checks worth 455,962.
Grace Neri, petitioners teller no. 8 in its Juan Luna, Manila Branch, received two deposit slips for the checks, an original
and a duplicate. Neri verified the checks and their amounts in the deposit slips then returned the duplicate copy to Frias
and kept the original copy for petitioner.

In accordance with the usual practice between petitioner and respondents, the latters passbook was left with petitioner for
the recording of the deposits on the banks ledger. Later, respondents retrieved the passbook and discovered that one of
the checks, Metropolitan Bank and Trust Company (Metrobank) check no. 403954, payable to cash in the sum of
250,000 was not posted therein.

Immediately, respondents notified petitioner of the problem. Petitioner showed respondent Peter Tan a duplicate

copy of a deposit slip indicating the list of checks deposited by Frias. But it did not include the missing check. The deposit
slip bore the stamp mark "teller no. 7" instead of "teller no. 8" who previously received the checks.

Still later, respondent Peter Tan learned from Metrobank (where he maintained an account) that Metrobank check no.
403954 had cleared after it was inexplicably deposited by a certain Dolores Lagsac in Premier Bank in San Pedro,
Laguna. Respondents demanded that petitioner pay the amount of the check but it refused, hence, they filed a case for
collection of a sum of money in the RTC of Manila, Branch 31.

In its answer, petitioner averred that the deposit slips Frias used when she deposited the checks were spurious. Petitioner
accused respondents of engaging in a scheme to illegally exact money from it. It added that, contrary to the claim of
respondents, it was "teller no. 7" who received the deposit slips and, although respondents insisted that Frias deposited
ten checks, only nine checks were actually received by said teller. By way of counterclaim, it sought payment of
1,000,000 as actual and moral damages and 500,000 as exemplary damages.

After trial, the RTC found petitioner liable to respondents:

Upon examination of the oral, as well as of the documentary evidence which the parties presented at the trial in support of
their respective contentions, and after taking into consideration all the circumstances of the case, this Court believes that
the loss of Metrobank Check No. 403954 in the sum of 250,000.00 was due to the fault of [petitioner][It] retained the
original copy of the [deposit slip marked by "Teller No. 7"]. There is a presumption in law that evidence willfully
suppressed would be adverse if produced.

Art. 1173 of the Civil Code states that "the fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances of the person of the time and of
the place"; and that "if the law or contract does not state the diligence which is to be observed in the performance, the
same as expected of a good father of a family shall be required."

For failure to comply with its obligation, [petitioner] is presumed to have been at fault or to have acted negligently unless
they prove that they observe extraordinary diligence as prescribed in Arts. 1733 and 1735 of the Civil Code (Art. 1756)

xxx xxx xxx

 23

WHEREFORE, premises considered, judgment is hereby rendered in favor of [respondents], ordering [petitioner] to pay
the sum of 250,000, with legal interest from the time the complaint [for collection of a sum of money] was filed until
satisfied; 25,000.00 moral damages; 25,000.00 exemplary damages plus 20% of the amount due [respondents] as and
for attorneys fees. With costs.

SO ORDERED.5

Petitioner appealed to the CA which affirmed in toto the RTCs assailed decision:

Serious doubt [was] engendered by the fact that [petitioner] did not present the original of the deposit slip marked with
"Teller No. 7" and on which the entry as to Metrobank Check No. 403954 did not appear. Even the most cursory look at
the handwriting thereon reveal[ed] a very marked difference with that in the other deposit slips filled up [by Frias] on
December 2, 1991. Said circumstances spawn[ed] the belief thus, the said deposit slip was prepared by [petitioner] itself
to cover up for the lost check.6

Petitioner filed a motion for reconsideration but the CA dismissed it. Hence, this appeal.1a\^/phi1.net

Before us, petitioner faults the CA for upholding the RTC decision. Petitioner argues that: (1) the findings of the RTC and
the CA were not supported by the evidence and records of the case; (2) the award of damages in favor of respondents
was unwarranted and (3) the application by the RTC, as affirmed by the CA, of the provisions of the Civil Code on
common carriers to the instant case was erroneous.7

The petition must fail.

On the first issue, petitioner contends that the lower courts erred in finding it negligent for the loss of the subject check.
According to petitioner, the fact that the check was deposited in Premier Bank affirmed its claim that it did not receive the
check.

At the outset, the Court stresses that it accords respect to the factual findings of the trial court and, unless it overlooked
substantial matters that would alter the outcome of the case, this Court will not disturb such findings. 8We meticulously
reviewed the records of the case and found no reason to deviate from the rule. Moreover, since the CA affirmed these
findings on appeal, they are final and conclusive on us. 9 We therefore sustain the RTCs and CAs findings that petitioner
was indeed negligent and responsible for respondents lost check.

On the issue of damages, petitioner argues that the moral and exemplary damages awarded by the lower courts had no
legal basis. For the award of moral damages to stand, petitioner avers that respondents should have proven the existence
of bad faith by clear and convincing evidence. According to petitioner, simple negligence cannot be a basis for its award. It
insists that the award of exemplary damages is justified only when the act complained of was done in a wanton, fraudulent
and oppressive manner.10

We disagree.

While petitioner may argue that simple negligence does not warrant the award of moral damages, it nonetheless cannot
insist that that was all it was guilty of. It refused to produce the original copy of the deposit slip which could have proven its
claim that it did not receive respondents missing check. Thus, in suppressing the best evidence that could have bolstered
its claim and confirmed its innocence, the presumption now arises that it withheld the same for fraudulent purposes. 11

Moreover, in presenting a false deposit slip in its attempt to feign innocence, petitioners bad faith was apparent and
unmistakable. Bad faith imports a dishonest purpose or some moral obliquity or conscious doing of a wrong that partakes
of the nature of fraud.12

As to the award of exemplary damages, the law allows it by way of example for the public good. The business of banking
is impressed with public interest and great reliance is made on the banks sworn profession of diligence and
meticulousness in giving irreproachable service.13 For petitioners failure to carry out its responsibility and to account for
respondents lost check, we hold that the lower courts did not err in awarding exemplary damages to the latter.
 24

On the last issue, we hold that the trial court did not commit any error.1awphi1.nt A cursory reading of its decision
reveals that it anchored its conclusion that petitioner was negligent on Article 1173 of the Civil Code. 14

In citing the different provisions of the Civil Code on common carriers, 15 the trial court merely made reference to the kind
of diligence that petitioner should have performed under the circumstances. In other words, like a common carrier whose
business is also imbued with public interest, petitioner should have exercised extraordinary diligence to negate its liabilit y
to respondents.

Assuming arguendo that the trial court indeed used the provisions on common carriers to pin down liability on petitioner,
still we see no reason to strike down the RTC and CA rulings on this ground alone.

In one case,16 the Court did not hesitate to apply the doctrine of last clear chance (commonly used in transportation laws
involving common carriers) to a banking transaction where it adjudged the bank responsible for the encashment of a
forged check. There, we enunciated that the degree of diligence required of banks is more than that of a good father of a
family in keeping with their responsibility to exercise the necessary care and prudence in handling their clients money.

We find no compelling reason to disallow the application of the provisions on common carriers to this case if only to
emphasize the fact that banking institutions (like petitioner) have the duty to exercise the highest degree of diligence when
transacting with the public. By the nature of their business, they are required to observe the highest standards of integrity
and performance, and utmost assiduousness as well.17

WHEREFORE, the assailed decision and resolution of the Court of Appeals dated November 26, 2004 and March 1,
2005, respectively, in CA-G.R. CV No. 58618 are hereby AFFIRMED. Accordingly, the petition is DENIED. Costs against
petitioner. SO ORDERED.
 25

G.R. No. 147324 May 25, 2004

PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner,

vs. GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio Corporation), respondents.

x-----------------------------x

GLOBE TELECOM, INC., petitioner,

vs. PHILIPPINE COMMUNICATION SATELLITE CORPORATION, respondent.

DECISION

TINGA, J.:

Before the Court are two Petitions for Review assailing the Decision of the Court of Appeals, dated 27 February 2001, in
CA-G.R. CV No. 63619.1

The facts of the case are undisputed.

For several years prior to 1991, Globe Mckay Cable and Radio Corporation, now Globe Telecom, Inc. (Globe), had been
engaged in the coordination of the provision of various communication facilities for the military bases of the United States
of America (US) in Clark Air Base, Angeles, Pampanga and Subic Naval Base in Cubi Point, Zambales. The said
communication facilities were installed and configured for the exclusive use of the US Defense Communications Agency
(USDCA), and for security reasons, were operated only by its personnel or those of American companies contracted by it
to operate said facilities. The USDCA contracted with said American companies, and the latter, in turn, contracted with
Globe for the use of the communication facilities. Globe, on the other hand, contracted with local service providers such
as the Philippine Communications Satellite Corporation (Philcomsat) for the provision of the communication facilities.

On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat obligated itself to establish,
operate and provide an IBS Standard B earth station (earth station) within Cubi Point for the exclusive use of the
USDCA.2 The term of the contract was for 60 months, or five (5) years. 3 In turn, Globe promised to pay Philcomsat
monthly rentals for each leased circuit involved.4

At the time of the execution of the Agreement, both parties knew that the Military Bases Agreement between the Republic
of the Philippines and the US (RP-US Military Bases Agreement), which was the basis for the occupancy of the Clark Air
Base and Subic Naval Base in Cubi Point, was to expire in 1991. Under Section 25, Article XVIII of the 1987 Constitution,
foreign military bases, troops or facilities, which include those located at the US Naval Facility in Cubi Point, shall not be
allowed in the Philippines unless a new treaty is duly concurred in by the Senate and ratified by a majority of the votes
cast by the people in a national referendum when the Congress so requires, and such new treaty is recognized as such
by the US Government.

Subsequently, Philcomsat installed and established the earth station at Cubi Point and the USDCA made use of the
same.

On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141, expressing its decision not to
concur in the ratification of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements that
was supposed to extend the term of the use by the US of Subic Naval Base, among others. 5 The last two paragraphs of
the Resolution state:

FINDING that the Treaty constitutes a defective framework for the continuing relationship between the two
countries in the spirit of friendship, cooperation and sovereign equality: Now, therefore, be it Resolved by the
Senate, as it is hereby resolved, To express its decision not to concur in the ratification of the Treaty of
Friendship, Cooperation and Security and its Supplementary Agreements, at the same time reaffirming its desire
to continue friendly relations with the government and people of the United States of America. 6

On 31 December 1991, the Philippine Government sent a Note Verbale to the US Government through the US Embassy,
notifying it of the Philippines termination of the RP-US Military Bases Agreement. The Note Verbalestated that since the
 26

RP-US Military Bases Agreement, as amended, shall terminate on 31 December 1992, the withdrawal of all US military
forces from Subic Naval Base should be completed by said date.

In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to discontinue the use of the earth station
effective 08 November 1992 in view of the withdrawal of US military personnel from Subic Naval Base after the
termination of the RP-US Military Bases Agreement. Globe invoked as basis for the letter of termination Section 8
(Default) of the Agreement, which provides:

Neither party shall be held liable or deemed to be in default for any failure to perform its obligation under this
Agreement if such failure results directly or indirectly from force majeure or fortuitous event. Either party is thus
precluded from performing its obligation until such force majeure or fortuitous event shall terminate. For the
purpose of this paragraph, force majeure shall mean circumstances beyond the control of the party involved
including, but not limited to, any law, order, regulation, direction or request of the Government of the Philippines,
strikes or other labor difficulties, insurrection riots, national emergencies, war, acts of public enemies, fire, floods,
typhoons or other catastrophies or acts of God.

Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that "we expect [Globe] to know its commitment to
pay the stipulated rentals for the remaining terms of the Agreement even after [Globe] shall have discontinue[d] the use of
the earth station after November 08, 1992."7 Philcomsat referred to Section 7 of the Agreement, stating as follows:

7. DISCONTINUANCE OF SERVICE

Should [Globe] decide to discontinue with the use of the earth station after it has been put into operation, a written
notice shall be served to PHILCOMSAT at least sixty (60) days prior to the expected date of termination.
Notwithstanding the non-use of the earth station, [Globe] shall continue to pay PHILCOMSAT for the rental of the
actual number of T1 circuits in use, but in no case shall be less than the first two (2) T1 circuits, for the remaining
life of the agreement. However, should PHILCOMSAT make use or sell the earth station subject to this
agreement, the obligation of [Globe] to pay the rental for the remaining life of the agreement shall be at such
monthly rate as may be agreed upon by the parties.8

After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated 24 November 1993 demanding
payment of its outstanding obligations under the Agreement amounting to US$4,910,136.00 plus interest and attorneys
fees. However, Globe refused to heed Philcomsats demand.

On 27 January 1995, Philcomsat filed with the Regional Trial Court of Makati a Complaint against Globe, praying that the
latter be ordered to pay liquidated damages under the Agreement, with legal interest, exemplary damages, attorneys fees
and costs of suit. The case was raffled to Branch 59 of said court.

Globe filed an Answer to the Complaint, insisting that it was constrained to end the Agreement due to the termination of
the RP-US Military Bases Agreement and the non-ratification by the Senate of the Treaty of Friendship and Cooperation,
which events constituted force majeure under the Agreement. Globe explained that the occurrence of said events
exempted it from paying rentals for the remaining period of the Agreement.

On 05 January 1999, the trial court rendered its Decision, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the defendant to pay the plaintiff the amount of Ninety Two Thousand Two Hundred Thirty
Eight US Dollars (US$92,238.00) or its equivalent in Philippine Currency (computed at the exchange rate
prevailing at the time of compliance or payment) representing rentals for the month of December 1992
with interest thereon at the legal rate of twelve percent (12%) per annum starting December 1992 until the
amount is fully paid;

2. Ordering the defendant to pay the plaintiff the amount of Three Hundred Thousand (P300,000.00)
Pesos as and for attorneys fees;

3. Ordering the DISMISSAL of defendants counterclaim for lack of merit; and

 27

4. With costs against the defendant.

SO ORDERED.9

Both parties appealed the trial courts Decision to the Court of Appeals.

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

Globe, on the other hand, contended that the RTC erred in holding it liable for payment of rent of the earth station for
December 1992 and of attorneys fees. It explained that it terminated Philcomsats services on 08 November 1992; hence,
it had no reason to pay for rentals beyond that date.

On 27 February 2001, the Court of Appeals promulgated its Decision dismissing Philcomsats appeal for lack of merit and
affirming the trial courts finding that certain events constituting force majeure under Section 8 the Agreement occurred
and justified the non-payment by Globe of rentals for the remainder of the term of the Agreement.

The appellate court ruled that the non-ratification by the Senate of the Treaty of Friendship, Cooperation and Security, and
its Supplementary Agreements, and the termination by the Philippine Government of the RP-US Military Bases
Agreement effective 31 December 1991 as stated in the Philippine Governments Note Verbale to the US Government,
are acts, directions, or requests of the Government of the Philippines which constitute force majeure. In addition, there
were circumstances beyond the control of the parties, such as the issuance of a formal order by Cdr. Walter Corliss of the
US Navy, the issuance of the letter notification from ATT and the complete withdrawal of all US military forces and
personnel from Cubi Point, which prevented further use of the earth station under the Agreement.

However, the Court of Appeals ruled that although Globe sought to terminate Philcomsats services by 08 November
1992, it is still liable to pay rentals for the December 1992, amounting to US$92,238.00 plus interest, considering that the
US military forces and personnel completely withdrew from Cubi Point only on 31 December 1992. 10

Both parties filed their respective Petitions for Review assailing the Decision of the Court of Appeals.

In G.R. No. 147324,11 petitioner Philcomsat raises the following assignments of error:

A. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A DEFINITION OF FORCE

MAJEUREDIFFERENT FROM WHAT ITS LEGAL DEFINITION FOUND IN ARTICLE 1174 OF THE CIVIL CODE,
PROVIDES, SO AS TO EXEMPT GLOBE TELECOM FROM COMPLYING WITH ITS OBLIGATIONS UNDER
THE SUBJECT AGREEMENT.

B. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS NOT LIABLE TO
PHILCOMSAT FOR RENTALS FOR THE REMAINING TERM OF THE AGREEMENT, DESPITE THE CLEAR
TENOR OF SECTION 7 OF THE AGREEMENT.

C. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE TRIAL COURTS AWARD OF
ATTORNEYS FEES IN FAVOR OF PHILCOMSAT.

D. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS NOT LIABLE TO
PHILCOMSAT FOR EXEMPLARY DAMAGES.12

Philcomsat argues that the termination of the RP-US Military Bases Agreement cannot be considered a fortuitous event
because the happening thereof was foreseeable. Although the Agreement was freely entered into by both parties, Section
8 should be deemed ineffective because it is contrary to Article 1174 of the Civil Code. Philcomsat posits the view that the
validity of the parties definition of force majeure in Section 8 of the Agreement as "circumstances beyond the control of
the party involved including, but not limited to, any law, order, regulation, direction or request of the Government of the
Philippines, strikes or other labor difficulties, insurrection riots, national emergencies, war, acts of public enemies, fire,
 28

floods, typhoons or other catastrophies or acts of God," should be deemed subject to Article 1174 which defines fortuitous
events as events which could not be foreseen, or which, though foreseen, were inevitable. 13

Philcomsat further claims that the Court of Appeals erred in holding that Globe is not liable to pay for the rental of the
earth station for the entire term of the Agreement because it runs counter to what was plainly stipulated by the parties in
Section 7 thereof. Moreover, said ruling is inconsistent with the appellate courts pronouncement that Globe is liable to
pay rentals for December 1992 even though it terminated Philcomsats services effective 08 November 1992, because the
US military and personnel completely withdrew from Cubi Point only in December 1992. Philcomsat points out that it was
Globe which proposed the five-year term of the Agreement, and that the other provisions of the Agreement, such as
Section 4.114 thereof, evince the intent of Globe to be bound to pay rentals for the entire five-year term.15

Philcomsat also maintains that contrary to the appellate courts findings, it is entitled to attorneys fees and exemplary
damages.16

In its Comment to Philcomsats Petition, Globe asserts that Section 8 of the Agreement is not contrary to Article 1174 of
the Civil Code because said provision does not prohibit parties to a contract from providing for other instances when they
would be exempt from fulfilling their contractual obligations. Globe also claims that the termination of the RP-US Military
Bases Agreement constitutes force majeure and exempts it from complying with its obligations under the Agreement. 17 On
the issue of the propriety of awarding attorneys fees and exemplary damages to Philcomsat, Globe maintains that
Philcomsat is not entitled thereto because in refusing to pay rentals for the remainder of the term of the Agreement, Globe
only acted in accordance with its rights.18

In G.R. No. 147334,19 Globe, the petitioner therein, contends that the Court of Appeals erred in finding it liable for the
amount of US$92,238.00, representing rentals for December 1992, since Philcomsats services were actually terminated
on 08 November 1992.20

In its Comment, Philcomsat claims that Globes petition should be dismissed as it raises a factual issue which is not
cognizable by the Court in a petition for review on certiorari.21

On 15 August 2001, the Court issued a Resolution giving due course to Philcomsats Petition in G.R. No.

147324 and required the parties to submit their respective memoranda.22

Similarly, on 20 August 2001, the Court issued a Resolution giving due course to the Petition filed by Globe in G.R. No.
147334 and required both parties to submit their memoranda.23

Philcomsat and Globe thereafter filed their respective Consolidated Memoranda in the two cases, reiterating their
arguments in their respective petitions.

The Court is tasked to resolve the following issues: (1) whether the termination of the RP-US Military Bases Agreement,
the non-ratification of the Treaty of Friendship, Cooperation and Security, and the consequent withdrawal of US military
forces and personnel from Cubi Point constitute force majeure which would exempt Globe from complying with its
obligation to pay rentals under its Agreement with Philcomsat; (2) whether Globe is liable to pay rentals under the
Agreement for the month of December 1992; and (3) whether Philcomsat is entitled to attorneys fees and exemplary
damages.

No reversible error was committed by the Court of Appeals in issuing the assailed Decision; hence the petitions are
denied.

There is no merit is Philcomsats argument that Section 8 of the Agreement cannot be given effect because the
enumeration of events constituting force majeure therein unduly expands the concept of a fortuitous event under Article
1174 of the Civil Code and is therefore invalid.

In support of its position, Philcomsat contends that under Article 1174 of the Civil Code, an event must be unforeseen in
order to exempt a party to a contract from complying with its obligations therein. It insists that since the expiration of the
RP-US Military Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation and Security and the
withdrawal of US military forces and personnel from Cubi Point were not unforeseeable, but were possibilities known to it
 29

and Globe at the time they entered into the Agreement, such events cannot exempt Globe from performing its obligation
of paying rentals for the entire five-year term thereof.

However, Article 1174, which exempts an obligor from liability on account of fortuitous events or force majeure, refers not
only to events that are unforeseeable, but also to those which are foreseeable, but inevitable:

Art. 1174. Except in cases specified by the law, or when it is otherwise declared by stipulation, or when the nature
of the obligation requires the assumption of risk, no person shall be responsible for those events which, could not
be foreseen, or which, though foreseen were inevitable.

A fortuitous event under Article 1174 may either be an "act of God," or natural occurrences such as floods or
typhoons,24 or an "act of man," such as riots, strikes or wars.25

Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall be deemed events
constituting force majeure:

1. Any law, order, regulation, direction or request of the Philippine Government;

2. Strikes or other labor difficulties;

3. Insurrection;

4. Riots;

5. National emergencies;

6. War;

7. Acts of public enemies;

8. Fire, floods, typhoons or other catastrophies or acts of God;

9. Other circumstances beyond the control of the parties.

Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the control of the parties. There is nothing in
the enumeration that runs contrary to, or expands, the concept of a fortuitous event under Article 1174.

Furthermore, under Article 130626 of the Civil Code, parties to a contract may establish such stipulations, clauses, terms
and conditions as they may deem fit, as long as the same do not run counter to the law, morals, good customs, public
order or public policy.27

Article 1159 of the Civil Code also provides that "[o]bligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith."28 Courts cannot stipulate for the parties nor amend their
agreement where the same does not contravene law, morals, good customs, public order or public policy, for to do so
would be to alter the real intent of the parties, and would run contrary to the function of the courts to give force and effect
thereto.29

Not being contrary to law, morals, good customs, public order, or public policy, Section 8 of the Agreement which
Philcomsat and Globe freely agreed upon has the force of law between them. 30

In order that Globe may be exempt from non-compliance with its obligation to pay rentals under Section 8, the
concurrence of the following elements must be established: (1) the event must be independent of the human will; (2) the
occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and (3) the obligor must be
free of participation in, or aggravation of, the injury to the creditor.31
 30

The Court agrees with the Court of Appeals and the trial court that the abovementioned requisites are present in the
instant case. Philcomsat and Globe had no control over the non-renewal of the term of the RP-US Military Bases
Agreement when the same expired in 1991, because the prerogative to ratify the treaty extending the life thereof belonged
to the Senate. Neither did the parties have control over the subsequent withdrawal of the US military forces and personnel
from Cubi Point in December 1992:

Obviously the non-ratification by the Senate of the RP-US Military Bases Agreement (and its Supplemental
Agreements) under its Resolution No. 141. (Exhibit "2") on September 16, 1991 is beyond the control of the
parties. This resolution was followed by the sending on December 31, 1991 o[f] a "Note Verbale" (Exhibit "3") by
the Philippine Government to the US Government notifying the latter of the formers termination of the RP-US
Military Bases Agreement (as amended) on 31 December 1992 and that accordingly, the withdrawal of all U.S.
military forces from Subic Naval Base should be completed by said date. Subsequently, defendant [Globe]
received a formal order from Cdr. Walter F. Corliss II Commander USN dated July 31, 1992 and a notification
from ATT dated July 29, 1992 to terminate the provision of T1s services (via an IBS Standard B Earth Station)
effective November 08, 1992. Plaintiff [Philcomsat] was furnished with copies of the said order and letter by the
defendant on August 06, 1992.

Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine Government to the US
Government are acts, direction or request of the Government of the Philippines and circumstances beyond the
control of the defendant. The formal order from Cdr. Walter Corliss of the USN, the letter notification from ATT
and the complete withdrawal of all the military forces and personnel from Cubi Point in the year-end 1992 are also
acts and circumstances beyond the control of the defendant.

Considering the foregoing, the Court finds and so holds that the afore-narrated circumstances constitute "force
majeure or fortuitous event(s) as defined under paragraph 8 of the Agreement.

From the foregoing, the Court finds that the defendant is exempted from paying the rentals for the facility for the
remaining term of the contract.

As a consequence of the termination of the RP-US Military Bases Agreement (as amended) the continued stay of
all US Military forces and personnel from Subic Naval Base would no longer be allowed, hence, plaintiff would no
longer be in any position to render the service it was obligated under the Agreement. To put it blantly (sic), since
the US military forces and personnel left or withdrew from Cubi Point in the year end December 1992, there was
no longer any necessity for the plaintiff to continue maintaining the IBS facility. 32 (Emphasis in the original.)

The aforementioned events made impossible the continuation of the Agreement until the end of its five-year term without
fault on the part of either party. The Court of Appeals was thus correct in ruling that the happening of such fortuitous
events rendered Globe exempt from payment of rentals for the remainder of the term of the Agreement.

Moreover, it would be unjust to require Globe to continue paying rentals even though Philcomsat cannot be compelled to
perform its corresponding obligation under the Agreement. As noted by the appellate court:

We also point out the sheer inequity of PHILCOMSATs position. PHILCOMSAT would like to charge GLOBE
rentals for the balance of the lease term without there being any corresponding telecommunications service
subject of the lease. It will be grossly unfair and iniquitous to hold GLOBE liable for lease charges for a service
that was not and could not have been rendered due to an act of the government which was clearly beyond
GLOBEs control. The binding effect of a contract on both parties is based on the principle that the obligations
arising from contracts have the force of law between the contracting parties, and there must be mutuality between
them based essentially on their equality under which it is repugnant to have one party bound by the contract while
leaving the other party free therefrom (Allied Banking Corporation v. Court of Appeals, 284 SCRA 357).33

With respect to the issue of whether Globe is liable for payment of rentals for the month of December 1992, the Court
likewise affirms the appellate courts ruling that Globe should pay the same.
 31

Although Globe alleged that it terminated the Agreement with Philcomsat effective 08 November 1992 pursuant to the
formal order issued by Cdr. Corliss of the US Navy, the date when they actually ceased using the earth station subject of
the Agreement was not established during the trial. 34 However, the trial court found that the US military forces and
personnel completely withdrew from Cubi Point only on 31 December 1992. 35 Thus, until that date, the USDCA had
control over the earth station and had the option of using the same. Furthermore, Philcomsat could not have removed or
rendered ineffective said communication facility until after 31 December 1992 because Cubi Point was accessible only to
US naval personnel up to that time. Hence, the Court of Appeals did not err when it affirmed the trial courts ruling that
Globe is liable for payment of rentals until December 1992.

Neither did the appellate court commit any error in holding that Philcomsat is not entitled to attorneys fees and exemplary
damages.

The award of attorneys fees is the exception rather than the rule, and must be supported by factual, legal and equitable
justifications.36 In previously decided cases, the Court awarded attorneys fees where a party acted in gross and evident
bad faith in refusing to satisfy the other partys claims and compelled the former to litigate to protect his rights; 37 when the
action filed is clearly unfounded,38 or where moral or exemplary damages are awarded. 39 However, in cases where both
parties have legitimate claims against each other and no party actually prevailed, such as in the present case where the
claims of both parties were sustained in part, an award of attorneys fees would not be warranted. 40

Exemplary damages may be awarded in cases involving contracts or quasi-contracts, if the erring party acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner. 41 In the present case, it was not shown that Globe acted wantonly
or oppressively in not heeding Philcomsats demands for payment of rentals. It was established during the trial of the case
before the trial court that Globe had valid grounds for refusing to comply with its contractual obligations after 1992.

WHEREFORE, the Petitions are DENIED for lack of merit. The assailed Decision of the Court of Appeals in CA-G.R. CV
No. 63619 is AFFIRMED.

SO ORDERED.

Puno*, Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.

 32

G.R. No. 185798 January 13, 2014

FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK INC., Petitioners,

vs.
SPOUSES CONRADO AND MARIA VICTORIA RONQUILLO, Respondents.

DECISION

PEREZ, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules .of Civil Procedure assailing the
Decision1 of the Court of Appeals in CA-G.R. SP No. 100450 which affirmed the Decision of the Office of the President in
O.P. Case No. 06-F-216.

As culled from the records, the facts are as follow:

Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place Tower while co-petitioner Fil-
Estate Network, Inc. is its authorized marketing agent. Respondent Spouses Conrado and Maria Victoria Ronquillo
purchased from petitioners an 82-square meter condominium unit at Central Park Place Tower in Mandaluyong City for a
pre-selling contract price of FIVE MILLION ONE HUNDRED SEVENTY-FOUR THOUSAND ONLY (5,174,000.00). On
29 August 1997, respondents executed and signed a Reservation Application Agreement wherein they deposited
200,000.00 as reservation fee. As agreed upon, respondents paid the full downpayment of 1,552,200.00 and had been
paying the 63,363.33 monthly amortizations until September 1998.

Upon learning that construction works had stopped, respondents likewise stopped paying their monthly amortization.
Claiming to have paid a total of 2,198,949.96 to petitioners, respondents through two (2) successive letters, demanded a
full refund of their payment with interest. When their demands went unheeded, respondents were constrained to file a
Complaint for Refund and Damages before the Housing and Land Use Regulatory Board (HLURB). Respondents prayed
for reimbursement/refund of 2,198,949.96 representing the total amortization payments, 200,000.00 as and by way of
moral damages, attorneys fees and other litigation expenses.

On 21 October 2000, the HLURB issued an Order of Default against petitioners for failing to file their Answer within the
reglementary period despite service of summons.2

Petitioners filed a motion to lift order of default and attached their position paper attributing the delay in construction to the
1997 Asian financial crisis. Petitioners denied committing fraud or misrepresentation which could entitle respondents to an
award of moral damages.

On 13 June 2002, the HLURB, through Arbiter Atty. Joselito F. Melchor, rendered judgment ordering petitioners to jointly
and severally pay respondents the following amount:

a) The amount of TWO MILLION ONE HUNDRED NINETY-EIGHT THOUSAND NINE HUNDRED FORTY NINE
PESOS & 96/100 (2,198,949.96) with interest thereon at twelve percent (12%) per annum to be computed from
the time of the complainants demand for refund on October 08, 1998 until fully paid,

b) ONE HUNDRED THOUSAND PESOS (100,000.00) as moral damages,

c) FIFTY THOUSAND PESOS (50,000.00) as attorneys fees,

d) The costs of suit, and

e) An administrative fine of TEN THOUSAND PESOS (10,000.00) payable to this Office fifteen (15) days upon
receipt of this decision, for violation of Section 20 in relation to Section 38 of PD 957. 3
 33

The Arbiter considered petitioners failure to develop the condominium project as a substantial breach of their obligation
which entitles respondents to seek for rescission with payment of damages. The Arbiter also stated that mere economic
hardship is not an excuse for contractual and legal delay.

Petitioners appealed the Arbiters Decision through a petition for review pursuant to Rule XII of the 1996 Rules of
Procedure of HLURB. On 17 February 2005, the Board of Commissioners of the HLURB denied4 the petition and affirmed
the Arbiters Decision. The HLURB reiterated that the depreciation of the peso as a result of the Asian financial crisis is
not a fortuitous event which will exempt petitioners from the performance of their contractual obligation.

Petitioners filed a motion for reconsideration but it was denied 5 on 8 May 2006. Thereafter, petitioners filed a Notice of
Appeal with the Office of the President. On 18 April 2007, petitioners appeal was dismissed 6 by the Office of the
President for lack of merit. Petitioners moved for a reconsideration but their motion was denied 7 on 26 July 2007.

Petitioners sought relief from the Court of Appeals through a petition for review under Rule 43 containing the same
arguments they raised before the HLURB and the Office of the President:

I.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE HONORABLE
HOUSING AND LAND USE REGULATORY BOARD AND ORDERING PETITIONERS-APPELLANTS TO REFUND
RESPONDENTS-APPELLEES THE SUM OF 2,198,949.96 WITH 12% INTEREST FROM 8 OCTOBER 1998 UNTIL
FULLY PAID, CONSIDERING THAT THE COMPLAINT STATES NO CAUSE OF ACTION AGAINST PETITIONERS-
APPELLANTS.

II.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE OFFICE BELOW
ORDERING PETITIONERS-APPELLANTS TO PAY RESPONDENTS-APPELLEES THE SUM OF 100,000.00 AS
MORAL DAMAGES AND 50,000.00 AS ATTORNEYS FEES CONSIDERING THE ABSENCE OF ANY FACTUAL OR
LEGAL BASIS THEREFOR.

III.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE HOUSING AND
LAND USE REGULATORY BOARD ORDERING PETITIONERS-APPELLANTS TO PAY 10,000.00 AS
ADMINISTRATIVE FINE IN THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS TO SUPPORT SUCH FINDING.8

On 30 July 2008, the Court of Appeals denied the petition for review for lack of merit. The appellate court echoed the
HLURB Arbiters ruling that "a buyer for a condominium/subdivision unit/lot unit which has not been developed in
accordance with the approved condominium/subdivision plan within the time limit for complying with said developmental
requirement may opt for reimbursement under Section 20 in relation to Section 23 of Presidential Decree (P.D.) 957 x x
x."9 The appellate court supported the HLURB Arbiters conclusion, which was affirmed by the HLURB Board of
Commission and the Office of the President, that petitioners failure to develop the condominium project is tantamount to a
substantial breach which warrants a refund of the total amount paid, including interest. The appellate court pointed out
that petitioners failed to prove that the Asian financial crisis constitutes a fortuitous event which could excuse them from
the performance of their contractual and statutory obligations. The appellate court also affirmed the award of moral
damages in light of petitioners unjustified refusal to satisfy respondents claim and the legality of the administrative fine,
as provided in Section 20 of Presidential Decree No. 957.

Petitioners sought reconsideration but it was denied in a Resolution10 dated 11 December 2008 by the Court of Appeals.

Aggrieved, petitioners filed the instant petition advancing substantially the same grounds for review:

A.
 34

THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED IN TOTO THE DECISION OF THE OFFICE OF
THE PRESIDENT WHICH SUSTAINED RESCISSION AND REFUND IN FAVOR OF THE RESPONDENTS DESPITE
LACK OF CAUSE OF ACTION.

B.

GRANTING FOR THE SAKE OF ARGUMENT THAT THE PETITIONERS ARE LIABLE UNDER THE PREMISES, THE
HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED THE HUGE AMOUNT OF INTEREST OF TWELVE
PERCENT (12%).

C.

THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN IT AFFIRMED IN TOTO THE DECISION OF THE
OFFICE OF THE PRESIDENT INCLUDING THE PAYMENT OF 100,000.00 AS MORAL DAMAGES, 50,000.00 AS
ATTORNEYS FEES AND 10,000.00 AS ADMINISTRATIVE FINE IN THE ABSENCE OF ANY FACTUAL OR LEGAL
BASIS TO SUPPORT SUCH CONCLUSIONS.11

Petitioners insist that the complaint states no cause of action because they allegedly have not committed any act of
misrepresentation amounting to bad faith which could entitle respondents to a refund. Petitioners claim that there was a
mere delay in the completion of the project and that they only resorted to "suspension and reformatting as a testament to
their commitment to their buyers." Petitioners attribute the delay to the 1997 Asian financial crisis that befell the real estate
industry. Invoking Article 1174 of the New Civil Code, petitioners maintain that they cannot be held liable for a fortuitous
event.

Petitioners contest the payment of a huge amount of interest on account of suspension of development on a project. They
liken their situation to a bank which this Court, in Overseas Bank v. Court of Appeals, 12 adjudged as not liable to pay
interest on deposits during the period that its operations are ordered suspended by the Monetary Board of the Central
Bank.

Lastly, petitioners aver that they should not be ordered to pay moral damages because they never intended to cause
delay, and again blamed the Asian economic crisis as the direct, proximate and only cause of their failure to complete the
project. Petitioners submit that moral damages should not be awarded unless so stipulated except under the instances
enumerated in Article 2208 of the New Civil Code. Lastly, petitioners refuse to pay the administrative fine because the
delay in the project was caused not by their own deceptive intent to defraud their buyers, but due to unforeseen
circumstances beyond their control.

Three issues are presented for our resolution: 1) whether or not the Asian financial crisis constitute a fortuitous event
which would justify delay by petitioners in the performance of their contractual obligation; 2) assuming that petitioners are
liable, whether or not 12% interest was correctly imposed on the judgment award, and 3) whether the award of moral
damages, attorneys fees and administrative fine was proper.

It is apparent that these issues were repeatedly raised by petitioners in all the legal fora. The rulings were consistent that
first, the Asian financial crisis is not a fortuitous event that would excuse petitioners from performing their contractual
obligation; second, as a result of the breach committed by petitioners, respondents are entitled to rescind the contract and
to be refunded the amount of amortizations paid including interest and damages; and third, petitioners are likewise
obligated to pay attorneys fees and the administrative fine.

This petition did not present any justification for us to deviate from the rulings of the HLURB, the Office of the President
and the Court of Appeals.

Indeed, the non-performance of petitioners obligation entitles respondents to rescission under Article 1191 of the New
Civil Code which states:

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
 35

The injured party may choose between the fulfillment and the rescission of the obligation, with payment of damages in
either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

More in point is Section 23 of Presidential Decree No. 957, the rule governing the sale of condominiums, which provides:

Section 23. Non-Forfeiture of Payments.1wphi1 No installment payment made by a buyer in a subdivision or

condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the
buyer, after due notice to the owner or developer, desists from further payment due to the failure of the owner or
developer to develop the subdivision or condominium project according to the approved plans and within the time limit for
complying with the same. Such buyer may, at his option, be reimbursed the total amount paid including amortization
interests but excluding delinquency interests, with interest thereon at the legal rate. (Emphasis supplied).

Conformably with these provisions of law, respondents are entitled to rescind the contract and demand reimbursement for
the payments they had made to petitioners.

Notably, the issues had already been settled by the Court in the case of Fil-Estate Properties, Inc. v. Spouses
Go13promulgated on 17 August 2007, where the Court stated that the Asian financial crisis is not an instance of caso
fortuito. Bearing the same factual milieu as the instant case, G.R. No. 165164 involves the same company, Fil-Estate,
albeit about a different condominium property. The company likewise reneged on its obligation to respondents therein by
failing to develop the condominium project despite substantial payment of the contract price. Fil-Estate advanced the
same argument that the 1997 Asian financial crisis is a fortuitous event which justifies the delay of the construction
project. First off, the Court classified the issue as a question of fact which may not be raised in a petition for review
considering that there was no variance in the factual findings of the HLURB, the Office of the President and the Court of
Appeals. Second, the Court cited the previous rulings of Asian Construction and Development Corporation v. Philippine
Commercial International Bank14 and Mondragon Leisure and Resorts Corporation v. Court of Appeals 15 holding that the
1997 Asian financial crisis did not constitute a valid justification to renege on obligations. The Court expounded:

Also, we cannot generalize that the Asian financial crisis in 1997 was unforeseeable and beyond the control of a business
corporation. It is unfortunate that petitioner apparently met with considerable difficulty e.g. increase cost of materials and
labor, even before the scheduled commencement of its real estate project as early as 1995. However, a real estate
enterprise engaged in the pre-selling of condominium units is concededly a master in projections on commodities and
currency movements and business risks. The fluctuating movement of the Philippine peso in the foreign exchange market
is an everyday occurrence, and fluctuations in currency exchange rates happen everyday, thus, not an instance of caso
fortuito.16

The aforementioned decision becomes a precedent to future cases in which the facts are substantially the same, as in this
case. The principle of stare decisis, which means adherence to judicial precedents, applies.

In said case, the Court ordered the refund of the total amortizations paid by respondents plus 6% legal interest computed
from the date of demand. The Court also awarded attorneys fees. We follow that ruling in the case before us.

The resulting modification of the award of legal interest is, also, in line with our recent ruling in Nacar v. Gallery
Frames,17 embodying the amendment introduced by the Bangko Sentral ng Pilipinas Monetary Board in BSP-MB Circular
No. 799 which pegged the interest rate at 6% regardless of the source of obligation.

We likewise affirm the award of attorneys fees because respondents were forced to litigate for 14 years and incur
expenses to protect their rights and interest by reason of the unjustified act on the part of petitioners.18 The imposition of
10,000.00 administrative fine is correct pursuant to Section 38 of Presidential Decree No. 957 which reads:

Section 38. Administrative Fines. The Authority may prescribe and impose fines not exceeding ten thousand pesos for
violations of the provisions of this Decree or of any rule or regulation thereunder. Fines shall be payable to the Authority
and enforceable through writs of execution in accordance with the provisions of the Rules of Court.

Finally, we sustain the award of moral damages. In order that moral damages may be awarded in breach of contract
cases, the defendant must have acted in bad faith, must be found guilty of gross negligence amounting to bad faith, or
must have acted in wanton disregard of contractual obligations. 19 The Arbiter found petitioners to have acted in bad faith
 36

when they breached their contract, when they failed to address respondents grievances and when they adamantly
refused to refund respondents' payment.

In fine, we find no reversible error on the merits in the impugned Court of Appeals' Decision and Resolution.

WHEREFORE, the petition is PARTLY GRANTED. The appealed Decision is AFFIRMED with the MODIFICATION that
the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the time of respondents' demand
for refund on 8 October 1998.

SO ORDERED.
 37

G.R. No. 191189 January 29, 2014

MANLAR RICE MILL, INC., Petitioner,

vs. LOURDES L. DEYTO, doing business under the trade name "J.D. Grains Center" and JENNELITA DEYTO
ANG, a.k.a. "JANET ANG," Respondents.

DECISION

DEL CASTILLO, J.:

As a general rule, a contract affects only the parties to it, and cannot be enforced by or against a person who is not a
party thereto.

This Petition for Review on Certiorari1 seeks to set aside the October 30, 2009 Decision 2 of the Court of Appeals (CA) in
CA-G.R. CV No. 91239, entitled "Maniar Rice Mill, Inc., Plaintiff-Appellee, versus Lourdes L. Deyto, doing business under
the trade name JD Grains Center, Defendant-Appellant," as well as its February 9, 2010 Resolution 3denying
reconsideration of the assailed judgment.

Factual Antecedents

Petitioner Maniar Rice Mill, Inc. (Maniar), organized and existing under Philippine laws, is engaged in the business of rice
milling and selling of grains. Respondent Lourdes L. Deyto (Deyto) does business under the trade name "JD Grains
Center" and is likewise engaged in the business of milling and selling of grains. Respondent Jennelita Deyto Ang or Janet
Ang (Ang) is Deytos daughter and, prior to her alleged absconding, operated her own rice trading business through her
own store, "Janet Commercial Store".4

It appears that in October 2000, Ang entered into a rice supply contract with Manlar, with the former purchasing rice from
the latter amounting to 3,843,220.00. The transaction was covered by nine postdated checks issued by Ang from her
personal bank/checking account with Chinabank,5 to wit:

Check Number Date Amount (PhP)

146514 October 19, 2000 P 204,660.00

146552 October 20, 2000 472,200.00

146739 October 27, 2000 327,600.00

146626 October 26, 2000 212,460.00

1466276 October 27, 2000 565,600.00

146740 October 30, 2000 515,000.00

146628 October 31, 2000 358,500.00

146630 November 4, 2000 593,600.00

146555 November 6, 2000 593,600.00

TOTAL P 3,843,220.00

Upon presentment, the first two checks were dishonored for having been drawn against insufficient funds; the remaining
seven checks were dishonored for being drawn against a closed account. Manlar made oral and written demands upon
both Deyto and Ang, which went unheeded.7 It appears that during the time demand was being made upon Deyto, she
informed Manlar, through its Sales Manager Pablo Pua (Pua), that Ang could not be located. 8

On November 24, 2000,9 Manlar filed a Complaint10 for sum of money against Deyto and Ang before the Regional Trial
Court (RTC) of Quezon City. The case was docketed as Civil Case No. Q-00-42527 and assigned to Branch 215. The
 38

Complaint essentially sought to hold Deyto and Ang solidarily liable on the rice supply contract. Manlar prayed for actual
damages in the total amount of 3,843,220.00, with interest; 300,000.00 attorneys fees, with charges for appearance
fees; and attachment bond and attachment expenses.

Deyto filed her Answer with Compulsory Counterclaim,11 claiming that she did not contract with Manlar or any of its
representatives regarding the purchase and delivery of rice; that JD Grains Center was solely owned by her, and Ang had
no participation therein, whether as employee, consultant, agent or other capacity; that JD Grains Center was engaged in
rice milling and not in the buying and selling of rice; and that one of her customers was her daughter Ang, who was
engaged in the buying and selling of rice under the trade name "Janet Commercial Store." Deyto prayed among others
that the Complaint be dismissed.

For her part, Ang failed to file an Answer despite summons by publication; for this reason, she was declared in default.

On June 7, 2001, Manlar submitted to the trial court a notarized minutes of a special meeting of its board of
directors12 dated November 8, 2000, indicating that Pua was authorized to file and prosecute the Complaint in Civil Case
No. Q-00-42527.

In a July 31, 2001 Resolution,13 the trial court resolved to deny Deytos special/affirmative defenses contained in her
Answer. Regarding her objection to Puas authority to prosecute the case for lack of the proper board resolution to such
effect, the trial court held that the issue had been rendered moot by Manlars submission on June 7, 2001 of the notarized
board resolution.

During trial, Manlar presented its lone witness, Pua, who testified that he knew Deyto and Ang since 1995; that Ang was
the Operations Manager of JD Grains Center; that they (Deyto and Ang) bought rice from Manlar on "cash on delivery"
basis from 1995 up to 2000; that since 2000, they increased the volume of their purchases and requested that they pay
Manlar by postdated checks on a weekly basis, to which Manlar acceded; that Manlar agreed to this arrangement
because Deyto induced Pua to deliver rice on the assurance that Deyto had extensive assets, financial capacity and a
thriving business, and Deyto provided Pua with copies of JD Grains Centers certificate of registration, business permit,
business card, and certificates of title covering property belonging to Deyto; that when rice deliveries were made by
Manlar, Deyto was not around; that it was solely Ang who issued the subject checks and delivered them to Pua or Manlar;
that initially, they (Deyto and Ang) faithfully complied with the arrangement; that later on, they defaulted in their payments
thus resulting in the dishonor of the subject nine checks previously issued to Manlar; that by then, Manlar had delivered
rice to them totaling 3,843,220.00; that he went to the residence of Deyto at No. 93 Bulusan Street, La Loma, Quezon
City on five occasions to demand payment from Deyto; and that he likewise went to Angs residence at No. 4
Sabucoy14 Street, San Francisco del Monte, Quezon City to demand payment.15

On cross-examination, Pua testified that no rice deliveries were in fact made by Manlar at Deytos Bulusan Street
residence; that Deyto guaranteed Angs checks, although the guarantee was made verbally; that although he ordered
Manlars drivers to deliver rice at Deytos residence at Bulusan Street, the deliveries would actually end up at Angs
Sabucoy residence.16

On the other hand, the defense presented three witnesses: Deyto, her son Jose D. Ang, and Homer Petallano (Petallano),
Chinabank del Monte branch Operations Head. Deyto testified that she did not know Pua; that Pua was a liar and that she
did not enter into a contract with him for the purchase and delivery of rice; that she did not receive at any time any rice
delivery from Manlar; that while she had a house at No. 93 Bulusan Street, La Loma, Quezon City, she actually resided in
Santiago City, Isabela; that she met Pua for the first time when the latter went to her La Loma residence sometime in
November or December 2000 looking for Ang, and claiming that Ang was indebted to Manlar; that she had nothing to do
with the obligations of Ang incurred for rice deliveries made to her or JD Grains Center, as Ang was not connected with
JD Grains Center, and it was her son, Jose D. Ang, who managed and ran the business; that all the checks issued to
Manlar were drawn by Ang from her own bank account, as a businessperson in her own right and with her own business
and receipts; that as of 2000, Ang was the proprietress of Jane Commercial with address at No. 49 Corumi Street,
Masambong, San Francisco del Monte, Quezon City, and not at No. 93 Bulusan Street, La Loma, Quezon City; that the
last time she saw Ang was in June 2000, during the blessing of Angs Sabucoy residence; that she was not on talking
terms with her daughter as early as June 2000 on account of Angs activities and involvements; that one of Angs children
was living with her after the child was recovered from a kidnapping perpetrated by Angs best friend; that Angs other child
lived with the childs father; and that Angs whereabouts could not be ascertained. 17
 39

Jose D. Ang, on the other hand, testified that he is Deytos son; that from the start, JD Grains Center has been under his
supervision and control as Manager and Deyto had no participation in the actual operation thereof; that JD Grains Center
was registered in the name of Deyto for convenience, to avoid jealousy or intrigue among his siblings, and because they
used Deytos properties as collateral to borrow money for the business; that Ang was originally an agent of JD Grains
Center, but was removed in 1997 for failure to remit her collections.18

Finally, Petallano testified that he was the Operations Head of Chinabank del Monte branch and that Ang is the sole
owner and depositor of the account from which the subject checks were drawn.19

Ruling of the Trial Court

On November 22, 2007, a Decision20 was rendered by the trial court in Civil Case No. Q-00-42527, the dispositive portion
of which reads, as follows:

WHEREFORE, premises considered, judgment is hereby rendered finding the defendants liable to the plaintiff jointly and
severally and ordering them as follows:

1. To pay plaintiff actual damages in the sum of 3,843,200.0021 plus interest [thereon] at 6% per annum
reckoned from the time of demand up to the time of payment thereof;

2. To pay plaintiff attorneys fees in the sum of 200,000.00 plus 2,500.00 as per appearance fee; and

3. To pay the costs of this suit.

SO ORDERED.22

Essentially, the trial court believed Puas declarations that both Deyto and Ang personally transacted with him in
purchasing rice from Manlar for JD Grains Center with Ang paying for the deliveries with her personal checks and his
testimony that both Deyto and Ang received Manlars rice deliveries. For these reasons, the trial court ruled that both
defendants should be held solidarily liable for the unpaid and outstanding Manlar account.

Ruling of the Court of Appeals

Deyto went up to the CA on appeal, assailing the Decision of the trial court and claiming that there was no evidence to
show her participation in the transactions between Manlar and Ang, or that rice deliveries were even made to her; that she
had no legal obligation to pay Manlar what Ang owed the latter in her personal capacity; that the evidence proved that Ang
had overpaid Manlar; that the Complaint in Civil Case No. Q-00-42527 was defective for lack of the required board
resolution authorizing Pua to sign the Complaint, verification, and certification against forum shopping on behalf of Manlar;
and that the trial court erred in not awarding damages in her favor.

On October 30, 2009, the CA issued the assailed Decision, which held thus:

WHEREFORE, premises considered, the assailed Decision dated November 22, 2007 in Civil Case No. Q-00-42527 of
the Regional Trial Court, Branch 215, Quezon City is REVERSED and SET ASIDE, and a new one entered, DISMISSING
the complaint for lack of merit.

SO ORDERED.23

The CA held that in the absence of a board resolution from Manlar authorizing Pua to sign the verification and certification
against forum shopping, the Complaint in Civil Case No. Q-00-42527 should have been dismissed; the subsequent
submission on June 7, 2001 or six months after the filing of the case of the notarized minutes of a special meeting of
Manlars board of directors cannot have the effect of curing or amending the defective Complaint, as Revised Supreme
Court Circular No. 28-9124 enjoins strict compliance. Substantial compliance does not suffice.

The CA added that the trial courts Decision overlooked, misapprehended, and failed to appreciate important facts and
circumstances of the case. Specifically, it held that Manlar failed to present documentary evidence to prove deliveries of
 40

rice to Deyto, yet the trial court sweepingly concluded that she took actual delivery of Manlars rice. Likewise, Puas
declaration that Manlar delivered rice to Deyto at her La Loma residence was not based on personal knowledge or
experience, but on Manlars drivers supposed accounts of events. Because these drivers were not called to testify on
such fact or claim, the CA held that Puas testimony regarding Deytos alleged acceptance of rice deliveries from Manlar
was hearsay.

The appellate court conceded that if Ang indeed contracted with Manlar, she did so on her own; the evidence failed to
indicate that Deyto had any participation in the supposed transactions between her daughter and Manlar. The record
reveals that Deyto and Ang owned separate milling and grains businesses: JD Grains Center and Janet Commercial
Store. If Ang did business with Manlar, it is likely that she did so on her own or in her personal capacity, and not for and in
behalf of Deytos JD Grains Center. Besides, the subject checks were drawn against Angs personal bank account,
therefore Ang, not Deyto is bound to make good on the dishonored checks.

Thus, the CA concluded that there is no legal basis to hold Deyto solidarily liable with Ang for what the latter may owe
Manlar.

Manlar moved for reconsideration, but in its February 9, 2010 Resolution, the CA stood its ground. Hence, Manlar took the
present recourse.

Issues

Manlar raises the following issues in its Petition:

1. THE COURT OF APPEALS COMMITTED CLEAR REVERSIBLE ERROR WHEN IT SET ASIDE THE
JUDGMENT OF THE TRIAL COURT BY SWEEPINGLY AND BASELESSLY CONCLUDING THAT THE
VERIFICATION AND CERTIFICATE AGAINST FORUM SHOPPING IN THE COMPLAINT WERE ALLEGEDLY
"DEFECTIVE" IN THAT PABLO PUA, THE SALES MANAGER, WAS SUPPOSEDLY "NOT AUTHORIZED" TO
SIGN THE VERIFICATION AND CERTIFICATE OF NON-FORUM SHOPPING FOR MANLAR RICE MILL, INC.

2. THE CONCLUSION OF THE COURT OF APPEALS THAT THE ALL-ENCOMPASSING PHRASE IN THE
BOARD RESOLUTION THAT "MR. PABLO PUA IS AUTHORIZED TO SIGN ANY DOCUMENT, PAPERS, FOR
AND IN BEHALF OF THE COMPANY, AND TO REPRESENT THE COMPANY IN ANY SUCH CASE OR
CASES" IS ALLEGEDLY "NOT SUFFICIENT" AUTHORITY FOR PABLO PUA TO SIGN THE VERIFICATION
AND CERTIFICATE AGAINST FORUM SHOPPING IS GROSSLY ERRONEOUS AND MANIFESTLY
MISTAKEN BECAUSE IT IS DIRECTLY NEGATED AND DISPROVED BY THE EXPRESS TERMS OF HIS
AUTHORITY.

3. FURTHER, THE SERIOUS AND GLARING ERROR OF THE COURT OF APPEALS IN CONCLUDING THAT
PABLO PUA WAS ALLEGEDLY NOT AUTHORIZED TO SIGN THE VERIFICATION AND CERTIFICATE OF
NON-FORUM SHOPPING HAD BEEN PREVIOUSLY RAISED AND SQUARELY RESOLVED BY THE TRIAL
COURT AND ITS RESOLUTION ON THIS ISSUE HAD LONG BECOME FINAL AND EXECUTORY WITHOUT
LOURDES L. DEYTO TAKING ANY APPELLATE REMEDY.

4. THE COURT OF APPEALS ALSO COMMITTED REVERSIBLE ERROR IN SAYING THAT "THERE WAS NO
DOCUMENTARY EVIDENCE TO PROVE ACTUAL DELIVERIES OF RICE" AS BASIS FOR THE DISMISSAL
OF THE CASE BECAUSE THIS IS MANIFESTLY MISTAKEN AND NEGATED BY THE RECORDS SINCE
RESPONDENTS (MOTHER AND DAUGHTER) ISSUED NINE (9) POSTDATED CHECKS TO PETITIONER
THRU PABLO PUA IN THE TOTAL AMOUNT OF 3,843,2[2]0.00 IN PAYMENT OF THE RICE DELIVERED TO
THEM.

5. THE CONTRACTS OF SALE OF RICE WERE PERFECTED BY THE DELIVERY OF RICE TO

RESPONDENTS MOTHER AND DAUGHTER AND THEIR ISSUANCE OF NINE (9) POSTDATED CHECKS
(3,843,220.00) AS PAYMENT THEREOF BY RESPONDENTS, BUT THAT THE NINE (9) POSTDATED
CHECKS OF RESPONDENTS WERE LATER DISHONORED.

6. THE SWEEPING STATEMENT OF THE COURT OF APPEALS THAT ALLEGEDLY "THE PARTICIPATION
OF APPELLANT (LOURDES L. DEYTO) TO WHATEVER BUSINESS TRANSACTIONS HER DAUGHTER (CO-
 41

RESPONDENT JENNELITA DEYTO ANG) HAD WITH MANLAR RICE MILL INC. WAS NOT DULY PROVEN" IS
NOT ONLY A PURE SPECULATION BUT IS SQUARELY NEGATED AND DISPROVED BY THE
OVERWHELMING EVIDENCE OF THE CONSPIRACY AND COLLABORATIVE EFFORTS OF BOTH MOTHER
AND DAUGHTER IN KNOWINGLY DEFRAUDING PETITIONER.25

Petitioners Arguments

In its Petition and Reply,26 Manlar insists that the CAs findings and conclusions are not supported by the evidence on
record. On the procedural issue, it reiterates the trial courts pronouncement that its subsequent submission on June 7,
2001, or six months after the filing of Civil Case No. Q-00-42527 of the notarized minutes of a special meeting of its
board of directors authorizing Pua to file and prosecute Civil Case No. Q-00-42527, effectively cured the defective
Complaint, or rendered the issue of lack of proper authority moot and academic, and should not result in the dismissal of
the case. Because Deyto did not question this ruling through the proper petition or appeal, it should stand; besides, the
trial courts disposition on the matter is sound and just.

Next, Manlar disputes the CA ruling that Manlar failed to present documentary evidence to prove deliveries of rice to
Deyto, apart from that delivered to Ang in her personal capacity. It points to "compelling and convincing evidence" that
both Deyto and Ang induced it to deliver rice to them, and that both of them issued the subject postdated checks. It claims
that it was Deyto who delivered the checks to Pua at his office in Manila; that Deyto induced Pua to deliver rice to
respondents on the assurance that Deyto had extensive assets, financial capacity and a thriving business; and that Deyto
provided Pua with copies of JD Grains Centers certificate of registration, business permit, business card, and certificates
of title covering property belonging to Deyto.

Manlar adds that Deyto disposed of some of her personal properties specifically delivery/cargo trucks in fraud of her
creditors, including Manlar. It is also argued that the fact that Deyto was in possession of Angs negotiated checks proved
that both of them connived to defraud Manlar by using the said checks to convince and induce Pua to contract with them.

Manlar goes on to argue that Ang and another of Deytos children, Judith Ang Yu (Judith), were charged and the latter
convicted of estafa for defrauding another rice trader, a certain Sergio Casaclang, of 3,800,000.00 attaching a certified
true copy of the Decision of Branch 215 of the RTC of Quezon City in Criminal Case No. Q-01-105698, indicating that
Judith was sentenced to three months of arresto mayor and to pay a fine and indemnity.

Next, Manlar argues that it is not necessary to further show proof of deliveries of rice to Deyto and Ang in order to prove
the existence of their obligation; the issuance of the subject postdated checks as payment established the obligation.

Manlar thus prays that the Court annul and set aside the assailed CA dispositions and thus reinstate the trial courts
November 22, 2007 Decision finding Deyto liable under the rice supply contract.

Respondents Arguments

Praying that the Petition be denied, respondent Deyto in her Comment 27 essentially argues that petitioner Manlars claims
are "products of pure imagination", having no factual and legal basis, and that Manlars impleading her is simply a
desperate strategy or attempt to recover its losses from her, considering that Ang can no longer be located. Furthermore,
Deyto claims that Manlars alleged rice deliveries are not covered by sufficient documentary evidence, and while it may
appear that Ang had transacted with Manlar, she did so in her sole capacity; thus, Deyto may not be held liable under a
transaction in which she took no part.

Deyto adds that Puas basis for claiming that deliveries were made at her Bulusan Street residence is unfounded,
considering that it springs from hearsay, or on the mere affirmation of Manlars drivers who were not presented in court
to testify on such fact. Pua himself had no personal knowledge of such fact, and thus could not be believed in testifying
that rice was indeed delivered to Deyto at her Bulusan Street residence. She argues further that overall, Pua Manlars
lone witness proved to be an unreliable witness, constantly changing his testimony when the inconsistencies of his
previous declarations were called out.

Finally, Deyto reiterates the CA ruling that Manlars Complaint in Civil Case No. Q-00-42527 was defective for lack of the
required board resolution authorizing Pua to sign the verification and certification against forum shopping, characterizing
the belated submission of the required resolution six months later as a mere afterthought.
 42

Our Ruling

The Court denies the Petition.

It is a basic rule in evidence that he who alleges must prove his case or claim by the degree of evidence required.

x x x Ei incumbit probatio qui dicit, non qui negat. This Court has consistently applied the ancient rule that "if the plaintiff,
upon whom rests the burden of proving his cause of action, fails to show in a satisfactory manner the facts upon which he
bases his claim, the defendant is under no obligation to prove his exception or defense." 28

In civil cases, the quantum of proof required is preponderance of evidence, which connotes "that evidence that is of
greater weight or is more convincing than that which is in opposition to it. It does not mean absolute truth; rather, it means
that the testimony of one side is more believable than that of the other side, and that the probability of truth is on one side
than on the other."29

The CA is correct in concluding that there is no legal basis to hold Deyto solidarily liable with Ang for what the latter may
owe Manlar. The evidence does not support Manlars view that both Deyto and Ang contracted with Manlar for the
delivery of rice on credit; quite the contrary, the preponderance of evidence indicates that it was Ang alone who entered
into the rice supply agreement with Manlar. Puas own direct testimony indicated that whenever rice deliveries were made
by Manlar, Deyto was not around; that it was solely Ang who issued the subject checks and delivered them to Pua or
Manlar. On cross-examination, he testified that no rice deliveries were in fact made by Manlar at Deytos Bulusan Street
residence; that although Deyto guaranteed Angs checks, this guarantee was made verbally; and that while he ordered
Manlars drivers to deliver rice at Deytos residence at Bulusan Street, the deliveries would actually end up at Angs
Sabucoy residence.

The documentary evidence, on the other hand, shows that the subject checks were issued from a bank account in
Chinabank del Monte branch belonging to Ang alone. They did not emanate from an account that belonged to both Ang
and Deyto. This is supported by no less than the testimony of Chinabank del Monte branch Operations Head
Petallano.1wphi1

The evidence on record further indicates that Deyto was an old lady who owned vast tracts of land in Isabela province,
and other properties in Metro Manila; that she is a reputable businessperson in Isabela; that Ang originally worked for JD
Grains Center, but was removed in 1997 for failure to remit collections; that as early as June 2000, or prior to the alleged
transaction with Manlar, Ang and Deyto were no longer on good terms as a result of Angs activities; that Deyto took
custody of one of Angs children, who was previously recovered from a kidnapping perpetrated by no less than Angs best
friend; and that Ang appears to have abandoned her own family and could no longer be located. This shows not only what
kind of person Ang is; it likewise indicates the improbability of Deytos involvement in Angs activities, noting her age,
condition, reputation, and the extent of her business activities and holdings.

This Court cannot believe Manlars claims that Deyto induced Pua to transact with her and Ang by providing him with
copies of JD Grains Centers certificate of registration, business permit, business card, and certificates of title covering
property belonging to Deyto to show her creditworthiness, extensive assets, financial capacity and a thriving business.
The documents presented by Manlar during trial copies of JD Grains Centers certificate of registration, business permit,
and certificates of title covering Deytos landholdings are public documents which Manlar could readily obtain from
appropriate government agencies; it is improbable that Deyto provided Manlar with copies of these documents in order to
induce the latter to contract with her. Considering that both Manlar and Deyto were in the same line of business in the
same province, it may be said that Manlar knew Deyto all along without the latter having to supply it with actual proof of
her creditworthiness.

The allegations that Deyto guaranteed Angs checks and that she consented to be held solidarily liable with Ang under the
latters rice supply contract with Manlar are hardly credible. Pua in fact admitted that this was not in writing, just a verbal
assurance. But this will not suffice. "Well-entrenched is the rule that solidary obligation cannot lightly be inferred. There is
a solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the
obligation so requires."30

What this Court sees is an attempt to implicate Deyto in a transaction between Manlar and Ang so that the former may
recover its losses, since it could no longer recover them from Ang as a result of her absconding; this conclusion is indeed
consistent with what the totality of the evidence on record appears to show. This, however, may not be allowed. As a
 43

general rule, a contract affects only the parties to it, and cannot be enforced by or against a person who is not a party
thereto. "It is a basic principle in law that contracts can bind only the parties who had entered into it; it cannot favor or
prejudice a third person."31 Under Article 1311 of the Civil Code, contracts take effect only between the parties, their
assigns and heirs. Thus, Manlar may sue Ang, but not Deyto, who the Court finds to be not a party to the rice supply
contract.

Having decided the case in the foregoing manner, the Court finds no need to resolve the other issues raised by the
parties.

WHEREFORE, the Petition is DENIED. The assailed dispositions of the Court of Appeals are AFFIRMED.

SO ORDERED.

G.R. No. 82036 May 22, 1997

TRAVELLERS INSURANCE & SURETY CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS and VICENTE MENDOZA, respondents.

HERMOSISIMA, JR., J.:

The petition herein seeks the review and reversal of the decision 1 of respondent Court of Appeals 2 affirming in totothe
judgment 3 of the Regional Trial Court 4 in an action for damages 5 filed by private respondent Vicente Mendoza, Jr. as
heir of his mother who was killed in a vehicular accident.

Before the trial court, the complainant lumped the erring taxicab driver, the owner of the taxicab, and the alleged insurer of
the vehicle which featured in the vehicular accident into one complaint. The erring taxicab was allegedly covered by a
third-party liability insurance policy issued by petitioner Travellers Insurance & Surety Corporation.

The evidence presented before the trial court established the following facts:

At about 5:30 o'clock in the morning of July 20, 1980, a 78-year old woman by the name of Feliza Vineza
de Mendoza was on her way to hear mass at the Tayuman Cathedral. While walking along Tayuman
corner Gregorio Perfecto Streets, she was bumped by a taxi that was running fast. Several persons
witnessed the accident, among whom were Rolando Marvilla, Ernesto Lopez and Eulogio Tabalno. After
the bumping, the old woman was seen sprawled on the pavement. Right away, the good Samaritan that
he was, Mavilla ran towards the old woman and held her on his lap to inquire from her what had
happened, but obviously she was already in shock and could not talk. At this moment, a private jeep
stopped. With the driver of that vehicle, the two helped board the old woman on the jeep and brought her
to the Mary Johnston Hospital in Tondo.

. . . Ernesto Lopez, a driver of a passenger jeepney plying along Tayuman Street from Pritil, Tondo, to
Rizal Avenue and vice-versa, also witnessed the incident. It was on his return trip from Rizal Avenue
when Lopez saw the plaintiff and his brother who were crying near the scene of the accident. Upon
learning that the two were the sons of the old woman, Lopez told them what had happened. The
Mendoza brothers were then able to trace their mother at the Mary Johnston Hospital where they were
advised by the attending physician that they should bring the patient to the National Orthopedic Hospital
because of her fractured bones. Instead, the victim was brought to the U.S.T. Hospital where she expired
at 9:00 o'clock that same morning. Death was caused by "traumatic shock" as a result of the severe
injuries she sustained . . .

. . . The evidence shows that at the moment the victim was bumped by the vehicle, the latter was running
fast, so much so that because of the strong impact the old woman was thrown away and she fell on the
pavement. . . . In truth, in that related criminal case against defendant Dumlao . . . the trial court found as
a fact that therein accused "was driving the subject taxicab in a careless, reckless and imprudent manner
 44

and at a speed greater than what was reasonable and proper without taking the necessary precaution to
avoid accident to persons . . . considering the condition of the traffic at the place at the time
aforementioned" . . . Moreover, the driver fled from the scene of the accident and without rendering
assistance to the victim. . . .

. . . Three (3) witnesses who were at the scene at the time identified the taxi involved, though not
necessarily the driver thereof. Marvilla saw a lone taxi speeding away just after the bumping which, when
it passed by him, said witness noticed to be a Lady Love Taxi with Plate No. 438, painted maroon, with
baggage bar attached on the baggage compartment and with an antenae [sic] attached at the right rear
side. The same descriptions were revealed by Ernesto Lopez, who further described the taxi to have . . .
reflectorized decorations on the edges of the glass at the back . . . A third witness in the person of Eulogio
Tabalno . . . made similar descriptions although, because of the fast speed of the taxi, he was only able to
detect the last digit of the plate number which is "8". . . . [T]he police proceeded to the garage of Lady
Love Taxi and then and there they took possession of such a taxi and later impounded it in the
impounding area of the agency concerned. . . . [T]he eyewitnesses . . . were unanimous in pointing to that
Lady Love Taxi with Plate No. 438, obviously the vehicle involved herein.

. . . During the investigation, defendant Armando Abellon, the registered owner of Lady Love Taxi bearing
No. 438-HA Pilipinas Taxi 1980, certified to the fact "that the vehicle was driven last July 20, 1980 by one
Rodrigo Dumlao. . ." . . . It was on the basis of this affidavit of the registered owner that caused the police
to apprehend Rodrigo Dumlao, and consequently to have him prosecuted and eventually convicted of the
offense . . . . . . . [S]aid Dumlao absconded in that criminal case, specially at the time of the promulgation
of the judgment therein so much so that he is now a fugitive from justice. 6

Private respondent filed a complaint for damages against Armando Abellon as the owner of the Lady Love Taxi and
Rodrigo Dumlao as the driver of the Lady Love taxicab that bumped private respondent's mother. Subsequently, private
respondent amended his complaint to include petitioner as the compulsory insurer of the said taxicab under Certificate of
Cover No. 1447785-3.

After trial, the trial court rendered judgment in favor of private respondent, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff, or more particularly the "Heirs of the
late Feliza Vineza de Mendoza," and against defendants Rodrigo Dumlao, Armando Abellon and
Travellers Insurance and Surety Corporation, by ordering the latter to pay, jointly and severally, the
former the following amounts:

(a) The sum of P2,924.70, as actual and compensatory damages, with interest thereon at
the rate of 12% per annum from October 17, 1980, when the complaint was filed, until the
said amount is fully paid;

(b) P30,000.00 as death indemnity;

(c) P25,000.00 as moral damages;

(d) P10,000.00 as by way of corrective or exemplary damages; and

(e) Another P10,000.00 by way of attorney's fees and other litigation expenses.

Defendants are further ordered to pay, jointly and severally, the costs of this suit.

SO ORDERED. 7

Petitioner appealed from the aforecited decision to the respondent Court of Appeals. The decision of the trial court was
affirmed by respondent appellate court. Petitioner's Motion for Reconsideration 8 of September 22, 1987 was denied in a
Resolution 9 dated February 9, 1988.

Hence this petition.

 45

Petitioner mainly contends that it did not issue an insurance policy as compulsory insurer of the Lady Love Taxi and that,
assuming arguendo that it had indeed covered said taxicab for third-party liability insurance, private respondent failed to
file a written notice of claim with petitioner as required by Section 384 of P.D. No. 612, otherwise known as the Insurance
Code.

We find the petition to be meritorious.

When private respondent filed his amended complaint to implead petitioner as party defendant and therein alleged that
petitioner was the third-party liability insurer of the Lady Love taxicab that fatally hit private respondent's mother, private
respondent did not attach a copy of the insurance contract to the amended complaint. Private respondent does not deny
this omission.

It is significant to point out at this juncture that the right of a third person to sue the insurer depends on whether the
contract of insurance is intended to benefit third persons also or only the insured.

[A] policy . . . whereby the insurer agreed to indemnify the insured "against all sums . . . which the Insured
shall become legally liable to pay in respect of: a. death of or bodily injury to any person . . . is one for
indemnity against liability; from the fact then that the insured is liable to the third person, such third person
is entitled to sue the insurer.

The right of the person injured to sue the insurer of the party at fault (insured), depends on whether the
contract of insurance is intended to benefit third persons also or on the insured And the test applied has
been this: Where the contract provides for indemnity against liability to third persons, then third persons to
whom the insured is liable can sue the insurer. Where the contract is for indemnity against actual loss or
payment, then third persons cannot proceed against the insurer, the contract being solely to reimburse
the insured for liability actually discharged by him thru payment to third persons, said third persons'
recourse being thus limited to the insured alone. 10

Since private respondent failed to attach a copy of the insurance contract to his complaint, the trial court could not have
been able to apprise itself of the real nature and pecuniary limits of petitioner's liability. More importantly, the trial court
could not have possibly ascertained the right of private respondent as third person to sue petitioner as insurer of the Lady
Love taxicab because the trial court never saw nor read the insurance contract and learned of its terms and conditions.

Petitioner, understandably, did not volunteer to present any insurance contract covering the Lady Love taxicab that fatally
hit private respondent's mother, considering that petitioner precisely presented the defense of lack of insurance coverage
before the trial court. Neither did the trial court issue a subpoena duces tecum to have the insurance contract produced
before it under pain of contempt.

We thus find hardly a basis in the records for the trial court to have validly found petitioner liable jointly and severally with
the owner and the driver of the Lady Love taxicab, for damages accruing to private respondent.

Apparently, the trial court did not distinguish between the private respondent's cause of action against the owner and the
driver of the Lady Love taxicab and his cause of action against petitioner. The former is based on torts and quasi-
delicts while the latter is based on contract. Confusing these two sources of obligations as they arise from the same act of
the taxicab fatally hitting private respondent's mother, and in the face of overwhelming evidence of the reckless
imprudence of the driver of the Lady Love taxicab, the trial court brushed aside its ignorance of the terms and conditions
of the insurance contract and forthwith found all three the driver of the taxicab, the owner of the taxicab, and the
alleged insurer of the taxicab jointly and severally liable for actual, moral and exemplary damages as well as attorney's
fees and litigation expenses. This is clearly a misapplication of the law by the trial court, and respondent appellate court
grievously erred in not having reversed the trial court on this ground.

While it is true that where the insurance contract provides for indemnity against liability to third persons,
such third persons can directly sue the insurer, however, the direct liability of the insurer under indemnity
contracts against third-party liability does not mean that the insurer can be held solidarily liable with the
 46

insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the
insured is based on tort. 11

Applying this principle underlying solidary obligation and insurance contracts, we ruled in one case that:

In solidary obligation, the creditor may enforce the entire obligation against one of the solidary debtors.
On the other hand, insurance is defined as "a contract whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent event."

In the case at bar, the trial court held petitioner together with respondents Sio Choy and San Leon Rice
Mills Inc. solidarily liable to respondent Vallejos for a total amount of P29,103.00, with the qualification
that petitioner's liability is only up to P20,000.00. In the context of a solidary obligation, petitioner may be
compelled by respondent Vallejos to pay the entire obligation of P29,103.00, notwithstanding the
qualification made by the trial court. But, how can petitioner be obliged to pay the entire obligation when
the amount stated in its insurance policy with respondent Sio Choy for indemnity against third-party
liability is only P20,000.00? Moreover, the qualification made in the decision of the trial court to the effect
that petitioner is sentenced to pay up to P20,000.00 only when the obligation to pay P29,103.00 is made
solidary is an evident breach of the concept of a solidary obligation. 12

The above principles take on more significance in the light of the counter-allegation of petitioner that, assuming arguendo
that it is the insurer of the Lady Love taxicab in question, its liability is limited to only P50,000.00, this being its standard
amount of coverage in vehicle insurance policies. It bears repeating that no copy of the insurance contract was ever
proffered before the trial court by the private respondent, notwithstanding knowledge of the fact that the latter's complaint
against petitioner is one under a written contract. Thus, the trial court proceeded to hold petitioner liable for an award of
damages exceeding its limited liability of P50,000.00. This only shows beyond doubt that the trial court was under the
erroneous presumption that petitioner could be found liable absent proof of the contract and based merely on the proof of
reckless imprudence on the part of the driver of the Lady Love taxicab that fatally hit private respondent's mother.

II

Petitioner did not tire in arguing before the trial court and the respondent appellate court that, assuming arguendo that it
had issued the insurance contract over the Lady Love taxicab, private respondent's cause of action against petitioner did
not successfully accrue because he failed to file with petitioner a written notice of claim within six (6) months from the date
of the accident as required by Section 384 of the Insurance Code.

At the time of the vehicular incident which resulted in the death of private respondent's mother, during which time the
Insurance Code had not yet been amended by Batas Pambansa (B.P.) Blg. 874, Section 384 provided as follows:

Any person having any claim upon the policy issued pursuant to this chapter shall, without any
unnecessary delay, present to the insurance company concerned a written notice of claim setting forth
the amount of his loss, and/or the nature, extent and duration of the injuries sustained as certified by a
duly licensed physician. Notice of claim must be filed within six months from date of the accident,
otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or injury
must be brought in proper cases, with the Commission or the Courts within one year from date of
accident, otherwise the claimant's right of action shall prescribe [emphasis supplied].

In the landmark case of Summit Guaranty and Insurance Co., Inc. v. De Guzman, 13 we ruled that the one year
prescription period to bring suit in court against the insurer should be counted from the time that the insurer rejects the
written claim filed therewith by the insured, the beneficiary or the third person interested under the insurance policy. We
explained:

It is very obvious that petitioner company is trying to use Section 384 of the Insurance Code as a cloak to
hide itself from its liabilities. The facts of these cases evidently reflect the deliberate efforts of petitioner
company to prevent the filing of a formal action against it. Bearing in mind that if it succeeds in doing so
until one year lapses from the date of the accident it could set up the defense of prescription, petitioner
company made private respondents believe that their claims would be settled in order that the latter will
not find it necessary to immediately bring suit. In violation of its duties to adopt and implement reasonable
standards for the prompt investigation of claims and to effectuate prompt, fair and equitable settlement of
 47

claims, and with manifest bad faith, petitioner company devised means and ways of stalling the
settlement proceeding . . . [N]o steps were taken to process the claim and no rejection of said claim was
ever made even if private respondent had already complied with all the requirements. . . .

This Court has made the observation that some insurance companies have been inventing excuses to
avoid their just obligations and it is only the State that can give the protection which the insuring public
needs from possible abuses of the insurers. 14

It is significant to note that the aforecited Section 384 was amended by B.P. Blg. 874 to categorically provide that "action
or suit for recovery of damage due to loss or injury must be brought in proper cases, with the Commissioner or the Courts
within one year from denial of the claim, otherwise the claimant's right of action shall prescribe" [emphasis ours]. 15

We have certainly ruled with consistency that the prescriptive period to bring suit in court under an insurance policy,
begins to run from the date of the insurer's rejection of the claim filed by the insured, the beneficiary or any person
claiming under an insurance contract. This ruling is premised upon the compliance by the persons suing under an
insurance contract, with the indispensable requirement of having filed the written claim mandated by Section 384 of the
insurance Code before and after its amendment. Absent such written claim filed by the person suing under an insurance
contract, no cause of action accrues under such insurance contract, considering that it is the rejection of that claim that
triggers the running of the one-year prescriptive period to bring suit in court, and there can be no opportunity for the
insurer to even reject a claim if none has been filed in the first place, as in the instant case.

The one-year period should instead be counted from the date of rejection by the insurer as this is the time
when the cause of action accrues. . . .

In Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu, this Court ruled:

The plaintiff's cause of action did not accrue until his claim was finally rejected by the insurance company.
This is because, before such final rejection, there was no real necessity for bringing suit.

The philosophy of the above pronouncement was pointed out in the case of ACCFA vs. Alpha Insurance
and Surety Co., viz:

Since a cause of action requires, as essential elements, not only a legal right of the plaintiff and a
correlative obligation of the defendant but also an act or omission of the defendant in violation of said
legal right, the cause of action does not accrue until the party obligated refuses, expressly or impliedly, to
comply with its duty. 16

When petitioner asseverates, thus, that no written claim was filed by private respondent and rejected by petitioner, and
private respondent does not dispute such asseveration through a denial in his pleadings, we are constrained to rule that
respondent appellate court committed reversible error in finding petitioner liable under an insurance contract the existence
of which had not at all been proven in court. Even if there were such a contract, private respondent's cause of action can
not prevail because he failed to file the written claim mandated by Section 384 of the Insurance Code. He is deemed,
under this legal provision, to have waived his rights as against petitioner-insurer.

WHEREFORE, the instant petition is HEREBY GRANTED. The decision of the Court of Appeals in CA-G.R. CV No.
09416 and the decision of the Regional Trial Court in Civil Case No. 135486 are REVERSED and SET ASIDE insofar as
Travelers Insurance & Surety Corporation was found jointly and severally liable to pay actual, moral and exemplary
damages, death indemnity, attorney's fees and litigation expenses in Civil Case No. 135486. The complaint against
Travellers Insurance & Surety Corporation in said case is hereby ordered dismissed.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 193426 September 29, 2014

 48

SUBIC BAY LEGEND RESORTS AND CASINOS, INC., Petitioner,

vs.
BERNARD C. FERNANDEZ, Respondent.

DECISION

DEL CASTILLO, J.:

This Petition for Review on Certiorari1 assails the April 27, 2010 Decision2 and August 24, 2010 Resolution3 of the Court
of Appeals (CA) in CA-G.R. CV No. 91758, entitled "Bernard C. Fernandez, Plaintiff-Appellee, versus Subic Bay Legend
Resorts and Casinos, Inc., Defendant-Appellant," which affirmed in toto the May 17, 2006 Decision 4 of the Regional Trial
Court (RTC) of Olongapo City, Branch 74, in Civil Case No. 237-0-97.

Factual Antecedents

Petitioner Subic Bay Legend Resorts d Casinos, Inc., a duly organized and e)(isting corporation operating under
Philippine laws, operates the Legenda Hotel and Casino (Legenda) located in the Subic Bay Freeport Zone in Zambales.
On the other hand, respondent Bernard C. Fernandez is the plaintiff in Civil Case No. 237-0-97 prosecuted against
petitioner in Olongapo RTC.

As determined by the CA, the facts of the case are as follows:

At around eleven o'clock in the evening of 6 June 1997, the appellee's5 brother[,] Ludwin Fernandez[,] visited the Legenda
Hotel and Casino x x x owned and operated by the appellant 6 and located along the Waterfront Road, Subic Bay
Freep011 Zone. Legenda had strategically installed several closedcircuit television (CCTV) cameras as part of security
measures required by its business. The monitors revealed that Ludwin changed x x x $5,000.00 w011h of chips into
smaller denominations. Legenda admitted in its brief that its surveillance staff paid close attention to Ludwin simply
because it was "wmsual" for a Filipino to play using dollar-denominated chips. After Ludwin won $200.00 in a game of
baccarat, he redeemed the value of chips worth $7,200.00. A review of the CCTV recordings showed that the incident
was not the first time Ludwin visited the Casino, as he had also been there on 5 June 1997.

An operation was launched by Legenda to zero-in on Ludwin whose picture was furnished its security section. Thus,
unbeknownst to him, he was already closely watched on 13 June 1997 when he went with another brother, Deoven[,] to
the casino at around the same time or at 11: 17 p.m. After playing (and losing $100.00) only one round of baccarat, the
siblings had their chips encashed at two separate windows. Since the cashiers were apprised of a supposed irregularity,
they "froze" the transaction.

Shortly thereafter, Legenda's internal security officers accosted Ludwin and Deoven and ordered them to return the cash
and they complied without ado because they were being pulled away. The two were eventually escorted to private rooms
where they were separately interrogated about the source of the chips they brought. They were held for about seven
hours w1til the wee hours of the morning, without food or sleep. The ultimaturn was simple: they confess that the chips
were given by a certain employee, Michael Cabrera, or they would not be released from questioning. The same line of
questioning confronted them when they were later twned-over for blotter preparation to the Intelligence and Investigation
Office of the Subic Bay Metropolitan Authority (IIO SBMA). Finally, the brothers succwnbed to Legenda's instruction to
execute a joint statement implicating Cabrera as the illegal source of the chips. Due to hunger pangs and fatigue, they did
not disown the statement even when they subscribed the same before the prosecutor in whose office they were [later]
brought. On the other hand, they signed for basically the san1e reason a document purporting to show that they were
"released to [their] brother's custody in good condition." At the time, Deoven was about 21 years old, in his second year of
engineering studies and was not familiar with the so-called "estafa" with which the security personnel threatened to sue
him for; although he was quite aware of the consequences of a crime such as direct assault because he had previously
been convicted thereof. About two weeks later, Deoven exec ted a retraction in Baguio City where he took up his
engineering course.7

On July 1, 1997, respondent filed Civil Case No. 237-0-97 for recovery of sum of money with damages against petitioner,
on the premise that on June 13, 1997, he went to Legenda with his brothers Ludwin and Deoven; that he handed over
Legenda casino chips worth US$6,000.00, which belonged to him, to his brothers for the latter to use at the casino; that
petitioner accosted his brothers and unduly and illegally confiscated his casino chips equivalent to US$5,900.00; and that
petitioner refused and continues to refuse to return the same to him despite demand. His Complaint8 prayed for the return
 49

of the casino chips and an award of 50,000.00 moral damages, 50,000.00 exemplary damages, 30,000.00 attorney's
fees, 20,000.00 litigation expenses, and costs.

Petitioner's Answer with Compulsory Counterclaim 9 essentially alleged that right after Ludwin and Deoven's transactions
with the Legenda cashier were frozen on June 13, 1997, they voluntarily agreed to proceed to the Legenda security office
upon invitation, where Ludwin voluntarily informed security officers that it was a certain Michael Cabrera (Cabrera) - a
Legenda table inspector at the time - who gave him the casino chips for encashment, taught him how to play baccarat and
thereafter encash the chips, and rewarded him with Pl,000.00 for every $1,000.00 he encashed; that Ludwin pointed to a
picture of Cabrera in a photo album of casino employees shown to him; that Ludwin and Deoven were then brought to the
IIO SBMA, where they reiterated their statements made at the Legenda security office; that they volunteered to testify
against Cabrera; that respondent himself admitted that it was Cabrera who gave him the casino chips; that Ludwin and
Deoven voluntarily executed a joint affidavit before the Olongapo City Prosecutor's Office, which they subsequently
recanted; that respondent had no cause of action since the confiscated casino chips worth US$5,900.00 were stolen from
it, and thus it has the right to retain them. By way of counterclaim, petitioner sought an award of P 1 million moral
damages, 1 million exemplary damages, and P.5 million attorney's fees and litigation expenses.

Respondent filed his Answer10 to petitioner's counterclaim.

Ruling of the Regional Trial Court

After pre-trial and trial, the trial court rendered its May 17, 2006 Decision, which decreed as follows:

WHEREFORE, finding that the evidence preponderates in favor of the plaintiff, judgment is rendered against the
defendant ordering it to:

1) Return to plaintiff casino chips worth USD $5,900.00 or its equivalent in Philippine Peso at the rate of 38.00 to
USD $1 in 1997.

2) Pay plaintiff attorney's fees in the amount of 30,000.00 3) [Pay] [c]ost of this suit.

SO DECIDED.11

In arriving at the above conclusion, the trial court held:

The primordial issue is whether or not plaintiff can be considered the lawful owner of the USD $5,900 worth of casino
chips that were confiscated.

There is no dispute that the subject chips were in the possession of the plaintiff. He claims he got hold of them as
payment for car services he rendered to a Chinese individual. Defendant however, contends that said chips were stolen
from the casino and it is the lawful owner of the same.

The onus fell on defendant to prove that the casino chips were stolen. The proof adduced however, is wanting. The
statements of Deoven and Ludwin C. Fernandez, confessing to the source of the chips were recanted hence, have little
probative value. The testimony of defendant's witnesses narrated defendant's action responding to the suspicious
movements of the Fernandez brothers based on surveillance tapes. The tapes, however, do not show how these persons
got hold of the chips. The alleged source in the person of Mike Cabrera, a table inspector of the casino[,] was based on
the recanted declarations of the brothers. No criminal charge was shown to have been filed against him nor the plaintiff
and his brothers. Neither was there an explanation given as to how those chips came into the possession of Mike Cabrera
much less that he passed them on to the brothers for the purpose of encashing and dividing the proceeds amongst
themselves. All told therefore, there is no direct evidence to prove the theory of the defendant and the circumstantial
evidence present is, to the mind of the court, not sufficient to rebut the legal presw11ption that a person in possession of
personal property is the lawful owner of the same (Art. 559, Civil Code of the Philippines).12

Ruling of the Court of Appeals

Petitioner appealed the May 1 7, 2006 Decision of the trial court, arguing that Ludwin and Deoven's admission in their
joint affidavit before the Olongapo City Prosecutor's Office that it was Cabrera who gave them the casino chips strongly
 50

indicates that the chips were stolen from Legenda; that the subsequent recantation by Ludwin and Deoven of their joint
affidavit should be looked upon with disfavor, given that recanted testimony is unreliable and recantations can be easily
secured from poor and ignorant witnesses and for monetary consideration or through intimidation; that respondent's
explanation that he gave the chips to his brothers Ludwin and Deoven for them to play in the casino is highly doubtful; that
the true purpose of Ludwin and Deoven was to encash the stolen chips; that no force or intimidation attended the
treatment accorded Ludwin and Deoven when they were accosted and asked to explain their possession of the chips; and
that the trial court erred in awarding attorney's fees and costs for the filing of a baseless suit solely aimed at unjustly
enriching respondent at petitioner's expense.

On April 27, 2010, the CA issued the assailed Decision which affirmed the trial court's May 17, 2006 Decision. Petitioner's
Motion for Reconsideration was rebuffed as well.

In deciding against petitioner, the CA held that, applying Article 559 of the Civil Code, 13 respondent had the legal
presumption of title to or ownership of the casino chips. This conclusion springs from respondent's admission during trial
that the chips represented payment by a Chinese customer for services he rendered to the latter in his car shop. The CA
added that since respondent became the owner of the chips, he could very well have given them to Ludwin and Deoven,
who likewise held them as "possessors in good faith and for value" and with "presumptive title" derived from the
respondent. On the other hand, petitioner failed to convincingly show that the chips were stolen; for one, it did not even
file a criminal case against the supposed mastermind, Cabrera - nor did it charge Ludwin or Deoven - for the alleged theft
or taking of its chips.

The CA likewise held that Ludwin' s and Deoven' s statements and admissions at the Legenda security office are
inadmissible because they were obtained in violation of their constitutional rights: they were held in duress, denied the
right to counsel and the opportunity to contact respondent, and deprived of sleep, which is one of the "more subtler [sic]
techniques of physical and psychological torture to coerce a confession." 14 It found that the actions and methods of the
Legenda security personnel in detaining and extracting confessions from Ludwin and Deoven were illegal and in gross
violation of Ludwin's and Deoven's constitutional rights.15

Finally, the CA held that petitioner was guilty of bad faith in advancing its theory and claim against respondent by unduly
accusing him of dealing in stolen casino chips, which thus entitles respondent to the reduced award of attorney's fees in
the amount of 30,000.00

Issues

Petitioner raises the following issues:

a) The Honorable Court seriously erred in ruling that the recanted statements of Deoven Fernandez and Ludwin
C. Fernandez have [no] probative value;

b) The Honorable Court seriously erred in ruling that the circumstantial evidence present is not sufficient to rebut
the legal presumption that a person in possession of personal property is the lawful owner of the same;

c) The Honorable Court seriously erred in finding that the evidence preponderates in favor of the herein
respondent; [and]

d) The Honorable Court seriously erred in awarding attorney's fees and costs of suit I favor of the respondent. 16

Petitioner's Arguments

In its Petition and Reply,17 petitioner mainly argues that the assailed dispositions are grounded entirely on speculation,
and the inferences made are manifestly mistaken and based on a misappreciation of the facts and law; that the CA failed
to consider the testimonial and documentary evidence it presented to prove the fact that the casino chips were missing
and were stolen by Cabrera, who thereafter gave them to respondent's brothers, Ludwin and Deoven. Petitioner maintains
that the presumption of title under Article 559 cannot extend to respondent's brothers, who admitted during the
investigation at the Legenda security office and in their Joint Affidavit18 that the chips came from Cabrera, and not
responcient; that the subsequent Sworn Statement19 recanting the Joint Affidavit should not be given credence, as
affidavits of recantation can easily be secured - which thus makes them unreliable; and that no duress attended the taking
 51

of the brothers' Joint Affidavit, which was prepared by Henry Marzo of the Intelligence and Investigation Office (IIO) of the
Subic Bay Metropolitan Authority (SBMA).

Petitioner asserts that it is unbelievable that respondent would give US$6,000.00 worth of casino chips to his brothers with
which to play at the casino; that with the attending circumstances, the true intention of respondent's brothers was to
encash the stolen chips which Cabrera handed to them, and not to play at the casino. Petitioner thus concludes that no
coercion could have attended the investigation of Ludwin and Deoven; that their subsequent recantation should not be
given weight; and that for suing on a baseless claim, respondent is not entitled to attorney's fees and costs of litigation.

Petitioner thus prays for the reversal of the assailed dispositions and the corresponding dismissal of Civil Case No. 237-0-
97.

Respondent's Arguments

In his Comment,20 respondent generally echoes the pronouncement of the CA. He likewise notes that petitioner has
raised only questions of fact; that the Petition is being prosecuted to delay the proceedings; that the trial and appellate
courts are correct in finding that petitioner failed to prove its case and show that the casino chips were stolen; that
petitioner failed to rebut the presumption that a person in possession of personal property is the lawful owner of the same,
pursuant to Article 559 of the Civil Code; and that the 30,000.00 award of attorney's fees should be increased to
100,000.00.

Our Ruling

The Petition is denied.

Petitioner's underlying theory is that the subject casino chips were in fact stolen by its employee Cabrera, then handed
over to respondent's brothers, Ludwin and Deoven, for encashment at the casino; that Ludwin and Deoven played at the
casino only for show and to conceal their true intention, which is to encash the chips; that respondent's claim that he
owned the chips, as they were given to him in payment of services he rendered to a Chinese client, is false. These
arguments require the Court to examine in greater detail the facts involved. However, this may not be done because the
Court is not a trier of facts and does not normally undertake the re-examination of the evidence presented during trial; the
resolution of factual issues is the function of lower courts, whose findings thereon are received with respect and are
binding on the Court subject only to specific exceptions. 21 In tum, the factual findings of the Court of Appeals carry even
more weight when they are identical to those of the trial court's.22

Besides, a question of fact cannot properly be raised in a petition for review on certiorari. 23 Moreover, if petitioner should
stick to its theory that Cabrera stole the subject casino chips, then its failure to file a criminal case against the latter -
including Ludwin and Deoven for that matter - up to this point certainly does not help to convince the Court of its position,
especially considering that the supposed stolen chips represent a fairly large amount of money. Indeed, for purposes of
this proceeding, there appears to be no evidence on record - other than mere allegations and suppositions - that Cabrera
stole the casino chips in question; such conclusion came unilaterally from petitioner, and for it to use the same as
foundation to the claim that Ludwin, Deoven and respondent are dealing in stolen chips is clearly irregular and unfair.

Thus, there should be no basis to suppose that the casino chips found in Ludwin's and Deoven's possession were stolen;
petitioner acted arbitrarily in confiscating the same without basis. Their Joint Affidavit - which was later recanted - does not
even bear such fact; it merely states that the chips came from Cabrera. If it cannot be proved, in the first place, that
Cabrera stole these chips, then there is no more reason to suppose that Ludwin and Deoven were dealing in or
possessed stolen goods; unless the independent fact that Cabrera stole the chips can be proved, it cannot be said that
they must be confiscated when found to be in Ludwin's and Deoven's possession.

It is not even necessary to resolve whether Ludwin's and Deoven's Joint Affidavit was obtained by duress or otherwise;
the document is irrelevant to petitioner's cause, as it does not suggest at all that Cabrera stole the subject casino chips. At
most, it only shows that Cabrera gave Ludwin and Deoven casino chips, if this fact is true at all - since such statement has
since been recanted.
 52

The fact that Ludwin and Deoven appear to be indecisive as to who gave them the casino chips does not help petitioner at
all.1wphi1 It cannot lead to the conclusion that Cabrera stole the chips and then gave them to the two; as earlier stated,
petitioner had to prove this fact apart from Ludwin's and Deoven's claims, no matter how incredible they may seem.

Though casino chips do not constitute legal tender, 24 there is no law which prohibits their use or trade outside of the
casino which issues them. In any case, it is not unusual nor is it unlikely that respondent could be paid by his Chinese
client at the former' s car shop with the casino chips in question; said transaction, if not common, is nonetheless not
unlawful. These chips are paid for anyway; petitioner would not have parted with the same if their corresponding
representative equivalent - in legal tender, goodwill, or otherwise was not received by it in return or exchange. Given this
premise - that casino chips are considered to have been exchanged with their corresponding representative value - it is
with more reason that this Court should require petitioner to prove convincingly and persuasively that the chips it
confiscated from Ludwin and Deoven were indeed stolen from it; if so, any Tom, Dick or Harry in possession of genuine
casino chips is presumed to have paid for their representative value in exchange therefor. If petitioner cannot prove its
loss, then Article 559 cannot apply; the presumption that the chips were exchanged for value remains.

Finally, the Court sustains the award of attorney's fees. Under Article 2208 of the Civil Code, 25 attorney's fees may be
recovered when the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just
and demandable claim, or in any other case where the court deems it just and equitable that attorney's fees and expenses
of litigation should be recovered. Petitioner's act of arbitrarily confiscating the casino chips and treating Ludwin and
Deoven the way it did, and in refusing to satisfy respondent's claim despite the fact that it had no basis to withhold the
chips, confirm its bad faith, and should entitle respondent to an award.

With the foregoing view of the case, a discussion of the other issues raised is deemed irrelevant and unnecessary.

WHEREFORE, the Petition is DENIED. The assailed April 27, 2010 Decision and August 24, 2010 Resolution of the Court
of Appeals in CA-G.R. CV No. 91758 are AFFIRMED.

SO ORDERED.

G.R. No. 180069 March 5, 2014

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (now BDO UNIBANK, INC.), Petitioner,

vs.
ARTURO P. FRANCO, substituted by his heirs, namely: MAURICIA P. FRANCO, FLORIBEL P. FRANCO, AND
ALEXANDER P. FRANC0,1 Respondents.
 53

DECISION

PERALTA, J.:

Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court are the July 31, 2007 Decision 2and
October 4, 2007 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 82340, which affirmed the October 21, 2003
Decision4 of the Makati City Regional Trial Court (RTC), Branch 61.

The pertinent facts, as narrated by the trial court and as adopted both by the CA, as well as petitioner Philippine
Commercial International Bank (Bank),5 are as follows:

This is an action for damages filed [on September 5, 2000] by plaintiff Arturo P. Franco against Philippine Commercial
International Bank (PCIB), now known as Equitable-PCIBank, and Equitable Banking Corp.

The complaint essentially alleges, among others, that plaintiff secured from defendant PCIB the following Trust Indenture
Certificates:

Number Issued Maturity Amount Interest

094846 (Exh. "B") Dec. 8, 1986 Jan. 7, 1987 100,000.00 8.75% p.a.
135928 (Exh. "C") Jan. 19, 1987 Feb. 18, 1987 850,594.54 7.75% p.a.
205007 (Exh. "D") May 13, 1987 June 15, 1987 500,000.00 8.50% p.a.
205146 (Exh. "E") July 15, 1987 Aug 14, 1987 502,958.90 9.25% p.a.

that despite demands, defendants refused and still refuses to return to plaintiff the trust amounts, plus the stipulated
interest[;] that in all of the trust transactions that defendant PCIB had entered into with the plaintiff, defendant PCIB
represented to plaintiff that[,] in making the trust investment, plaintiff was actually providing for his future since the money
invested was going to be managed and administered by their PCIB-Trust Services Group and will be commingled, pooled
and automatically rolled- over for better investment return; that believing the representation of the bank, the plaintiff
invested his lifetime savings in the hope that the defendant bank will actually provide for their future by reinvesting and
rolling-over their investment automatically, without any need for the plaintiff to take any further action; that on the few
occasions that plaintiff had visited the defendant bank to request for a status on his investments, bank officers would
normally pull out his (sic) ledger card and show plaintiff the updated amount due him; that sometime in 1995, plaintiff
discovered that one of his children had leukemia and[,] in the ensuing hospitalization and treatment, plaintiff spent a lot of
money; that because his funds were already exhausted, plaintiff then turned to his Trust Indenture Certificates and started
inquiring as to how he could liquidate the trust; that in the beginning, defendant bank constantly asked for time to look for
his records, at one time [on June 18, 1998], promising to have an answer before July 15, 1998, then writing plaintiff on
May 18, 2000 saying that the bank [had] coordinated with their Branch and Trust Department but that it might take [some
time] to retrieve their records; [and] that to plaintiffs surprise, on June 22, 2000, he received a letter signed by defendants
counsel, Curato Divina & Partners, in effect denying plaintiffs request for payment by stating that due to the conversion of
all outstanding PCIBank trust indenture accounts into common trust certificates, all such PCIBank trust indenture
certificates have been rendered "null and void." Plaintiff prays for the payment of the amounts under the Trust Indenture
Certificates, plus interest, moral and exemplary damages and attorneys fees.

In their Answer, defendants admit the issuance by defendant PCIB of the Trust Indenture Certificates subject matter of the
complaint, but deny the allegation that the investments subject of the Trust Indenture Certificates are automatically rolled-
over as such certificates have their own fixed term and maturity date, and that the present action had already prescribed.

As stated in the Pre-Trial Order issued by this court on 15 February 2002, the following issues were defined and agreed
upon by the parties, to wit:

1. Whether or not the plaintiff is entitled to the relief he seeks; and

2. Whether or not the cause of action as exerted (sic) by the defendant has already prescribed.
 54

Plaintiff presented as its witness plaintiff Arturo P. Franco himself [who] testified, among others[:] that he is the proprietor
of Fair Marketing Freight Services[,] which is the investor named in Trust Indenture Certificate 094846; that[,] in 1986, he
decided to save up for his retirement and to invest his hard earned money; that he was then 51 years old and his choice
was to deposit his funds with defendant PCIB which later on merged with defendant Equitable Banking Corp. and is now
known as Equitable PCIBank; that he chose defendant PCIB for the latters representation that by making such
investment, he was actually providing for his future since his investment would be commingled, pooled and automatically
rolled-over for better investment return and which will provide for his needs upon retirement, without need for him to take
any further action; that he was a loyal client of the defendants from 1986 up to 1997; that he entered into a trust
agreement with defendant PCIB for which the latter issued subject Trust Indenture Certificates ([TICs], for brevity); that
sometime in 1997, when he was then 62 years old, he [tried] to encash the trust indenture certificates only to be given a
run-around by the defendants; that sometime in 1995, his son, Arthur, was diagnosed to be afflicted with leukemia and
eventually died on October 24, 1997; that because of his sons illness, he was forced to go to defendants and try to
encash his trust indenture certificates but was denied by defendant bank; that in a letter dated June 22, 2000, defendants,
through their counsel, informed plaintiff that the subject [TICs] are "null and void"; that when he received the letter of June
22, 2000, he was at first speechless and totally defeated and at a loss; that he and his wife begun to experience sleepless
nights, became anxious because their hope to secure their life in their old age had fallen apart[;] that instead of just
enjoying a secured life with his wife and enjoying his grandchildren and spending more time with the Lord, he was now in
debt and burdened with the fact that his lifetime savings just disappeared before his very eyes without a trace; [and] that
plaintiff was constrained to file this case and [spend] 22,117.80 in filing fees, to engage the services of counsel for the
amount of 50,000.00 with appearance fee of 3,000.00 per hearing, and that he suffered moral damages in the amount
of 200,000.00.

The foregoing facts were not rebutted by defendants. The court finds the witness and his testimony credible as the
witness testified in a simple and straightforward manner. Upon admission of plaintiffs exhibits, plaintiff rested his case.

The defendants presented Cecilia P. Soriano and Antonio M. Fortuno as their witnesses.

Cecilia P. Soriano, Operations Officer of defendant Equitable-PCIBank, testified that she came to know plaintiff in 1987
when she was assigned at PCIB Gil Puyat Branch; that plaintiff was one of the banks valued clients[;] and that plaintiff
secured the [TICs] subject matter of the complaint. On cross-examination, the witness admitted that she has seen only the
photocopies of plaintiffs [TICs]; that she had no direct dealing with plaintiff regarding the [TICs] and she had no idea what
happened to plaintiffs [TICs] after their respective maturity dates; [and] that valued clients of the bank were given special
privileges, such as allowing these clients to withdraw or encash [TICs] or investments over the phone[,] but she did not
receive any call from plaintiff withdrawing or encashing the plaintiffs [TICs].

The testimony of their next witness, Antonio Martin S. Fortuno, was offered to prove, among others, that [TICs] expired
upon maturity and after which, they were automatically rolled-over.

Antonio Martin S. Fortuno, Operations Officer of defendant Equitable-PCIBank, testified that he is familiar with the Trust
Indenture Certificates issued by defendant bank; that when a client would like to secure a Trust Indenture Certificate from
the bank, they would ask the client, among others, to sign [roll-over] agreement/rules and regulations; that when a client
would like to withdraw his proceeds from the certificate upon maturity, they follow the following steps: (1) they retrieve the
old certificates from client, (2) they have [the] client sign on the back portion of the certificate, (3) they prepare mode of
payment MC or credit to other accounts, and (4) they file the paid certificate to paid/roll-over file; that if the holder of a
certificate does not withdraw the placement upon maturity, they replace the old certificate with a new one; that if the client
is at the branch, the old certificate is replaced with a new certificate, have the client sign at the register copy, then stamp
the old certificate as Old Certificate-Stamp rolled-over/replaced; that if the client is not at the branch, they replace the old
certificate with a new certificate and stamped with rolled-over; that certificates have fixed maturity dates; that interest rates
stated in the certificates vary as they go either up or down depending on the prevailing bank rates as provided by the
Trust Department; that[,] in 1992[,] all existing Trust Indenture Certificates were converted into Common Trust Funds;
[and] that he is not aware of any Trust Indenture Certificate belonging to plaintiff which were converted into Common Trust
Funds in 1992.

On cross-examination, the witness admitted that he is familiar with Trust Indenture Certificates; that Trust Indenture
Certificates have been converted into Common Trust Funds; that the change is only in name because they have the same
features and that the only difference is that Common Trust Funds are classified into several product types depending on
the limit of the amount of investment; that there is nothing in the certificate that says it has a roll-over feature; that,
however, if the certificate expires and the client does not claim or withdraw his funds or surrender the certificate, they roll-
 55

over the funds of the client; that if a guest comes with the original Trust Indenture Certificate without any stamp as being
taken or cancelled, the bank should verify with the outstanding copy because the bank should have an outstanding copy
of

that Trust Indenture Certificate; that he is not aware that the Trust Indenture Certificates of the plaintiff were verified with
their records; and that he does not know whether plaintiffs Trust Indenture Certificates were actually paid out by the bank
to plaintiff.

Defendants did not conduct any re-direct.6

On October 21, 2003, the RTC rendered a Decision, the dispositive portion of which reads:

WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of plaintiff and ordering
defendant Philippine Commercial International Bank, now known as Equitable-PCIBank, to pay plaintiff the following:

1. On the First Cause of Action, the sum of 100,000.00, plus the stipulated interest of 8.75% per annum for the
period December 8, 1986 to January 7, 1987, plus interest of 6% per annum from January 8, 1987 until fully paid;

2. On the Second Cause of Action, the sum of 840,594.54, plus the stipulated interest of 7.75% per annum for
the period January 19, 1987 to February 18, 1987, plus interest of 6% per annum from February 19, 1987 until
fully paid;

3. On the Third Cause of Action, the sum of 500,000.00, plus the stipulated interest of 8.50% per annum for the
period May 13, 1987 to June 15, 1987, plus interest of 6% per annum from June 16, 1987 until fully paid;

4. On the Fourth Cause of Action, the sum of 502,958.90, plus the stipulated interest of 9.25% per annum for the
period July 15, 1987 to August 14, 1987, plus interest of 6% per annum from August 15, 1987 until fully paid;

5. 50,000.00 as moral damages;

6. 200,000.00 as exemplary damages;

7. Attorneys fees in the amount of 50,000.00, plus 3,000.00 for every hearing attended; and

8. 22,117.80 as reimbursement for filing fees.

The case against Equitable Banking Corporation is dismissed for insufficiency of evidence.

SO ORDERED.7

Considering that the four TICs have not been replaced or cancelled, the RTC held that the relationship of express trust
between petitioner Bank and respondent still subsists at the time the latter demanded the withdrawal of his funds under
them. While the TICs contain a maturity date, the court opined that the same refers only to the gross income expectation
or the applicable interest rate because the funds are automatically rolled-over with varying interest rates depending on the
prevailing interest rates as determined by petitioners Trust Department. With respect, however, to the interest rate
applicable after the stipulated maturity dates, the court deemed it fair and reasonable to impose the legal rate of interest
for want of evidence on the prevailing rate at the time of roll-over. Finally, the court found that petitioner Bank is in bad
faith in its dealings with respondent when it unilaterally declared despite claiming that respondent was one of its valued
clients the TICs as null and void by reason of their conversion to Common Trust Funds in 1991. The absence of good
faith was made more manifest when Fortuno testified that the trust indenture certificate and common trust fund have the
same features and the only difference is in the name and classification of the amount of investment.

On appeal, the CA affirmed the RTC ruling. According to the appellate court, Soriano could not have possibly known if
respondent indeed withdrew any or all of his participation in the subject TICS, because by her very own admission during
the cross-examination, she did not have any direct dealing with him with respect to the TICs at the time they matured or
even thereafter. Likewise, petitioner Bank failed to adduce any documentary evidence to establish the alleged fact that the
 56

four TICs were already paid or cancelled, or that respondents participation therein was already withdrawn. Further,
respondents testimony that he gave verbal instructions to petitioner Bank to roll-over his investment upon their maturity
was bolstered by Fortunos admission in open court that it has been petitioner Banks practice to roll-over investments
which remain unclaimed after their maturity even without instruction from their owners. With all these findings, the CA
concluded that the claim of respondent is not yet barred by prescription, since the maturity dates of the four TICs did not
terminate the express trust created between the parties.

A motion for reconsideration was filed by petitioner, but the CA acted unfavorably; hence, this petition.

We deny.

Upon perusal of the entire case records, the Court finds no reversible error committed by the CA in sustaining the RTC
Decision. Considering the evidence at hand, both courts have applied the law in accordance with the facts of the case.

A quick point, however, on the issue of alleged payment by petitioner Bank on the subject trust certificate indentures.

Jurisprudence abounds that, in civil cases, one who pleads payment has the burden of proving it.8 Even where the plaintiff
must allege non-payment, the general rule is that the burden rests on the defendant to prove payment, rather than on the
plaintiff to prove non-payment.9 When the creditor is in possession of the document of credit, he need not prove non-
payment for it is presumed.10 The creditor's possession of the evidence of debt is proof that the debt has not been
discharged by payment.11

In this case, respondent's possession of the original copies of the subject TICs strongly supports his claim that petitioner
Bank's obligation to return the principal plus interest of the money placement has not been extinguished. The TICs in the
hands of respondent is a proof of indebtedness and a prima facie evidence that they have not been paid. Petitioner Bank
could have easily presented documentary evidence to dispute the claim, but it did not. In its omission, it may be
reasonably deduced that no evidence to that effect really exist. Worse, the testimonies of petitioner Bank's own witnesses,
reinforce, rather than belie, respondent's allegations of non-payment.

WHEREFORE, premises considered, the instant Petition is DENIED. The July 31, 2007 Decision and October 4, 2007
Resolution of the Court of Appeals in CA-G.R. CV No. 82340, which affirmed the October 21, 2003 Decision of the Makati
City Regional Trial Court, Branch 61, are AFFIRMED.

SO ORDERED.
 57

G.R. No. 171298 April 15, 2013

SPOUSES OSCAR and THELMA CACAYORIN, Petitioners,

vs.
ARMED FORCES AND POLICE MUTUAL BENEFIT ASSOCIATION, INC., Respondent.
 58

DECISION

DEL CASTILLO, J.:

Consignation is necessarily judicial. Article 1258 of the Civil Code specifically provides that consignation shall be made by
depositing the thing or things due at the disposal of judicial authority. The said provision clearly precludes consignation in
venues other than the courts.

Assailed in this Petition for Review on Certiorari1 are the September 29, 2005 Decision2 of the Court of Appeals (CA)
which granted the Petition for Certiorari in CA-G.R. SP No. 84446 and its January 12, 2006 Resolution3denying
petitioners' Motion for Reconsideration.4

Factual Antecedents

Petitioner Oscar Cacayorin (Oscar) is a member of respondent Armed Forces and Police Mutual Benefit Association, Inc.
(AFPMBAI), a mutual benefit association duly organized and existing under Philippine laws and engaged in the business
of developing low-cost housing projects for personnel of the Armed Forces of the Philippines, Philippine National Police,
Bureau of Fire Protection, Bureau of Jail Management and Penology, and Philippine Coast Guard. He filed an application
with AFPMBAI to purchase a piece of property which the latter owned, specifically Lot 5, Block 8, Phase I, Kalikasan
Mutual Homes, San Pedro, Puerto Princesa City (the property), through a loan facility.

On July 4, 1994, Oscar and his wife and co-petitioner herein, Thelma, on one hand, and the Rural Bank of San Teodoro
(the Rural Bank) on the other, executed a Loan and Mortgage Agreement 5 with the former as borrowers and the Rural
Bank as lender, under the auspices of Pag-IBIG or Home Development Mutual Funds Home Financing Program.

The Rural Bank issued an August 22, 1994 letter of guaranty6 informing AFPMBAI that the proceeds of petitioners
approved loan in the amount of 77,418.00 shall be released to AFPMBAI after title to the property is transferred in
petitioners name and after the registration and annotation of the parties mortgage agreement.

On the basis of the Rural Banks letter of guaranty, AFPMBAI executed in petitioners favor a Deed of Absolute Sale, 7 and
a new title Transfer Certificate of Title No. 370178 (TCT No. 37017) was issued in their name, with the corresponding
annotation of their mortgage agreement with the Rural Bank, under Entry No. 3364. 9

Unfortunately, the Pag-IBIG loan facility did not push through and the Rural Bank closed and was placed under
receivership by the Philippine Deposit Insurance Corporation (PDIC). Meanwhile, AFPMBAI somehow was able to take
possession of petitioners loan documents and TCT No. 37017, while petitioners were unable to pay the
loan/consideration for the property.

AFPMBAI made oral and written demands for petitioners to pay the loan/ consideration for the property.10

In July 2003, petitioners filed a Complaint 11 for consignation of loan payment, recovery of title and cancellation of
mortgage annotation against AFPMBAI, PDIC and the Register of Deeds of Puerto Princesa City. The case was docketed
as Civil Case No. 3812 and raffled to Branch 47 of the Regional Trial Court (RTC) of Puerto Princesa City (Puerto
Princesa RTC). Petitioners alleged in their Complaint that as a result of the Rural Banks closure and PDICs claim that
their loan papers could not be located, they were left in a quandary as to where they should tender full payment of the
loan and how to secure cancellation of the mortgage annotation on TCT No. 37017. Petitioners prayed, thus:

a. That after the filing of this complaint an order be made allowing the consignation x x x of Php77,418.00.

b. For the court to compute and declare the amount of interest to be paid by the plaintiffs and thereafter to allow
the consignation of the interest payments in order to give way for the full discharge of the loan.

c. To order the AFPMBAI to turn over to the custody of the court the loan records and title (T.C.T. No. 37017) of
the plaintiffs if the same are in their possession.

d. To declare the full payment of the principal loan and interest and ordering the full discharge from mortgage of
the property covered by T.C.T. No. 37017.
 59

e. To order the Register of Deeds of Puerto Princesa City to cancel the annotation of real estate mortgage under
Entry No. 3364 at the back of T.C.T. No. 37017.

f. Thereafter, to turn over to the plaintiffs their title free from the aforesaid mortgage loan.12

AFPMBAI filed a Motion to Dismiss13 claiming that petitioners Complaint falls within the jurisdiction of the Housing and
Land Use Regulatory Board (HLURB) and not the Puerto Princesa RTC, as it was filed by petitioners in their capacity as
buyers of a subdivision lot and it prays for specific performance of contractual and legal obligations decreed under
Presidential Decree No. 95714 (PD 957). It added that since no prior valid tender of payment was made by petitioners, the
consignation case was fatally defective and susceptible to dismissal.

Ruling of the Regional Trial Court

In an October 16, 2003 Order,15 the trial court denied AFPMBAIs Motion to Dismiss, declaring that since title has been
transferred in the name of petitioners and the action involves consignation of loan payments, it possessed jurisdiction to
continue with the case. It further held that the only remaining unsettled transaction is between petitioners and PDIC as the
appointed receiver of the Rural Bank.

AFPMBAI filed a Motion for Reconsideration,16 which the trial court denied in its March 19, 2004 Order.17

Ruling of the Court of Appeals

AFPMBAI thus instituted CA-G.R. SP No. 84446, which is a Petition for Certiorari18 raising the issue of jurisdiction. On
September 29, 2005, the CA rendered the assailed Decision decreeing as follows:

WHEREFORE, premises considered, this Petition is GRANTED. The Assailed 16 October 2003 and 19 March 2004
Orders of the public respondent judge are hereby ordered VACATED and SET ASIDE.

SO ORDERED.19

The CA held that Civil Case No. 3812 is a case for specific performance of AFPMBAIs contractual and statutory
obligations as owner/developer of Kalikasan Mutual Homes, which makes PD 957 applicable and thus places the case
within the jurisdiction of the HLURB. It said that since one of the remedies prayed for is the delivery to petitioners of TCT
No. 37017, the case is cognizable exclusively by the HLURB.

Petitioners moved for reconsideration which was denied by the CA in its January 12, 2006 Resolution.

Hence, the instant Petition.

Issue

The sole issue that must be resolved in this Petition is: Does the Complaint in Civil Case No. 3812 fall within the exclusive
jurisdiction of the HLURB?

Petitioners Arguments

Petitioners assert that the elements which make up a valid case for consignation are present in their Complaint. They add
that since a deed of absolute sale has been issued in their favor, and possession of the property has been surrendered to
them, not to mention that title has been placed in their name, the HLURB lost jurisdiction over their case. And for this
same reason, petitioners argue that their case may not be said to be one for specific performance of contractual and legal
obligations under PD 957 as nothing more was left to be done in order to perfect or consolidate their title.

Petitioners thus pray that the herein assailed Decision and Resolution of the CA be set aside, and that the trial court be
ordered to continue with the proceedings in Civil Case No. 3812.

Respondent's Arguments
 60

Respondent, on the other hand, insists in its Comment20 that jurisdiction over petitioners case lies with the HLURB, as it
springs from their contractual relation as seller and buyer, respectively, of a subdivision lot. The prayer in petitioners
Complaint involves the surrender or delivery of the title after full payment of the purchase price, which respondent claims
are reciprocal obligations in a sale transaction covered by PD 957. Respondent adds that in effect, petitioners are
exacting specific performance from it, which places their case within the jurisdiction of the HLURB.

Our Ruling

The Court grants the Petition.

The Complaint makes out a case for consignation.

The settled principle is that "the allegations of the Complaint determine the nature of the action and consequently the
jurisdiction of the courts. This rule applies whether or not the plaintiff is entitled to recover upon all or some of the claims
asserted therein as this is a matter that can be resolved only after and as a result of the trial." 21

Does the Complaint in Civil Case No. 3812 make out a case for consignation? It alleges that:

6.0 Not long after however, RBST 22 closed shop and defendant Philippine Deposit Insurance Corporation
(PDIC) was appointed as its receiver. The plaintiffs, through a representative, made a verbal inquiry to the PDIC
regarding the payment of their loan but were told that it has no information or record of the said loan. This made
[sic] the plaintiffs in quandary as to where or whom they will pay their loan, which they intend to pay in full, so as
to cancel the annotation of mortgage in their title.

7.0 It was discovered that the loan papers of the plaintiffs, including the duplicate original of their title, were in
the possession of defendant AFPMBAI. It was unclear though why the said documents including the title were in
the possession of AFPMBAI. These papers should have been in RBSTs possession and given to PDIC after its
closure in the latters capacity as receiver.

8.0 Plaintiffs are now intending to pay in full their real estate loan but could not decide where to pay the same
because of RBST [sic] closure and PDICs failure to locate the loan records and title. This courts intervention is
now needed in order to determine to [sic] where or whom the loan should be paid.

9.0 Plaintiffs hereby respectfully prays [sic] for this court to allow the deposit of the amount of Php77,418.00 as
full payment of their principal loan, excluding interest, pursuant to the Loan and Mortgage Agreement on 4 July
1994.23

From the above allegations, it appears that the petitioners debt is outstanding; that the Rural Banks receiver, PDIC,
informed petitioners that it has no record of their loan even as it took over the affairs of the Rural Bank, which on record is
the petitioners creditor as per the July 4, 1994 Loan and Mortgage Agreement; that one way or another, AFPMBAI came
into possession of the loan documents as well as TCT No. 37017; that petitioners are ready to pay the loan in full;
however, under the circumstances, they do not know which of the two the Rural Bank or AFPMBAI should receive full
payment of the purchase price, or to whom tender of payment must validly be made.

Under Article 1256 of the Civil Code,24 the debtor shall be released from responsibility by the consignation of the thing or
sum due, without need of prior tender of payment, when the creditor is absent or unknown, or when he is incapacitated to
receive the payment at the time it is due, or when two or more persons claim the same right to collect, or when the title to
the obligation has been lost. Applying Article 1256 to the petitioners case as shaped by the allegations in their Complaint,
the Court finds that a case for consignation has been made out, as it now appears that there are two entities which
petitioners must deal with in order to fully secure their title to the property: 1) the Rural Bank (through PDIC), which is the
apparent creditor under the July 4, 1994 Loan and Mortgage Agreement; and 2) AFPMBAI, which is currently in
possession of the loan documents and the certificate of title, and the one making demands upon petitioners to pay.
Clearly, the allegations in the Complaint present a situation where the creditor is unknown, or that two or more entities
appear to possess the same right to collect from petitioners. Whatever transpired between the Rural Bank or PDIC and
AFPMBAI in respect of petitioners loan account, if any, such that AFPMBAI came into possession of the loan documents
and TCT No. 37017, it appears that petitioners were not informed thereof, nor made privy thereto.
 61

Indeed, the instant case presents a unique situation where the buyer, through no fault of his own, was able to obtain title
to real property in his name even before he could pay the purchase price in full. There appears to be no vitiated consent,
nor is there any other impediment to the consummation of their agreement, just as it appears that it would be to the best
interests of all parties to the sale that it be once and for all completed and terminated. For this reason, Civil Case No.
3812 should at this juncture be allowed to proceed.

Moreover, petitioners position is buttressed by AFPMBAIs own admission in its Comment 25 that it made oral and written
demands upon the former, which naturally aggravated their confusion as to who was their rightful creditor to whom
payment should be made the Rural Bank or AFPMBAI. Its subsequent filing of the Motion to Dismiss runs counter to its
demands to pay. If it wanted to be paid with alacrity, then it should not have moved to dismiss Civil Case No. 3812, which
was brought precisely by the petitioners in order to be able to finally settle their obligation in full.

Finally, the lack of prior tender of payment by the petitioners is not fatal to their consignation case. They filed the case for
the exact reason that they were at a loss as to which between the two the Rural Bank or AFPMBAI was entitled to
such a tender of payment. Besides, as earlier stated, Article 1256 authorizes consignation alone, without need of prior
tender of payment, where the ground for consignation is that the creditor is unknown, or does not appear at the place of
payment; or is incapacitated to receive the payment at the time it is due; or when, without just cause, he refuses to give a
receipt; or when two or more persons claim the same right to collect; or when the title of the obligation has been lost.

Consignation is necessarily judicial; hence, jurisdiction lies with the RTC, not with the HLURB.

On the question of jurisdiction, petitioners case should be tried in the Puerto Princesa RTC, and not the HLURB.
Consignation is necessarily judicial,26 as the Civil Code itself provides that consignation shall be made by depositing the
thing or things due at the disposal of judicial authority, thus:

Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the
tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases.

The consignation having been made, the interested parties shall also be notified thereof. (Emphasis and underscoring
supplied)

The above provision clearly precludes consignation in venues other than the courts.1wphi1 Elsewhere, what may be
made is a valid tender of payment, but not consignation. The two, however, are to be distinguished.

Tender of payment must be distinguished from consignation. Tender is the antecedent of consignation, that is, an act
preparatory to the consignation, which is the principal, and from which are derived the immediate consequences which the
debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while consignation is necessarily judicial, and
the priority of the first is the attempt to make a private settlement before proceeding to the solemnities of consignation. (8
Manresa 325).27

While it may be true that petitioners claim relates to the terms and conditions of the sale of AFPMBAIs subdivision lot,
this is overshadowed by the fact that since the Complaint in Civil Case No. 3812 pleads a case for consignation, the
HLURB is without jurisdiction to try it, as such case may only be tried by the regular courts.

WHEREFORE, premises considered, the Petition is GRANTED. The September 29, 2005 Decision and January 12, 2006
Resolution of the Court of Appeals in CA-G.R. SP No. 84446 are ANNULLED and SET ASIDE. The October 16, 2003 and
March 19, 2004 Orders of the Regional Trial Court of Puerto Princesa City, Branch 47, are REINSTATED, and the case is
REMANDED to the said court for continuation of the proceedings.

SO ORDERED.
 62

G. R. No. 156627 - June 4, 2004

SPOUSES MANUEL and JOCELYN BARREDO, Petitioners, vs. SPOUSES EUSTAQUIO and EMILDA
LEAO, Respondents.

DECISION
 63

PUNO, J.:

In resolving the case at bar, we hearken back to the time-honored principle in obligations and contracts enunciated by this
Court some 80 years ago in Song Fo & Co. v. Hawaiian Philippine Co.1 that the rescission of contracts will not be
permitted for a slight or casual breach thereof.

The factual antecedents are undisputed. Sometime in 1979, petitioners spouses Manuel and Jocelyn Barredo (Barredo
Spouses) bought a house and lot located along Lilac Road, Pilar Village, Las Pias, Metro Manila, with the proceeds of
a P50,000.00 loan from the Social Security System (SSS) which was payable in 25 years and an P88,400.00 loan from
the Apex Mortgage and Loans Corporation (Apex) which was payable in 20 years. To secure the twin loans, they
executed a first mortgage over the house and lot in favor of SSS and a second one in favor of Apex.

On July 10, 1987, the Barredo Spouses sold their house and lot to respondents Eustaquio and Emilda Leao (Leao
Spouses) by way of a Conditional Deed of Sale with Assumption of Mortgage. The Leao Spouses would pay the Barredo
Spouses P200,000.00, P100,000.00 of which would be payable on July 15, 1987, while the balance of P100,000.00 would
be paid in ten (10) equal monthly installments after the signing of the contract. The Leao Spouses would also assume
the first and second mortgages and pay the monthly amortizations to SSS and Apex beginning July 1987 until both
obligations are fully paid.

In accordance with the agreement, the purchase price of P200,000.00 was paid to the Barredo Spouses who turned over
the possession of the house and lot in favor of the Leao Spouses. Two (2) years later, on September 4, 1989, the
Barredo Spouses initiated a complaint before the Regional Trial Court of Las Pias seeking the rescission of the contract
on the ground that the Leao Spouses despite repeated demands failed to pay the mortgage amortizations to the SSS
and Apex causing the Barredo Spouses great and irreparable damage. The Leao Spouses, however, answered that they
were up-to-date with their amortization payments to Apex but were not able to pay the SSS amortizations because their
payments were refused upon the instructions of the Barredo Spouses.

Meanwhile, allegedly in order to save their good name, credit standing and reputation, the Barredo Spouses took it upon
themselves to settle the mortgage loans and paid the SSS the sum of P27,494.00 on September 11, 1989,
and P41,401.91 on January 9, 1990. The SSS issued a Release of Real Estate Mortgage Loan on January 9, 1990. They
also settled the mortgage loan with Apex and paid the sum of P5,379.23 on October 3, 1989, and P64,000.00 on January
9, 1990. Likewise, Apex issued a Certification of Full Payment of Loan on January 12, 1990. They also paid the real
estate property taxes for the years 1987 up to 1990.

On October 5, 1993, the Regional Trial Court of Las Pias, Br. 275, 2 ruled that the assumption of mortgage debts of the
Barredo Spouses by the Leao Spouses "is a very substantial condition x x x x The credit standing of the (Barredo
Spouses) will be greatly prejudiced should they appear delinquent or not paying at all. This is what the (Barredo Spouses)
feared so much, if foreclosure proceedings are resorted to because of their failure to pay their obligations."3 The trial court
thus rendered judgment in favor of the plaintiff, the Barredo Spouses

WHEREFORE, and in consideration of the foregoing, by preponderance of evidence, judgment is hereby rendered in
favor of the plaintiffs and against the defendants by: (1) declaring the Conditional Deed of Sale with Assumption of
Mortgage entered into by the plaintiffs and the defendants on July 10, 1987, as rescinded and therefore null and void as of
this date; (2) ordering the defendants jointly and severally to pay the sum of P15,000.00 as actual and litigation expenses,
and the sum of P25,000.00 as and by way of attorneys fees; and (3) to pay the costs.

SO ORDERED.4

Aggrieved, the Leao Spouses who have turned over the possession of the subject house and lot to the Barredo Spouses
appealed to the Court of Appeals. On May 21, 2002, the appellate court reversed and set aside the decision of the trial
court on the ground that the payments of amortization to Apex and SSS were mere collateral matters which do not detract
from the condition of paying the principal consideration.5 The dispositive portion of the decision reads

WHEREFORE, the questioned decision of the Regional Trial Court of Las Pias, Branch 275, is
hereby REVERSED and SET ASIDE, and another one is entered DISMISSING the complaint for lack of cause of action,
and ordering plaintiff-appellees to:
 64

a) execute the Deed of Absolute Sale and to deliver TCT No. S-104634 in favor of defendants-appellants upon full
payment of the amounts of P68,895.91, P69,379.23 and P2,217.60, or a total of P140,492.74, subject to the legal rate of
interest per annum from the time said payments were made by plaintiffs-appellees until the same are fully paid;

b) to vacate and/or turn over the said property to defendants-appellants;

c) to pay attorneys fees in the sum of P20,000.00 and

d) to pay the costs of litigation.

SO ORDERED.6

On December 10, 2002, the appellate court denied the motion for reconsideration for lack of merit. Hence, this petition for
review on certiorari on a sole assignment of error

CONTRARY TO THE EXPRESS FINDINGS OF THE TRIAL COURT THAT THERE WAS SUBSTANTIAL AND
FUNDAMENTAL BREACH BY THE RESPONDENTS OF THEIR RECIPROCAL OBLIGATIONS TO ASSUME AND PAY
THE MORTGAGE OBLIGATION OF PETITIONERS WITH THE SSS AND APEX, THE COURT OF APPEALS ERRED IN
HOLDING THAT THE PAYMENTS OF AMORTIZATION TO APEX AND SSS ARE MERE COLLATERAL MATTERS
AND DISMISSING PETITIONERS COMPLAINT FOR LACK OF CAUSE OF ACTION.7

Petitioners argue that the terms of the agreement called for the strict compliance of two (2) equally essential and material
obligations on the part of the Leao Spouses, namely, the payment of the P200,000.00 to them and the payment of the
mortgage amortizations to the SSS and Apex. And, the Barredo Spouses undertook to execute the corresponding Deed of
Absolute Sale only upon the faithful compliance by the Leao Spouses of the conditions set forth in their agreement.
Thus, the failure of the Leao Spouses to pay the mortgage amortizations to the SSS and Apex gave rise to the right of
the Barredo Spouses to refrain from executing the deed of sale and in fact ask for rescission, a right accorded to an
injured party.

Respondents Leao Spouses, however, contend that they were only obliged to assume the amortization payments of the
Barredo Spouses with the SSS and Apex, which they did upon signing the agreement. The contract does not stipulate as
a condition the full payment of the SSS and Apex mortgages. Granting for arguments sake that their failure to pay in full
the mortgage was not a full compliance of their obligation, they could not be faulted because their payments were not
accepted by the SSS since the Barredo Spouses failed to notify the SSS of the assignment of their debt. In fine, the
alleged breach, if any, was only casual or slight and does not defeat the very object of the parties in entering into the
agreement. Moreover, the Barredo Spouses were not and will never be injured parties since if the amortizations were not
paid, it would be the Leao Spouses who would eventually lose the house and lot. As such, rescission does not obtain.

We quote the pertinent provisions of the Conditional Deed of Sale with Assumption of Mortgage

1. ONE HUNDRED THOUSAND PESOS (P100,000.00) Philippine Currency, shall be paid by the VENDEES to the
VENDORS on July 15, 1987.

2. The balance of ONE HUNDRED THOUSAND PESOS (P100,000.00) Philippine Currency, shall be paid by the
VENDEES to the VENDORS in ten (10) equal monthly installments at the VENDORS residence, after the signing of this
Contract, consisting of ten (10) post-dated checks drawn against the checking account of the VENDEES beginning
August 1, 1987, and the succeeding months x x x x until the amount is fully paid and the checks properly encashed x x x x

3. The VENDEES do hereby accept this Sale and bind themselves to assume as they hereby assume beginning on July
1, 1987, the payment of the unpaid balance of the First Mortgage indebtedness of the VENDORS with the Social Security
System as of June 1, 1987 x x x x and another indebtedness of the VENDORS in a 2nd Mortgage with the Apex Mortgage
and Loans Corporation, as of June 1, 1987, x x x x and that the herein VENDEES do hereby further agree to be bound by
the precise terms and conditions therein contained.

4. That should the VENDEES well and faithfully comply with the conditions set forth in this Contract, then the VENDORS
shall execute the corresponding Absolute Deed of Sale over the property herein conveyed with assumption of the
mortgages aforecited, in favor of the VENDEES herein.
 65

A careful reading of the pertinent provisions of the agreement readily shows that the principal object of the contract was
the sale of the Barredo house and lot, for which the Leao Spouses gave a down payment of P100,000.00 as provided for
in par. 1 of the contract, and thereafter ten (10) equal monthly installments amounting to another P100,000.00, as
stipulated in par. 2 of the same agreement. The assumption of the mortgages by the Leao Spouses over the mortgaged
property and their payment of amortizations are just collateral matters which are natural consequences of the sale of the
said mortgaged property.

Thus, par. 3 of the agreement provides that the Leao Spouses "bind themselves to assume as they hereby assume
beginning on July 1, 1987, the payment of the unpaid balance x x x x" Hence, the Leao Spouses merely bound
themselves to assume, which they actually did upon the signing of the agreement, the obligations of the Barredo Spouses
with the SSS and Apex. Nowhere in the agreement was it stipulated that the sale was conditioned upon their full payment
of the loans with SSS and Apex. When the language of the contract is clear, it requires no interpretation, 8 and its terms
should not be disturbed.9 The primary and elementary rule of construction of documents is that when the words or
language thereof is clear and plain or readily understandable by any ordinary reader thereof, there is absolutely no room
for interpretation or construction anymore10 and the literal meaning of its stipulations shall control.11

To include the full payment of the obligations with the SSS and Apex as a condition would be to unnecessarily stretch and
put a new meaning to the provisions of the agreement. For, as a general rule, when the terms of an agreement have been
reduced to writing, such written agreement is deemed to contain all the terms agreed upon and there can be, between the
parties and their successors-in-interest, no evidence of such terms other than the contents of the written
agreement.12 And, it is a familiar doctrine in obligations and contracts that the parties are bound by the stipulations,
clauses, terms and conditions they have agreed to, which is the law between them, the only limitation being that these
stipulations, clauses, terms and conditions are not contrary to law, morals, public order or public policy. 13 Not being
repugnant to any legal proscription, the agreement entered into by the parties must be respected and each is bound to
fulfill what has been expressly stipulated therein.14

But even if we consider the payment of the mortgage amortizations to the SSS and Apex as a condition on which the sale
is based on, still rescission would not be available since non-compliance with such condition would just be a minor or
casual breach thereof as it does not defeat the very object of the parties in entering into the contract. A cursory reading of
the agreement easily reveals that the main consideration of the sale is the payment of P200,000.00 to the vendors within
the period agreed upon. The assumption of mortgage by the Leao Spouses is a natural consequence of their buying a
mortgaged property. In fact, the Barredo Spouses do not stand to benefit from the payment of the amortizations by the
Leao Spouses directly to the SSS and Apex simply because the Barredo Spouses have already parted with their
property, for which they were already fully compensated in the amount of P200,000.00.

Thus, as adverted to in Song Fo & Co. v. Hawaiian Philippine Co.,15 we ruled that a delay in the payment for a small
quantity of molasses for some twenty (20) days is not such a violation of an essential condition of the contract that
warrants rescission due to non-performance. In Philippine Amusement Enterprise, Inc. v. Natividad,16 we declined
rescission for "the occasional failure of the phonograph to operate, not frequent enough to render it unsuitable and
unserviceable." In Laforteza v. Machuca,17 we said that the delay of one month in payment was a mere casual breach
that would not entitle the respondents to rescind the contract. In Ang v. Court of Appeals,18 we held that the failure to
remove and clear the subject property of all occupants and obstructions and deliver all the pertinent papers to the
vendees for the registration and issuance of a certificate of title in their name were not essential conditions but merely
incidental undertakings which will not permit rescission. In Power Commercial and Industrial Corp. v. Court of
Appeals,19 we went a step further and considered the failure of the vendor to eject the occupants of a lot sold as a "usual
warranty against eviction," and not a condition that was not met, and thus, rescission was not allowed. And, in Del
Castillo v. Nanguiat,20 we ruled that the failure to pay in full the purchase price stipulated in a deed of sale does not ipso
facto grant the seller the right to rescind the agreement. In all these cases, we were consistent in holding that rescission of
a contract will not be permitted for a slight or casual breach, but only such substantial and fundamental breach as would
defeat the very object of the parties in making the agreement.

If the Barredo Spouses were really protective of their reputation and credit standing, they should have sought the consent,
or at least notified the SSS and Apex of the assumption by the Leao Spouses of their indebtedness. Besides, in ordering
rescission, the trial court should have likewise ordered the Barredo Spouses to return the P200,000.00 they received as
purchase price plus interests. Art. 1385 of the Civil Code provides that "[r]escission creates the obligation to return the
things which were the object of the contract, together with their fruits, and the price with its interest." 21 The vendor is
therefore obliged to return the purchase price paid to him by the buyer if the latter rescinds the sale.22 Thus, where a
contract is rescinded, it is the duty of the court to require both parties to surrender that which they have respectively
received and place each other as far as practicable in his original situation. 23
 66

IN VIEW WHEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 44009
promulgated May 21, 2002, and its Resolution therein dated December 10, 2002, are hereby AFFIRMED. Costs against
petitioners.

SO ORDERED.

Quisumbing, Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

G.R. No. 116792 March 29, 1996

BANK OF THE PHILIPPINES ISLAND and GRACE ROMERO, petitioners,

vs.
COURT OF APPEALS and EDVIN F. REYES, respondents.

PUNO, J.:p

Petitioners seek a review of the Decision1 of respondent Court of Appeals in CA-G.R. CV No. 41543 reversing the
Decision2 of the Regional Trial Court of Quezon City, Branch 79, and ordering petitioners to credit private respondent's
Savings Account No. 3185-0172-56 with P10,556,00 plus interest.

The facts reveal that on September 25, 1985, private respondent Edvin F. Reyes opened Savings Account No. 3185-
0172-56 at petitioner Bank of the Philippine Islands (BPI) Cubao, Shopping Center Branch. It is a joint "AND/OR" account
with his wife, Sonia S. Reyes.

Private respondent also held a joint "AND/OR" Savings Account No. 3185-0128-82 with his grandmother, Emeteria M.
Fernandez, opened on February 11, 1986 at the same BPI branch. He regularly deposited in this account the U.S.
Treasury Warrants payable to the order of Emeteria M. Fernandez as her monthly pension.

Emeteria M. Fernandez died on December 28, 1989 without the knowledge of the U.S. Treasury Department. She was
still sent U.S. Treasury Warrant No. 21667302 dated January 1, 1990 in the amount of U.S. $377.003 or P10,556.00.
On January 4, 1990, private respondent deposited the said U.S. treasury check of Fernandez in Savings Account No.
 67

3185-0128-82. The U.S. Veterans Administration Office in Manila conditionally cleared the check. 4 The check was then
sent to the United States for further clearing.5

Two months after or on March 8, 1990, private respondent closed Savings Account No. 3185-0128-82 and transferred its
funds amounting to P13,112.91 to Savings Account No. 3185-0172-56, the joint account with his wife.

On January 16, 1991, U.S. Treasury Warrant No. 21667302 was dishonored as it was discovered that Fernandez
died three (3) days prior to its issuance. The U.S. Department of Treasury requested petitioner bank for a refund. 6For the
first time petitioner bank came to know of the death of Fernandez.

On February 19, 1991, private-respondent received a PT&T urgent telegram from petitioner bank requesting him to
contact Manager Grace S. Romero or Assistant Manager Carmen Bernardo. When he called up the bank, he was
informed that the treasury check was the subject of a claim by Citibank NA, correspondent of petitioner bank. He assured
petitioners that he would drop by the bank to look into the matter. He also verbally authorized them to debit from his other
joint account the amount stated in the dishonored U.S. Treasury Warrant. 7 On the same day, petitioner bank debited the
amount of P10,556.00 from private respondent's Savings Account No. 3185-0172-56.

On February 21, 1991, private respondent with his lawyer Humphrey Tumaneng visited the petitioner bank and the refund
documents were shown to them. Surprisingly, private respondent demanded from petitioner bank restitution of the debited
amount. He claimed that because of the debit, he failed to withdraw his money when he needed them. He then filed a suit
for Damages8 against petitioners before the Regional Trial Court of Quezon City, Branch 79.

Petitioners contested the complaint and counter claimed, for moral and exemplary damages. By way of Special and
Affirmative Defense, they averred that private respondent gave them his express verbal authorization to debit the
questioned amount. They claimed that private respondent later refused to execute a written authority.9

In a Decision dated January 20, 1993, the trial court dismissed the complaint of private respondent for lack of cause of
action.10

Private respondent appealed to the respondent Court of Appeals. On August 16, 1994, the Sixteenth Division of
respondent court in AC-G.R. CV No. 41543 reversed the impugned decision, viz:

WHEREFORE, the judgement appealed from is set aside, and another one entered ordering defendant
(petitioner) to credit plaintiff's (private respondent's) S.A. No. 3185-0172-56 with P10,556.00 plus interest
at the applicable rates for express teller savings accounts from February 19, 1991, until compliance
herewith. The claim and counterclaim for damages are dismissed for lack of merit.

SO ORDERED.11

Petitioners now contend that respondent Court of Appeals erred:

RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT RESPONDENT

REYES GAVE EXPRESS AUTHORITY TO PETITIONER BANK TO DEBIT HIS JOINT ACCOUNT WITH
HIS WIFE FOR THE VALUE OF THE RETURNED U.S. TREASURY WARRANT.

II

RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT PETITIONER BANK
HAS LEGAL RIGHT TO APPLY THE DEPOSIT OF RESPONDENT REYES TO HIS OUTSTANDING
OBLIGATION TO PETITIONER BANK BROUGHT ABOUT BY THE RETURN OF THE U.S. TREASURY
WARRANT HE EARLIER DEPOSITED UNDER THE PRINCIPLE OF "LEGAL COMPENSATION."

III
 68

RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT APPLYING CORRECTLY THE

PRINCIPLES ENUNCIATED BY THE SUPREME COURT IN THE CASE OF GULLAS V. PNB, 62 PHIL.
519.

IV.

RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT APPRECIATING THE FACT THAT
THE MONEY DEBITED BY PETITIONER BANK WAS THE SAME MONEY TRANSFERRED BY
RESPONDENT REYES FROM HIS JOINT "AND/OR" ACCOUNT WITH HIS GRANDMOTHER TO HIS
JOINT "AND/OR" ACCOUNT WITH HIS WIFE.12

We find merit in the petition.

The first issue for resolution is whether private respondent verbally authorized petitioner bank to debit his joint account
with his wife for the amount of the returned U.S. Treasury Warrant. We find that petitioners were able to prove this verbal
authority by preponderance of evidence. The testimonies of Bernardo and Romero deserve credence. Bernardo testified:

xxx xxx xxx

Q After that, what happened?

A . . . Dr. Reyes Called me up and I informed him about the return of the U.S. Treasury
Warrant and we are requested to reimburse for the amount.

Q What was his response if any?

A Don't you worry about it, there is no personal problem.

xxx xxx xxx

Q And so what was his response?

A He said that don' t you worry about.

xxx xxx xxx

Q You said that you asked him the advice and he did not answer, what advice are you
referring to?

A In our conversation, he promised me that he will give me written confirmation or

authorization.13

The conversation was promptly relayed to Romero who testified:

xxx xxx xxx

Q . . . Was there any opportunity where in said Mrs. Bernardo was able to convey to you
the contents of their conversation?

A This was immediately relayed to me as manager of the Bank of the Philippine Islands,
sir.

Q What, any was the content of her conversation, if you know?

 69

A Mr. Reyes instructed Mrs. Bernardo to debit his account with the bank. His account
was maintained jointly with his wife then he promised to drop by to give us a written
confirmation, sir.

xxx xxx xxx

Q You said that you authorized the debiting of the account on February 19, 1991, is that
correct?

A I did not authorize, we merely followed the instruction of Mr. Reyes, sir.14

We are not disposed to believe private respondent's allegation that he did not give any verbal authorization. His
testimony is uncorroborated. Nor does he inspire credence. His past and fraudulent conduct is an evidence
against him.15 He concealed from petitioner bank the death of Fernandez on December 28, 1989. 16As of that
date, he knew that Fernandez was no longer entitled to receive any pension. Nonetheless, he-still received the
U.S. Treasury Warrant of Fernandez, and on January 4, 1990 deposited the same in Savings Account No. 3185-
0128-82. To pre-empt a refund, private respondent closed his joint account with Fernandez (Savings Account No.
31-85-0128-82) on March 8, 1990 and transferred its balance to his joint account with his wife (Savings Account
No. 3185-0172-56). Worse, private respondent declared under the penalties of perjury in the withdrawal
slip 17 dated March 8, 1990 that his co-depositor, Fernandez, is still living. By his acts, private respondent has
stripped himself of credibility.

More importantly, the respondent court erred when it failed to rule that legal compensation is proper. Compensation shall
take place when two persons, in their own right, are creditors and debtors of each other.18 Article 1290 of the Civil Code
provides that "when all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of
law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the
compensation." Legal compensation operates even against the will of the interested parties and even without the consent
of them. 19 Since this compensation takes place ipso jure, its effects arise on the very day on which all its requisites
concur. 20 When used as a defense, it retroacts to the date when its requisites are fulfilled. 21

Article 1279 states that in order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor
of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.

The elements of legal compensation are all present in the case at bar. The obligors bound principally are at the
same time creditors of each other. Petitioner bank stands as a debtor of the private respondent, a depositor. At
the same time, said bank is the creditor of the private respondent with respect to the dishonored U.S. Treasury
Warrant which the latter illegally transferred to his joint account. The debts involved consist of a sum of money.
They are due, liquidated, and demandable. They are not claimed by a third person.

It is true that the joint account of private respondent and his wife was debited in the case at bar. We hold that the
presence of private respondent's wife does not negate the element of mutuality of parties, i.e., that they must be creditors
and debtors of each other in their own right. The wife of private respondent is not a party in the case at bar. She never
asserted any right to the debited U.S. Treasury Warrant. Indeed, the right of the petitioner bank to make the debit is clear
and cannot be doubted. To frustrate the application of legal compensation on the ground that the parties are
not all mutually obligated would result in unjust enrichment on the part of the private respondent and his wife who herself
 70

out of honesty has not objected to the debit. The rule as to mutuality is strictly applied at law. But not in equity, where to
allow the same would defeat a clear right or permit irremediable injustice.22

In VIEW HEREOF, the Decision of respondent Court of Appeals in CA-G.R. CV No. 41543 dated August 16, 1994 is
ANNULLED and SET ASIDE and the Decision of the trial court in Civil Case No. Q-91-8451 dated January 20, 1993 is
REINSTATED. Costs against private respondent.

SO ORDERED.

G.R. No. 151903 October 9, 2009

MANUEL GO CINCO and ARACELI S. GO CINCO, Petitioners,

vs.
COURT OF APPEALS, ESTER SERVACIO and MAASIN TRADERS LENDING CORPORATION Respondents.

DECISION

BRION, J.:

Before the Court is a petition for review on certiorari1 filed by petitioners, spouses Manuel and Araceli Go Cinco
(collectively, the spouses Go Cinco), assailing the decision 2 dated June 22, 2001 of the Court of Appeals (CA) in CA-G.R.
CV No. 47578, as well as the resolution3 dated January 25, 2002 denying the spouses Go Cincos motion for
reconsideration.

THE FACTUAL ANTECEDENTS

In December 1987, petitioner Manuel Cinco (Manuel) obtained a commercial loan in the amount of 700,000.00 from
respondent Maasin Traders Lending Corporation (MTLC). The loan was evidenced by a promissory note dated December
11, 1987,4 and secured by a real estate mortgage executed on December 15, 1987 over the spouses Go Cincos land and
4-storey building located in Maasin, Southern Leyte.

Under the terms of the promissory note, the 700,000.00 loan was subject to a monthly interest rate of 3% or 36% per
annum and was payable within a term of 180 days or 6 months, renewable for another 180 days. As of July 16, 1989,
Manuels outstanding obligation with MTLC amounted to 1,071,256.66, which amount included the principal, interest,
and penalties.5

To be able to pay the loan in favor of MTLC, the spouses Go Cinco applied for a loan with the Philippine National Bank,
Maasin Branch (PNB or the bank) and offered as collateral the same properties they previously mortgaged to MTLC. The
PNB approved the loan application for 1.3 Million6 through a letter dated July 8, 1989; the release of the amount,
however, was conditioned on the cancellation of the mortgage in favor of MTLC.
 71

On July 16, 1989, Manuel went to the house of respondent Ester Servacio (Ester), MTLCs President, to inform her that
there was money with the PNB for the payment of his loan with MTLC. Ester then proceeded to the PNB to verify the
information, but she claimed that the banks officers informed her that Manuel had no pending loan application with them.
When she told Manuel of the banks response, Manuel assured her there was money with the PNB and promised to
execute a document that would allow her to collect the proceeds of the PNB loan.

On July 20, 1989, Manuel executed a Special Power of Attorney7 (SPA) authorizing Ester to collect the proceeds of his
PNB loan. Ester again went to the bank to inquire about the proceeds of the loan. This time, the banks officers confirmed
the existence of the 1.3 Million loan, but they required Ester to first sign a deed of release/cancellation of mortgage
before they could release the proceeds of the loan to her. Outraged that the spouses Go Cinco used the same properties
mortgaged to MTLC as collateral for the PNB loan, Ester refused to sign the deed and did not collect the 1.3 Million loan
proceeds.

As the MTLC loan was already due, Ester instituted foreclosure proceedings against the spouses Go Cinco on July 24,
1989.

To prevent the foreclosure of their properties, the spouses Go Cinco filed an action for specific performance, damages,
and preliminary injunction8 before the Regional Trial Court (RTC), Branch 25, Maasin, Southern Leyte. The spouses Go
Cinco alleged that foreclosure of the mortgage was no longer proper as there had already been settlement of Manuels
obligation in favor of MTLC. They claimed that the assignment of the proceeds of the PNB loan amounted to the payment
of the MTLC loan. Esters refusal to sign the deed of release/cancellation of mortgage and to collect the proceeds of the
PNB loan were, to the spouses Go Cinco, completely unjustified and entitled them to the payment of damages.

Ester countered these allegations by claiming that she had not been previously informed of the spouses Go Cincos plan
to obtain a loan from the PNB and to use the loan proceeds to settle Manuels loan with MTLC. She claimed that she had
no explicit agreement with Manuel authorizing her to apply the proceeds of the PNB loan to Manuels loan with MTLC; the
SPA merely authorized her to collect the proceeds of the loan. She thus averred that it was unfair for the spouses Go
Cinco to require the release of the mortgage to MTLC when no actual payment of the loan had been made.

In a decision dated August 16, 1994,9 the RTC ruled in favor of the spouses Go Cinco. The trial court found that the
evidence sufficiently established the existence of the PNB loan whose proceeds were available to satisfy Manuels
obligation with MTLC, and that Ester unjustifiably refused to collect the amount. Creditors, it ruled, cannot unreasonably
prevent payment or performance of obligation to the damage and prejudice of debtors who may stand liable for payment
of higher interest rates.10 After finding MTLC and Ester liable for abuse of rights, the RTC ordered the award of the
following amounts to the spouses Go Cinco:

(a) P1,044,475.15 plus 535.63 per day hereafter, representing loss of savings on interest, by way of actual or
compensatory damages, if defendant corporation insists on the original 3% monthly interest rate;

(b) P100,000.00 as unrealized profit;

(c) P1,000,000.00 as moral damages;

(d) P20,000.00 as exemplary damages;

(e) P22,000.00 as litigation expenses; and

(f) 10% of the total amount as attorneys fees plus costs.11

Through an appeal with the CA, MTLC and Ester successfully secured a reversal of the RTCs decision. Unlike the trial
court, the appellate court found it significant that there was no explicit agreement between Ester and the spouses Go
Cinco for the cancellation of the MTLC mortgage in favor of PNB to facilitate the release and collection by Ester of the
proceeds of the PNB loan. The CA read the SPA as merely authorizing Ester to withdraw the proceeds of the loan. As
Manuels loan obligation with MTLC remained unpaid, the CA ruled that no valid objection could be made to the institution
of the foreclosure proceedings. Accordingly, it dismissed the spouses Go Cinco complaint. From this dismissal, the
spouses Go Cinco filed the present appeal by certiorari.
 72

THE PETITION

The spouses Go Cinco impute error on the part of the CA for its failure to consider their acts as equivalent to payment that
extinguished the MTLC loan; their act of applying for a loan with the PNB was indicative of their good faith and honest
intention to settle the loan with MTLC. They contend that the creditors have the correlative duty to accept the payment.

The spouses Go Cinco charge MTLC and Ester with bad faith and ill-motive for unjustly refusing to collect the proceeds of
the loan and to execute the deed of release of mortgage. They assert that Esters justifications for refusing the payment
were flimsy excuses so she could proceed with the foreclosure of the mortgaged properties that were worth more than the
amount due to MTLC. Thus, they conclude that the acts of MTLC and of Ester amount to abuse of rights that warrants the
award of damages in their (spouses Go Cincos) favor.

In refuting the claims of the spouses Go Cinco, MTLC and Ester raise the same arguments they raised before the RTC
and the CA. They claim that they were not aware of the loan and the mortgage to PNB, and that there was no agreement
that the proceeds of the PNB loan were to be used to settle Manuels obligation with MTLC. Since the MTLC loan
remained unpaid, they insist that the institution of the foreclosure proceedings was proper. Additionally, MTLC and Ester
contend that the present petition raised questions of fact that cannot be addressed in a Rule 45 petition.

THE COURTS RULING

The Court finds the petition meritorious.

Preliminary Considerations

Our review of the records shows that there are no factual questions involved in this case; the ultimate facts necessary for
the resolution of the case already appear in the records. The RTC and the CA decisions differed not so much on the
findings of fact, but on the conclusions derived from these factual findings. The correctness of the conclusions derived
from factual findings raises legal questions when the conclusions are so linked to, or are inextricably intertwined with, the
appreciation of the applicable law that the case requires, as in the present case.12The petition raises the issue of whether
the loan due the MTLC had been extinguished; this is a question of law that this Court can fully address and settle in an
appeal by certiorari.

Payment as Mode of Extinguishing Obligations

Obligations are extinguished, among others, by payment or performance, 13 the mode most relevant to the factual situation
in the present case. Under Article 1232 of the Civil Code, payment means not only the delivery of money but also the
performance, in any other manner, of an obligation. Article 1233 of the Civil Code states that "a debt shall not be
understood to have been paid unless the thing or service in which the obligation consists has been completely delivered
or rendered, as the case may be." In contracts of loan, the debtor is expected to deliver the sum of money due the
creditor. These provisions must be read in relation with the other rules on payment under the Civil Code, 14 which rules
impliedly require acceptance by the creditor of the payment in order to extinguish an obligation.

In the present case, Manuel sought to pay Ester by authorizing her, through an SPA, to collect the proceeds of the PNB
loan an act that would have led to payment if Ester had collected the loan proceeds as authorized. Admittedly, the
delivery of the SPA was not, strictly speaking, a delivery of the sum of money due to MTLC, and Ester could not be
compelled to accept it as payment based on Article 1233. Nonetheless, the SPA stood as an authority to collect the
proceeds of the already-approved PNB loan that, upon receipt by Ester, would have constituted as payment of the MTLC
loan.15 Had Ester presented the SPA to the bank and signed the deed of release/cancellation of mortgage, the delivery of
the sum of money would have been effected and the obligation extinguished. 16 As the records show, Ester refused to
collect and allow the cancellation of the mortgage.

Under these facts, Manuel posits two things: first, that Esters refusal was based on completely unjustifiable grounds; and
second, that the refusal was equivalent to payment that led to the extinguishment of the obligation.

a. Unjust Refusal to Accept Payment

After considering Esters arguments, we agree with Manuel that Esters refusal of the payment was without basis.
 73

Ester refused to accept the payment because the bank required her to first sign a deed of release/cancellation of the
mortgage before the proceeds of the PNB loan could be released. As a prior mortgagee, she claimed that the spouses Go
Cinco should have obtained her consent before offering the properties already mortgaged to her as security for the PNB
loan. Moreover, Ester alleged that the SPA merely authorized her to collect the proceeds of the loan; there was no explicit
agreement that the MTLC loan would be paid out of the proceeds of the PNB loan.

There is nothing legally objectionable in a mortgagors act of taking a second or subsequent mortgage on a property
already mortgaged; a subsequent mortgage is recognized as valid by law and by commercial practice, subject to the prior
rights of previous mortgages. Section 4, Rule 68 of the 1997 Rules of Civil Procedure on the disposition of the proceeds of
sale after foreclosure actually requires the payment of the proceeds to, among others, the junior encumbrancers in the
order of their priority.17 Under Article 2130 of the Civil Code, a stipulation forbidding the owner from alienating the
immovable mortgaged is considered void. If the mortgagor-owner is allowed to convey the entirety of his interests in the
mortgaged property, reason dictates that the lesser right to encumber his property with other liens must also be
recognized. Ester, therefore, could not validly require the spouses Go Cinco to first obtain her consent to the PNB loan
and mortgage. Besides, with the payment of the MTLC loan using the proceeds of the PNB loan, the mortgage in favor of
the MTLC would have naturally been cancelled.

We find it improbable for Ester to claim that there was no agreement to apply the proceeds of the PNB loan to the MTLC
loan. Beginning July 16, 1989, Manuel had already expressed intent to pay his loan with MTLC and thus requested for an
updated statement of account. Given Manuels express intent of fully settling the MTLC loan and of paying through the
PNB loan he would secure (and in fact secured), we also cannot give credit to the claim that the SPA only allowed Ester
to collect the proceeds of the PNB loan, without giving her the accompanying authority, although verbal, to apply these
proceeds to the MTLC loan. Even Esters actions belie her claim as she in fact even went to the PNB to collect the
proceeds. In sum, the surrounding circumstances of the case simply do not support Esters position.

b. Unjust Refusal Cannot be Equated to Payment

While Esters refusal was unjustified and unreasonable, we cannot agree with Manuels position that this refusal had the
effect of payment that extinguished his obligation to MTLC. Article 1256 is clear and unequivocal on this point when it
provides that

ARTICLE 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the
debtor shall be released from responsibility by the consignation of the thing or sum due. [Emphasis supplied.]

In short, a refusal without just cause is not equivalent to payment; to have the effect of payment and the consequent
extinguishment of the obligation to pay, the law requires the companion acts of tender of payment and consignation.

Tender of payment, as defined in Far East Bank and Trust Company v. Diaz Realty, Inc., 18 is the definitive act of offering
the creditor what is due him or her, together with the demand that the creditor accept the same. When a creditor refuses
the debtors tender of payment, the law allows the consignation of the thing or the sum due. Tender and consignation
have the effect of payment, as by consignation, the thing due is deposited and placed at the disposal of the judicial
authorities for the creditor to collect.19

A sad twist in this case for Manuel was that he could not avail of consignation to extinguish his obligation to MTLC, as
PNB would not release the proceeds of the loan unless and until Ester had signed the deed of release/cancellation of
mortgage, which she unjustly refused to do. Hence, to compel Ester to accept the loan proceeds and to prevent their
mortgaged properties from being foreclosed, the spouses Go Cinco found it necessary to institute the present case for
specific performance and damages.

c. Effects of Unjust Refusal

Under these circumstances, we hold that while no completed tender of payment and consignation took place sufficient to
constitute payment, the spouses Go Cinco duly established that they have legitimately secured a means of paying off their
loan with MTLC; they were only prevented from doing so by the unjust refusal of Ester to accept the proceeds of the PNB
loan through her refusal to execute the release of the mortgage on the properties mortgaged to MTLC. In other words,
MTLC and Ester in fact prevented the spouses Go Cinco from the exercise of their right to secure payment of their loan.
No reason exists under this legal situation why we cannot compel MTLC and Ester: (1) to release the mortgage to MTLC
as a condition to the release of the proceeds of the PNB loan, upon PNBs acknowledgment that the proceeds of the loan
 74

are ready and shall forthwith be released; and (2) to accept the proceeds, sufficient to cover the total amount of the loan
to MTLC, as payment for Manuels loan with MTLC.

We also find that under the circumstances, the spouses Go Cinco have undertaken, at the very least, the equivalent of a
tender of payment that cannot but have legal effect. Since payment was available and was unjustifiably refused, justice
and equity demand that the spouses Go Cinco be freed from the obligation to pay interest on the outstanding amount from
the time the unjust refusal took place;20 they would not have been liable for any interest from the time tender of payment
was made if the payment had only been accepted. Under Article 19 of the Civil Code, they should likewise be entitled to
damages, as the unjust refusal was effectively an abusive act contrary to the duty to act with honesty and good faith in the
exercise of rights and the fulfillment of duty.

For these reasons, we delete the amounts awarded by the RTC to the spouses Go Cinco (1,044,475.15, plus 563.63
per month) representing loss of savings on interests for lack of legal basis. These amounts were computed based on the
difference in the interest rates charged by the MTLC (36% per annum) and the PNB (17% to 18% per annum), from the
date of tender of payment up to the time of the promulgation of the RTC decision. The trial court failed to consider the
effects of a tender of payment and erroneously declared that MTLC can charge interest at the rate of only 18% per annum
the same rate that PNB charged, not the 36% interest rate that MTLC charged; the RTC awarded the difference in the
interest rates as actual damages.

As part of the actual and compensatory damages, the RTC also awarded 100,000.00 to the spouses Go Cinco
representing unrealized profits. Apparently, if the proceeds of the PNB loan (1,203,685.17) had been applied to the
MTLC loan (1,071,256.55), there would have been a balance of 132,428.62 left, which amount the spouses Go Cinco
could have invested in their businesses that would have earned them a profit of at least 100,000.00.1avvphi1

We find no factual basis for this award. The spouses Go Cinco were unable to substantiate the amount they claimed as
unrealized profits; there was only their bare claim that the excess could have been invested in their other businesses.
Without more, this claim of expected profits is at best speculative and cannot be the basis for a claim for damages. In
Lucas v. Spouses Royo,21 we declared that:

In determining actual damages, the Court cannot rely on speculation, conjecture or guesswork as to the amount. Actual
and compensatory damages are those recoverable because of pecuniary loss in business, trade, property, profession,
job or occupation and the same must be sufficiently proved, otherwise, if the proof is flimsy and unsubstantiated,
no damages will be given. [Emphasis supplied.]

We agree, however, that there was basis for the award of moral and exemplary damages and attorneys fees.

Esters act of refusing payment was motivated by bad faith as evidenced by the utter lack of substantial reasons to
support it. Her unjust refusal, in her behalf and for the MTLC which she represents, amounted to an abuse of rights; they
acted in an oppressive manner and, thus, are liable for moral and exemplary damages.22 We nevertheless reduce the
1,000,000.00 to 100,000.00 as the originally awarded amount for moral damages is plainly excessive.

We affirm the grant of exemplary damages by way of example or correction for the public good in light of the same
reasons that justified the grant of moral damages.

As the spouses Go Cinco were compelled to litigate to protect their interests, they are entitled to payment of 10% of the
total amount of awarded damages as attorneys fees and expenses of litigation.

WHEREFORE, we GRANT the petitioners petition for review on certiorari, and REVERSE the decision of June 22, 2001
of the Court of Appeals in CA-G.R. CV No. 47578, as well as the resolution of January 25, 2002 that followed. We
REINSTATE the decision dated August 16, 1994 of the Regional Trial Court, Branch 25, Maasin, Southern Leyte, with the
following MODIFICATIONS:

(1) The respondents are hereby directed to accept the proceeds of the spouses Go Cincos PNB loan, if still
available, and to consent to the release of the mortgage on the property given as security for the loan upon PNBs
acknowledgment that the proceeds of the loan, sufficient to cover the total indebtedness to respondent Maasin
Traders Lending Corporation computed as of June 20, 1989, shall forthwith be released;
 75

(2) The award for loss of savings and unrealized profit is deleted;

(3) The award for moral damages is reduced to 100,000.00; and

(4) The awards for exemplary damages, attorneys fees, and expenses of litigation are retained.

The awards under (3) and (4) above shall be deducted from the amount of the outstanding loan due the respondents as of
June 20, 1989. Costs against the respondents. SO ORDERED.

G.R. No. 172577 January 19, 2011

SOLEDAD DALTON,
vs.
Petitioner, FGR REALTY AND DEVELOPMENT CORPORATION, FELIX NG, NENITA NG, and FLORA R. DAYRIT or
FLORA REGNER, Respondents.

RESOLUTION

CARPIO, J.:

The Case

This is a petition1 for review on certiorari under Rule 45 of the Rules of Court. The petition challenges the 9 November
2005 Decision2 and 10 April 2006 Resolution3 of the Court of Appeals in CA-G.R. CV No. 76536. The Court of Appeals
affirmed the 26 February 2002 Decision4 of the Regional Trial Court (RTC), Judicial Region 7, Branch 13, Cebu City, in
Civil Case No. CEB 4218.

The Facts

Flora R. Dayrit (Dayrit) owned a 1,811-square meter parcel of land located at the corner of Rama Avenue and Velez
Street in Cebu City. Petitioner Soledad Dalton (Dalton), Clemente Sasam, Romulo Villalonga, Miguela Villarente, Aniceta
Fuentes, Perla Pormento, Bonifacio Cabajar, Carmencita Yuson, Angel Ponce, Pedro Regudo, Pedro Quebedo, Mary
Cabanlit, Marciana Encabo and Dolores Lim (Sasam, et al.) leased portions of the property.

In June 1985, Dayrit sold the property to respondent FGR Realty and Development Corporation (FGR). In August 1985,
Dayrit and FGR stopped accepting rental payments because they wanted to terminate the lease agreements with Dalton
and Sasam, et al.

In a complaint5 dated 11 September 1985, Dalton and Sasam, et al. consigned the rental payments with the RTC. They
failed to notify Dayrit and FGR about the consignation. In motions dated 27 March 1987, 6 10 November 1987,78 July
1988,8 and 28 November 1994,9 Dayrit and FGR withdrew the rental payments. In their motions, Dayrit and FGR reserved
the right to question the validity of the consignation.

Dayrit, FGR and Sasam, et al. entered into compromise agreements dated 25 March 1997 10 and 20 June 1997.11 In the
compromise agreements, they agreed to abandon all claims against each other. Dalton did not enter into a compromise
agreement with Dayrit and FGR.

The RTCs Ruling

In its 26 February 2002 Decision, the RTC dismissed the 11 September 1985 complaint and ordered Dalton to vacate the
property. The RTC held that:

Soledad Dalton built a house which she initially used as a dwelling and store space. She vacated the premises when her
children got married. She transferred her residence near F. Ramos Public Market, Cebu City.
 76

She constructed the 20 feet by 20 feet floor area house sometime in 1973. The last monthly rental was 69.00. When
defendants refused to accept rental and demanded vacation of the premises, she consignated [sic] her monthly rentals in
court.

xxxx

It is very clear from the facts that there was no valid consignation made.

The requisites of consignation are as follows:

1. The existence of a valid debt.

2. Valid prior tender, unless tender is excuse [sic];

3. Prior notice of consignation (before deposit)

4. Actual consignation (deposit);

5. Subsequent notice of consignation;

Requisite Nos. 3 and 5 are absent or were not complied with. It is very clear that there were no prior notices of
consignation (before deposit) and subsequent notices of consignation (after deposit)

Besides, the last deposit was made on December 21, 1988. At the time Dalton testified on December 22, 1999, she did
not present evidence of payment in 1999. She had not, therefore, religiously paid her monthly obligation.

By clear preponderance of evidence, defendants have established that plaintiff was no longer residing at Eskina Banawa
at the time she testified in court. She vacated her house and converted it into a store or business establishment. This is
buttressed by the testimony of Rogelio Capacio, the courts appointed commissioner, who submitted a report, the full text
of which reads as follows:

REPORT AND/OR OBSERVATION

"The store and/or dwelling subject to ocular inspection is stuated [sic] on the left portion of the road which is about fifty-five
(55) meters from the corner of Banawa-Guadalupe Streets, when turning right heading towards the direction of Guadalupe
Church, if travelling from the Capitol Building.

I observed that when we arrived at the ocular inspection site, Mrs. Soledad Dalton with the use of a key opened the lock
of a closed door. She claimed that it was a part of the dwelling which she occupies and was utilized as a store. There
were few saleable items inside said space."

Soledad Dalton did not take exception to the said report.

Two witnesses who were former sub-lessees testified and clearly established that Mrs. Dalton use the house for business
purposes and not for dwelling.12

Dalton appealed to the Court of Appeals.

The Court of Appeals Ruling

In its 9 November 2005 Decision, the Court of Appeals affirmed the RTCs 26 February 2002 Decision. The Court of
Appeals held that:

After a careful review of the facts and evidence in this case, we find no basis for overturning the decision of the lower
court dismissing plaintiffs-appellants complaint, as we find that no valid consignation was made by the plaintiff-appellant.
 77

Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot
accept or refuses to accept payment and generally requires a prior tender of payment. In order that consignation may be
effective, the debtor must show that: (1) there was a debt due; (2) the consignation of the obligation had been made
because the creditor to whom tender of payment was made refused to accept it, or because he was absent or
incapacitated, or because several persons claimed to be entitled to receive the amount due or because the title to the
obligation has been lost; (3) previous notice of the consignation had been given to the person interested in the
performance of the obligation; (4) the amount due was placed at the disposal of the court; and (5) after the consignation
had been made the person interested was notified thereof. Failure in any of these requirements is enough ground to
render a consignation ineffective.

Consignation is made by depositing the proper amount to the judicial authority, before whom the tender of payment and
the announcement of the consignation shall be proved. All interested parties are to be notified of the consignation. It had
been consistently held that compliance with these requisites is mandatory.

No error, therefore, can be attributed to the lower court when it held that the consignation made by the plaintiff-appellant
was invalid for failure to meet requisites 3 and 5 of a valid consignation (i.e., previous notice of the consignation given to
the person interested in the performance of the obligation and, after the consignation had been made, the person
interested was notified thereof).

Plaintiff-appellant failed to notify defendants-appellees of her intention to consign the amount due to them as rentals. She,
however, justifies such failure by claiming that there had been substantial compliance with the said requirement of notice
upon the service of the complaint on the defendants-appellees together with the summons.

We do not agree with such contention.

The prevailing rule is that substantial compliance with the requisites of a valid consignation is not enough. In Licuanan vs.
Diaz, reiterating the ruling in Soco vs. Militante, the Supreme Court had the occasion to rule thus:

"In addition, it must be stated that in the case of Soco v. Militante (123 SCRA 160, 166-167 [1983]), this Court ruled that
the codal provisions of the Civil Code dealing with consignation (Articles 1252-1261) should be accorded mandatory
construction

We do not agree with the questioned decision. We hold that the essential requisites of a valid consignation must be
complied with fully and strictly in accordance with the law. Articles 1256-1261, New Civil Code. That these Articles must
be accorded a mandatory construction is clearly evident and plain from the very language of the codal provisions
themselves which require absolute compliance with the essential requisites therein provided. Substantial compliance is
not enough for that would render only directory construction of the law. The use of the words "shall" and "must [sic] which
are imperative, operating to impose a duty which may be enforced, positively indicated that all the essential requisites of a
valid consignation must be complied with. The Civil Code Articles expressly and explicitly direct what must be essentially
done in order that consignation shall be valid and effectual..."

Clearly then, no valid consignation was made by the plaintiff-appellant for she did not give notice to the defendants-
appellees of her intention to so consign her rental payments. Without any announcement of the intention to resort to
consignation first having been made to persons interested in the fulfillment of the obligation, the consignation as a means
of payment is void.

As to the other issues raised by the plaintiff-appellant in her second and third assigned errors, we hold that the ruling of
the lower court on such issues is supported by the evidence adduced in this case.

That plaintiff-appellant is not residing at the leased premises in Eskina Banawa and that she is using the same for
business purposes, not as dwelling place, is amply supported by the testimony of two of plaintiff-appellants sub-lessees.
The Commissioners Report submitted by Rogelio Capacio, who was commissioned by the lower court to conduct an
ocular inspection of the leased premises, further lends support to the lower courts findings. On the other hand, plaintiff-
appellant only has her self-serving claims that she is residing at the leased premises in Eskina Banawa to prove her
continued use of the leased premises as dwelling place.
 78

There is thus no merit to plaintiff-appellants fourth assigned error. The lower court acted within its authority in ordering the
plaintiff-appellant to vacate the leased premises. The evidence shows that plaintiff-appellant had failed to continuously
pay the rentals due to the defendants-appellees. It was therefore within the powers of the lower court to grant such other
relief and remedies equitable under the circumstances.

In sum, there having been no valid consignation and with the plaintiff-appellant having failed to pay the rentals due to the
defendants-appellees, no error can be attributed to the lower court in rendering its assailed decision. 13

Hence, the present petition. Dalton raises as issues that the Court of Appeals erred in ruling that (1) the consignation was
void, and (2) Dalton failed to pay rent.

The Courts Ruling

The petition is unmeritorious.

Dalton claims that, "the issue as to whether the consignation made by the petitioner is valid or not for lack of notice has
already been rendered moot and academic with the withdrawal by the private respondents of the amounts consigned and
deposited by the petitioner as rental of the subject premises."14

The Court is not impressed. First, in withdrawing the amounts consigned, Dayrit and FGR expressly reserved the right to
question the validity of the consignation. In Riesenbeck v. Court of Appeals,15 the Court held that:

A sensu contrario, when the creditors acceptance of the money consigned is conditional and with reservations,
he is not deemed to have waived the claims he reserved against his debtor. Thus, when the amount consigned does
not cover the entire obligation, the creditor may accept it, reserving his right to the balance (Tolentino, Civil Code of the
Phil., Vol. IV, 1973 Ed., p. 317, citing 3 Llerena 263). The same factual milieu obtains here because the respondent
creditor accepted with reservation the amount consigned in court by the petitioner-debtor. Therefore, the creditor
is not barred from raising his other claims, as he did in his answer with special defenses and counterclaim against
petitioner-debtor.

As respondent-creditors acceptance of the amount consigned was with reservations, it did not completely extinguish the
entire indebtedness of the petitioner-debtor. It is apposite to note here that consignation is completed at the time the
creditor accepts the same without objections, or, if he objects, at the time the court declares that it has been
validly made in accordance with law.16 (Emphasis supplied)

Second, compliance with the requisites of a valid consignation is mandatory. Failure to comply strictly with any of the
requisites will render the consignation void. Substantial compliance is not enough.

In Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc.,17 the Court enumerated the requisites of a valid
consignation: (1) a debt due; (2) the creditor to whom tender of payment was made refused without just cause to accept
the payment, or the creditor was absent, unknown or incapacitated, or several persons claimed the same right to collect,
or the title of the obligation was lost; (3) the person interested in the performance of the obligation was given notice
before consignation was made; (4) the amount was placed at the disposal of the court; and (5) the person interested
in the performance of the obligation was given notice after the consignation was made.

Articles 1257 and 1258 of the Civil Code state, respectively:

Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to
the persons interested in the fulfillment of the obligation.

The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate
payment.

Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the
tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases.

The consignation having been made, the interested parties shall also be notified thereof. (Emphasis supplied)
 79

The giving of notice to the persons interested in the performance of the obligation is mandatory. Failure to notify the
persons interested in the performance of the obligation will render the consignation void. In Ramos v. Sarao,18 the Court
held that, "All interested parties are to be notified of the consignation. Compliance with [this requisite] is
mandatory."19 In Valdellon v. Tengco,20 the Court held that:

Under Art. 1257 of our Civil Code, in order that consignation of the thing due may release the obligor, it must first
be announced to the persons interested in the fulfillment of the obligation. The consignation shall be ineffectual
if it is not made strictly in consonance with the provisions which regulate payment. In said Article 1258, it is
further stated that the consignation having been made, the interested party shall also be notified
thereof.21 (Emphasis supplied)

In Soco v. Militante, et al.,22 the Court held that:

We hold that the essential requisites of a valid consignation must be complied with fully and strictly in
accordance with the law, Articles 1256 to 1261, New Civil Code. That these Articles must be accorded a mandatory
construction is clearly evident and plain from the very language of the codal provisions themselves which require absolute
compliance with the essential requisites therein provided. Substantial compliance is not enough for that would render
only a directory construction to the law. The use of the words "shall" and "must" which are imperative, operating to
impose a duty which may be enforced, positively indicate that all the essential requisites of a valid consignation must be
complied with. The Civil Code Articles expressly and explicitly direct what must be essentially done in order that
consignation shall be valid and effectual.23 (Emphasis supplied)

Dalton claims that the Court of Appeals erred in ruling that she failed to pay rent. The Court is not impressed. Section 1,
Rule 45 of the Rules of Court states that petitions for review on certiorari "shall raise only questions of law which must be
distinctly set forth." In Pagsibigan v. People,24 the Court held that:

A petition for review under Rule 45 of the Rules of Court should cover only questions of law. Questions of fact are not
reviewable. A question of law exists when the doubt centers on what the law is on a certain set of facts. A question of fact
exists when the doubt centers on the truth or falsity of the alleged facts.1avvphi1

There is a question of law if the issue raised is capable of being resolved without need of reviewing the probative value of
the evidence. The issue to be resolved must be limited to determining what the law is on a certain set of facts. Once the
issue invites a review of the evidence, the question posed is one of fact. 25

Whether Dalton failed to pay rent is a question of fact. It is not reviewable.

The factual findings of the lower courts are binding on the Court. The exceptions to this rule are (1) when there is grave
abuse of discretion; (2) when the findings are grounded on speculation; (3) when the inference made is manifestly
mistaken; (4) when the judgment of the Court of Appeals is based on a misapprehension of facts; (5) when the factual
findings are conflicting; (6) when the Court of Appeals went beyond the issues of the case and its findings are contrary to
the admissions of the parties; (7) when the Court of Appeals overlooked undisputed facts which, if properly considered,
would justify a different conclusion; (8) when the facts set forth by the petitioner are not disputed by the respondent; and
(9) when the findings of the Court of Appeals are premised on the absence of evidence and are contradicted by the
evidence on record.26 Dalton did not show that any of these circumstances is present.

WHEREFORE, the Court DENIES the petition. The Court AFFIRMS the 9 November 2005 Decision and 10 April 2006
Resolution of the Court of Appeals in CA-G.R. CV No. 76536.

SO ORDERED.
 80

G.R. No. 190755 November 24, 2010

LAND BANK OF THE PHILIPPINES, Petitioner,

vs.
ALFREDO ONG, Respondent.

DECISION

VELASCO, JR., J.:

This is an appeal from the October 20, 2009 Decision of the Court of Appeals (CA) in CA-G.R. CR-CV No. 84445 entitled
Alfredo Ong v. Land Bank of the Philippines, which affirmed the Decision of the Regional Trial Court (RTC), Branch 17 in
Tabaco City.

The Facts

On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City in the amount of
PhP 16 million. The loan was secured by three (3) residential lots, five (5) cargo trucks, and a warehouse. Under the loan
agreement, PhP 6 million of the loan would be short-term and would mature on February 28, 1997, while the balance of
PhP 10 million would be payable in seven (7) years. The Notice of Loan Approval dated February 22, 1996 contained an
acceleration clause wherein any default in payment of amortizations or other charges would accelerate the maturity of the
loan.1

Subsequently, however, the Spouses Sy found they could no longer pay their loan. On December 9, 1996, they sold three
(3) of their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangelines mother, under a Deed of Sale
with Assumption of Mortgage. The relevant portion of the document 2 is quoted as follows:

WHEREAS, we are no longer in a position to settle our obligation with the bank;

NOW THEREFORE, for and in consideration of the sum of ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00)
Philippine Currency, we hereby these presents SELL, CEDE, TRANSFER and CONVEY, by way of sale unto ANGELINA
GLORIA ONG, also of legal age, Filipino citizen, married to Alfredo Ong, and also a resident of Tabaco, Albay,
Philippines, their heirs and assigns, the above-mentioned debt with the said LAND BANK OF THE PHILIPPINES, and by
reason hereof they can make the necessary representation with the bank for the proper restructuring of the loan with the
said bank in their favor;

That as soon as our obligation has been duly settled, the bank is authorized to release the mortgage in favor of the
vendees and for this purpose VENDEES can register this instrument with the Register of Deeds for the issuance of the
titles already in their names.
 81

IN WITNESS WHEREOF, we have hereunto affixed our signatures this 9th day of December 1996 at Tabaco, Albay,
Philippines.

(signed) (signed)
EVANGELINE O. SY JOHNSON B. SY
Vendor Vendor

Evangelines father, petitioner Alfredo Ong, later went to Land Bank to inform it about the sale and assumption of
mortgage.3 Atty. Edna Hingco, the Legazpi City Land Bank Branch Head, told Alfredo and his counsel Atty. Ireneo de
Lumen that there was nothing wrong with the agreement with the Spouses Sy but provided them with requirements for the
assumption of mortgage. They were also told that Alfredo should pay part of the principal which was computed at PhP
750,000 and to update due or accrued interests on the promissory notes so that Atty. Hingco could easily approve the
assumption of mortgage. Two weeks later, Alfredo issued a check for PhP 750,000 and personally gave it to Atty. Hingco.
A receipt was issued for his payment. He also submitted the other documents required by Land Bank, such as financial
statements for 1994 and 1995. Atty. Hingco then informed Alfredo that the certificate of title of the Spouses Sy would be
transferred in his name but this never materialized. No notice of transfer was sent to him.4

Alfredo later found out that his application for assumption of mortgage was not approved by Land Bank. The bank learned
from its credit investigation report that the Ongs had a real estate mortgage in the amount of PhP 18,300,000 with another
bank that was past due. Alfredo claimed that this was fully paid later on. Nonetheless, Land Bank foreclosed the mortgage
of the Spouses Sy after several months. Alfredo only learned of the foreclosure when he saw the subject mortgage
properties included in a Notice of Foreclosure of Mortgage and Auction Sale at the RTC in Tabaco, Albay. Alfredos other
counsel, Atty. Madrilejos, subsequently talked to Land Banks lawyer and was told that the PhP 750,000 he paid would be
returned to him.5

On December 12, 1997, Alfredo initiated an action for recovery of sum of money with damages against Land Bank in Civil
Case No. T-1941, as Alfredos payment was not returned by Land Bank. Alfredo maintained that Land Banks foreclosure
without informing him of the denial of his assumption of the mortgage was done in bad faith. He argued that he was lured
into believing that his payment of PhP 750,000 would cause Land Bank to approve his assumption of the loan of the
Spouses Sy and the transfer of the mortgaged properties in his and his wifes name. 6 He also claimed incurring expenses
for attorneys fees of PhP 150,000, filing fee of PhP 15,000, and PhP 250,000 in moral damages. 7

Testifying for Land Bank, Atty. Hingco claimed during trial that as branch manager she had no authority to approve loans
and could not assure anybody that their assumption of mortgage would be approved. She testified that the breakdown of
Alfredos payment was as follows:

PhP 101,409.59 applied to principal

216,246.56 accrued interests receivable

396,571.77 interests

18,766.10 penalties

16,805.98 accounts receivable

----------------
Total: 750,000.00

According to Atty. Hingco, the bank processes an assumption of mortgage as a new loan, since the new borrower is
considered a new client. They used character, capacity, capital, collateral, and conditions in determining who can qualify
to assume a loan. Alfredos proposal to assume the loan, she explained, was referred to a separate office, the Lending
Center. 8

During cross-examination, Atty. Hingco testified that several months after Alfredo made the tender of payment, she
received word that the Lending Center rejected Alfredos loan application. She stated that it was the Lending Center and
not her that should have informed Alfredo about the denial of his and his wifes assumption of mortgage. She added that
 82

although she told Alfredo that the agreement between the spouses Sy and Alfredo was valid between them and that the
bank would accept payments from him, Alfredo did not pay any further amount so the foreclosure of the loan collaterals
ensued. She admitted that Alfredo demanded the return of the PhP 750,000 but said that there was no written demand
before the case against the bank was filed in court. She said that Alfredo had made the payment of PhP 750,000 even
before he applied for the assumption of mortgage and that the bank received the said amount because the subject
account was past due and demandable; and the Deed of Assumption of Mortgage was not used as the basis for the
payment. 9

The Ruling of the Trial Court

The RTC held that the contract approving the assumption of mortgage was not perfected as a result of the credit
investigation conducted on Alfredo. It noted that Alfredo was not even informed of the disapproval of the assumption of
mortgage but was just told that the accounts of the spouses Sy had matured and gone unpaid. It ruled that under the
principle of equity and justice, the bank should return the amount Alfredo had paid with interest at 12% per annum
computed from the filing of the complaint. The RTC further held that Alfredo was entitled to attorneys fees and litigation
expenses for being compelled to litigate.10

The dispositive portion of the RTC Decision reads:

WHEREFORE, premises considered, a decision is rendered, ordering defendant bank to pay plaintiff, Alfredo Ong the
amount of P750,000.00 with interest at 12% per annum computed from Dec. 12, 1997 and attorneys fees and litigation
expenses of P50,000.00.

Costs against defendant bank.

SO ORDERED.11

The Ruling of the Appellate Court

On appeal, Land Bank faulted the trial court for (1) holding that the payment of PhP 750,000 made by Ong was one of the
requirements for the approval of his proposal to assume the mortgage of the Sy spouses; (2) erroneously ordering Land
Bank to return the amount of PhP 750,000 to Ong on the ground of its failure to effect novation; and (3) erroneously
affirming the award of PhP 50,000 to Ong as attorneys fees and litigation expenses.

The CA affirmed the RTC Decision.12 It held that Alfredos recourse is not against the Sy spouses. According to the
appellate court, the payment of PhP 750,000 was for the approval of his assumption of mortgage and not for payment of
arrears incurred by the Sy spouses. As such, it ruled that it would be incorrect to consider Alfredo a third person with no
interest in the fulfillment of the obligation under Article 1236 of the Civil Code. Although Land Bank was not bound by the
Deed between Alfredo and the Spouses Sy, the appellate court found that Alfredo and Land Banks active preparations for
Alfredos assumption of mortgage essentially novated the agreement.

On January 5, 2010, the CA denied Land Banks motion for reconsideration for lack of merit. Hence, Land Bank appealed
to us.

The Issues

Whether the Court of Appeals erred in holding that Art. 1236 of the Civil Code does not apply and in finding that
there is no novation.

II

Whether the Court of Appeals misconstrued the evidence and the law when it affirmed the trial court decisions
ordering Land Bank to pay Ong the amount of Php750,000.00 with interest at 12% annum.
 83

III

Whether the Court of Appeals committed reversible error when it affirmed the award of Php50,000.00 to Ong as
attorneys fees and expenses of litigation.

The Ruling of this Court

We affirm with modification the appealed decision.

Recourse is against Land Bank

Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo should have sought recourse against
the Spouses Sy instead of Land Bank. Art. 1236 provides:

The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the
obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or
against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.1avvphi1

We agree with Land Bank on this point as to the first part of paragraph 1 of Art. 1236. Land Bank was not bound to accept
Alfredos payment, since as far as the former was concerned, he did not have an interest in the payment of the loan of the
Spouses Sy. However, in the context of the second part of said paragraph, Alfredo was not making payment to fulfill the
obligation of the Spouses Sy. Alfredo made a conditional payment so that the properties subject of the Deed of Sale with
Assumption of Mortgage would be titled in his name. It is clear from the records that Land Bank required Alfredo to make
payment before his assumption of mortgage would be approved. He was informed that the certificate of title would be
transferred accordingly. He, thus, made payment not as a debtor but as a prospective mortgagor. But the trial court
stated:

[T]he contract was not perfected or consummated because of the adverse finding in the credit investigation which led to
the disapproval of the proposed assumption. There was no evidence presented that plaintiff was informed of the
disapproval. What he received was a letter dated May 22, 1997 informing him that the account of spouses Sy had
matured but there [were] no payments. This was sent even before the conduct of the credit investigation on June 20, 1997
which led to the disapproval of the proposed assumption of the loans of spouses Sy. 13

Alfredo, as a third person, did not, therefore, have an interest in the fulfillment of the obligation of the Spouses Sy, since
his interest hinged on Land Banks approval of his application, which was denied. The circumstances of the instant case
show that the second paragraph of Art. 1236 does not apply. As Alfredo made the payment for his own interest and not on
behalf of the Spouses Sy, recourse is not against the latter. And as Alfredo was not paying for another, he cannot demand
from the debtors, the Spouses Sy, what he has paid.

Novation of the loan agreement

Land Bank also faults the CA for finding that novation applies to the instant case. It reasons that a substitution of debtors
was made without its consent; thus, it was not bound to recognize the substitution under the rules on novation.

On the matter of novation, Spouses Benjamin and Agrifina Lim v. M.B. Finance Corporation 14 provides the following
discussion:

Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated
by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation
subsists to the extent it remains compatible with the amendatory agreement. An extinctive novation results either by
changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a
third person in the rights of the creditor (subjective or personal). Under this mode, novation would have dual functions
one to extinguish an existing obligation, the other to substitute a new one in its place requiring a conflux of four
essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the
extinguishment of the old obligation; and (4) the birth of a valid new obligation. x x x
 84

In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. The
test of incompatibility is whether or not the two obligations can stand together, each one having its independent existence.
x x x (Emphasis supplied.)

Furthermore, Art. 1293 of the Civil Code states:

Novation which consists in substituting a new debtor in the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives
him rights mentioned in articles 1236 and 1237.

We do not agree, then, with the CA in holding that there was a novation in the contract between the parties. Not all the
elements of novation were present. Novation must be expressly consented to. Moreover, the conflicting intention and acts
of the parties underscore the absence of any express disclosure or circumstances with which to deduce a clear and
unequivocal intent by the parties to novate the old agreement.15 Land Bank is thus correct when it argues that there was
no novation in the following:

[W]hether or not Alfredo Ong has an interest in the obligation and payment was made with the knowledge or consent of
Spouses Sy, he may still pay the obligation for the reason that even before he paid the amount of P750,000.00 on
January 31, 1997, the substitution of debtors was already perfected by and between Spouses Sy and Spouses Ong as
evidenced by a Deed of Sale with Assumption of Mortgage executed by them on December 9, 1996. And since the
substitution of debtors was made without the consent of Land Bank a requirement which is indispensable in order to
effect a novation of the obligation, it is therefore not bound to recognize the substitution of debtors. Land Bank did not
intervene in the contract between Spouses Sy and Spouses Ong and did not expressly give its consent to this
substitution.16

Unjust enrichment

Land Bank maintains that the trial court erroneously applied the principle of equity and justice in ordering it to return the
PhP 750,000 paid by Alfredo. Alfredo was allegedly in bad faith and in estoppel. Land Bank contends that it enjoyed the
presumption of regularity and was in good faith when it accepted Alfredos tender of PhP 750,000. It reasons that it did not
unduly enrich itself at Alfredos expense during the foreclosure of the mortgaged properties, since it tendered its bid by
subtracting PhP 750,000 from the Spouses Sys outstanding loan obligation. Alfredos recourse then, according to Land
Bank, is to have his payment reimbursed by the Spouses Sy.

We rule that Land Bank is still liable for the return of the PhP 750,000 based on the principle of unjust enrichment. Land
Bank is correct in arguing that it has no obligation as creditor to recognize Alfredo as a person with interest in the
fulfillment of the obligation. But while Land Bank is not bound to accept the substitution of debtors in the subject real
estate mortgage, it is estopped by its action of accepting Alfredos payment from arguing that it does not have to
recognize Alfredo as the new debtor. The elements of estoppel are:

First, the actor who usually must have knowledge, notice or suspicion of the true facts, communicates something to
another in a misleading way, either by words, conduct or silence; second, the other in fact relies, and relies reasonably or
justifiably, upon that communication; third, the other would be harmed materially if the actor is later permitted to assert any
claim inconsistent with his earlier conduct; and fourth, the actor knows, expects or foresees that the other would act upon
the information given or that a reasonable person in the actors position would expect or foresee such action. 17

By accepting Alfredos payment and keeping silent on the status of Alfredos application, Land Bank misled Alfredo to
believe that he had for all intents and purposes stepped into the shoes of the Spouses Sy.

The defense of Land Bank Legazpi City Branch Manager Atty. Hingco that it was the banks Lending Center that should
have notified Alfredo of his assumption of mortgage disapproval is unavailing. The Lending Centers lack of notice of
disapproval, the Tabaco Branchs silence on the disapproval, and the banks subsequent actions show a failure of the
bank as a whole, first, to notify Alfredo that he is not a recognized debtor in the eyes of the bank; and second, to apprise
him of how and when he could collect on the payment that the bank no longer had a right to keep.
 85

We turn then on the principle upon which Land Bank must return Alfredos payment. Unjust enrichment exists "when a
person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience."18 There is unjust enrichment under Art. 22 of the Civil
Code when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to
another.19

Additionally, unjust enrichment has been applied to actions called accion in rem verso. In order that the accion in rem
verso may prosper, the following conditions must concur: (1) that the defendant has been enriched; (2) that the plaintiff
has suffered a loss; (3) that the enrichment of the defendant is without just or legal ground; and (4) that the plaintiff has no
other action based on contract, quasi-contract, crime, or quasi-delict.20 The principle of unjust enrichment essentially
contemplates payment when there is no duty to pay, and the person who receives the payment has no right to receive it. 21

The principle applies to the parties in the instant case, as, Alfredo, having been deemed disqualified from assuming the
loan, had no duty to pay petitioner bank and the latter had no right to receive it.

Moreover, the Civil Code likewise requires under Art. 19 that "[e]very person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." Land Bank,
however, did not even bother to inform Alfredo that it was no longer approving his assumption of the Spouses Sys
mortgage. Yet it acknowledged his interest in the loan when the branch head of the bank wrote to tell him that his
daughters loan had not been paid.22 Land Bank made Alfredo believe that with the payment of PhP 750,000, he would be
able to assume the mortgage of the Spouses Sy. The act of receiving payment without returning it when demanded is
contrary to the adage of giving someone what is due to him. The outcome of the application would have been different
had Land Bank first conducted the credit investigation before accepting Alfredos payment. He would have been notified
that his assumption of mortgage had been disapproved; and he would not have taken the futile action of paying PhP
750,000. The procedure Land Bank took in acting on Alfredos application cannot be said to have been fair and proper.

As to the claim that the trial court erred in applying equity to Alfredos case, we hold that Alfredo had no other remedy to
recover from Land Bank and the lower court properly exercised its equity jurisdiction in resolving the collection suit. As we
have held in one case:

Equity, as the complement of legal jurisdiction, seeks to reach and complete justice where courts of law, through the
inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases, are
incompetent to do so. Equity regards the spirit and not the letter, the intent and not the form, the substance rather than the
circumstance, as it is variously expressed by different courts. 23

Another claim made by Land Bank is the presumption of regularity it enjoys and that it was in good faith when it accepted
Alfredos tender of PhP 750,000.

The defense of good faith fails to convince given Land Banks actions. Alfredo was not treated as a mere prospective
borrower. After he had paid PhP 750,000, he was made to sign bank documents including a promissory note and real
estate mortgage. He was assured by Atty. Hingco that the titles to the properties covered by the Spouses Sys real estate
mortgage would be transferred in his name, and upon payment of the PhP 750,000, the account would be considered
current and renewed in his name.24

Land Bank posits as a defense that it did not unduly enrich itself at Alfredos expense during the foreclosure of the
mortgaged properties, since it tendered its bid by subtracting PhP 750,000 from the Spouses Sys outstanding loan
obligation. It is observed that this is the first time Land Bank is revealing this defense. However, issues, arguments,
theories, and causes not raised below may no longer be posed on appeal. 25 Land Banks contention, thus, cannot be
entertained at this point.1avvphi1

Land Bank further questions the lower courts decision on the basis of the inconsistencies made by Alfredo on the witness
stand. It argues that Alfredo was not a credible witness and his testimony failed to overcome the presumption of regularity
in the performance of regular duties on the part of Land Bank.

This claim, however, touches on factual findings by the trial court, and we defer to these findings of the trial court as
sustained by the appellate court. These are generally binding on us. While there are exceptions to this rule, Land Bank
has not satisfactorily shown that any of them is applicable to this issue. 26 Hence, the rule that the trial court is in a unique
position to observe the demeanor of witnesses should be applied and respected 27 in the instant case.
 86

In sum, we hold that Land Bank may not keep the PhP 750,000 paid by Alfredo as it had already foreclosed on the
mortgaged lands.

Interest and attorneys fees

As to the applicable interest rate, we reiterate the guidelines found in Eastern Shipping Lines, Inc. v. Court of Appeals: 28

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest,
as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty,
the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin
to run only from the date the judgment of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.

No evidence was presented by Alfredo that he had sent a written demand to Land Bank before he filed the collection suit.
Only the verbal agreement between the lawyers of the parties on the return of the payment was
mentioned.29Consequently, the obligation of Land Bank to return the payment made by Alfredo upon the formers denial of
the latters application for assumption of mortgage must be reckoned from the date of judicial demand on December 12,
1997, as correctly determined by the trial court and affirmed by the appellate court.

The next question is the propriety of the imposition of interest and the proper imposable rate of applicable interest. The
RTC granted the rate of 12% per annum which was affirmed by the CA. From the above-quoted guidelines, however, the
proper imposable interest rate is 6% per annum pursuant to Art. 2209 of the Civil Code. Sunga-Chan v. Court of
Appeals is illuminating in this regard:

In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum under Central Bank (CB) Circular No.
416 shall be adjudged only in cases involving the loan or forbearance of money. And for transactions involving
payment of indemnities in the concept of damages arising from default in the performance of obligations in
general and/or for money judgment not involving a loan or forbearance of money, goods, or credit, the governing
provision is Art. 2209 of the Civil Code prescribing a yearly 6% interest. Art. 2209 pertinently provides:

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity
for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six per cent per annum.

The term "forbearance," within the context of usury law, has been described as a contractual obligation of a lender or
creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay the loan or debt then due
and payable.
 87

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the applicable rate, as
follows: The 12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance of money, goods, or
credits, as well as to judgments involving such loan or forbearance of money, goods, or credit, while the 6% per annum
under Art. 2209 of the Civil Code applies "when the transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay in the performance of obligations in general," with the
application of both rates reckoned "from the time the complaint was filed until the [adjudged] amount is fully paid." In either
instance, the reckoning period for the commencement of the running of the legal interest shall be subject to the condition
"that the courts are vested with discretion, depending on the equities of each case, on the award of interest." 30 (Emphasis
supplied.)

Based on our ruling above, forbearance of money refers to the contractual obligation of the lender or creditor to desist for
a fixed period from requiring the borrower or debtor to repay the loan or debt then due and for which 12% per annum is
imposed as interest in the absence of a stipulated rate. In the instant case, Alfredos conditional payment to Land Bank
does not constitute forbearance of money, since there was no agreement or obligation for Alfredo to pay Land Bank the
amount of PhP 750,000, and the obligation of Land Bank to return what Alfredo has conditionally paid is still in dispute
and has not yet been determined. Thus, it cannot be said that Land Banks alleged obligation has become a forbearance
of money.

On the award of attorneys fees, attorneys fees and expenses of litigation were awarded because Alfredo was compelled
to litigate due to the unjust refusal of Land Bank to refund the amount he paid. There are instances when it is just and
equitable to award attorneys fees and expenses of litigation.31 Art. 2208 of the Civil Code pertinently states:

In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered,
except:

xxxx

(2) When the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to
protect his interest.

Given that Alfredo was indeed compelled to litigate against Land Bank and incur expenses to protect his interest, we find
that the award falls under the exception above and is, thus, proper given the circumstances.

On a final note. The instant case would not have been litigated had Land Bank been more circumspect in dealing with
Alfredo. The bank chose to accept payment from Alfredo even before a credit investigation was underway, a procedure
worsened by the failure to even inform him of his credit standings impact on his assumption of mortgage. It was,
therefore, negligent to a certain degree in handling the transaction with Alfredo. It should be remembered that the
business of a bank is affected with public interest and it should observe a higher standard of diligence when dealing with
the public.32

WHEREFORE, the appeal is DENIED. The CA Decision in CA-G.R. CR-CV No. 84445 is AFFIRMED with
MODIFICATION in that the amount of PhP 750,000 will earn interest at 6% per annum reckoned from December 12,
1997, and the total aggregate monetary awards will in turn earn 12% per annum from the finality of this Decision until fully
paid.

SO ORDERED.

G.R. Nos. 149840-41 March 31, 2006

SPS. FRANCISCO AND RUBY REYES, Petitioners,

vs.
BPI FAMILY SAVINGS BANK, INC., and MAGDALENA L. LOMETILLO, in her capacity as ex-officio Provincial
Sheriff for Iloilo, Respondents.

DECISION

CORONA,J.:
 88

Via this petition for review under Rule 45 of the Rules of Court, petitioners assail the decision 1 of the Court of Appeals
(CA) in CA-G.R. SP Nos. 45629 and 45877 and its resolution denying their motion for reconsideration.

The facts are simple.

On March 24, 1995, the Reyes spouses executed a real estate mortgage on their property in Iloilo City in favor of
respondent BPI Family Savings Bank, Inc. (BPI-FSB) to secure a P15,000,000 loan of Transbuilders Resources and
Development Corporation (Transbuilders). The mortgage contract between petitioners and BPI-FSB provided, among
others:

That for and in consideration of the above-mentioned sum received by way of a loan, and other credit accommodations of
whatever nature obtained by the Borrower/Mortgagor, the Borrower/Mortgagor by this Agreement, hereby constitutes a
first mortgage, special and voluntary over the property/ies specifically described in Annex "A", together with all existing
improvements as well as those that may hereafter be made to exist or constructed thereon, inclusive of all fruits and rents,
in favor of the Bank, its successors and assigns. 2

When Transbuilders failed to pay its P15M loan within the stipulated period of one year, the bank restructured the loan
through a promissory note executed by Transbuilders in its favor. The pertinent provisions of the promissory note 3 stated
that:

1. The proceeds of the Note shall be applied to loan account no. 21108336 4; and

2. The new obligation of Transbuilders to respondent Bank for fifteen million (P15,000,000.00) shall be paid in
twenty (20) quarterly installments commencing on September 28, 1996 and at an interest rate of eighteen (18%)
per annum.

Petitioners aver that they were not informed about the restructuring of Transbuilders loan. In fact, when they learned of
the new loan agreement sometime in December 1996, they wrote BPI-FSB requesting the cancellation of their mortgage
and the return of their certificate of title to the mortgaged property. They claimed that the new loan novated the loan
agreement of March 24, 1995. Because the novation was without their knowledge and consent, they were allegedly
released from their obligation under the mortgage.

When BPI-FSB refused to cancel the mortgage, petitioners filed separate petitions for mandamus and prohibition with the
Regional Trial Court (RTC) of Manila to compel the bank to return their certificate of title and cancel the mortgage. BPI-
FSB, on the other hand, instituted extrajudicial foreclosure proceedings against petitioners in Iloilo City after Transbuilders
defaulted in its payments. Consequently, a sheriffs notice of sale of petitioners property at public auction was issued.

The Manila RTC dismissed petitioners actions for mandamus and prohibition. Their appeal to the Court of Appeals was
likewise dismissed:

The mortgage contract between the petitioners and the respondent BPI does not limit the obligation or loan for which it
may stand to the loan agreement between Transbuilders and BPI, dated March 24, 1995, considering that under the
terms of that contract, the intent of all the parties, including the petitioners, to secure future indebtedness is
apparent. On the whole, the contract of loan/mortgage dated March 24, 1995, appears to include even the new
loan agreement between Transbuilders and BPI, entered into on June 28, 1996.

xxx xxx xxx

There is likewise no merit to the petitioners submission that there was a novation of the March 24, 1995 contract. There is
no clear intent of the parties to make the new contract completely supersede and abolish the old loan/mortgage contract.
The established rule is that novation is never presumed. Novation will not be allowed unless it is clearly shown by express
agreement, or by acts of equal import. Thus, to effect an objective novation it is imperative that the new obligation
expressly declares that the old obligation is thereby extinguished or that the new obligation be on every point incompatible
with the new one. (Ajax Marketing & Development Corporation v. Court of Appeals, 248 SCRA 222 [1995]) Without such
clear intent to abolish the old contract, there is no merit to affirm the existence of a novation.
 89

There is no basis therefore, to the charge that respondent BPI had gravely erred in not surrendering the petitioners
certificate of title, as the mortgage undertaking of the petitioners has not been cancelled. For the same reason, the
respondent BPI acted within its prerogative when it initiated extra-judicial foreclosure proceedings over the petitioners
property.

WHEREFORE, premises considered, the instant appeals from the Decision of the Regional Trial Court of Iloilo City in CA-
G.R. SP No. 45887 and the Order of dismissal of the Regional Trial Court of Manila in CA-G.R. SP No. 45629 are hereby
DISMISSED.

SO ORDERED.5 (emphasis ours)

Petitioners moved for a reconsideration of the decision but were unsuccessful. Hence, this appeal.

The only issue for our consideration is whether there was a novation of the mortgage loan contract between petitioners
and BPI-FSB that would result in the extinguishment of petitioners liability to the bank.

We agree with the CA that there was none.

Novation is defined as the extinguishment of an obligation by the substitution or change of the obligation by a subsequent
one which terminates the first, either by changing the object or principal conditions, or by substituting the person of the
debtor, or subrogating a third person in the rights of the creditor. 6

Article 1292 of the Civil Code on novation further provides:

Article 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it
be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each
other.

The cancellation of the old obligation by the new one is a necessary element of novation which may be effected either
expressly or impliedly. While there is really no hard and fast rule to determine what might constitute sufficient change
resulting in novation, the touchstone, however, is irreconcilable incompatibility between the old and the new obligations. 7

In Garcia, Jr. v. Court of Appeals,8 we held that:

In every novation there are four essential requisites:(1) a previous valid obligation; (2) the agreement of all the parties to
the new contract; (3) the extinguishment of the old contract; and (4) validity of the new one. There must be consent of all
the parties to the substitution, resulting in the extinction of the old obligation and the creation of a valid new one. The
acceptance of the promissory note by the plaintiff is not novation of the contract. The legal doctrine is that an obligation to
pay a sum of money is not novated in a new instrument by changing the term of payment and adding other obligations not
incompatible with the old one. It is not proper to consider an obligation novated as in the case at bar by the mere granting
of extension of payment which did not even alter its essence. To sustain novation necessitates that the same be declared
in unequivocal terms or that there is complete and substantial incompatibility between the two obligations. An obligation to
pay a sum of money is not novated in a new instrument wherein the old is ratified by changing only the terms of payment
and adding other obligations not incompatible with the old one or wherein the old contract is merely supplementing the old
one.

Thus, the well-settled rule is that, with respect to obligations to pay a sum of money, the obligation is not novated by an
instrument that expressly recognizes the old, changes only the terms of payment, adds other obligations not incompatible
with the old ones, or the new contract merely supplements the old one. 9

BPI-FSB and Transbuilders only extended the repayment term of the loan from one year to twenty quarterly installments
at 18% interest per annum. There was absolutely no intention by the parties to supersede or abrogate the old loan
contract secured by the real estate mortgage executed by petitioners in favor of BPI-FSB. In fact, the intention of the new
agreement was precisely to revive the old obligation after the original period expired and the loan remained unpaid. The
novation of a contract cannot be presumed. In the absence of an express agreement, novation takes place only when the
old and the new obligations are incompatible on every point. 10
 90

Moreover, under the real estate mortgage executed by them in favor of BPI-FSB, petitioners undertook to secure
the P15M loan of Transbuilders to BPI-FSB "and other credit accommodations of whatever nature obtained by the
Borrower/Mortgagor." While this stipulation proved to be onerous to petitioners, neither the law nor the courts will extricate
a party from an unwise or undesirable contract entered into with all the required formalities and with full awareness of its
consequences. 11 Petitioners voluntarily executed the real estate mortgage on their property in favor of BPI-FSB to secure
the P15M loan of Transbuilders. They cannot now be allowed to repudiate their obligation to the bank after Transbuilders
default. While petitioners liability was written in fine print and in a contract prepared by BPI-FSB, it has been the
consistent holding of this Court that contracts of adhesion are not invalid per se. On numerous occasions, we have upheld
the binding effects of such contracts. 12

WHEREFORE, the petition is hereby DENIED for lack of merit.

SO ORDERED.

G.R. No. 107992 October 8, 1997

ODYSSEY PARK, INC., petitioner,

vs.
HONORABLE COURT OF APPEALS and UNION BANK OF THE PHILIPPINES, respondents.

VITUG, J.:

Assailed in the instant petition for review on certiorari is the decision, dated 07 September 1992, of the Court of Appeals
affirming that of the Regional Trial Court, Branch 152, of Pasig, Metro Manila, which has adjudged the contract to sell
entered into between petitioner and private respondent as having been validly rescinded.

The Court adopts the factual findings, hereunder narrated, of the appellate court:

1. On November 4, 1981, Bancom Development Corporation and plaintiff-appellant Odyssey Park, Inc.,
entered into a Contract to Sell (Exhibit B-1), whereby the former agreed to sell to the latter the parcel of
land with an area of 8,499 square meters situated in Baguio City and the structure constructed thereon
identified as the Europa Clubhouse.

2. Subsequently on February 11, 1982, in a document entitled "Separate Deed of Conveyance" (Annex F
of the Affidavit of Carmelito A. Montano, pages 152-154 of the Record), Bancom confirmed and
acknowledged that it has ceded, transferred and conveyed in favor of defendant-appellee Union Bank all
the rights, title and interest it has over the property.

3. The purchase price of P3,500,000.00 was, per Section 2 of the Contract to Sell, agreed to be paid as
follows:

a) SEVEN HUNDRED THOUSAND PESOS (P700,000.00) as down payment, to be paid

by Odyssey as follows:

(i) ONE HUNDRED THOUSAND (P100,000.00) PESOS upon signing of

this Contract;

(ii) TWO HUNDRED THOUSAND PESOS (P200,000.00), sixty (60) days

from and after the date of this Contract. The said amount shall be
covered by a check postdated sixty (60) days after the date of this
 91

Contract issued and delivered by Odyssey to Bancom upon the signing

of this Contract; and

(iii) FOUR HUNDRED THOUSAND PESOS (P400,000.00), ninety (90)

days from and after the date of this Contract. The said amount shall be
covered by a check postdated ninety (90) days after the date of this
Contract issued and delivered by Odyssey to Bancom upon signing of
this Contract.

b) The balance of TWO MILLION EIGHT HUNDRED THOUSAND PESOS

(P2,800,000.00) shall be paid by Odyssey to Bancom within a period of three (3) years by
twelve (12) equal quarterly amortizations of P298,346.08 each, inclusive of the interest
and service charge set forth in Section 3 hereof, the first amortization to become due and
payable four (4) months and fifteen (15) days after the date of this Contract, and the
succeeding amortizations at the end of each quarter thereafter until the balance of the
purchase price of the Property is paid in full.

4. It was also agreed in Section 5 of the Contract to Sell that:

Sec. 5: In the event Odyssey fails to pay any portion of the purchase price of the Property
or the interest and service charge thereon as and when it falls due, or otherwise fails to
comply with or violate any of the provisions of this Contract, Bancom may at its absolute
discretion cancel and rescind this Contract and declare the same as null, void and no
further force and effect by serving on Odyssey a written notice of cancellation and
rescission thirty (30) days in advance.

In the event this Contract is cancelled and rescinded as provided in this Section, all the
amounts which the Odyssey may have paid to Bancom pursuant to and in accordance
with this Contract shall be forfeited in favor of Bancom as rentals for the use and
occupancy of the Property and as penalty for the breach and violation of this Contract.
Furthermore, all the improvements which Odyssey may have introduced on the Property
shall form part thereof and belong to Bancom without right of reimbursements to
Odyssey; Provided, that Bancom may at its absolute discretion instead require Odyssey
to remove such improvements from the Property at expense of Odyssey.

5. On November 26, 1981, twenty-two (22) days after the execution of the contract
plaintiff-appellant paid the amount of P100,000.00. Other payments, also beyond the
stipulated period, (see Odyssey Park, Inc., Statement of Application of Payment, Annex A
of the Supportive Affidavit of Nicefero S. Agaton, p. 309 of the record) in the total sum of
P110,000.00 were made as follows:

September 22, 1982 P20,000.00

April 13, 1983 10,000.00
April 30, 1983 10,000.00
July 20, 1983 50,000.00
September 19, 1983 20,000.00.

6. On December 23, 1981, Mr. Vicente A. Araneta, President of Europa Condominium

Villas, Inc., wrotes defendant-appellee Union Bank, a letter, Exhibit E, stating that the
Europa Center was reported to prospective buyers as well as government authorities as
part of common areas and amenities under the condominium concept of selling to the
public and for that reason wants to make it of record that Europa Condominium Villas,
Inc., questions the propriety of the contract to sell.

7. On January 4, 1982, plaintiff-appellant Odyssey Park, Inc., through its Chairman of the
Board, Mr. Carmelito A. Montano, wrote Bancom Development Corp. a letter, Exhibit F,
stating that it acknowledges receipt of a copy of the letter-protest from the Europa
 92

Condominium Villas, Inc., and that in the meantime that there is a question on the
propriety of the sale, it is stopping/withholding payments of the amortization.

8. On the same date, January 4, 1982, Bancom, through its Senior Vice-President, wrote
Europa Condominium Villas, Inc. a letter, Exhibit H, explaining that the Europa Center
and the parcel of land on which it is built are not part of the Europa Condominium Villas,
Inc.

9. On March 29, 1983, defendant-appellee Union Bank wrote plaintiff-appellant Odyssey

Park, Inc., a letter (Annexes F, F-1 of the Supportive Affidavit of Nicefero S. Agaton, pp.
317-318 of the record) demanding payment of the overdue account of P2,193,720.91,
inclusive of interest and service charges, otherwise the contract to sell would be
cancelled and rescinded;

10. On April 12, 1983, plaintiff-appellant Odyssey wrote defendant-appellee Union Bank a
letter (Annex F-2 of the Supportive Affidavit of Nicefero S. Agaton, pp. 319-320 of the
record) proposing a manner of settlement which defendant-appellee Union Bank
answered (Annex F-3, p. 321 of the record) asking for more details of the proposal. The
series of communications led to the drafting of a Memorandum of Agreement (Exhibit N)
which was not, however, signed by the parties.

11. On January 6, 1984, defendant-appellee Union Bank, through counsel, wrote plaintiff-
appellant Odyssey Park, Inc., a letter (Exhibit O) formally rescinding and/or cancelling the
contract to sell and demanding that plaintiff-appellant vacate and peaceably surrender
possession of the premises.

12. On or about August 20, 1984, for failure of plaintiff-appellant to vacate, defendant-
appellee filed a case for illegal detainer and damages (Exhibit P).

13. On July 5, 1988, plaintiff-appellant filed this case for "Declaration of the Nullity of the
Rescission of the Contract to Sell With Damages".1 (Emphasis ours.)

After the trial, the lower court rendered judgment in favor of private respondent, declaring the Contract to Sell of 04
November 1981 to have been properly rescinded; dismissing the complaint for being frivolous and unfounded; and
ordering the plaintiff to pay the defendant P300,000.00 by way of attorney's fees and litigation expenses. The judgment,
as so heretofore stated, was affirmed by respondent appellate court.

Its motion for reconsideration having been denied on 22 November 1992, petitioner corporation seasonably filed the
present petition questioning the decision of the appellate court.

The Court rules for affirmance of the appealed decision.

The issues raised by petitioner which generally are factual in nature and previously taken up by the appellate court cannot
in this instance be freely examined all over again. It is not the function of the Supreme Court to analyze and to weigh
anew the evidence already passed upon by the Court of Appeals. The authority of this Court is confined to correcting
errors of law, if any, that might have been committed below.2 Absent the recognized exceptions, which are not here
extant, factual findings of the Court of Appeals are conclusive.

Hardly, in this case, can it be said that there was no basis at all for debunking the contention of petitioner to the effect that
because Europa Condominium Villas, Inc., had questioned the right of Bancom to sell the property, petitioner thereby was
enfranchised to suspend or withhold payment to Bancom. Respondent appellate court, seconding the findings of the trial
court, quoted the latter; thus:

First, the title of Union Bank over the property (TCT No. T-33725) is clear without any encumbrance or
adverse claim. Second, Europa condominium Villas, Inc. has not earnestly questioned Bancom's right to
sell. If Europa is in earnest, it should have filed the necessary action in Court to protect its right to a
valuable property. Third, Europa would not have offered to buy the property from Bancom for P6 Million if
 93

it was claiming ownership over it. Fourth, the letters which plaintiff claim to be proof of Europa's
persistence in questioning Bancom's right to sell the property do not really question Bancom's right to do
so but are actually money claims of Europa Condominium Villas, Inc. against Odyssey for unpaid water
bills and other services rendered by Europa. 3

The only real legal issue, it appears to the Court, is whether or not the rescission of the contract to sell by private
respondent accords with the requirements of Republic Act ("R.A.") No. 6552, also known as "An Act to Protect Buyers of
Real Estate on Installment Payments" which, petitioner insists, requires a cancellation or rescission of the contract by
means of a notarial act. A mere letter (dated 06 January 1984), or short of such a notarial act, according to petitioner,
would be utterly deficient.

Unfortunately for petitioner, the invocation of Republic Act No. 6552 is misplaced. This law, which normally applies to the
sale or financing of real estate on installment payments, excludes "industrial lots, commercial buildings, and sales to
tenants under R.A. No. 3844." The appellate court has thus aptly said:

While the law applies to all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments, excluded are industrial lots,
commercial buildings and sales to tenants under R.A. 3844 as amended. The property subject of the
contract to sell is not a residential condominium apartment. Even on the basis of the letter of Mr. Vicente
A. Araneta, Exhibit E, the building is merely "part of common areas and amenities under the
Condominium concept of selling to the public". The property subject of the contract to sell is more of a
commercial building.4

Neither would Article 1191 of the Civil Code govern. Article 1191, in full, provides:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible.

The Court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the Mortgage Law.

In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a
breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an
obligatory force.5 The breach contemplated in Article 1191 of the Code is the obligor's failure to comply with an obligation
already extant, not a failure of a condition to render binding that obligation. In any event, the failure of petitioner to even
complete the downpayment stipulated in the contract to sell puts petitioner corporation far from good stead in urging that
there has been substantial compliance with the contract to sell within the meaning of Article 1191 of the Code.

So, too, must Article 1592 of the Civil Code be held inapplicable. This law states:

Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to
pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee
may pay, even after the expiration of the period, as long as no demand for rescission of the contract has
been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a
new term.

It is clear that the above provisions contemplate neither a conditional sale nor a contract to sell but an absolute
sale.6
 94

What must instead be held to rule in the case at bar is the agreement of the parties themselves. Section 5 of their contract
to sell reads:

Sec. 5: In the event Odyssey fails to pay any portion of the purchase price of the Property or the interest
and service charge thereon as and when it falls due, or otherwise fails to comply with or violate any of the
provisions of this Contract, Bancom may at its absolute discretion cancel and rescind this Contract and
declare the same as null, void and no further force and effect by serving on Odyssey a written notice of
cancellation and rescission thirty (30) days in advance.

In the event this Contract is cancelled and rescinded as provided in this Section, all the amounts which
the Odyssey may have paid to Bancom pursuant to and in accordance with this Contract shall be forfeited
in favor of Bancom as rentals for the use and occupancy of the Property and as penalty for the breach
and violation of this Contract. Furthermore, all the improvements which Odyssey may have introduced on
the Property shall form part thereof and belong to Bancom without right of reimbursements to
Odyssey; Provided, that Bancom may at its absolute discretion instead require Odyssey to remove such
improvements from the Property at expense of Odyssey.7

It is a familiar doctrine in the law on contracts that the parties are bound by the stipulations, clauses, terms and
conditions they have agreed to,8 the only limitation being that these stipulations, clauses, terms and conditions are
not contrary to law, morals, public order or public policy.9 Not being repugnant to any legal proscription, the
agreement entered into by the parties herein involved must be respected and held to be the law between them.

WHEREFORE, the decision appealed from is AFFIRMED in toto. Costs against petitioner.

SO ORDERED.
 95

G.R. No. 200901, December 07, 2015

SM INVESTMENTS CORPORATION, Petitioner, v. ESTELA MARFORI POSADAS, MARIA ELENA POSADAS AND
AIDA MACARAIG POSADAS. Respondents.

DECISION

PEREZ, J.:

Before this Court is a Petition for Review1 filed by petitioner SM Investments Corporation (SMIC) assailing the
Decision2 dated 13 September 2011 of the Court of Appeals in CA-G.R. CV No. 91788, which decision, in turn, reversed
and set aside the Decision3 dated 18 December 2007 of the Regional Trial Court of Makati City (Trial Court) in Civil Case
No. 97-832.

The material facts of this case, as borne by the records, are as follows:chanRoblesvirtualLawlibrary

Respondents Estela Marfori Posadas, Maria Elena Posadas and Aida Macaraig Posadas are the owners of several
parcels of land with a total area of 27.6 hectares, more or less, and covered by Transfer Certificates of Title Nos. S-37656,
158291 and 158292 of the Register of Deeds of Makati City (Subject Property).

On 08 August 1995, SMIC, through its President, Henry Sy, Jr. (Mr. Sy), sent respondents a written offer for a joint
venture for the development of the Subject Property, which in part reads:

Madames:chanRoblesvirtualLawlibrary

The undersigned offers a JOINT VENTyRE with your realty of more or less 27.6 hectares at the Posadas Subdivision,
Sucat, Muntinlupa City, under the following terms:
1. Development of the entire area into a first class commercial/residential subdivision. Development of area presently
leased to Worldwide with an area of 2.6 hectares will be after expiration of lease on year 2002.

2. To set values for the property, the set price of P4,000.00 per square meter of areas fronting South Super Highway and
P1,500.00 per square meter for the rest of the area. After full development, the set price is P20,000.00 per square meter
of said front areas and P10,000.00 for the rest of the areas; with no sale of lots after development for less than the set
values herein stated above, except sale to our affiliate company.

3. The sharing of the Joint Venture Partners shall be 60/40 on your favour. The undersigned reserves his right of first
choice for a contiguous consolidated area indicated in plan attached herewith, for commercial/residential development.
You are granted a choice of your 60% share of developed areas thereafter. Areas used for open spaces and streets
required by law shall have no set values.

4. Upon execution of Joint Venture Agreement, the undersigned will pay you the amount of SEVENTY MILLION PESOS
(P70,000,000.00), Philippine currency, as goodwill money over and above your 60% share in the Joint Venture and the
agents for this joint venture shall be given five percent (5%) of the goodwill payment as their full commission.
 96

5. In case you decide to avail of a third party to sell your lots from your 60% share, I will be given the priority to exclusively
sell the same, subject to terms and conditions that may be agreed upon.
The foregoing offer supersedes and revokes my previous offers and/or proposals. I hope you will favourably consider the
foregoing offer.4ChanRoblesVirtualawlibrary
On 18 August 1995, respondents sent SMIC a written counterproposal, which, in part, reads as follows:
Dear Mr. Sy Jr.:chanRoblesvirtualLawlibrary

Thank you for your interest in our property subject of your Joint Venture proposal dated August 8, 1995.

The terms mentioned in your proposal, except the goodwill money which we submit should be not less than EIGHTY
MILLION (P80,000,000.00) PESOS, are acceptable in principle, subject however to our agreement on the specified terms
and conditions such as details of development, your plans and specifications therein, period of completion, use of the area
allocated to you in the Joint Venture and other details.

If our counter-proposal of goodwill money of EIGHTY MILLION (P80,000,000.00) PESOS is acceptable to you, upon your
presentation of the details as stated above, upon our agreement on the same, we will be ready to sign a Joint Venture
Agreement with your goodself.5ChanRoblesVirtualawlibrary
On 24 August 1995, SMIC, through Mr. Sy, Jr., sent respondents another letter containing its acceptance of the counter-
offer of respondents, which reads as follows:
Dear Mesdames:chanRoblesvirtualLawlibrary

This is to signify acceptance of your counter proposal of goodwill money in the amount of EIGHTY MILLION PESOS
(P80,000,000.00), Philippine currency, as contained in your letter of August 18, 1995, for the development of your
property in Sucat, Paranaque, subject to the condition that the said amount of goodwill money will be paid and tendered to
you upon your signing of the Joint Venture Agreement. 6ChanRoblesVirtualawlibrary
On 02 December 1995, SMIC, in compliance with what it considered as a perfected contract for the joint venture, sent
respondents four (4) drawings of the proposed mall and its location within the Subject Property.

However, on 06 December 1995, after receiving the aforementioned drawings, respondents sent SMIC a letter informing it
that they had received several other offers for the Subject Property, and demanding that SMIC better the said offers,
before they submit their comments on the drawings. The said letter reads:
Dear Mr. Sy Jr.:chanRoblesvirtualLawlibrary

By reason of your failure since August 24, 1995 to present to us the "specified terms and conditions on the details of
development" of the 27.6 hectares subject of your offer, up to the present, specifically "its plans and specifications, period
of completion, use of allocated area and other details" we have not been able to finalize or even negotiate in the proposed
Joint Venture Agreement.

In the interim period of your silence (from August 24, 1995 to December 1, 1995) which indicated lack interest on your
part to pursue your offer, various parties submitted offers on the 27.6 hectares, amongst which are:
a.) Offer of P120 Million goodwill on the 27.5 hectares plus 60% of the proceeds from [the] sale of the developed lots of
the 27.5 hectares, with the option to submit offers on the vertical development of the entire 27.6 hectares;

b.) Offer to purchase 7.2 hectares of the 27.6 hectares at the price of P10,000.00 per square meter on CASH BASIS, with
the undertaking to construct a giant commercial complex on the same; and

c.) Offer to purchase 5.48 hectares of the 27.6 hectares at the price of P5,000.00 per square meter with P10 Million
downpayment with undertaking to construct a giant structure to cater on the "warehouse concept of marketing";
all of which are now under negotiation.

Last Saturday, December 2, 1995, your representative delivered four (4) drawings of your proposed Mall (on the 2.3
hectares with the balance devoted to parking) on your choice area (more or less 8 to 9 hectares) which did not include
any plans and specifications of development of the 27.6 hectares.

Considering the various offers presented to us while waiting for your 'plans and specifications of development of the 27.6
hectares' which you have not presented up to now, unless you submit a better offer, there is no need to comment on your
drawings.7(Underlining supplied)
On 27 February 1996, SMIC sent respondents a letter, which reads as follows:
 97

Madames (sic):chanRoblesvirtualLawlibrary

The undersigned reiterates our previous offer for a Joint Venture with you on your 27.6 hectares property at Posadas
Subdivision, Sucat, Muntinlupa City, under the following revised terms:chanRoblesvirtualLawlibrary

As earlier conveyed to you, we will develop the subject property into a first class mixed commercial/residential subdivision
and we propose a 60/40 sharing in your favor. The undersigned reserves his right of first choice for a contiguous
consolidated area which we will developed (sic) into mixed use development.

Upon execution of the Joint Venture agreement, the undersigned will pay you One Hundred Forty Million Pesos
(P140,000.00) as goodwill money over and above your sixty (60%) percent share in the Joint Venture.

In case you decide to avail of a third party to sell your lots from your sixty (60%) percent share, I will be given the priority
to exclusively sell same subject to the terms and condition that may be agreed upon.

If the foregoing terms and conditions is (sic) acceptable to you please signify your conformity on the space provided
herein below.8ChanRoblesVirtualawlibrary
Thereafter, on 21 August 1996, SMIC, through counsel, sent respondents a letter reminding them to respect the joint
venture agreement for the development of the Subject Property.

It appearing that respondents were not willing to honor the joint venture agreement, SMIC, on 21 April 1997, filed Civil
Case No. 97-832, a case for Specific Performance and Damages with Prayer for Temporary Restraining Order and Writ of
Preliminary Injunction against respondents.

After conducting a full-blown hearing on the merits, the Trial Court, on 18 December 2007, promulgated its Decision, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered: (a) declaring the existence, validity and enforceability
of the contract between [SMIC and respondents] under the terms and conditions embodied in the letters dated 08, 18 &
24 August 1995 for the development of the subject property and ordering the said [respondents] to faithfully comply with
the terms and conditions thereof, particularly to work out with [SMIC], in good faith, the details, plans and specifications of
developments of the subject property, and upon agreement thereon, to execute the formal Joint Venture Agreement; (b)
ordering said [respondents] to pay [SMIC] the sum of P500,000.00 for attorney's fees and litigation
expenses.9ChanRoblesVirtualawlibrary
Aggrieved by the above-mentioned decision, respondents appealed the same to the Court of Appeals.10

On 13 September 2011, the Court of Appeals promulgated its Decision reversing and setting aside the Decision of the
Trial Court, the dispositive portion of which reads:
WHEREFORE, premises considered, the instant appeal is hereby GRANTED. The assailed Decision dated December 18,
2007 is hereby REVERSED and SET ASIDE. The complaint in Civil Case No. 97-382 for Specific Performance and
Damages with Prayer for Temporary Restraining Order and Writ of Preliminary Injunction is DISMISSED for lack of
merit.11ChanRoblesVirtualawlibrary
Thus, SMIC filed this Petition where it attributed grave and serious errors in judgment on the part of the Court of Appeals
when it made the following findings:

a. There was no perfected contract between SMIC and respondents;

b. The lack of agreement on details and plans of development prevented the perfection of the contract;

c. The parties are still in the negotiation stage;

d. The Letter of 24 August 1995 embodied only a qualified acceptance on the part of SMIC; and

e. The Letter of 27 February 1996 constituted a new offer on the part of SMIC.12

In separate Comments,13 respondents refuted the aforestated assignment of errors, and contended that the exchange of
correspondences between SMIC and respondents, in fact, shows that no joint venture agreement for the development of
the Subject Property was perfected.

The records will show that, indeed, several correspondences were had between the parties and these constitute the crux
 98

of the controversy in this case. It is, thus, incumbent upon Us to determine whether a contract for a joint venture between
the parties has, in fact, been perfected.

Inasmuch as the principal issues of this case, raised in the foregoing assignment of errors, are interrelated, we shall
proceed to jointly resolve the same.

We find the Petition to be impressed with merit.

It is basic in this jurisdiction that a contract is perfected by mere consent of the parties. Thus, Article 1315 of the Civil
Code provides:
Art. 1315. Contracts are perfected by mere consent and from that moment the parties are bound not only to the fulfilment
of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law.
In relation to the foregoing, Articles 1318 to 1320 of the Civil Code states the necessary requisites of a contract, to wit:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

SECTION 1. CONSENT

Art. 1319. Consent 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. A qualified acceptance constitutes a
counter-offer,

Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The
contract, in such a case, is presumed to have been entered in the place where the offer was made.

Art. 1320. An acceptance may be express or implied.

Based on the above-mentioned provisions of law, we concur with the findings of the Trial Court that the facts in this
particular case show that a contract for a joint venture between the parties has, in fact, been perfected.

First, the Letter of 08 August 1995 embodies a complete offer on the part of SMIC in that it contained an object certain,
which is the joint venture for the development of the Subject Property, and a specific cause and/or consideration therefor,
which are the goodwill money in the amount of P70 Million, plus a 60/40 sharing, in favor of respondents of the said
development.

Second, the Letter dated 18 August 1995 in return embodies a complete counter-offer on the part of respondents in that
they conveyed their acceptance of the joint venture subject only to the counter-proposal to increase the goodwill money
from P70 Million to P80 Million.

Third, the Letter dated 24 August 1995 contains an unqualified, acceptance on the part of SMIC of the above-mentioned
counter-proposal of respondents, again on the aspect of the goodwill money alone.

At this point, following the above-quoted provisions of the Civil Code, particularly Articles 1318 and 1319 thereof, we
agree with the finding of the Trial Court that a joint venture agreement between the parties has been perfected, in that (i)
there is consent, or a meeting of the minds, (ii) there is an object certain, which is the joint venture, and (iii) there is a
cause and/or consideration, which are the goodwill money and specific sharing scheme.

The controversy arose when respondents sent SMIC the Letter of 6 December 1995, wherein the former stated that they
had received more lucrative offers for the Subject Property, noted a three (3)-month period of silence, on the part of SMIC
and concluded that the said silence was tantamount to a lack of interest on the part of SMIC. Significantly, this particular
letter of respondents immediately followed the submission by SMIC of certain drawings related to the development. Lastly,
and more importantly, respondents stated therein that unless SMIC submits a better offer, there would simply be no need
for respondents to comment on the said drawings SMIC sent.

The 6 December 1995 Letter of respondents did not have any effect on the perfected joint venture between the parties. At
best, the same letter may be considered as a mere proposal, on the part of respondents, to amend the consideration of
the joint venture. This is confirmed by the premise laid by respondents therein, particularly that they received better offers
 99

from third parties for the purchase and/or development of the Subject Property, or portions thereof. We are all but
convinced that respondents were well aware and were acting with the knowledge that the joint venture agreement had
indeed been perfected. This is precisely the reason respondents were very careful with their language when they insisted
that unless SMIC would propose amending the Joint Venture to include better terms, respondents would withhold their
comments on the drawings. It would be important to note that respondents, in the said letter, did not, in any way or
manner, disavow the existence of the Joint Venture.

Further, respondents, in arguing that a perfected joint venture agreement does not exist, rely on the statement they made
in the letter of 18 August 1995, which states "subject however to our agreement on the specified terms and conditions
such as details of development, your plans and specifications therein, period of completion, use of the area allocated to
you in the Joint Venture and other details" However, the same, as correctly pointed out by the Trial Court, is not a
condition precedent for the perfection of the joint venture agreement.

In Swedish Match, AB v. Court of Appeals,14 we explained the stages of a contract, thus:

In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and consummation. Negotiation
begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of
agreement of the parties. Perfection or birth of the contract takes place when the parties agree upon the essential
elements of the contract. Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract,
culminating in the extinguishment thereof.15ChanRoblesVirtualawlibrary
In this case, the first and second stage of the contract had been fulfilled. Negotiations took place when the parties made
their exchange of correspondences until the letter of 24 August 1995. The perfection of the contract came thereafter,
when SMIC, through the letter of 24 August 1995, accepted the counter-offer of respondents in their letter of 18 August
1995.

The same statement of respondents in said letter of 18 August 1995 already deals with the consummation stage of the
contract, wherein the parties fulfill or perform the terms agreed upon in the contract. Verily, the details of the development
of the Subject Property, particularly the plans and specifications of the same shall come only after the parties have
already agreed to enter into a joint venture agreement to develop the same. In other words, the said plans and
specifications are but the result of the perfected contract; these were done in execution of the perfected contract.

We agree with the Trial Court that the development of a first class commercial/residential subdivision in a 27.6 hectare
property is a complex project, which involves a careful and meticulous preparation of the plans and specifications thereof.
And, SMIC for its part have already exerted efforts and incurred cost for the preparation of the above-mentioned drawings,
in the implementation of the joint venture agreement.

The fact that the above-mentioned drawings came three and a half (3 1/2) months after the joint venture agreement was
perfected is not a valid cause for respondents to unilaterally back out from the same. We note that nowhere in the records
does it appear that SMIC was given a specific period within which to submit drawings and/or plans. Neither do the records
show that respondents corresponded with SMIC to follow up on the same. On the contrary, the records will show that
respondents tried to solicit more favourable terms from SMIC, after they received the drawings.

Anent the increase in the goodwill money to the amount of P140 million, subject of the 27 February 1996 letter of SMIC,
suffice it to say that We concur with the finding of the Trial Court that the same was merely to appease respondents, who
were lured by subsequent offers from other parties, and to dissuade respondents from violating or unjustifiably
withdrawing from their subsisting contract with SMIC. This finding was supported by the testimony of respondent Ma.
Elena Posadas, who admitted that the "better offer" they were asking SMIC to submit referred only to the goodwill
money.16 It is a hornbook doctrine that findings of fact of trial courts are entitled to great weight on appeal and should not
be disturbed except for strong and valid reasons because the trial court is in a better position to examine the demeanor of
the witnesses while testifying. It is not a function of this Court to analyze and weigh evidence by the parties all over
again.17

Indeed, the letter of SMIC of 27 February 1996 on the increased goodwill money was a post perfection matter, and
clearly, was for the purpose of having the issue of breach of the perfected contract settled without further ado.

In view of the foregoing, we affirm the finding of the Trial Court that there is a perfected joint venture agreement between
the parties for the development of the Subject Property. Therefore, the said perfected joint venture agreement still stands.
In this jurisdiction, obligations arising from contracts have the force of law between the contracting parties and should be
complied with in good faith.18

WHEREFORE, premises considered, the instant petition is hereby GRANTED. The assailed Decision dated 13
 100

September 2011 is hereby REVERSED and SET ASIDE. The Decision dated 18 December 2007 of the Regional Trial
Court of Makati City in Civil Case No. 97-832 is hereby REINSTATED.

SO ORDERED.chanroblesvirtuallawlibrary

Sereno, C.J., (Chairperson), Leonardo-De Castro, Bersamin, and Perlas-Bernabe, JJ., concur.chanrobleslaw
 101

G. R. No. 158149 February 9, 2006

BOSTON BANK OF THE PHILIPPINES, (formerly BANK OF COMMERCE), Petitioner,

vs.
PERLA P. MANALO and CARLOS MANALO, JR., Respondents.

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari of the Decision 1 of the Court of Appeals (CA) in CA-G.R. CV No. 47458
affirming, on appeal, the Decision2 of the Regional Trial Court (RTC) of Quezon City, Branch 98, in Civil Case No. Q-89-
3905.

The Antecedents

The Xavierville Estate, Inc. (XEI) was the owner of parcels of land in Quezon City, known as the Xavierville Estate
Subdivision, with an area of 42 hectares. XEI caused the subdivision of the property into residential lots, which was then
offered for sale to individual lot buyers.3

On September 8, 1967, XEI, through its General Manager, Antonio Ramos, as vendor, and The Overseas Bank of Manila
(OBM), as vendee, executed a "Deed of Sale of Real Estate" over some residential lots in the subdivision, including Lot 1,
Block 2, with an area of 907.5 square meters, and Lot 2, Block 2, with an area of 832.80 square meters. The transaction
was subject to the approval of the Board of Directors of OBM, and was covered by real estate mortgages in favor of the
Philippine National Bank as security for its account amounting to 5,187,000.00, and the Central Bank of the Philippines
as security for advances amounting to 22,185,193.74.4 Nevertheless, XEI continued selling the residential lots in the
subdivision as agent of OBM.5

Sometime in 1972, then XEI president Emerito Ramos, Jr. contracted the services of Engr. Carlos Manalo, Jr. who was in
business of drilling deep water wells and installing pumps under the business name Hurricane Commercial, Inc. For
34,887.66, Manalo, Jr. installed a water pump at Ramos residence at the corner of Aurora Boulevard and Katipunan
Avenue, Quezon City. Manalo, Jr. then proposed to XEI, through Ramos, to purchase a lot in the Xavierville subdivision,
and offered as part of the downpayment the 34,887.66 Ramos owed him. XEI, through Ramos, agreed. In a letter dated
February 8, 1972, Ramos requested Manalo, Jr. to choose which lots he wanted to buy so that the price of the lots and
the terms of payment could be fixed and incorporated in the conditional sale.6Manalo, Jr. met with Ramos and informed
him that he and his wife Perla had chosen Lots 1 and 2 of Block 2 with a total area of 1,740.3 square meters.

In a letter dated August 22, 1972 to Perla Manalo, Ramos confirmed the reservation of the lots. He also pegged the price
of the lots at 200.00 per square meter, or a total of 348,060.00, with a 20% down payment of the purchase price
 102

amounting to 69,612.00 less the 34,887.66 owing from Ramos, payable on or before December 31, 1972; the
corresponding Contract of Conditional Sale would then be signed on or before the same date, but if the selling operations
of XEI resumed after December 31, 1972, the balance of the downpayment would fall due then, and the spouses would
sign the aforesaid contract within five (5) days from receipt of the notice of resumption of such selling operations. It was
also stated in the letter that, in the meantime, the spouses may introduce improvements thereon subject to the rules and
regulations imposed by XEI in the subdivision. Perla Manalo conformed to the letter agreement. 7

The spouses Manalo took possession of the property on September 2, 1972, constructed a house thereon, and installed a
fence around the perimeter of the lots.

In the meantime, many of the lot buyers refused to pay their monthly installments until they were assured that they would
be issued Torrens titles over the lots they had purchased.8 The spouses Manalo were notified of the resumption of the
selling operations of XEI.9 However, they did not pay the balance of the downpayment on the lots because Ramos failed
to prepare a contract of conditional sale and transmit the same to Manalo for their signature. On August 14, 1973, Perla
Manalo went to the XEI office and requested that the payment of the amount representing the balance of the
downpayment be deferred, which, however, XEI rejected. On August 10, 1973, XEI furnished her with a statement of their
account as of July 31, 1973, showing that they had a balance of 34,724.34 on the downpayment of the two lots after
deducting the account of Ramos, plus 3,819.68 10 interest thereon from September 1, 1972 to July 31, 1973, and that the
interests on the unpaid balance of the purchase price of 278,448.00 from September 1, 1972 to July 31, 1973 amounted
to 30,629.28.11 The spouses were informed that they were being billed for said unpaid interests. 12

On January 25, 1974, the spouses Manalo received another statement of account from XEI, inclusive of interests on the
purchase price of the lots.13 In a letter dated April 6, 1974 to XEI, Manalo, Jr. stated they had not yet received the notice of
resumption of Leis selling operations, and that there had been no arrangement on the payment of interests; hence, they
should not be charged with interest on the balance of the downpayment on the property.14Further, they demanded that a
deed of conditional sale over the two lots be transmitted to them for their signatures. However, XEI ignored the demands.
Consequently, the spouses refused to pay the balance of the downpayment of the purchase price. 15

Sometime in June 1976, Manalo, Jr. constructed a business sign in the sidewalk near his house. In a letter dated June 17,
1976, XEI informed Manalo, Jr. that business signs were not allowed along the sidewalk. It demanded that he remove the
same, on the ground, among others, that the sidewalk was not part of the land which he had purchased on installment
basis from XEI.16 Manalo, Jr. did not respond. XEI reiterated its demand on September 15, 1977. 17

Subsequently, XEI turned over its selling operations to OBM, including the receivables for lots already contracted and
those yet to be sold.18 On December 8, 1977, OBM warned Manalo, Jr., that "putting up of a business sign is specifically
prohibited by their contract of conditional sale" and that his failure to comply with its demand would impel it to avail of the
remedies as provided in their contract of conditional sale.19

Meanwhile, on December 5, 1979, the Register of Deeds issued Transfer Certificate of Title (TCT) No. T-265822 over Lot
1, Block 2, and TCT No. T-265823 over Lot 2, Block 2, in favor of the OBM. 20 The lien in favor of the Central Bank of the
Philippines was annotated at the dorsal portion of said title, which was later cancelled on August 4, 1980. 21

Subsequently, the Commercial Bank of Manila (CBM) acquired the Xavierville Estate from OBM. CBM wrote Edilberto Ng,
the president of Xavierville Homeowners Association that, as of January 31, 1983, Manalo, Jr. was one of the lot buyers in
the subdivision.22 CBM reiterated in its letter to Ng that, as of January 24, 1984, Manalo was a homeowner in the
subdivision.23

In a letter dated August 5, 1986, the CBM requested Perla Manalo to stop any on-going construction on the property since
it (CBM) was the owner of the lot and she had no permission for such construction. 24 She agreed to have a conference
meeting with CBM officers where she informed them that her husband had a contract with OBM, through XEI, to purchase
the property. When asked to prove her claim, she promised to send the documents to CBM. However, she failed to do
so.25 On September 5, 1986, CBM reiterated its demand that it be furnished with the documents promised,26 but Perla
Manalo did not respond.

On July 27, 1987, CBM filed a complaint27 for unlawful detainer against the spouses with the Metropolitan Trial Court of
Quezon City. The case was docketed as Civil Case No. 51618. CBM claimed that the spouses had been unlawfully
occupying the property without its consent and that despite its demands, they refused to vacate the property. The latter
 103

alleged that they, as vendors, and XEI, as vendee, had a contract of sale over the lots which had not yet been
rescinded.28

While the case was pending, the spouses Manalo wrote CBM to offer an amicable settlement, promising to abide by the
purchase price of the property (313,172.34), per agreement with XEI, through Ramos. However, on July 28, 1988, CBM
wrote the spouses, through counsel, proposing that the price of 1,500.00 per square meter of the property was a
reasonable starting point for negotiation of the settlement. 29 The spouses rejected the counter proposal,30 emphasizing
that they would abide by their original agreement with XEI. CBM moved to withdraw its complaint31 because of the issues
raised.32

In the meantime, the CBM was renamed the Boston Bank of the Philippines. After CBM filed its complaint against the
spouses Manalo, the latter filed a complaint for specific performance and damages against the bank before the Regional
Trial Court (RTC) of Quezon City on October 31, 1989.

The plaintiffs alleged therein that they had always been ready, able and willing to pay the installments on the lots sold to
them by the defendants remote predecessor-in-interest, as might be or stipulated in the contract of sale, but no contract
was forthcoming; they constructed their house worth 2,000,000.00 on the property in good faith; Manalo, Jr., informed
the defendant, through its counsel, on October 15, 1988 that he would abide by the terms and conditions of his original
agreement with the defendants predecessor-in-interest; during the hearing of the ejectment case on October 16, 1988,
they offered to pay 313,172.34 representing the balance on the purchase price of said lots; such tender of payment was
rejected, so that the subject lots could be sold at considerably higher prices to third parties.

Plaintiffs further alleged that upon payment of the 313,172.34, they were entitled to the execution and delivery of a Deed
of Absolute Sale covering the subject lots, sufficient in form and substance to transfer title thereto free and clear of any
and all liens and encumbrances of whatever kind and nature. 33 The plaintiffs prayed that, after due hearing, judgment be
rendered in their favor, to wit:

WHEREFORE, it is respectfully prayed that after due hearing:

(a) The defendant should be ordered to execute and deliver a Deed of Absolute Sale over subject lots in favor of
the plaintiffs after payment of the sum of 313,172.34, sufficient in form and substance to transfer to them titles
thereto free and clear of any and all liens and encumbrances of whatever kind or nature;

(b) The defendant should be held liable for moral and exemplary damages in the amounts of 300,000.00 and
30,000.00, respectively, for not promptly executing and delivering to plaintiff the necessary Contract of Sale,
notwithstanding repeated demands therefor and for having been constrained to engage the services of
undersigned counsel for which they agreed to pay attorneys fees in the sum of 50,000.00 to enforce their rights
in the premises and appearance fee of 500.00;

(c) And for such other and further relief as may be just and equitable in the premises.34

In its Answer to the complaint, the defendant interposed the following affirmative defenses: (a) plaintiffs had no cause of
action against it because the August 22, 1972 letter agreement between XEI and the plaintiffs was not binding on it; and
(b) "it had no record of any contract to sell executed by it or its predecessor, or of any statement of accounts from its
predecessors, or records of payments of the plaintiffs or of any documents which entitled them to the possession of the
lots."35 The defendant, likewise, interposed counterclaims for damages and attorneys fees and prayed for the eviction of
the plaintiffs from the property.36

Meanwhile, in a letter dated January 25, 1993, plaintiffs, through counsel, proposed an amicable settlement of the case by
paying 942,648.70, representing the balance of the purchase price of the two lots based on the current market
value.37 However, the defendant rejected the same and insisted that for the smaller lot, they pay 4,500,000.00, the
current market value of the property.38 The defendant insisted that it owned the property since there was no contract or
agreement between it and the plaintiffs relative thereto.

During the trial, the plaintiffs adduced in evidence the separate Contracts of Conditional Sale executed between XEI and
Alberto Soller;39 Alfredo Aguila,40 and Dra. Elena Santos-Roque41 to prove that XEI continued selling residential lots in the
subdivision as agent of OBM after the latter had acquired the said lots.
 104

For its part, defendant presented in evidence the letter dated August 22, 1972, where XEI proposed to sell the two lots
subject to two suspensive conditions: the payment of the balance of the downpayment of the property, and the execution
of the corresponding contract of conditional sale. Since plaintiffs failed to pay, OBM consequently refused to execute the
corresponding contract of conditional sale and forfeited the 34,877.66 downpayment for the two lots, but did not notify
them of said forfeiture.42 It alleged that OBM considered the lots unsold because the titles thereto bore no annotation that
they had been sold under a contract of conditional sale, and the plaintiffs were not notified of XEIs resumption of its
selling operations.

On May 2, 1994, the RTC rendered judgment in favor of the plaintiffs and against the defendant. The fallo of the decision
reads:

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

(a) Ordering the latter to execute and deliver a Deed of Absolute Sale over Lot 1 and 2, Block 2 of the Xavierville
Estate Subdivision after payment of the sum of 942,978.70 sufficient in form and substance to transfer to them
titles thereto free from any and all liens and encumbrances of whatever kind and nature.

(b) Ordering the defendant to pay moral and exemplary damages in the amount of 150,000.00; and

(c) To pay attorneys fees in the sum of 50,000.00 and to pay the costs.

SO ORDERED.43

The trial court ruled that under the August 22, 1972 letter agreement of XEI and the plaintiffs, the parties had a "complete
contract to sell" over the lots, and that they had already partially consummated the same. It declared that the failure of the
defendant to notify the plaintiffs of the resumption of its selling operations and to execute a deed of conditional sale did
not prevent the defendants obligation to convey titles to the lots from acquiring binding effect. Consequently, the plaintiffs
had a cause of action to compel the defendant to execute a deed of sale over the lots in their favor.

Boston Bank appealed the decision to the CA, alleging that the lower court erred in (a) not concluding that the letter of XEI
to the spouses Manalo, was at most a mere contract to sell subject to suspensive conditions, i.e., the payment of the
balance of the downpayment on the property and the execution of a deed of conditional sale (which were not complied
with); and (b) in awarding moral and exemplary damages to the spouses Manalo despite the absence of testimony
providing facts to justify such awards.44

On September 30, 2002, the CA rendered a decision affirming that of the RTC with modification. The fallo reads:

WHEREFORE, the appealed decision is AFFIRMED with MODIFICATIONS that (a) the figure "942,978.70" appearing
[in] par. (a) of the dispositive portion thereof is changed to "313,172.34 plus interest thereon at the rate of 12% per
annum from September 1, 1972 until fully paid" and (b) the award of moral and exemplary damages and attorneys fees in
favor of plaintiffs-appellees is DELETED.

SO ORDERED.45

The appellate court sustained the ruling of the RTC that the appellant and the appellees had executed a Contract to Sell
over the two lots but declared that the balance of the purchase price of the property amounting to 278,448.00 was
payable in fixed amounts, inclusive of pre-computed interests, from delivery of the possession of the property to the
appellees on a monthly basis for 120 months, based on the deeds of conditional sale executed by XEI in favor of other lot
buyers.46 The CA also declared that, while XEI must have resumed its selling operations before the end of 1972 and the
downpayment on the property remained unpaid as of December 31, 1972, absent a written notice of cancellation of the
contract to sell from the bank or notarial demand therefor as required by Republic Act No. 6552, the spouses had, at the
very least, a 60-day grace period from January 1, 1973 within which to pay the same.

Boston Bank filed a motion for the reconsideration of the decision alleging that there was no perfected contract to sell the
two lots, as there was no agreement between XEI and the respondents on the manner of payment as well as the other
terms and conditions of the sale. It further averred that its claim for recovery of possession of the aforesaid lots in its
 105

Memorandum dated February 28, 1994 filed before the trial court constituted a judicial demand for rescission that satisfied
the requirements of the New Civil Code. However, the appellate court denied the motion.

Boston Bank, now petitioner, filed the instant petition for review on certiorari assailing the CA rulings. It maintains that, as
held by the CA, the records do not reflect any schedule of payment of the 80% balance of the purchase price, or
278,448.00. Petitioner insists that unless the parties had agreed on the manner of payment of the principal amount,
including the other terms and conditions of the contract, there would be no existing contract of sale or contract to
sell.47 Petitioner avers that the letter agreement to respondent spouses dated August 22, 1972 merely confirmed their
reservation for the purchase of Lot Nos. 1 and 2, consisting of 1,740.3 square meters, more or less, at the price of
200.00 per square meter (or 348,060.00), the amount of the downpayment thereon and the application of the
34,887.00 due from Ramos as part of such downpayment.

Petitioner asserts that there is no factual basis for the CA ruling that the terms and conditions relating to the payment of
the balance of the purchase price of the property (as agreed upon by XEI and other lot buyers in the same subdivision)
were also applicable to the contract entered into between the petitioner and the Respondents. It insists that such a ruling
is contrary to law, as it is tantamount to compelling the parties to agree to something that was not even discussed, thus,
violating their freedom to contract. Besides, the situation of the respondents cannot be equated with those of the other lot
buyers, as, for one thing, the respondents made a partial payment on the downpayment for the two lots even before the
execution of any contract of conditional sale.

Petitioner posits that, even on the assumption that there was a perfected contract to sell between the parties,
nevertheless, it cannot be compelled to convey the property to the respondents because the latter failed to pay the
balance of the downpayment of the property, as well as the balance of 80% of the purchase price, thus resulting in the
extinction of its obligation to convey title to the lots to the Respondents.

Another egregious error of the CA, petitioner avers, is the application of Republic Act No. 6552. It insists that such law
applies only to a perfected agreement or perfected contract to sell, not in this case where the downpayment on the
purchase price of the property was not completely paid, and no installment payments were made by the buyers.

Petitioner also faults the CA for declaring that petitioner failed to serve a notice on the respondents of cancellation or
rescission of the contract to sell, or notarial demand therefor. Petitioner insists that its August 5, 1986 letter requiring
respondents to vacate the property and its complaint for ejectment in Civil Case No. 51618 filed in the Metropolitan Trial
Court amounted to the requisite demand for a rescission of the contract to sell. Moreover, the action of the respondents
below was barred by laches because despite demands, they failed to pay the balance of the purchase price of the lots (let
alone the downpayment) for a considerable number of years.

For their part, respondents assert that as long as there is a meeting of the minds of the parties to a contract of sale as to
the price, the contract is valid despite the parties failure to agree on the manner of payment. In such a situation, the
balance of the purchase price would be payable on demand, conformably to Article 1169 of the New Civil Code. They
insist that the law does not require a party to agree on the manner of payment of the purchase price as a prerequisite to a
valid contract to sell. The respondents cite the ruling of this Court in Buenaventura v. Court of Appeals 48 to support their
submission.

They argue that even if the manner and timeline for the payment of the balance of the purchase price of the property is an
essential requisite of a contract to sell, nevertheless, as shown by their letter agreement of August 22, 1972 with the
OBM, through XEI and the other letters to them, an agreement was reached as to the manner of payment of the balance
of the purchase price. They point out that such letters referred to the terms of the terms of the deeds of conditional sale
executed by XEI in favor of the other lot buyers in the subdivision, which contained uniform terms of 120 equal monthly
installments (excluding the downpayment, but inclusive of pre-computed interests). The respondents assert that XEI was
a real estate broker and knew that the contracts involving residential lots in the subdivision contained uniform terms as to
the manner and timeline of the payment of the purchase price of said lots.

Respondents further posit that the terms and conditions to be incorporated in the "corresponding contract of conditional
sale" to be executed by the parties would be the same as those contained in the contracts of conditional sale executed by
lot buyers in the subdivision. After all, they maintain, the contents of the corresponding contract of conditional sale
referred to in the August 22, 1972 letter agreement envisaged those contained in the contracts of conditional sale that XEI
and other lot buyers executed. Respondents cite the ruling of this Court in Mitsui Bussan Kaisha v. Manila E.R.R. & L.
Co.49
 106

The respondents aver that the issues raised by the petitioner are factual, inappropriate in a petition for review on certiorari
under Rule 45 of the Rules of Court. They assert that petitioner adopted a theory in litigating the case in the trial court, but
changed the same on appeal before the CA, and again in this Court. They argue that the petitioner is estopped from
adopting a new theory contrary to those it had adopted in the trial and appellate courts. Moreover, the existence of a
contract of conditional sale was admitted in the letters of XEI and OBM. They aver that they became owners of the lots
upon delivery to them by XEI.

The issues for resolution are the following: (1) whether the factual issues raised by the petitioner are proper; (2) whether
petitioner or its predecessors-in-interest, the XEI or the OBM, as seller, and the respondents, as buyers, forged a perfect
contract to sell over the property; (3) whether petitioner is estopped from contending that no such contract was forged by
the parties; and (4) whether respondents has a cause of action against the petitioner for specific performance.

The rule is that before this Court, only legal issues may be raised in a petition for review on certiorari. The reason is that
this Court is not a trier of facts, and is not to review and calibrate the evidence on record. Moreover, the findings of facts of
the trial court, as affirmed on appeal by the Court of Appeals, are conclusive on this Court unless the case falls under any
of the following exceptions:

(1) when the conclusion is a finding grounded entirely on speculations, surmises and conjectures; (2) when the inference
made is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of discretion; (4) when the judgment
is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in
making its findings went beyond the issues of the case and the same is contrary to the admissions of both appellant and
appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings of fact are conclusions without
citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the
petitioners main and reply briefs are not disputed by the respondents; and (10) when the findings of fact of the Court of
Appeals are premised on the supposed absence of evidence and contradicted by the evidence on record.50

We have reviewed the records and we find that, indeed, the ruling of the appellate court dismissing petitioners appeal is
contrary to law and is not supported by evidence. A careful examination of the factual backdrop of the case, as well as the
antecedental proceedings constrains us to hold that petitioner is not barred from asserting that XEI or OBM, on one hand,
and the respondents, on the other, failed to forge a perfected contract to sell the subject lots.

It must be stressed that the Court may consider an issue not raised during the trial when there is plain error. 51Although a
factual issue was not raised in the trial court, such issue may still be considered and resolved by the Court in the interest
of substantial justice, if it finds that to do so is necessary to arrive at a just decision,52 or when an issue is closely related
to an issue raised in the trial court and the Court of Appeals and is necessary for a just and complete resolution of the
case.53 When the trial court decides a case in favor of a party on certain grounds, the Court may base its decision upon
some other points, which the trial court or appellate court ignored or erroneously decided in favor of a party. 54

In this case, the issue of whether XEI had agreed to allow the respondents to pay the purchase price of the property was
raised by the parties. The trial court ruled that the parties had perfected a contract to sell, as against petitioners claim that
no such contract existed. However, in resolving the issue of whether the petitioner was obliged to sell the property to the
respondents, while the CA declared that XEI or OBM and the respondents failed to agree on the schedule of payment of
the balance of the purchase price of the property, it ruled that XEI and the respondents had forged a contract to sell;
hence, petitioner is entitled to ventilate the issue before this Court.

We agree with petitioners contention that, for a perfected contract of sale or contract to sell to exist in law, there must be
an agreement of the parties, not only on the price of the property sold, but also on the manner the price is to be paid by
the vendee.

Under Article 1458 of the New Civil Code, in a contract of sale, whether absolute or conditional, one of the contracting
parties obliges himself to transfer the ownership of and deliver a determinate thing, and the other to pay therefor a price
certain in money or its equivalent. A contract of sale is perfected at the moment there is a meeting of the minds upon the
thing which is the object of the contract and the price. From the averment of perfection, the parties are bound, not only to
the fulfillment of what has been expressly stipulated, but also to all the consequences which, according to their nature,
may be in keeping with good faith, usage and law.55 On the other hand, when the contract of sale or to sell is not
perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties.56
 107

A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property
because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a
binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the contracting
parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale. 57

It is not enough for the parties to agree on the price of the property. The parties must also agree on the manner of
payment of the price of the property to give rise to a binding and enforceable contract of sale or contract to sell. This is so
because the agreement as to the manner of payment goes into the price, such that a disagreement on the manner of
payment is tantamount to a failure to agree on the price.58

In a contract to sell property by installments, it is not enough that the parties agree on the price as well as the amount of
downpayment. The parties must, likewise, agree on the manner of payment of the balance of the purchase price and on
the other terms and conditions relative to the sale. Even if the buyer makes a downpayment or portion thereof, such
payment cannot be considered as sufficient proof of the perfection of any purchase and sale between the parties. Indeed,
this Court ruled in Velasco v. Court of Appeals 59 that:

It is not difficult to glean from the aforequoted averments that the petitioners themselves admit that they and the
respondent still had to meet and agree on how and when the down-payment and the installment payments were to be
paid. Such being the situation, it cannot, therefore, be said that a definite and firm sales agreement between the parties
had been perfected over the lot in question. Indeed, this Court has already ruled before that a definite agreement on the
manner of payment of the purchase price is an essential element in the formation of a binding and enforceable contract of
sale. The fact, therefore, that the petitioners delivered to the respondent the sum of 10,000.00 as part of the
downpayment that they had to pay cannot be considered as sufficient proof of the perfection of any purchase and sale
agreement between the parties herein under article 1482 of the New Civil Code, as the petitioners themselves admit that
some essential matter the terms of payment still had to be mutually covenanted.60

We agree with the contention of the petitioner that, as held by the CA, there is no showing, in the records, of the schedule
of payment of the balance of the purchase price on the property amounting to 278,448.00. We have meticulously
reviewed the records, including Ramos February 8, 1972 and August 22, 1972 letters to respondents, 61 and find that said
parties confined themselves to agreeing on the price of the property (348,060.00), the 20% downpayment of the
purchase price (69,612.00), and credited respondents for the 34,887.00 owing from Ramos as part of the 20%
downpayment. The timeline for the payment of the balance of the downpayment (34,724.34) was also agreed upon, that
is, on or before XEI resumed its selling operations, on or before December 31, 1972, or within five (5) days from written
notice of such resumption of selling operations. The parties had also agreed to incorporate all the terms and conditions
relating to the sale, inclusive of the terms of payment of the balance of the purchase price and the other substantial terms
and conditions in the "corresponding contract of conditional sale," to be later signed by the parties, simultaneously with
respondents settlement of the balance of the downpayment.

The February 8, 1972 letter of XEI reads:

Mr. Carlos T. Manalo, Jr.

Hurricane Rotary Well Drilling
Rizal Avenue Ext.,Caloocan City

Dear Mr. Manalo:

We agree with your verbal offer to exchange the proceeds of your contract with us to form as a down payment for a lot in
our Xavierville Estate Subdivision.

Please let us know your choice lot so that we can fix the price and terms of payment in our conditional sale.

Sincerely yours,

XAVIERVILLE ESTATE, INC.

 108

(Signed)
EMERITO B. RAMOS, JR.
President

CONFORME:

(Signed)
CARLOS T. MANALO, JR.
Hurricane Rotary Well Drilling62

The August 22, 1972 letter agreement of XEI and the respondents reads:

Mrs. Perla P. Manalo

1548 Rizal Avenue Extensionbr>Caloocan City

Dear Mrs. Manalo:

This is to confirm your reservation of Lot Nos. 1 and 2; Block 2 of our consolidation-subdivision plan as amended,
consisting of 1,740.3 square meters more or less, at the price of 200.00 per square meter or a total price of
348,060.00.

It is agreed that as soon as we resume selling operations, you must pay a down payment of 20% of the purchase price of
the said lots and sign the corresponding Contract of Conditional Sale, on or before December 31, 1972, provided,
however, that if we resume selling after December 31, 1972, then you must pay the aforementioned down payment
and sign the aforesaid contract within five (5) days from your receipt of our notice of resumption of selling operations.

In the meanwhile, you may introduce such improvements on the said lots as you may desire, subject to the rules and
regulations of the subdivision.

If the above terms and conditions are acceptable to you, please signify your conformity by signing on the space herein
below provided.

Thank you.

Very truly yours,

XAVIERVILLE ESTATE, INC. CONFORME:

By:

(Signed) (Signed)
EMERITO B. RAMOS, JR. PERLA P. MANALO

President Buyer63

Based on these two letters, the determination of the terms of payment of the 278,448.00 had yet to be agreed upon on
or before December 31, 1972, or even afterwards, when the parties sign the corresponding contract of conditional sale.

Jurisprudence is that if a material element of a contemplated contract is left for future negotiations, the same is too
indefinite to be enforceable.64 And when an essential element of a contract is reserved for future agreement of the parties,
no legal obligation arises until such future agreement is concluded. 65

So long as an essential element entering into the proposed obligation of either of the parties remains to be determined by
an agreement which they are to make, the contract is incomplete and unenforceable. 66 The reason is that such a contract
is lacking in the necessary qualities of definiteness, certainty and mutuality. 67
 109

There is no evidence on record to prove that XEI or OBM and the respondents had agreed, after December 31, 1972, on
the terms of payment of the balance of the purchase price of the property and the other substantial terms and conditions
relative to the sale. Indeed, the parties are in agreement that there had been no contract of conditional sale ever executed
by XEI, OBM or petitioner, as vendor, and the respondents, as vendees. 68

The ruling of this Court in Buenaventura v. Court of Appeals has no bearing in this case because the issue of the manner
of payment of the purchase price of the property was not raised therein.

We reject the submission of respondents that they and Ramos had intended to incorporate the terms of payment
contained in the three contracts of conditional sale executed by XEI and other lot buyers in the "corresponding contract of
conditional sale," which would later be signed by them. 69 We have meticulously reviewed the respondents complaint and
find no such allegation therein.70 Indeed, respondents merely alleged in their complaint that they were bound to pay the
balance of the purchase price of the property "in installments." When respondent Manalo, Jr. testified, he was never
asked, on direct examination or even on cross-examination, whether the terms of payment of the balance of the purchase
price of the lots under the contracts of conditional sale executed by XEI and other lot buyers would form part of the
"corresponding contract of conditional sale" to be signed by them simultaneously with the payment of the balance of the
downpayment on the purchase price.

We note that, in its letter to the respondents dated June 17, 1976, or almost three years from the execution by the parties
of their August 22, 1972 letter agreement, XEI stated, in part, that respondents had purchased the property "on installment
basis."71 However, in the said letter, XEI failed to state a specific amount for each installment, and whether such payments
were to be made monthly, semi-annually, or annually. Also, respondents, as plaintiffs below, failed to adduce a shred of
evidence to prove that they were obliged to pay the 278,448.00 monthly, semi-annually or annually. The allegation that
the payment of the 278,448.00 was to be paid in installments is, thus, vague and indefinite. Case law is that, for a
contract to be enforceable, its terms must be certain and explicit, not vague or indefinite. 72

There is no factual and legal basis for the CA ruling that, based on the terms of payment of the balance of the purchase
price of the lots under the contracts of conditional sale executed by XEI and the other lot buyers, respondents were
obliged to pay the 278,448.00 with pre-computed interest of 12% per annum in 120-month installments. As gleaned from
the ruling of the appellate court, it failed to justify its use of the terms of payment under the three "contracts of conditional
sale" as basis for such ruling, to wit:

On the other hand, the records do not disclose the schedule of payment of the purchase price, net of the downpayment.
Considering, however, the Contracts of Conditional Sale (Exhs. "N," "O" and "P") entered into by XEI with other lot buyers,
it would appear that the subdivision lots sold by XEI, under contracts to sell, were payable in 120 equal monthly
installments (exclusive of the downpayment but including pre-computed interests) commencing on delivery of the lot to the
buyer.73

By its ruling, the CA unilaterally supplied an essential element to the letter agreement of XEI and the Respondents. Courts
should not undertake to make a contract for the parties, nor can it enforce one, the terms of which are in doubt. 74 Indeed,
the Court emphasized in Chua v. Court of Appeals75 that it is not the province of a court to alter a contract by construction
or to make a new contract for the parties; its duty is confined to the interpretation of the one which they have made for
themselves, without regard to its wisdom or folly, as the court cannot supply material stipulations or read into contract
words which it does not contain.

Respondents, as plaintiffs below, failed to allege in their complaint that the terms of payment of the 278,448.00 to be
incorporated in the "corresponding contract of conditional sale" were those contained in the contracts of conditional sale
executed by XEI and Soller, Aguila and Roque.76 They likewise failed to prove such allegation in this Court.

The bare fact that other lot buyers were allowed to pay the balance of the purchase price of lots purchased by them in 120
or 180 monthly installments does not constitute evidence that XEI also agreed to give the respondents the same mode
and timeline of payment of the 278,448.00.

Under Section 34, Rule 130 of the Revised Rules of Court, evidence that one did a certain thing at one time is not
admissible to prove that he did the same or similar thing at another time, although such evidence may be received to
prove habit, usage, pattern of conduct or the intent of the parties.
 110

Similar acts as evidence. Evidence that one did or did not do a certain thing at one time is not admissible to prove that
he did or did not do the same or a similar thing at another time; but it may be received to prove a specific intent or
knowledge, identity, plan, system, scheme, habit, custom or usage, and the like.

However, respondents failed to allege and prove, in the trial court, that, as a matter of business usage, habit or pattern of
conduct, XEI granted all lot buyers the right to pay the balance of the purchase price in installments of 120 months of fixed
amounts with pre-computed interests, and that XEI and the respondents had intended to adopt such terms of payment
relative to the sale of the two lots in question. Indeed, respondents adduced in evidence the three contracts of conditional
sale executed by XEI and other lot buyers merely to prove that XEI continued to sell lots in the subdivision as sales agent
of OBM after it acquired said lots, not to prove usage, habit or pattern of conduct on the part of XEI to require all lot buyers
in the subdivision to pay the balance of the purchase price of said lots in 120 months. It further failed to prive that the trial
court admitted the said deeds77 as part of the testimony of respondent Manalo, Jr. 78

Habit, custom, usage or pattern of conduct must be proved like any other facts. Courts must contend with the caveat that,
before they admit evidence of usage, of habit or pattern of conduct, the offering party must establish the degree of
specificity and frequency of uniform response that ensures more than a mere tendency to act in a given manner but
rather, conduct that is semi-automatic in nature. The offering party must allege and prove specific, repetitive conduct that
might constitute evidence of habit. The examples offered in evidence to prove habit, or pattern of evidence must be
numerous enough to base on inference of systematic conduct. Mere similarity of contracts does not present the kind of
sufficiently similar circumstances to outweigh the danger of prejudice and confusion.

In determining whether the examples are numerous enough, and sufficiently regular, the key criteria are adequacy of
sampling and uniformity of response. After all, habit means a course of behavior of a person regularly represented in like
circumstances.79 It is only when examples offered to establish pattern of conduct or habit are numerous enough to lose an
inference of systematic conduct that examples are admissible. The key criteria are adequacy of sampling and uniformity
of response or ratio of reaction to situations.80

There are cases where the course of dealings to be followed is defined by the usage of a particular trade or market or
profession. As expostulated by Justice Benjamin Cardozo of the United States Supreme Court: "Life casts the moulds of
conduct, which will someday become fixed as law. Law preserves the moulds which have taken form and shape from
life."81 Usage furnishes a standard for the measurement of many of the rights and acts of men. 82 It is also well-settled that
parties who contract on a subject matter concerning which known usage prevail, incorporate such usage by implication
into their agreement, if nothing is said to be contrary. 83

However, the respondents inexplicably failed to adduce sufficient competent evidence to prove usage, habit or pattern of
conduct of XEI to justify the use of the terms of payment in the contracts of the other lot buyers, and thus grant
respondents the right to pay the 278,448.00 in 120 months, presumably because of respondents belief that the manner
of payment of the said amount is not an essential element of a contract to sell. There is no evidence that XEI or OBM and
all the lot buyers in the subdivision, including lot buyers who pay part of the downpayment of the property purchased by
them in the form of service, had executed contracts of conditional sale containing uniform terms and conditions. Moreover,
under the terms of the contracts of conditional sale executed by XEI and three lot buyers in the subdivision, XEI agreed to
grant 120 months within which to pay the balance of the purchase price to two of them, but granted one 180 months to do
so.84 There is no evidence on record that XEI granted the same right to buyers of two or more lots.

Irrefragably, under Article 1469 of the New Civil Code, the price of the property sold may be considered certain if it be so
with reference to another thing certain. It is sufficient if it can be determined by the stipulations of the contract made by the
parties thereto85 or by reference to an agreement incorporated in the contract of sale or contract to sell or if it is capable of
being ascertained with certainty in said contract;86 or if the contract contains express or implied provisions by which it may
be rendered certain;87 or if it provides some method or criterion by which it can be definitely ascertained. 88 As this Court
held in Villaraza v. Court of Appeals,89 the price is considered certain if, by its terms, the contract furnishes a basis or
measure for ascertaining the amount agreed upon.

We have carefully reviewed the August 22, 1972 letter agreement of the parties and find no direct or implied reference to
the manner and schedule of payment of the balance of the purchase price of the lots covered by the deeds of conditional
sale executed by XEI and that of the other lot buyers90 as basis for or mode of determination of the schedule of the
payment by the respondents of the 278,448.00.
 111

The ruling of this Court in Mitsui Bussan Kaisha v. Manila Electric Railroad and Light Company91 is not applicable in this
case because the basic price fixed in the contract was 9.45 per long ton, but it was stipulated that the price was subject
to modification "in proportion to variations in calories and ash content, and not otherwise." In this case, the parties did not
fix in their letters-agreement, any method or mode of determining the terms of payment of the balance of the purchase
price of the property amounting to 278,448.00.

It bears stressing that the respondents failed and refused to pay the balance of the downpayment and of the purchase
price of the property amounting to 278,448.00 despite notice to them of the resumption by XEI of its selling operations.
The respondents enjoyed possession of the property without paying a centavo. On the other hand, XEI and OBM failed
and refused to transmit a contract of conditional sale to the Respondents. The respondents could have at least consigned
the balance of the downpayment after notice of the resumption of the selling operations of XEI and filed an action to
compel XEI or OBM to transmit to them the said contract; however, they failed to do so.

As a consequence, respondents and XEI (or OBM for that matter) failed to forge a perfected contract to sell the two lots;
hence, respondents have no cause of action for specific performance against petitioner. Republic Act No. 6552 applies
only to a perfected contract to sell and not to a contract with no binding and enforceable effect.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No.
47458 is REVERSED and SET ASIDE. The Regional Trial Court of Quezon City, Branch 98 is ordered to dismiss the
complaint. Costs against the Respondents.

SO ORDERED.
 112

G.R. No. 145017 January 28, 2005

DR. JOSE and AIDA YASON, petitioners,

vs.
FAUSTINO ARCIAGA, FELIPE NERI ARCIAGA, DOMINGO ARCIAGA, and ROGELIO ARCIAGA, respondents.

DECISION

SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing
the Amended Decision1 of the Court of Appeals dated September 13, 2000 in CA G.R. CV No. 55668, entitled "Faustino
Arciaga, et. al. vs. Dr. Jose Yason and Aida Yason."

The factual antecedents as borne by the records are:

Spouses Emilio and Claudia Arciaga were owners of Lot No. 303-B situated in Barangay Putatan, Muntinlupa City, with an
area of 5,274 square meters covered by TCT No. 40913 of the Registry of Deeds of Makati City. On March 28, 1983, they
executed a Deed of Conditional Sale whereby they sold Lot No. 303-B for 265,000.00 to spouses Dr. Jose and Aida
Yason, petitioners. They tendered an initial payment of 150,000.00. On April 19, 1983, upon payment of the balance of
115,000.00, spouses Emilio and Claudia Arciaga executed a Deed of Absolute Sale. That day, Claudia died. She was
survived by her spouse and their six (6) children, namely: Faustino, Felipe Neri, Domingo, Rogelio, Virginia, and Juanita.

Petitioners had the Deed of Absolute Sale registered in the Registry of Deeds of Makati City. They entrusted its
registration to one Jesus Medina to whom they delivered the document of sale and the amount of 15,000.00 as payment
for the capital gains tax. Without their knowledge, Medina falsified the Deed of Absolute Sale and had the document
registered in the Registry of Deeds of Makati City. He made it appear that the sale took place on July 2, 1979, instead of
April 19, 1983, and that the price of the lot was only 25,000.00, instead of 265,000.00. On the basis of the fabricated
deed, TCT No. 40913 in the names of spouses Arciaga was cancelled and in lieu thereof, TCT No. 120869 was issued in
the names of petitioners.

Subsequently, petitioners had Lot No. 303-B subdivided into 23 smaller lots. Thus, TCT No. 120869 was cancelled and in
lieu thereof, TCT Nos. 132942 to 132964 were issued. Petitioners then sold several lots to third persons, except the 13
 113

lots covered by TCT Nos. 132942, 132943, 132945, 132946, 132948, 132950, 132951, 132953, 132954, 132955,
132958, 132962 and 132963, which they retained.

Sometime in April 1989, spouses Arciagas children learned of the falsified document of sale. Four of them, namely:
Faustino, Felipe Neri, Domingo and Rogelio, herein respondents, caused the filing with the Office of the Provincial
Prosecutor of Makati City a complaint for falsification of documents against petitioners, docketed as I.S No. 89-1966. It
was only after receiving the subpoena in April 1989 when they learned that the Deed of Absolute Sale was falsified.
However, after the preliminary investigation, the Provincial Prosecutor dismissed the complaint for falsification for lack of
probable cause.

Undaunted, respondents, on October 12, 1989, filed with the Regional Trial Court (RTC), Branch 62, Makati City, a
complaint for annulment of the 13 land titles, mentioned earlier, against petitioners. Respondents alleged inter aliathat the
Deed of Absolute Sale is void ab initio considering that (1) Claudia Arciaga did not give her consent to the sale as she
was then seriously ill, weak, and unable to talk and (2) Jesus Medina falsified the Deed of Absolute Sale; that without
Claudias consent, the contract is void; and that the 13 land titles are also void because a forged deed conveys no title.

In their answer, petitioners specifically denied the allegations in the complaint and averred that they validly acquired the
property by virtue of the notarized Deed of Conditional Sale and the Deed of Absolute Sale executed by spouses Emilio
and Claudia Arciaga, respondents parents. The Deed of Absolute Sale was duly signed by the parties in the morning of
April 19, 1983 when Claudia was still alive. It was in the evening of the same day when she died. Hence, the contract of
sale is valid. Furthermore, they have no participation in the falsification of the Deed of Absolute Sale by Medina. In fact,
they exerted efforts to locate him but to no avail.

On August 29, 1995, the trial court rendered a Decision dismissing respondents complaint and sustaining the validity of
the Deed of Conditional Sale and the Deed of Absolute Sale. The dispositive portion reads:

"WHEREFORE, Premises Considered, the COMPLAINT is hereby ordered DISMISSED, without pronouncement as to
costs.

SO ORDERED."

In their appeal to the Court of Appeals, respondents alleged that the trial court clearly overlooked vital and significant facts
which, if considered, would alter the result. Likewise, the trial court erred in concluding that the Deed of Absolute Sale
forged by Medina transferred ownership to the vendees, being buyers in good faith; and in finding that Claudia Arciaga
consented to the sale of the lots to petitioner spouses. 2

Initially, the Court of Appeals in its Decision dated February 21, 2000 affirmed the trial courts ruling. But upon
respondents motion for reconsideration, the Appellate Court reconsidered its Decision. In its Amended Decision, it
declared the Deed of Absolute Sale void, thus:

"WHEREFORE, Our decision dated February 21, 2000 is hereby SET ASIDE. The Deed of Absolute Sale dated April 19,
1983 is hereby declared null and void. The Registry of Deeds for Makati City is hereby ordered to cancel TCT Nos.
132942, 132943, 132945, 132946, 132948, 132950, 132951, 132953, 132954, 132955, 132958, 132962 and 132963
issued in the name of Jose Yason and to reinstate TCT No. 40913 in the name of Emilio Arciaga.

SO ORDERED."

In reversing its own Decision, the Appellate Court held:

"There is no evidence showing that said July 2, 1979 Deed of Absolute Sale covering the subject property was ever
executed by the parties. The appellees themselves who were supposedly the vendees did not even know of the existence
of such sale. What the appellees were claiming was that they entrusted to one Jesus Medina the original copies of the
purported Deed of Absolute Sale dated April 19, 1983 and the owners copy of TCT No. 40913 together with the amount
of 15,000.00 for capital gains tax and expenses for registration.

xxx
 114

It turned out that Medina did not use the Deed of Sale dated April 19, 1983 but fabricated a Deed of Absolute Sale dated
July 2, 1979 with a reduced consideration of 25,000.00.

xxx

Being a forged document, the July 2, 1979 Deed of Absolute Sale is indeed null and void.

It appears, however, that a Deed of Conditional Sale dated March 28, 1983 (Exh. 1, Record, p. 289) and a Deed of
Absolute Sale dated April 19, 1983 (Exh. 2, Record, p. 290) were purportedly executed by Emilio Arciaga and the
appellees and that the said property was allegedly sold for 265,000.00.

xxx

The curious part about the controversial deeds is the date of their supposed execution, especially the date of the Absolute
Deed of Sale which coincides with the date of the death of Claudia Arciaga. Also intriguing is the fact that only a
thumbmark and not a signature of Claudia Arciaga was affixed on the supposed deeds, when in fact she could definitely
read and write.

Appellants claimed that their mother Claudia Rivera never gave her consent to the sale. They said that the thumbmark of
their mother Claudia Arciaga was allegedly fixed on the Deed of Conditional Sale, if indeed it was prepared before the
death of their mother on April 19, 1983, when she was already very ill and bedridden and could not anymore give her
consent thereto, and the Deed of Absolute Sale was thumbmarked when she was already dead.

xxx

As between the testimony of the appellants and their sister Virginia Arciaga-Reyes, We are inclined to believe the claim of
the former that their mother Claudia Rivera Arciaga died at around 10:00 in the morning.

xxx

The time when Claudia Rivera Arciaga actually died, to Us, is crucial if only to determine the credibility of witnesses.

As between Virginia Arciaga Reyes and Jacklyn de Mesa, the latter is more credible.l^vvphi1.net She did not have any
interest in the controverted property, unlike the appellants and Virginia Reyes, who are the children of Claudia Rivera
Arciaga. The cardinal rule in the law of evidence is that the testimony must not only proceed from the mouth of a credible
witness but must also be credible in itself (People vs. Serdan, G.R. 87318, September 2, 1992).

xxx

We certainly cannot believe the testimony of Virginia Arciaga Reyes that her mother Claudia went to the house of Atty.
Fresnedi for the execution of the Deed of Conditional Sale. A person who is physically fit to travel can definitely write his
signature, as only minimal effort is needed to perform this simple mechanical act. But what appeared in the deed was only
a purported thumb mark of Claudia. Even Virginia Reyes said that her mother could write. Her testimony only supports the
claim of the appellants that Claudia Rivera Arciaga was already very ill and weak when the Deed of Conditional Sale was
purportedly executed, and was already dead when she was made to affix her thumb mark on the Deed of Absolute Sale.

xxx

In sum, the inconsistent testimonies of the appellee and his witnesses, particularly that of Virginia Arciaga Reyes, clearly
show that Claudia Rivera Arciaga did not voluntarily affix her thumb mark on the Deed of Conditional Sale and Deed of
Absolute Sale."

Hence, this petition for review on certiorari alleging that the Court of Appeals erred in declaring the Deed of Absolute Sale
void for lack of consent on the part of Claudia Arciaga and because the same document was forged by Medina.

The petition is impressed with merit.

 115

The rule is that only questions of law may be raised in a petition for review on certiorari; and that the factual findings of the
trial court, when adopted and confirmed by the Court of Appeals, are final and conclusive on this Court. 3However, there
are exceptions, such as when the findings of the Court of Appeals are contrary to those of the trial court, 4 as in this case.

In determining whether the Deed of Absolute Sale dated April 19, 1983 is valid, it must contain the essential requisites of
contracts, viz: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3)
cause of the obligation which is established.5 A contract of sale is perfected at the moment there is a meeting of the minds
upon the thing which is the object of the contract and upon the price. 6 Consent is manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to constitute the contract.7 To enter into a valid
legal agreement, the parties must have the capacity to do so.

The law presumes that every person is fully competent to enter into a contract until satisfactory proof to the contrary is
presented. The burden of proof is on the individual asserting a lack of capacity to contract, and this burden has been
characterized as requiring for its satisfaction clear and convincing evidence.

The Appellate Court, in its Amended Decision, held that the Deed of Absolute Sale is void for lack of consent on the part
of Claudia Arciaga who could not have affixed her thumbmark thereon since she was very ill then. In fact, she died a few
hours thereafter.

Thus, the basic issue for our resolution is whether Claudia Arciaga voluntarily affixed her thumbmark on the documents of
sale.

Respondents contend that Claudia did not give her consent to the contracts of sale. Since she knew how to read and
write, she should have signed each document instead of merely affixing her thumbmark thereon.

Domingo Arciaga, one of the respondents, testified that her mother Claudia was 82 years old when she died on April 19,
1983 due to "old age" and illness for four (4) months. On March 28, 1983, when the Conditional Deed of Sale was
allegedly executed, she was already very weak and thin and could no longer speak. Considering her physical condition,
she could not have affixed her thumbmark on the Conditional Deed of Sale that day. 8

Domingo further testified that their mother Claudia, at the time of her death, was being attended to by his sisters Juanita
and Virginia Arciaga; that he saw Virginia holding the thumb of their mother to enable her to affix her thumbmark on the
Deed of Absolute Sale, then being held by Juanita, thus:

"Q: Now, you have examined the document entitled Deed of Sale dated April 19, 1983, when for the first time did
you see this document?

A: When my mother died.

Q: When?

A: April 19, 1983.

Q: At what particular occasion or will you please tell the Honorable Court the circumstances how you were able to
see this document on April 19, 1983?

A: This is like this. While my mother was being attended, I went over to the porch and I saw Mr. Rogelio Arciaga.
We talked with each other. After that I went inside the house wherein I saw Juliana Arciaga holding that
document, the Deed of Sale, and Virginia Arciaga was holding the thumb of mother affixing said thumb to the
document.

Q: Who is Virginia Arciaga?

A: My sister.

Q: How about Juanita Arciaga?

 116

A: My sister also.

Q: How about Rogelio Arciaga?

A: I have also a brother named Rogelio Arciaga but the one I mentioned has the same name as my brother.

Q: After that what happened?

A: I asked, what is that? And they told me that one parcel of land was sold already by us and they said that this is
the Deed of Absolute Sale as proof that we have sold that parcel of land. I asked them: Why did you do that? It
cannot be! Our mother is a good mother, why still permit her to commit a sin.

Q: After that what happened next?

A: They told me that they are not going to pursue with it and I told them it cannot be really done." 9

Domingos testimony was corroborated by his brother Felipe Arciaga who testified that their mother was already dead
when her thumbmark was affixed on the document of sale, thus:

"Q: Did you hear any conversation between Domingo and your sisters holding the document?

A: Yes, sir.

Q: What was the conversation that you heard?

A: My brother said that it should not be thumbmarked since my mother is already dead. My sisters Virginia and
Juanita replied that the thumb marking will no longer proceed."10

Upon the other hand, petitioners maintain that Claudia voluntarily affixed her thumbmark on the Deeds of
Conditional and Absolute Sale which were notarized by Atty. Jaime Fresnedi. and Absolute Sale which were
notarized by Atty. Jaime Fresnedi. Virginia Arciaga Andres, daughter of Claudia, testified that she took care of her
mother. Five (5) months prior to the execution of the Conditional Deed of Sale on March 28, 1983, her parents
informed her and her siblings that they would sell their land. After the sale, her brother Felipe Neri borrowed
50,000.00 from their father. Her father signed the two documents of sale, while her mother affixed her
thumbmark thereon. Then Atty. Jaime Fresnedi notarized the Conditional Deed of Sale in his office, while the
Deed of Absolute Sale was notarized in her house. Her brothers (respondents herein) were all notified of the
sale.111awphi1.nt

Atty. Jaime Fresnedi testified that he notarized the subject documents and knew that Claudia affixed her
thumbmark thereon, thus:

"Q: What is the importance of the signatures in these two (2) documents?

A: That the parties who executed these documents appeared before me, your Honor.

xxx

Q: And when did you notarize the said document, this Deed of Absolute Sale dated April 19, 1983?

A: It was notarized in the same date.

Q: Where was it notarized?

A: It was also notarized in my office.

 117

A: Yes, sir.12

xxx

Q: Do you know personally Claudia Arciaga, the wife of Emilio Arciaga?

A: No, I do not know her personally.

xxx

Q: Prior to the execution of this document, Absolute Deed of Sale dated April 19, 1983, have you not met Claudia
Rivera?

A: I cannot remember.

xxx

Q: When you notarized this document on April 19, 1983, did you talk to Claudia Rivera?

A: I cannot remember.13

xxx

COURT:

Q: Did you ascertain whether the person who affixed that thumbmark was really CLAUDIA ARCIAGA?

A: Yes, your Honor.

Q: What means did you take to ascertain that the one who affixed that thumbmark was CLAUDIA ARCIAGA?

A: Because, your Honor, when there is a party, not necessarily your Honor in this case, whenever a party would
request me to prepare a document and notarize such document, I asked his name and he answered. Let us say
for example, this Mr. dela Cruz, he says he is Mr. dela Cruz or Mrs. Arciaga. That thru that introduction I knew
that they were the ones who affixed their signatures or affix their thumbmarks.

Q: In this particular case, did you do that?

A: Yes, your Honor."14

The Court of Appeals, reversing the trial court, held that respondents were able to prove that Claudia Arciaga could not
have affixed her thumbmark voluntarily on the Conditional Deed of Sale as "she was already very ill and bedridden and
could not anymore give her consent thereto;" and that "the Absolute Deed of Sale was thumbmarked when she was
already dead."

While it is true that Claudia was sick and bedridden, respondents failed to prove that she could no longer understand the
terms of the contract and that she did not affix her thumbmark thereon. Unfortunately, they did not present the doctor or
the nurse who attended to her to confirm that indeed she was mentally and physically incapable of entering into a
contract. Mere weakness of mind alone, without imposition of fraud, is not a ground for vacating a contract.15 Only if there
is unfairness in the transaction, such as gross inadequacy of consideration, the low degree of intellectual capacity of the
party, may be taken into consideration for the purpose of showing such fraud as will afford a ground for annulling a
contract.16 Hence, a person is not incapacitated to enter into a contract merely because of advanced years or by reason of
physical infirmities, unless such age and infirmities impair his mental faculties to the extent that he is unable to properly,
intelligently and fairly understand the provisions of said contract. Respondents failed to show that Claudia was deprived of
reason or that her condition hindered her from freely exercising her own will at the time of the execution of the Deed of
Conditional Sale.
 118

Also, it is of no moment that Claudia merely affixed her thumbmark on the document. The signature may be made by a
persons cross or mark even though he is able to read and write and is valid if the deed is in all other respects a valid
one.17

Significantly, there is no evidence showing that Claudia was forced or coerced in affixing her thumbmark on the Deed of
Conditional Sale.

Respondents insist that their mother died in the morning of April 19, 1983, hence, she could no longer affix her
thumbmark on the Deed of Absolute Sale. Petitioners, however, maintain that she died in the evening of that day and that
she affixed her thumbmark on the deed in the morning of that same day.

Respondents should have offered in evidence the Certificate of Death of Claudia to show the exact date and time of her
death. Again, they should have presented the attending physician to testify whether or not Claudia could still affix her
thumbmark then.

As earlier mentioned, the burden is on the respondents to prove the lack of capacity on the part of Claudia to enter into a
contract. And in proving this, they must offer clear and convincing evidence. This they failed to do.

The Court of Appeals also held that there is inconsistency in the testimonies of Virginia Arciaga and Atty. Jaime Fresnedi.
While Virginia testified that the Deed of Absolute Sale was notarized in her house where Claudia lived, Atty. Fresnedi
declared on the witness stand that he notarized the document in his office. The Appellate Court concluded that such
inconsistency clearly shows that Claudia did not voluntarily affix her thumbmark on the document of absolute sale.

Records disclose, however, that when Atty. Fresnedi testified in court, nine (9) years had passed from the time he
notarized the Deed of Absolute Sale. Considering the length of time that passed and the numerous documents he must
have notarized, his failure to remember exactly where he notarized the contract of sale is understandable. Thus, we
cannot sustain the finding and conclusion of the Court of Appeals on this point.l^vvphi1.net

In Chilianchin vs. Coquinco,18 this Court held that a notarial document must be sustained in full force and effect so long as
he who impugns it does not present strong, complete, and conclusive proof of its falsity or nullity on account of some flaws
or defects provided by law. Here, respondents failed to present such proof.

It bears emphasis that a notarized Deed of Absolute Sale has in its favor the presumption of regularity, and it carries the
evidentiary weight conferred upon it with respect to its execution. 19

All told, we are convinced and so hold that there was consent on the part of Claudia Arciaga when she executed the
Conditional Deed of Sale and the Deed of Absolute Sale being assailed by respondents. These documents, therefore, are
valid.

WHEREFORE, the challenged Decision of the Court of Appeals in CA-G.R. CV No. 55668 is REVERSED. The Decision
of the RTC, Branch 62, Makati City dismissing respondents complaint is AFFIRMED.

SO ORDERED.

Panganiban, (Chairman), Corona, Carpio-Morales, and Garcia, JJ., concur.

G.R. No. 119850 June 20, 1996

MANDARIN VILLA, INC., petitioner,

vs.
COURT OF APPEALS, and CLODUALDO DE JESUS, respondents.

RESOLUTION
 119

FRANCISCO, J.:p

With ample evidentiary support are the following antecedent facts:

In the evening of October 19, 1989, private respondent, Clodualdo de Jesus, a practicing lawyer and businessman,
hosted a dinner for his friends at the petitioner's restaurant, the Mandarin Villa Seafoods Village Greenhills, Mandaluyong
City. After dinner the waiter handed to him the bill in the amount of P2,658.50. Private respondent offered to pay the bill
through his credit card issued by Philippine Commercial Credit Card Inc. (BANKARD). This card was accepted by the
waiter who immediately proceeded to the restaurant's cashier for card verification. Ten minutes later, however, the waiter
returned and audibly informed private respondent that his credit card had expired. 1 Private respondent remonstrated that
said credit card had yet to expire on September 1990, as embossed on its face. 2 The waiter was unmoved, thus, private
respondent and two of his guests approached the restaurant's cashier who again passed the credit card over the
verification computer. The same information was produced, i.e., CARD EXPIRED. Private respondent and his guests
returned to their table and at this juncture, Professor Lirag, another guest, uttered the following remarks: "Clody [referring
to Clodualdo de Jesus], may problema ba? Baka kailangang maghugas na kami ng pinggan?"3 Thereupon, private
respondent left the restaurant and got his BPI Express Credit Card from his car and offered it to pay their bill. This was
accepted and honored by the cashier after verification.4 Petitioner and his companions left afterwards.

The incident triggered the filing of a suit for damages by private respondent. Following a full-dress trial, judgment was
rendered directing the petitioner and BANKARD to pay jointly and severally the private respondent: (a) moral damages in
the amount of P250,000.00; (b) exemplary damages in the amount of P100,000.00, and (c) attorney's fees and litigation
expenses in the amount of P50,000.00.

Both the petitioner and BANKARD appealed to the respondent Court of Appeals which rendered a decision, thus:

WHEREFORE, the decision appealed from is hereby MODIFIED by:

1. Finding appellant MANDARIN solely responsible for damages in favor of appellee;

2. Absolving appellant BANKARD of any responsibility for damages;

3. Reducing moral damages awarded to appellee to TWENTY FIVE THOUSAND and 00/100
(P25,000.00) PESOS;

4. Reducing exemplary damages awarded to appellee to TEN THOUSAND and 00/100 (P10,000.00)
PESOS;

5. Reversing and setting aside the award of P250,000.00 for attorney's fees as well as interest awarded,
and

6. AFFIRMING the dismissal of all counterclaims and cross-claims.

Costs against appellant Mandarin.

SO ORDERED.5

Mandarin Villa, thus, interposed this present petition, faulting the respondent court with six (6) assigned errors which may
be reduced to the following issues, to wit: (1) whether or not petitioner is bound to accept payment by means of credit
card; (2) whether or not petitioner is negligent under the circumstances obtaining in this case; and (3) if negligent, whether
or not such negligence is the proximate cause of the private respondent's damage.

Petitioner contends that it cannot be faulted for its cashier's refusal to accept private respondent's BANKARD credit card,
the same not being a legal tender. It argues that private respondent's offer to pay by means of credit card partook of the
nature of a proposal to novate an existing obligation for which petitioner, as creditor, must first give its consent otherwise
there will be no binding contract between them. Petitioner cannot seek refuge behind this averment.
 120

We note that Mandarin Villa Seafood Village is affiliated with BANKARD. In fact, an "Agreement" 6 entered into by
petitioner and BANKARD dated June 23, 1989, provides inter alia:

The MERCHANT shall honor validly issued PCCCI credit cards presented by their corresponding holders
in the purchase of goods and/or services supplied by it provided that the card expiration date has not
elapsed and the card number does not appear on the latest cancellation bulletin of lost, suspended and
canceled PCCCI credit cards and, no signs of tampering, alterations or irregularities appear on the face of
the credit card.7

While private respondent, may not be a party to the said agreement, the above-quoted stipulation conferred a favor upon
the private respondent, a holder of credit card validly issued by BANKARD. This stipulation is a stipulation pour autri and
under Article 1311 of the Civil Code private respondent may demand its fulfillment provided he communicated his
acceptance to the petitioner before its revocation. 8 In this case, private respondent's offer to pay by means of his
BANKARD credit card constitutes not only an acceptance of the said stipulation but also an explicit communication of his
acceptance to the obligor.

In addition, the record shows that petitioner posted a logo inside Mandarin Villa Seafood Village stating that "Bankard is
accepted here.9 This representation is conclusive upon the petitioner which it cannot deny or disprove as against the
private respondent, the party relying thereon. Petitioner, therefore, cannot disclaim its obligation to accept private
respondent's BANKARD credit card without violating the equitable principle of estoppel. 10

Anent the second issue, petitioner insists that it is not negligent. In support thereof, petitioner cites its good faith in
checking, not just once but twice, the validity of the aforementioned credit card prior to its dishonor. It argues that since
the verification machine flashed an information that the credit card has expired, petitioner could not be expected to honor
the same much less be adjudged negligent for dishonoring it. Further, petitioner asseverates that it only followed the
guidelines and instructions issued by BANKARD in dishonoring the aforementioned credit card. The argument is
untenable.

The test for determining the existence of negligence in a particular case may be stated as follows: Did the defendant in
doing the alleged negligent act use the reasonable care and caution which an ordinary prudent person would have used in
the same situation? If not, then he is guilty of negligence. 11 The Point of Sale (POS) Guidelines which outlined the steps
that petitioner must follow under the circumstances provides.

xxx xxx xxx

CARD EXPIRED

a. Check expiry date on card.

b. If unexpired, refer to CB.

b.1. If valid, honor up to maximum of SPL only.

b.2. If in CB as Lost, do procedures 2a to 2e.,

b.3. If in CB as Suspended/Cancelled, do not honor card.

c. If expired, do not honor card. 12

A cursory reading of said rule reveals that whenever the words CARD EXPIRED flashes on the screen of the verification
machine, petitioner should check the credit card's expiry date embossed on the card itself. If unexpired, petitioner should
honor the card provided it is not invalid, cancelled or otherwise suspended. But if expired, petitioner should not honor the
card. In this case, private respondent's BANKARD credit card has an embossed expiry date of September
1990. 13 Clearly, it has not yet expired on October 19, 1989, when the same was wrongfully dishonored by the petitioner.
Hence, petitioner did not use the reasonable care and caution which an ordinary prudent person would have used in the
same situation and as such petitioner is guilty of negligence. In this connection, we quote with approval the following
observations of the respondent Court.
 121

Mandarin argues that based on the POS Guidelines (supra), it has three options in case the verification
machine flashes "CARD EXPIRED". It chose to exercise option (c) by not honoring appellee's credit card.
However, appellant apparently intentionally glossed over option "(a) Check expiry date on card" (id.)
which would have shown without any shadow of doubt that the expiry date embossed on the BANKARD
was "SEP 90". (Exhibit "D".) A cursory look at the appellee's BANKARD would also reveal that appellee
had been as of that date a cardholder since 1982, a fact which would have entitled the customer the
courtesy of better treatment. 14

Petitioner, however, argues that private respondent's own negligence in not bringing with him sufficient cash was the
proximate cause of his damage. It likewise sought exculpation by contending that the remark of Professor Lirag 15 is a
supervening event and at the same time the proximate cause of private respondent's injury.

We find this contention also devoid of merit. While it is true that private respondent did not have sufficient cash on hand
when he hosted a dinner at petitioner's restaurant, this fact alone does not constitute negligence on his part. Neither can it
be claimed that the same was the proximate cause of private respondent's damage. We take judicial notice 16 of the
current practice among major establishments, petitioner included, to accept payment by means of credit cards in lieu of
cash. Thus, petitioner accepted private respondent's BPI Express Credit Card after verifying its validity, 17 a fact which all
the more refutes petitioner's imputation of negligence on the private respondent.

Neither can we conclude that the remark of Professor Lirag was a supervening event and the proximate cause of private
respondent's injury. The humiliation and embarrassment of the private respondent was brought about not by such a
remark of Professor Lirag but by the fact of dishonor by the petitioner of private respondent's valid BANKARD credit card.
If at all, the remark of Professor Lirag served only to aggravate the embarrassment then felt by private respondent, albeit
silently within himself.

WHEREFORE, the instant petition is hereby DISMISSED.

SO ORDERED.
 122

G.R. No. 163654 October 8, 2014

BPI EXPRESS CARD CORPORATION,* Petitioner,

vs.
MA. ANTONIA R. ARMOVIT, Respondent.

DECISION

BERSAMIN, J.:

This case involves a credit card holder's claim for damages arising from the suspension of her credit privileges due to her
supposed failure to reapply for their reactivation. She has insisted that she was not informed of the condition for
reactivation.
 123

The Case

Petitioner BPI Express Credit Card Corporation (BPI Express Credit) seeks the reversal of and assails the adverse
decision promulgated on February 26, 2004,1 whereby the Court of Appeals (CA) affirmed the judgment rendered on April
22, 1996 by the Regional Trial Court, Branch 216, in Quezon City, (RTC) adjudging it liable to pay moral and exemplary
damages, attorneys fees and costs of suit to its credit card holder Ma. Antonia R. Armovit, the respondent herein. 2

Antecedents

Armovit, then a depositor of the Bank of the Philippine Islands at its Cubao Branch, was issued by BPI Express Credit a
pre-approved BPI Express Credit Card (credit card) in 1989with a credit limit of 20,000.00 that was to expire atthe end of
March 1993.3 On November 21, 1992, she treated her British friends from Hong Kongto lunch at Marios Restaurant in the
Ortigas Center in Pasig. As the host, she handed to the waiter her credit card to settle the bill, but the waiter soon
returned to inform her that her credit card had been cancelled upon verification with BPI Express Credit and would not be
honored. Inasmuch asshe was relying on her credit card because she did not then carry enough cash that day, her guests
were made to share the bill to her extreme embarrassment.

Outraged, Armovit called BPI Express Credit to verify the status of her credit card. She learned that her credit card had
been summarily cancelled for failure to pay her outstanding obligations. She vehemently denied having defaulted onher
payments. Thus, by letter dated February 3, 1993,4 she demanded compensation for the shame, embarrassment and
humiliation she had suffered in the amount of 2,000,000.00.

In its reply letter dated February 5, 1993,5 BPI Express Credit claimed that it had sent Armovit a telegraphic message on
March 19, 1992 requesting her to pay her arrears for three consecutive months, and that she did not comply with the
request, causing it totemporarily suspend her credit card effective March 31, 1992. 6 It further claimed that she had been
notified of the suspension and cautioned to refrain from using the credit card to avoid inconvenience or
embarrassment;7 and that while the obligation was settled by April, 1992, she failed to submit the required application
form in order to reactivate her credit card privileges. Thus, BPI Express Credit countered that her demand for monetary
compensation had no basis in fact and in law.

On March 12, 1993, Armovit received a telegraphic message from BPI Express Credit apologizing for its error of
inadvertently including her credit card in Caution List No. 225 dated March 11, 1993 sent to its affiliated merchants. 8

As a result, Armovit sued BPI Express Credit for damages in the RTC, insisting that she had been a credit card holder in
good standing, and that she did not have any unpaid bills at the time of the incident.

In its answer with counterclaim,9 BPI Express Credit raised the defense of lack of cause of action,and maintained that
Armovit had defaulted in her obligations for three consecutive months, thereby causing the temporary suspension of her
credit card in accordance with the terms and conditions of the credit card.10 It pointed out that Armovit had been duly
notified of the suspension; that for her failure to comply with the requirement for the submission of the application form
and other documents as directed in its letter dated April 8, 1992, 11 her credit card had not been reactivated and had
remained in the list of suspended cards at the time she used it on November 21, 1992; and thatthe telegraphic message
of March 11, 1993, which was intended for another client whose credit card had been erroneously included in the caution
list, was mistakenly sent to her.12

Judgment of the RTC

In the judgment rendered April 22, 1996,13 the RTC, ruling in favor of Armovit, observed that the terms and conditions
governing the issuance and use of the credit card embodied in the application formhad been furnished to her for the first
time only on April 8, 1992, or after her credit card privileges had already been suspended; that, accordingly, she could not
be blamed for not complying with the same; that even if she had been notified of the temporary suspension of her credit
card, her payment on April 1, 1992 had rendered the continued suspension of her credit card unjustified; and that there
was no clear showing that the submission of the application form had been a condition precedent to the lifting of its
suspension.

Finding BPI Express Credit guilty ofnegligence and bad faith, the RTC ordered it to pay Armovit moral damages of
100,000.00; exemplary damages and attorneys fees each in the amount of 10,000.00; and the costs of suit.
 124

Decision of the CA

Both parties appealed to the CA.

On February 26, 2004, the CA promulgated its assailed decision,14 concurring with the RTC, and declaredthat because
Armovit had not signed any application form in the issuance and renewals of her credit card from 1989 up to 1992, she
could not have known the terms and conditions embodied in the application form even ifthe credit card had specified that
its use bound the holder to its terms and conditions. It did not see merit in BPI Express Credits contention that the
submission of a new application form was a pre-requisite for the lifting ofthe suspension of her credit card, inasmuch as
such condition was not stated in a clear and unequivocal manner in its letter dated April 8, 1992. It noted that the letter of
apology mentioning another inadvertence committed, even if it claimed the letter of apology as intended for another card
holder, still highlighted BPI Express Credits negligence in its dealings with her account. Anent Armovits appeal, the CA
did not increase the amounts of damages for lack of basis, observing that moral and exemplary damages were awarded
not to enrich her at the expense of BPI Express Credit but to alleviate the anxiety and embarrassment suffered.

BPI Express Credits motion for reconsideration was denied through the resolution promulgated on May 14, 2004. 15

Hence, this appeal by petition for review on certiorari.

Issue

The sole issue is whether or not the CA erred in sustaining the award of moral and exemplary damages in favor of
Armovit.

Ruling of the Court

The petition for review lacks merit.

The relationship between the credit card issuer and the credit card holder is a contractual one that is governed by the
terms and conditions found in the card membership agreement. 16 Such terms and conditions constitute the law between
the parties. In case of their breach, moral damages may be recovered where the defendant is shown to have acted
fraudulently or in bad faith.17 Malice or bad faith implies a conscious and intentional design to do a wrongful actfor a
dishonest purpose or moral obliquity. 18 However, a conscious or intentional design need not always be present because
negligence may occasionally be so gross as to amount to malice or bad faith. 19 Hence, bad faith in the context of Article
2220 of the Civil Code includes gross negligence.20

BPI Express Credit contends thatit was not grossly negligent in refusing to lift the suspension of Armovits credit card
privileges inasmuch as she had not complied with the requisite submission of a new application form; and that under the
circumstances its negligence, if any, was not so gross as to amount to malice or bad faith following the ruling in Far East
Bank and Trust Company v. Court of Appeals.21

The Court disagrees with the contentions of BPI Express Credit.1wphi1 The Terms and Conditions Governing the
Issuance and Use of the BPI Express Credit Card22 printed on the credit card application form spelled out the terms and
conditions of the contract between BPI Express Credit and its card holders, including Armovit. Such terms and conditions
determined the rights and obligations of the parties. 23 Yet, a review of such terms and conditions did not reveal that
Armovit needed to submit her new application as the antecedent condition for her credit card to be taken out of the list of
suspended cards.

Considering that the terms and conditions nowhere stated that the card holder must submit the new application form in
order to reactivate her credit card, to allow BPI Express Credit toimpose the duty to submit the new application form in
order to enableArmovit to reactivate the credit card would contravene the Parol Evidence Rule. 24 Indeed, there was no
agreement between the parties to add the submission of the new application form as the means to reactivate the credit
card. When she did not promptly settle her outstanding balance, BPI Express Credit sent a message on March 19, 1992
demanding payment with the warning that her failure to pay would force it to temporarily suspend her credit card effective
March 31, 1992. It then sent another demand letter dated March 31, 1992 requesting her to settle her obligation in order
to lift the suspension of her credit card and prevent its cancellation. In April 1992, she paid her obligation. In the context of
the contemporaneous and subsequent acts of the parties, the only condition for the reinstatement of her credit card was
 125

the payment of her outstanding obligation.25 Had it intended otherwise, BPI Express Credit would have surelyu informed
her of the additional requirement in its letters of March 19, 1992 and March 31, 1992. That it did not do so confirmed that
they did not agree on having her submit the new application form as the condition to reactivate her credit card.

The letter of BPI Express Credit dated April 8, 1992 did not clearly and categorically inform Armovit that the submission of
the new application form was the pre-condition for the reactivation of her credit card. The statement in the letter (i.e., "
accomplish the enclosed application form and provide us with informations/documents that can help our Credit Committee
in reevaluating your existingfacility with us.") merely raised doubt as to whether the requirement had really been a pre-
condition or not. With BPI Express Credit being the party causing the confusion, the interpretation of the contract could not
be donein its favor.26 Moreover, it cannot be denied that a credit card contract is considered as a contract of adhesion
because its terms and conditions are solely prepared by the credit card issuer. Consequently, the terms and conditions
have to be construed against BPI Express Credit as the party who drafted the contract.27

Bereft of the clear basis to continuewith the suspension of the credit card privileges of Armovit, BPI Express Credit acted
in wanton disregard of its contractual obligations with her. We concur with the apt observation by the CA that BPI Express
Credits negligence was even confirmed by the telegraphic message it had addressed and sent to Armovit apologizing for
the inconvenience caused in inadvertently including her credit card in the caution list. It was of no consequence that the
telegraphic message could have been intended for another client, as BPI Express Credit apparently sought to convey
subsequently, because the tenor ofthe apology included its admission of negligence in dealing with its clients, Armovit
included. Indeed, BPI Express Credit did not observe the prudence expected of banks whose business was imbued with
public interest.

We hold that the CA rightly sustained the award of 100,000.00 as moral damages. To us, too, that amount was fair and
reasonable under the circumstances. Similarly, the grant of exemplary damages was warranted under Article 2232 of the
New Civil Code because BPI Express Credit acted in a reckless and oppressive manner. Finally, with Armovit having
been forced to litigate in order to protect her rights and interests, she was entitled to recover attorney's fees and expenses
oflitigation.28

WHEREFORE, the Court AFFIRMS the decision promulgated on February 26, 2004; and ORDERS the petitioner to pay
the costs of suit.

SO ORDERED.
 126

G.R. No. 196182 September 1, 2014

ECE REALTY AND DEVELOPMENT INC., Petitioner,

vs.
RACHEL G. MANDAP, Respondent.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari assailing the Decision 1 and Resolution2 of the Court of Appeals (CA),
dated July 21, 2010 and March 15, 2011, respectively, in CA-G.R. SP No. 100741.

The factual and procedural antecedents of the case are as follows:

Herein petitioner is a corporation engaged in the building and development of condominium units. Sometime in 1995, it
started the construction of a condominium project called Central Park Condominium Building located along Jorge St.,
Pasay City. However, printed advertisements were made indicating therein that the said project was to be built in Makati
City.3 In December 1995, respondent, agreed to buy a unit from the above project by paying a reservation fee and,
thereafter, downpayment and monthly installments. On June 18, 1996, respondent and the representatives of petitioner
executed a Contract to Sell.4 In the said Contract, it was indicated that the condominium project is located in Pasay City.

More than two years after the execution of the Contract to Sell, respondent, through her counsel, wrote petitioner a letter
dated October 30, 1998 demanding the return of 422,500.00, representing the payments she made, on the ground that
she subsequently discovered that the condominium project was being built in Pasay City and not in Makati City as
indicated in its printed advertisements.5
 127

However, instead of answering respondent's letter, petitioner sent her a written communication dated November 30, 1998
informing her that her unit is ready for inspection and occupancy should she decide to move in. 6

Treating the letter as a form of denial of her demand for the return of the sum she had paid to petitioner, respondent filed
a complaint with the Expanded National Capital Region Field Office (ENCRFO) of the Housing and Land Use Regulatory
Board (HLURB) seeking the annulment of her contract with petitioner, the return of her payments, and damages.7

On September 30, 2005, the ENCRFO dismissed respondent's complaint for lack of merit and directedthe parties to
resume the fulfillment of the terms and conditions of their sales contract. The ENCRFO held that respondent "failed to
show or substantiate the legal grounds that consist of a fraudulent or malicious dealing with her by the [petitioner], such
as, the latter's employment of insidious words or machinations which induced or entrapped her into the contract and
which, without them, would not have encouraged her to buy the unit."8

Respondent filed a petition for review with the HLURB Board of Commissioners questioning the decision of the ENCRFO.
On April 25, 2006, the HLURB Board of Commissioners rendered judgment dismissing respondent's complaint and
affirming the decision of the ENCRFO.9 Giving credence to the Contract to Sell executed by petitioner and respondent,
the Board of Commissioners held that when the parties reduced their contract in writing, their rights and duties must
befound in their contract and neither party can place a greater obligation than what the contract provides.

Aggrieved, respondent filed an appeal with the Office of the President. On June 21, 2007, the Office of the President
dismissed respondent's appeal and affirmed in totothe decision of the HLURB Board of Commissioners. 10Respondent
filed a Motion for Reconsideration,11 but the Office of the President denied it in a Resolution12 dated August 29, 2007.

Respondent then filed a petition for review with the CA. 13

On July 21, 2010, the CA promulgated its assailed Decision, the dispositive portion of which reads, thus:

WHEREFORE, premises considered, We hereby REVERSEand SET ASIDEthe Decision and the Resolution dated June
21, 2007 and August 29, 2007, respectively, issued by the Office of the President in OP Case No. 06-F-224. Accordingly,
the contract between Rachel G. Mandap and ECE Realty is hereby ANNULLED. Consequently, ECE Realty is ordered to
return the total amountof 422,500.00 representing payments made by Rachel G. Mandap on reservation fee,
[downpayment] and monthly installments on the condominium unit, with legal interest thereon at twelve percent (12%) per
annumfrom the date of filing of action until fully paid.

No costs.

SO ORDERED.14

The CA held that petitioner employed fraud and machinations to induce respondent to enter into a contract with it. The CA
also expressed doubt on the due execution of the Contract to Sell between the parties.

Petitioner filed a Motion for Reconsideration, but the CA denied it in its March 15, 2011 Resolution.

Hence, the present petition for review on certiorariwith the following Assignment of Errors:

The Court of Appeals gravely erred in ruling that there was fraud in the execution of the subject contract to sell and
declaring the same as annulled and ordering petitioner ECE to refund all payments made by respondent.

II

The Court of Appeals erred in ordering the award of legal interest at the rate of 12% per annum starting from the filing of
the complaint until fully paid when legal interest should have been pegged at 6%. 15

The Court finds the petition meritorious.

 128

The basic issue in the present caseis whether petitioner was guilty of fraud and if so, whether such fraud is sufficient
ground to nullify its contract with respondent.

Article 1338 of the Civil Code provides that "[t]here is fraud when through insidious words or machinationsof one of the
contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to."

In addition, under Article 1390 of the same Code, a contract is voidable or annullable "where the consent is vitiated by
mistake, violence, intimidation, undue influence or fraud."

Also, Article 1344 of the same Codeprovides that "[i]n order that fraud may make a contract voidable, it should be serious
and should not have been employed by both contracting parties." Jurisprudence has shown that in order to constitute
fraud that provides basis to annul contracts, it must fulfill two conditions.

First, the fraud must be dolo causanteor it must be fraud in obtaining the consent of the party. 16 This is referred to as
causal fraud. The deceit must be serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily
prudent person into error; that which cannot deceive a prudent person cannot be a ground for nullity.17 The circumstances
of each case should be considered, taking into account the personal conditions of the victim. 18

Second, the fraud must be proven by clear and convincing evidence and not merely by a preponderance thereof. 19

In the present case, this Court finds that petitioner is guilty of false representation of a fact. This is evidenced by its printed
advertisements indicating that its subject condominium project is located in Makati City when, in fact, it is in Pasay City.
The Court agrees with the Housing and Land Use Arbiter, the HLURB Board ofCommissioners, and the Office of the
President, in condemning petitioner's deplorable act of making misrepresentations in its advertisementsand in issuing a
stern warning that a repetition of this act shall bedealt with more severely.

However, insofar as the present case is concerned, the Court agrees with the Housing and Land Use Arbiter, the HLURB
Board of Commissioners, and the Office of the President, that the misrepresentation made by petitioner in its
advertisements does not constitute causal fraud which would have been a valid basis in annulling the Contract to Sell
between petitioner and respondent.

In his decision, the Housing and Land Use Arbiter found that respondent failed to show that "the essential and/or moving
factor that led the [respondent] to give her consent and agree to buy the unit was precisely the project's advantageous or
uniquelocation in Makati [City] to the exclusion of other places or cityx x x." Both the HLURB Board of Commissioners
and the Office of the President affirmed the finding of the Arbiter and unanimously held that respondent failed to prove
that the location of the said project was the causal consideration or the principal inducement which led her into buyingher
unit in the said condominium project. The Court finds no cogent reason to depart from the foregoing findings and
conclusion of the above agencies. Indeed, evidence shows that respondent proceeded to sign the Contract to Sell despite
information contained therein that the condominium is located in Pasay City. This only means that she still agreed to buy
the subject property regardless of the fact that it is located in a place different from what she was originally informed. If
she had a problem with the property's location, she should not havesigned the Contract to Sell and, instead, immediately
raised this issue with petitioner. But she did not. As correctly observed by the Office of the President, it took respondent
more than two years from the execution of the Contract to Sell to demand the return of the amount she paid on the ground
that she was misled into believing that the subject property islocated in Makati City. In the meantime, she continued to
make payments.

The Court is not persuaded by the ruling of the CA which expresses doubt on the due execution of the Contractto Sell.
The fact remains that the said Contract to Sell was notarized. Itis settled that absent any clear and convincing proof to the
contrary, a notarized document enjoys the presumption of regularity and is conclusive as to the truthfulness of its
contents.20 Neither does the Court agree thatthe presumption of regularity accorded to the notarized Contract to Sell was
overcome by evidence to the contrary. Respondent's allegation that she signed the said Contract to Sell with several
blank spaces, and which allegedly did not indicate the location of the condominium, was not supported by proof. The
basic rule is that mere allegation is not evidence and is not equivalent to proof. 21 In addition, the fact that respondent
made several payments prior to the execution of the subject Contract to Sell is not the kind of evidence needed to
overcome such presumption of regularity.

With respect to the foregoing discussions, the Court quotes with approval the disquisition of the Office of the President on
the credibility of the claims of petitioner and respondent, to wit:
 129

xxxx

We give credence to the version of [petitioner] ECE Realty considering that there is no cogent reason why this Office
could not rely on the truth and veracity of the notarized Contract to Sell. "Being a notarized document, it had in its favorthe
presumption of regularity, and to overcome the same, there must be evidence that is clear, convincing and more than
merely preponderant; otherwise, the document should be upheld. [Respondent] Mandap failed to overcome this
presumption.

The contention that Mandap signed the Contract to Sell in-blank, and [that] it was ECE Realty that supplied the details on
it is remarkably threadbare for no evidence was submitted to support such claim in all the proceedings before the
ENCRFO and the Board of Commissioners. It is only now that Mandap has belatedly submitted the Affidavit of Lorenzo G.
Tipon. This cannot be done without running afoul with the well-settled principle barring a party from introducing fresh
defenses and facts at the appellate stage. Moreover, the infirmity of affidavits as evidence is a matter of judicial
experience. It issettled that no undue importance shall be given to a sworn statement or affidavit as a piece of evidence
because being taken ex parte, an affidavit is almost always incomplete and inaccurate. Thus, absent, as here, of (sic) any
controverting evidence, it is reasonable to presume that Mandap knew the contents of the Contract to Sell which was
executed with legal formalities. The ruling in Bernardo vs. Court of Appeals is enlightening in this wise:

x x x. The rule that one who signs a contract is presumed to know its contentshas been applied even to contract of
illiterate persons on the ground that if such persons are unable to read, they are negligent if they fail to have the contract
read to them. If a person cannot read the instrument, it is as much his duty to procure some reliable persons to read and
explain it tohim, before he signs it, as it would be to read it before he signed it if he were able to do so and his failure to
obtain a reading and explanation of it is such gross negligence as will estop him from avoiding it on the ground that he
was ignorant of its contents.22

In any case, even assuming that petitioners misrepresentation consists of fraud which could bea ground for annulling
their Contract to Sell, respondent's act of affixing her signatureto the said Contract, after having acquired knowledge of the
property's actual location, can be construed as an implied ratification thereof.

Ratification of a voidable contract is defined under Article 1393 of the Civil Code as follows:

Art. 1393. Ratification may be effected expressly or tacitly.1wphi1 It is understood that there is a tacit ratification if, with
knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right
to invoke it should execute an act which necessarily implies an intention to waive his right.

Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval or adoption of
the contract; or by acceptance and retention of benefits flowing therefrom.23

Under Article 1392 of the Civil Code, "ratification extinguishes the action to annul a voidable contract." In addition, Article
1396 of the same Code provides that "[r]atification cleanses the contract from all its defects from the moment it was
constituted."

Hence, based on the foregoing, the findings and conclusions of the Housing and Land Use Arbiter, the HLURB Board of
Commissioners and the Office of the President, should be sustained.

WHEREFORE, the instant petition is GRANTED. The Decision and Resolution of the Court of Appeals, dated July 21,
2010 and March 15, 2011, respectively, are REVERSEDand SET ASIDE. The September 30, 2005 Decision of the
Expanded National Capital Region Field Office of the Housing and Land Use Regulatory Board, which dismisses
respondent's complaint and directs petitioner and respondent to resume the fulfillment of their sales contract, is
REINSTATED.

SO ORDERED.
 130

G.R. No. 147410 February 5, 2004

THE INSULAR LIFE ASSURANCE COMPANY, LTD., petitioner

vs.
ASSET BUILDERS CORPORATION, respondent.

DECISION

PANGANIBAN, J.:

Where the parties merely exchange offers and counteroffers, no agreement or contract is perfected. A party may withdraw
its offer or counteroffer prior to its receipt of the other party's acceptance thereof. To produce an agreement, the offer
must be certain and the acceptance timely and absolute.

The Case

Before us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, assailing the September 20, 2000
Decision2 and the March 7, 2001 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 61607. The dispositive part
of the Decision reads as follows:

"IN THE LIGHT OF ALL THE FOREGOING, the appeal of the [petitioner] is DISMISSED. The Decision of the Court a quo
is AFFIRMED."4

The assailed Resolution denied petitioner's Motion for Reconsideration.

The Facts

The appellate court summarized the facts of the case as follows:

"Sometime in November, 1992, the Insular Life Assurance Company, Limited, [petitioner], invited companies/corporations
engaged in the building construction business to participate in the bidding of [petitioner's] proposed Insular Life building in
Lucena City. [Petitioner] distributed copies of 'Bid Document[s]', including the general construction x x x contract, with
the winning bidder and 'Bid Proposal Forms'[,] and furnished copies of the 'Instruction to Bidders' to participating bidders,
containing the rules to be followed in the bidding, including the following rules: (a) all bond proposals shall be
accompanied with a bid bond from the Insular General Insurance Company, Inc., in an amount equivalent to ten (10)
percent of the bid or five (5) percent of the bid in Manager's or Cashier's check payable to Insular Life, which bid bonds
will be returned to the bidder after sixty (60) days from opening of bids or after award of the project, whichever date comes
first;5 (b) the bid shall be valid for sixty (60) days [after] opening of bids[,] but the owner of the project (the [petitioner]) had
the option to request the bidder to extend the bid validity period after expiration of the original validity period; 6 [and] (c) the
bidder, whose proposal had been deemed acceptable and complying with the requirements of the owner ([petitioner]) and
the project, shall be notified in writing to personally appear to execute the 'Contract Agreements' within five (5) days after
the receipt of the 'Notice of Award'[,] and that failure on the part of the winning bidder to execute the contract shall
constitute a breach of the agreement, as effected by acceptance of the proposal, resulting in the nullification of the award;
and that the bond heretofore, offered by the winning bidder shall be retained by the owner ([petitioner]) as payment due
for liquidated damages.7

"Asset Builders Corporation, [respondent], with four (4) other bidders, namely, Q.K. Calderon Construction [Co., Inc.],
Specified Contractors, A.[A.] Alarilla Construction[,] and Serg Construction, submitted their respective bid proposals
secured by bid bonds, valid for sixty (60) days. 8 Under its 'Proposal Form' which the [respondent] submitted to the
 131

[petitioner], [respondent] bound and obliged itself to enter into a 'Contract' with the petitioner within ten (10) days from
notice of the award, with good and sufficient securities for the faithful compliance thereof. 9

"On November 9, 1993, the respective proposals of the bidders were opened. The [petitioner] forwarded a 'Summary of
Bids and Tender Documents' to Adrian Wilson International Associate[s], Inc.10 (AWIA for brevity), [petitioner's]
designated 'Project Manager[,]' for the proposed Insular Life Building in Lucena City for its evaluation and analysis. AWIA,
in due time, submitted a report of its evaluation to the 'Real Property Division' of the [petitioner]. As [could] be gleaned
from the Report of AWIA, [respondent's] 12,962,845.5411 bid was the lowest among the bidders.

"On January 21, 1994, Engineer Pete S. Espiritu (Espiritu for brevity) of the 'Real Property Department', who was
designated as 'Project Coordinator' of the petitioner[,] recommended that [respondent] and the other bidders, 'Q.K.
CALDERON [CONSTRUCTION] CO., INC.' AND 'SPECIFIED CONTRACTORS', be subjected to post-qualification
proceedings, including the inspection of their respective offices, equipment, as well as past and present projects, and that
said bidders be subjected to credit and financial investigations.12

"[Petitioner] concurred with the recommendation of Espiritu and, indeed, post-qualification, inspection[,] and evaluations of
[respondent] and Q.K. Calderon Construction Co., Inc. were effected. On January 25, 1994, [petitioner], with concurrence
of [respondent], visited [respondent's] main office at the Tektite Tower and its past and present projects, i.e., the four (4)
and two (2) storey Air Transportation buildings in its compound; the Government Service Insurance System (GSIS)
Headquarters Complex; and the National Historical Institute Building, and [respondent's] equipment. On February 14,
1994, Espiritu suggested that a bid clarification and negotiation be undertaken with prospective contractors.

"On February 23, 1994, Abraham Torrijos of [petitioner's] 'Real Property Department' (hereinafter referred to as
Torrijos) recommended the approval by the Board of Directors of [petitioner] of the award of the general construction of
the Proposed Lucena Building, in favor of [respondent], emphasizing that:

'2. Asset Builders Corporation is a (sic) 'AAA' category Contractor. It has extensive experience in vertical and horizontal
projects. The company [has been] subjected to a post qualification and credit investigation, the results of which are
satisfactory and acceptable, thus making it technically competent and financially capable of contracting the work.' 13

"On February 24, 1994, a conference was held by and among the representatives of the [petitioner] and of the
[respondent], including [respondent's] Operations Manager, Engineer Ramon Abu, for some clarifications. [Petitioner]
proposed that [respondent] adjust its bid from 12,961,845.54 to 13,000,000.00 to accommodate the wage increase
brought about by Wage Order No. 03, series of 1993, effective December 3, 1993. However, [respondent's]
representatives were noncommittal, declaring that they had [to] report to the management of the [respondent] the
proposal of [petitioner's] representatives, for its consideration and approval. Subsequently, the [respondent] agreed to the
readjustment of the amount of its bid as proposed by the [petitioner].

"On March 9, 1994, Januario L. Flores (Flores for brevity), head of the 'Real Property Department' and Assistant Vice-
President of the [petitioner], submitted to Mabini L. Juan, the Chief Operating Officer and Senior Executive Vice-President
of the [petitioner], his findings on the post-qualification, evaluation and credit investigation of [respondent], with the
recommendation that the award be given to the [respondent]:

'2. On the basis of the above very positive indicators, RPD[,] E.L. Mariano, [F. B.] Mariano Associates and Co.[,] and
Adrian Wilson Int'l Associates, [Inc.] recommen[d] to award the Lucena [p]roject to Asset Builders Corporation. We
honestly believe that they will do a good job.

'3. For your consideratio[n/a]pproval.'14

"On March 14, 1994, [Flores] signed a 'Notice to Proceed', addressed to the [respondent], for the conformity of the latter's
President, Rogelio P. Centeno. Under the [ultimate] paragraph of the 'Notice to Proceed', the [respondent] may start its
mobilization and proceed with the construction immediately[,] pending execution of the 'Construction Agreement'.15 The
[petitioner prepared] a draft of the contract to be executed by the [petitioner] and the [respondent].

"On the same day, [Torrijos] informed, by letter, Engineer Bernardo A. Sajorda (Sajorda for brevity's sake), 'Project
Manager' of AWIA, that [petitioner] had awarded the general construction contract of the proposed Lucena Building to the
[respondent] and advised AWIA to coordinate with [respondent] and inform the latter that a pre-construction meeting
 132

[would] be held on March 22, 1994 at the job site.16 A copy of the 'Notice of Award' was appended to said letter.17 Sajorda
forthwith informed Rogelio P. Centeno, the President of [respondent], by 'Memorandum' that, pursuant to the AWARD to
[respondent], of the general construction of the Proposed Lucena Building, a pre-construction conference [would] be held
on March 22, 1994 at the job site, during which the following will be discussed:

'1. Contract Amount and completion time

2. Role of AWIA

3. Project Contractors Key [p]ersonnel [l]ist with [s]ignatures and [p]ositions

4. Channel of [c]ommunications among Architect, Insular Life, ASSET and AWIA

5. [Contractor submittals i.e. - Work Schedule, Schedule of] Prices, etc.

6. As-built[s] drawings

7. Submitt[al] of shop drawings prior to use of materials

8. Sanitation

9. Safety programs (first aid kit and hard hats)

10. Night work

11. CAR (Contractor's All Ris[k I]nsurance)

12. Owners review of payrolls, vouchers, etc. (sic) payments etc.

13. Sub-contracting [for] approval of subs.

14. Photographs every month

15. Billings based on actual work accomplishments. Undistributed materials not billable

16. Security measures

17. Tests as required by spec[']s

18. Take note of specific requirements before final payment is made'18

"The [respondent] received a copy of the 'Memorandum' of Sajorda, on March 17, 1994. On March 18, 1994, the
[petitioner] transmitted to the [respondent] the following documents, evidenced by a 'Transmittal Sheet', received by Roy
Roxas, for the [respondent], to enable the latter to secure a 'Building Permit' for the project:

'ONE (1) LOT DOCUMENTS/PLANS FOR BUILDING PERMIT

4 SETS OF STRUCTURAL COMPUTATION

5 SETS OF SPECS FOR GENERAL CONSTRUCTION

3 SETS OF ELECTRICAL LOAD COMPUTATION

5 COPIES OF PRC ID [&] PTR OF DESIGN ENGRS.

 133

6 SETS OF ELMA PLANS

5 SETS OF [R]MDA PLANS/SPECS'19

"On March 22, 1994, the 'Pre-Construction Conference' ensued with the representatives of the [petitioner] and its Project
Manager and of the [respondent], in the person of its Project Engineer, J.G. Quizon, in attendance:

'Attendees: CARLOS M. ESPIRITU -- AWIA Asst. Project Manager

BERNARDO [A]. SAJORDA -- AWIA Project Manager

EDMUNDO C. SABATER -- AWIA Resident Engineer

JANUARIO L. FLORES -- IL/RPD Manager

J.G. QUIZON -- ASSET Project Manager

PETE S. ESPIRITU -- IL/RPD Project Coordinator

ABRAHAM P. TORRIJOS -- IL/RPD Asst. Manager'20

"During the conference, the following were discussed and clarified:

'1. Contract Amount and Completion Time: Contract is for 13,000,000.00, to be completed within 210 calendar days; day
one to be 5 days after receipt of NTP by the Contractor. Actual site mobilization to be first week of April 1994, per Mr. J.G.
Quizon. Issuance of building and other permits being worked out by the Contractor.' 21

"On March 26, 1994, Jacobo G. Quizon, the Project Manager of [respondent], sent to AWIA a letter requesting for the TCT
lot description for the purpose of relocation of the monuments and the staking out of the building:

'We have the honor to request your good office, in relocating the monuments[,] as per TCT lot description[s,] prior to
staking out the building[;] likewise, we can do the relocation[,] provided the cost will be reimbursed to the Owner[,] with an
approximate fee of 5,000.00 lump sum.

'Further, problems may occur regarding structur[al] excavation for footing [and footing] tie beams at Grid Line A & 4. As
per plan, the proposed depth [of] excavation of about 2.5[0M] along the existing adjacent building walls will expose the
CHB footing.'22

"Thereafter, a Ground Breaking ceremony was held at the project site, with Rogelio B. Centeno, the President of
[respondent], [and] Pete S. Espiritu and Januario L. Flores of the [petitioner] in attendance. A billboard announcing the
construction of [the] Insular Life Building in Lucena City, with the [respondent] as the General Contractor, was also
erected in the project site.

"However, the [respondent] did not affix its conformity to any 'Notice of Award', much less commence its construction of
the project. Neither did it execute any 'Construction Agreement'. Subsequently, the [respondent] wrote the [petitioner] a
letter dated April 5, 1994, informing the [petitioner] that the [respondent would] not be able to undertake the project
anymore[,] because the prerequisite paper work and attendant processing could not be fast-trac[k]ed and that, since the
previous two (2) weeks, prices had escalated, which rendered its bid unattractive. 23 On April 25, 1994, the [petitioner]
wrote a letter to the [respondent], in response to its April 5, 1994 [letter], informing the [respondent] that, in view of
the unjust withdrawal of the [respondent] from the project, despite the award of the project to the [respondent], the
[petitioner] was impelled to engage the services of another contractor to complete the project[,] without prejudice to further
action of the [petitioner] against the [respondent] for its withdrawal, pursuant to Section 10 of the 'Instruction to Bidders',
quoted, infra:

'The exact amount of damages to the Owner due to the failure to execute the Contract may be deemed difficult to
determine. Failure, thereof, to execute the Contract within five (5) days after the receipt of the Notice of Award shall cause
 134

[the] annulment of the award. The amount of bid bond deposited with the proposal shall be retained by the Owner as
payment due for liquidated damages incurred.

"By way of riposte, the [respondent] sent a letter to the [petitioner] averring that: (a) it never received any written 'Notice of
Award' from the [petitioner]; [and] (b) since its bid offer had a lifetime of sixty (60) days from November 9, 1993 or until
January 8, 1993 (sic)[,] its offer was automatically withdrawn after said date, since the [petitioner] had not requested the
[respondent] for the extension of the lifetime thereof.

"On December 23, 1994, the [petitioner] filed a complaint 24 against the [respondent], with the Regional Trial Court25of
Makati City, for 'Damages', x x x:

xxx xxx xxx

"The [petitioner] alleged, inter alia, in its complain[t t]hat the [respondent] was duly notified by AWIA of the award, in its
favor, by the [petitioner], of the project[,] but the [respondent] unjustly and arbitrarily withdrew from the project and refused
to execute the 'Construction Contract' with the [petitioner,] which impelled the latter to engage the services of another
contractor for the project at the price of 14,500,000.00 and that, consequently, the [petitioner] was obliged to pay the
amount of 1,500,000.00 which was [the] difference between the contract price of the project with the [respondent] in the
amount of 13,000,000.00 and 14,500,000.00, by way of actual damages or, alternatively, by way of liquidated
damages. In its Answer26 to the complaint, the [respondent] alleged, inter alia, that it never received any 'Notice of
Award' or 'Notice to Proceed'; its bid had expired by January 8, 1994, without the [petitioner] asking the [respondent] for
the extension thereof[,] and interposed counterclaims for damages against the [petitioner], praying that, after due
proceedings, judgment be rendered in its favor, x x x:

xxx xxx xxx

"After due proceedings, the Court a quo rendered a Decision,27 dated December [5], 1997, in favor of the [respondent]
and against the [petitioner], ordering the dismissal of the complaint of the [petitioner] and ordering the latter to pay
damages to the [respondent], the dispositive portion of which is quoted, infra:

'WHEREFORE, judgment is rendered DISMISSING the Complaint with costs against [petitioner].'

'On the counter-claim, Insular Life Assurance Co., Ltd., is hereby ordered to pay Asset Builders Corporation the sums of
Pesos: Five Hundred Thousand (500,000.00) as compensation for the injury to the latter's business standing, and
Pesos: Seventy Five Thousand (75,000.00) by way of attorney's fees and expenses of litigation.

'Filing fees on the amount of 2,135,000.00 [respondent] sought in the counter-claim shall constitute a first lien on the
recovery from [petitioner].'

xxx xxx xxx

"The [petitioner] interposed its appeal from the Decision of the Court a quo and posed, for [the CA's] resolution, the
threshold issues of whether or not: (a) a construction contract was perfected by and between the [petitioner] and the
[respondent] for the construction of petitioner's building project in Lucena City; (b) the [respondent] waived Section 9 of
the Instruction to Bidders and was estopped from claiming that no construction contract was perfected between it and the
[petitioner]; [and] (c) the [respondent] was liable for damages to the [petitioner]." 28

Ruling of the Court of Appeals

The CA affirmed the lower court's Decision. According to the appellate court's ruling, the failure of petitioner to prove that
it gave respondent a written notice of the former's unqualified acceptance of the latter's bid, as required in the Instruction
to Bidders, did not give birth to consent. The appellate court explained that when the exact terms desired were not in the
offer, any modification or variation therefrom would annul that offer. Furthermore, estoppel did not apply because of
petitioner's own carelessness or want of diligence.

Hence this Petition.29

 135

The Issues

"I. The Court of Appeals gravely erred in not holding that there exists a valid contract for the construction of the
building project between IL30 and ABC.31

"II. The Court of Appeals gravely erred in not holding that IL has notified ABC of the award of the construction of
the building project to it before it withdrew its bid proposal.

"III. The Court of Appeals gravely erred in not holding that ABC's withdrawal from the contract constituted a
breach of that contract.

"IV. The Court of Appeals gravely erred in not holding that the contract had been perfected and that its
consummation stage [had] in fact been commenced.

"V. The Court of Appeals gravely erred in not holding that ABC is estopped from claiming the contract was not
perfected.

"VI. The Court of Appeals gravely erred in not holding that ABC, instead of IL, is liable for damages[,] and that, at
worst, there is no evidence that supported the award in favor of ABC.

"VII. In any event, there is no basis to penalize IL for going to court."32

There is really only one major issue: Was there a valid contract between petitioner and respondent?

The Court's Ruling

The Petition is unmeritorious.

Sole Issue:

Existence of a Contract

No Notice of Award,

No Contract

It is elementary that, being consensual,33 a contract34 is perfected35 by mere consent.36 From the moment of a
meeting37 of the offer and the acceptance38 upon the object and the cause that would constitute the contract, 39consent
arises.40 However, "the offer must be certain"41 and "the acceptance seasonable and absolute;42 if qualified,43 the
acceptance44 would merely constitute a counter-offer."45

Equally important are the three distinct stages of a contract -- its "preparation or negotiation, its perfection, and finally, its
consummation."46 Negotiation begins when the prospective contracting parties manifest their interest in the contract and
ends at the moment of their agreement. The perfection or birth of the contract 47 occurs when they agree upon the
essential elements thereof.48 The last stage is its consummation, wherein they "fulfill or perform the terms agreed upon in
the contract, culminating in the extinguishment thereof."49

In the case at bar, the parties did not get past the negotiation stage. The events that transpired between them were
indeed initiated by a formal offer, but this policitacin was merely an imperfect promise that could not be considered a
binding commitment.50 At any time, either of the prospective contracting parties may stop the negotiation and withdraw the
offer.

In the present case, in fact, there was only an offer and a counteroffer 51 that did not sum up to any final arrangement
containing the elements of a contract.52 Clearly, no meeting of minds was established.53 First, only after the bid bond had
lapsed were post-qualification proceedings, inspections, and credit investigations conducted. Second, the inter-office
memoranda issued by petitioner, as well as other memoranda between it and its own project manager, were simply
 136

documents to which respondent was not privy. Third, petitioner proposed a counteroffer to adjust respondent's bid to
accommodate the wage increase of December 3, 1993.

In effect, the rule on the concurrence of the offer and its acceptance54 did not apply, because other matters or details -- in
addition to the subject matter and the consideration -- would still be stipulated and agreed upon by the parties.55 While
there was an initial offer made, there was no acceptance; but when there allegedly came an acceptance that could have
had a binding effect, the offer was already lacking. The offer and its acceptance "did not meet to give birth to a contract." 56

Moreover, the Civil Code provides that no contract shall arise unless its acceptance is communicated to the offeror.57 That
is, the mere determination to accept the proposal of a bidder does not constitute a contract; that decision must be
communicated to the bidder.58 Although consent may be either express or implied,59 the Instruction to Bidders prepared
by petitioner itself expressly required (1) a formal acceptance and (2) a period within which such acceptance was to be
made known to respondent. The effect of giving the Notice of Award to the latter would have been the perfection of the
contract.60 No such acceptance was communicated to respondent; therefore, no consent was given. Without that express
manifestation, as required by the terms of its proposal, there was no contract. The due execution of documents
representing a contract is one thing, but its perfection is another.61

There is no issue as regards the subject of the contract or the cause of the obligation. The controversy lies in the consent
-- whether there was an acceptance by petitioner of the offer made by respondent; and, if so, whether that acceptance
was communicated to the latter, thereby perfecting the contract. The period given to the former within which to accept the
offer was not itself founded upon or supported by any consideration. Therefore, under the law, respondent still had the
freedom and the right to withdraw the offer by communicating such withdrawal to petitioner 62 before the latter's
acceptance of the offer;63 or, if the offer has been accepted,64 before the acceptance came to be known by respondent.65

Petitioner avers that an acceptance was made, but this allegation has not been proven. Respondent had no knowledge of
such acceptance when it communicated its withdrawal to the former. Notably, this right to withdraw was not exercised
whimsically or arbitrarily by respondent. It did send a formal letter on April 5, 1994, expressing and explaining its
withdrawal. As of that date, the decision to award the contract had not been made according to the terms of the Instruction
to Bidders.

Besides, the subsequent acts between the parties did not even serve as a confirmation of that decision. The existence of
a second proposal -- petitioner's request for an adjustment of the bid to accommodate the wage increase -- in fact belies
the perfection of any contract arising from the first.66 To the Court's mind, there was indeed no acceptance of the offer
made by respondent. Such failure to comply with a condition imposed for the perfection of a contract resulted in failure of
the contract.67

Subsistence of an Offer

Even Without a Bid Bond

Certainly, the "bid bond is an indispensable requirement for the validation of a bid proposal." 68 This requisite ensures the
good faith of bidders and binds them to enter into a contract with the owner, should their proposal be accepted.69 One who
submits a bid not only signifies assent to the terms and conditions of a proposal, but impliedly binds oneself to them, if
and when the bid is considered. The Invitation to Bidders even provided that incomplete proposals might be sufficient
cause for their rejection.70 If mere insufficiency of a bond required of a bidder is a ground for rejection, a fortiori, all the
more so is the total want thereof.

The proposal of respondent was merely validated by its bid bond, which was considered by petitioner. The expiration of
the bond on January 8, 1994,71 did not mean that the bid also lapsed on the same date. The bond, which was an
accessory, merely guaranteed the performance of the principal obligation and could not exist without the latter. 72 The
former was given for the benefit of petitioner, which could legally waive it. The bid continued without a bond, but still no
formal acceptance was made. Again, on that basis, no contract was perfected.

In the interpretation of a contract, the literal meaning of its stipulations controls, if their terms are clear and leave no doubt
as to the intention of the contracting parties.73 When "there is no ambiguity in the language of a contract, there is no room
for construction,74 only compliance."75 This rule applies to the Instruction to Bidders, which provides that "failure to
execute the Contract shall constitute a breach of agreement as effected by acceptance of the proposal." 76 The language is
 137

clear and, like contracts in general, is the law between the parties.77 The contract must be fulfilled according to its literal
sense.78

No Estoppel

As aptly held by the appellate court, respondent's acts subsequent to the expiration of the bid bond did not constitute a
waiver of Section 9 of the Instruction to Bidders. To be valid and effective, waivers must be couched in clear and
unequivocal terms, leaving no doubt as to the intention of those giving up a right or a benefit that legally pertains to
them.79 Respondent, contrary to the claim of petitioner, despite its repeated requests, never received a copy of the Notice
of Award. Indeed, the former never adopted an inconsistent position, attitude or course of conduct that caused loss or
injury to the latter.80 The attendance of respondent in the pre-construction conference and the ground-breaking ceremony
was part of the negotiation process. Thus, petitioner's claim of estoppel against it could not be applied.

"Estoppel cannot be sustained by mere argument or doubtful inference; it must be clearly proved in all its essential
elements by clear, convincing and satisfactory evidence."81 It is hardly separable from the waiver of a right. 82 The party
claiming estoppel must show the following elements: "(1) lack of knowledge and of the means of knowledge of the truth as
to the facts in question; (2) reliance, in good faith, upon the conduct or statements of the party to be estopped; and (3)
action or inaction based thereon of such character as to change the position or status of the party claiming the estoppel,
to his injury, detriment or prejudice."83

None of these elements was proven.

First, petitioner had the knowledge and the means of knowledge of the truth as to the facts in question. It had the means
of knowing if respondent had been served a copy of the Notice of Award, yet the former did not preserve a copy of such
Notice, which supposedly bore the signature of the latter's employee who had received it. Petitioner did not even enter in
its corporate logbooks the release to and receipt by respondent of that copy. The latter had every reason to withdraw its
bid, given that the "prerequisite paper work and attendant processing could not be fast-tracked."84

Second, respondent's conduct and statements were always consistent and reliable. The manner of acceptance of all bids
was prescribed by petitioner itself. Applying Article 1321 of the Civil Code, such prescription must be complied with, 85 yet
it did not follow its own rules. Of no moment was its reliance in good faith upon respondent. Good faith is always
presumed, unless contrary evidence is adduced.86

Third, the action or inaction of petitioner that caused its own injury was its own fault. The written Notice of Award, which
constituted the acceptance of the proposal, was a sine qua non to the perfection of the contract.87 The misplacement of
such vital document was inexcusable. Without it, there was no contract. Moreover, the March 14, 1994 Notice to Proceed
clearly stated that its issuance would depend upon the execution of the construction agreement.

Estoppel is a shield against injustice; the party invoking its protection should not be allowed to use it to conceal its own
lack of diligence88 or want of reasonable care and circumspection.89

WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution AFFIRMED. Costs against
petitioner. SO ORDERED.

G.R. No. 103338 January 4, 1994

FEDERICO SERRA, petitioner,

vs.
THE HON. COURT OF APPEALS AND RIZAL COMMERCIAL BANKING CORPORATION, respondents.

Andres R. Amante, Jr. for petitioner.

R.C. Domingo, Jr. & Associates for private respondent.

NOCON, J.:
 138

A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral
promise to buy and 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. (Article 1479, New Civil Code) The first is the mutual promise and each has the
right to demand from the other the fulfillment of the obligation. While the second is merely an offer of one to another,
which if accepted, would create an obligation to the offeror to make good his promise, provided the acceptance is
supported by a consideration distinct from the price.

Disputed in the present case is the efficacy of a "Contract of Lease with Option to Buy", entered into between petitioner
Federico Serra and private respondent Rizal Commercial Banking Corporation. (RCBC).

Petitioner is the owner of a 374 square meter parcel of land located at Quezon St., Masbate, Masbate. Sometime in 1975,
respondent bank, in its desire to put up a branch in Masbate, Masbate, negotiated with petitioner for the purchase of the
then unregistered property. On May 20, 1975, a contract of LEASE WITH OPTION TO BUY was instead forged by the
parties, the pertinent portion of which reads:

1. The LESSOR leases unto the LESSEE, an the LESSEE hereby accepts in lease, the parcel of land
described in the first WHEREAS clause, to have and to hold the same for a period of twenty-five (25)
years commencing from June 1, 1975 to June 1, 2000. The LESSEE, however, shall have the option to
purchase said parcel of land within a period of ten (10) years from the date of the signing of this Contract
at a price not greater than TWO HUNDRED TEN PESOS (P210.00) per square meter. For this purpose,
the LESSOR undertakes, within such ten-year period, to register said parcel of land under the TORRENS
SYSTEM and all expenses appurtenant thereto shall be for his sole account.

If, for any reason, said parcel of land is not registered under the TORRENS SYSTEM within the
aforementioned ten-year period, the LESSEE shall have the right, upon termination of the lease to be
paid by the LESSOR the market value of the building and improvements constructed on said parcel of
land.

The LESSEE is hereby appointed attorney-in-fact for the LESSOR to register said parcel of land under
the TORRENS SYSTEM in case the LESSOR, for any reason, fails to comply with his obligation to effect
said registration within reasonable time after the signing of this Agreement, and all expenses appurtenant
to such registration shall be charged by the LESSEE against the rentals due to the LESSOR.

2. During the period of the lease, the LESSEE covenants to pay the LESSOR, at the latter's residence, a
monthly rental of SEVEN HUNDRED PESOS (P700.00), Philippine Currency, payable in advance on or
before the fifth (5th) day of every calendar month, provided that the rentals for the first four (4) months
shall be paid by the LESSEE in advance upon the signing of this Contract.

3. The LESSEE is hereby authorized to construct as its sole expense a building and such other
improvements on said parcel of land, which it may need in pursuance of its business and/or operations;
provided, that if for any reason the LESSEE shall fail to exercise its option mentioned in paragraph (1)
above in case the parcel of land is registered under the TORRENS SYSTEM within the ten-year period
mentioned therein, said building and/or improvements, shall become the property of the LESSOR after
the expiration of the 25-year lease period without the right of reimbursement on the part of the LESSEE.
The authority herein granted does not, however, extend to the making or allowing any unlawful, improper
or offensive used of the leased premises, or any use thereof, other than banking and office purposes. The
maintenance and upkeep of such building, structure and improvements shall likewise be for the sole
account of the LESSEE. 1

The foregoing agreement was subscribed before Notary Public Romeo F. Natividad.

Pursuant to said contract, a building and other improvements were constructed on the land which housed the branch
office of RCBC in Masbate, Masbate. Within three years from the signing of the contract, petitioner complied with his part
of the agreement by having the property registered and
placed under the TORRENS SYSTEM, for which Original Certificate of Title No. 0-232 was issued by the Register of
Deeds of the Province of Masbate.
 139

Petitioner alleges that as soon as he had the property registered, he kept on pursuing the manager of the branch to effect
the sale of the lot as per their agreement. It was not until September 4, 1984, however, when the respondent bank
decided to exercise its option and informed petitioner, through a letter, 2 of its intention to buy the property at the agreed
price of not greater than P210.00 per square meter or a total of P78,430.00. But much to the surprise of the respondent,
petitioner replied that he is no longer selling the property. 3

Hence, on March 14, 1985, a complaint for specific performance and damages were filed by respondent against
petitioner. In the complaint, respondent alleged that during the negotiations it made clear to petitioner that it intends to
stay permanently on property once its branch office is opened unless the exigencies of the business requires otherwise.
Aside from its prayer for specific performance, it likewise asked for an award of P50,000.00 for attorney's fees
P100,000.00 as exemplary damages and the cost of the suit.4

A special and affirmative defenses, petitioner contended:

1. That the contract having been prepared and drawn by RCBC, it took undue advantage on him when it
set in lopsided terms.

2. That the option was not supported by any consideration distinct from the price and hence not binding
upon him.

3. That as a condition for the validity and/or efficacy of the option, it should have been exercised within
the reasonable time after the registration of the land under the Torrens System; that its delayed action on
the option have forfeited whatever its claim to the same.

4. That extraordinary inflation supervened resulting in the unusual decrease in the purchasing power of
the currency that could not reasonably be forseen or was manifestly beyond the contemplation of the
parties at the time of the establishment of the obligation, thus, rendering the terms of the contract
unenforceable, inequitable and to the undue enrichment of RCBC. 5

and as counterclaim petitioner alleged that:

1. The rental of P700.00 has become unrealistic and unreasonable, that justice and equity will require its
adjustment.

2. By the institution of the complaint he suffered moral damages which may be assessed at P100,000.00
and award of attorney's fee of P25,000.00 and exemplary damages at P100,000.00. 6

Initially, after trial on the merits, the court dismissed the complaint. Although it found the contract to be valid, the court
nonetheless ruled that the option to buy in unenforceable because it lacked a consideration distinct from the price and
RCBC did not exercise its option within reasonable time. The prayer for readjustment of rental was denied, as well as that
for moral and exemplary damages.7

Nevertheless, upon motion for reconsideration of respondent, the court in the order of January 9, 1989, reversed itself, the
dispositive portion reads:

WHEREFORE, the Court reconsiders its decision dated June 6, 1988, and hereby renders judgment as
follows:

1. The defendant is hereby ordered to execute and deliver the proper deed of sale in favor of plaintiff
selling, transferring and
conveying the property covered by and described in the Original Certificate of Title 0-232 of the Registry
of Deeds of Masbate for the sum of Seventy Eight Thousand Five Hundred Forty Pesos (P78,540,00),
Philippine Currency;

2. Defendant is ordered to pay plaintiff the sum of Five Thousand (P5,000.00) Pesos as attorney's fees;

3. The counter claim of defendant is hereby dismissed; and

 140

4. Defendants shall pay the costs of suit.8

In a decision promulgated on September 19, 1991,9 the Court of Appeals affirmed the findings of the trial court that:

1. The contract is valid and that the parties perfectly understood the contents thereof;

2. The option is supported by a distinct and separate consideration as embodied in the agreement;

3. There is no basis in granting an adjustment in rental.

Assailing the judgment of the appellate court, petitioner would like us to consider mainly the following:

1. The disputed contract is a contract of adhesion.

2. There was no consideration to support the option, distinct from the price, hence the option cannot be
exercised.

3. Respondent court gravely abused its discretion in not granting currency adjustment on the already
eroded value of the stipulated rentals for twenty-five years.

The petition is devoid of merit.

There is no dispute that the contract is valid and existing between the parties, as found by both the trial court and the
appellate court. Neither do we find the terms of the contract unfairly lopsided to have it ignored.

A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the contract, while the
other party merely affixes his signature or his "adhesion" thereto. These types of contracts are as binding as ordinary
contracts. Because in reality, the party who adheres to the contract is free to reject it entirely. Although, this Court will not
hesitate to rule out blind adherence to terms where facts and circumstances will show that it is basically one-sided. 10

We do not find the situation in the present case to be inequitable. Petitioner is a highly educated man, who, at the time of
the trial was already a CPA-Lawyer, and when he entered into the contract, was already a CPA, holding a respectable
position with the Metropolitan Manila Commission. It is evident that a man of his stature should have been more cautious
in transactions he enters into, particularly where it concerns valuable properties. He is amply equipped to drive a hard
bargain if he would be so minded to.

Petitioner contends that the doctrines laid down in the cases of

Atkins Kroll v. Cua Hian Tek, 11 Sanchez v. Rigos, 12 and Vda. de Quirino v. Palarca 13 were misapplied in the present
case, because 1) the option given to the respondent bank was not supported by a consideration distinct from the price;
and 2) that the stipulated price of "not greater than P210.00 per square meter" is not certain or definite.

Article 1324 of the Civil Code provides that when an offeror has allowed the offeree a certain period to accept, the offer
maybe withdrawn at anytime before acceptance by communicating such withdrawal, except when the option is founded
upon consideration, as something paid or promised. On the other hand, Article 1479 of the Code provides that an
accepted unilateral promise to buy and 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.

In a unilateral promise to sell, where the debtor fails to withdraw the promise before the acceptance by the creditor, the
transaction becomes a bilateral contract to sell and to buy, because upon acceptance by the creditor of the offer to sell by
the debtor, there is already a meeting of the minds of the parties as to the thing which is determinate and the price which
is certain. 14 In which case, the parties may then reciprocally demand performance.

Jurisprudence has taught us that an optional contract is a privilege existing only in one party the buyer. For a separate
consideration paid, he is given the right to decide to purchase or not, a certain merchandise or property, at any time within
the agreed period, at a fixed price. This being his prerogative, he may not be compelled to exercise the option to buy
 141

before the time

expires. 15

On the other hand, what may be regarded as a consideration separate from the price is discussed in the case of Vda. de
Quirino v. Palarca 16 wherein the facts are almost on all fours with the case at bar. The said case also involved a lease
contract with option to buy where we had occasion to say that "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 leased premises." 17

In the present case, the consideration is even more onerous on the part of the lessee since it entails transferring of the
building and/or improvements on the property to petitioner, should respondent bank fail to exercise its option within the
period stipulated. 18

The bugging question then is whether the price "not greater than TWO HUNDRED PESOS" is certain or definite. A price
is considered certain if it is so with reference to another thing certain or when the determination thereof is left to the
judgment of a specified person or persons. 19 And generally, gross inadequacy of price does not affect a contract of
sale. 20

Contracts are to be construed according to the sense and meaning of the terms which the parties themselves have used.
In the present dispute, there is evidence to show that the intention of the parties is to peg the price at P210 per square
meter. This was confirmed by petitioner himself in his testimony, as follows:

Q. Will you please tell this Court what was the offer?

A. It was an offer to buy the property that I have in Quezon City (sic).

Q. And did they give you a specific amount?

xxx xxx xxx

A. Well, there was an offer to buy the property at P210 per square meters (sic).

Q. And that was in what year?

A . 1975, sir.

Q. And did you accept the offer?

A. Yes, sir. 21

Moreover, by his subsequent acts of having the land titled under the Torrens System, and in pursuing the bank manager
to effect the sale immediately, means that he understood perfectly the terms of the contract. He even had the same
property mortgaged to the respondent bank sometime in 1979, without the slightest hint of wanting to abandon his offer to
sell the property at the agreed price of P210 per square meter. 22

Finally, we agree with the courts a quo that there is no basis, legal or factual, in adjusting the amount of the rent. The
contract is the law between the parties and if there is indeed reason to adjust the rent, the parties could by themselves
negotiate for the amendment of the contract. Neither could we consider the decline of the purchasing power of the
Philippine peso from 1983 to the time of the commencement of the present case in 1985, to be so great as to result in an
extraordinary inflation. Extraordinary inflation exists when there in an unimaginable increase or decrease of the
purchasing power of the Philippine currency, or fluctuation in the value of pesos manifestly beyond the contemplation of
the parties at the time of the establishment of the obligation. 23
 142

Premises considered, we find that the contract of "LEASE WITH OPTION TO BUY" between petitioner and respondent
bank is valid, effective and enforceable, the price being certain and that there was consideration distinct from the price to
support the option given to the lessee.

WHEREFORE, this petition is hereby DISMISSED, and the decision of the appellate court is hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.

G.R. No. 103959 August 21, 1997

SPOUSES REGALADO SANTIAGO and ROSITA PALABYAB, JOSEFINA ARCEGA, petitioners,

vs.
THE HON. COURT OF APPEALS; THE HON. CAMILO C. MONTESA, JR., Presiding Judge of the RTC of Malolos,
Bulacan, Branch 19, and QUIRICO ARCEGA, respondents.
 143

HERMOSISIMA, JR., J.:

Assailed in this petition for review under Rule 45 is the November 8, 1991 Decision of respondent Court of Appeals in CA-
G.R. CV No. 25069. It affirmed in toto the judgment of Branch 19, Regional Trial Court of Malolos, Bulacan, in Civil Case
No. 8470-M. The action therein sought to declare null and void the "Kasulatan Ng Bilihang Tuluyan Ng Lupa" executed on
July 18, 1971 by the late Paula Arcega, sister of private respondent, in favor of herein petitioners over a parcel of land
consisting of 927 square meters, situated in Barangay Tabing Ilog, Marilao, Bulacan.

Paula Arcega was the registered owner of that certain parcel of land covered by Transfer Certificate of Title No. T-115510.
Her residential house stood there until 1970 when it was destroyed by a strong typhoon.

On December 9, 1970, Paula Arcega executed what purported to be a deed of conditional sale over the land in favor of
Josefina Arcega and the spouses Regalado Santiago and Rosita Palabyab, the petitioners herein, for and in consideration
of P20,000.00. The vendees were supposed to pay P7,000.00 as downpayment. It was expressly provided that the
vendor would execute and deliver to the vendees an absolute deed of sale upon full payment by the vendees of the
unpaid balance of the purchase price of P13,000.00.

Subsequently, on July 18, 1971, supposedly upon payment of the remaining balance, Paula Arcega executed a deed of
absolute sale of the same parcel of land in favor of petitioners. Thereupon, on July 20, 1971, TCT No. T-115510, in the
name of Paula Arcega, was cancelled and a new title, TCT No. T-148989 was issued in the name of petitioners.

On April 10, 1985, Paula Arcega died single and without issue, leaving as heirs his two brothers, Narciso Arcega 1and
private respondent Quirico Arcega.

Incidentally, before Paula Arcega died, a house of four bedrooms with a total floor area of 225 square meters was built
over the parcel of land in question. Significantly, the master's bedroom, with toilet and bath, was occupied by Paula
Arcega until her death despite the execution of the alleged deed of absolute sale. The three other bedrooms, smaller than
the master's bedroom, were occupied by the petitioners who were the supposed vendees in the sale.

Private respondent Quirico Arcega, as heir of his deceased sister, filed on October 24, 1985 Civil Case No. 8470-M before
the RTC of Malolos, Bulacan, seeing to declare null ad void the deed of sale executed by his sister during her lifetime in
favor of the petitioners on the ground that said deed was fictitious since the purported consideration therefor of
P20,000.00 was not actually paid by the vendees to his sister.

Answering the complaint before the RTC, petitioner spouses averred that private respondent's cause of action was
already barred by the statute of limitations considering that the disputed deed of absolute sale was executed in their favor
on July 18, 1971, by which TCT No. 148989 was issued on July 20, 1971, while private respondent's complaint was filed
in court only on October 24, 1985 or more than fourteen (14) years from the time the cause of action accrued. Petitioners
also deny that the sale was fictitious. They maintain that the purchase price was actually paid to Paula Arcega and that
said amount was spent by the deceased in the construction of her three-door apartment on the parcel of land in question.

Josefina Arcega, the other petitioner, was declared in default for failure to file her answer within the reglementary period.

After trial, the RTC rendered judgment in favor of private respondent Quirico Arcega, viz.:

(a) Declaring as null and void and without legal force and effect the "Kasulatan Ng Bilihang Tuluyan Ng
Lupa" dated July 18, 1971 executed by the deceased Paula Arcega covering a parcel of land embraced
under TCT No. T-115510 in favor of the defendants;

(b) Declaring TCT No. T-148989 issued and registered in the names of defendants Josefina Arcega and
spouses Regalado Santiago and Rosita Palabyab as null and void;

(c) Ordering the reconveyance of the property including all improvements thereon covered by TCT No. T-
115510 now TCT No. T-148989, to the plaintiff, subject to real estate mortgage with the Social Security
System; and

(d) To pay jointly and severally the amount of P10,000.00 as attorney's fees.
 144

On the counterclaim, the same is hereby dismissed for lack of legal and/or factual basis (p. 6, decision,
pp. 295-300, rec.).2

In ruling for private respondent, the trial court, as affirmed in toto by the public respondent Court of Appeals, found that:

On the basis of the evidence adduced, it appears that plaintiff Quirico Arcega and his brother Narciso
Arcega are the only surviving heirs of the deceased Paula Arcega who on April 10, 1985 died single and
without issue. Sometime in 1970, a strong typhoon destroyed the house of Paula Arcega and the latter
together with the defendants decided to construct a new house. All the defendants 3 being members of
the SSS, Paula Arcega deemed it wise to lend her title to them for purposes of loan with the SSS. She
executed a deed of sale to effect the transfer of the property in the name of defendants and thereafter the
later mortgaged the same for P30,000.00 but the amount actually released was only P25,000.00. Paula
Arcega spent the initial amount of P30,000.000 out of her savings for the construction of the house
sometime in 1971 and after the same and the proceeds of the loan were exhausted, the same was not as
yet completed. Paula Arcega and her brothers sold the property which they inherited for P45,000.00 and
the same all went to the additional construction of the house, however, the said amount is not sufficient.
Thereafter, Paula Arcega and her brothers sold another property which they inherited for P805,950.00
and one third (1/3) thereof went to Paula Arcega which she spent a portion of which for the finishing
touches of the house. The house as finally finished in 1983 is worth more than P100,000.00 with a floor
area of 225 square meters consisting of four bedrooms. A big master's bedroom complete with a bath and
toilet was occupied by Paula Arcega up to the time of her death on April 10, 1985 and the other three
smaller bedrooms are occupied by spouses, defendants Regalado Santiago and Rosita Palabyab, and
Josefina Arcega. After the death of Paula Arcega defendant Josefina Arcega and Narciso Arcega
constructed their own house at back portion of the lot in question.

There is a clear indication that the deed of sale which is unconscionably low for 937 square meters in
favor of the defendants sometime on July 18, 1971 who are all members of the SSS, is merely designed
as an accommodation for purposes of loan with the SSS. Paula Arcega cognizant of the shortage of
funds in her possession in the amount of P30,000.00, deemed it wise to augment her funds for
construction purposes by way of a mortgage with the SSS which only defendants could possibly effect
they being members of the SSS. Since the SSS requires the collateral to be in the name of the
mortgagors, Paula Arcega executed a simulated deed of sale (Kasulatan ng Bilihang Tuluyan ng Lupa)
for P20,000.00 dated July 18, 1971 in favor of the defendants and the same was notarized by Atty. Luis
Cuvin who emphatically claimed that no money was involved in the transaction as the parties have other
agreement. The allegations of the defendants that the property was given to them (Kaloob) by the
deceased has no evidentiary value. While it is true that Rosita Palabyab stayed with the deceased since
childhood, the same cannot be said with respect to defendant Josefina Arcega, distant relative and a
niece of the wife of Narciso Arcega, who stayed with the deceased sometime in 1966 at the age of 19
years and already working as a saleslady in Manila. Did the deceased indeed give defendant Josefina
Arcega half of her property out of love and gratitude? Such circumstance appears illogical if not highly
improbable. As a matter of fact defendant Josefna Arcega in her unguarded moment unwittingly told the
truth that the couple (Regalado Santiago and Rosita Palabyab) had indeed borrowed the title and then
mortgaged the same with the SSS as shown in her direct testimony which reads:

Atty. Villanueva:

Q Why did you say that the house is owned by the spouses Santiago but the lot is bought
by you and Rosita?

A Because at that time, the couple4 borrowed the title and then mortgaged the property
with the SSS. There is only one title but both of us owned it. (TSN dtd. 19 Oct '88, p. 5) 5

On appeal, the public respondent Court of Appeals dismissed the same, affirming in all respects the RTC judgment.

Hence, this petition.

The petition is unmeritorious.

 145

Verily, this case is on all fours with Suntay v. Court of Appeals. 6 There, a certain Federico Suntay was the registered
owner of a parcel of land in Sto. Nio, Hagonoy, Bulacan. A rice miller, Federico applied on September 30, 1960 as a
miller-contractor of the then National Rice and Corn Corporation (NARIC), but his application was disapproved because
he was tied up with several unpaid loans. For purposes of circumvention, he thought of allowing his nephew-lawyer,
Rafael Suntay, to make the application for him. To achieve this, Rafael prepared a notarized Absolute Deed of Sale
whereby Federico, for and in consideration of P20,000.00, conveyed to Rafael said parcel of land with all its existing
structures. Upon the execution and registration of said deed, Certificate of Title No. 0-2015 in the name of Federico was
cancelled and, in lieu thereof, TCT No. T-36714 was issued in the name of Rafael. Sometime in the months of June to
August, 1969,7 Federico requested Rafael to deliver back to him the owner's duplicate of the transfer certificate of title
over the properties in question for he intended to use the property as collateral in securing a bank loan to finance the
expansion of his rice mill. Rafael, however, without just cause, refused to deliver the title insisting that said property was
"absolutely sold and conveyed [to him] . . . for a consideration of P20,000.00, Philippine currency, and for other valuable
consideration." We therein ruled in favor of Federico Suntay and found that the deed of sale in question was merely an
absolutely simulated contract for the purpose of accommodation and therefore void. In retrospect, we observed in that
case:

Indeed the most protuberant index of simulation is the complete absence of an attempt in any manner on
the part of the late Rafael to assert his rights of ownership over the land and rice mill in question. After the
sale, he should have entered the land and occupied the premises thereof. He did not even attempt to. If
he stood as owner, he would have collected rentals from Federico for the use and occupation of the land
and its improvements. All that the late Rafael had was a title in his name.

xxx xxx xxx

. . . The fact that, notwithstanding the title transfer, Federico remained in actual possession, cultivation
and occupation of the disputed lot from the time the deed of sale was executed until the present, is a
circumstance which is unmistakably added proof of the fictitiousness of the said transfer, the same being
contrary to the principle of ownership.8

In the case before us, while petitioners were able to occupy the property in question, they were relegated to a small
bedroom without bath and toilet, 9 while Paula Arcega remained virtually in full possession of the completed house and lot
using the big master's bedroom with bath and toilet up to the time of her death on April 10, 1985. 10 If, indeed, the
transaction entered into by the petitioners and the late Paula Arcega on July 18, 1971 was a veritable deed of absolute
sale, as it was purported to be, then Ms. Arcega had no business whatsoever remaining in the property and, worse, to still
occupy the big master's bedroom with all its amenities until her death on April 10, 1985. Definitely, and legitimate vendee
of real property who paid for the property with good money will not accede to an arrangement whereby the vendor
continues occupying the most favored room in the house while he or she, as new owner, endures the disgrace and
absurdity of having to sleep in a small bedroom without bath and toilet as if he or she is a guest or a tenant in the house.
In any case, if petitioners really stood as legitimate owners of the property, they would have collected rentals from Paula
Arcega for the use and occupation of the master's bedroom as she would then be a mere lessee of the property in
question. However, not a single piece of evidence was presented to show that this was the case. All told, the failure of
petitioners to take exclusive possession of the property allegedly sold to them, or in the alternative, to collect rentals from
the alleged vendee Paula Arcega, is contrary to the principle of ownership and a clear badge of simulation that renders
the whole transaction void and without force and effect, pursuant to Article 1409 of the New Civil Code:

The following contracts are inexistent and void from the beginning:

xxx xxx xxx

(2) Those which are absolutely simulated or fictitious;

xxx xxx xxx

The conceded fact that subject deed of absolute sale executed by Paula Arcega in favor of petitioners is a notarized
document does not justify the petitioners' desired conclusion that said sale is undoubtedly a true conveyance to which the
parties thereto are irrevocably and undeniably bound. To be considered with great significance is the fact that Atty. Luis
Cuvin who notarized the deed disclaimed the truthfulness of the document when he testified that "NO MONEY WAS
INVOLVED IN THE TRANSACTION." 11 Furthermore, though the notarization of the deed of sale in question vests in its
 146

favor the presumption of regularity, it is not the intention nor the function of the notary public to validate and make binding
an instrument never, in the first place, intended to have any binding legal effect upon the parties thereto. The intention of
the parties still is and always will be the primary consideration in determining the true nature of a contract. Here, the
parties to the "Kasulatan ng Bilihang Tuluyan ng Lupa," as shown by the evidence and accompanying circumstances,
never intended to convey the property thereto from one party to the other for valuable consideration. Rather, the
transaction was merely used to facilitate a loan with the SSS with petitioners-mortgagors using the property in question,
the title to which they were able to register in their names through the simulated sale, as collateral.

The fact that petitioners were able to secure a title in their names, TCT No. 148989, did not operate to vest upon
petitioners ownership over Paula Arcega's property. That act has never been recognized as a mode of acquiring
ownership. As a matter of fact, even the original registration of immovable property does not vest title thereto. 12 The
Torrens system does not create or vest title. It only confirms and records title already existing and vested. It does not
protect a usurper from the true owner. It cannot be a shield for the commission of fraud. It does not permit one to enrich
himself at the expense of another. 13 Where one does not have any rightful claim over a real property, the Torrens system
of registration can confirm or record nothing.

Petitioners, nevertheless, insist that both the trial court and the respondent court should have followed the Parole
Evidence Rule and prevented evidence, like the testimony of Notary Public, Atty. Luis Cuvin, private respondent Quirico
Arcega, among others, which impugned the two notarized deeds of sale.

The rule on parole evidence under Section 9, Rule 130 is qualified by the following exceptions:

However, a party may present evidence to modify, explain or add to the terms of the written agreement if
he puts in issue in his pleading:

(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;

(b) The failure of the written agreement to express the true intent and agreement of the parties thereto;

(c) The validity of the written agreement; or

(d) The existence of other terms agreed to by the parties or their successors in interest after the execution
of the written agreement.

The term "agreement" includes wills."

In this case, private respondent Quirico Arcega was able to put in issue in his complaint before the Regional Trial Court
the validity of the subject deeds of sale for being a simulated transaction:

6. That in 1971, the defendants, who by then were already employed in private firms and had become
members of the Social Security System by virtue of their respective employments, decided among
themselves to build a new house on the property of PAULA ARCEGA above described and to borrow
money from the Social Security System to finance the proposed construction.

7. That in order to secure the loan from the Social Security System it was necessary that the lot on which
the proposed house would be erected should be registered and titled in the names of the defendants.

xxx xxx xxx

9. That in conformity with the above plans and schemes of the defendants, they made PAULA ARCEGA
execute and sign a fictitious, hence null and void "KASULATAN NG BILIHANG TULUYAN NG LUPA" on
July 18, 1971, before Notary Public LUIS CUVIN, of Bulacan and entered in his register as Doc. No. 253,
Page No. 52, Book No. XIX, Series of 1971, by which PAULA ARCEGA purportedly conveyed(sic) in
favor of the defendants JOSEFINA ARCEGA and the spouse REGALADO SANTIAGO and ROSITA
PALABYAB, the whole parcel of land above described for the sum of TWENTY THOUSAND
(P20,000.00), as consideration which was not actually, then or thereafter paid either wholly or partially. A
copy of said document is hereto attached as Annex "B" and made integral part hereof.
 147

10. That defendants pursuing their unlawful scheme registered the said void and inexistent "KASULATAN
NG BILIHANG TULUYAN NG LUPA" with the office of the Register of Deeds of Bulacan, procured the
cancellation of Transfer Certificate of Title No. 115510, in the name of PAULA ARCEGA and the issuance
of Transfer Certificate of Title No. 148989, in their names, a xeroxed copy of which is hereto attached as
Annex "C" and made integral part hereof.

11. That still in furtherance of their unjust and unlawful schemes, defendants secured a loan from the
Social Security System in the amount of P30,000.00, securing the payment thereof with a Real Estate
Mortgage on the above-described property then already titled in their names as aforestated (pp. 2-3,
complaint, pp. 1-5, rec.). 14

Moreover, the parol evidence rule may be waived by failure to invoke it, as by failure to object to the introduction of parol
evidence. And, where a party who is entitled to the benefit of the rule waives the benefit thereof by allowing such evidence
to be received without objection and without any effort to have it stricken from the minutes or disregarded by the trial
court, he cannot, after the trial has closed and the case has been decided against him, invoke the rule in order to secure a
reversal of the judgment by an appellate court. 15 Here, the records are devoid of any indication that petitioners ever
objected to the admissibility of parole evidence introduced by the private respondent in open court. The court cannot
disregard evidence which would ordinarily be incompetent under the rules but has been rendered admissible by the failure
of a party to object thereto. 16 Petitioners have no one to blame but themselves in this regard.

Finally, petitioners argue that private respondent's complaint filed before the trial court on October 24, 1985 is already
barred by the statute of limitations and laches considering that the deed of absolute sale was executed in their favor by
the deceased Paula Arcega on July 20, 1971. Indeed, more than fourteen (14) years had elapsed from the time his cause
of action accrued to the time that the complaint was filed. Articles 1144 and 1391 of the New Civil Code provide:

Art. 1141. The following actions must be brought within ten years from the time the right of action
accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

Art. 1391. The action for annulment shall be brought within four years.

This period shall begin:

In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.

In cases of mistake or fraud, from the time of the discovery of the same.

And when the action refers to contracts entered into by minors or other incapacitated persons, from the
time the guardianship ceases.

This submission is utterly without merit, the pertinent provision being Article 1410 of the New Civil Code which provides
unequivocably that "[T]he action or defense for the declaration of the inexistence of a contract does not prescribe." 17

As for laches, its essence is the failure or neglect, for an unreasonable and unexplained length of time to do that which, by
exercising due diligence, could or should have been done earlier; it is the negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert
it. 18 But there is, to be sure, no absolute rule as to what constitutes laches or staleness of demand; each case is to be
determined according to its particular circumstances. The question of laches is addressed to the sound discretion of the
court, and since laches is an equitable doctrine, its application is controlled by equitable considerations. It cannot be
worked to defeat justice or to perpetrate fraud and injustice. 19 In the case under consideration, it would not only be
impractical but well-nigh unjust and patently inequitous to apply laches against private respondent and vest ownership
over a valuable piece of real property in favor of petitioners by virtue of an absolutely simulated deed of sale never, in the
 148

first place, meant to convey any right over the subject property. It is the better rule that courts, under the principle of
equity, will not be guided or bound strictly by the statute of limitations or the doctrine of laches when to do so, manifest
wrong or injustice would result. 20

WHEREFORE, premises considered, the petition is hereby DENIED with costs against petitioners.

SO ORDERED.

Padilla, Bellosillo, Vitug and Kapunan, JJ., concur.

G.R. No. 196083, November 11, 2015

MILAGROS C. REYES, Petitioner, v. FELIX P. ASUNCION, Respondent.

DECISION

PERALTA, J.:
 149

For this Court's consideration is the Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, dated April 25,
2011 of petitioner Milagros C. Reyes seeking the reversal of the Decision 2 of the Court of Appeals (CA) dated July 9, 2010
which affirmed the Decision3 of the Regional Trial Court (RTC), Branch 66, Capas, Tarlac, dated January 17, 2007
dismissing the Complaint4 of petitioner against respondent Felix P. Asuncion for the declaration of nullity of a contract or
deed.

The facts follow.

Petitioner claimed that since the early 80s, she and her late husband were the owners, with the right to occupy and
possess a parcel of land (subject land), which is also a sugarcane plantation, with an area of more or less 3.5 hectares
located at Patling, Capas, Tarlac and forms part of a U.S. Military Reservation. Sometime in 1986, petitioner hired
respondent as a caretaker of the subject land. In 1997, the Bases Conversion and Development Authority (BCDA)
launched a resettlement program for the victims of the Mt. Pinatubo eruption and began to look for possible resettlement
sites in Tarlac and the subject lot was among those considered.

Thereafter, according to petitioner, in order to prevent the BCDA from converting her property into a resettlement site, she
and respondent executed a contract, antedated on June 15, 1993, transferring her rights over the subject land to the
respondent. The contract reads as follows:chanRoblesvirtualLawlibrary

PAGLILIPAT [NG] KARAPATAN SA LUPA

Para sa Kinauukulan[:]

Ako po [ay] si [G]inang Milagros C. Reyes, widow[,] [F]ilipino, a sugar [p]lanter of Central Azucarera de Tarlac, San Miguel
[,] Tarlac [and] residing at San Rafael[,] Tarlac.

Akin[g] pinatutunayan sa kasulatan[g] ito na nabili ko ang karapatan o [r]ights ni [GJinoong Reymundo Dailig, nakatira sa
Patling[,] Capas[,] Tarlac. Ang loti ay may sukat na tatlong ektarya at kalahati [sic] (3 1/2 hec). [A]t itoy [sic] ay kusang
loob naming mag-asawa, si Jesus C. Reyes[,] na ipagkaloob ang nasabing lupa kay [G]inoong Felix Asuncion
[unreadable portion]. Sa loob ng sampung taon naminfg] pagsasama[,] nakita namin na naging matapat siya sa kanyang
obligations bilang taga pamahala [sic] ng aming tubuhan at sa mga [k]ontratista at higit sa lahat ay marunong siya
makisama sa aming kasama siya [ay] mapagkakatiwalaan lalo na sa pera. Dahil sa [sic] naging matapat siya sa amin
bilang Palsunero, napagkasunduan namin na kami ang bahala sa finances, sa kasunduan na kami ang magpapakabyaw
ng tubo sa pangalan ko, hanggang gusto ko. Sa ilalim nito ay nakapinna ang aking pangalan.

Sgd. Sgd.
Felix P. Asuncion Milagros C. Reyes
Tenant Planter

Sgd.
Witness
Barangay [C]aptain
Bon Vistair5
cralawlawlibrary

Petitioner claimed to have remained the absolute owner and possessor of the subject land and presently occupies the
same as a sugarcane plantation and even mills the sugarcane harvested at the Central Azucarera de Tarlac for her own
benefit. She also stated that the respondent continued working for her but the latter's employment was severed when
petitioner discovered that respondent sold the former's pigs and cows.

On January 6, 2000, respondent filed a Complaint for Estafa against petitioner before the Office of the Prosecutor in
Tarlac City, Tarlac alleging that petitioner failed and/or refused to give respondent his share of the total harvests on the
subject land for the years 1993-1999, using their contract as basis. However, the said complaint was dismissed for lack of
probable cause.

Thereafter, petitioner filed a Complaint dated October 21, 2001 against respondent before the RTC of Capas, Tarlac for
the declaration of nullity of the subject contract.
 150

The RTC, on January 17, 2007, rendered a Decision in favor of the respondent. It ruled that there is no legal basis to
nullify the contract. The dispositive portion of the decision states:chanRoblesvirtualLawlibrary

WHEREFORE, premises considered, finding no legal basis to nullify the contract denominated as Paglilipat [nang]
Karapatan set Lipa, the complaint is dismissed and the Paglilipat [nang] Karapatan set Lupa is declared legal and binding.

No pronouncement as to cost. SO ORDERED.6cralawlawlibrary

Undeterred, petitioner appealed the case to the CA, and on July 9, 2010, the latter dismissed the appeal,
thus:chanRoblesvirtualLawlibrary

FOR THESE REASONS, We DISMISS the appeal for lack of merit, the assailed Decision dated January 17, 2007 of the
Regional Trial Court is AFFIRMED.

SO ORDERED.7

After the CA denied8 petitioner's motion for reconsideration, the latter filed the present petition.

Petitioner assigned the following errors:chanRoblesvirtualLawlibrary

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN RULING THAT THE SUBJECT CONTRACT IS
VALID EVEN IF IT DOES NOT REFLECT THE TRUE INTENT OF THE PARTIES.

II.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN RULING THAT THE DONATION OF THE SUBJECT
LAND IS VALID EVEN IF NOT MADE AND ACCEPTED IN A PUBLIC DOCUMENT.

III.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN RULING THAT THE PETITIONER MAY
TRANSFER THE SUBJECT LAND TO THE RESPONDENT EVEN WITHOUT THE CONSENT OF THE HEIRS OF HER
LATE HUSBAND.9ChanRoblesVirtualawlibrary
cralawlawlibrary

Thereafter, respondent filed his Comment10 dated March 31, 2014 and petitioner filed her Reply11 dated June 7, 2014.

This Court finds no merit in the petition.

It is petitioner's contention that the subject contract is purely simulated, since it purports a transfer of rights over the
subject land in favor of the respondent. However, when petitioner executed the contract, it was never her intention to
transfer her rights over the subject land as the primordial consideration was to prevent the BCDA from taking over the
property. She also asserts that she and the respondent agreed to make the said false appearance in the contract.
However, the RTC and the CA found no other evidence to support the said allegations and the self-serving averments of
the petitioner. This Court is in agreement with the RTC and the CA as to the insufficiency of evidence to prove that there
was indeed a simulation of contract.

The Civil Code provides:chanRoblesvirtualLawlibrary

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to
be bound at all; the latter, when the parties conceal their true agreement.

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third
person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the
parties to their real agreement.cralawlawlibrary

Valerio v. Refresca12 is instructive on the matter of simulation of contracts:chanRoblesvirtualLawlibrary

 151

x x x In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be
bound by it. The main characteristic of an absolute simulation is that the apparent contract is not really desired or intended
to produce legal effect or in any way alter the juridical situation of the parties. As a result, an absolutely simulated or
fictitious contract is void, and the parties may recover from each other what they may have given under the contract.
However, if the parties state a false cause in the contract to conceal their real agreement, the contract is relatively
simulated and the parties are still bound by their real agreement. Hence, where the essential requisites of a contract are
present and the simulation refers only to the content or terms of the contract, the agreement is absolutely binding and
enforceable between the parties and their successors-in-interest.cralawlawlibrary

Lacking, therefore, in an absolutely simulated contract is consent which is essential to a valid and enforceable
contract.13 Thus, where a person, in order to place his property beyond the reach of his creditors, simulates a transfer of it
to another, he does not really intend to divest himself of his title and control of the property; hence, the deed of transfer is
but a sham.14

The primary consideration in determining the true nature of a contract is the intention of the parties. If the words of a
contract appear to contravene the evident intention of the parties, the latter shall prevail. Such intention is determined not
only from the express terms of their agreement, but also from the contemporaneous and subsequent acts of the parties. 15

The burden of proving the alleged simulation of a contract falls on those who impugn its regularity and validity. A failure to
discharge this duty will result in the upholding of the contract. The primary consideration in determining whether a contract
is simulated is the intention of the parties as manifested by the express terms of the agreement itself, as well as the
contemporaneous and subsequent actions of the parties. The most striking index of simulation is not the filial relationship
between the purported seller and buyer, but the complete absence of any attempt in any manner on the part of the latter
to assert rights of dominion over the disputed property. 16

The finding of the CA is correct when it ruled that petitioner failed to present evidence to prove that respondent acted in
bad faith or fraud in procuring her signature or that he violated their real intention, if any, in executing it,
thus:chanRoblesvirtualLawlibrary

So far, appellant's averments evince an obvious knowledge and voluntariness on her part to enter into the alleged
simulated contract. Without the slightest doubt, appellant, as plaintiff in the court below, utterly foiled to adduce any
evidence of appellee's bad faith or fraud in procuring her signature to the contract or that he violated their real intention, if
any, in executing it. It must be stressed that the determination of whether one acted in bad faith is evidentiary in nature.
Indeed, the unbroken jurisprudence is that "[b]ad faith [or fraud] under the law cannot be presumed; it must be established
by clear and convincing evidence. The allegation of simulation of contract as well as lack of consent and/or vitiated
consent remains to be proven. As it stands, We perceive that the contract by its very terms and conditions, on June 15,
1993, appellant simply intended to transfer the subject land to appellee. It is a cardinal rule that if the terms of a contract
are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulation shall
control.17cralawlawlibrary

Petitioner insists that the subject contract is in the nature of a simple donation, and even assuming arguendo that the
same was meant to be a remuneratory donation, it is still invalid because the donation was not notarized.

Donation is an act of liberality whereby a person gratuitously disposes of a thing or a right in favor of another who accepts
it.18 Once perfected, a donation is final; its revocation or rescission cannot be effected, absent any legal ground
therefor.19 A donation may, in fact, comprehend the entire property of the donor. 20 At any rate, the law provides that
donors should reserve, in full ownership or in usufruct, sufficient means for their own support and that of all their relatives
who, at the time of the acceptance of the donation, are by law entitled to be supported by them.21

The subject contract in this case is seemingly a remuneratory donation as all the elements for such are present. The CA
explained:chanRoblesvirtualLawlibrary

A painstaking review of the contract reveals that it is a remuneratory donation. First, appellant expressed in the contract
that "sa loob ng sampling taon namin[g] pagsasama[,] nakita namin na naging matapat siya sa kanyang obligations bilang
taga pamahala [sic] ng aming tubuhan at sa mga [k]ontratista at higit sa lahat ay marunong siya makisama sa aming mga
kasama at siya [ay] mapagkakatiwalaan lalo na sa pera. Clearly, she gave the subject land to appellee to remunerate his
ten (10) years of faithful service to her. More importantly, appellant stated that "napagkasunduan namin na kami ang
bahala sa finances, sa kasunduan na kami ang magpapakabyaw ng tubo sa pangalan ko, hanggang gusto ko. This is a
profit sharing agreement where appellant finances the planting, harvesting and milling of sugarcane on the subject land
donated to appellee under appellant's name. Unmistakably, it is a charge or burden on the donation. 22cralawlawlibrary
 152

However, as pointed out by the CA, the contract, as well as the evidence presented during the trial, are silent as to the
value of the burden, hence, instead of the law on donations, the rules on contract should govern the subject contract
because the donation is onerous as the burden is imposed upon the donee of a thing with an undetermined value.
Furthermore, the CA is also right in ruling that it is not necessary that the contract be in a public instrument if it involves
immovable property, properly citing Pada-Kilario v. Court of Appeals23 which states that the requirement of Article 1358 of
the Civil Code that acts which have for their object the creation, transmission, modification or extinguishment of real rights
over immovable property, must appear in a public document, is only for convenience, non-compliance with which does not
affect the validity or enforceability of the acts of the parties as among themselves.

Finally, petitioner argues that she has raised the issue of her co-ownership of the subject land with her late husband at the
very outset of the case, thus, in view of that co-ownership, petitioner cannot alienate the subject land without the consent
of the heirs of her late husband. However, as aptly observed by the CA, the petitioner did not raise the issue of co-
ownership during the trial, thus, she cannot now assail the validity of the contract using such ground for the first time on
appeal. It is also worth noting that petitioner has not, in her appeal to the CA, as well as in her petition with this Court,
mentioned the specific heirs affected or prejudiced by the subject contract.

WHEREFORE, the Petition for Review on Certiorari under Rule 45 of the Rules of Court, dated April 25, 2011 of petitioner
Milagros C. Reyes is DENIED for lack merit, and the Decision of the Court of Appeals, dated July 9, 2010,
is AFFIRMED in toto.

SO ORDERED.chanroblesvirtuallawlibrary

Velasco, Jr., (Chairperson), Villarama, Jr., Reyes, and Jardeleza, JJ., concur.

G.R. No. 102784 April 7, 1997

ROSA LIM, petitioner,

vs.
COURT OF APPEALS AND PEOPLE OF THE PHILIPPINES, respondents.

RESOLUTION

HERMOSISIMA, JR., J.:

Acting on the motion for reconsideration filed by petitioner Rosa Lim praying for her acquittal, this Court takes a second
hard look at the present case in the light of the various arguments raised by the movant.

Petitioner Rosa Lim was charged with, and subsequently convicted of, the crime of estafa as defined under Art. 315, par.
1(b) of the Revised Penal Code before Branch 92 of the Regional Trial Court of Quezon City. 1 This conviction was
affirmed by the Court Appeals.2 Aggrieved by the decision of the appellate court, Rosa Lim filed a petition for review under
Rule 45 before the Supreme Court. This Court subsequently sustained the ruling of the Court of Appeals, hence, this
Motion for Reconsideration seeking the reversal of our decision dated February 28, 1996.

Her motion for reconsideration is anchored on the following grounds:

I. THE COURT A QUO FAILED TO CONSIDER EVIDENCE TO THE EFFECT THAT THE TRUE
AGREEMENT BETWEEN THE PARTIES WAS A SALE ON CREDIT AND NOT AN AGENCY TO SELL
AS BROUGHT OUT IN THE CROSS-EXAMINATION MADE BY THE PRIVATE PROSECUTOR ON THE
 153

PETITIONER AND AURELIA NADERA AS WELL AS ON THE CROSS EXAMINATION MADE ON THE
COMPLAINANT BY THE COUNSEL FOR THE PETITIONER; and

II. ON THE ISSUE OF WHETHER OR NOT THE PETITIONER RETURNED THE RING VALUED AT
P169,000.00 TO COMPLAINANT THRU AURELIA NADERA, THE COURT A QUO FAILED TO
CONSIDER CONCLUSIVE EVIDENCE THAT SAID RING WAS IN FACT RETURNED TO
COMPLAINANT AS SHOWN BY THE FACT THAT SHE FILED A CRIMINAL CASE AGAINST AURELIA
NADERA FOR ISSUING A BOUNCING CHECK IN THE AMOUNT OF P169,000.00 WHICH SHE
ISSUED IN PAYMENT OF THE RING IN THE REGIONAL TRIAL COURT OF QUEZON CITY.

It will be recalled that the facts of this case are as follows:

Rose Lim arrived in Manila from Cebu City sometime in October, 1987 with her friend Aurelia Nadera. On October 8,
1987, they went to the Williams Apartelle in Timog, Quezon City, where they met Victoria Suarez, a jewelry dealer. Suarez
and Nadera knew each other since the latter often sold jewelry for the former on commission basis. Nadera had
previously introduced Rosa Lim to Suarez as a wealthy businesswoman.

Lim was offered two pieces of jewelry by Suarez to wit: one (1) 3.35 carat diamond ring worth P169,000.00 and one (1)
bracelet worth P170,000.00. The pieces were to be sold by Lim on commission. Accordingly, Lim signed a receipt
prepared by Nadera for Suarez, which stated that:

THIS IS TO CERTIFY, that I received from Vicky Suarez the following jewelry:

Description Price

1 ring 3.35 solo P169,000.00

1 bracelet 170,000.00

Total P339,000.00

in good condition, to be sold in CASH ONLY within . . . days from date of signing receipt:

if I could not sell, I shall return all the jewelry, within the period mentioned above; if I would be able to sell,
I shall immediately deliver and account the whole proceeds of sale thereof to the owner of the jewelries
[sic] at his/her residence; my compensation or commission shall be the over-price on the value of each
jewelry quoted above. I am prohibited to sell any jewelry on credit or by installment; deposit, give for
safekeeping; lend, pledge or give as security or guaranty under any circumstance or manner, any jewelry
to other person or persons,

I sign my name this . . . day of . . . 19 . . . at Manila.

____________________________________
Signature of Persons who received jewelries [sic]

Address: _________________________________________3

On October 12, 1987, before departing for Cebu, Lim called up Mrs. Suarez by telephone to inform her
that she was no longer interested in the ring and the bracelet. Suarez replied that she was busy at the
time and instructed her to return the pieces of jewelry to Nadera instead, who would in turn give them
back to Suarez. Lim then returned the jewelry to Nadera who issued a handwritten receipt dated October
12, 1987.4 On March 21, 1988, Suarez, thru her counsel, sent Lim a demand letter asking for the return of
the ring. Lim, also thru counsel, sent a response letter to Suarez averring that she had already returned
both ring and bracelet to Nadera and as such, she no longer had any liability to Suarez insofar as the said
items were concerned. Irked, Suarez filed a complaint for estafa under Article 315, par. 1 (b) against
Rosa Lim. Trial ensued thereafter.
 154

During the trial, Lim asserted that she had already returned both the bracelet and ring to Nadera. This
was admitted by Nadera during her direct examination before the trial court:

Q: Do you know if Rosa Lim returned the jewelries [sic]?

A: She gave the jewelries [sic] to me.

Q: Why did Rose Lim give the jewelries [sic] to you?

A: Rosa Lim called up Vicky Suarez the following morning and told Vicky
Suarez that she was going home to Cebu and asked if she could give the
jewelries [sic] to me.

Q: And when did Rosa Lim give you the jewelries [sic]?

A: Before she left for Cebu.5

Nadera further testified that she issued a check in favor of Suarez in payment for the ring which Lim had
previously returned to her:

Q: What happened to the ring?

A: I sold it.

xxx xxx xxx

Q: Whet happened to the proceeds of the sale of the ring?

A: The check that was paid to me bounced. So my check also

bounced.6

After another thorough and painstaking scrutiny of the records of this case, we have decided to act
favorably on the petitioner's motion. Thus, upon a careful and deliberate consideration of the errors
assigned by the petitioner, as well as of prevailing jurisprudence, we are convinced that Rosa Lim must
be acquitted.

Rosa Lim asserts that she gave both the bracelet and the ring to Aurelia Nadera for it to be returned to
Suarez and that it was Suarez herself who instructed her to do so. Suarez, on the other hand, refutes this
contention by saying that she could not have entrusted the return of the pieces of jewelry to Nadera since
the latter already owed her a substantial amount of money and that to entrust the return of the said ring
would be to tantamount to undue risk on her part. However, Suarez herself admitted that the bracelet was
in fact received by her from Nadera:

ATTY. TORIO: Now, Mrs. Witness, you said that the bracelet was
returned to you, is it not true that this bracelet was returned by Aurelia
Nadera?

A: I already answered that.

COURT: What was the answer?

WITNESS: It was returned by Aurelia Nadera.7

It is highly unlikely that Lim, if she truly had any intention of defrauding Suarez, would still make an effort
to return the bracelet, considering that as between the two items, it is the more expensive one. Moreover,
the Court of Appeals in examining the facts of this case held that there was indeed such are turn:
 155

. . . This claim (that the ring had been returned to Suarez thru Nadera) is disconcerting. It
contravenes the very terms of Exhibit A. The instruction by the complaining witness to
appellant to deliver the ring to Aurelia Nadera is vehemently denied by the complaining
witness, who declared that she did not authorize and/or instruct appellant to do so. And
thus, by delivering the ring to Aurelia without the express authority and consent of the
complaining witness, appellant assumed the right to dispose of the jewelry as if it were
hers, thereby committing conversion, a clear breach of trust, punishable under Article
315, par. 1 (b), Revised Penal Code. (emphasis ours)

In other words, it has been established that the ring which is the subject of the prosecution for estafa was
indeed returned, albeit to a person whom Suarez claims has no authority to receive said item.

Generally, the delivery to a third person of the thing held in trust is not a defense in estafa. As enunciated
in the earlier case of United States vs.
Eustaquio:8

When merchandise is received for sale on commission, under the obligation to return the
same, or its value, and is thereafter delivered to a third person without the knowledge or
authority of the owner, the two elements which constitute the crime of estafa exist: (a) the
deceit by which it was intended to defraud; and (b) the damage caused the owner.

However, this rule has already been modified in subsequent cases. In People
vs. Nepomuceno9 and People vs. Trinidad, 10 it has been held that:

In cases of estafa the profit or gain must be obtained by the accused personally, through
his own acts, and his mere negligence in permitting another to take advantage or benefit
from the entrusted chattel cannot constitute estafa under Article 315 paragraph 1-b, of
the Revised Penal Code; unless of course the evidence should disclose that the agent
acted in conspiracy or connivance with the one who carried out the actual
misappropriation, when the accused would be answerable for the acts of his co-
conspirators. If there is no such evidence, direct or circumstantial, and if the proof is clear
that the accused herself was the innocent victim of her sub-agent's faithlessness, her
acquittal is in order. (emphasis ours)

Aurelia Nadera herself admits that she received both the bracelet and the ring in question from Lim. In her
testimony, she had no qualms in admitting that she sold the ring in question and that she issued a check
in favor of Suarez as payment for said ring. She also admitted that such check had bounced. She is now
facing a criminal case for violation of Batas Pambansa Blg. 22 instituted by Suarez herself. It is significant
to note that the amount of the bouncing check issued by Nadera as payment to Suarez corresponds to
the amount of the ring given by Suarez to Lim P169,000.00.

We cannot conceive of any motive on the part of Nadera in admitting not only receiving the ring, but also
issuing, in payment thereof, a bouncing check, save the desire to tell the truth, in order that one who is
innocent of any crime would not be erroneously convicted. For, the same can only be to her detriment,
considering that she is now facing a criminal charge herself. That she and Lim are very good friends is of
no moment, as it is inconceivable that she would admit as fact what did not actually happen, when such
admission could very well lead to her own incarceration. Nadera's admission is a declaration against her
own interest made under oath. It must thus be given full weight and credence.

Rose Lim's assertion that she had returned the ring in question to Nadera, in addition to the latter's
unswerving testimony admitting the same, raises reasonable doubt as to Lim's liability for estafa.
Conversion or misappropriation has not been sufficiently proven. As held in the case of People
vs. Lopez: 11

When a demand for the delivery of the thing promised, or the return of the money
delivered in trust, is made, and such demand is not fulfilled within a reasonable time, a
presumption arises that the amount has been misappropriated. This inference, however,
is only deducible when the explanation given by the accused for his failure to account for
 156

the money is absolutely devoid of merits. Where the explanation does not completely
destroy the presumption but at least raises reasonable doubt that accused had
misappropriated the amount in question, acquittal is in order.

It is well-settled that the essence of estafa thru misappropriation is the appropriation or conversion of
money or property received to the prejudice of the owner. The words "convert" and "misappropriate"
connote an act of using or disposing of another's property as if it were one's own or devoting it to a
purpose or use different from that agreed upon. To misappropriate for one's own use includes, not only
conversion to one's personal advantage, but also every attempt to dispose of the property of another
without right. 12

Rosa Lim's sole purpose in delivering the pieces of jewelry to Aurelia Nadera, was for Nadera to effect
their return to Victoria Suarez. By no stretch of the imagination can the act of returning said items to its
rightful owner, although through the mediation of a third party, be considered as conversion or
misappropriation. Verily, that said act manifested Rosa Lim's recognition that the pieces of jewelry do not
belong to her. In doing so, she acknowledged Suarez' right of dominion over them. Thus, it cannot be
regarded as conversion or misappropriation in its true sense sufficient to convict her for estafa. Lim did
not deliver the bracelet and the ring to Nadera so that the latter may re-sell them as her sub-agent. Her
only purpose was to have them returned to their rightful owner. Moreover, she delivered the said pieces
of jewelry to one who is not a total stranger, but to a person known to both her and Suarez and who, from
all indications, enjoy their mutual trust and confidence. To reiterate, this raises reasonable doubt as to the
presence of any criminal intent ascribed to her by the prosecution.

The act of Lim in returning the items to Nadera only shows that she had reason to believe that the latter
had the authority to receive the same. This belief was inspired by the fact that at the time of the said
transaction between Lim and Suarez, it was Nadera herself, in behalf of Suarez, who prepared the receipt
to be signed by Lim. 13 In addition, Nadera was the one who introduced Suarez and Lim to each other.
Hence, Rosa Lim can at most be held negligent in returning the ring to one whose authority to receive the
same was subsequently refuted. Consequently, for negligently assuming Nadera's authority to receive the
ring, Lim cannot be held criminally liable. Settled it is in our jurisprudence that there can be no estafa
through negligence. At worst, she should only be held civilly liable. Accordingly, we hold her liable to pay
Vicky Suarez the full amount of the ring as actual damages plus legal interest in the amount of six percent
(6%) from the time of extrajudicial demand.

WHEREFORE, the Motion for Reconsideration is GRANTED. The decision dated February 28, 1996 is
hereby MODIFIED. Petitioner Rosa Lim is hereby ACQUITTED of any criminal liability, but is held civilly
liable in the amount of P169,000.00 as actual damages, plus legal interest, without subsidiary
imprisonment in case of insolvency.

No pronouncement as to cost.

SO ORDERED.
 157

G.R. No. 90667 November 5, 1991

REPUBLIC OF THE PHILIPPINES, petitioner,

vs.
SANDIGANBAYAN, PALM AVENUE REALTY DEVELOPMENT CORPORATION and PALM AVENUE HOLDING
COMPANY, respondents.

G.R. No. 91655 November 5, 1991

REPUBLIC OF THE PHILIPPINES, petitioner,

vs.
SANDIGANBAYAN and ROSARIO M.B. OLIVARES, respondents.

The Solicitor General for petitioner.

Cleofe B. Villar-Verzola for private respondents in G.R. No. 90667.

Lina M. Labaguis for private respondent in G.R. No. 91655.

PARAS, J.:

G.R. No. 90667 is a petition for certiorari filed by the Republic of the Philippines, which seeks to partially nullify 1) the
resolution** dated June 16, 1989 of the Sandiganbayan which: (a) ordered all the 16,237,339 Benguet Consolidated
shares, and not merely 6,737,339 thereof, as still under sequestration and in dispute, and (b) directed the impleading of
Palm Avenue Realty Development Corporation and Palm Avenue Holding Company as defendants in Civil Case No. 0035
entitled "Republic of the Philippines, plaintiff, vs. Benjamin (Kokoy) Romualdez, et al., defendants" and 2) the resolution
dated September 18, 1989 of the said court denying petitioner's motion for reconsideration.
 158

G.R. No. 91655 is a petition for certiorari with prayer for a temporary restraining order and preliminary injunction which
seeks to annul and set aside 1) the resolution*** dated October 13, 1989 of the Sandiganbayan granting Rosario M.B.
Olivares' motion for an accounting of the sequestered Philippine Journalists, Inc.'s assets and liabilities through an
auditing firm of her choice, and 2) the resolution dated December 22, 1989 of the said court denying petitioner's motion for
reconsideration.

In the resolution of February 20, 1990, the Court En Banc resolved to consolidate these cases.

In G.R. No. 90667

The antecedent facts of this case originated from the case of Palm Avenue Realty Development Corporation vs.
Presidential Commission on Good Government (Palm Avenue case, for brevity) [153 SCRA 579 (1987)]. Said facts, as set
forth by this Court in the aforementioned case, appear to be undisputed. They are quoted as follows:

The res involved consists of 16,237,339 shares of stock of Benguet Corporation (Common Class A), of which the
registered owners are the petitioners, Palm Avenue Realty Development Corporation and Palm Avenue Holding
Co., Inc. The shares had been pledged by the petitioners with three (3) institutions as security for loans obtained
from the latter, namely: Philippine Commercial and International Bank (PCIB), Philippine Commercial Capital
(PCC), and Equitable Bank.

The PCGG sequestered these shares on or about April 5, 1986. It did so, apparently on the strength of evidence
that the ostensible owners, herein petitioner corporations, were owned and controlled by a known "crony" of
former President Marcos, Benjamin Kokoy Romualdez. At that time, the loans were all past due and auction sale
of the pledged stock was imminent.

Now, Benguet Management Corporation (hereafter, simply BENGUET) wished to acquire these shares of stock
from the petitioners, intending to distribute them chiefly to the employees of Benguet Corporation and its
subsidiaries pursuant to a plan named Employees' Stock Ownership and Incentive Plan, or ESOIP. BENGUET
opened negotiations with the petitioners for the purchase of the stock. It found the petitioners to be willing sellers,
but only of so much of the stock as was needed to be sold to pay the past due loans secured, as aforesaid, by the
pledge of all said stock.

The negotiation, culminated in the execution by the parties of a Contract to Purchase and Sell dated September
1, 1986, its principal stipulations were the following:

1 BENGUET would buy as much of the petitioners' stock as needed to pay the latter's loans, estimated to be 9.5
million shares.

2. The price was fixed at P29.00 per share, expected to be realized at a "cross sale" thru Papa Securities at the
Manila or Makati Stock Exchange.

3. Additionally, (a) the written approval of the PCGG had to be obtained; (2) the purchasers were to procure the
release of all stock from the pledgee banks; and (3) if this was not done within 60 days BENGUET had the option
either to withdraw from the contract, by notice in writing, or pay interest as provided in the agreement.

Approval by the PCGG was not immediately given. In a communication dated September 23, 1986 it opined that
the price was too low, P43.00 per share being in its view the more adequate, and set down other conditions at
variance with the stipulations in the contract of purchase and sale. Both parties found the PCGG's terms quite
unacceptable.

Eventually, however, due mainly to the efforts and representations of BENGUET, PCGG gave its approval. By
letter dated October 14, 1986, signed by Commissioner Ramon Diaz, PCGG advised BENGUET that at its
meeting on that same day it had approved the Contract of Purchase and Sell dated September 1, 1986.

xxx xxx xxx

 159

On October 24, 1986, the PCGG and BENGUET drew up and signed a Memorandum of Agreement specifying the terms
and conditions under which the Contract to Purchase and Sell of September 1, 1986 would be implemented. Briefly, those
terms and conditions are as follows:

1. BENGUET would fund the acquisition cost of 9.5 million of the 16,237,339 sequestered shares at P29.00 per
share (the bulk of which would be paid to PCIB, PCC and Equitable Bank to extinguish their credits and bring
about the release of all said 16,237,339 pledged shares).

2. 3 million out of the 9.5 million shares would be sold to the employees of BENGUET and its subsidiaries in
accordance with the Employees' Ownership & Incentive Plan already referred to, supra, P29.00 per share plus
transaction costs. The rest of the purchased stock, numbering 6.5 million shares, would be warehoused, or held in
trust for PCGG by BENGUET, to be sold when and as directed by the former. When sold, the proceeds of the
"sale of these 6.5 million shares would be delivered to the PCGG minus their acquisition cost (to BENGUET) of
P29.00 per share (or P188,500,000). The rest of the 16,237,339 shares released from the pledges thereon,
numbering 6,737,339 would be held in custodia legis by the PCGG free from liens and encumbrances.

3. The sequestration would be lifted as to the 9.5 million shares subject of the sale, upon their release and
transfer to BENGUET by the pledgee banks.

4. Restoration of the status quo ante would take place in the event of a final judgment by a competent court
invalidating the sale.

Carrying out this agreement, the PCGG

1) directed the pledgees (PCIB, PCC and Equitable Bank), to deliver to Benguet Management Corporation the
certificates of stock covering the said shares respectively held by . . . (them) upon . . . receipt from Benguet
Management Corporation of the payment of . . . (their) respective loans.

2) sequestered "all assets, properties, records and documents" of both petitioner corporations, and commanded
them to "desist from doing any act, directly or indirectly, which may lead to dissipation, concealment and transfer
of the sequestered assets, properties, records and documents, and to disburse funds only to support the routine
or day-to-day operations . . . and make available all records documents . . . which may be required to achieve the
purpose" of the sequestration writ; and

3) supervised, through Commissioner Diaz, the payment by BENGUET to the pledgees of the amounts of their
credits and the release and surrender by the latter of all the pledged stock, and received the amount of
P11,781,124.84.

Alleging that the PCGG had acted without or in excess of its authority or jurisdiction, or with grave abuse of discretion,
when it approved and directed the carrying out of the Contract to Purchase and Sell of September 1, 1986, despite their
objection thereto, and despite the fact that the stock could have been sold for a much higher price, Palm Avenue Realty
Development Corporation and Palm Avenue Holding Company (PALM AVENUE COMPANIES, for brevity) filed with this
Court on November 3, 1986 the Palm Avenue case, praying that the implementation of the Contract to Purchase and Sell
of September 1, 1986 approved by the PCGG on October 14, 1986 be adjudged void ab initio.

Pending the resolution of the Palm Avenue case, or on July 31, 1987, the Solicitor General on behalf of the PCGG
representing petitioner Republic of the Philippines (PCGG, for brevity) brought an action with the Sandiganbayan against
Benjamin Romualdez, among others, for forfeiture of alleged ill-gotten wealth, including the Benguet Corporation
(Common Class A) shares (Rollo, p. 112). Said case was docketed as Civil Case No. 0035. PALM AVENUE
COMPANIES, however, were not made party defendants in said case.

This Court, in a decision dated August 31, 1987, dismissed the Palm Avenue case, and upheld the validity of the Contract
to Purchase and Sell, along with its implementing Memorandum of Agreement.

On February 8, 1989, PALM AVENUE COMPANIES filed with the respondent court a "Motion to Require PCGG to
Account for Cash Assets and to Enjoin Unnecessary Sale of Benguet Shares of Stock" (Rollo, G.R. No. 90667, p. 36).
 160

On June 20, 1989, respondent court promulgated its resolution date June 16, 1989, the dispositive portion of which reads
as follows:

WHEREFORE, premises considered, the "Motion to Require PCGG to Account for Cash Assets and to Enjoin
Unnecessary Sale of Benguet Shares of Stocks" dated February 7, 1989, and filed by Palm Avenue Realty
Development Corporation and Palm Avenue Holding Company, Inc., is hereby DENIED for lack of merit.

The plaintiff is hereby ordered to implead the said movants as defendants in the present case within 15 days from
receipt hereof. (Ibid., pp. 127-128).

In the same resolution, respondent court declared that all the 16,237,339 shares of stock of Benguet Corporation are still
under sequestration (Ibid., p. 118 and 121).

On July 10, 1989, the PCGG moved for the reconsideration of the aforesaid resolution. It argued that the ownership of 9.5
million shares is no longer in dispute. Hence, only 6,737,339 shares of stock remain under sequestration (Ibid., pp. 129
and 136). PALM AVENUE COMPANIES likewise moved for its partial reconsideration (Ibid., p. 139).

On September 21, 1989, respondent court promulgated its resolution dated September 18, 1989, the dispositive portion of
which reads as follows:

WHEREFORE, the plaintiff's Motion for Reconsideration dated July 6, 1989, and the Palm Avenue Companies'
Motion for Partial Reconsideration dated July 7, 1989, are hereby DENIED for lack of merit.

The order in the Resolution of June 16, 1989, is reiterated that the plaintiff implead the Palm Avenue Realty
Development Corporation and Palm Avenue Holding Company, Inc. as defendants in this case within fifteen (15)
days from receipt hereof. (Ibid., p. 175).

Hence, the instant petition for certiorari.

In G.R. No. 91655

The facts, as gathered from the records, are as follows:

On July 8,1988, Rosario M.B. Olivares (Olivares, for brevity), one of the defendants in Civil Case No. 0035 pending before
the respondent court, filed with the latter an "Urgent Motion to Require PCGG to Render Report and Accounting of
Management of Philippine Journalists, Inc." (Rollo, G.R. No. 91655, p. 28), to which the Solicitor General on behalf of the
PCGG representing the Republic of the Philippines filed a verified opposition (Ibid., p. 66).

On October 24, 1988, respondent court promulgated its resolution dated October 21, 1988, the dispositive portion of
which reads as follows:

WHEREFORE, the motion is hereby granted in so far as its prayer for an accounting and/or financial report on the
fiscal management of the PJI to be made by the PCGG is concerned.

The PCGG is hereby ordered to submit an accounting and/or financial report on the Phil. Journalists Inc. to this
Court, furnishing a copy thereof to defendant movant and to all the stockholders of the same within thirty (30)
days from receipt hereof. (G.R. No. 91655, pp. 87-88).

On December 1, 1988, in compliance with the foregoing resolution, the PCGG submitted to the respondent court copies of
the audited financial statements of Philippine Journalists, Inc. (PJI), for brevity) as of September 30 and December 31,
1986 as well as the audited financial statements of PJI as of December 31, 1987, both of which were prepared by
Guzman, Bocaling & Co. (Ibid., pp. 89-90).

On December 6, 1988, Olivares filed a manifestation and motion with the respondent court where she alleged that the
submission of the said financial statements does not constitute substantial compliance with the resolution dated October
21, 1988, which granted her motion for an accounting and/or financial report on the fiscal management of PJI (Ibid., p.
 161

118). Accordingly, she prayed, among others, that PCGG be ordered to make a more detailed accounting and/or financial
report on the inventory of the physical assets of the corporation, the increase in the administrative expenses of the
corporation, detailing the expenses incurred, and emoluments given, the PCGG "fiscal agents" (Ibid., p. 126).

On December 14, 1988, the PCGG filed its opposition to the said manifestation and motion. It argued that the granting of
Olivares' prayers would be tantamount to reconsideration, setting aside and modification of the final and executory
resolution dated October 21, 1988 of the respondent court, which had already been complied with by the PCGG (Ibid., p.
129).

On February 7, 1989, respondent court promulgated its resolution, the dispositive portion of which reads:

Considering the foregoing premises, taken in the light of defendant-movant's admission that she is not moving for
a reconsideration of the Resolution of October 21, 1988 but is only interested in plaintiff's full compliance with the
spirit and intent of the dispositive portion of said Resolution, and inasmuch as the allegations in the instant
"Manifestation and Motion" are couched in general terms and specific details are missing on the bases of which
the Court may take appropriate action on clear-cut and unequivocal issues, consequently, defendant-movant is
hereby given thirty (30) days from receipt hereof within which to file the proper pleading specifying the nature of
her objections and setting such incident for hearing and consideration to enable the parties concerned to present
their refutation. (Ibid., p. 139).

On March 30, 1989, Olivares filed her compliance and motion (Ibid., p. 160), to which the PCGG filed its opposition on
April 14, 1989 (Ibid., p. 192).

On October 16, 1989, respondent court promulgated its resolution dated October 13, 1989, the dispositive portion of
which reads:

WHEREFORE, premises considered, and finding merit in defendant Olivares' instant motion, accordingly, this
Court grants the prayer for an accounting of PJI's assets and liabilities. Within ten (10) days from receipt hereof,
the respondent PCGG, its officers, representatives and agents in PJI are hereby ordered to allow defendant
Olivares, through a reputable auditing firm of her choice, to inspect, examine and audit PJI's records and the
report thereon, duly certified by such firm, to be submitted to this Court within sixty (60) days from date hereof.
(Ibid., p. 208).

On November 3, 1989, the PCGG filed its motion for reconsideration of the foregoing resolution (Ibid., p. 209), to which
Olivares filed her opposition on November 28, 1989 (Ibid., p.218).

On November 6, 1989, Olivares filed a manifestation to the effect that she had already designated Carlos J. Valdez and
Company, an auditing firm, to inspect, examine and audit PJI records (Ibid., p. 216).

On December 26, 1989, respondent court promulgated its resolution dated December 11, 1989, denying PCGG's motion
for reconsideration (Ibid., p. 231).

Hence, this petition for certiorari and prohibition with prayer for temporary restraining order and preliminary injunction.

In G.R. No. 90667

PALM AVENUE COMPANIES filed their comment on December 26, 1989 (Rollo, G.R. No. 90667, p. 179), which was
considered by this Court En Banc, in a resolution dated March 15, 1990, as answer to the petition (Rollo, G.R. No. 90667,
p. 198). In the same resolution, this Court En Banc gave due course to the petition. On March 8, 1990, the PCGG filed its
reply. On March 22,1990, PALM AVENUE COMPANIES filed their memorandum (Ibid., p. 212). The PCGG, on the other
hand, adopted its petition dated October 16, 1989 and the reply to comment dated February 26, 1990 as its memorandum
(Ibid., p. 199).

In G.R. No. 91655

Olivares filed her comment to the petition on March 7, 1990 (Rollo, G.R. No. 91655, p. 242), to which the PCGG filed its
reply on May 18, 1990 (Ibid., p. 296). In a resolution dated June 28, 1990, this Court En Banc gave due course to the
 162

petition, and calendared this case for deliberation (Ibid., p. 307). Both parties did not file their respective memoranda.
Olivares manifested that the filing of the same is unnecessary under the circumstances (Ibid., p. 304). The PCGG, on the
other hand, adopted its petition dated January 12, 1990 as its memorandum.

Parenthetically, in a resolution dated January 17, 1991, this Court En Banc allowed the withdrawal of appearance of the
Solicitor General as counsel for the PCGG in G.R. No. 90667 and G.R. No. 91665, among others (Rollo, G.R. No. 91655,
p. 311). The PCGG manifested that it will handle said cases under the charge of Commissioner Maximo A. Maceren
and/or any of the following attorneys: Eliseo B. Alampay, Jr., Mario E. Ongkiko, Mario Jalandoni and such other attorneys
as it may later authorize (Rollo, G.R. No. 91655, p. 317).

In G.R. No. 90667

The main issues in this case are:

1. Whether or not respondent court committed grave abuse of discretion in declaring all the 16,237,339 and not
merely 6,737,339, Benguet Corporation shares of stock as still under sequestration and in dispute; and

2. Whether or not respondent court committed grave abuse of discretion in ordering the PCGG to implead PALM
AVENUE COMPANIES as defendants in Civil Case No. 0035.

In G.R. No. 91655

The main issue to be resolved in this case is whether or no respondent court has jurisdiction over Olivares' motion for an
accounting of the sequestered PJI's assets and liabilities through an auditing firm of her notice.

In G.R. No. 90667

The main thrust of the PCGG's petition is that when it approved the contract to purchase and sell, executed the
implementing memorandum of agreement, and acted pursuant thereto, the PCGG acted both as agent to buy the shares
for the petitioner Republic of the Philippines and as sequestrator to preserve the sequestered 16,237,339 Benguet
Corporation shares of stock by forestalling the imminent auction sale thereof in satisfaction of the past due obligations
secured by their pledge. It acted as sequestrator by maintaining the sequestration of the remaining 6,737,339 Benguet
Corporation shares released from the pledge and on the balance of the consideration received by PALM AVENUE
COMPANIES for the sale in the amount of P11,781,124.84. It acted as agent to buy the shares for the Republic by
borrowing from Benguet Management Corporation (BMC, for brevity) the sum of P275,500,000.00 and purchasing the 9.5
million Benguet Corporation shares at P29.00 a share from PALM AVENUE COMPANIES. Hence, it argued that with the
sale, PALM AVENUE COMPANIES voluntarily divested themselves of ownership over the 9.5 million Benguet
Corporation shares of stock sold (Rollo, G.R. No. 90667, pp. 23-25).

On the other hand, PALM AVENUE COMPANIES insist that the Supreme Court in Palm Avenue case allowed the
disposition of the 9.5 million Benguet shares under the Memorandum of Agreement executed between PCGG and BMC
within the context of the power of PCGG as "conservator" but never decreed that the ownership of the remaining 6.5
million shares after deducting the 3 million shares, was transferred to the government, as now government property
(Ibid., p. 228).

As earlier stated, the Contract to Purchase and Sell dated September 1, 1986 between PALM AVENUE COMPANIES and
BMC and the Memorandum of Agreement dated October 24, 1986 between the Republic of the Philippines, acting
through the PCGG, and BMC were upheld by this Court in the Palm Avenue case as valid and binding. This Court held in
said case that: "The Memorandum of Agreement of October 23 (sic), 1986 did nothing more than to recognize and provide
for the carrying out of the Contract to Purchase and Sell of September 1, 1986 which the petitioners had voluntarily
entered into. Implementation of the Memorandum was in truth substantial implementation of the contract." With this
pronouncement, the Contract to Purchase and Sell, together with its implementing Memorandum of Agreement, becomes
the law between the parties, and it is well-settled that when the words of a contract are plain and readily understandable,
there is no room for construction. As the parties' agreement has been reduced to writing, the rule applies that their
agreement is to be considered as containing all such terms and there can be between the parties and their successors-in-
interest no evidence of the terms of the agreement other than the contents of the writing (Bagadiong v. Vda. de Abundo,
165 SCRA 459 [1988]; Dihiansan v. Court of Appeals, 153 SCRA 712 [1987]).
 163

The Contract to Purchase and Sell paved the way for BMC to purchase the 9.5 million shares in question from PALM
AVENUE COMPANIES, subject to the terms and conditions of the said implementing Memorandum of Agreement. The
PCGG, in turn, in order to insure the effectivity of the sale to BMC, lifted in the Memorandum of Agreement the
sequestration order over the shares in question (Rollo, G.R. No. 90667, p. 63). The legal effect of the lifting was to allow
the disposition of the shares by PALM AVENUE COMPANIES in accordance with the Memorandum of Agreement and
thereby removed any legal impediment to the sale or transfer of title thereto which would have otherwise resulted from the
sequestration. Thus, the plain fact is that PALM AVENUE COMPANIES, having sold the shares in question and received
valuable consideration therefor consisting of the fun payment of their indebtedness to the creditor banks and the
P11,781,124.84 turned over to the PCGG, voluntarily divested themselves of ownership over the 9.5 million shares sold.

Moreover, paragraph 3 of the Memorandum of Agreement commands BMC to hold 6.5 million of the shares in question in
trust for the benefit of the Republic and shall dispose of the same only in the manner and at such price as PCGG may
direct from time to time (Ibid., p. 62). If indeed the shares were considered sequestered, there would be a doubt as to
whether the PCGG could, upon its own determination, order the sale of the shares. As stressed by this Court in the case
of Bataan Shipyard & Engineering Co., Inc. v. Presidential Commission on Good Government(150 SCRA 181 [1987]), "the
PCGG cannot exercise acts of dominion over property sequestered, frozen or provisionally taken over, . . . the act of
sequestration, freezing or provisional takeover of property does not import or bring about a divestment of title over said
property, does not make the PCGG the owner thereof. In relation to the property sequestered, frozen or provisionally
taken over, the PCGG is a conservator, not an owner. Therefore, it cannot perform acts of strict ownership, and this is
specially true in the situations contemplated by the sequestration rules where, unlike cases of receivership, for example,
no court exercises effective supervision or can, upon due application and hearing, grant authority for the performance of
acts of dominion." In the Palm Avenue case,however, this Court upheld the authority of the PCGG to order the sale of the
6.5 million Benguet shares of stock in accordance with the provisions of the Memorandum of Agreement. Undoubtedly,
this can only be done if the shares are not sequestered assets.

In the same paragraph, the Republic is made answerable to BMC for losses or claims which may arise from BMC's sale of
the shares upon instruction of the PCGG. That the risk of loss with respect to the shares is to be borne by the PCGG is
again inconsistent with the proposition that the shares are still under sequestration.

Under the foregoing circumstances, there is no question that, in declaring all the 16,237,339 Benguet shares of stock as
still under sequestration and in dispute, respondent court committed grave abuse of discretion.

Anent the second issue, it is the contention of the PCGG that while PALM AVENUE COMPANIES are still parties-in-
interest insofar as the ownership over the remaining 6,737,339 Benguet shares is concerned, PCGG's complaint in Civil
Case No. 0035 has pierced their corporate veil and has considered Benjamin (Kokoy) Romualdez and his co-defendants
as their true or real owners (Rollo, G.R. No. 90667, pp. 28-29).

PALM AVENUE COMPANIES' thesis, however, is that they cannot be deprived of their legal personality in the
aforementioned case inasmuch as they appear on record as the registered owners of the shares of stock involved in the
case at bar. (Ibid., pp. 238-239).

Section 2, Rule 3 of the Revised Rules of Court mandates that "every action must be prosecuted and defended in the
name of the real party in interest."

In the case of Samahan ng mga Mangungupahan sa Azcarraga Textile Market, Inc., et al. vs. Court of Appeals (165
SCRA 598 [1988]), this Court defined the real party-in-interest as "the party who stands to be benefited or injured by the
judgment or the party entitled to the avails of the suit. "Interest" within the meaning of the rule means material interest, an
interest in issue and to be affected by the decree, as distinguished from mere interest in the question involved, or a mere
incidental interest."

In the case at bar, while it is true that PALM AVENUE COMPANIES have already voluntarily divested themselves of the
ownership over the 9.5 million shares, the fact remains, as admitted by the PCGG itself, that dispute still subsists on the
P11,781,124.84 balance of the consideration for the sale of the 9.5 million shares and on the remaining 6,737,339
Benguet shares redeemed from the pledge, both of which are in custodia legis by the PCGG. Thus, PALM AVENUE
COMPANIES are real parties-in-interest in Civil Case No. 0035 pending before the respondent court because they still
appear to be the registered owners of the said remaining shares. That Benjamin (Kokoy) Romualdez is considered as
their true or real owner is just a claim that still has to be proved in court. Accordingly, respondent court did not commit
 164

grave abuse of discretion in ordering PCGG to implead PALM AVENUE COMPANIES as defendants in Civil Case No.
0035.

In G.R. No. 91655

It is the contention of the PCGG that the accounting of the sequestered PJI's assets and liabilities through an auditing firm
of Olivares' choice is not an incident of Civil Case No. 0035 pending before the respondent court. Since the purpose of the
accounting and/or auditing is to verify whether "there had been mismanagement and wanton dissipation of assets of PJI"
by the PCGG Fiscal Agents assigned to it, this matter is obviously incidental to the administrative power of supervision
and control of the PCGG over its fiscal agents and nominees in the PJI (Rollo, G.R. No. 91655, p. 160). Hence, PCGG
argues that respondent court is bereft of jurisdiction over Olivares' motion for an accounting of the sequestered PJI's
assets and liabilities through an auditing firm of her choice.

On the other hand, Olivares argued that as respondent court is the agency tasked with the determination of who the
actual owner of sequestered assets is, it has the obligation and responsibility to see to it that such sequestered assets are
conserved and not dissipated (Ibid., p. 267), and the accounting and auditing prayed for by Olivares and granted by
respondent court are aimed at preserving assets thus sequestered and at seeing to it that they are in their original
condition when respondent court eventually determine the ownership over these assets (Ibid., p. 268). Olivares, therefore,
insisted that the questioned motion lies within the exclusive jurisdiction of the respondent court as an incident to the
principal action, i.e., Civil Case No. 0035.

The rule laid down in PCGG v. Pea (159 SCRA 556 [1988] and reiterated in the very recent case of Republic v.
Sandiganbayan, G.R. No. 88809, July 10, 1991, and its accompanying case, cannot be any clearer, thus:

Under Section 2 of the President's Executive Order No. 14 issued on May 7, 1987, all cases of the Commission
regarding "the Funds, Moneys, Assets, and Properties Illegally Acquired or Misappropriated by Former President
Ferdinand Marcos, Mrs. Imelda Romualdez Marcos, their close Relatives, Subordinates, Business Associates,
Dummies, Agents, or Nominees," whether civil or criminal, are lodged within the exclusive and original jurisdiction
of the Sandiganbayan and all incidents arising from, incidental to, or related to, such cases necessarily fall
likewise under the Sandiganbayan's exclusive and original jurisdiction subject to review on certiorari exclusively
by the Supreme Court. (Emphasis supplied)

Evidently, the exclusive jurisdiction conferred on the Sandiganbayan extends not only to the principal causes of action but
also to all incidents arising from, incidental to, or related to, such cases, which may not be made the subject of separate
action or proceeding in another forum (Soriano III v. Yuzon, 164 SCRA 226 [1988]).

In the case at bar, respondent court ordered the accounting and auditing of the sequestered assets of PJI "to insure that
no hanky-panky or dubious financial deals have been entered into which might have resulted in dissipation of corporate
assets" (Rollo, G.R. No. 91655, p. 208). This is borne by the fact that Olivares' allegations with respect to
mismanagement of PJI and wanton dissipation of its assets have not been frontally met, much less denied, by the PCGG
(Ibid., p. 206). As the assets of PJI are merely under sequestration and have not as yet been judicially declared as "ill-
gotten wealth", sufficient safeguards should be adopted to prevent them from being unduly dissipated, especially when
facts and circumstances are brought out, as in the case at bar, which reflect a prima facie showing of wanton or reckless
dissipation thereof (Ibid., p. 207). Inasmuch as these assets are now the object of an action before the Sandiganbayan,
hence in custodia legis, it logically follows that the matter of preserving them for the benefit of the party that may finally be
adjudged to be the owner thereof is the prerogative of the said court as an incident to its primary responsibility of
determining whether or not these assets fall under the category of "ill-gotten wealth." Accordingly, when it ordered that an
accounting and audit be conducted on the assets and liabilities of PJI as prayed for by Olivares, respondent court was
merely exercising said prerogative, which in no way can be considered as tantamount to grave abuse of discretion.

Anent the allegation of the PCGG that Olivares' failure to submit her motion first to the PCGG and then to the President of
the Philippines, if still not satisfied, signifies her lack of cause of action (Ibid., p. 22), respondent court correctly observed:

Finally, plaintiff appears to have failed to comprehend the true nature of the doctrines of the primary
administrative jurisdiction and exhaustion of administrative remedies as explained in PCGG vs.
Pea, supra.Therefrom, it can quite readily be seen that said doctrines refer to that particular stage of
sequestration proceedings where a writ of sequestration has been issued against a particular individual or firm but
before the proper judicial action have (sic) been filed in Court, in accordance with Section 26 of the Transitory
 165

Provisions of the 1987 Constitution. In the instant case, it cannot be denied that the issues raised in the basic
motion of defendant Olivares are not addressed to the lifting of the writ of sequestration nor does it question the
nature or existence of prima facie evidence to justify the issuance of such writ but are based on the admitted fact
that since the proper judicial action has already been filed and pending before this Court, any and all incidents
relating thereto and over which this Court has, admittedly, jurisdiction to inquire into, should be threshed out
before it and not thru any administrative proceeding. Otherwise, after the proper judicial action had been filed, this
Court would find itself to have abdicated its prerogatives and jurisdiction in favor of the respondent Commission.
(Ibid., pp. 233-234).

PREMISES CONSIDERED, (1) In G.R. No. 90667: (a) the resolutions of June 16, 1989 and of September 18, 1989 of
respondent court, declaring all the 16,237,339 and not merely 6,737,339 Benguet Corporation shares of stock as still
under sequestration are partially NULLIFIED and (b) the order of respondent court directing the impleading of PALM
AVENUE COMPANIES as defendants in Civil Case No. 0035 is AFFIRMED; and (2) in G.R. No. 91655, the petition is
DISMISSED and the resolutions of respondent court dated October 13, 1989 and December 22, 1989 are AFFIRMED.

SO ORDERED.
 166

G.R. No. 125531 February 12, 1997

JOVAN LAND, petitioner,

vs.
COURT OF APPEALS and EUGENIO QUESADA INC., respondents.

HERMOSISIMA, JR., J.:

This is a petition for review on certiorari to reverse and set aside the decision of the Court of Appeals in C.A.-G.R. CV No.
47515.

Petitioner Jovan Land, Inc. is a corporation engaged in the real estate business. Its President and Chairman of the Board
of Directors is one Joseph Sy.

Private respondent Eugenio Quesada is the owner of the Q Building located on an 801 sq. m. lot at the corner of
Mayhaligue Street and Rizal Avenue, Sta. Cruz, Manila. The property is covered by TCT No. 77796 of the Registry of
Deeds of Manila.

Petitioner learned from co-petitioner Consolacion P. Mendoza that private respondent was selling the aforesaid
Mayhaligue property. Thus, petitioner through Joseph Sy made a written offer, dated July 27, 1987 for P10.25 million. This
first offer was not accepted by Conrado Quesada, the General Manager of private respondent. Joseph Sy sent a second
written offer dated July 31, 1989 for the same price but inclusive of an undertaking to pay the documentary stamp tax,
transfer tax, registration fees and notarial charges. Check No. 247048, dated July 31, 1989, for one million pesos drawn
against the Philippine Commercial and Industrial Bank (PCIB) was enclosed therewith as earnest money. This second
offer, with earnest money, was again rejected by Conrado Quesada. Undaunted, Joseph Sy, on August 10, 1989, sent a
third written offer for twelve million pesos with a similar check for one million pesos as earnest money. Annotated on this
third letter-offer was the phrase "Received original, 9-4-89" beside which appears the signature of Conrado Quesada.

On the basis of this annotation which petitioner insists is the proof that there already exists a valid, perfected agreement to
sell the Mayhaligue property, petitioner filed with the trial court, a complaint for specific performance and collection of sum
of money with damages. However, the trial court held that:

. . . the business encounters between Joseph Sy and Conrado Quesada had not passed the negotiation
stage relating to the intended sale by the defendant corporation of the property in question. . . . As the
court finds, there is nothing in the record to point that a contract was ever perfected. In fact, there is
nothing in writing which is indispensably necessary in order that the perfected contract could be enforced
under the Statute of Frauds.1

Since the trial court dismissed petitioner's complaint for lack of cause of action, petitioner appealed 2 to respondent Court
of Appeals before which it assigned the following errors:

1. The Court a quo failed to appreciate that there was already a perfected contract of sale between Jovan
Land, Inc. and the private respondent];
 167

2. The Court a quo erred in its conclusion that there was no implied acceptance of the offer by appellants
to appellee [private respondent];

3. The Court a quo was in error where it concluded that the contract of sale was unenforceable;

4. The Court a quo failed to rule that appellant [petitioner] Mendoza is entitled to her broker's
commission.3

Respondent court placed petitioner to task on their assignment of errors and concluded that not any of them justifies a
reversal of the trial court decision.

We agree.

In the case of Ang Yu Asuncion v. Court of Appeals,4 we held that:

. . . [A] contract (Art. 1157, Civil Code), . . . is a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to render some service. . . . A contract
undergoes various stages that include its negotiation or preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time the prospective contracting parties indicate
interest in the contract to the time the contract is concluded . . . . The perfection of the contract takes
place upon the concurrence of the essential elements thereof.

Moreover, it is a fundamental principle that before contract of sale can be valid, the following elements must be
present, viz: (a) consent or meeting of the minds; (b) determinate subject matter; (3) price certain in money or its
equivalent. Until the contract of sale is perfected, it cannot, as an independent source of obligation, serve as a binding
juridical relation between the parties.

In the case at bench, petitioner, anchors its main argument on the annotation on its third letter-offer of the phrase
"Received original, 9-4-89," beside which appears the signature of Conrado Quesada. It also contends that the said
annotation is evidence to show that there was already a perfected agreement to sell as respondent can be said to have
accepted petitioner's payment in the form of a check which was enclosed in the third letter.

However, as correctly elucidated by the Court of Appeals:

Sy insisted in his testimony that this offer of P12M was accepted by Conrado Quesada but there is
nothing written or documentary to show that such offer was accepted by Conrado Quesada. While Sy
claimed that the acceptance could be gleaned from the notation in the third written offer, the court is not
impressed thereon however because the notation merely states as follows: "Received Original, (S)
Conrado Quesada" and below this signature is "9-4-89". As explained by Conrado Quesada in his
testimony what was received by him was the original of the written offer.

The court cannot believe that this notation marked as Exhibit D-2 would signify the acceptance of the
offer. Neither does it signify, as Sy had testified that the check was duly received on said date. If this were
true Sy, who appears to be an intelligent businessman could have easily asked Conrado Quesada to
indicate on Exhibit D the alleged fact of acceptance of said check. And better still, Sy could have asked
Quesada the acceptance in writing separate of the written offer if indeed there was an agreement as to
the price of the proposed sale of the property in question. 5

Clearly then, a punctilious examination of the receipt reveals that the same can neither be regarded as a contract of sale
nor a promise to sell. Such an annotation by Conrado Quesada amounts to neither a written nor an implied acceptance of
the offer of Joseph Sy. It is merely a memorandum of the receipt by the former of the latter's offer. The requisites of a valid
contract of sale are lacking in said receipt and therefore the "sale" is neither valid nor enforceable.

Although there was a series of communications through letter-offers and rejections as evident from the facts of this case,
still it is undeniable that no written agreement was reached between petitioner and private respondent with regard to the
sale of the realty. Hence, the alleged transaction is unenforceable as the requirements under the Statute of Frauds have
 168

not been complied with. Under the said provision, an agreement for the sale of real property or of an interest therein, to be
enforceable, must be in writing and subscribed by the party charged or by an agent thereof.

Petitioner also asseverates that the failure of Conrado Quesada to return the check for one million pesos, translates to
implied acceptance of its third letter-offer. It, however, does not rebut the finding of the trial court that private respondent
was returning the check but petitioner refused to accept the same and that when Conrado Quesada subsequently sent it
back to petitioner through registered mail, the latter failed to claim its mail from the post office.

Finally, we fittingly apply here the oft-repeated doctrine that the factual findings of the trial court, especially as regards the
credibility of witnesses, are conclusive upon this court, unless the case falls under the jurisprudentially established
exceptions. But this is a case that tenders no exceptional circumstance; rather, we find the observations of the trial court
to be legally sound and valid:

. . . Joseph Sy's testimony is not impressive because of several inconsistencies herein pointed out. On
the matter of earnest money, the same appears to be the idea solely of the [petitioner], assuming that he
had intended to bind the [petitioner] corporation. In the written second offer . . . he had stated that the
check of P1M had been enclosed (attached) therewith. The same check . . . was again mentioned to be
enclosed (attached) in the third written offer under date August 10, 1989 . . . . Sy testified in his direct
examination that he had personally given this check to Conrado Quesada. But on cross examination, he
reversed himself by saying that the check was given thru his [co-petitioner] Mendoza. Examining the third
written offer, it appears that when it was first typewritten, this P11M was noted to have been corrected,
and that as per his testimony, Sy had increased it to P12M. This is the reason according to Sy why there
was a superimposition of the number "12" over the number "11" to mean P12M as the revised
consideration for the sale of the property in question. 6

Respondent court thus concluded that:

. . . [since] the matter of evaluation of the credibility of witness[es] is addressed to the trial court and
unless clearly contrary to the records before Us, the findings of the said court are entitled to great
respondent on appeal, . . . it was Joseph Sy's idea to offer the earnest money, and the evidence to show
that Joseph Sy accepted the same, is wanting. . . .7

and accordingly affirmed the trial court judgment appealed from.

As shown elucidated above, we agree with the findings and conclusions of the trial court and the respondent court.
Neither has petitioner posited any new issues in the instant petition that warrant the further exercise by this court of its
review powers.

WHEREFORE, premises considered, this petition is DENIED.

Costs against petitioner.

Padilla, Bellosillo, Vitug and Kapunan, JJ., concur.

169
 170

G.R. No. 165879 November 10, 2006

MARIA B. CHING, Petitioner,

vs.
JOSEPH C. GOYANKO, JR., EVELYN GOYANKO, JERRY GOYANKO, IMELDA GOYANKO, JULIUS GOYANKO,
MARY ELLEN GOYANKO AND JESS GOYANKO, Respondents.

DECISION

CARPIO MORALES, J.:

On December 30, 1947, Joseph Goyanko (Goyanko) and Epifania dela Cruz (Epifania) were married. 1 Out of the union
were born respondents Joseph, Jr., Evelyn, Jerry, Imelda, Julius, Mary Ellen and Jess, all surnamed Goyanko.

Respondents claim that in 1961, their parents acquired a 661 square meter property located at 29 F. Cabahug St., Cebu
City but that as they (the parents) were Chinese citizens at the time, the property was registered in the name of their aunt,
Sulpicia Ventura (Sulpicia).

On May 1, 1993, Sulpicia executed a deed of sale2 over the property in favor of respondents father Goyanko. In turn,
Goyanko executed on October 12, 1993 a deed of sale 3 over the property in favor of his common-law-wife-herein
petitioner Maria B. Ching. Transfer Certificate of Title (TCT) No. 138405 was thus issued in petitioners name.

After Goyankos death on March 11, 1996, respondents discovered that ownership of the property had already been
transferred in the name of petitioner. Respondents thereupon had the purported signature of their father in the deed of
sale verified by the Philippine National Police Crime Laboratory which found the same to be a forgery. 4

Respondents thus filed with the Regional Trial Court of Cebu City a complaint for recovery of property and damages
against petitioner, praying for the nullification of the deed of sale and of TCT No. 138405 and the issuance of a new one in
favor of their father Goyanko.

In defense, petitioner claimed that she is the actual owner of the property as it was she who provided its purchase price.
To disprove that Goyankos signature in the questioned deed of sale is a forgery, she presented as witness the notary
public who testified that Goyanko appeared and signed the document in his presence.

By Decision of October 16, 1998,5 the trial court dismissed the complaint against petitioner, the pertinent portions of which
decision read:

There is no valid and sufficient ground to declare the sale as null and void, fictitious and simulated. The signature on the
questioned Deed of Sale is genuine. The testimony of Atty. Salvador Barrameda who declared in court that Joseph
Goyanko, Sr. and Maria Ching together with their witnesses appeared before him for notarization of Deed of Sale in
question is more reliable than the conflicting testimonies of the two document examiners. Defendant Maria Ching asserted
that the Deed of Sale executed by Joseph Goyanko, Sr. in her favor is valid and genuine. The signature of Joseph
Goyanko, Sr. in the questioned Deed of Absolute Sale is genuine as it was duly executed and signed by Joseph Goyanko,
Sr. himself.

The parcel of lands known as Lot No. 6 which is sought to be recovered in this case could never be considered as the
conjugal property of the original Spouses Joseph C. Goyanko and Epifania dela Cruz or the exclusive capital property of
the husband. The acquisition of the said property by defendant Maria Ching is well-elicited from the aforementioned
testimonial and documentary evidence presented by the defendant. Although for a time being the property passed through
Joseph Goyanko, Sr. as a buyer yet his ownership was only temporary and transitory for the reason that it was
subsequently sold to herein defendant Maria Ching. Maria Ching claimed that it was even her money which was used by
 171

Joseph Goyanko, Sr. in the purchase of the land and so it was eventually sold to her. In her testimony, defendant Ching
justified her financial capability to buy the land for herself. The transaction undertaken was from the original owner
Sulpicia Ventura to Joseph Goyanko, Sr. and then from Joesph Goyanko, Sr. to herein defendant Maria Ching.

The land subject of the litigation is already registered in the name of defendant Maria Ching under TCT No. 138405. By
virtue of the Deed of Sale executed in favor of Maria Ching, Transfer Certificate of Title No. 138405 was issued in her
favor. In recognition of the proverbial virtuality of a Torrens title, it has been repeatedly held that, unless bad faith can be
established on the part of the person appearing as owner on the certificate of title, there is no other owner than that in
whose favor it has been issued. A Torrens title is not subject to collateral attack. It is a well-known doctrine that a Torrens
title, as a rule, is irrevocable and indefeasible, and the duty of the court is to see to it that this title is maintained and
respected unless challenged in a direct proceedings [sic].6 (Citations omitted; underscoring supplied)

Before the Court of Appeals where respondents appealed, they argued that the trial court erred:

1. . . . when it dismissed the complaint a quo . . . , in effect, sustaining the sale of the subject property between
Joseph, Sr. and the defendant-appellee, despite the proliferation in the records and admissions by both parties
that defendant-appellee was the "mistress" or "common-law wife" of Joseph, Sr..

2. . . . when it dismissed the complaint a quo . . . , in effect, sustaining the sale of the subject property between
Joseph, Sr. and the defendant-appellee, despite the fact that the marriage of Joseph, Sr. and Epifania was then
still subsisting thereby rendering the subject property as conjugal property of Joseph, Sr. and Epifania.

3. . . . in dismissing the complaint a quo . . . , in effect, sustaining the validity of the sale of the subject property
between Joseph, Sr. and the defendant-appellee, despite the clear findings of forgery and the non-credible
testimony of notary public.7

By Decision dated October 21, 2003,8 the appellate court reversed that of the trial court and declared null and void the
questioned deed of sale and TCT No. 138405. Held the appellate court:

. . . The subject property having been acquired during the existence of a valid marriage between Joseph Sr. and Epifania
dela Cruz-Goyanko, is presumed to belong to the conjugal partnership. Moreover, while this presumption in favor of
conjugality is rebuttable with clear and convincing proof to the contrary, we find no evidence on record to conclude
otherwise. The record shows that while Joseph Sr. and his wife Epifania have been estranged for years and that he and
defendant-appellant Maria Ching, have in fact been living together as common-law husband and wife, there has never
been a judicial decree declaring the dissolution of his marriage to Epifania nor their conjugal partnership. It is therefore
undeniable that the 661-square meter property located at No. 29 F. Cabahug Street, Cebu City belongs to the conjugal
partnership.

Even if we were to assume that the subject property was not conjugal, still we cannot sustain the validity of the sale of the
property by Joseph, Sr. to defendant-appellant Maria Ching, there being overwhelming evidence on records that they
have been living together as common-law husband and wife. On this score, Art. 1352 of the Civil Code provides:

"Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it is
contrary to law, morals, good customs, public order or public policy."

We therefore find that the contract of sale in favor of the defendant-appellant Maria Ching was null and void for being
contrary to morals and public policy. The purported sale, having been made by Joseph Sr. in favor of his concubine,
undermines the stability of the family, a basic social institution which public policy vigilantly protects. Furthermore, the law
emphatically prohibits spouses from selling property to each other, subject to certain exceptions. And this is so because
transfers or conveyances between spouses, if allowed during the marriage would destroy the system of conjugal
partnership, a basic policy in civil law. The prohibition was designed to prevent the exercise of undue influence by one
spouse over the other and is likewise applicable even to common-law relationships otherwise, "the condition of those who
incurred guilt would turn out to be better than those in legal union.9 (Underscoring supplied)

Hence, the present petition, petitioners arguing that the appellate court gravely erred in:

I.
 172

. . . APPLYING THE STATE POLICY ON PROHIBITION AGAINST CONVEYANCES AND TRANSFERS OF

PROPERTIES BETWEEN LEGITIMATE AND COMMON LAW SPOUSES ON THE SUBJECT PROPERTY, THE
SAME BEING FOUND BY THE COURT A QUO, AS THE EXCLUSIVE PROPERTY OF PETITIONER, AND
THAT THE SAME WAS NEVER PART OF THE CONJUGAL PROPERTY OF THE MARRIAGE BETWEEN
RESPONDENTS MOTHER EPIFANIA GOYANKO AND PETITIONERS COMMON LAW HUSBAND, JOSEPH
GOYANKO, SR., NOR THE EXCLUSIVE OR CAPITAL PROPERTY OF THE LATTER AT ANYTIME BEFORE
THE SAME WAS VALIDLY ACQUIRED BY PETITIONER.

II.

. . . NOT FINDING THAT A JURIDICAL RELATION OF TRUST AS PROVIDED FOR UNDER ARTICLES 1448
AND 1450 OF THE NEW CIVIL CODE CAN VALIDLY EXIST BETWEEN COMMON LAW SPOUSES.

III.

. . . NOT FINDING THAT A CONVEYANCE OVER A PROPERTY MADE BY A TRUSTEE, WHO BECAME AS
SUCH IN CONTEMPLATION OF LAW, AND WHO HAPPENS TO BE A COMMON LAW HUSBAND OF THE
BENEFICIARY, IS NOT A VIOLATION OF A STATE POLICY ON PROHIBITION AGAINST CONVEYANCES
AND TRANSFERS OF PROPERTIES BETWEEN LEGITIMATE AND COMMON LAW SPOUSES.

IV.

. . . ALLOWING RESPONDENTS TO ABANDON THEIR ORIGINAL THEORY OF THEIR CASE DURING

APPEAL.10

The pertinent provisions of the Civil Code which apply to the present case read:

ART. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is
contrary to law, morals, good customs, public order or public policy.

ART. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;

(2) Those which are absolutely simulated or fictitious;

(3) Those whose cause or object did not exist at the time of the transaction;

(4) Those whose object is outside the commerce of men;

(5) Those which contemplate an impossible service;

(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;

(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

ARTICLE 1490. The husband and wife cannot sell property to each other, except:

(1) When a separation of property was agreed upon in the marriage settlements; or

(2) When there has been a judicial separation of property under Article 191. (Underscoring supplied)
 173

The proscription against sale of property between spouses applies even to common law relationships. So this Court ruled
in Calimlim-Canullas v. Hon. Fortun, etc., et al.:11

Anent the second issue, we find that the contract of sale was null and void for being contrary to morals and public
policy. The sale was made by a husband in favor of a concubine after he had abandoned his family and left the
conjugal home where his wife and children lived and from whence they derived their support. The sale was
subversive of the stability of the family, a basic social institution which public policy cherishes and protects.

Article 1409 of the Civil Code states inter alia that: contracts whose cause, object, or purposes is contrary to law, morals,
good customs, public order, or public policy are void and inexistent from the very beginning.

Article 1352 also provides that: "Contracts without cause, or with unlawful cause, produce no effect whatsoever. The
cause is unlawful if it is contrary to law, morals, good customs, public order, or public policy."

Additionally, the law emphatically prohibits the spouses from selling property to each other subject to certain
exceptions.1wphi1 Similarly, donations between spouses during marriage are prohibited. And this is so because
if transfers or conveyances between spouses were allowed during marriage, that would destroy the system of conjugal
partnership, a basic policy in civil law. It was also designed to prevent the exercise of undue influence by one spouse over
the other, as well as to protect the institution of marriage, which is the cornerstone of family law. The prohibitions apply
to a couple living as husband and wife without benefit of marriage, otherwise, "the condition of those who
incurred guilt would turn out to be better than those in legal union." Those provisions are dictated by public interest
and their criterion must be imposed upon the will of the parties. . . . 12 (Italics in the original; emphasis and underscoring
supplied)

As the conveyance in question was made by Goyangko in favor of his common- law-wife-herein petitioner, it was null and
void.

Petitioners argument that a trust relationship was created between Goyanko as trustee and her as beneficiary as
provided in Articles 1448 and 1450 of the Civil Code which read:

ARTICLE 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is
paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter
is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one
paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child.

ARTICLE 1450. If the price of a sale of property is loaned or paid by one person for the benefit of another and the
conveyance is made to the lender or payor to secure the payment of the debt, a trust arises by operation of law in favor of
the person to whom the money is loaned or for whom it is paid. The latter may redeem the property and compel a
conveyance thereof to him.

does not persuade.

For petitioners testimony that it was she who provided the purchase price is uncorroborated. That she may have been
considered the breadwinner of the family and that there was proof that she earned a living do not conclusively clinch her
claim.

As to the change of theory by respondents from forgery of their fathers signature in the deed of sale to sale contrary to
public policy, it too does not persuade. Generally, a party in a litigation is not permitted to freely and substantially change
the theory of his case so as not to put the other party to undue disadvantage by not accurately and timely apprising him of
what he is up against,13 and to ensure that the latter is given the opportunity during trial to refute all allegations against
him by presenting evidence to the contrary. In the present case, petitioner cannot be said to have been put to undue
disadvantage and to have been denied the chance to refute all the allegations against her. For the nullification of the sale
is anchored on its illegality per se, it being violative of the above-cited Articles 1352, 1409 and 1490 of the Civil Code.

WHEREFORE, the petition is DENIED for lack of merit.

Costs against petitioner.

 174

SO ORDERED
 175

G.R. No. 165889 September 20, 2005

SACOBIA HILLS DEVELOPMENT CORPORATION and JAIME C. KOA, Petitioners,

vs.
ALLAN U. TY, Respondent.

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari1 assails the August 19, 2004 decision of the Court of Appeals in CA-G.R. CV No.
76987,2 which reversed and set aside the November 29, 2002 decision 3 of the Regional Trial Court of Manila, Branch 46,
and its October 28, 2004 resolution4 denying reconsideration thereof.

The antecedent facts show that petitioner Sacobia Hills Development Corporation (Sacobia) is the developer of True
North Golf and Country Club (True North) located inside the Clark Special Economic Zone in Pampanga which boasts of
amenities that include a golf course, clubhouse, sports complex and several vacation villas.

On February 12, 1997, respondent Allan U. Ty wrote to Sacobia a letter expressing his intention to acquire one (1) Class
A share of True North and accordingly paid the reservation fee of P180,000.00 as evidenced by PCI Bank Check No.
0038053.5

Through letters dated May 28, 1997 and July 4, 1997, Sacobia assured its shareholders that the development of True
North was proceeding on schedule; that the golf course would be playable by October 1999; that the Environmental
Clearance Certificate (ECC) by the Department of Environment and Natural Resources (DENR) as well as the Permit to
Sell from the Securities and Exchange Commission (SEC) should have been released by October 1997; and that their
registration deposits remained intact in an escrow account.6

On September 1, 1997, Sacobia approved the purchase application and membership of respondent for P600,000.00,
subject to certain terms and conditions. The notice of approval provided, inter alia:7

Terms and Conditions

1. Approval of an application to purchase golf/country club shares is subjected to the full payment of the total purchase
price. Should the buyer opt for the deferred payment scheme, approval is subject to our receipt of a down payment of at
least 30% and the balance payable in installments over a maximum of eleven (11) months from the date of application,
and covered by postdated cheques.

2. Your reserved share shall be considered withdrawn and may be deemed cancelled should you fail to settle your
obligation within fifteen (15) days from due date, or failure to cover the value of the postdated cheques upon their maturity,
or your failure to issue the required postdated cheques. In which case, we shall reserve the right to offer the said shares
to other interested parties. This also means forfeiture of 50% of the total amount you have already paid.
 176

3. We will undertake to execute the corresponding sales documents/ Deed of Absolute Sale covering the reserved shares
upon full payment of the total purchase price. The Certificate of Membership shall be issued thereafter.

...

However, on January 12, 1998, respondent notified Sacobia that he is rescinding the contract and sought refund of the
payments already made due to the latters failure to complete the project on time as represented.

In an effort to assure the respondent that the project would soon be operational, Sacobia wrote him a letter dated March
10, 1998, stating that the DENR had issued the required ECC only on March 5, 1998, and that the golf course would be
ready for use by end of 1998.8

On April 3, 1998, Sacobia again wrote the respondent advising him that the 18-hole golf course would be fully operational
by summer of 1999. Sacobia also sought to collect from respondent the latters outstanding balance of P190,909.08 which
was covered by five (5) post dated checks.

Notwithstanding, respondent notified Sacobia on April 17, 1998 that he had stopped payment on the five (5) post dated
checks and reiterated his demand for the refund of his payments which amounted to P409,090.92.

On June 16, 1999, respondent sent Sacobia a letter formally rescinding the contract and demanding for the refund of the
P409,090.92 thus far paid by him.

By way of reply, Sacobia informed respondent that it had a no-refund policy, and that it had endorsed respondent to
Century Properties, Inc. for assistance on the resale of his share to third persons.

Thus, on July 21, 1999, respondent filed a complaint for rescission and damages before the SEC but the case was
eventually transferred to the Regional Trial Court of Manila, Branch 46, pursuant to Administrative Circular AM No. 00-11-
03.9

On April 13, 2002, the trial court personnel conducted an on-site ocular inspection and in their report, they made the
following observations:

... We went up and down the hills on board the golf cart, and have seen the entire golf course. The 9 holes area are
already operational and playable, we have seen the tee bank (mount soil) color coded flags, blue for regular golfers, white
for senior golfers and red for ladies golfers. We have seen all their playing areas which all appeared in order except the
main clubhouse which is undergoing finishing touches. Likewise the road leading to the clubhouse area is undergoing
pavement works and concreting.

We learned from our tour guide Mr. Gerry Zoleta, Site Supervisor, that the timetable in finishing all remaining things (eg.
Clubhouse and the road leading to it) to be done, are influenced or rather, hampered by the prevailing weather condition.
Such that when it rain, (which often happens in the area during afternoon or early morning) they cannot really push thru
with the construction due to the soil condition (easily eroded) and sloping terrain of the place. Except, the clubhouse, all
seem prim and proper for golf playing. In fact, according to Mr. Zoleta, the site has been operational since January 2002.
The first tournament was conducted on October 2000 and there were three tournaments already took place in the area.

...

In summary, we found nothing amiss for one not to be able to play and enjoy golf to the fullest, except as earlier said the
clubhouse.10

On November 29, 2002, the trial court rendered judgment in favor of petitioners, the decretal portion of which reads:

WHEREFORE, the complaint is hereby dismissed without pronouncement as to costs.

 177

If the plaintiff desires to continue with the acquisition of the share, he may do so by paying the balance of the acquisition
price of One Hundred Ninety Thousand Ninety Pesos and Ten Centavos (P190,090.10) without interest within thirty (30)
days from the finality of this decision, otherwise, he forfeits his payments.

IT IS SO ORDERED.11

The trial court found that the contract between the parties did not warrant that the golf course and clubhouse would be
completed within a certain period of time to entitle respondent to rescind. It also noted that the completion of the project
was subject to the issuance of an ECC and the approval by the SEC of the registration of non-proprietary golf club shares,
which is beyond Sacobias control.

The appellate court, in its decision dated August 19, 2004, disposed of the appeal as follows:

WHEREFORE, the appealed November 29, 2002 decision of the Regional Trial Court of Manila, Branch 46, is hereby
REVERSED and SET ASIDE, and a new one is hereby entered with this Court hereby CONFIRMING the RESCISSION of
the contract of purchase of one (1) Class A proprietary share of True North Golf and Country Club as elected choice by
plaintiff-appellant Ty, the aggrieved party, and hereby DIRECTING defendant-appellee SACOBIA to:

1) Refund to the plaintiff-appellant Allan U. Ty the amount of P409,090.20 and all payments made by him thus far on the
TRUE NORTH share, with legal interest of 12% per annum from July 21, 1999, the date of the filing of the complaint with
the SEC, until fully paid;

2) Return the five post-dated checks of the plaintiff-appellant amounting to P190,908.08;

3) Pay costs of the suit.

SO ORDERED.12

The Court of Appeals agreed with the trial court that Sacobia was in delay in the performance of its obligation to
respondent. As such, Ty could properly rescind the contract, or demand specific performance with damages, or demand
for damages alone. It held though that the failure of the DENR to issue the ECC on time is a valid ground to reduce the
damages claimed by Ty. It also ruled that Sacobia is estopped from asserting that there was no completion date for the
project as no less than its chairman announced the projected completion dates.

Petitioners motion for reconsideration was denied, hence the instant petition for review on certiorari which raises the
issue of whether the contract entered into by the parties may be validly rescinded under Article 1191 of the Civil Code.

Sacobia contends that it was not in breach of the contract as the Intent to Purchase, the Contract of Purchase, and the
Notice of Approval to Purchase Shares of True North, do not contain any specific date as to when the golf course and
country club would be completed. It argues that respondent should have known the risks involved in this kind of project;
the construction being contingent on the issuance of the ECC by the DENR and the payment of the buyers of their share.

On the other hand, respondent claims that Sacobias arguments raise new matters which would warrant the reversal of
the decision rendered by the Court of Appeals. He insists that Sacobia failed to complete the project on time which entitles
him to rescind the contract in accordance with Article 1191 of the Civil Code. He further argues that the delay in the
completion of the project is clearly established by the fact that there have been no substantial work done on the site,
particularly on the clubhouse, despite the lapse of nearly 4-years from the issuance of the ECC on March 5, 1998.

The petition is meritorious.

In resolving the present controversy, the lower courts merely assumed that the delay in the completion of the golf course
was the decisive factor in determining the propriety or impropriety of rescinding the contract. Yet, confusion could have
been avoided had there been a more thorough scrutiny of the nature of the contract entered into by the contending
parties.

In the notice of approval, which embodies the terms and conditions of the agreement, Sacobia signified its intent to retain
the ownership of the property until such time that the respondent has fully paid the purchase price. This condition
 178

precedent is characteristic of a contract to sell. The intention of the contracting parties is inferable from the following
provisions, to wit:

TERMS AND CONDITIONS

1. Approval of an application to purchase golf/country club shares is subjected to the full payment of the total
purchase price. Should the buyer opt for the deferred payment scheme, approval is subject to our receipt of a down
payment of at least 30% and the balance payable in installments over a maximum of eleven (11) months from the date of
application, and covered by postdated cheques.

2. Your reserved share shall be considered withdrawn and may be deemed cancelled should you fail to settle
your obligation within fifteen (15) days from due date, or failure to cover the value of the postdated cheques upon
their maturity, or your failure to issue the required postdated cheques. In which case, we shall reserve the right to
offer the said shares to other interested parties. This also means forfeiture of 50% of the total amount you have already
paid.

3. We shall undertake to execute the corresponding sales documents/Deed of Absolute Sale covering the
reserved shares upon full payment of the total purchase price. The Certificate of Membership shall be issued
thereafter.

Clearly, the approval of the application hinged on the full payment of the total purchase price. In fact, Sacobia explicitly
reserved the right to retain title over the share pending full satisfaction of the purchase price.

The notice of approval likewise stipulated that the reservation shall be deemed withdrawn or cancelled in case respondent
fails to settle his obligation within 15 days from the due date or cover the value of the checks upon their maturity. Thus,
Sacobia reserved the right to unilaterally rescind the contract in the event the respondent fails to comply with his
obligation of remitting the full purchase price within the deadline. In fact, Sacobia, after having cancelled the agreement,
can offer the share to other interested parties.

In addition, the execution of the deed of absolute sale and other pertinent documents shall be made only upon full
payment of the purchase price. The terms of the agreement between Sacobia and Ty can be deduced, not on a formal
document like a deed of sale, but from a series of correspondence and acts signifying the parties intention to enter into a
contract. The absence of a formal deed of conveyance is a strong indication that Sacobia did not intend to transfer title
until respondent shall have completely complied with his correlative obligation of paying the contact price.

Since the agreement between Sacobia and Ty is a contract to sell, the full payment of the purchase price partakes of a
suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and ownership is retained by
the seller without further remedies by the buyer. In Cheng v. Genato,13 we explained the nature of a contract to sell and its
legal implications in this wise:

In a Contract to Sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a
breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an
obligatory force. It is one where the happening of the event gives rise to an obligation. Thus, for its non-fulfillment there
will be no contract to speak of, the obligor having failed to perform the suspensive condition which enforces a juridical
relation. In fact with this circumstance, there can be no rescission of an obligation that is still non-existent, the suspensive
condition not having occurred as yet. Emphasis should be made that the breach contemplated in Article 1191 of the New
Civil Code is the obligors failure to comply with an obligation already extant, not a failure of a condition to render binding
that obligation.

In a contract to sell, the prospective seller does not consent to transfer ownership of the property to the buyer until the
happening of an event, which for present purposes, is the full payment of the purchase price. What the seller agrees or
obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is
delivered to him. Upon the fulfillment of the suspensive condition, ownership will not automatically transfer to the buyer
although the property may have been previously delivered to him. The prospective seller still has to convey title to the
prospective buyer by entering into a contract of absolute sale.14
 179

According to True North Payment Schedule, 15 respondents checks dated from October 12, 1997 until January 12, 1998
were marked as stale. His failure to cover the value of the checks and by issuing a stop payment order effectively abated
the perfection of the contract. For it is understood that when a sale is made subject to a suspensive condition, perfection
is had only from the moment the condition is fulfilled.16

As shown, Ty did not pay the full purchase price which is his obligation under the contract to sell, therefore, it cannot be
said that Sacobia breached its obligation. No obligations arose on its part because respondents non-fulfillment of the
suspensive condition rendered the contract to sell ineffective and unperfected. Indeed, there can be no rescission under
Article 119117 of the Civil Code because until the happening of the condition, i.e. full payment of the contract price,
Sacobias obligation to deliver the title and object of the sale is not yet extant. A non-existent obligation cannot be subject
of rescission. Article 1191 speaks of obligations already existing, which may be rescinded in case one of the obligors fails
to comply with what is incumbent upon him.

As earlier discussed, the payment by Ty of the reservation fee as well as the issuance of the postdated checks is subject
to the condition that Sacobia was reserving title until full payment, which is the essence of a contract to sell. The
perfection of this kind of contract would give rise to two distinct obligations, namely, 1) the buyers obligation to fulfill the
suspensive condition, i.e. the full payment of the contract price as in the instant case, and, 2) the correlative obligation of
the seller to convey ownership upon compliance of the suspensive condition.

In the present case, respondents failure to fulfill this suspensive condition prevented the perfection of the contract to sell.
With an ineffective contract, Ty had not acquired the status of a shareholder but remained, at most, a prospective
investor. In the absence of a juridical tie between the parties, Ty cannot claim the rights and privileges accorded to
Sacobias full-fledged members and shareowners, including the full enjoyment of the amenities being offered.
Unfortunately for Ty, he cannot avail of rescission as envisioned by Article 1191 of the Civil Code. However, he can
withdraw his investment subject to the restrictions under the terms and conditions pertinent to a reneging investor.

Even assuming arguendo that the delay in the completion of the golf course and clubhouse was attributable to Sacobia,
respondent had not refuted to this Courts satisfaction the trial courts denial of such claim upon its finding that, among
other things, the parties did not warrant the completion of the project within a certain period of time.

As early as January 12, 1998, respondent had notified Sacobia of his intention to rescind the contract on the ground that
there was unreasonable delay in the completion of the golf course and clubhouse. Yet, evidence shows that even prior
thereto, or on May 28, 1997, Sacobia already informed its investors, including the respondent, that the full completion of
the project was expected by mid-1999. Patently, respondents claim is premature by one year and a half, if reckoned from
the expected time of completion as foreseen by Sacobia. Moreover, respondent was well aware of the risk of delay in the
completion of the project considering that he was apprised beforehand of such delay due to the belated issuance of the
proper documents.

It appears, however, that Sacobia is not really intent on cancelling Tys reservation. Even after it was notified by Ty that he
was intending to rescind the contract, and had in fact issued a stop-payment order, Sacobia merely deferred the deposit
of Tys checks in an effort to resolve the issue, instead of cancelling the reservation in accordance with the terms of the
notice of approval. Subsequently, it sought to collect from Ty his remaining obligations. It also referred Ty to its marketing
arm if Ty is so minded to sell his rights to third parties. To this extent, the trial court correctly ordered Ty to pay the
remaining balance if he so desires, otherwise, he forfeits half of his payments, pursuant to the terms of the notice of
approval.

WHEREFORE, the petition is GRANTED. The decision dated August 19, 2004 of the Court of Appeals in CA-G.R. CV No.
76987 and its resolution dated October 28, 2004, are REVERSED and SET ASIDE. Respondents complaint for
rescission of contract and damages in Civil Case No. 01-99696 is DISMISSED. He is ORDERED to PAY to Sacobia Hills
Development Corporation the amount of Pesos: One Hundred Ninety Thousand Nine Hundred Nine and Eight Centavos
(P190,909.08) without interest within thirty (30) days from finality of this decision; otherwise, fifty percent (50%) of his total
payments shall be forfeited.

SO ORDERED.

CONSUELO YNARES-SANTIAGO

Associate Justice
 180

G.R. No. 200602 December 11, 2013

ACE FOODS, INC., Petitioner,

vs.
MICRO PACIFIC TECHNOLOGIES CO., LTD.1, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari2are the Decision3 dated October 21, 2011 and Resolution4 dated February
8, 2012 of the Court of Appeals (CA) in CA-G.R. CV No. 89426 which reversed and set aside the Decision5 dated
February 28, 2007 of the Regional Trial Court of Makati, Branch 148 (RTC) in Civil Case No. 02-1248, holding petitioner
ACE Foods, Inc. (ACE Foods) liable to respondent Micro Pacific Technologies Co., Ltd. (MTCL) for the payment of Cisco
Routers and Frame Relay Products (subject products) amounting to 646,464.00 pursuant to a perfected contract of sale.

The Facts

ACE Foods is a domestic corporation engaged in the trading and distribution of consumer goods in wholesale and retail
bases,6 while MTCL is one engaged in the supply of computer hardware and equipment. 7

On September 26, 2001, MTCL sent a letter-proposal8 for the delivery and sale of the subject products to be installed at
various offices of ACE Foods. Aside from the itemization of the products offered for sale, the said proposal further
provides for the following terms, viz.:9

TERMS : Thirty (30) days upon delivery

VALIDITY : Prices are based on current dollar rate and subject to changes without prior notice.

DELIVERY : Immediate delivery for items on stock, otherwise thirty (30) to forty-five days upon receipt of [Purchase
Order]

WARRANTY : One (1) year on parts and services. Accessories not included in warranty.

On October 29, 2001, ACE Foods accepted MTCLs proposal and accordingly issued Purchase Order No.
10002310(Purchase Order) for the subject products amounting to 646,464.00 (purchase price). Thereafter, or on March
4, 2002, MTCL delivered the said products to ACE Foods as reflected in Invoice No. 7733 11 (Invoice Receipt). The fine
print of the invoice states, inter alia, that "[t]itle to sold property is reserved in MICROPACIFIC TECHNOLOGIES CO.,
LTD. until full compliance of the terms and conditions of above and payment of the price" 12 (title reservation stipulation).
After delivery, the subject products were then installed and configured in ACE Foodss premises. MTCLs demands
against ACE Foods to pay the purchase price, however, remained unheeded. 13 Instead of paying the purchase price, ACE
Foods sent MTCL a Letter14 dated September 19, 2002, stating that it "ha[s] been returning the [subject products] to
 181

[MTCL] thru [its] sales representative Mr. Mark Anteola who has agreed to pull out the said [products] but had failed to do
so up to now."

Eventually, or on October 16, 2002, ACE Foods lodged a Complaint 15 against MTCL before the RTC, praying that the
latter pull out from its premises the subject products since MTCL breached its "after delivery services" obligations to it,
particularly, to: (a) install and configure the subject products; (b) submit a cost benefit study to justify the purchase of the
subject products; and (c) train ACE Foodss technicians on how to use and maintain the subject products. 16 ACE Foods
likewise claimed that the subject products MTCL delivered are defective and not working. 17

For its part, MTCL, in its Answer with Counterclaim,18 maintained that it had duly complied with its obligations to ACE
Foods and that the subject products were in good working condition when they were delivered, installed and configured in
ACE Foodss premises. Thereafter, MTCL even conducted a training course for ACE Foodss representatives/employees;
MTCL, however, alleged that there was actually no agreement as to the purported "after delivery services." Further, MTCL
posited that ACE Foods refused and failed to pay the purchase price for the subject products despite the latters use of
the same for a period of nine (9) months. As such, MTCL prayed that ACE Foods be compelled to pay the purchase price,
as well as damages related to the transaction.19

The RTC Ruling

On February 28, 2007, the RTC rendered a Decision, 20 directing MTCL to remove the subject products from ACE Foodss
premises and pay actual damages and attorney fees in the amounts of 200,000.00 and 100,000.00, respectively.21

At the outset, it observed that the agreement between ACE Foods and MTCL is in the nature of a contract to sell. Its
conclusion was based on the fine print of the Invoice Receipt which expressly indicated that "title to sold property is
reserved in MICROPACIFIC TECHNOLOGIES CO., LTD. until full compliance of the terms and conditions of above and
payment of the price," noting further that in a contract to sell, the prospective seller explicitly reserves the transfer of title to
the prospective buyer, and said transfer is conditioned upon the full payment of the purchase price. 22 Thus,
notwithstanding the execution of the Purchase Order and the delivery and installation of the subject products at the offices
of ACE Foods, by express stipulation stated in the Invoice Receipt issued by MTCL and signed by ACE Foods, i.e., the
title reservation stipulation, it is still the former who holds title to the products until full payment of the purchase price
therefor. In this relation, it noted that the full payment of the price is a positive suspensive condition, the non-payment of
which prevents the obligation to sell on the part of the seller/vendor from materializing at all. 23 Since title remained with
MTCL, the RTC therefore directed it to withdraw the subject products from ACE Foodss premises. Also, in view of the
foregoing, the RTC found it unnecessary to delve into the allegations of breach since the non-happening of the aforesaid
suspensive condition ipso jure prevented the obligation to sell from arising.24

Dissatisfied, MTCL elevated the matter on appeal.25

The CA Ruling

In a Decision26 dated October 21, 2011, the CA reversed and set aside the RTCs ruling, ordering ACE Foods to pay
MTCL the amount of 646,464.00, plus legal interest at the rate of 6% per annum to be computed from April 4, 2002, and
attorneys fees amounting to 50,000.00.27

It found that the agreement between the parties is in the nature of a contract of sale, observing that the said contract had
been perfected from the time ACE Foods sent the Purchase Order to MTCL which, in turn, delivered the subject products
covered by the Invoice Receipt and subsequently installed and configured them in ACE Foodss premises. 28 Thus,
considering that MTCL had already complied with its obligation, ACE Foodss corresponding obligation arose and was
then duty bound to pay the agreed purchase price within thirty (30) days from March 5, 2002. 29 In this light, the CA
concluded that it was erroneous for ACE Foods not to pay the purchase price therefor, despite its receipt of the subject
products, because its refusal to pay disregards the very essence of reciprocity in a contract of sale. 30 The CA also
dismissed ACE Foodss claim regarding MTCLs failure to perform its "after delivery services" obligations since the letter-
proposal, Purchase Order and Invoice Receipt do not reflect any agreement to that effect.31

Aggrieved, ACE Foods moved for reconsideration which was, however, denied in a Resolution 32 dated February 8, 2012,
hence, this petition.
 182

The Issue Before the Court

The essential issue in this case is whether ACE Foods should pay MTCL the purchase price for the subject products.

The Courts Ruling

The petition lacks merit.

A contract is what the law defines it to be, taking into consideration its essential elements, and not what the contracting
parties call it.33 The real nature of a contract may be determined from the express terms of the written agreement and
from the contemporaneous and subsequent acts of the contracting parties. However, in the construction or interpretation
of an instrument, the intention of the parties is primordial and is to be pursued. The denomination or title given by the
parties in their contract is not conclusive of the nature of its contents. 34

The very essence of a contract of sale is the transfer of ownership in exchange for a price paid or promised. 35This
may be gleaned from Article 1458 of the Civil Code which defines a contract of sale as follows:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a
determinate thing, and the other to pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional. (Emphasis supplied)

Corollary thereto, a contract of sale is classified as a consensual contract, which means that the sale is perfected by
mere consent. No particular form is required for its validity. Upon perfection of the contract, the parties may reciprocally
demand performance, i.e., the vendee may compel transfer of ownership of the object of the sale, and the vendor may
require the vendee to pay the thing sold.36

In contrast, a contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving
the ownership of the property despite delivery thereof to the prospective buyer, binds himself to sell the property
exclusively to the prospective buyer upon fulfillment of the condition agreed upon, i.e., the full payment of the purchase
price. A contract to sell may not even be considered as a conditional contract of sale where the seller may likewise
reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional
contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent
event which may or may not occur.37

In this case, the Court concurs with the CA that the parties have agreed to a contract of sale and not to a contract to sell
as adjudged by the RTC. Bearing in mind its consensual nature, a contract of sale had been perfected at the precise
moment ACE Foods, as evinced by its act of sending MTCL the Purchase Order, accepted the latters proposal to sell the
subject products in consideration of the purchase price of 646,464.00. From that point in time, the reciprocal obligations
of the parties i.e., on the one hand, of MTCL to deliver the said products to ACE Foods, and, on the other hand, of ACE
Foods to pay the purchase price therefor within thirty (30) days from delivery already arose and consequently may be
demanded. Article 1475 of the Civil Code makes this clear:

Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of
the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the
form of contracts.

At this juncture, the Court must dispel the notion that the stipulation anent MTCLs reservation of ownership of the subject
products as reflected in the Invoice Receipt, i.e., the title reservation stipulation, changed the complexion of the
transaction from a contract of sale into a contract to sell. Records are bereft of any showing that the said stipulation
novated the contract of sale between the parties which, to repeat, already existed at the precise moment ACE Foods
accepted MTCLs proposal. To be sure, novation, in its broad concept, may either be extinctive or modificatory. It is
extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is
merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement.
 183

In either case, however, novation is never presumed, and the animus novandi, whether totally or partially, must appear by
express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken.38

In the present case, it has not been shown that the title reservation stipulation appearing in the Invoice Receipt had been
included or had subsequently modified or superseded the original agreement of the parties. The fact that the Invoice
Receipt was signed by a representative of ACE Foods does not, by and of itself, prove animus novandi since: (a) it was
not shown that the signatory was authorized by ACE Foods (the actual party to the transaction) to novate the original
agreement; (b) the signature only proves that the Invoice Receipt was received by a representative of ACE Foods to show
the fact of delivery; and (c) as matter of judicial notice, invoices are generally issued at the consummation stage of the
contract and not its perfection, and have been even treated as documents which are not actionable per se, although they
may prove sufficient delivery. 39 Thus, absent any clear indication that the title reservation stipulation was actually agreed
upon, the Court must deem the same to be a mere unilateral imposition on the part of MTCL which has no effect on the
nature of the parties original agreement as a contract of sale. Perforce, the obligations arising thereto, among others,
ACE Foodss obligation to pay the purchase price as well as to accept the delivery of the goods,40 remain
enforceable and subsisting.1wphi1

As a final point, it may not be amiss to state that the return of the subject products pursuant to a rescissory action41is
neither warranted by ACE Foodss claims of breach either with respect to MTCLs breach of its purported "after delivery
services" obligations or the defective condition of the products - since such claims were not adequately proven in this
case. The rule is clear: each party must prove his own affirmative allegation; one who asserts the affirmative of the issue
has the burden of presenting at the trial such amount of evidence required by law to obtain a favorable judgment, which in
civil cases, is by preponderance of evidence. 42 This, however, ACE Foods failed to observe as regards its allegations of
breach. Hence, the same cannot be sustained.

WHEREFORE, the petition is DENIED. Accordingly, the Decision dated October 21, 2011 and Resolution dated February
8, 2012 of the Court of Appeals in CA-G.R. CV No. 89426 are hereby AFFIRMED.

SO ORDERED.

G.R. No. 193517 January 15, 2014

 184

THE HEIRS OF VICTORINO SARILI, NAMELY: ISABEL A. SARILI,* MELENCIA** S. MAXIMO, ALBERTO A. SARILI,
IMELDA S. HIDALGO, all herein represented by CELSO A. SARILI, Petitioners,
vs.
PEDRO F. LAGROSA, represented in this act by his Attorney-in-Fact LOURDES LABIOS MOJICA,Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on Certiorari1 are the Decision2 dated May 20, 2010 and Resolution3 dated August 26,
2010 of the Court of Appeals (CA) in CA-G.R. CV No. 76258 which: (a) set aside the Decision4 dated May 27, 2002 of the
Regional Trial Court of Caloocan City, Branch 131 (RTC) in Civil Case No. C-19152; (b) cancelled Transfer Certificate of
Title (TCT) No. 2622185 in the name of Victorino Sarili (Victorino) married to Isabel Amparo (Sps. Sarili); (c) reinstated
TCT No. 559796 in the name of respondent Pedro F. Lagrosa (respondent); and (d) awarded respondent moral damages,
attorneys fees and litigation expenses.

The Facts

On February 17, 2000, respondent, represented by his attorney-in-fact Lourdes Labios Mojica (Lourdes) via a special
power of attorney dated November 25, 19997 (November 25, 1999 SPA), filed a complaint 8 against Sps. Sarili and the
Register of Deeds of Caloocan City (RD) before the RTC, alleging, among others, that he is the owner of a certain parcel
of land situated in Caloocan City covered by TCT No. 55979 (subject property) and has been religiously paying the real
estate taxes therefor since its acquisition on November 29, 1974. Respondent claimed that he is a resident of California,
USA, and that during his vacation in the Philippines, he discovered that a new certificate of title to the subject property
was issued by the RD in the name of Victorino married to Isabel Amparo (Isabel), i.e., TCT No. 262218, by virtue of a
falsified Deed of Absolute Sale9 dated February 16, 1978 (February 16, 1978 deed of sale) purportedly executed by him
and his wife, Amelia U. Lagrosa (Amelia). He averred that the falsification of the said deed of sale was a result of the
fraudulent, illegal, and malicious acts committed by Sps. Sarili and the RD in order to acquire the subject property and, as
such, prayed for the annulment of TCT No. 262218, and that Sps. Sarili deliver to him the possession of the subject
property, or, in the alternative, that Sps. Sarili and the RD jointly and severally pay him the amount of 1,000,000.00,
including moral damages as well as attorneys fees.10

In their answer,11 Sps. Sarili maintained that they are innocent purchasers for value, having purchased the subject
property from Ramon B. Rodriguez (Ramon), who possessed and presented a Special Power of Attorney 12 (subject SPA)
to sell/dispose of the same, and, in such capacity, executed a Deed of Absolute Sale 13 dated November 20, 1992
(November 20, 1992 deed of sale) conveying the said property in their favor. In this relation, they denied any participation
in the preparation of the February 16, 1978 deed of sale, which may have been merely devised by the "fixer" they hired to
facilitate the issuance of the title in their names. 14 Further, they interposed a counterclaim for moral and exemplary
damages, as well as attorneys fees, for the filing of the baseless suit. 15

During the pendency of the proceedings, Victorino passed away16 and was substituted by his heirs, herein petitioners.17

The RTC Ruling

On May 27, 2002, the RTC rendered a Decision 18 finding respondents signature on the subject SPA as "the same and
exact replica"19 of his signature in the November 25, 1999 SPA in favor of Lourdes. 20 Thus, with Ramons authority having
been established, it declared the November 20, 1992 deed of sale 21 executed by the latter as "valid, genuine, lawful and
binding"22 and, as such, had validly conveyed the subject property in favor of Sps. Sarili. It further found that respondent
"acted with evident bad faith and malice" and was, therefore, held liable for moral and exemplary damages. 23 Aggrieved,
respondent appealed to the CA.

The CA Ruling

In a Decision24 dated May 20, 2010, the CA granted respondents appeal and held that the RTC erred in its ruling since
the November 20, 1992 deed of sale, which the RTC found "as valid and genuine," was not the source document for the
transfer of the subject property and the issuance of TCT No. 262218 in the name of Sps. Sarili 25but rather the February
16, 1978 deed of sale, the fact of which may be gleaned from the Affidavit of Late Registration 26 executed by Isabel
 185

(affidavit of Isabel). Further, it found that respondent w as "not only able to preponderate his claim over the subject
property, but [has] likewise proved that his and his wifes signatures in the [February 16, 1978 deed of sale] x x x were
forged."27 "[A] comparison by the naked eye of the genuine signature of [respondent] found in his [November 25, 1999
SPA] in favor of [Lourdes], and those of his falsified signatures in [the February 16, 1978 deed of sale] and [the subject
SPA] shows that they are not similar."28 It also observed that "[t]he testimony of [respondent] denying the authenticity of
his purported signature with respect to the [February 16, 1978 deed of sale] was not rebutted x x x." 29 In fine, the CA
declared the deeds of sale dated February 16, 1978 and November 20, 1992, as well as the subject SPA as void, and
consequently ordered the RD to cancel TCT No. 262218 in the name of Victorino married to Isabel, and consequently
reinstate TCT No. 55979 in respondents name. Respondents claims for moral damages and attorneys fees/litigation
expenses were also granted by the CA.30

Dissatisfied, petitioners moved for reconsideration which was, however, denied in a Resolution31 dated August 26, 2010,
hence, the instant petition.

The Issues Before the Court

The main issue in this case is whether or not there was a valid conveyance of the subject property to Sps. Sarili. The
resolution of said issue would then determine, among others, whether or not: (a) TCT No. 262218 in the name of Victorino
married to Isabel should be annulled; and (b) TCT No. 55979 in respondents name should be reinstated.

The Courts Ruling

The petition lacks merit.

Petitioners essentially argue that regardless of the fictitious February 16, 1978 deed of sale, there was still a valid
conveyance of the subject property to Sps. Sarili who relied on the authority of Ramos (as per the subject SPA) to sell the
same. They posit that the due execution of the subject SPA between respondent and Ramon and, subsequently, the
November 20, 1992 deed of sale between Victorino and Ramon were duly established facts and that from the authenticity
and genuineness of these documents, a valid conveyance of the subject land from respondent to Victorino had leaned
upon.32

The Court is not persuaded.

It is well-settled that even if the procurement of a certificate of title was tainted with fraud and misrepresentation, such
defective title may be the source of a completely legal and valid title in the hands of an innocent purchaser for value.
Where innocent third persons, relying on the correctness of the certificate of title thus issued, acquire rights over the
property, the court cannot disregard such rights and order the total cancellation of the certificate. The effect of such an
outright cancellation would be to impair public confidence in the certificate of title, for everyone dealing with property
registered under the Torrens system would have to inquire in every instance whether the title has been regularly or
irregularly issued. This is contrary to the evident purpose of the law. 33

The general rule is that every person dealing with registered land may safely rely on the correctness of the certificate of
title issued therefor and the law will in no way oblige him to go beyond the certificate to determine the condition of the
property. Where there is nothing in the certificate of title to indicate any cloud or vice in the ownership of the property, or
any encumbrance thereon, the purchaser is not required to explore further than what the Torrens Title upon its face
indicates in quest for any hidden defects or inchoate right that may subsequently defeat his right thereto.34

However, a higher degree of prudence is required from one who buys from a person who is not the registered owner,
although the land object of the transaction is registered. In such a case, the buyer is expected to examine not only the
certificate of title but all factual circumstances necessary for him to determine if there are any flaws in the title of the
transferor.35 The buyer also has the duty to ascertain the identity of the person with whom he is dealing with and the
latters legal authority to convey the property.36

The strength of the buyers inquiry on the sellers capacity or legal authority to sell depends on the proof of capacity of the
seller. If the proof of capacity consists of a special power of attorney duly notarized, mere inspection of the face of such
public document already constitutes sufficient inquiry. If no such special power of attorney is provided or there is one but
 186

there appears to be flaws in its notarial acknowledgment, mere inspection of the document will not do; the buyer must
show that his investigation went beyond the document and into the circumstances of its execution. 37

In the present case, it is undisputed that Sps. Sarili purchased the subject property from Ramos on the strength of the
latters ostensible authority to sell under the subject SPA. The said document, however, readily indicates flaws in its
notarial acknowledgment since the respondents community tax certificate (CTC) number was not indicated thereon.
Under the governing rule on notarial acknowledgments at that time, 38 i.e., Section 163(a) of Republic Act No. 7160,
otherwise known as the "Local Government Code of 1991," when an individual subject to the community tax
acknowledges any document before a notary public, it shall be the duty of the administering officer to require such
individual to exhibit the community tax certificate.39 Despite this irregularity, however, Sps. Sarili failed to show that they
conducted an investigation beyond the subject SPA and into the circumstances of its execution as required by prevailing
jurisprudence. Hence, Sps. Sarili cannot be considered as innocent purchasers for value.

The defective notarization of the subject SPA also means that the said document should be treated as a private document
and thus examined under the parameters of Section 20, Rule 132 of the Rules of Court which provides that "before any
private document offered as authentic is received in evidence, its due execution and authenticity must be proved either:
(a) by anyone who saw the document executed or written; or (b) by evidence of the genuineness of the signature or
handwriting of the maker x x x." Settled is the rule that a defective notarization will strip the document of its public
character and reduce it to a private instrument, and the evidentiary standard of its validity shall be based on
preponderance of evidence.40

The due execution and authenticity of the subject SPA are of great significance in determining the validity of the sale
entered into by Victorino and Ramon since the latter only claims to be the agent of the purported seller (i.e., respondent).
Article 1874 of the Civil Code provides that "[w]hen a sale of a piece of land or any interest therein is through an agent,
the authority of the latter shall be in writing; otherwise, the sale shall be void." In other words, if the subject SPA was not
proven to be duly executed and authentic, then it cannot be said that the foregoing requirement had been complied with;
hence, the sale would be void.

After a judicious review of the case, taking into consideration the divergent findings of the RTC and the CA on the
matter,41 the Court holds that the due execution and authenticity of the subject SPA were not sufficiently established
under Section 20, Rule 132 of the Rules of Court as above-cited.

While Ramon identified the signature of respondent on the subject SPA based on his alleged familiarity with the latters
signature,42 he, however, stated no basis for his identification of the signatures of respondents wife Amelia and the
witness, Evangeline F. Murral,43 and even failed to identify the other witness,44 who were also signatories to the said
document. In other words, no evidence was presented to authenticate the signatures of the other signatories of the
subject SPA outside from respondent. 45

Besides, as the CA correctly observed, respondents signature appearing on the subject SPA is not similar46 to his
genuine signature appearing in the November 25, 1999 SPA in favor of Lourdes, 47 especially the signature appearing on
the left margin of the first page.48

Unrebutted too is the testimony of respondent who, during trial, attested to the fact that he and his wife, Amelia, had
immigrated to the USA since 1968 and therefore could not have signed the subject SPA due to their absence. 49

Further, records show that the notary public, Atty. Ramon S. Untalan, failed to justify why he did not require the
presentation of respondents CTC or any other competent proof of the identity of the person who appeared before him to
acknowledge the subject SPA as respondents free and voluntary act and deed despite the fact that he did not personally
know the latter and that he met him for the first time during the notarization. 50 He merely relied on the representations of
the person before him 51 and the bank officer who accompanied the latter to his office,52 and further explained that the
reason for the omission of the CTC was "because in [a] prior document, [respondent] has probably given us already his
residence certificate."53 This "prior document," was not, however, presented during the proceedings below, nor the CTC
number ever identified.

Thus, in light of the totality of evidence at hand, the Court agrees with the CAs conclusion that respondent was able to
preponderate his claims of forgery against the subject SPA.54 In view of its invalidity, the November 20, 1992 sale relied
on by Sps. Sarili to prove their title to the subject property is therefore void.1wphi1
 187

At this juncture, it is well to note that it was, in fact, the February 16, 1978 deed of sale which as the CA found was
actually the source of the issuance of TCT No. 262218. Nonetheless, this document was admitted to be also a
forgery.55 Since Sps. Sarilis claim over the subject property is based on forged documents, no valid title had been
transferred to them (and, in turn, to petitioners). Verily, when the instrument presented is forged, even if accompanied by
the owners duplicate certificate of title, the registered owner does not thereby lose his title, and neither does the assignee
in the forged deed acquire any right or title to the property.56 Accordingly, TCT No. 262218 in the name of Victorino
married to Isabel should be annulled, while TCT No. 55979 in the name of respondent should be reinstated.

Anent the award of moral damages, suffice it to say that the dispute over the subject property had caused respondent
serious anxiety, mental anguish and sleepless nights, thereby justifying the aforesaid award. 57 Likewise, since respondent
was constrained to engage the services of counsel to file this suit and defend his interests, the awards of attorneys fees
and litigation expenses are also sustained.58

The Court, however, finds a need to remand the case to the court a quo in order to determine the rights and obligations of
the parties with respect to the house Sps. Sarili had built 59 on the subject property in bad faith in accordance with Article
449 in relation to Articles 450, 451, 452, and the first paragraph of Article 546 of the Civil Code which respectively read as
follows:

ART. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without
right to indemnity.

ART. 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the
demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition at the
expense of the person who built, planted or sowed; or he may compel the builder or planter to pay the price of the land,
and the sower the proper rent.

ART. 451. In the cases of the two preceding articles, the landowner is entitled to damages from the builder, planter or
sower.

ART. 452. The builder, planter or sower in bad faith is entitled to reimbursement for the necessary expenses of
preservation of the land.

xxxx

ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the
thing until he has been reimbursed therefor. (Emphases and underscoring supplied)

xxxx

To be deemed a builder in good faith, it is essential that a person asserts title to the land on which he builds, i.e. , that he
be a possessor in concept of owner, and that he be unaware that there exists in his title or mode of acquisition any flaw
which invalidates it.60 Good faith is an intangible and abstract quality with no technical meaning or statutory definition, and
it encompasses, among other things, an honest belief, the absence of malice and the absence of design to defraud or to
seek an unconscionable advantage. It implies honesty of intention, and freedom from knowledge of circumstances which
ought to put the holder upon inquiry.61 As for Sps. Sarili, they knew or at the very least, should have known from the
very beginning that they were dealing with a person who possibly had no authority to sell the subject property considering
the palpable irregularity in the subject SPAs acknowledgment. Yet, relying solely on said document and without any
further investigation on Ramoss capacity to sell Sps. Sarili still chose to proceed with its purchase and even built a house
thereon. Based on the foregoing it cannot be seriously doubted that Sps. Sarili were actually aware of a flaw or defect in
their title or mode of acquisition and have consequently built the house on the subject property in bad faith under legal
contemplation. The case is therefore remanded to the court a quo for the proper application of the above-cited Civil Code
provisions.

WHEREFORE, the petition is DENIED. The Decision dated May 20, 2010 and Resolution dated August 26, 2010 of the
Court of Appeals in CA-G.R. CV No. 76258 are AFFIRMED. However the case is REMANDED to the court a quo for the
proper application of Article 449 in relation to Articles 450 451 452 and the first paragraph of Article 546 of the Civil Code
 188

with respect to the house Spouses Victorino Sarili and Isabel Amparo had built on the subject property as herein
discussed.

SO ORDERED.
 189

G.R. No. 208462 December 10, 2014

SPOUSES CARLOS J. SUNTAY and ROSARIO R. SUNTAY, Petitioners,

vs.
KEYSER MERCANTILE, INC., Respondent.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari seeking to reverse and set aside the September 7, 2012 Decision 1 and the
August 8, 2013 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 94677, entitled Keyser Mercantile, Inc., v.
Spouses Carlos and Rosario Suntay" involving the ownership of Unit G and two (2) parking slots in Bayfront's Tmver
Condominium.

The Facts

On October 20, 1989, Eugenia Gocolay, chairperson and president of respondent Keyser Mercantile, Inc. (Keyser),
entered into a contract to sell with Bayfront Development Corporation (Baxfront) for the purchase on installment basis of a
condominium unit in Bayfront Tower Condominium located at A. Mabini Street, Malate, Manila. The subject of the sale
was Unit G of the said condominium project consisting of 163.59 square meters with the privilege to use two (2) parking
slots covered by Condominium Certificate of Title (CCT)No. 15802. This Contract to Sell 3 was not registered with the
Register of Deeds ofManila. Thus, the subject unit remained in the name of Bayfront with a clean title.

On July 7, 1990, petitioner spouses Carlos and Rosario Suntay (Spouses Suntay) also purchased several condominium
units on the 4th floor of Bayfront Tower Condominium through another contract to sell. Despite payment of the full
purchase price, however, Bayfront failed to deliver the condominium units. When Bayfront failed to reimburse the full
purchase price, Spouses Suntay filed an action against it before the Housing and Land Use Regulatory Board (HLURB)
for violation of Presidential Decree (P.D.) No. 957 and P.D. No. 1344, rescission of contract, sum of money, and
damages.

In its decision, dated April 23 1994, the HLURB rescinded the Contract to Sell between Bayfront and Spouses Suntay and
ordered Bayfront to pay Spouses Suntay the total amount of 2,752,068.60 as purchase price with interest. Consequently,
on November 16, 1994, the HLURB issued a writ of execution.4

Upon the application of Spouses Suntay, the Sheriffs of the Regional Trial Court (RTC) of Manila levied Bayfronts titled
properties, including the subject condominium Unit G and the two parking slots. Considering that CCT No. 15802 was still
registered under Bayfront with a clean title, the sheriffs deemed it proper to be levied. The levy on execution 5 in favor of
Spouses Suntay was duly recorded in the Register of Deeds of Manila on January 18, 1995.

The auction sale was conducted on February 23, 1995, and Spouses Suntay were the highest bidder. Consequently, on
March 1, 1995, the Certificate of Sale6 in favor of Spouses Suntay was issued. This was duly annotated at the back of
CCT No. 15802 on April 7, 1995. Meanwhile, the Deed of Absolute Sale 7 between Bayfront and Keyser involving the
subject property was finally executed on November 9, 1995. The latter allegedly paid the full purchase price sometime in
1991. When Keyser was about to register the said deed of absolute sale in February 1996, it discovered the Notice of
Levy and the Certificate of Sale annotated at the back of CCT No. 15802 in favor of Spouses Suntay. Nevertheless, on
March 12, 1996, the Register of Deeds cancelled the title of Bayfront and issued CCT No. 264748 in the name of Keyser
but carried over the annotation of the Suntays.9

Subsequently, the sheriffs Final Deed of Sale 10 was executed on April 16, 1996 in favor of the Suntays upon the
expiration of the one (1) year period of redemption from the earlier auction sale. CCT No. 26474 of Keyser was cancelled
and, thereafter, CCT No. 34250-A11 was issued in the name of Spouses Suntay.

Keyser then filed a complaint for annulment of auction sale and cancellation of notice of levy before the HLURB, docketed
as HLURB Case No. REM 032196-9152. In its decision, dated November 18, 1996, the HLURB ruled in favor of Keyser.
Spouses Suntay appealed the decision to the Office of the Presidentand later to the CA but both affirmed the HLURB
judgment.
 190

On appeal before this Court, however, the HLURB decision was set aside. In its September 23, 2005 Decision, the Court
ruled that the HLURB had no jurisdiction over controversies between condominium unit owners and the issue of
ownership, possession or interest in the disputed condominium units could not be adjudicated by the HLURB due to its
limited jurisdiction under P.D. No. 957 and P.D. No. 1344.

RTC Ruling

Undaunted, on March 24, 2006, Keyser filed before the RTC of Manila a new complaint for annulment of auction sale, writ
of execution, declaration of nullity of title, and reconveyance of property with damages against Spouses Suntay, docketed
asCivil Case No. 06-114716. In their answer, Spouses Suntay denied the material allegations of the complaint and
interposed special and affirmative defenses of res judicata, forum shopping, prescription, and lack of cause of action.

On October 19, 2009, the RTC rendered a Decision12 in favor of Keyser. It explained that when Spouses Suntay
registered the Certificate of Sale, the condominium unit was already registered in the name of Keyser. It also held that the
auction sale was irregular due to lack of posting and publication of notices. The RTC thus disposed:

WHEREFORE, premises considered, the Court hereby declares the auction sale as null and void, orders the Registry of
Deeds to reinstate the title of Keyser Mercantile Inc. and to pay the costs.

SO ORDERED.13

CA Ruling

Spouses Suntay elevated the decision to the CA. In its September 7, 2012 Decision, the CA denied the appealas it found
that Spouses Suntay did not acquire the subject property because at the time it was levied, Bayfront had already sold the
condominium unit to Keyser. Considering that the judgment debtor had no interest in the property, Spouses Suntay, as
purchasers at the auction sale, also acquired no interest. The decretal portion of the CA decision reads: WHEREFORE,in
view of the foregoing considerations, the Decision dated October 19, 2009 of the Regional Trial Court (RTC) of Manila,
Branch 21, in Civil Case No. 06-114716, is AFFIRMED.

SO ORDERED.14

Spouses Suntay filed a motion for reconsideration, but it was denied in the August 8, 2013 Resolution of the CA.

Hence, this petition, anchored on the following

STATEMENT OF ISSUES

WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN SUSTAINING THE TRIAL
COURTS DECISION BY NOT DISMISSINGTHE COMPLAINT CASE OF HEREIN RESPONDENT ON GROUND OF
PRESCRIPTION OF ACTIONS UNDER ARTICLE 1146 OFTHE CIVIL CODE OF THE PHILIPPINES, AS WELL AS, DUE
TO ESTOPPEL BY LACHES;

II

WHETHER OR NOT THE COURT OFAPPEALS IN SUSTAINING THE DECISION OF THE COURT A QUO
COMMITTED A SERIOUS REVERSIBLE ERROR IN NOT APPLYING SECTION 52 OF P.D. 1529 AND ARTICLE 1544
OF THE CIVIL CODE OF THE PHILIPPINES BY FINDING THAT HEREIN PETITIONERS HAVE BETTER RIGHTS OF
OWNERSHIP OVER THE SUBJECT CONDOMINIUM PROPERTY IN LITIGATION;

III
 191

WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN SUSTAINING THE TRIAL
COURTS DECISION BY NOT DISMISSINGTHE COMPLAINT FOR LACK OF VALID AND LEGITIMATE CAUSEOF
ACTION OF HEREIN RESPONDENT AGAINST HEREIN PETITIONERS;

IV

WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN SUSTAINING THE TRIAL
COURTS DECISION BY NOT DISMISSING THE COMPLAINT ON GROUND OF FORUM SHOPPING;

WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN SUSTAINING THE TRIAL
COURTS DECISION BY NOT DISMISSING THE COMPLAINT [ON] GROUND OF RES JUDICATA;

VI

WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN SUSTAINING THE TRIAL
COURTS DECISION BY NOT AWARDING DAMAGES AND ATTORNEYS FEES IN FAVOR OF HEREIN
PETITIONERS.15

Spouses Suntay contend that res judicata existed. They assert that HLURB Case No. REM-032196-9152 involved the
same cause of action, parties and subject matter with Civil Case No. 06-114716 before the RTC. Considering that the
former case had been decided on appeal by this Court, then there was already res judicata in the RTC case. They
likewise claim the existence of forum shopping in the refiling of the case with the RTC for the second time on March 24,
2006.

Spouses Suntay also raise the issue of prescription because Article 1146 of the New Civil Code 16 provides that actions
resulting in injury prescribe after four (4) years. The resulting injury started on January 18, 1995. They argue that the
correct reckoning period was March 24, 2006 when Civil Case No. 06-114716 was filed in the RTC; and that a period of
more or less twelve (12) years had lapsed and the action had already prescribed. HLURB Case No. REM-032196-9152
filed on March 21, 1996 should not have been considered to have tolled the prescriptive period because it had a null and
void judgment due to lack of jurisdiction.

Spouses Suntay argue that the CA erred in not applying Section 52 of P.D. No. 1529 and Article 1544 of the New Civil
Code. Their right as purchasers in a public action should havebeen preferred because their right acquired thereunder
retroacts to the date of registration of the Notice of Levy on January 18, 1995 and the subsequent auction sale on
February 23, 1995. They claim that their right over the subject property is superior over that of Keyser because they
purchased the subject property in a legitimate auction sale prior to Keysers registration of the deed of absolute sale.

Spouses Suntay also pray for moral, exemplary damages and attorneys fees. They allegedly experienced mental
anguish, besmirched reputation, sleepless nights, and wounded feelings warranting moral damages. They contend that
exemplary damages should also be awarded in view of the reckless and wanton attitude of Keyser in instituting a
groundless action against them. Furthermore, Spouses Suntay were constrained to hire the services of counsel to defend
their right against a baseless action.

The Courts Ruling

The petition is meritorious.

No res judicata, forum

shopping and prescription in
this case

As to the procedural matters, the Court finds that the grounds invoked by Spouses Suntay are inapplicable. First, the
defense of res judicata must fail. The doctrine of res judicatais a fundamental principle of law which precludes parties from
re-litigating issues actually litigated and determined by a prior and final judgment.17 Res judicata constituting bar by prior
judgment occurs when the following requisites concur: (1) the former judgment is final; (2) it is rendered by a court having
 192

jurisdiction over the subject matter and the parties; (3) it isa judgment or an order on the merits; and (4) there is identity of
parties, of subject matter, and of causes of action.18

The previous case instituted by Keyser in the HLURB was denied on appeal by this Court based on lack of jurisdiction.
Thus, the third requisite of res judicata is not present because the previous case was not adjudicated on the merits as it
was denied on jurisdictional grounds.

There is no forum shopping either in this case. To determine whether a party violated the rule against forum shopping, the
elements of litis pendentiamust be present, or the final judgment in one case amounts to res judicata in another.19 Since
there is no res judicata in this case, then there is no forum shopping either.

The defense of prescription is likewise unavailing. In Fulton Insurance Company v. Manila Railroad Company, 20 this Court
ruled that the filing of the first action interrupted the running of the period, and then declared that, at any rate, the second
action was filed within the balance of the remaining period. Applying Article 1155 of the New Civil Code in that case, 21 the
interruption took place when the first action was filed in the Court of First Instance of Manila. The interruption lasted during
the pendency of the action until the order of dismissal for alleged lack of jurisdiction became final.

In the present case, the prescriptive period was interrupted when HLURB Case No. REM-032196-9152 was filed on
March 21, 1996. The interruption lasted during the pendency of the action and until the judgment of dismissal due to lack
of jurisdiction was rendered on the September 23, 2005. Thus, the filing of Civil Case No. 06-114716 on March 24, 2006
was squarely within the prescriptive period of four (4) years.

Spouses Suntay properly relied

on the Certificate of Title of
Bayfront

Now, the Court proceeds to the substantial issues. This Court finds that the petition is meritorious applying the Torrens
System of Land Registration. The main purpose of the Torrens system is to avoid possible conflicts of title to real estate
and to facilitate transactions relative thereto by giving the public the right to rely upon the face of a Torrens certificate of
title and to dispense with the need of inquiring further, except when the party concerned has actual knowledge of facts
and circumstances that should impel a reasonably cautious man to makesuch further inquiry. Every person dealing with a
registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige
him to go beyond the certificate to determine the condition of the property.22

Again to stress, any buyer or mortgagee of realty covered by a Torrens certificate of title, in the absence of any suspicion,
is not obligated to look beyond the certificate to investigate the title of the seller appearing on the face of the certificate.
And, heis charged with notice only of such burdens and claims as are annotated on the title. 23

In the case at bench, the subject property was registered land under the Torrens System covered by CCT No. 15802 with
Bayfront as the registered owner. At the time that the Notice of Levy was annotated on January 18, 1995, the title had no
previous encumbrances and liens. Evidently, it was a clean title. The Certificate of Sale, pursuant to an auction sale, was
also annotated on April 7,1995, with Bayfront still as the registered owner.

It was only on March 12, 1996, almosta year later, that Keyser was able to register its Deed of Absolute Sale with
Bayfront. Prior to such date, Spouses Suntay appropriately relied on the Torrens title of Bayfront to enforce the latters
judgment debt.

Because "the act of registration is the operative act to convey or affect the land insofar as third persons are
concerned,"24 it follows that where there is nothing in the certificate of title toindicate any cloud or vice in the ownership of
the property, or any encumbrance thereon, the purchaser is not required to explore farther than what the Torrens title
upon its face indicates in quest for any hidden defect or inchoate right thatmay subsequently defeat his right thereto. If the
rule were otherwise, the efficacy and conclusiveness of the certificate of title which the Torrens system seeks to insure
would entirely be futile and nugatory. The public shall then be denied of its foremost motivation for respecting and
observing the Torrens system of registration.25

When the notice of levy and certificate of sale were annotated on the title, the subject property was unoccupied and no
circumstance existed that might suggest to Spouses Suntay that it was owned by another individual. 26 Records reveal that
 193

it was only later, on January 6, 1999, that the subject property was discovered by the sheriffs to be padlocked. 27 The
administrator of the condominium did not even knowthe whereabouts of the alleged owner.28 To reiterate, absent any
peculiar circumstance, Spouses Suntay could not be required to disregard the clean title of Bayfront and invest their time,
effort and resources to scrutinize every square feet of the subject property. This Court is convinced that Spouses Suntay
properly relied on the genuineness and legitimacy of Bayfronts Torrens certificate of title when they had their liens
annotated thereon.

Levy on execution is superior to

the subsequent registration of
the deed of absolute sale.

The CA stated in its decision that when the subject property was levied and subjected to an execution sale, Bayfront had
already sold it to Keyser. As such, Spouses Suntay no longer acquired the right over the subject property from Bayfront
because the latter, as judgment debtor, had nothing more to pass.29 Earlier, the RTC held that at the time Spouses Suntay
were to register the auction sale, the subject property was already registered in Keysers name and, thus, they were fully
aware of the earlier sale. It was too late for Spouses Suntayto deny their knowledge of Keysers title. The RTC also found
the auction sale questionable due to the lack of posting and publication of notice. 30

The Court disagrees with the lower courts. They had completely overlooked the significance of a levy on execution. The
doctrine is wellsettled that a levy on execution duly registered takes preference over a prior unregistered sale. Even if the
prior salewas subsequently registered before the sale in execution but after the levy was duly made, the validity of the
execution sale should be maintained because it retroacts to the date of the levy. Otherwise, the preference created by the
levy would be meaningless and illusory.31

In this case, the contract to sell between Keyser and Bayfront was executed on October 20, 1989, but the deed of
absolute sale was only made on November 9, 1995 and registered on March 12, 1996. The Notice of Levy in favor of
Spouses Suntay was registered on January 18, 1995, while the Certificate of Sale on April 7, 1995, both dates clearly
ahead of Keysers registration of its Deed of Absolute Sale. Evidently, applying the doctrine of primus tempore, potior
jure(first in time, stronger in right), Spouses Suntay have a better right than Keyser.

In the case of Uy v. Spouses Medina32 which dealt with essentially the same issues, the Court wrote:

Considering that the sale was not registered earlier, the right of petitioner over the land became subordinate and subject
to the preference created over the earlier annotated levy in favor of Swift. The levy of execution registered and annotated
on September 1, 1998 takes precedence over the sale of the land to petitioner on February 16, 1997, despite the
subsequent registration on September 14, 1998 of the prior sale. Such preference in favor of the levy on execution
retroacts to the date of levy for to hold otherwise will render the preference nugatory and meaningless.

xxx

The settled rule is that levyon attachment, duly registered, takes preference over a prior unregistered sale. This result is a
necessary consequence of the fact that the property involved was duly covered by the Torrens system which works under
the fundamental principle that registration is the operative act which gives validity to the transfer or creates a lien upon the
land. The preference created by the levy on attachment is not diminished even by the subsequent registration of the prior
sale. This is so because an attachment is a proceeding in rem. It is against the particular property, enforceable against the
whole world. The attaching creditor acquires a specific lien on the attached property which nothing can subsequently
destroy except the very dissolution of the attachment or levy itself. Such a proceeding, in effect, means that the property
attached is an indebted thing and a virtual condemnation of it to pay the owners debt. The lien continues until the debt is
paid, or sale is had under execution issued on the judgment, or until the judgment is satisfied, or the attachment
discharged or vacated in some manner provided by law.

[Emphases supplied]

The Court does not agree with the RTC either that the auction sale had glaring irregularities. Assisting Sheriff Rufo
Bernardo Jr., testifying as Keysers witness, categorically stated that they had posted notices of the auction sale and had
conducted the bidding.33 The documentary evidence of S pouses Suntay also shows that publication of the auction sale
was indeed complied with.34
 194

No award of actual, moral and

exemplary damages

Finally, the Court cannot grant the claim for damages by Spouses Suntay. The filing alone of a civil action should not be a
ground for an award of moral damages in the same way that a clearly unfounded civil action is not among the grounds for
moral damages.35 Spouses Suntay failed to show a compelling reason to warrant the award of moral damages aside from
their bare allegations.

As to the award of exemplary damages, Article 2229 of the New Civil Code provides that exemplary damages may be
imposed by way of example or correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages.36 The claimant, however, must first establish his right to moral, temperate, liquidated or
compensatory damages. In this case, because Spouses Suntay failed to prove their entitlement to moral or compensatory
damages, there could be no award of exemplary damages.

Spouses Suntay are not entitled to attorney's fees either.1wphi1 The settled rule is that no premium should be placed on
the right to litigate and that not every winning party is entitled to an automatic grant of attorney's fees. 37

WHEREFORE, the petition is GRANTED. The September 7, 2012 Decision and the August 8, 2013 Resolution of the
Court of Appeals (CA) in CA-G.R. CV No. 94677 are REVERSED and SET ASIDE. Accordingly, the Court hereby
declares the auction sale as valid and binding on Keyser Mercantile, Inc. and all other subsequent registrants.

SO ORDERED.
 195

G.R. No. 194077 December 3, 2014

FLORENTINO W. LEONG AND ELENA LEONG, ET AL., Petitioners,

vs.
EDNA C. SEE, Respondent.

DECISION

LEONEN, J.:

Factual findings of lower courts are generally deemed conclusive and binding upon this court. 1 In any event, "even if the
procurement of title was tainted with fraud and misrepresentation, such defective title may be the source of a completely
legal and valid title in the hands of an innocent purchaser for value."2

This petition originated from two civil complaints involving the sale of a parcel of land in favor of respondent Edna C. See
(Edna). Before us is a petition for review3 assailing the Court of Appeals (a) May 19, 2010 decision affirming in toto the
trial court's July 9, 2008 decision granting Edna possession and ownership over the land upon finding her to be a buyer in
good faith and for value, and (b) August 25, 2010 resolution denying reconsideration.

Petitioners pray for the reversal of the Court of Appeals decision and resolution, as well as the trial courts decision. 4They
pray that this court render its decision as follows:

(a) The Deed of Sale between Edna See and Carmelita Leong is hereby declared null and void. The Register [of]
Deeds for the City of Manila is hereby directed to cancel TCT No. 231105 in the name of Edna See and
reinstating TCT No. 175628;

(b) Confirming the right of Elena Leong and those people claiming right under her, to the possession over the
subject property; [and]

(c) Defendants Carmelita Leong and Edna See are declared to be jointly and severally liable to pay plaintiff,
Florentino Leong[,] the sum of Php50,000.00 as moral damages;the sum of Php50,000.00 a[s] Attorneys Fees;
and the cost of suit.5

The spouses Florentino Leong (Florentino) and Carmelita Leong (Carmelita) used to own the property located at No. 539
41 Z.P. De Guzman Street, Quiapo, Manila.6

Petitioner Elena Leong (Elena) is Florentino's sister-in-law.7 She had stayed with her in-laws on the property rental-free for
over two decades until the building they lived in was razed by fire. 8 They then constructed makeshift houses, and the
rental-free arrangement continued.9 Florentino and Carmelita immigrated to the United States and eventually had their
 196

marriage dissolved in Illinois.10 A provision in their marital settlement agreement states that"Florentino shall convey and
quitclaim all of his right, title and interest in and to 540 De Guzman Street, Manila, Philippines . . . to Carmelita." 11

The Court of Appeals found that "[a]pparently intercalated in the lower margin of page 12 of the instrument was a long-
hand scribbling of a proviso, purporting to be a footnote remark": 12 Neither party shall evict or charge rent to relatives of
the parties, or convey title, until it has been established that Florentino has clear title to the Malabon property. Clear title to
be established by the attorneys for the parties or the ruling of a court of competent jurisdiction. In the event Florentino
does not obtain clear title, this court reserves jurisdiction to reapportion the properties or their values to effect a 50-50
division of the value of the 2 remaining Philippine properties.13

On November 14, 1996,14 Carmelita sold the land to Edna.15 In lieu of Florentino's signature of conformity in the deed of
absolute sale, Carmelita presented to Edna and her father, witness Ernesto See, a waiver of interest notarized on March
11, 1996 in Illinois.16 In this waiver, Florentino reiterated his quitclaim over his right, title, and interest to the
land.17 Consequently, the lands title, covered by TCT No. 231105, was transferred to Edna's name. 18

Edna was aware of the Leong relatives staying in the makeshift houses on the land. 19 Carmelita assured her that her
nieces and nephews would move out, but demands to vacate were unheeded. 20

On April 1, 1997,21 Edna filed a complaint22 for recovery of possession against Elena and the other relatives of the Leong
ex-spouses.23

The complaint alleged that in 1995 after the fire had razed the building on the land, Elena erected makeshift houses on
the land without Carmelitas knowledge or consent.24

In response, Elena alleged the titles legal infirmity for lack of Florentino's conformity to its sale. 25 She argued that
Carmelita's noncompliance with the proviso in the property agreement that the Quiapo property "may not be alienated
without Florentino first obtaining a clean title over the Malabon property"26 annulled the transfer to Edna.

On April 23, 1997, Florentino filed a complaint27 for declaration of nullity of contract, title, and damages against Carmelita
Leong, Edna C. See, and the Manila Register of Deeds, alleging that the sale was without his consent. 28The two cases
were consolidated.

The Regional Trial Court, in its decision29 dated July 9,2008, ruled in favor of Edna: WHEREFORE, in view of the
foregoing, judgment is hereby rendered as follows:

(a) Defendant Edna See is granted possession and ownership over the subject property;

(b) Defendants Elena Leong and all other persons are directed to vacate the premises at 539541 Guzman
Street, Quiapo, Manila; [and]

(c) Defendant Carmelita Leong is ordered to pay plaintiff, Florentino Leong his one-half (1/2) or 2Million with
interest thereon at the rate of 6% per annum from the date of conveyance on November 12, 1996, up to the
finality of this Decision; the sum of PhP 50,000.00 as moral damages; the sum of PhP 50,000.00 for attorneys
fees; and, the costs of the suit.

SO ORDERED.30

The Court of Appeals, in its decision31 dated May 19, 2010, affirmed in toto the trial courts decision. 32 It likewise denied
reconsideration.

Thus, this petition for review was filed.

Petitioners contend that the principle of indefeasibility of Torrens titles does not apply when fraud exists, and respondent
was a buyer in bad faith.33 Respondent knew at the time of the purchase that Elena had actual possession of the property,
thus, she should have made inquiries on their right to the property.34
 197

Petitioners argue the conjugal nature of the property, evidenced by the title in the names of Florentino and Carmelita
Leong, and the waiver relied upon by respondent.35 They cite Articles 336 and 1537 of the Civil Code, and Articles 8738 and
13439 of the Family Code, to support their contention that respondent should have demanded Florentinos consent to the
sale.40 Petitioners submit that Florentinos waiver is void since donations between spouses are void. 41

Petitioners argue that respondent should bear the loss 42 of her negligence in purchasing the property without Florentinos
consent.43 They cite at length Aggabao v. Parulan, Jr.44 to support their argument that respondent failed to exercise the
required due diligence in the purchase of the property. 45 Consequently, petitioners submit that the lower courts erred in
ruling that respondent was entitled to possession of the property. 46

Respondent counters that only questions of law can be raised in a petition for review on certiorari, and petitioners raise
purely factual questions.47

In any event, the lower courts correctly found that respondent is a purchaser in good faith for value who exercised the
necessary diligence in purchasing the property. 48

First, good faith is presumed, and petitioners did not substantiate their bold allegation of fraud. 49 Second, respondent did
notrely on the clean title alone precisely because of the possession by third parties, thus, she also relied on Florentinos
waiver of interest.50 Respondent even verified the authenticity of the title at the Manila Register of Deeds with her father
and Carmelita.51 These further inquiries prove respondents good faith. 52

Respondent submits that petitioners invocation of the Civil Code provisions misleads this court. 53 Philippine laws cannot
govern Florentino who was already an American citizen when he executed the waiver of interest, obtained a divorce, and
signed a marital settlement agreement with Carmelita on July 8, 1994. 54 The waiver was also a consequence of the
separation of properties and not in the nature of a donation between spouses. 55

Lastly, respondent argues that "between possessors who are not owners and a buyer in good faith and for value,it is clear
in this case that the Respondent Edna See, the buyer in good faith, has the greater right to possession over the subject
property."56

The sole issue for resolution is whether respondent Edna C. See is a buyer in good faith and for value.

We affirm the Court of Appeals.

The Torrens system was adopted to "obviate possible conflicts of title by giving the public the right to rely upon the face of
the Torrens certificate and to dispense, as a rule, with the necessity of inquiring further." 57

One need not inquire beyond the four corners of the certificate of title when dealing with registered property. 58Section 44
of Presidential Decree No. 1529 known as the Property Registration Decree recognizes innocent purchasers in good faith
for value and their right to rely on a clean title:

Section 44. Statutory liens affecting title. - Every registered owner receiving a certificate of title in pursuance of a decree of
registration, and every subsequent purchaser of registered land taking a certificate of title for value and in good faith, shall
hold the same free from all encumbrances except those noted in said certificate and any of the following encumbrances
which may be subsisting, namely:

First. Liens, claims or rights arising or existing under the laws and Constitution of the Philippines which are not by law
required to appear of record in the Registry of Deeds in order to be valid against subsequent purchasers or
encumbrances of record.

Second. Unpaid real estate taxes levied and assessed within two years immediately preceding the acquisition of any right
over the land by an innocent purchaser for value, without prejudice to the right of the government to collect taxes payable
before that period from the delinquent taxpayer alone.

Third. Any public highway or private way established or recognized by law, or any government irrigation canal or lateral
thereof, if the certificate of title does not state that the boundaries of such highway or irrigation canalor lateral thereof have
been determined.
 198

Fourth. Any disposition of the property or limitation on the use thereof by virtue of, or pursuant to, Presidential Decree No.
27 or any other law or regulations on agrarian reform.59 (Emphasis supplied)

An innocent purchaser for value refers to someone who "buys the property of another without notice that some other
person has a right to or interest in it, and who paysa full and fair price at the time of the purchase or before receiving any
notice of another persons claim."60 One claiming to be an innocent purchaser for value has the burden of proving such
status.61

The protection of innocent purchasers in good faith for value grounds on the social interest embedded in the legal concept
granting indefeasibility of titles. Between the third party and the owner, the latter would be more familiar with the history
and status of the titled property. Consequently, an owner would incur less costs to discover alleged invalidities relating to
the property compared to a third party. Such costs are, thus, better borne by the owner to mitigate costs for the economy,
lessen delays in transactions, and achieve a less optimal welfare level for the entire society. 62

Both lower courts found respondent to be an innocent purchaser in good faith for value. 63 The trial court discussed:

By her overt acts, Edna See with her father verified the authenticity of Carmelitas land title at the Registry of Deeds of
Manila. There was no annotation on the same thus deemed a clean title (page 19, TSN, 12 January 2005). Also, she
relied on the duly executed and notarized Certificate of Authority issued by the State of Illinois and Certificate of
Authentication issued by the Consul of the Republic of the Philippines for Illinois in support to the Waiver of Interest
incorporated in the Deed of Absolute Sale presented to her by Carmelita (Exhibit 2). Examination of the assailed
Certificate of Authority shows that it is valid and regular on its face. It contains a notarial seal. . . .

. . . . The assailed Certificate of Authority is a notarized document and therefore, presumed to be validand duly executed.
Thus, Edna Sees reliance on the notarial acknowledgment found in the duly notarized Certificate of Authority presented
by Carmelita is sufficient evidence of good faith. . . .64

A determination of whether a party is an innocent purchaser in good faith and for value involves a factual issue beyond
the ambit of a petition for review on certiorari.65

Generally, factual findings of lower courts are deemed conclusive and binding upon this court. 66 No cogent reason exists
to overturn the findings of both lower courts.

Petitioners raise that "actual possession of the property by a person other than the vendor should put the purchaser in
inquiry and absen[t] such inquiry[,] he cannot be regarded as a bona fide purchaser against such possessors." 67

As discussed by the Court of Appeals, respondent did conduct further inquiry by relying not only on the certificate of title,
but also on Florentinos waiver.68

Petitioners submit that respondent bought the property knowing that Florentino and Carmelita were married.69 They then
invoke Civil Code and Family Code provisions on the nature of conjugal properties and the prohibition against donations
between spouses.70

Respondent counters that Florentino and Carmelita were already American citizens when they executed the marital
settlement agreement.71 She even presented before the trial court Florentinos special power of attorney executed on
March 25, 1997 to prove Florentinos citizenship.72

The trial court disregarded petitioners argument on the applicability of our civil laws on the validity of the sale since it
already deemed respondent to be an innocent purchaser in good faith and for value. 73 The trial court added that since
"[respondent] parted witha substantial amount of 4 Million, equity dictates that she shall have possession of the
property[,] [n]onetheless, Florentino Leong shall get his one-half share of the purchase price."74

On the other hand, the Court of Appeals discussed that Florentino was estopped from questioning the transfer of the
property since he already waived all his rights, title, and interests over the same. 75 The court also found that the
intercalated proviso in the marital settlement agreement violated the mutuality of contracts principle. 76
 199

The question of whether Florentino and Carmelita were already American citizens at the time of the propertys sale to
Edna thus no longer covered by our laws relating to family rights and duties 77 involves a factual question outside the
ambit of a petition for review on certiorari. In any event, respondent exerted due diligence when she ascertained the
authenticity of the documents attached to the deed of sale such as the marital settlement agreement with Florentinos
waiver of interest over the property. She did not rely solely on the title. She even went to the Registry of Deeds to verify
the authenticity of the title.78 These further inquiries were considered by the lower courts in finding respondent to be an
innocent purchaser in good faith and for value.

Lastly, an allegation of fraud must be substantiated. Rule 8, Section 5 of the Rules of Court provides:

SEC. 5. Fraud, mistake, condition of the mind. In all averments of fraud or mistake, the circumstances constituting fraud
or mistake must be stated with particularity.Malice intent, knowledge or other condition of the mind of a person may be
averred generally. (Emphasis supplied)

In petitioners memorandum before this court, they mentioned the rule of fraud as an exception to the indefeasibility of title
principle, but failed to substantiate their allegation by immediately concluding as follows:

Petitioners beg to disagree with the ruling of the Honorable Trial Court and the Honorable Court of
Appeals.1wphi1Respondent Edna See is not a buyer in good faith. The ruling that every person can rely on the
correctness of the certificate of title and that the buyer need not go beyond the four corners of the title to determine the
condition of the property is not absolute and admits of exception. As held in the case of Remegia Feliciano vs. Sps.
Zaldivar, G.R. No. 162593, 2006 Sep 26 the principle of indefeasibilty of a Torrens title does not apply where fraud
attended the issuance of the title. The Torrens title does not furnish a shield for fraud. As such, a title issued based on
void documents may be annulled.79 (Emphasis in the original removed)

Even assuming the procurement of title was tainted with fraud and misrepresentation, "such defective title may still be the
source of a completely legal and valid title in the hands of an innocent purchaser for value." 80

Respondent, an innocent purchaser ingood faith and for value with title in her name, has a better right to the property than
Elena. Elenas possession was neither adverse to nor in the concept of owner. 81

Article 428 of the Civil Code provides:

Art. 428. The owner has the right toenjoy and dispose of a thing, without other limitations than those established by law.
The owner has also a right of action against the holder and possessor of the thing inorder to recover it. 82

Thus, respondent had every right to pursue her claims as she did.

WHEREFORE, premises considered, the Court of Appeals' decision in CA-G.R. CV No. 92289 is AFFIRMED.

SO ORDERED.
 200

G.R. No. 202358 November 27, 2013

GATCHALIAN REALTY, INC., Petitioner,

vs.
EVELYN M. ANGELES, Respondent.

DECISION

CARPIO, J.:

The Case G.R. No. 202358 is a petition for review 1 assailing the Decision2 promulgated on 11 November 2011 as well as
the Resolution3 promulgated on 19 June 2012 by the Court of Appeals (CA) in CA-G.R. SP No. 105964. The CA reversed
and set aside the 8 October 2008 Order4 of Branch 197 of the Regional Trial Court of Las Pias City (RTC) in Civil Case
No. LP-07-0143. The CA also dismissed the unlawful detainer case filed by Gatchalian Realty, Inc. GRI) against Evelyn
M. Angeles (Angeles).

The Metropolitan Trial Court (MeTC) rendered on 28 February 2006 a decision 5 in Civil Case No. 6809 in favor of GRI and
against Angeles. In its decision6 dated 13 February 2008, the RTC set aside the decision of the MeTC and dismissed the
ejectment case filed by GRI against Angeles. The RTC reversed itself in an Order 7 dated 17 June 2008, and affirmed with
modification the decision of the MeTC. The RTC denied Angeles Motion for Reconsideration in an Order dated 8 October
2008.

The Facts

The CA recited the facts as follows:

On 28 December 1994, [Angeles] purchased a house (under Contract to Sell No. 2272) and lot (under Contract to Sell No.
2271) from [GRI] valued at Seven Hundred Fifty Thousand Pesos (Php 750,000.00) and Four Hundred Fifty Thousand
Pesos (Php 450,000.00), respectively, with twenty-four percent (24%) interest per annum to be paid by installment within
a period of ten years.

The house and lot were delivered to [Angeles] in 1995. Nonetheless, under the contracts to sell executed between the
parties, [GRI] retained ownership of the property until full payment of the purchase price.
 201

After sometime, [Angeles] failed to satisfy her monthly installments with [GRI]. [Angeles] was only able to pay thirty-five
(35) installments for Contract to Sell No. 2271 and forty-eight (48) installments for Contract to Sell No. 2272. According to
[GRI], [Angeles] was given at least twelve (12) notices for payment in a span of three (3) years but she still failed to settle
her account despite receipt of said notices and without any valid reason. [Angeles] was again given more time to pay her
dues and likewise furnished with three (3) notices reminding her to pay her outstanding balance with warning of
impending legal action and/or rescission of the contracts, but to no avail. After giving a total of fifty-one (51) months grace
period for both contracts and in consideration of the continued disregard of the demands of [GRI], [Angeles] was served
with a notice of notarial rescission dated 11 September 2003 by registered mail which she allegedly received on 19
September 2003 as evidenced by a registry return receipt.

Consequently [Angeles] was furnished by [GRI] with a demand letter dated 26 September 2003 demanding her to pay the
amount of One Hundred Twelve Thousand Three Hundred Four Pesos and Forty Two Centavos (Php 112,304.42) as
outstanding reasonable rentals for her use and occupation of the house and lot as of August 2003 and to vacate the
same. She was informed in said letter that the fifty percent (50%) refundable amount that she is entitled to has already
been deducted with the reasonable value for the use of the properties or the reasonable rentals she incurred during such
period that she was not able to pay the installments due her. After deducting the rentals from the refundable amount, she
still had a balance of One Hundred Twelve Thousand Three Hundred Four Pesos and Forty Two Centavos (Php
112,304.42) which she was required to settle within fifteen (15) days from receipt of the letter.

Allegedly, [Angeles] subsequently sent postal money orders through registered mail to [GRI]. In a letter dated 27 January
2004 [Angeles] was notified by [GRI] of its receipt of a postal money order sent by [Angeles]. More so, she was requested
to notify [GRI] of the purpose of the payment. [Angeles] was informed that if the postal money order was for her monthly
amortization, the same will not be accepted and she was likewise requested to pick it up from [GRIs] office. On 29
January 2004, another mail with a postal money order was sent by [Angeles] to [GRI]. In her 6 February 2004 letter, [GRI]
was informed that the postal money orders were supposed to be payments for her monthly amortization. Again, in its 8
February 2004 letter, it was reiterated by [GRI] that the postal money orders will only be accepted if the same will serve as
payment of her outstanding rentals and not as monthly amortization. Four (4) more postal money orders were sent by
[Angeles] by registered mail to [GRI].

For her continued failure to satisfy her obligations with [GRI] and her refusal to vacate the house and lot, [GRI] filed a
complaint for unlawful detainer against [Angeles] on 11 November 2003. 8

The MeTCs Ruling

The MeTC of Branch 79, Las Pias City ruled in favor of GRI. The MeTC determined that the case was for an unlawful
detainer, and thus assumed jurisdiction. The MeTC further held that the facts show that GRI was able to establish the
validity of the rescission:

A careful scrutiny of the evidence presented by both parties regarding payments made clearly show that [Angeles]
defaulted in the payment of the monthly installments due. Repeated notices and warnings were given to her but she still
and failed to update her account (Exhibits "E" to "E-1" and "G" to "G-2", [GRIs] Position Paper). This is a clear violation of
the condition of their contracts. An ample grace period, i.e., 51 months, was granted to her by [GRI] but she still failed to
pay the whole amount due as provided in paragraph 6 of the contracts and Section 3 of RA 6552. [Angeles] has been in
arrears beyond the grace period provided under the contracts and law. The last payment received by [GRI], which
represents [Angeles] 35th installment, was made in July 2002. On the other hand, the last payment, which represents her
48th installment, [was] received [by GRI] in April 1999. Thus, [GRI], as seller, can terminate or rescind the contract by
giving her the notice of notarial rescission of the contracts. The notarial rescission of the contracts was executed on
September 26, 2003 and served upon [Angeles].9

Although the MeTC agreed with Angeles that her total payment is already more than the contracted amount, the MeTC
found that Angeles did not pay the monthly amortizations in accordance with the terms of the contract. Interests and
penalties accumulated and increased the amount due. Furthermore, the MeTC found the monthly rentals imposed by GRI
reasonable and within the range of the prevailing rental rates in the vicinity. Compensation between GRI and Angeles
legally took effect in accordance with Article 129010 of the Civil Code. The MeTC ruled that GRI is entitled to
1,060,896.39 by way of reasonable rental fee less 574,148.40 as of May 2005, thus leaving a balance of 486,747.99
plus the amount accruing until Angeles finally vacates the subject premises.

The dispositive portion of the MeTCs Decision reads:

 202

WHEREFORE, in view of the foregoing, the Court renders judgment for [GRI] and against [Angeles] and all persons
claiming rights under her, as follows:

1. Ordering [Angeles] and all persons claiming rights under her to immediately vacate the property subject
of this case situated at Blk. 3, Lot 8, Lanzones St., Phase 3-C, Gatchalian Subdivision, Las Pias City
and surrender possession thereof to [GRI];

2. Ordering the encashment of the Postal Money Order (PMO) in the total amount of Php 120,000.00 in
favor of [GRI];

3. Ordering [Angeles] to pay [GRI] the outstanding amount of Php 486,747.99 representing reasonable
monthly rentals of the subject premises as of May 2005 less the amount of the postal money orders
[worth] Php 120,000.00 and all the monthly rentals that will accrue until she vacates the subject premises
and have possession thereof turned over to [GRI], plus the interests due thereon at the rate of twelve
percent (12%) per annum from the time of extra-judicial demand;

4. Ordering [Angeles] to pay [GRI] the amount of Php 20,000.00 as attorneys fees; and

5. Costs of suit.

[Angeles] counterclaims are hereby dismissed for lack of merit.

SO ORDERED.11

On 21 March 2006, Angeles filed a notice of appeal with the MeTC. A week later, on 28 March 2006, Angeles filed a
motion to dismiss based on lack of jurisdiction. The Las Pias RTC denied Angeles motion to dismiss in an order dated
28 July 2006.

Angeles also filed on 2 October 2006 a Petition for Certiorari with Immediate Issuance of Temporary Restraining Order
and Injunction, which was docketed as SCA Case No. 06-008.12 On 3 May 2007, Branch 201 of the Las Pias RTC
dismissed Angeles Petition for Certiorari for forum-shopping.13

GRI, on the other hand, filed a Motion for Execution Pending Appeal. A Writ of Execution Pending Appeal was issued in
favor of GRI on 25 August 2006, and the properties were turned over to GRI on 10 October 2006. 14

The RTCs Ruling

Angeles appeal before Branch 197 of the Las Pias RTC initially produced a result favorable to her. The RTC found that
the case was one for ejectment. As an ejectment court, the MeTCs jurisdiction is limited only to the issue of possession
and does not include the title or ownership of the properties in question.

The RTC pointed out that Republic Act No. 6552 (R.A. 6552) provides that the non-payment by the buyer of an installment
prevents the obligation of the seller to convey title from acquiring binding force. Moreover, cancellation of the contract to
sell may be done outside the court when the buyer agrees to the cancellation. In the present case, Angeles denied
knowledge of GRIs notice of cancellation. Cancellation of the contract must be done in accordance with Section 3 of R.A.
6552, which requires a notarial act of rescission and refund to the buyer of the cash surrender value of the payments on
the properties. Thus, GRI cannot insist on compliance with Section 3(b) of R.A. 6552 by applying Angeles cash surrender
value to the rentals of the properties after Angeles failed to pay the installments due. Contrary to the MeTCs ruling, there
was no legal compensation between GRI and Angeles. The RTC ruled:

There being no valid cancellation of the Contract to Sell, this Court finds merit in the appeal filed by [Angeles] and
REVERSES the decision of the court a quo. This Court recognized [Angeles] right to continue occupying the property
subject of the Contract to Sell.

WHEREFORE, premises considered, the decision of the lower court is hereby SET ASIDE and the ejectment case filed
by [GRI] is hereby DISMISSED.
 203

SO ORDERED.15

GRI filed a Motion for Reconsideration. The RTC issued an Order on 17 June 2008 which ruled that GRI had complied
with the provisions of R.A. 6552, and had refunded the cash surrender value to Angeles upon its cancellation of the
contract to sell when it deducted the amount of the cash surrender value from rentals due on the subject properties. The
RTC relied on this Courts ruling in Pilar Development Corporation v. Spouses Villar. 16 The RTC ruled:

Applying the above Pilar ruling in the present case, the cash surrender value of the payments made by [Angeles] shall be
applied to the rentals that accrued on the property occupied by [Angeles], which rental is fixed by this Court in the amount
of seven thousand pesos per month (7,000.00). The total rental payment due to Gatchalian Realty Inc. is six hundred
twenty three thousand (623,000.00) counted from June 1999 to October 2006. According to R.A. 6552, the cash
surrender value, which in this case is equivalent to fifty percent (50%) of the total payment made by [Angeles], should be
returned to her by [GRI] upon cancellation of the contract to sell on September 11, 2003. Admittedly no such return was
ever made by [GRI]. Thus, the cash surrender value, which in this case is equivalent to 182,094.48 for Contract to Sell
No. 2271 and 392,053.92 for Contract to Sell No. 2272 or a total cash surrender value of 574,148.40 should be
deducted from the rental payment or award owing to [Angeles].

WHEREFORE, premises considered, the Motion for Reconsideration is hereby GRANTED. The earlier decision dated
February 13, 2008 is SET ASIDE and the decision of the court a quo is MODIFIED to wit:

1. Ordering [Angeles] and all persons claiming rights under her to immediately vacate the property subject
of this case situated at Blk. 3, Lot 8, Lanzones St., Phase 3-C, Gatchalian Subdivision, Las Pias City
and surrender possession thereof to [GRI];

2. Ordering the encashment of the Postal Money Order (PMO) in the total amount of Php 120,000.00 in
favor of [GRI];

3. Ordering defendant, Evelyn M. Angeles, to pay plaintiff, Gatchalian Realty Inc., the outstanding rental
amount of forty eight thousand eight hundred fifty one pesos and sixty centavos (48,851.60) and legal
interest of six percent (6%) per annum, until the above amount is paid;

4. Ordering [Angeles] to pay [GRI] the amount of Php 20,000.00 as attorneys fees; and

5. Costs of suit.

SO ORDERED.17

The Court of Appeals Ruling

The CA dismissed GRIs complaint for unlawful detainer, and reversed and set aside the RTCs decision. Although the CA
ruled that Angeles received the notice of notarial rescission, it ruled that the actual cancellation of the contract between
the parties did not take place because GRI failed to refund to Angeles the cash surrender value. The CA denied GRIs
motion for reconsideration.

GRI filed the present petition for review before this Court on 10 August 2012.

The Issues

GRI assigned the following errors of the CA:

The court a quo committed reversible error when it declared that there was no refund of the cash surrender value in favor
of [Angeles] pursuant to R.A. No. 6552; and

The court a quo erred in holding that the actual cancellation of the contract between the parties did not take place. 18

The Courts Ruling

 204

GRIs petition has no merit. We affirm the ruling of the CA with modification.

Validity of GRIs
Cancellation of the Contracts

Republic Act No. 6552, also known as the Maceda Law, or the Realty Installment Buyer Protection Act, has the declared
public policy of "protecting buyers of real estate on installment payments against onerous and oppressive
conditions."19 Section 3 of R.A. 6552 provides for the rights of a buyer who has paid at least two years of installments but
defaults in the payment of succeeding installments. Section 3 reads:

Section 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including
residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under
Republic Act Numbered Thirty-eight hundred forty-four, as amended by Republic Act Numbered Sixty-three hundred
eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case
he defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by
him which is hereby fixed at the rate of one month grace period for every one year of installment
payments made: Provided, That this right shall be exercised by the buyer only once in every five years of
the life of the contract and its extensions, if any.

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the
payments on the property equivalent to fifty per cent of the total payments made, and, after five years of
installments, an additional five per cent every year but not to exceed ninety per cent of the total payments
made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt
by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and
upon full payment of the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the total number of installment
payments made.

The sixth paragraph of the contracts between Angeles and GRI similarly provides:

SIXTH - Should the VENDEE/S fail to pay due any monthly installment the VENDOR shall have the right to cancel this
Contract and resell the lot/s subject matter of this contract to another buyer, provided, however, that where the
VENDEE/S has/have already paid at least two years of installments, the VENDEE/S will have the right:

a) to pay without additional interest, the installments in arrears within the total grace period earned by
him/her/them which is hereby fixed at the rate of one (1) month grace period for every one (1) year of
installment payment made, but this right can be exercised by the VENDEE/S only once in every five (5)
years of the life of this contract and its extension, if any, and

b) if the contract is cancelled, the VENDOR shall refund to the VENDEE/S the cash surrender value of
the payments made on the lot/s equivalent to fifty per cent (50%) of the total payments made, and after
five (5) years of installment, an additional five per cent (5%) every year but not to exceed ninety per cent
(90%) of the total payments made; Provided, that the actual cancellation of the contract shall take place
after thirty (30) days from the receipt by the VENDEE/S of the notice of cancellation or the demand for
rescission of the contract by a notarial act upon full payment of the cash surrender value to the
VENDEE/S; where, however, the VENDEE/S has/have paid less than two (2) years of installments, the
VENDOR shall give the VENDEE/S [a] grace period of sixty (60) days from the date the installment
became due; and if the VENDEE/S fail/s to pay the installment due after the expiration of the grace
period, the VENDOR may cancel the contract after thirty (30) days from receipt by the VENDEE/S of the
notice of cancellation or the demand for rescission of the contract by a notarial act; and in case of
cancellation and/or rescission of this contract, all improvements on the lot/s above-described shall be
forfeited in favor of the VENDOR, and in this connection, the VENDEE/S obligate/s
himself/herself/themselves to peacefully vacate the premises mentioned above without necessity of
notice or demand by the VENDOR.20
 205

We examine GRIs compliance with the requirements of R.A. 6552, as it insists that it extended to Angeles considerations
that are beyond what the law provides.

Grace Period

It should be noted that Section 3 of R.A. 6552 and paragraph six of Contract Nos. 2271 and 2272, speak of "two years of
installments." The basis for computation of the term refers to the installments that correspond to the number of months of
payments, and not to the number of months that the contract is in effect as well as any grace period that has been given.
Both the law and the contracts thus prevent any buyer who has not been diligent in paying his monthly installments from
unduly claiming the rights provided in Section 3 of R.A. 6552.

The MeTC, the RTC, and the CA all found that Angeles was able to pay 35 installments for the lot (Contract No. 2271)
and 48 installments for the house (Contract No. 2272).21 Angeles thus made installment payments for less than three
years on the lot, and exactly four years on the house.

Section 3(a) of R.A. 6552 provides that the total grace period corresponds to one month for every one year of installment
payments made, provided that the buyer may exercise this right only once in every five years of the life of the contract and
its extensions. The buyers failure to pay the installments due at the expiration of the grace period allows the seller to
cancel the contract after 30 days from the buyers receipt of the notice of cancellation or demand for rescission of the
contract by a notarial act. Paragraph 6(a) of the contract gave Angeles the same rights.

Both the RTC and the CA found that GRI gave Angeles an accumulated grace period of 51 months. 22 This extension went
beyond what was provided in R.A. 6552 and in their contracts.

Receipt of the Notice of Notarial Rescission

The registry return of the registered mail is prima facie proof of the facts indicated therein. 23 Angeles failed to present
contrary evidence to rebut this presumption with competent and proper evidence. To establish its claim of service of the
notarial rescission upon Angeles, GRI presented the affidavit of its liaison officer Fortunato Gumahad,24 the registry
receipt from the Greenhills Post Office,25 and the registry return receipt.26 We affirm the CAs ruling that GRI was able to
substantiate its claim that it served Angeles the notarial rescission sent through registered mail in accordance with the
requirements of R.A. 6552.

Amount of the Cash Surrender Value

GRI claims that it gave Angeles a refund of the cash surrender value of both the house and the lot in the total amount of
574,148.40 when it deducted the amount of the cash surrender value from the amount of rentals due.

For paying more than two years of installments on the lot, Angeles was entitled to receive cash surrender value of her
payments on the lot equivalent to fifty per cent of the total payments made. This right is provided by Section 3(b) of R.A.
6552, as well as paragraph 6(b) of the contract. Out of the contract price of 450,000, Angeles paid GRI a total of
364,188.96 consisting of 135,000 as downpayment and 229,188.96 as installments and penalties. 27 The cash
surrender value of Angeles payments on the lot amounted to 182,094.48. 28

For the same reasons, Angeles was also entitled to receive cash surrender value of the payments on the house
equivalent to fifty per cent of the total payments made. Out of the contract price of 750,000, Angeles paid GRI a total of
784,107.84 consisting of 165,000 as downpayment and 619,107.84 as installments and penalties. 29 The cash
surrender value of Angeles payments on the house amounted to 392,053.92. 30

Actual Cancellation of the Contracts

There was no actual cancellation of the contracts because of GRIs failure to actually refund the cash surrender value to
Angeles.

Cancellation of the contracts for the house and lot was contained in a notice of notarial rescission dated 11 September
2003.31 The registry return receipts show that Angeles received this notice on 19 September 2003. 32GRIs demand for
rentals on the properties, where GRI offset Angeles accrued rentals by the refundable cash surrender value, was
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contained in another letter dated 26 September 2003. 33 The registry return receipts show that Angeles received this letter
on 29 September 2003.34 GRI filed a complaint for unlawful detainer against Angeles on 11 November 2003, 61 days after
the date of its notice of notarial rescission, and 46 days after the date of its demand for rentals. For her part, Angeles sent
GRI postal money orders in the total amount of 120,000.35

The MeTC ruled that it was proper for GRI to compensate the rentals due from Angeles occupation of the property from
the cash surrender value due to Angeles from GRI. The MeTC stated that compensation legally took effect in accordance
with Article 1290 of the Civil Code, which reads: "When all the requisites mentioned in Article 1279 are present,
compensation takes effect by operation of law and extinguishes both debts to the concurrent amount, even though the
creditors and debtors are not aware of the compensation." In turn, Article 1279 of the Civil Code provides:

In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the
other;

(2) That both debts consist of a sum of money, or if the things due are consumable, they be of the same kind, and
also of the same quality if the latter has been stated;

(3) That the two debts are due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.

However, it was error for the MeTC to apply Article 1279 as there was nothing in the contracts which provided for the
amount of rentals in case the buyer defaults in her installment payments. The rentals due to GRI were not liquidated. GRI,
in its letter to Angeles dated 26 September 2003, unilaterally imposed the amount of rentals, as well as an annual 10%
increase:

PERIOD COVERED NO. OF RENTALS AMOUNT DUE

MONTHS PER MONTH

June to December 1999 7 11,000.00 77,000.00

January to December 2000 12 12,100.00 145,200.00

January to December 2001 12 13,310.00 159,720.00

January to December 2002 12 14,641.00 175,692.02 [sic]

January to August 2003 8 16,105.10 128,840.80

TOTAL AMOUNT DUE: P 686,452.82 [sic]36

We cannot subscribe to GRIs view that it merely followed our ruling in Pilar Development Corporation v. Spouses
Villar37 (Pilar) when it deducted the cash surrender value from the rentals due. In Pilar, the developer also failed to refund
the cash surrender value to the defaulting buyer when it cancelled the Contract to Sell through a Notice of Cancellation. It
was this Court, and not the developer, that deducted the amount of the cash surrender value from the accrued rentals.
Moreover, the developer in Pilar did not unilaterally impose rentals. It was the MeTC that decreed the amount of monthly
rent. Neither did the developer unilaterally reduce the accrued rentals by the refundable cash surrender value. The
cancellation of the contract took effect only by virtue of this Courts judgment because of the developers failure to return
the cash surrender value.

This was how we ruled in Pilar:

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According to R.A. 6552, the cash surrender value, which in this case is equivalent to fifty percent (50%) of the total
payment made by the respondent spouses, should be returned to them by the petitioner upon the cancellation of the
contract to sell on August 31, 1998 for the cancellation to take effect. Admittedly, no such return was ever made by
petitioner. Thus, the said cash surrender value is hereby ordered deducted from the award owing to the petitioner based
on the MeTC judgment, and cancellation takes effect by virtue of this judgment.

Finally, as regards the award of 7,000.00/month as rental payment decreed by the MeTC for the use of the property in
question from the time the respondent spouses obtained possession thereof up to the time that its actual possession is
surrendered or restored to the petitioner, the Court finds the same just and equitable to prevent the respondent spouses,
who breached their contract to sell, from unjustly enriching themselves at the expense of the petitioner which, for all legal
intents and purposes, never ceased to be the owner of the same property because of the respondents non-fulfillment of
the indispensable condition of full payment of the purchase price, as embodied in the parties contract to sell. However, as
earlier explained, this sum is to be reduced by the cash surrender value of the payments so far made by the spouses, and
the resulting net amount still owing as accrued rentals shall be subject to legal interest from finality of this Decision up to
the time of actual payment thereof.38

Mandatory Twin Requirements:

Notarized Notice of Cancellation and
Refund of Cash Surrender Value

This Court has been consistent in ruling that a valid and effective cancellation under R.A. 6552 must comply with the
mandatory twin requirements of a notarized notice of cancellation and a refund of the cash surrender value.

In Olympia Housing, Inc. v. Panasiatic Travel Corp., 39 we ruled that the notarial act of rescission must be accompanied by
the refund of the cash surrender value.

x x x The actual cancellation of the contract can only be deemed to take place upon the expiry of a 30-day period
following the receipt by the buyer of the notice of cancellation or demand for rescission by a notarial act and the full
payment of the cash surrender value.

In Pagtalunan v. Dela Cruz Vda. De Manzano,40 we ruled that there is no valid cancellation of the Contract to Sell in the
absence of a refund of the cash surrender value. We stated that:

x x x Sec. 3 (b) of R.A. No. 6552 requires refund of the cash surrender value of the payments on the property to the buyer
before cancellation of the contract. The provision does not provide a different requirement for contracts to sell which allow
possession of the property by the buyer upon execution of the contract like the instant case. Hence, petitioner cannot
insist on compliance with the requirement by assuming that the cash surrender value payable to the buyer had been
applied to rentals of the property after respondent failed to pay the installments due. (Emphasis supplied)

Remedies of the Buyer

in the Absence of a Valid Cancellation of a Contract to Sell

In view of the absence of a valid cancellation, the Contract to Sell between GRI and Angeles remains valid and subsisting.
Apart from Olympia and Pagtalunan, we are guided by our rulings in Active Realty & Development Corp. v.
Daroya41 (Active) and Associated Marine Officers and Seamens Union of the Philippines PTGWO-ITF v.
Decena42 (Associated).

In Olympia , this Court dismissed the complaint for recovery of possession for having been prematurely filed without
complying with the mandate of R.A. 6552. We ordered the defaulting buyer to pay the developer the balance as of the
date of the filing of the complaint plus 18% interest per annum computed from the day after the date of the filing of the
complaint, but within 60 days from the receipt of a copy of the decision. Upon payment, the developer shall issue the
corresponding certificate of title in favor of the defaulting buyer. If the defaulting buyer fails to pay the full amount, then the
defaulting buyer shall vacate the subject property without need of demand and all payments will be charged as rentals to
the property. There was no award for damages and attorneys fees, and no costs were charged to the parties.

In Pagtalunan, this Court dismissed the complaint for unlawful detainer. We also ordered the defaulting buyer to pay the
developer the balance of the purchase price plus interest at 6% per annum from the date of filing of the complaint up to
 208

the finality of judgment, and thereafter, at the rate of 12% per annum. Upon payment, the developer shall issue a Deed of
Absolute Sale of the subject property and deliver the corresponding certificate of title in favor of the defaulting buyer. If the
defaulting buyer fails to pay the full amount within 60 days from finality of the decision, then the defaulting buyer should
vacate the subject property without need of demand and all payments will be charged as rentals to the property. No costs
were charged to the parties.

In Active, this Court held that the Contract to Sell between the parties remained valid because of the developers failure to
send a notarized notice of cancellation and to refund the cash surrender value. The defaulting buyer thus had the right to
offer to pay the balance of the purchase price, and the developer had no choice but to accept payment. However, the
defaulting buyer was unable to exercise this right because the developer sold the subject lot. This Court ordered the
developer to refund to the defaulting buyer the actual value of the lot with 12% interest per annum computed from the date
of the filing of the complaint until fully paid, or to deliver a substitute lot at the option of the defaulting buyer.

In Associated, this Court dismissed the complaint for unlawful detainer. We held that the Contract to Sell between the
parties remained valid because the developer failed to send to the defaulting buyer a notarized notice of cancellation and
to refund the cash surrender value. We ordered the MeTC to conduct a hearing within 30 days from receipt of the decision
to determine the unpaid balance of the full value of the subject properties as well as the current reasonable amount of rent
for the subject properties. We ordered the defaulting buyer to pay, within 60 days from the trial courts determination of the
amounts, the unpaid balance of the full value of the subject properties with interest at 6% per annum computed from the
date of sending of the notice of final demand up to the date of actual payment. Upon payment, we ordered the developer
to execute a Deed of Absolute Sale over the subject properties and deliver the transfer certificate of title to the defaulting
buyer. In case of failure to pay within the mandated 60-day period, we ordered the defaulting buyer to immediately vacate
the premises without need for further demand. The developer should also pay the defaulting buyer the cash surrender
value, and the contract should be deemed cancelled 30 days after the defaulting buyers receipt of the full payment of the
cash surrender value. If the defaulting buyer failed to vacate the premises, he should be charged reasonable rental in the
amount determined by the trial court.

We observe that this case has, from the institution of the complaint, been pending with the courts for 10 years. As both
parties prayed for the issuance of reliefs that are just and equitable under the premises, and in the exercise of our
discretion, we resolve to dispose of this case in an equitable manner. Considering that GRI did not validly rescind
Contracts to Sell Nos. 2271 and 2272, Angeles has two options:

1. The option to pay, within 60 days from the MeTCs determination of the proper amounts, the unpaid balance of
the full value of the purchase price of the subject properties plus interest at 6% per annum from 11 November
2003, the date of filing of the complaint, up to the finality of this Decision, and thereafter, at the rate of 6% per
annum.43 Upon payment of the full amount, GRI shall immediately execute Deeds of Absolute Sale over the
subject properties and deliver the corresponding transfer certificate of title to Angeles.

In the event that the subject properties are no longer available, GRI should offer substitute properties of equal
value.1wphi1 Acceptance of the suitability of the substitute properties is Angeles sole prerogative. Should
Angeles refuse the substitute properties, GRI shall refund to Angeles the actual value of the subject properties
with 6% interest per annum 44 computed from 11 November 2003, the date of the filing of the complaint, until fully
paid; and

2. The option to accept from GRI 574,148.40, the cash surrender value of the subject properties, with interest at
6% per annum,45 computed from 11 November 2003, the date of the filing of the complaint, until fully paid.
Contracts to Sell Nos. 2271 and 2272 shall be deemed cancelled 30 days after Angeles receipt of GRIs full
payment of the cash surrender value. No rent is further charged upon Angeles as GRI already had possession of
the subject properties on 10 October 2006.

WHEREFORE, we DENY the petition. The Decision of the Court of Appeals in CA-G.R. SP No. 105964 promulgated on
11 November 2011 and the Resolution promulgated on 19 June 2012 are AFFIRMED with MODIFICATIONS.

1. The Metropolitan Trial Court of Las Pias City is directed to conduct a hearing within a maximum period of 30
days from finality of this Decision to (1) determine Evelyn M. Angeles unpaid balance on Contracts to Sell Nos.
2271 and 2272; and (2) the actual value of the subject properties as of 11 November 2003.
 209

2. Evelyn M. Angeles shall notify the Metropolitan Trial Court of Las Pias City and Gatchalian Realty, Inc. within
a maximum period of 60 days from the Metropolitan Trial Court of Las Pias Citys determination of the unpaid
balance whether she will pay the unpaid balance or accept the cash surrender value.

Should Evelyn M. Angeles choose to pay the unpaid balance, she shall pay, within 60 days from the MeTCs
determination of the proper amounts, the unpaid balance of the full value of the purchase price of the subject properties
plus interest at 6% per annum from 11 November 2003, the date of filing of the complaint, up to the finality of this
Decision, and thereafter, at the rate of 6% per annum. Upon payment of the full amount, GRI shall immediately execute
Deeds of Absolute Sale over the subject properties and deliver the corresponding transfer certificate of title to Angeles.

In the event that the subject properties are no longer available, GRI should offer substitute properties of equal value.
Should Angeles refuse the substitute properties, GRI shall refund to Angeles the actual value of the subject properties
with 6 interest per annum computed from November 2003, the date of the filing of the complaint, until fully paid. Should
Evelyn M. Angeles choose to accept payment of the cash surrender value, she shall receive from GRI 574,148.40 with
interest at 6 per annum computed from November 2003, the date of the filing of the complaint, until fully paid. Contracts to
Sell Nos. 2271 and 2272 shall be deemed cancelled 30 days after Angeles' receipt of GRI's full payment of the cash
surrender value. No rent is further charged upon Evelyn M. Angeles.

No costs.

SO ORDERED.
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G.R. No. 186622 January 22, 2014

PEBLIA ALFARO AND THE HEIRS OF PROSPEROUS ALFARO, NAMELY: MARY ANN PEARL ALFARO &
ROUSLIA ALFARO, Petitioners,
vs.
SPOUSES EDITHO AND HERA DUMALAGAN, SPOUSES CRISPIN and EDITHA DALOGDOG, ET. AL.,Respondents.

DECISION

PEREZ, J.:

For review on certiorari is the Decision1 of the Court of Appeals dated 20 May 2008, which reversed and set aside the
Regional Trial Court Decision2 dated 7 August 2006 in Civil Case No. CEB-27400 for Annulment of Title, Preliminary
Injunction with Temporary Restraining Order and Damages.

The facts as culled from the records are as follows:

The lot in controversy is Lot No. 1710, covered by TCT No. T-78445, consisting of an estimated area of 2,287 sq m, more
or less, located in Talisay-Minglanilla Estate, Brgy. San Roque, Talisay City, registered in the name of Olegario Bagano.
On 14 June 1995, Bagano sold the subject property to petitioner Spouses Prosperous and Peblia Alfaro (Spouses Alfaro)
through a Deed of Absolute Sale.

Petitioners caused the immediate transfer of the title in their names on 20 June 1995, now TCT No. T-92783, and at the
same time, paid the real property tax, and constructed a perimeter fence around the subject property.

In preservation of their right as occupants of the subject property, respondents filed the instant case. 3

According to respondent Spouses Editho and Hera Dumalagan (Spouses Dumalagan), they are the real owners of Lot
No. 1710-H, a portion of the subject property, based on a notarized Deed of Absolute Sale dated 6 December 1993.4 To
prove ownership and possession, respondents offered in evidence a Certificate of Completion (Exhibit "C") and a
Certificate of Occupancy (Exhibit "C-3"), both dated 10 August 19935 and Visayan Electric Company Inc. electric
bills.6 Right after their purchase from Bagano, respondent Spouses Dumalagan immediately took possession of the
subject property and constructed a nipa hut therein, which they later on leased to Ramil Quiineza, who then occupied the
subject property until the end of 1997. Since then, several tenants have occupied the subject property, paying monthly
rentals to respondent Spouses Dumalagan: Spouses Crispin and Editha Dalogdog, Spouses Alberto and Lucy Boncales,
and Spouses Mariano and Constancia Castaares.

Meanwhile, Spouses Bagano filed a complaint for Declaration of Nullity of Sale with Damages and Preliminary Injunction
against petitioners on 15 April 1996 entitled, "Spouses Olegario P. Bagano and Cecilia C. Bagano v. Spouses Peblia and
Prosperous Alfaro" ("Bagano case" for brevity), docketed as Civil Case No. CEB-18835, in the Cebu City RTC, Branch
12.7 In the Bagano case, this Court sustained the validity of the Deed of Absolute Sale executed on 14 June 1995
between petitioners and Spouses Bagano.8
 211

In the case at bar, the trial court dismissed the complaint for lack of cause of action on 7 August 2006. The dispositive
portion of the dismissal reads:9

Accordingly, for lack of cause of action, the complaint is hereby DISMISSED. Plaintiff-spouses Editho and Hera
Dumalagan jointly and solidarily are directed to pay defendants the following sums:

1. 50,000.00 as moral damages;

2. 30,000.00 as attorneys fees;

3. 15,000.00 as litigation expenses.

SO ORDERED.

According to the trial court:

In sum, because of the unreliability of the testimonial evidence presented by the plaintiffs, this court finds no basis to
conclude that the defendants were indeed informed prior to June 20, 1995, that portions of Lot No. 1710, including Lot No.
1710-H were already owned by the plaintiffs and other parties.

In other words, the plaintiffs failed to establish that defendants were in bad faith when they bought Lot No. 1710 in 1995. 10

Aggrieved, respondents elevated the case to the Court of Appeals. On 20 May 2008, the appellate court reversed and set
aside the trial court decision. The dispositive portion of the Decision reads as: 11

1. Declaring TCT No. T-92783 of the defendants-appellees as Null and Void insofar as it included Lot No. 1710-H
consisting of Two Hundred Twelve (212) square meters of plaintiffs-appellants Sps. Editho and Hera Dumalagan;

2. Declaring plaintiffs-appellants Sps. Editho and Hera Dumalagan as lawful owners of Lot No. 1710-H, including
the improvements thereon.

3. Ordering the defendants-appellees liable to pay to plaintiffs-appellants Sps. Editho and Hera Dumalagan the
amount 20,000 as moral damages; and

4. Ordering the defendants-appellees liable to pay to plaintiffs-appellants Sps. Editho and Hera Dumalagan the
amount 30,000 as attorneys fees and litigation expenses.

According to the appellate court, petitioners cannot claim good faith. It referred to annotations written at the back of
Baganos title. It noted that the annotated adverse claims, even if not in the names of respondents, have the effect of
charging petitioners as subsequent buyers with constructive notice of the defect of the sellers title. Moreover, as shown
by the records, petitioners had prior knowledge that portions of the subject property have been sold to third persons. 12

On 9 February 2009, the Court of Appeals denied the motion for reconsideration affirming its decision. 13

Hence this Petition with the following assignment of errors:

1. THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN PARTIALLY REVERSING A DECISION

OF THE SUPREME COURT INVOLVING THE ISSUES OF OWNERSHIP OVER THE SAME LOT;

2. THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN DECLARING PETITIONERS AS

BUYERS IN BAD FAITH MERELY ON THE BASIS OF AN EXPIRED ADVERSE CLAIM OF ALLEGED PRIOR
PURCHASERS- WHO ARE NOT EVEN PARTIES HEREIN; and

3. THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR AS WELL AS JUDICIAL LEGISLATION IN

DECLARING THAT AN ADVERSE CLAIM, EVEN IF ALREADY EXPIRED, IS STILL CONSIDERED
CONSTRUCTIVE NOTICE.
 212

As just noted, this Court sustained the validity of the Deed of Absolute Sale between Spouses Bagano and petitioners in
the Bagano case. On this basis, petitioners contend that the Supreme Courts decision in the Bagano case constitutes res
judicata apropos the case at bar. According to petitioners, respondents, even if they were not made parties, are bound by
the Courts ruling on the ownership in favor of petitioner.14 Petitioners contend that the appellate court violated the
doctrine of res judicata when it sustained the validity of the Deed of Absolute Sale as it unduly awarded ownership of the
subject property to respondents, obliquely reversing the Supreme Courts decision in the Bagano case.

Res judicata refers to the rule that a final judgment or decree on the merits by a court of competent jurisdiction is
conclusive of the rights of the parties or their privies in all later suits on all points and matters determined in the former
suit.15 The elements of res judicata are as follows: (1) the former judgment or order must be final; (2) the judgment or
order must be on the merits; (3) it must have been rendered by a court having jurisdiction over the subject matter and the
parties; and (4) there must be, between the first and the second action, identity of parties, of subject matter and cause of
action.16

We shall discuss each element in seriatim.

Our decision in the Bagano case on the merits has long been final. Also, the court a quo has jurisdiction over the subject
matter and the parties. However, on the issue on identity of parties and cause of action, We rule in the negative.

In the Bagano case, the parties are herein petitioner Spouses Alfaro and the Spouses Bagano, as privies to the Deed of
Absolute Sale dated 14 June 1995. In the case at bar, the parties are petitioner Spouses Alfaro and respondent Spouses
Dumalagan basing their rights on the Deed of Absolute Sale dated 3 December 1993. There is, thus, no identity of parties.

In the Bagano case, the cause of action is the alleged forgery of the Deed of Absolute Sale by petitioners; the crux of the
case being the validity of the sale between Bagano and petitioners. In the case at bar, the cause of action is the violation
of right of ownership of respondent Spouses Dumalagan. Clearly, there is no identity of cause of action. Therefore, the
doctrine of res judicata is inapplicable in the case at bar. The appellate court did not reverse a Supreme Court decision.

Petitioners also contend that respondents should have intervened in the Bagano case; for failure to intervene, the latter
are bound by the judgment for bad faith and/or laches.17 Petitioners claim must fail. In Mactan-Cebu International Airport
Authority v. Heirs of Estanislao Mioza, et. al., this Court clarified that:

xxx an independent controversy cannot be injected into a suit by intervention, hence, such intervention will not be allowed
where it would enlarge the issues in the action and expand the scope of the remedies. It is not proper where there are
certain facts giving the intervenors case an aspect peculiar to himself and differentiating it clearly from that of the original
parties; the proper course is for the would-be intervenor to litigate his claim in a separate suit. Intervention is not intended
to change the nature and character of the action itself, or to stop or delay the placid operation of the machinery of the trial.
The remedy of intervention is not proper where it will have the effect of retarding the principal suit or delaying the trial of
the action.18 [Emphasis supplied]

In line with this ruling, the issue on double sale, which concerns the present case cannot be injected into the Bagano
case, which is based on facts peculiar to the transaction between Bagano and petitioners. For one, herein respondents
claim ownership of only a portion of the property litigated in the Bagano case, and the basis of respondents claim is a
prior sale to them by Bagano, whose authority as a seller was an unquestioned fact. Neither of the parties in the second
Bagano sale made any mention of the first sale of a part of the property to respondents.

We shall discuss the second and third issues together as they are closely related.

A simple perusal of the records will reveal that there were two adverse claims annotated in the title: (1) 22 February 1995,
executed by Maria Theresa Dimaguila and Andrew D. Sepe,19 and (2) 6 April 1995, executed by Spouses Lorenzo and
Milagros Belandres.20 However, petitioners contend that the annotated adverse claims have already expired pursuant to
Section 70 of Presidential Decree No. 1529, which provides that an adverse claim shall be effective only for a period of 30
days from the date of its registration. Petitioners claim that the "constructive notice" ended 30 days from 22 February 1995
or on 23 March 1995. Consequently, petitioners claim that because they purchased the subject property after 23 March
1995, they were, therefore, buyers in good faith.21

Section 70 of P.D. 152922 provides:

 213

Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of
the original registration, may, if no other provision is made in this decree for registering the same, make a statement in
writing setting forth fully his alleged right or interest, and how or under whom acquired, a reference to the number of
certificates of title of the registered owner, the name of the registered owner, and a description of the land in which the
right or interest is claimed.

The statement shall be signed and sworn to, and shall state the adverse claimants residence, and a place at which all
notices may be served upon him. This statement shall be entitled to registration as an adverse claim on the certificate of
title. The adverse claim shall be effective for a period of thirty days from the date of registration. After the lapse of the said
period, the annotation of adverse claim may be cancelled upon filing of a verified petition therefore by the party in interest:
Provided, however, that after cancellation, no second adverse claim based on the same ground shall be registered by the
same claimant. x x x x [Emphasis supplied]

The above provision would seem to restrict the effectivity of adverse claims to 30 days. However, the same should not be
read separately, but should be read in relation to the subsequent sentence, which reads:23

After the lapse of said period, the annotation of adverse claim may be cancelled upon filing of a verified petition therefore
by the party in interest. [Emphasis supplied]

The law, taken together, simply means that the cancellation of the adverse claim is still necessary to render it ineffective,
otherwise, the inscription will remain annotated and shall continue as a lien upon the property; for if the adverse claim
already ceased to be effective upon the lapse of the said period, its cancellation is no longer necessary and the process of
cancellation would be a useless ceremony.24

Therefore, petitioners cannot claim good faith on the basis of the supposed ineffectivity of the annotated adverse claims
as the same have not been cancelled at the time of purchase. Assuming arguendo that the annotated adverse claims
expired on 23 March 1995, petitioners still cannot claim good faith as they were fully aware that there were occupants in
the subject property other than the seller. Worse, they were also fully aware that an occupant in the subject property
bought the same; that aside from the nipa hut, there were also other structures in the subject property, one of which was
built by Epifanio Pesarillo.25

As culled from the records, Mr. Pesarillo constructed a building in the subject property and occupied the same as
evidenced by official receipts for construction materials 26 and various electrical bills and receipts.27 In fact, it was no less
than petitioner Peblia Alfaro, who admitted that there were other occupants in the subject property:28

Q: Before you bought this property from Mr. Bagano, did you try to inspect the property in order to find out if there are
occupants on the subject property?

A: Yes. I conducted an inspection of the site.

Q: What did you find out?

A: There was a person occupying there by the name of Pesarillo.

xxxx

Q: Aside from Mr. Pesarillo, were there other occupants in the said lot?

A: Yes. John Danao.

Q: Are you trying to tell the court that Mr. John Danao was constructing a house on the said property?

A: Yes, maam.

Q: Were you able to talk to Mr. John Danao during the inspection that you have conducted?
 214

A: Yes, I have a talk with him once.

Q: Will you please tell the court what did you talk about with Mr. John Danao?

A: He told me that he purchased the lot by installment. But upon learning that we bought the lot he did not pursue talking
to me. He went to Mr. Bagano to have a talk about the matter. xxxx [Emphasis supplied]

As correctly held by the appellate court:

xxx by the very fact that the title of Bagano was not clean on its face, the defendants-appellees [petitioners] were more
than obliged to look beyond the formers title and make further inquiries about the extent of the latters right and authority
over the subject lot. In other words, defendants-appellees [petitioners] should have inquired deeper into the title and right
of Bagano over Lot No. 1710. Obviously, the defendants-appellees failed to take this precaution and instead proceeded
with the purchase in haste. Had they done so as a reasonably prudent man buying real property should, they would have
discovered that some portions of Lot 1710 had already been sold by Bagano to third persons who are already in
possession of the same xxx29

Article 1544 of the Civil Code provides:30

If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may
have first taken possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in
the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession;
and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. [Emphasis supplied]

The aforesaid provision clearly states that the rule on double or multiple sales applies only when all the purchasers are in
good faith. In detail, Art. 1544 requires that before the second buyer can obtain priority over the first, he must show that he
acted in good faith throughout, i.e., in ignorance of the first sale and of the first buyers rights, from the time of acquisition
until the title is transferred to him by registration or failing registration, by delivery of possession. 31

A purchaser in good faith is one who buys the property of another without notice that some other person has a right to, or
an interest in such property, and pays a full and fair price for the same at the time of such purchase, or before he has
notice of some other persons claim or interest in the property. 32 The petitioners are not such purchaser.

Petitioners had prior knowledge of the previous sales by installment of portions of the property to several
purchasers.1wphi1 Moreover, petitioners had prior knowledge of respondents possession over the subject property.
Hence, the rule on double sale is inapplicable in the case at bar. As correctly held by the appellate court, petitioners prior
registration of the subject property, with prior knowledge of respondents claim of ownership and possession, cannot
confer ownership or better right over the subject property.33

The ruling in Crisostomo v. Court of Appeals, citing repeated pronouncements, is apropos: 34

It is a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should put a reasonable man
upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the
vendor or mortgagor. His mere refusal to believe that such defect exists, or his willful closing of his eyes to the possibility
of the existence of a defect in the vendor's or mortgagor's title, will not make him an innocent purchaser or mortgagee for
value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defects as
would have led to its discovery had he acted with the measure of precaution which may be required of a prudent man in a
like situation. [Emphasis supplied]

WHEREFORE, the petition is DENIED. The Decision dated 20 May 2008 and Resolution dated 9 February 2009 of the
Court of Appeals in CA-G.R. CEB CV. No. 01702 are AFFIRMED.

SO ORDERED.
 215

JOSE PORTUGAL PEREZ

Associate Justice

G.R. No. 199852 November 12, 2014

SPS. FELIPE SOLITARIOS and JULIA TORDA, Petitioners,

vs.
SPS. GASTON JAQUE and LILIA JAQUE, Respondents.

DECISION

VELASCO, JR., J.:

Nature of the Case

In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, petitioners spouses Felipe Solitarios and Julia
Torda (spouses Solitarios) seek the reversal of the August 31, 2010 Decision and November 24, 2011 Resolution of the
Court of Appeals (CA) in CA-G.R. CEB-CV No. 00112, which in tum set aside the Decision of the Regional Trial Court of
Calbayog City, Branch 31 (RTC), in Civil Case No. 772.

The Facts

The property subject of this suit is a parcel of agricultural land designated as Lot 4089, consisting of 40,608 square meters
(sq. m.), and located in Calbayog, Samar. It was originally registered in the name of petitioner Felipe Solitarios under
Original Certificate of Title (OCT) No. 1249, and, thereafter, in the name of the respondents, spouses Gaston and Lilia
Jaque (the Jaques), under Transfer Certificate of Title (TCT) No. 745.

In a Complaint for Ownership and Recovery of Possession with the RTC of Calbayog City, the respondents spouses
Jaque alleged that they purchased Lot 4089 from the petitioners, spouses Solitarios in stages. According to respondents,
they initially bought one-half of Lot No. 4089 for 7,000.00. This sale is allegedly evidenced by a notarized Deed of Sale
dated May 8, 1981. Two months later, the spouses Solitarios supposedly mortgaged the remaining half of Lot 4089 to the
Jaques via a Real Estate Mortgage (REM) dated July 15, 1981, to securea loan amounting to 3,000.00.

After almost two (2) years, the spouses Solitarios finally agreed to sell the mortgaged half. However, instead of executing
a separate deed of sale for the second half, they executed a Deed of Sale dated April 26, 1983 for the whole lot to save
on taxes, by making it appear that the consideration for the sale of the entire lot was only 12,000.00 when the Jaques
actually paid 19,000.00 in cash and condoned the spouses Solitarios 3,000.00 loan.

On the basis of this second notarized deed, the Jaques had OCT No. 1249 cancelled and registered Lot 4089 in their
name under Transfer Certificate of Title (TCT) No. 745.

In spite of the sale, the Jaques, supposedly out of pity for the spouses Solitarios, allowed the latter to retain possession of
Lot 4089, subject only to the condition that the spouses Solitarioswill regularly deliver a portion of the propertys produce.
In an alleged breach of their agreement, however, the spouses Solitarios stopped delivering any produce sometime in
2000. Worse, the spouses Solitarios even claimed ownership over Lot 4089. Thus, the Jaques filed the adverted
complaint with the RTC.

For their part, the spouses Solitarios denied selling Lot 4089 and explained that they merely mortgaged the same to the
Jaques after the latter helped them redeem the land from the Philippine National Bank (PNB).

The spouses Solitarios narrated that, way back in 1975, they obtained a loan from PNB secured by a mortgage over Lot
4089. They were able to pay this loan and redeem their property with their own funds. Shortly thereafter, in 1976, they
again mortgaged their property to PNB to secure a 5,000.00 loan. This time, the Jaques volunteered to pay the
mortgage indebtedness, including interests and charges and so gave the spouses Solitarios 7,000.00 for this purpose.
However, this accommodation was made, so the spouses Solitarios add, with the understanding that they would pay back
 216

the Jaques by delivering to them a portion of the produce of Lot 4089, in particular, onehalf of the produce of the rice land
and one-fourth of the produce of the coconut land. The spouses Solitarios contended that this agreement was observed
by the parties until May 2000, when Gaston Jaque informed them that he was taking possession of Lot 4089 as owner.
And to their surprise, Gaston Jaque showed them the Deeds of Sale dated May 8, 1981 and April 26, 1983, the REM
contract dated July 15, 1981, and TCT No. 745 to prove his claim. The spouses Solitarios contended that these deeds of
sale were fictitious and their signatures therein forged. Further, the spouses Solitarios challenge the validity of TCT No.
745, alleging thatthe Jaques acquired it through fraud and machinations and by taking advantage of their ignorance and
educational deficiency. Thus, they prayed that the RTC: (1) cancel TCT No. 745; (2) declare the adverted deeds of sales
dated May 8, 1981 and April 26, 1983 as null and void; (3) declare them the true and lawful owners of Lot 4089; and (4)
award them moral and actual damages.

During the course of the trial, and in compliance with the February 7, 2001 Order of the RTC, the spouses Solitarios
deposited with the court a quothe Jaques purported share in the produce of Lot 4089 for the years 2001-2003, which
amounted to 16,635.60.1

On April 15, 2004, the RTC rendered a Decision2 upholding the validity of the deeds of sale in question and TCT No. 745,
rejecting the allegations of forgery and fraud. However, in the same breath, the RTC declared that what the parties
entered into was actually an equitable mortgage as defined under Article 1602 in relation to Article 1604 of the New Civil
Code, and not a sale. Consequently, the RTC ordered, among others, the reformation of the Deeds ofSale dated May
9,1981 and April 26, 1983, and the cancellation of TCT No. 745 in the name of the Jaques. The dispositive portion of the
RTC Decision reads:

WHEREFORE, this Court dismisses the instant case and pronounces Judgment against plaintiffs and hereby orders the
following:

1. Reformation of the Deed of Sale dated May 9, 1981 (Exhibit "E") and the Deed of Sale dated April 26, 1983
(Exhibit "G") into contracts of mortgage;

2. Cancellation of TCT No. 745 in the name of spouses Gaston Jaque and Lilia Laure Jaque;

3. Considering the total mortgage debt of Php 12,000.00 as totally paid pursuant to Article 1602 of the New Civil
Code;

4. Release of the amounts deposited to the Court by defendants to them minus lawful charges for their
safekeeping, if any; and

5. Payment of costs of the proceedings by the plaintiffs.

SO ORDERED.3

The RTC anchored its holding on the nature of the pertinent contracts in question on its findings that: (1) after the alleged
sale, the spouses Solitarios remained in possession ofthe land; (2) the Jaques did not physically occupy Lot 4089; (3) the
consideration for the sale of the whole land as stated in the Deed of Sale dated April 26, 1983, was only 12,000.00, an
amount grossly inadequate for a titled coconut and rice lands consisting of 40,608 sq. m.; (3) the Jaques did not disturb
the possession of Lot 4089 by Leonora Solitarios, Felipes sister-in-law, who resided therein; and (4) the Jaques never
had a tenant in the subject property.

On appeal, the CA4 reversed and set aside the RTC Decision, rejecting the trial courts holding that the contract between
the parties constituted an equitable mortgage.

The CA noted that the allegation thatthe transaction is an equitable mortgage and not one of sale was not presented
before the trial court and was raised belatedly on appeal. Even then, the CA held that the spouses Solitarios failed to
convincingly prove that the deeds of sale were sham, noting that their bare denial as to their authenticity was insufficient
to overcome the positive value of the notarized deeds of sale. The CA further found that the spouses Solitarios claim of
inadequacy of the purchase price is unsupported by any evidence on record and that the spouses Solitarios possession
of Lot 4089 after the sale was not in the concept of an owner. In addition, the appellate court gave weight to the fact that
the Jaques paid the taxes on Lot 4089 since 1984. The CA, thus, concluded that based on the parties actuations before,
 217

during, and after the transactions, it was unmistakable that they had no other intention but to enter into a contract of sale
of Lot 4089.

Their Motion for Reconsideration having thereafter been denied by the CA in its Resolution dated November 24, 2011, the
spouses Solitarios5 have filed the instant petition.

Issue

From the foregoing narration of facts,it is abundantly clear that the only material point of inquiry is whether the parties
effectively entered into a contract of absolute sale or anequitable mortgage of Lot 4089.

The Court's Ruling

The petition is impressed with merit.

At the outset, We note that, contrary to the finding of the CA, petitioner spouses Solitarios actually presented before the
RTC their position that the real agreement between the parties was a mortgage, and not a sale. Being unlettered,
petitioners may have averred that the deeds of sale and TCT presented by respondents were forgeries, obtained as they
were through fraud and machination. However, their saying that the sale instruments were "fictitious" and their signatures
thereon were "forged" amounts to alleging that they never agreed to the sale of their lot, and they never intended to sign
such conveyances. This reality is supported by the testimony of petitioner Felipe Solitarios that was offered to prove the
true intention of the parties that Lot 4089 was only mortgaged, not sold, to the Jaques. Before Felipes direct
examination, his counsel stated thus-

"ATTY. MARTIRES

With the permission of the Court.This witness is one of the defendants; he will testify that the land was just mortgaged to
the plaintiff contrary to the claim of the plaintiff that the defendants sold the same to the plaintiffs; he will also testify that
the defendants never executed deed of sale in favor of the plaintiffs; he will also testify that of the produce of the
cocoland subject of this case was delivered by the defendants to the plaintiffs and with regards to the riceland, of the
produce was also delivered to the plaintiffs; and he will also testify other matters related to this case." 6

The Court is, therefore, not precluded from looking into the real intentions of the parties in order to resolve the present
controversy. For that reason, the Court takes guidance from Article 1370 of the Civil Code, which instructs that "if the
words [of a contract] appear to be contrary to the evident intention of the parties, the latter shall prevail over the former."
Indeed, it is firmly settled that clarity of contract terms and the name given to it does not bar courts from determining the
true intent of the parties. In Zamora vs. Court of Appeals,7 the Court elucidated that

In determining the nature of a contract, courts are not bound by the title or name given by the parties. The decisive factor
in evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used in the
contract but by their conduct, words, actions and deeds prior to, during and immediately after executing the agreement.
As such therefore, documentary and parol evidence may be submitted and admitted to prove such intention. 8 Further, in
resolving this kind of controversy, the doctrinal teaching of Reyes vs. Court of Appeals9 impels us to give utmost
consideration to the intention of the parties in light of the relative situation of each, and the circumstances surrounding the
execution of the contract, thus: In determining whether a deed absolute in form is a mortgage, the court is not limited to
the written memorials of the transaction. The decisive factor in evaluating such agreement is the intention of the parties,
as shown not necessarily bythe terminology used in the contract but by all the surrounding circumstances, such as the
relative situation of the parties at that time, the attitude, acts, conduct, declarations of the parties, the negotiations
between them leading to the deed, and generally, all pertinent facts having a tendency to fix and determine the real nature
of their design and understanding. x x x

There is no single conclusive test to determine whether a deed of sale, absolute on its face, is really a simple loan
accommodation secured by a mortgage.10 However, Article 1602 in relation to Article 1604 of the Civil Code enumerates
several instances whena contract, purporting to be, and in fact styled as, an absolute sale, is presumed to be an equitable
mortgage, thus:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:
 218

(1) When the price of a sale withright to repurchase is unusually inadequate;

(2) When the vendor remains inpossession as lessee or otherwise;

(3) When upon or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall
be considered as interest which shall be subject to the usury laws.11 Art. 1604. The provisions of Article 1602 shall also
apply to a contract purporting to be an absolute sale.

As evident from Article 1602 itself, the presence of anyof the circumstances set forth therein suffices for a contract to be
deemed an equitable mortgage. No concurrence or an overwhelming number is needed. 12

With the foregoing in mind, We thus declare that the transaction between the parties of the present case is actually one of
equitable mortgage pursuant to the foregoing provisions ofthe Civil Code. It has never denied by respondents that the
petitioners, the spouses Solitarios, have remained in possession of the subject property and exercised acts of ownership
over the said lot even after the purported absolute sale of Lot 4089. This fact is immediately apparent from the testimonies
of the parties and the evidence extant on record, showing that the real intention of the parties was for the transaction to
secure the payment of a debt. Nothing more.

Petitioners Possession of the Subject Property after the Purported Sale

During pre-trial, the Jaques admitted that the spouses Solitarios were in possession of the subject property. 13Gaston
Jaque likewise confirmed that petitioners were allowed to produce copra and till the rice field, which comprise one-half of
the lot that was previously covered by the real estate mortgage, after said portion was allegedly sold to them. 14

This Court had held that a purportedcontract of sale where the vendor remains in physical possession of the land, as
lessee or otherwise, is an indiciumof an equitable mortgage.15 In Rockville v. Sps. Culla,16 We explained that the reason
for this rule lies in the legal reality that in a contract of sale, the legal title to the property is immediately transferred to the
vendee. Thus, retention by the vendor of the possession of the property is inconsistent with the vendees acquisition of
ownership under a true sale. It discloses, in the alleged vendee, a lack of interest in the property that belies the
truthfulness of the sale.

During the period material to the present controversy, the petitioners, spouses Solitarios, retained actual possession of
the property. This was never disputed. If the transaction had really been one of sale, as the Jaques claim, they should
have asserted their rights for the immediate delivery and possession of the lot instead of allowing the spouses Solitarios to
freely stay in the premises for almost seventeen (17) years from the time of the purported sale until their filing ofthe
complaint. Human conduct and experience reveal that an actual owner of a productive land will not allow the passage of a
long period of time, as in this case, without asserting his rights of ownership.

Further, Gaston Jaque first claimed possession of the subject property through his mother-in-law, and then through hired
workers when the latter passed away;17 not personally. It is also undisputed that the Jaques never installed a tenant on
Lot 4089 and did not disturb the Solitarios possession of the same. 18 On this note, We agree with the finding of the RTC
that the Jaques alleged possession of the subject property is suspect and unsubstantial, and they never possessed the
same in the concept of owners, viz:

Even as to the first half portion of the land allegedly sold by the defendants to the plaintiffs, the evidence too tends to
show that the plaintiffs did not really possess it asowners. Plaintiffs evidence with regards to their possession over this
portion is very doubtful. According to plaintiff Gaston Jaque when he testified in Court, they possessed this portion
 219

through his mother-in-law till she died in 1992 or 1992: that when she died, they possessed it already through hired
workers. However, in the statement of facts of the resolution of the public prosecutor in the case of Qualified Theft which
plaintiffs filed against the defendants, it is clearly shown that the plaintiffs stated thatthe defendants took possession of the
entire property since 1983 yet.

On the other hand, in this case, they are now claiming that it was actually in the year 2000 that the defendants bid claim
on this land.

xxxx

Third, the fact that defendants witness Leonora Solitarios [Felipes sister] resides and has a house in the land in question
without having been disturbed by the plaintiffs and the fact that the plaintiffs never have a tenant in the land even if they
reside in Cebu City also show in some manner that they are not really the owners of the land, but the defendants. 19

Not only is there a presumption that the deeds of sale are an equitable mortgage, it has been amply demonstrated by
petitioners that the deed of sale is intended to be one of mortgage based on the proof presented by petitioners and
propped up even by the admissions of respondents. The intention of the parties was for the transaction to secure the
payment of a debt

To stress, Article 1602(6) of the Civil Code provides that a transaction is presumed to be an equitable mortgage:

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure
the payment of a debt or the performance of any other obligation.

This provision may very well be applied in this case. There is sufficient basis to indulge in the presumption that the
transaction between the parties was that of an equitable mortgage and that the spouses Solitarios never wanted to sell
the same to the Jaques.

The foregoing presumption finds support in the following: First, the very testimony of Gaston Jaque and the documents he
presented establish the existence of two loans, which the Jaques extended to the spouses Solitarios, that were secured
by the subject property; and, second, the testimonies of the parties reveal that they came to an agreement as to how
these loans would be paid.

The first loan was contracted when Gaston Jaque gave the spouses Solitarios 7,000.00 to help them redeem the subject
property from PNB.20 In effect, by extending the 7,000.00 financial assistance to the spouses Solitarios, Gaston Jaque
took over the loan, became the lender and assumed the role of mortgagee in place of PNB.

Thereafter, the spouses Solitarios obtained a second loan from the Jaques amounting to 3,000.00. This is evidenced by
an REM dated July 15, 1981 by virtue of which the spouses Solitarios mortgaged one-half of the subject property to the
Jaques to secure the payment of said loan.

The parties testified that they entered into a verbal agreement on the sharing of the produce of the subject property. For
his part, it seemed that Gaston Jaque wanted to impress upon the lower court that this sharing agreement was fixed as a
condition for his allowing the Solitarios continued possession and cultivation of the subject property. However, there is a
strong reason to believe that this arrangement was, in fact, a payment scheme for the debts that the spouses Solitarios
incurred.

During his testimony, Felipe Solitarios explained that after the Jaques gave him funds to redeemthe property from PNB,
they entered into an agreement on the sharing of the produce and that this arrangement would last until they shall have
redeemed the land from the Jaques. We note that this assertion by Felipe Solitarios was never refuted on cross or re-
cross examination. Felipe Solitarios explained

DIRECT EXAMINATION BY

ATTY. MELINDA MARTIRES

Q When did Lilia Jaque give you the money to redeem the mortgage indebtedness from the Philippine National Bank?
 220

A In 1976

Q How much did she give you?

A 5,000.00

Q After giving you the amount of 5,000.00 to be used to redeem the mortgage indebtedness, was there any agreement
between you and Lilia Jaque?

A Our agreement was, on the produce of the riceland, she will be given 1/4 and on the coconut land 1/2. 21

xxx xxx xxx

Q Where were the spouses when the land was already redeemed from the PNB?

A They were in Cebu.

Q So, to whom did you deliver their share of the produce of the land?

A To Yaning, the mother of Ma Lilia.

Q When did you start delivering the share of the plaintiff of the land in question?

A From the time I mortgaged this land to them.

Q You mean to say from 1976?

A Yes.

Q How many times did you deliver tothe parents of the plaintiffs the share of the plaintiffs ofthe produce of the land?

A Every harvest, we deliver their share and everytime we make copra, we also deliver their share to Ma Yaning.

xxx xxx xxx

ATTY. MARTIRES

Q Per condition with the plaintiffs which you have told us a while ago, for how long will you deliver their share?

A Every harvest we have to give their share because we have not yet redeemed the land.

Q So there was no duration of your giving their share of the land?

A If I desire to redeem the land from them.22

Furthermore, Gaston Jaque himself testified receiving a portion of the produce of the subject property preciselybecause of
the loan covered by the July 15, 1981 REM.23

It is, thus, clear from the foregoing that the Jaques extended two loans to the spouses Solitarios, who in exchange,
offered tothe former the subject property, not to transfer ownership thereto, but to merely secure the payment of their
debts. This may be deduced from the testimonies of both Felipe Solitarios and Gaston Jaque, revealing the fact that they
agreed upon terms for the payment of the loans, in particular, the sharing in the produce of the lot.
 221

Verily, the fact that the parties agreed on payment terms is inconsistent with the claim of the Jaques that when the
spouses Solitarios executed the questioned deeds of sale they had no other intention but to transfer ownership over the
subject property.

Thus, there is ground to presume that the transaction between the parties was an equitable mortgage and not a sale.
There is nothing in the records sufficient enough to overturn this presumption.

The contracts of sale and mortgage are of doubtful veracity

Furthermore, an examination of the transaction documents casts doubts on their validity. As alleged by petitioners, their
signatures therein appear to be forged. We distinctlyobserve that each of the three (3) documents bears different versions
of petitioner Julia Solitarios signatures. First, on the first page of the 1981 Deed of Sale, particularly on the space
provided for Julia Solitarios to express her marital consent to the sale, the signature "Julia Torda Solitarios"
appears.24 What is strange is that in the acknowledgement page of the very same document, Julia Solitarios purportedly
signed as "Julia T. Solitarios,"25 which is obviously different from the signature appearing on the first page. Further, while
the 1981 REM document contains the signature "Julia Turda,"26 the 1983 Deed of Sale bears the signature "Julia Torda."
These discrepancies suggest that the documents were signed by different persons.

Nevertheless, assuming arguendo that these documents were really signed by petitioners, there is reason to believe that
they did so without understanding their real nature and thatthe Jaques never explained to them the effects and
consequencesof signing the same.

In negotiating the transactions, the parties did not deal with each other on equal terms

The Civil Code provisions that consider certain types of sales as equitable mortgages are intended for the protection of
the unlettered such as the spouses Solitarios, who are penurious vis--vis their creditors.27 In Cruz v. Court of
Appeals,28 the Court held -

Vendors covered by Art. 1602 usually find themselves in an unequal position when bargaining with the vendees, and will
readily sign onerous contracts to get the money they need. Necessitous men are not really free men in the sense that
toanswer a pressing emergency they will submit to any terms that the crafty may impose on them. This is precisely the
evil that Art. 1602 seeks to guard against. The evident intent of the provision is to give the supposed vendor maximum
safeguards for the protection of his legal rights under the true agreement of the parties.

Without doubt, the spouses Solitarios need the protection afforded by the Civil Code provisions on equitable mortgage.
Certainly, the parties were negotiating on unequal footing. As opposed to the uneducated29 and impoverished farmer,
Felipe Solitarios,30 Gaston Jaque, was a 2nd Lieutenant of the Armed Forces of the Philippines when he retired. 31 Further,
Felipe Solitarios was constantly infinancial distress. He was constantly in debt and in dire financial need. That he
borrowed money from the PNB twice, first in 1975 then in 1976, and mortgaged the subject property to the Jaques
suggest as much.

While Felipe Solitarios was able to settle his 1975 loan and redeem the mortgage with his own money, 32 he no longer had
enough funds to redeem the subject property after obtaining a loan in 1976. Thus, he was impelled to borrow money from
the Jaques to get his property back in 1981. Shortly after, on July 15, 1981, Felipe Solitarios, again indesperate need,
borrowed money from Gaston Jaque and mortgaged to the latter a portion of the subject property.

It is, therefore, not difficult to imagine that Felipe Solitarios quickly consented to arrangements proposed to him by a
seemingly trustworthy Gaston Jaque, and mindlessly signed instrumental documents that were never explained to him
and he never fully understood but nonetheless assured him of fast cash and easy payment terms. What the court a quo
wrote in this regard merits concurrence:

Still another fact which militates against plaintiffs cause is their failure to prove during trial that they really endeavored to
explain to the defendants the real nature of the contract they were entering into, it appearing that the defendants are of
low education compared to them especially plaintiff Gaston Jaque who is a retired military officer. The law requires that in
case one of the partiesto a contract is unable to read (or maybe of low education), and fraud isalleged, the person
enforcing the contract must show that the term thereof have been fully explained to the former (Spouses Nena Arriola and
 222

Francisco Adolfo, et.al. vs. Demetrio Lolita, Pedro, Nena, Braulio and Dominga, all surnamed Mahilum, et. al. G.R. No.
123490, August 9, 2000).33

The law favors the least transmission of rights

It is further established that when doubt exists as to the true nature of the parties transaction, courts must construe such
transaction purporting to be a sale as an equitable mortgage, as the latter involves a lesser transmission of rights and
interests over the property in controversy.34 Thus, in several cases, the Court has not hesitated to declare a purported
contract of sale to be an equitable mortgage based solely on one of the enumerated circumstances under Article 1602. So
it should be in the present case.

In Sps. Raymundo v. Sps. Bandong,35 the Court observed that it is contrary to human experience that a person would
easily part with his property after incurring a debt. Rather, he would first look for means to settle his obligation, and the
selling of a propertyon which the house that shelters him and his family stands, would be his last resort.

Here, the Court finds the spouses Solitarios alleged sale of the subject property in favor of the Jaques simply contrary to
normal human behavior. Be it remembered that the spouses Solitarios depended much on this property as source of
income and livelihood. Further, they made use of it to obtain and secure badly needed loans. This property was so
important to them that they had to borrow money from the Jaques to raise funds to ensure its redemption. Furthermore,
even after the supposed sale, the spouses Solitarios remained tied to this land asthey never left it to live in another place
and continued tilling and cultivating the same. Thus, considering how valuable this land was to the spouses Solitarios,
being their main, if not, only source of income, it is hard to believe that they would easily part with it and sell the same to
another.

Furthermore, it is also difficult to understand why, after going through all the complications in redeeming the property from
PNB, the spouses Solitarios would simply transfer this tothe Jaques. It is inconceivable that the spouses Solitarios would
sell their property just to pay the PNB loan. It is more believable that, if at all, they conveyed their land on a temporary
basis only, without any intention to transfer ownership thereto and with the assurance that upon the payment of their
debts, the same would be returned to them.

The only reasonable conclusion that may be derived from the execution of the Deeds of Sale in favor of the Jaques is to
ensure that the Solitarios will pay their obligation.

The transfer of the subject property is a pactum commissorium

Further, We cannot allow the transfer of ownership ofLot 4098 to the Jaques as it would amount to condoning the
prohibited practice of pactum comissorium. Article 2088 of the Civil Code clearly provides that a creditor cannot
appropriate or consolidate ownership over a mortgaged property merely upon failure of the mortgagor to pay a debt
obligation,36 viz.:

Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any
stipulation to the contrary is null and void.

The essence of pactum commissorium is that ownership of the security will pass to the creditor by the mere default of the
debtor. This Court has repeatedly declared such arrangements as contrary to morals and public policy. 37

As We have repeatedly held, the only right of a mortgagee in case of non-payment of debt secured by mortgage would be
to foreclose the mortgage and have the encumbered property sold to satisfy the outstanding indebtedness. The
mortgagors default does not operate to automatically vest on the mortgagee the ownership of the encumbered property,
for any such effect is against public policy, as earlier indicated.38

Applying the principle of pactum commissorium to equitable mortgages, the Court, in Montevirgen vs. CA, 39enunciated
that the consolidation of ownership in the person of the mortgagee in equity, merely upon failure of the mortgagor in
equityto pay the obligation, would amount to a pactum commissorium.The Court further articulated that if a mortgagee in
equity desires to obtain title to a mortgaged property, the mortgagees proper remedy is to cause the foreclosure of the
mortgage in equity and buy it at a foreclosure sale.
 223

In Sps. Cruz vs. CA,40 the Court again reiteratedthat, in an equitable mortgage, perfect title over the mortgaged property
may not be secured in a pactum commissorium fashion, but only by causing the foreclosure of the mortgage and buying
the same in an auction sale. The Court held

Indeed, all the circumstances, taken together, are familiar badges of an equitable mortgage. Private respondents could
not in a pactum commissorium fashion appropriate the disputed property for themselves as they appeared to have done;
otherwise, their act will not be countenanced by this Court being contrary to goodmorals and public policy hence void. If
they wish to secure a perfect title over the mortgaged property, they should do so in accordance with law, i.e., by
foreclosing the mortgage and buying the property in the auction sale.

It does not appear, under the premises, that the Jaques availed themselves of the remedy of foreclosure, or that they
bought the subject property in an auction sale after the spouses Solitarios failed to pay their debt obligation. What seems
clear is that the Jaques took advantage of the spouses Solitarios intellectual and educational deficiency and urgent need
of money and made it appear that the latter executed in their favor the questioned Deeds of Sale, thereby automatically
appropriating unto themselves the subject property upon their debtors default. The amount reflected in the 1981 Deedof
Sale is telling. The sum of 7,000.00 representing the alleged purchase price of one-half of the subject property in the
1981 Deed of Sale is actually the amount advanced to the spouses Solitarios by way of loan. Other than the testimony of
Gaston Jaque, there is no evidence showing that this purchase price was actually paid or that the subject property was
bought in a foreclosure sale.

Further, it can be gleaned from the testimony of Gaston Jaque that when the spouses Solitarios failed to pay their loan of
3,000.00, reflected in the July 15, 1981 REM covering the remaining half of the subject property, 41 the Jaques did not
foreclose the mortgage and purchase the said lot in an auction sale. Rather, they supposedly bought the lot directly from
the spouses Solitarios and offset the loan amount against a portion of the supposed purchase price they agreed upon. 42

Indubitably, the subject property was transferred to the Jaques in a prohibited pactum commisorium manner and,
therefore, void. Thus, the foregoing transaction and the registration of the deeds of sale, by virtue of which the Jaques
were able to obtain the impugned TCT No. 745 must be declared void. 43

Furthermore, given that the transaction between the parties is an equitable mortgage, this means that the title to the
subject property actually remained with Felipe Solitarios, as owner-mortgagor, conformably with the well-established
doctrine that the mortgagee does not become the owner of the mortgaged property because the ownership remains with
the mortgagor.44 Thus, Felipe Solitarios ownership over the subject property is not affected by the fact that the same was
already registered in the name of the Jaques. The pronouncement in Montevirgen v. Court of Appeals is instructive:

x x x Equity looks through the form and considers the substance, and no kind of engagement can be allowed which will
enable the parties to escape from the equitable doctrine adverted to. In other words, a conveyance of land, accompanied
by registration in the name of the transferee and the issuance of a new certificate, is no more secured from the operation
of this equitable doctrine than the most informal conveyance that could be devised.

Finally, the circumstance that the original transaction was subsequently declared to be an equitable mortgage must mean
that the title to the subject landwhich had been transferred to private respondents actually remained or is transferred back
to petitioners herein as ownersmortgagors, conformably to the well-established doctrine that the mortgagee does not
become the owner of the mortgaged property because the ownership remains with the mortgagor (Art. 2088, New Civil
Code).45

Finally, We agree with the RTC that the mortgage debt of the spouses Solitarios had been fully paid.1wphi1 This holds
true whether the amount of the debt is 12,000.00, as found by the RTC or 22,000.00, the amount which the Jaques
claim they paid for the subject property. The RTC elucidated as follows -

2. The total mortgage debt of Php12,000.00 which was the consideration in Exh. "G" is deemed totally paid.

This finding is based on the last paragraph of Article 1602 of the New Civil Code of the Philippines which provides that "In
any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be
considered as interest which shall be subject to the usury laws." (underscoring ours)
 224

If this Court will take at its face value plaintiffs claim in their complaint that they get Php10,000.00 every quarter or
Php40,000.00 a year from the coconut portion and Php5,000.00 every planting season or Php10,000.00 a year from the
rice land portion of the subject land, then plaintiffs could have earned Php50,000.00 a year or more or less one million
pesos already when they filed this case in the year 2000.

But this Court has given more credence to defendants assertion that from 1976 to 2000, hewas giving the one-half share
of the plaintiffs from the proceeds of the copras and rice land to plaintiffs alleged caretaker, Yaning. So, if the produce of
the land in question as claimed by the plaintiffs is about Php50,000.00 a year, one-half (1/2) of it would be Php25,000.00
which is 25 times higher than the Php1,000.00 interest at 12% per year for the alleged purchase price of Php12,000.00 of
the land in question. The Php24,000.00 excess interest would have already been sufficient to pay even the principal of
Php12,000.00. Thus, clearly, the Php12,000.00 purchase price of the land should now be considered fully paid.

WHEREFORE, premises considered, the petition is GRANTED. The assailed August 31, 2010 Decision and November
24, 2011 Resolution of the Court of Appeals in CA-G.R. CEB-CV No. 00112 are, thus, SET ASIDE. The Decision of the
Regional Trial Court, Calbayog City Branch 21 in Civil Case No. 772 is REINSTATED, with modification that the
reformation of the Deeds of Absolute Sale dated May 9, 1981 and April 26, 1983 is deleted as it is unnecessary, and that
the transfer of the title to the name of petitioners shall be exempt from registration fees and taxes and other charges. As
Modified, the Decision of the trial court shall read:

WHEREFORE, this Court dismisses the instant case and pronounces Judgment against plaintiffs and hereby orders the
following:

1. TCT No. 745 in the name of spouses Gaston Jaque and Lilia Laure Jaque is declared void and cancelled.
Furthermore, the Register of Deeds of the City of Calbayog is ordered to issue a new title in the name of
petitioners Felipe Solitarios and Julia Torda without need of payment of registration fees, taxes, and other
charges;

2. The total mortgage debt is considered and deemed totally paid pursuant to Article 1602 of the New Civil Code;

3. The amounts deposited to the Court by defendants Solitarios are ordered released to plaintiffs Spouses Gaston
and Lilia Jaque minus lawful charges for their safekeeping, if any; and

4. The costs of the proceedings shall be paid by the plaintiffs.

SO ORDERED.
 225

G.R. No. 157971. August 31, 2005

TRISTAN LOPEZ as Attorney-in-Fact of LETICIA and CECILIA LOPEZ, Petitioners,

vs.
LETICIA R. FAJARDO, Respondent.

DECISION

CARPIO-MORALES, J.:

Leonor Sobrepena and her kins (the Sobrepenas) were the owners of a 2-door apartment at 1326 and 1328 Tomas
Mapua St., Sta. Cruz, Manila. The apartment at No. 1328 has for so many years been occupied under a verbal contract of
lease by respondent, Leticia Fajardo.

On April 30, 1999, the Sobrepenas sold their property to Leticia and Cecilia Lopez (the Lopez sisters) who were thereafter
issued Transfer Certificate of Title No. 2451201 in their names.

On March 31, 2000, the Lopez sisters attorney-in-fact, herein petitioner Tristan Lopez, filed before the Metropolitan Trial
Court of Manila (MeTC) a complaint2 for ejectment with damages, docketed as Civil Case No. 166806-CV (first ejectment
complaint), against respondent on the ground of failure to pay her monthly rentals from May 1999 to February 2000.

The parties amicably settled the case after respondent paid 35,000.00 representing rental in arrears and current rental
for June 2000. The case was thus closed and terminated on June 28, 2000 and petitioner allowed respondent to remain in
the leased premises.3

The following month or in July 2000, petitioner got wind of the filing by respondent of a complaint 4 against him, his aunts
and the Sobrepenas before the Regional Trial Court (RTC) of Manila, docketed as Civil Case No. 00-97105, for the
nullification of the deed of sale between the Lopez sisters and the Sobrepenas and for the grant to respondent of the right
of first refusal over the leased premises. Respondent in fact again failed and refused to pay her July and August 2000
rentals, drawing petitioner to send her a letter5 dated August 18, 2000 reading:

Please be informed that my aunts (Leticia and Cecilia Lopez) have already decided to terminate our monthly lease
contract effective midnight of August 31, 2000, the very time our oral lease contract shall expire. Hence, there
shall be no more renewal of our lease contract on a month-to-month basis upon its expiration by said date. Thus, we
expect you to eventually vacate said leased premises by that time.

Considering however, time constraint, my aunts thought of giving you a grace period of one (1) month, or until 30
September 2000 within which to vacate the premises conditioned of course on your immediate payment of the July
and August 2000 rentals of 2,500.00 each, or a total sum of 5,000.00. Should this total unpaid rental of 5,000.00
be not paid immediately, then the grace period of until September 30, 2000 shall no longer be offered in which case you
shall be considered (as) an interloper to the property by September 1, 2000. In such an event, you should immediately
vacate the same because of the expiration of the lease contract and your non-payment of rentals for two (2) months.

Please be guided accordingly. (Emphasis supplied; underscoring in the original)

On September 21, 2000, respondent remitted to petitioner Security Bank Check No. 0121467 dated September 20, 2000
in the amount of 30,000.00 representing payment of the rentals in arrears for July 2000, August 2000 and September
2000, and advance rentals for October 2000 up to July 2001, without prejudice to the outcome of Civil Case No. 00-
97105.6

By letter7 dated September 21, 2000, petitioner thru counsel advised respondent that he could not accept the above-said
check as the rental payments due to his aunts were only for July, August and September 2000, and that she
was expected to vacate the leased premises by October 1, 2000.
 226

While the dispute between the parties was brought to the barangay, no settlement or conciliation was reached, 8drawing
petitioner to file on October 25, 2000 before the MeTC Manila a complaint9 for ejectment with damages against
respondent, docketed as Civil Case No. 168809-CV (second complaint), praying that judgment be rendered:

1. Ordering [respondent] Fajardo and all persons claiming rights under her to immediately vacate the leased premises,
and return possession thereof to herein [petitioner]; and

2. Ordering [respondent] Fajardo to pay herein [petitioner] the following:

a. 7,500.00 as her rental arrears/back rentals from July 2000 up to September 2000 plus the present monthly rental of
2,500.00 from October 2000 (or the corresponding yearly rental increase thereof, if any) until herein [respondent] shall
have actually vacated the leased premises;

b. 50,000.00 as moral damages;

c. 50,000.00 as exemplary damages;

d. 30,000.00 as attorneys fees; and

e. Costs of suit.

xxx

Respondent, in her Answer with Counterclaim for damages, 10 alleged that the complaint for ejectment (second) stated no
valid cause of action, she contending that petitioners claim of expiration of the verbal monthly lease was misplaced as
she never recognized the Lopez sisters as her true lessors and that her payment of the amount of 35,000.00 in
connection with the first ejectment complaint was meant to be under protest and without prejudice to the outcome of Civil
Case No. 00-97105.

Respondent likewise alleged that even assuming that an implied verbal lease exists between her and the Lopez sisters,
petitioners claim of termination is baseless in fact and in law as the latest payment she made to the Sobrepenas on April
16, 1999 was for a period covering 4 months or from January 1999 to April 1999 while the previous payment she made on
November 16, 1998 was for a period covering 11 months or from January 1998 to November 16, 1998, thus indicating
that payment of the rent was not on a monthly basis.

Branch 11 of the Manila MeTC to which the second ejectment case was raffled issued a Pre-trial Order11 defining the
issues as follows:

1. Whether or not the [respondent] can be lawfully evicted from the subject premises.

2. Whether or not the [respondent] is entitled to the counterclaim she interposed.

After the parties had filed their respective position papers together with their documentary evidence and their comments
thereon, Branch 11 of the MeTC, by Decision 12 dated April 9, 2001, finding that petitioner had sufficiently established his
cause of action arising from the expiration of the lease contract, the lease being terminable at the end of any month after
due notice, and failure of respondent to pay the stipulated rental grounds for ejectment under Article 1673 of the Civil
Code, rendered judgment in favor of petitioner the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the [petitioner] and against the [respondent] ordering the latter
and all persons claiming rights under her:

1. To immediately vacate the subject premises describe[d] as No. 1328 Tomas Mapua St., Sta. Cruz, Manila and
surrender its peaceful possession to the [petitioner];

2. To pay [petitioner] the amount of 7,500.00 as back rentals covering the period from July 2000 to September 2000; and
to pay [petitioner] the amount of 2,500.00 monthly as reasonable compensation for the use and occupation of the
 227

subject premises known as No. 1328 Tomas Mapua St., Sta. Cruz, Manila, beginning October 2000 and every month
thereafter until [respondent] shall have actually vacated the same;

3. To pay [petitioner] the sum of 5,000.00 as and by way of attorneys fees, and to pay the costs of the suit.

Respondent appealed the MeTC decision to the Regional Trial Court of Manila (RTC) which, by Decision 13 dated June 7,
2002, affirmed in toto that of the trial court, it holding as follows:

xxx

From the aforesaid facts, it is clear then that [petitioner] allowed [respondent] to continue to occupy the subject premises
on a month-to-month rental terminable at the end of each month, until the [petitioner] sent [respondent] a notice to vacate
the subject premises on August 18, 2000. There is no dispute that there was a landlord-tenant relationship between the
[petitioner] and the [respondent] that ended on August 31, 2000, as evidenced by [petitioners] letter dated August 18,
2000. As the rent was paid on a monthly basis, the period of the lease was considered as on a month-to-month basis in
accordance with Article 1687 of the New Civil Code.

It is a lease with a definite period. In the case at bar, since the [respondent] stopped payment of her monthly rentals since
July 2000 up to September 2000, then the lease on said property immediately expired and terminated upon the letter of
demand made by the [petitioner] on the [respondent] to vacate the subject premises as of August 2000. Hence,
[respondents] right to stay in the premises came to an end as of August 2000.

x x x (Underscoring supplied).

Before the Court of Appeals (CA), respondent appealed via Petition for Review with Prayer for the Issuance of Temporary
Restraining Order, Writ of Preliminary Injunction and/or Status Quo Ante Order, 14 assigning to the RTC the following
errors:

1. THE REGIONAL TRIAL COURT PALPABLY ERRED ON A MATTER OF LAW IN FAILING, IF NOT REFUSING, TO
CONSIDER THE FACT THAT: (1) AT THE TIME OF DEMAND, APPELLANT ONLY HAD AN ALLEGED TOTAL
RENTALS IN ARREARS OF TWO MONTHS AND THAT (2) AT THE TIME OF THE FILING OF THE SUBJECT
COMPLAINT FOR EJECTMENT, APPELLANT HAD ALREADY CONSIGNED HER RENTALS IN COURT. HENCE THE
SUBJECT EJECTMENT SUIT SHOULD HAVE BEEN DISMISSED OUTRIGHT PURSUANT TO SECTION 5 (b) OF
BATAS PAMBANSA BLG. 877.

2. IN THE SAME VEIN, THE REGIONAL TRIAL COURT LIKEWISE PALPABLY ERRED ON A MATTER OF LAW IN
FAILING, IF NOT REFUSING TO CONSIDER THE FACT THAT THE REAL PURPOSE OF RESPONDENT IN FILING
THE SUBJECT EJECTMENT SUIT WAS FOR HIM TO TAKE OVER THE SUBJECT PREMISES, WHICH HE
SURREPTITIOUSLY BOUGHT FROM THE HEIRS OF PERLA SOBREPENA, IN CIRCUMVENTION OF SECTION 5(f),
BATAS PAMBANSA BLG. 877. (Emphasis and italics omitted; underscoring supplied).

The CA, citing Batas Pambansa Blg. 877 which provides that a minimum of 3-month arrearages is required to justify a
lessor to eject a lessee, held that respondent had incurred back rentals of only two (2) months when petitioner sent her
the letter of demand dated August 18, 1999, hence, "the filing of the ejectment case was premature." It accordingly
reversed the decision of the RTC and dismissed the complaint of petitioner.

In the present petition, petitioner attributes to the appellate court the following errors for this Courts consideration:

I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT GRANTED THE PETITION OF HEREIN
RESPONDENT BASED ON PREMATURITY OF THE EJECTMENT CASE DUE TO THE FACT THAT THE LESSEE
INCURRED BACKRENTALS FOR ONLY TWO (2) MONTHS CONSIDERING THE FACT THAT THE LETTERS ISSUED
BY HEREIN PETITIONERS NOT ONLY RAISED THE ARREARAGES OF THREE MONTHS AS THE SOLE GROUND
FOR EJECTMENT BUT AS WELL AS RAISED THE GROUND THAT THE LEASE WAS ALREADY TERMINATED DUE
TO THE EXPIRATION OF THE PERIOD OF THE LEASE.

II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT DENIED THE MOTION FOR
RECONSIDERATION FILED BY HEREIN PETITIONER.15 (Emphasis and underscoring supplied)
 228

As reflected in his above-quoted assigned errors, petitioner draws attention to the fact that he raised two grounds-bases
for respondents ejectment, failure to pay rentals for 3 months and expiration of the lease contract.

The issue then is whether petitioner has established a valid ground for the ejectment of respondent.

This Court rules in the affirmative.

Section 516 of Batas Pambansa Blg. 877 otherwise known as the "Rent Control Law" provides for the grounds for judicial
ejectment, to wit:

SECTION 5. Grounds for Judicial Ejectment. Ejectment shall be allowed on the following grounds:

(a) Assignment of lease or subleasing of residential units in whole or in part, including the acceptance of boarders or
bedspacers, without the written consent of the owner/ lessor.

(b) Arrears in payment of rent for a total of three (3) months: Provided, That in case of refusal by the lessor to accept
payment of the rental agreed upon, the lessee may either deposit, by way of consignation, the amount in court, or with the
city or municipal treasurer, as the case may be, or in a bank in the name of and with notice to the lessor, within one month
after the refusal of the lessor to accept payment.

The lessee shall thereafter deposit the rental within ten days of every current month. Failure to deposit rentals for three
months shall constitute a ground for ejectment. If an ejectment case is already pending, the court upon proper motion may
order the lessee or any person or persons claiming under him to immediately vacate the leased premises without
prejudice to the continuation of ejectment proceedings. At any time, the lessor may upon authority of the court, withdraw
the rentals deposited.

The lessor, upon authority of the court in case of consignation and upon joint affidavit by him and the lessee to be
submitted to the city or municipal treasurer and to the bank where deposit was made, shall be allowed to withdraw the
deposits.

(c) Legitimate need of owner/lessor to repossess his property for his own use or for the use of any immediate member of
his family as a residential unit, such owner or immediate member not being the owner of any available residential units
within the same city or municipality: Provided, however, That the lease for a definite period has expired: Provided further
that the lessor has given the lessee formal notice three (3) months in advance of the lessors intention to repossess the
property: and Provided, finally, That the owner/lessor is prohibited from leasing the residential unit or allowing its use by a
third party for at least one year.

(d) Absolute ownership by the lessee of another dwelling unit in the same city or municipality which he may lawfully use
as his residence: Provided, That the lessee shall have been formally notified by the lessor of the intended ejectment three
months in advance.

(e) Need of the lessor to make necessary repairs of the leased premises which is the subject of an existing order of
condemnation by appropriate authorities concerned in order to make the said premises safe and habitable: Provided, That
after said repair, the lessee ejected shall have the first preference to lease the same premises: Provided, however, That
the new rental shall be reasonable commensurate with the expenses incurred for the repair of the said residential unit;
and Provided, finally, That if the residential unit is condemned or completely demolished, the lease of the new building will
no longer subject to the provisions of this Act.

(f) Expiration of the period of the lease contract.

No lessor or his successor-in-interest shall be entitled to eject the lessee upon the ground that the leased premises has
been sold or mortgaged to a third person regardless of whether the lease or mortgage is registered or not. (Emphasis and
underscoring supplied)

The first emphasized-underscored ground for judicial ejectment failure to pay rental arrearages for a total of three
months was established by petitioner.
 229

For while respondent issued a check dated September 20, 2000 in the amount of 30,000.00 representing rentals
for July, August and September 2000 and advance rentals for October 2000 up to July 2001, petitioner declined to accept
the check as rentals due were only for July, August and September 2000, which was communicated by petitioners
counsels letter of September 21, 2000 to respondents counsel whose office received it on even date. 17By said letter of
September 21, 2000, petitioner was notifying respondent that aside from the rentals for July and August 2000, she had
not paid the rental for September 2000. Despite the receipt by her counsel of the September 21, 2000 letter of petitioners
counsel, there is no showing that respondent did pay the rentals in arrears for July, August, September 2000 to thus draw
petitioner to file on October 25, 2000 the second ejectment complaint subject of the present petition.

In point of fact, respondent never questioned, either before the MeTC or the RTC, the claim that she failed to pay rentals
for July, August and September before petitioner filed his complaint on October 25, 2000.

At all events and this brings this Court to the other above-emphasized-underscored ground for judicial ejectment, there
being no fixed period agreed upon by the parties and as the rent agreed upon was monthly, it is understood to be from
month-to-month. So Article 1687 of the Civil Code provides:

ARTICLE 1687. If the period of the lease has not been fixed, it is understood to be from year to year, if the rent
agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and form day
to day, if the rent is to be paid daily. However, even though a monthly rent is paid, and no period for the lease has been
set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over one year. If the rent
is weekly, the courts may likewise determine a longer period after the lessee has been in possession for over six months.
In case of daily rent, the courts may also fix a longer period after the lessee has stayed in the place for over one month.
(Emphasis and underscoring supplied)

A month-to-month lease under Article 1687 is a lease with a definite period and expires after the last day of any given
thirty-day period, upon proper demand and notice by the lessor to vacate.18

Under the Rent Control Law, the prohibition against the ejectment of a lessee by his lessor is not absolute. There are
exceptions expressly provided by law, which include the expiration of a lease for a definite period. In the instant case, it
was noted that the rentals were paid on a month-to-month basis. Thus, the lease could be validly terminated at
the end of any given month upon prior notice to that effect on the lessee. After all, when the rentals are paid
monthly, the lease is deemed to be for a definite period, i.e., it expires at the end of every month. (Emphasis and
underscoring supplied)19

When petitioner then sent the August 18, 2000 letter to respondent informing her that the lease would be terminated
effective at the end of the same month, it was well within his rights.

In fine, it was error for the appellate court to ignore the fact that by the earlier-quoted August 18, 2000 letter of
petitioner20 which was annexed as Annex "F" to the complaint, petitioner had notified respondent of the expiration of the
lease contract, another legal ground for judicial ejectment.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated January 13, 2003 in CA-G.R. SP
No. 72547 is hereby SET ASIDE and the decision of Branch 6 of the Manila MeTC, which was affirmed in toto by Branch
6 of the Manila RTC, is hereby REINSTATED.

SO ORDERED.
 230

G.R. No. 163763 November 10, 2006

MALAYAN REALTY, INC. represented by ALBERTO C. DY., Petitioner,

vs.
UY HAN YONG, Respondent.

DECISION

CARPIO MORALES, J.:

Malayan Realty, Inc. (Malayan), is the owner of an apartment unit known as 3013 Interior No. 90 (the property), located at
Nagtahan Street, Sampaloc, Manila.

In 1958, Malayan entered into a verbal lease contract with Uy Han Yong (Uy) over the property at a monthly rental of
262.00.1 The monthly rental was increased yearly2 starting 1989, and by 2001, the monthly rental was 4,671.65.3

On July 17, 2001, Malayan sent Uy a written notice 4 informing him that the lease contract would no longer be renewed or
extended upon its expiration on August 31, 2001, and asking him to vacate and turn over the possession of the property
within five days from August 31, 2001, or on September 5, 2001.5

Despite Uys receipt of the notice on June 18, 2001, he refused to vacate the property, prompting Malayan to file before
the Metropolitan Trial Court (MeTC) of Manila a complaint for ejectment, docketed as Civil Case No. 171256, and was
raffled to Branch 3 thereof.

In its complaint, Malayan prayed for the court to order Uy and all other persons claiming possession under him to vacate
the property, to pay 9,000 as fair and reasonable monthly compensation for its use from September 1, 2001 until its
possession is turned over to it, and to pay 20,000 as attorneys fees as well as costs of suit. 6

The trial court, noting that there was no showing that the lease contract was on a monthly basis and that it was for a
definite period, given that Uy has been occupying the leased property continuously for more than 40 years,7 held that Uy
could not be ejected on the ground of termination of the contract. 8 It accordingly dismissed9 Malayans complaint.

Aggrieved, Malayan appealed to the Regional Trial Court (RTC) which, by Decision10 dated November 22, 2002, set aside
the judgment of the MeTC. On the basis of Article 1687 of the New Civil Code, 11 the RTC extended the lease contract for
a period of five years, taking into consideration the fact that Uy was 75 years old and had lived in the leased property for
more than half of his life.12 And the RTC, finding that Malayan acted arbitrarily and with vindictiveness in instituting the
complaint, ordered Malayan to pay 100,000 as moral damages, 100,000 as exemplary damages, and 30,000 as
attorneys fees.13

Malayan filed a motion for reconsideration,14 arguing that since Uy did not appeal the MeTC decision, the RTC erred in
granting him affirmative relief by extending the period of lease and awarding him damages and attorneys fees.

Acting on Malayans Motion for Reconsideration, the RTC deleted the award of damages to Uy but retained its ruling
extending the lease period for five years.15
 231

Still dissatisfied, Malayan elevated the case to the Court of Appeals (CA), before which it contended that the RTC had no
legal or factual basis for extending the lease contract as the same was not pleaded by Uy in his counterclaim nor sought it
as a relief.

By Decision16 of February 19, 2004, the CA modified the RTC decision by shortening the extension of the lease contract
to one year from the finality of the decision. And the CA increased the rental rate at 10% per annum starting September 6,
2002, viz:

x x x [P]etitioner also prayed that respondent herein be ordered to pay a rental of 9,000.00 a month. The court had
authority to fix the reasonable value for such use and occupancy from the expiration of the contract of lease because it is
settled that the rental stipulated in the contract of lease that has expired or terminated may no longer be the

reasonable value for the use and occupation of the premises as a result or by reason of change or rise in values (T & C
Development Corp. vs. Court of Appeals, 317 SCRA 476). Taking into account that on September 18, 2001, the date
when petitioner filed the complaint for ejectment, the applicable law are RA Nos. 7644 and 8437, which extended the
period of rent control from 1993 to 1997 and then from 1998 to 2001, respectively.

xxxx

As the maximum increase allowed is 15%, we hold to grant an increase of 10% per annum, under the circumstances of
this case. Hence, the increase should be as follows:

Sept. 6, 2001- Sept. 6, 2002 5,138.82

Sept. 7, 2002 Sept. 7, 2003 5,652.70

Sept. 8, 2003 onwards 6,217.95

Thus, we hereby grant the same, but only to the amount herein-above stated considering that the original rate is
4,671.65. x x x (Underscoring in the original)

Thus the dispositive portion of the CA decision read:

WHEREFORE, premises considered, the Decision dated November 22, 2002 and the Order dated January 24, 2003 of
the Regional Trial Court of Manila, National Capital Judicial Region, Branch 40, in Civil Case No. 02-103958, are hereby
MODIFIED, by shortening the extension of lease to a period of only one (1) year from finality of this decision and fixing the
rental to the rate as herein-above provided, from the date of expiration of lease (5 days after August 31, 2001) on
September 6, 2001. In all other respects, the petition is denied. No pronouncement as to costs.

The parties respective motions for reconsideration were denied by the CA by Resolution 17 of May 28, 2004.

Malayan (hereafter petitioner) thereupon filed the present petition for review on certiorari, arguing that the CA erred in
granting a one year extension of the lease reckoned from the finality of the decision.18

Petitioner asserts that an extension of the period of a lease may be sought by the tenant before, and not after the
termination of the lease; and that Uy (hereafter respondent) had sufficient time to request for extension, given that the
notice of termination of the lease was served upon him more than 30 days before its effectivity, but that respondent did
not so request even after the complaint was filed in court.19

Petitioner thus maintains that no "equitable reason" justifies respondents continued possession of the property for more
than four years from the time the complaint for ejectment was filed. 20

Respondent, on the other hand, faults the CA to have erred in ruling that the lease was considered to be on a month to
month basis, and that even if Article 1687 of the New Civil Code is applicable, the CA erred in shortening the extension of
the lease to one year instead of five years as adjudged by the RTC. 21 And it faults the CA to have abused its discretion in
increasing the rental at 10% per annum.22
 232

Under Article 1687 of the New Civil Code which reads:

Article 1687. If the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon
is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent is
to be paid daily. However, even though a monthly rent is paid, and no period for the lease has been set, the courts may fix
a longer term for the lease after the lessee has occupied the premises for over one year. x x x,

if the period of a lease contract has not been specified by the parties, it is understood to be from month to month, if the
rent agreed upon is monthly. The lease contract thus expires at the end of each month, unless prior thereto, the extension
of said term has been sought by appropriate action and judgment is eventually rendered therein granting the relief. 23

In the case at bar, the lease period was not agreed upon by the parties. Rental was paid monthly, and respondent has
been occupying the premises since 1958. As earlier stated, a written notice was served upon respondent on January 17,
2001 terminating the lease effective August 31, 2001. As respondent was notified of the expiration of the lease, effectively
his right to stay in the premises had come to an end on August 31, 2001. 24

The 2nd paragraph of Article 1687 provides, however, that in the event that the lessee has occupied the leased premises
for over a year, the courts may fix a longer term for the lease.

The power of the courts to establish a grace period is potestative or discretionary, depending on the particular
circumstances of the case. Thus, a longer term may be granted where equities come into play, and may be denied where
none appears, always with due deference to the parties freedom to contract. 25

Where a petitioner has been deprived of its possession over the leased premises for so long a time, and it is shown that,
indeed, the respondent was the recipient of substantial benefits while the petitioner was unable to have the full use and
enjoyment of a considerable portion of its property, such militates against further deprivation by fixing a period of
extension.26

Thus, in De Vera v. Court of Appeals,27 this Court found that the lessees continued possession of the property for more
than five years from the supposed expiration of the lease sufficed as an extension of the period.

In the present case, respondent has remained in possession of the property from the time the complaint for ejectment was
filed on September 18, 2001 up to the present time. Effectively, respondents lease has been extended for more than five
years, which time is, under the circumstances, deemed sufficient as an extension and for him to find another place to
stay.1wphi1

As for respondents assigned errors reflected above, his petition for review, which was docketed as G.R. No. 163652,
having been dismissed and the reconsideration of the dismissal having been denied with finality by Resolution of
November 8, 2004,28 the decision of the Court of Appeals was, as to him, final and executory. At all events, his contention
that the CA erred in increasing the rental from September 6, 2001 onwards at 10% per annum is bereft of merit.

In Limcay v. Court of Appeals,29 which incidentally was a complaint for ejectment filed by herein petitioner against a
lessee of one of its apartments located also in the same address as that of the property subject of this case, the Court
upheld the RTCs authority to fix the reasonable value for the use and occupation of the premises from the expiration of
the contract of lease.30

That the rental stipulated in the contract of lease that has expired or terminated may no longer be the reasonable value for
the use and occupation of the premises as a result or by the reason of the changes or rise in values is settled.31

Respondent himself admitted in his Answer to the Complaint that the rental was increased yearly since 1989.32 He
admitted too in his position paper that while petitioner only collected the amount of 4,671.65 as monthly rental, other
tenants were constrained to pay 8,000 to 9,000 a month,33 which latter amount was the amount prayed for by petitioner
in his complaint against respondent before the MeTC.

Given the circumstances attendant to this case, this Court finds that the CAs increase of the rental at 10% per annum is
fair and just, and is a reasonable valuation of the compensation due petitioner for the use and occupation of its property
from the expiration of the contract of lease until the turn over by respondent of its possession.
 233

As the lease contract expired on August 30, 2001, petitioner is entitled to the 10% per annum increase in rentals since
September 1, 2001, not on September 6, 2001 as held by the CA. Hence, the monthly rental of the property in the
succeeding years should be as follows:

September 2001 to August 2002 5,138.82

September 2002 to August 2003 5,652.70

September 2003 to August 2004 P6,217.97

September 2004 to August 2005 P6,839.77

September 2005 to August 2006 P7,523.74

September 2006 onwards P8,276.11

WHEREFORE, the petition is GRANTED. Respondent, Uy Han Yong, and all persons claiming rights under him are
ORDERED to immediately vacate and surrender possession of 3013 Interior No. 90, Nagtahan, St., Sampaloc Manila,
and to pay monthly rentals in the amount of 5,138.82 from September 2001 to August 2002; 5,652.70 from September
2002 to August 2003; 6,217.97 from September 2003 to August 2004; 6,839.77 from September 2004 to August 2005;
7,523.74 from September 2005 to August 2006; and 8,276.11 from September 2006 until respondent finally vacates
and surrenders possession of the property to petitioner, Malayan Realty, Inc.

Costs against respondent.

SO ORDERED.
 234

G.R. No. 172690 March 3, 2010

HEIRS OF JOSE LIM, represented by ELENITO LIM, Petitioners,

vs.
JULIET VILLA LIM, Respondent.

DECISION

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari 1 under Rule 45 of the Rules of Civil Procedure, assailing the Court
of Appeals (CA) Decision2 dated June 29, 2005, which reversed and set aside the decision 3 of the Regional Trial Court
(RTC) of Lucena City, dated April 12, 2004.

The facts of the case are as follows:

Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow Cresencia Palad (Cresencia); and their
children Elenito, Evelia, Imelda, Edelyna and Edison, all surnamed Lim (petitioners), represented by Elenito Lim (Elenito).
They filed a Complaint4 for Partition, Accounting and Damages against respondent Juliet Villa Lim (respondent), widow of
the late Elfledo Lim (Elfledo), who was the eldest son of Jose and Cresencia.

Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay, Mauban, Quezon. Sometime in 1980,
Jose, together with his friends Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed a partnership to engage in the
trucking business. Initially, with a contribution of 50,000.00 each, they purchased a truck to be used in the hauling and
transport of lumber of the sawmill. Jose managed the operations of this trucking business until his death on August 15,
1981. Thereafter, Jose's heirs, including Elfledo, and partners agreed to continue the business under the management of
Elfledo. The shares in the partnership profits and income that formed part of the estate of Jose were held in trust by
Elfledo, with petitioners' authority for Elfledo to use, purchase or acquire properties using said funds.

Petitioners also alleged that, at that time, Elfledo was a fresh commerce graduate serving as his fathers driver in the
trucking business. He was never a partner or an investor in the business and merely supervised the purchase of
additional trucks using the income from the trucking business of the partners. By the time the partnership ceased, it had
nine trucks, which were all registered in Elfledo's name. Petitioners asseverated that it was also through Elfledos
management of the partnership that he was able to purchase numerous real properties by using the profits derived
therefrom, all of which were registered in his name and that of respondent. In addition to the nine trucks, Elfledo also
acquired five other motor vehicles.

On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir. Petitioners claimed that respondent took
over the administration of the aforementioned properties, which belonged to the estate of Jose, without their consent and
approval. Claiming that they are co-owners of the properties, petitioners required respondent to submit an accounting of
all income, profits and rentals received from the estate of Elfledo, and to surrender the administration thereof. Respondent
refused; thus, the filing of this case.

Respondent traversed petitioners' allegations and claimed that Elfledo was himself a partner of Norberto and Jimmy.
Respondent also claimed that per testimony of Cresencia, sometime in 1980, Jose gave Elfledo 50,000.00 as the latter's
capital in an informal partnership with Jimmy and Norberto. When Elfledo and respondent got married in 1981, the
partnership only had one truck; but through the efforts of Elfledo, the business flourished. Other than this trucking
business, Elfledo, together with respondent, engaged in other business ventures. Thus, they were able to buy real
properties and to put up their own car assembly and repair business. When Norberto was ambushed and killed on July
16, 1993, the trucking business started to falter. When Elfledo died on May 18, 1995 due to a heart attack, respondent
talked to Jimmy and to the heirs of Norberto, as she could no longer run the business. Jimmy suggested that three out of
the nine trucks be given to him as his share, while the other three trucks be given to the heirs of Norberto. However,
Norberto's wife, Paquita Uy, was not interested in the vehicles. Thus, she sold the same to respondent, who paid for them
in installments.
 235

Respondent also alleged that when Jose died in 1981, he left no known assets, and the partnership with Jimmy and
Norberto ceased upon his demise. Respondent also stressed that Jose left no properties that Elfledo could have held in
trust. Respondent maintained that all the properties involved in this case were purchased and acquired through her and
her husbands joint efforts and hard work, and without any participation or contribution from petitioners or from Jose.
Respondent submitted that these are conjugal partnership properties; and thus, she had the right to refuse to render an
accounting for the income or profits of their own business.

Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in favor of petitioners, thus:

WHEREFORE, premises considered, judgment is hereby rendered:

1) Ordering the partition of the above-mentioned properties equally between the plaintiffs and heirs of Jose Lim
and the defendant Juliet Villa-Lim; and

2) Ordering the defendant to submit an accounting of all incomes, profits and rentals received by her from said
properties.

SO ORDERED.

Aggrieved, respondent appealed to the CA.

On June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing petitioners' complaint for lack of merit.
Undaunted, petitioners filed their Motion for Reconsideration,5 which the CA, however, denied in its Resolution6 dated May
8, 2006.

Hence, this Petition, raising the sole question, viz.:

IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED BY THE PARTIES, CAN THE TESTIMONY
OF ONE OF THE PETITIONERS BE GIVEN GREATER WEIGHT THAN THAT BY A FORMER PARTNER ON THE
ISSUE OF THE IDENTITY OF THE OTHER PARTNERS IN THE PARTNERSHIP?7

In essence, petitioners argue that according to the testimony of Jimmy, the sole surviving partner, Elfledo was not a
partner; and that he and Norberto entered into a partnership with Jose. Thus, the CA erred in not giving that testimony
greater weight than that of Cresencia, who was merely the spouse of Jose and not a party to the partnership.8

Respondent counters that the issue raised by petitioners is not proper in a petition for review on certiorari under Rule 45
of the Rules of Civil Procedure, as it would entail the review, evaluation, calibration, and re-weighing of the factual findings
of the CA. Moreover, respondent invokes the rationale of the CA decision that, in light of the admissions of Cresencia and
Edison and the testimony of respondent, the testimony of Jimmy was effectively refuted; accordingly, the CA's reversal of
the RTC's findings was fully justified.9

We resolve first the procedural matter regarding the propriety of the instant Petition.

Verily, the evaluation and calibration of the evidence necessarily involves consideration of factual issues an exercise
that is not appropriate for a petition for review on certiorari under Rule 45. This rule provides that the parties may raise
only questions of law, because the Supreme Court is not a trier of facts. Generally, we are not duty-bound to analyze
again and weigh the evidence introduced in and considered by the tribunals below.10 When supported by substantial
evidence, the findings of fact of the CA are conclusive and binding on the parties and are not reviewable by this Court,
unless the case falls under any of the following recognized exceptions:

(1) When the conclusion is a finding grounded entirely on speculation, surmises and conjectures;

(2) When the inference made is manifestly mistaken, absurd or impossible;

(3) Where there is a grave abuse of discretion;

 236

(4) When the judgment is based on a misapprehension of facts;

(5) When the findings of fact are conflicting;

(6) When the Court of Appeals, in making its findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee;

(7) When the findings are contrary to those of the trial court;

(8) When the findings of fact are conclusions without citation of specific evidence on which they are based;

(9) When the facts set forth in the petition as well as in the petitioners' main and reply briefs are not disputed by
the respondents; and

(10) When the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and
contradicted by the evidence on record.11

We note, however, that the findings of fact of the RTC are contrary to those of the CA. Thus, our review of such findings is
warranted.

On the merits of the case, we find that the instant Petition is bereft of merit.

A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or
business, with the understanding that there shall be a proportionate sharing of the profits and losses among them. A
contract of partnership is defined by the Civil Code as one where two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits among themselves.12

Undoubtedly, the best evidence would have been the contract of partnership or the articles of partnership. Unfortunately,
there is none in this case, because the alleged partnership was never formally organized. Nonetheless, we are asked to
determine who between Jose and Elfledo was the "partner" in the trucking business.

A careful review of the records persuades us to affirm the CA decision. The evidence presented by petitioners falls short
of the quantum of proof required to establish that: (1) Jose was the partner and not Elfledo; and (2) all the properties
acquired by Elfledo and respondent form part of the estate of Jose, having been derived from the alleged partnership.

Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of evidence against respondent. It must
be considered and weighed along with petitioners' other evidence vis--vis respondent's contrary evidence. In civil cases,
the party having the burden of proof must establish his case by a preponderance of evidence. "Preponderance of
evidence" is the weight, credit, and value of the aggregate evidence on either side and is usually considered synonymous
with the term "greater weight of the evidence" or "greater weight of the credible evidence." "Preponderance of evidence" is
a phrase that, in the last analysis, means probability of the truth. It is evidence that is more convincing to the court as
worthy of belief than that which is offered in opposition thereto.13 Rule 133, Section 1 of the Rules of Court provides the
guidelines in determining preponderance of evidence, thus:

SECTION I. Preponderance of evidence, how determined. In civil cases, the party having burden of proof must establish
his case by a preponderance of evidence. In determining where the preponderance or superior weight of evidence on the
issues involved lies, the court may consider all the facts and circumstances of the case, the witnesses' manner of
testifying, their intelligence, their means and opportunity of knowing the facts to which they are testifying, the nature of the
facts to which they testify, the probability or improbability of their testimony, their interest or want of interest, and also their
personal credibility so far as the same may legitimately appear upon the trial. The court may also consider the number of
witnesses, though the preponderance is not necessarily with the greater number.

At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals 14 is enlightening. Therein, we cited Article 1769 of
the Civil Code, which provides:

Art. 1769. In determining whether a partnership exists, these rules shall apply:
 237

(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third
persons;

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-
possessors do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing
them have a joint or common right or interest in any property from which the returns are derived;

(4) The receipt by a person of a share of the profits of a business is a prima facie evidence that he is a partner in
the business, but no such inference shall be drawn if such profits were received in payment:

(a) As a debt by installments or otherwise;

(b) As wages of an employee or rent to a landlord;

(c) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the profits of the business;

(e) As the consideration for the sale of a goodwill of a business or other property by installments or
otherwise.

Applying the legal provision to the facts of this case, the following circumstances tend to prove that Elfledo was himself
the partner of Jimmy and Norberto: 1) Cresencia testified that Jose gave Elfledo 50,000.00, as share in the partnership,
on a date that coincided with the payment of the initial capital in the partnership;15 (2) Elfledo ran the affairs of the
partnership, wielding absolute control, power and authority, without any intervention or opposition whatsoever from any of
petitioners herein;16 (3) all of the properties, particularly the nine trucks of the partnership, were registered in the name of
Elfledo; (4) Jimmy testified that Elfledo did not receive wages or salaries from the partnership, indicating that what he
actually received were shares of the profits of the business; 17 and (5) none of the petitioners, as heirs of Jose, the alleged
partner, demanded periodic accounting from Elfledo during his lifetime. As repeatedly stressed in Heirs of Tan Eng
Kee,18 a demand for periodic accounting is evidence of a partnership.

Furthermore, petitioners failed to adduce any evidence to show that the real and personal properties acquired and
registered in the names of Elfledo and respondent formed part of the estate of Jose, having been derived from Jose's
alleged partnership with Jimmy and Norberto. They failed to refute respondent's claim that Elfledo and respondent
engaged in other businesses. Edison even admitted that Elfledo also sold Interwood lumber as a sideline. 19 Petitioners
could not offer any credible evidence other than their bare assertions. Thus, we apply the basic rule of evidence that
between documentary and oral evidence, the former carries more weight. 20

Finally, we agree with the judicious findings of the CA, to wit:

The above testimonies prove that Elfledo was not just a hired help but one of the partners in the trucking business, active
and visible in the running of its affairs from day one until this ceased operations upon his demise. The extent of his
control, administration and management of the partnership and its business, the fact that its properties were placed in his
name, and that he was not paid salary or other compensation by the partners, are indicative of the fact that Elfledo was a
partner and a controlling one at that. It is apparent that the other partners only contributed in the initial capital but had no
say thereafter on how the business was ran. Evidently it was through Elfredos efforts and hard work that the partnership
was able to acquire more trucks and otherwise prosper. Even the appellant participated in the affairs of the partnership by
acting as the bookkeeper sans salary.1avvphi1

It is notable too that Jose Lim died when the partnership was barely a year old, and the partnership and its business not
only continued but also flourished. If it were true that it was Jose Lim and not Elfledo who was the partner, then upon his
death the partnership should have

been dissolved and its assets liquidated. On the contrary, these were not done but instead its operation continued under
the helm of Elfledo and without any participation from the heirs of Jose Lim.
 238

Whatever properties appellant and her husband had acquired, this was through their own concerted efforts and hard work.
Elfledo did not limit himself to the business of their partnership but engaged in other lines of businesses as well.

In sum, we find no cogent reason to disturb the findings and the ruling of the CA as they are amply supported by the law
and by the evidence on record.

WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals Decision dated June 29, 2005 is
AFFIRMED. Costs against petitioners.

SO ORDERED.
 239

G.R. No. 127405 September 20, 2001

MARJORIE TOCAO and WILLIAM T. BELO, petitioners,

vs.
COURT OF APPEALS and NENITA A. ANAY, respondent.

RESOLUTION

YNARES-SANTIAGO, J.:

The inherent powers of a Court to amend and control its processes and orders so as to make them conformable to law
and justice includes the right to reverse itself, especially when in its honest opinion it has committed an error or mistake in
judgment, and that to adhere to its decision will cause injustice to a party litigant. 1

On November 14, 2001, petitioners Marjorie Tocao and William T. Belo filed a Motion for Reconsideration of our Decision
dated October 4, 2000. They maintain that there was no partnership between petitioner Belo, on the one hand, and
respondent Nenita A. Anay, on the other hand; and that the latter being merely an employee of petitioner Tocao.

After a careful review of the evidence presented, we are convinced that, indeed, petitioner Belo acted merely as guarantor
of Geminesse Enterprise. This was categorically affirmed by respondent's own witness, Elizabeth Bantilan, during her
cross-examination. Furthermore, Bantilan testified that it was Peter Lo who was the company's financier. Thus:

Q - You mentioned a while ago the name William Belo. Now, what is the role of William Belo with Geminesse
Enterprise?

A - William Belo is the friend of Marjorie Tocao and he was the guarantor of the company.

Q - What do you mean by guarantor?

A - He guarantees the stocks that she owes somebody who is Peter Lo and he acts as guarantor for us. We
can borrow money from him.

Q - You mentioned a certain Peter Lo. Who is this Peter Lo?

A - Peter Lo is based in Singapore.

Q - What is the role of Peter Lo in the Geminesse Enterprise?

A - He is the one fixing our orders that open the L/C.

Q - You mean Peter Lo is the financier?

 240

A - Yes, he is the financier.

Q - And the defendant William Belo is merely the guarantor of Geminesse Enterprise, am I correct?

A - Yes, sir2

The foregoing was neither refuted nor contradicted by respondent's evidence. It should be recalled that the business
relationship created between petitioner Tocao and respondent Anay was an informal partnership, which was not even
recorded with the Securities and Exchange Commission. As such, it was understandable that Belo, who was after all
petitioner Tocao's good friend and confidante, would occasionally participate in the affairs of the business, although never
in a formal or official capacity.3 Again, respondent's witness, Elizabeth Bantilan, confirmed that petitioner Belo's presence
in Geminesse Enterprise's meetings was merely as guarantor of the company and to help petitioner Tocao. 4

Furthermore, no evidence was presented to show that petitioner Belo participated in the profits of the business enterprise.
Respondent herself professed lack of knowledge that petitioner Belo received any share in the net income of the
partnership.5 On the other hand, petitioner Tocao declared that petitioner Belo was not entitled to any share in the profits
of Geminesse Enterprise.6 With no participation in the profits, petitioner Belo cannot be deemed a partner since the
essence of a partnership is that the partners share in the profits and losses. 7

Consequently, inasmuch as petitioner Belo was not a partner in Geminesse Enterprise, respondent had no cause of
action against him and her complaint against him should accordingly be dismissed.

As regards the award of damages, petitioners argue that respondent should be deemed in bad faith for failing to account
for stocks of Geminesse Enterprise amounting to P208,250.00 and that, accordingly, her claim for damages should be
barred to that extent. We do not agree. Given the circumstances surrounding private respondent's sudden ouster from the
partnership by petitioner Tocao, her act of withholding whatever stocks were in her possession and control was justified, if
only to serve as security for her claims against the partnership. However, while we do not agree that the same renders
private respondent in bad faith and should bar her claim for damages, we find that the said sum of P208,250.00 should be
deducted from whatever amount is finally adjudged in her favor on the basis of the formal account of the partnership
affairs to be submitted to the Regional Trial Court.

WHEREFORE, based on the foregoing, the Motion for Reconsideration of petitioners is PARTIALLY GRANTED. The
Regional Trial Court of Makati is hereby ordered to DISMISS the complaint, docketed as Civil Case No. 88-509, as
against petitioner William T. Belo only. The sum of P208,250.00 shall be deducted from whatever amount petitioner
Marjorie Tocao shall be held liable to pay respondent after the normal accounting of the partnership affairs.

SO ORDERED.

Davide, Jr., Kapunan, and Pardo; JJ., concur.

Puno, J., on official leave.
241
 242

G.R. No. 126881 October 3, 2000

HEIRS OF TAN ENG KEE, petitioners,

vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its President TAN ENG
LAY,respondents.

DE LEON, JR., J.:

In this petition for review on certiorari, petitioners pray for the reversal of the Decision 1 dated March 13, 1996 of the former
Fifth Division2 of the Court of Appeals in CA-G.R. CV No. 47937, the dispositive portion of which states:

THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the complaint dismissed.

The facts are:

Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law spouse of the decedent,
joined by their children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio, collectively known as herein petitioners
HEIRS OF TAN ENG KEE, filed suit against the decedent's brother TAN ENG LAY on February 19, 1990. The
complaint,3 docketed as Civil Case No. 1983-R in the Regional Trial Court of Baguio City was for accounting, liquidation
and winding up of the alleged partnership formed after World War II between Tan Eng Kee and Tan Eng Lay. On March
18, 1991, the petitioners filed an amended complaint4 impleading private respondent herein BENGUET LUMBER
COMPANY, as represented by Tan Eng Lay. The amended complaint was admitted by the trial court in its Order dated
May 3, 1991.5

The amended complaint principally alleged that after the second World War, Tan Eng Kee and Tan Eng Lay, pooling their
resources and industry together, entered into a partnership engaged in the business of selling lumber and hardware and
construction supplies. They named their enterprise "Benguet Lumber" which they jointly managed until Tan Eng Kee's
death. Petitioners herein averred that the business prospered due to the hard work and thrift of the alleged partners.
However, they claimed that in 1981, Tan Eng Lay and his children caused the conversion of the partnership "Benguet
Lumber" into a corporation called "Benguet Lumber Company." The incorporation was purportedly a ruse to deprive Tan
Eng Kee and his heirs of their rightful participation in the profits of the business. Petitioners prayed for accounting of the
partnership assets, and the dissolution, winding up and liquidation thereof, and the equal division of the net assets of
Benguet Lumber.

After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment 6 on April 12, 1995, to wit:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered:

a) Declaring that Benguet Lumber is a joint venture which is akin to a particular partnership;

b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or partners in a business
venture and/or particular partnership called Benguet Lumber and as such should share in the profits and/or losses
of the business venture or particular partnership;

c) Declaring that the assets of Benguet Lumber are the same assets turned over to Benguet Lumber Co. Inc. and
as such the heirs or legal representatives of the deceased Tan Eng Kee have a legal right to share in said assets;

d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer and/or as partner in a particular
partnership have descended to the plaintiffs who are his legal heirs.

e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager of Benguet Lumber
Company Inc. to render an accounting of all the assets of Benguet Lumber Company, Inc. so the plaintiffs know
their proper share in the business;
 243

f) Ordering the appointment of a receiver to preserve and/or administer the assets of Benguet Lumber Company,
Inc. until such time that said corporation is finally liquidated are directed to submit the name of any person they
want to be appointed as receiver failing in which this Court will appoint the Branch Clerk of Court or another one
who is qualified to act as such.

g) Denying the award of damages to the plaintiffs for lack of proof except the expenses in filing the instant case.

h) Dismissing the counter-claim of the defendant for lack of merit.

SO ORDERED.

Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered the assailed decision
reversing the judgment of the trial court. Petitioners' motion for reconsideration 7 was denied by the Court of Appeals in a
Resolution8 dated October 11, 1996.

Hence, the present petition.

As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng Lay and Wilborn Tan for the
use of allegedly falsified documents in a judicial proceeding. Petitioners complained that Exhibits "4" to "4-U" offered by
the defendants before the trial court, consisting of payrolls indicating that Tan Eng Kee was a mere employee of Benguet
Lumber, were fake, based on the discrepancy in the signatures of Tan Eng Kee. They also filed Criminal Cases Nos.
78857-78870 against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged
falsification of commercial documents by a private individual. On March 20, 1999, the Municipal Trial Court of Baguio City,
Branch 1, wherein the charges were filed, rendered judgment9 dismissing the cases for insufficiency of evidence.

In their assignment of errors, petitioners claim that:

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP
BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS NO
FIRM ACCOUNT; (B) THERE WAS NO FIRM LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS
NO CERTIFICATE OF PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES;
AND (E) THERE WAS NO TIME FIXED FOR THE DURATION OF THE PARTNERSHIP (PAGE 13, DECISION).

II

THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-SERVING

TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET LUMBER WAS A SOLE PROPRIETORSHIP
AND THAT TAN ENG KEE WAS ONLY AN EMPLOYEE THEREOF.

III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING FACTS WHICH
WERE DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT SUPPORT THE EXISTENCE OF A
PARTNERSHIP JUST BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP DULY RECORDED
BEFORE THE SECURITIES AND EXCHANGE COMMISSION:

a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING AT THE BENGUET
LUMBER COMPOUND;

b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE EMPLOYEES OF
BENGUET LUMBER;

c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE EMPLOYEES
THEREIN;
 244

d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE PRICES OF
STOCKS TO BE SOLD TO THE PUBLIC; AND

e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO THE
SUPPLIERS (PAGE 18, DECISION).

IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP JUST
BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO TAN AND VERONICA CHOI, TOGETHER
WITH THEIR WITNESS BEATRIZ TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE
ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET LUMBER WAS STARTED AS A PARTNERSHIP
(PAGE 16-17, DECISION).

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP
BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE THE PRESENT CAPITAL
OR ASSETS OF BENGUET LUMBER IS DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE
EXECUTION OF A PUBLIC INSTRUMENT CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE AND
NO SUCH PUBLIC INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).

As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of Appeals will not be disturbed on
appeal if such are supported by the evidence.10 Our jurisdiction, it must be emphasized, does not include review of factual
issues. Thus:

Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a judgment or final order or
resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts whenever
authorized by law, may file with the Supreme Court a verified petition for review on certiorari. The petition shall
raise only questions of law which must be distinctly set forth.11 [emphasis supplied]

Admitted exceptions have been recognized, though, and when present, may compel us to analyze the evidentiary basis
on which the lower court rendered judgment. Review of factual issues is therefore warranted:

(1) when the factual findings of the Court of Appeals and the trial court are contradictory;

(2) when the findings are grounded entirely on speculation, surmises, or conjectures;

(3) when the inference made by the Court of Appeals from its findings of fact is manifestly mistaken, absurd, or
impossible;

(4) when there is grave abuse of discretion in the appreciation of facts;

(5) when the appellate court, in making its findings, goes beyond the issues of the case, and such findings are
contrary to the admissions of both appellant and appellee;

(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts;

(7) when the Court of Appeals fails to notice certain relevant facts which, if properly considered, will justify a
different conclusion;

(8) when the findings of fact are themselves conflicting;

(9) when the findings of fact are conclusions without citation of the specific evidence on which they are based;
and
 245

(10) when the findings of fact of the Court of Appeals are premised on the absence of evidence but such findings
are contradicted by the evidence on record. 12

In reversing the trial court, the Court of Appeals ruled, to wit:

We note that the Court a quo over extended the issue because while the plaintiffs mentioned only the existence of
a partnership, the Court in turn went beyond that by justifying the existence of a joint venture.

When mention is made of a joint venture, it would presuppose parity of standing between the parties, equal
proprietary interest and the exercise by the parties equally of the conduct of the business, thus:

xxx xxx xxx

We have the admission that the father of the plaintiffs was not a partner of the Benguet Lumber before the war.
The appellees however argued that (Rollo, p. 104; Brief, p. 6) this is because during the war, the entire stocks of
the pre-war Benguet Lumber were confiscated if not burned by the Japanese. After the war, because of the
absence of capital to start a lumber and hardware business, Lay and Kee pooled the proceeds of their individual
businesses earned from buying and selling military supplies, so that the common fund would be enough to form a
partnership, both in the lumber and hardware business. That Lay and Kee actually established the Benguet
Lumber in Baguio City, was even testified to by witnesses. Because of the pooling of resources, the post-war
Benguet Lumber was eventually established. That the father of the plaintiffs and Lay were partners, is obvious
from the fact that: (1) they conducted the affairs of the business during Kee's lifetime, jointly, (2) they were the
ones giving orders to the employees, (3) they were the ones preparing orders from the suppliers, (4) their families
stayed together at the Benguet Lumber compound, and (5) all their children were employed in the business in
different capacities.

xxx xxx xxx

It is obvious that there was no partnership whatsoever. Except for a firm name, there was no firm account, no firm
letterheads submitted as evidence, no certificate of partnership, no agreement as to profits and losses, and no
time fixed for the duration of the partnership. There was even no attempt to submit an accounting corresponding
to the period after the war until Kee's death in 1984. It had no business book, no written account nor any
memorandum for that matter and no license mentioning the existence of a partnership [citation omitted].

Also, the exhibits support the establishment of only a proprietorship. The certification dated March 4, 1971, Exhibit
"2", mentioned co-defendant Lay as the only registered owner of the Benguet Lumber and Hardware. His
application for registration, effective 1954, in fact mentioned that his business started in 1945 until 1985
(thereafter, the incorporation). The deceased, Kee, on the other hand, was merely an employee of the Benguet
Lumber Company, on the basis of his SSS coverage effective 1958, Exhibit "3". In the Payrolls, Exhibits "4" to "4-
U", inclusive, for the years 1982 to 1983, Kee was similarly listed only as an employee; precisely, he was on the
payroll listing. In the Termination Notice, Exhibit "5", Lay was mentioned also as the proprietor.

xxx xxx xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constituted in any form, but when an
immovable is constituted, the execution of a public instrument becomes necessary. This is equally true if the
capitalization exceeds P3,000.00, in which case a public instrument is also necessary, and which is to be
recorded with the Securities and Exchange Commission. In this case at bar, we can easily assume that the
business establishment, which from the language of the appellees, prospered (pars. 5 & 9, Complaint), definitely
exceeded P3,000.00, in addition to the accumulation of real properties and to the fact that it is now a compound.
The execution of a public instrument, on the other hand, was never established by the appellees.

And then in 1981, the business was incorporated and the incorporators were only Lay and the members of his
family. There is no proof either that the capital assets of the partnership, assuming them to be in existence, were
maliciously assigned or transferred by Lay, supposedly to the corporation and since then have been treated as a
part of the latter's capital assets, contrary to the allegations in pars. 6, 7 and 8 of the complaint.
 246

These are not evidences supporting the existence of a partnership:

1) That Kee was living in a bunk house just across the lumber store, and then in a room in the bunk house in
Trinidad, but within the compound of the lumber establishment, as testified to by Tandoc; 2) that both Lay and
Kee were seated on a table and were "commanding people" as testified to by the son, Elpidio Tan; 3) that both
were supervising the laborers, as testified to by Victoria Choi; and 4) that Dionisio Peralta was supposedly being
told by Kee that the proceeds of the 80 pieces of the G.I. sheets were added to the business.

Partnership presupposes the following elements [citation omitted]: 1) a contract, either oral or written. However, if
it involves real property or where the capital is P3,000.00 or more, the execution of a contract is necessary; 2) the
capacity of the parties to execute the contract; 3) money property or industry contribution; 4) community of funds
and interest, mentioning equality of the partners or one having a proportionate share in the benefits; and 5)
intention to divide the profits, being the true test of the partnership. The intention to join in the business venture for
the purpose of obtaining profits thereafter to be divided, must be established. We cannot see these elements from
the testimonial evidence of the appellees.

As can be seen, the appellate court disputed and differed from the trial court which had adjudged that TAN ENG KEE and
TAN ENG LAY had allegedly entered into a joint venture. In this connection, we have held that whether a partnership
exists is a factual matter; consequently, since the appeal is brought to us under Rule 45, we cannot entertain inquiries
relative to the correctness of the assessment of the evidence by the court a quo. 13 Inasmuch as the Court of Appeals and
the trial court had reached conflicting conclusions, perforce we must examine the record to determine if the reversal was
justified.

The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber. A contract of
partnership is defined by law as one where:

. . . two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention
of dividing the profits among themselves.

Two or more persons may also form a partnership for the exercise of a profession. 14

Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound themselves
to contribute money, property, or industry to a common fund, and (2) they intend to divide the profits among
themselves.15 The agreement need not be formally reduced into writing, since statute allows the oral constitution
of a partnership, save in two instances: (1) when immovable property or real rights are contributed, 16 and (2) when
the partnership has a capital of three thousand pesos or more. 17 In both cases, a public instrument is
required.18 An inventory to be signed by the parties and attached to the public instrument is also indispensable to
the validity of the partnership whenever immovable property is contributed to the partnership.19

The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint venture, which it said is akin to a
particular partnership.20 A particular partnership is distinguished from a joint adventure, to wit:

(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal partnership, with no
firm name and no legal personality. In a joint account, the participating merchants can transact business under
their own name, and can be individually liable therefor.

(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION, although the business of
pursuing to a successful termination may continue for a number of years; a partnership generally relates to a
continuing business of various transactions of a certain kind.21

A joint venture "presupposes generally a parity of standing between the joint co-ventures or partners, in which each party
has an equal proprietary interest in the capital or property contributed, and where each party exercises equal rights in the
conduct of the business."22 Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation, et. al.,23 we
expressed the view that a joint venture may be likened to a particular partnership, thus:

The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been
generally understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed.
 247

811 [1920]) It is hardly distinguishable from the partnership, since their elements are similar community of
interest in the business, sharing of profits and losses, and a mutual right of control. (Blackner v. McDermott, 176
F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288
P.2d. 12 289 P.2d. 242 [1955]). The main distinction cited by most opinions in common law jurisdiction is that the
partnership contemplates a general business with some degree of continuity, while the joint venture is formed for
the execution of a single transaction, and is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P.
2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This
observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular
or universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It
would seem therefore that under Philippine law, a joint venture is a form of partnership and should thus be
governed by the law of partnerships. The Supreme Court has however recognized a distinction between these
two business forms, and has held that although a corporation cannot enter into a partnership contract, it may
however engage in a joint venture with others. (At p. 12, Tuazon v. Bolaos, 95 Phil. 906 [1954]) (Campos and
Lopez-Campos Comments, Notes and Selected Cases, Corporation Code 1981).

Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of partnership but there
is none. The alleged partnership, though, was never formally organized. In addition, petitioners point out that the New Civil
Code was not yet in effect when the partnership was allegedly formed sometime in 1945, although the contrary may well
be argued that nothing prevented the parties from complying with the provisions of the New Civil Code when it took effect
on August 30, 1950. But all that is in the past. The net effect, however, is that we are asked to determine whether a
partnership existed based purely on circumstantial evidence. A review of the record persuades us that the Court of
Appeals correctly reversed the decision of the trial court. The evidence presented by petitioners falls short of the quantum
of proof required to establish a partnership.

Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay, could have expounded on
the precise nature of the business relationship between them. In the absence of evidence, we cannot accept as an
established fact that Tan Eng Kee allegedly contributed his resources to a common fund for the purpose of establishing a
partnership. The testimonies to that effect of petitioners' witnesses is directly controverted by Tan Eng Lay. It should be
noted that it is not with the number of witnesses wherein preponderance lies; 24 the quality of their testimonies is to be
considered. None of petitioners' witnesses could suitably account for the beginnings of Benguet Lumber Company, except
perhaps for Dionisio Peralta whose deceased wife was related to Matilde Abubo. 25 He stated that when he met Tan Eng
Kee after the liberation, the latter asked the former to accompany him to get 80 pieces of G.I. sheets supposedly owned
by both brothers.26 Tan Eng Lay, however, denied knowledge of this meeting or of the conversation between Peralta and
his brother.27 Tan Eng Lay consistently testified that he had his business and his brother had his, that it was only later on
that his said brother, Tan Eng Kee, came to work for him. Be that as it may, co-ownership or co-possession (specifically
here, of the G.I. sheets) is not an indicium of the existence of a partnership.28

Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly in existence, Tan Eng
Kee never asked for an accounting. The essence of a partnership is that the partners share in the profits and
losses.29 Each has the right to demand an accounting as long as the partnership exists.30 We have allowed a scenario
wherein "[i]f excellent relations exist among the partners at the start of the business and all the partners are more
interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly
plausible."31 But in the situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A person is
presumed to take ordinary care of his concerns.32 As we explained in another case:

In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second place, she did not furnish
any help or intervention in the management of the theatre. In the third place, it does not appear that she has even
demanded from defendant any accounting of the expenses and earnings of the business. Were she really a
partner, her first concern should have been to find out how the business was progressing, whether the expenses
were legitimate, whether the earnings were correct, etc. She was absolutely silent with respect to any of the acts
that a partner should have done; all that she did was to receive her share of P3,000.00 a month, which cannot be
interpreted in any manner than a payment for the use of the premises which she had leased from the owners.
Clearly, plaintiff had always acted in accordance with the original letter of defendant of June 17, 1945 (Exh. "A"),
which shows that both parties considered this offer as the real contract between them. 33 [emphasis supplied]

A demand for periodic accounting is evidence of a partnership.34 During his lifetime, Tan Eng Kee appeared never to have
made any such demand for accounting from his brother, Tang Eng Lay.
 248

This brings us to the matter of Exhibits "4" to "4-U" for private respondents, consisting of payrolls purporting to show that
Tan Eng Kee was an ordinary employee of Benguet Lumber, as it was then called. The authenticity of these documents
was questioned by petitioners, to the extent that they filed criminal charges against Tan Eng Lay and his wife and
children. As aforesaid, the criminal cases were dismissed for insufficiency of evidence. Exhibits "4" to "4-U" in fact shows
that Tan Eng Kee received sums as wages of an employee. In connection therewith, Article 1769 of the Civil Code
provides:

In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third
persons;

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-
possessors do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing
them have a joint or common right or interest in any property which the returns are derived;

(4) The receipt by a person of a share of the profits of a business is a prima facie evidence that he is a partner in
the business, but no such inference shall be drawn if such profits were received in payment:

(a) As a debt by installment or otherwise;

(b) As wages of an employee or rent to a landlord;

(c) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the profits of the business;

(e) As the consideration for the sale of a goodwill of a business or other property by installments or
otherwise.

In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an employee, not a partner. Even if
the payrolls as evidence were discarded, petitioners would still be back to square one, so to speak, since they did not
present and offer evidence that would show that Tan Eng Kee received amounts of money allegedly representing his
share in the profits of the enterprise. Petitioners failed to show how much their father, Tan Eng Kee, received, if any, as
his share in the profits of Benguet Lumber Company for any particular period. Hence, they failed to prove that Tan Eng
Kee and Tan Eng Lay intended to divide the profits of the business between themselves, which is one of the essential
features of a partnership.

Nevertheless, petitioners would still want us to infer or believe the alleged existence of a partnership from this set of
circumstances: that Tan Eng Lay and Tan Eng Kee were commanding the employees; that both were supervising the
employees; that both were the ones who determined the price at which the stocks were to be sold; and that both placed
orders to the suppliers of the Benguet Lumber Company. They also point out that the families of the brothers Tan Eng
Kee and Tan Eng Lay lived at the Benguet Lumber Company compound, a privilege not extended to its ordinary
employees.

However, private respondent counters that:

Petitioners seem to have missed the point in asserting that the above enumerated powers and privileges granted
in favor of Tan Eng Kee, were indicative of his being a partner in Benguet Lumber for the following reasons:

(i) even a mere supervisor in a company, factory or store gives orders and directions to his subordinates. So long,
therefore, that an employee's position is higher in rank, it is not unusual that he orders around those lower in rank.
 249

(ii) even a messenger or other trusted employee, over whom confidence is reposed by the owner, can order
materials from suppliers for and in behalf of Benguet Lumber. Furthermore, even a partner does not necessarily
have to perform this particular task. It is, thus, not an indication that Tan Eng Kee was a partner.

(iii) although Tan Eng Kee, together with his family, lived in the lumber compound and this privilege was not
accorded to other employees, the undisputed fact remains that Tan Eng Kee is the brother of Tan Eng Lay.
Naturally, close personal relations existed between them. Whatever privileges Tan Eng Lay gave his brother, and
which were not given the other employees, only proves the kindness and generosity of Tan Eng Lay towards a
blood relative.

(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng Lay in connection with the pricing of
stocks, this does not adequately prove the existence of a partnership relation between them. Even highly
confidential employees and the owners of a company sometimes argue with respect to certain matters which, in
no way indicates that they are partners as to each other.35

In the instant case, we find private respondent's arguments to be well-taken. Where circumstances taken singly may be
inadequate to prove the intent to form a partnership, nevertheless, the collective effect of these circumstances may be
such as to support a finding of the existence of the parties' intent.36 Yet, in the case at bench, even the aforesaid
circumstances when taken together are not persuasive indicia of a partnership. They only tend to show that Tan Eng Kee
was involved in the operations of Benguet Lumber, but in what capacity is unclear. We cannot discount the likelihood that
as a member of the family, he occupied a niche above the rank-and-file employees. He would have enjoyed liberties
otherwise unavailable were he not kin, such as his residence in the Benguet Lumber Company compound. He would have
moral, if not actual, superiority over his fellow employees, thereby entitling him to exercise powers of supervision. It may
even be that among his duties is to place orders with suppliers. Again, the circumstances proffered by petitioners do not
provide a logical nexus to the conclusion desired; these are not inconsistent with the powers and duties of a manager,
even in a business organized and run as informally as Benguet Lumber Company.

There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak of. Hence, the petition
must fail.

WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals is hereby AFFIRMED in
toto. No pronouncement as to costs.

SO ORDERED.
 250

G.R. No. 142293 February 27, 2003

VICENTE SY, TRINIDAD PAULINO, 6BS TRUCKING CORPORATION, and SBT 1 TRUCKING
CORPORATION, petitioners,
vs.
HON. COURT OF APPEALS and JAIME SAHOT, respondents.

DECISION

QUISUMBING, J.:

This petition for review seeks the reversal of the decision2 of the Court of Appeals dated February 29, 2000, in CA-G.R.
SP No. 52671, affirming with modification the decision3 of the National Labor Relations Commission promulgated on June
20, 1996 in NLRC NCR CA No. 010526-96. Petitioners also pray for the reinstatement of the decision 4 of the Labor Arbiter
in NLRC NCR Case No. 00-09-06717-94.
 251

Culled from the records are the following facts of this case:

Sometime in 1958, private respondent Jaime Sahot5 started working as a truck helper for petitioners family-owned
trucking business named Vicente Sy Trucking. In 1965, he became a truck driver of the same family business, renamed T.
Paulino Trucking Service, later 6Bs Trucking Corporation in 1985, and thereafter known as SBT Trucking Corporation
since 1994. Throughout all these changes in names and for 36 years, private respondent continuously served the trucking
business of petitioners.

In April 1994, Sahot was already 59 years old. He had been incurring absences as he was suffering from various
ailments. Particularly causing him pain was his left thigh, which greatly affected the performance of his task as a driver.
He inquired about his medical and retirement benefits with the Social Security System (SSS) on April 25, 1994, but
discovered that his premium payments had not been remitted by his employer.

Sahot had filed a week-long leave sometime in May 1994. On May 27th, he was medically examined and treated for EOR,
presleyopia, hypertensive retinopathy G II (Annexes "G-5" and "G-3", pp. 48, 104, respectively),6 HPM, UTI, Osteoarthritis
(Annex "G-4", p. 105),7 and heart enlargement (Annex G, p. 107).8 On said grounds, Belen Paulino of the SBT Trucking
Service management told him to file a formal request for extension of his leave. At the end of his week-long absence,
Sahot applied for extension of his leave for the whole month of June, 1994. It was at this time when petitioners allegedly
threatened to terminate his employment should he refuse to go back to work.

At this point, Sahot found himself in a dilemma. He was facing dismissal if he refused to work, But he could not retire on
pension because petitioners never paid his correct SSS premiums. The fact remained he could no longer work as his left
thigh hurt abominably. Petitioners ended his dilemma. They carried out their threat and dismissed him from work, effective
June 30, 1994. He ended up sick, jobless and penniless.

On September 13, 1994, Sahot filed with the NLRC NCR Arbitration Branch, a complaint for illegal dismissal, docketed as
NLRC NCR Case No. 00-09-06717-94. He prayed for the recovery of separation pay and attorneys fees against Vicente
Sy and Trinidad Paulino-Sy, Belen Paulino, Vicente Sy Trucking, T. Paulino Trucking Service, 6Bs Trucking and SBT
Trucking, herein petitioners.

For their part, petitioners admitted they had a trucking business in the 1950s but denied employing helpers and drivers.
They contend that private respondent was not illegally dismissed as a driver because he was in fact petitioners industrial
partner. They add that it was not until the year 1994, when SBT Trucking Corporation was established, and only then did
respondent Sahot become an employee of the company, with a monthly salary that reached P4,160.00 at the time of his
separation.

Petitioners further claimed that sometime prior to June 1, 1994, Sahot went on leave and was not able to report for work
for almost seven days. On June 1, 1994, Sahot asked permission to extend his leave of absence until June 30, 1994. It
appeared that from the expiration of his leave, private respondent never reported back to work nor did he file an extension
of his leave. Instead, he filed the complaint for illegal dismissal against the trucking company and its owners.

Petitioners add that due to Sahots refusal to work after the expiration of his authorized leave of absence, he should be
deemed to have voluntarily resigned from his work. They contended that Sahot had all the time to extend his leave or at
least inform petitioners of his health condition. Lastly, they cited NLRC Case No. RE-4997-76, entitled "Manuelito Jimenez
et al. vs. T. Paulino Trucking Service," as a defense in view of the alleged similarity in the factual milieu and issues of said
case to that of Sahots, hence they are in pari material and Sahots complaint ought also to be dismissed.

The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel Cadiente Santos, ruled that there was no illegal dismissal
in Sahots case. Private respondent had failed to report to work. Moreover, said the Labor Arbiter, petitioners and private
respondent were industrial partners before January 1994. The Labor Arbiter concluded by ordering petitioners to pay
"financial assistance" of P15,000 to Sahot for having served the company as a regular employee since January 1994 only.

On appeal, the National Labor Relations Commission modified the judgment of the Labor Arbiter. It declared that private
respondent was an employee, not an industrial partner, since the start. Private respondent Sahot did not abandon his job
but his employment was terminated on account of his illness, pursuant to Article 284 9 of the Labor Code. Accordingly, the
NLRC ordered petitioners to pay private respondent separation pay in the amount of P60,320.00, at the rate of P2,080.00
per year for 29 years of service.
 252

Petitioners assailed the decision of the NLRC before the Court of Appeals. In its decision dated February 29, 2000, the
appellate court affirmed with modification the judgment of the NLRC. It held that private respondent was indeed an
employee of petitioners since 1958. It also increased the amount of separation pay awarded to private respondent to
P74,880, computed at the rate of P2,080 per year for 36 years of service from 1958 to 1994. It decreed:

WHEREFORE, the assailed decision is hereby AFFIRMED with MODIFICATION. SB Trucking Corporation is hereby
directed to pay complainant Jaime Sahot the sum of SEVENTY-FOUR THOUSAND EIGHT HUNDRED EIGHTY
(P74,880.00) PESOS as and for his separation pay. 10

Hence, the instant petition anchored on the following contentions:

RESPONDENT COURT OF APPEALS IN PROMULGATING THE QUESTION[ED] DECISION AFFIRMING WITH

MODIFICATION THE DECISION OF NATIONAL LABOR RELATIONS COMMISSION DECIDED NOT IN ACCORD WITH
LAW AND PUT AT NAUGHT ARTICLE 402 OF THE CIVIL CODE.11

II

RESPONDENT COURT OF APPEALS VIOLATED SUPREME COURT RULING THAT THE NATIONAL LABOR
RELATIONS COMMISSION IS BOUND BY THE FACTUAL FINDINGS OF THE LABOR ARBITER AS THE LATTER
WAS IN A BETTER POSITION TO OBSERVE THE DEMEANOR AND DEPORTMENT OF THE WITNESSES IN THE
CASE OF ASSOCIATION OF INDEPENDENT UNIONS IN THE PHILIPPINES VERSUS NATIONAL CAPITAL REGION
(305 SCRA 233).12

III

PRIVATE RESPONDENT WAS NOT DISMISS[ED] BY RESPONDENT SBT TRUCKING CORPORATION. 13

Three issues are to be resolved: (1) Whether or not an employer-employee relationship existed between petitioners and
respondent Sahot; (2) Whether or not there was valid dismissal; and (3) Whether or not respondent Sahot is entitled to
separation pay.

Crucial to the resolution of this case is the determination of the first issue. Before a case for illegal dismissal can prosper,
an employer-employee relationship must first be established.14

Petitioners invoke the decision of the Labor Arbiter Ariel Cadiente Santos which found that respondent Sahot was not an
employee but was in fact, petitioners industrial partner.15 It is contended that it was the Labor Arbiter who heard the case
and had the opportunity to observe the demeanor and deportment of the parties. The same conclusion, aver petitioners, is
supported by substantial evidence. 16 Moreover, it is argued that the findings of fact of the Labor Arbiter was wrongly
overturned by the NLRC when the latter made the following pronouncement:

We agree with complainant that there was error committed by the Labor Arbiter when he concluded that complainant was
an industrial partner prior to 1994. A computation of the age of complainant shows that he was only twenty-three (23)
years when he started working with respondent as truck helper. How can we entertain in our mind that a twenty-three (23)
year old man, working as a truck helper, be considered an industrial partner. Hence we rule that complainant was only an
employee, not a partner of respondents from the time complainant started working for respondent. 17

Because the Court of Appeals also found that an employer-employee relationship existed, petitioners aver that the
appellate courts decision gives an "imprimatur" to the "illegal" finding and conclusion of the NLRC.

Private respondent, for his part, denies that he was ever an industrial partner of petitioners. There was no written
agreement, no proof that he received a share in petitioners profits, nor was there anything to show he had any
participation with respect to the running of the business.18

The elements to determine the existence of an employment relationship are: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employers power to control the employees
 253

conduct. The most important element is the employers control of the employees conduct, not only as to the result of the
work to be done, but also as to the means and methods to accomplish it.19

As found by the appellate court, petitioners owned and operated a trucking business since the 1950s and by their own
allegations, they determined private respondents wages and rest day.20 Records of the case show that private respondent
actually engaged in work as an employee. During the entire course of his employment he did not have the freedom to
determine where he would go, what he would do, and how he would do it. He merely followed instructions of petitioners
and was content to do so, as long as he was paid his wages. Indeed, said the CA, private respondent had worked as a
truck helper and driver of petitioners not for his own pleasure but under the latters control.

Article 176721 of the Civil Code states that in a contract of partnership two or more persons bind themselves to contribute
money, property or industry to a common fund, with the intention of dividing the profits among themselves. 22 Not one of
these circumstances is present in this case. No written agreement exists to prove the partnership between the parties.
Private respondent did not contribute money, property or industry for the purpose of engaging in the supposed business.
There is no proof that he was receiving a share in the profits as a matter of course, during the period when the trucking
business was under operation. Neither is there any proof that he had actively participated in the management,
administration and adoption of policies of the business. Thus, the NLRC and the CA did not err in reversing the finding of
the Labor Arbiter that private respondent was an industrial partner from 1958 to 1994.

On this point, we affirm the findings of the appellate court and the NLRC. Private respondent Jaime Sahot was not an
industrial partner but an employee of petitioners from 1958 to 1994. The existence of an employer-employee relationship
is ultimately a question of fact23 and the findings thereon by the NLRC, as affirmed by the Court of Appeals, deserve not
only respect but finality when supported by substantial evidence. Substantial evidence is such amount of relevant
evidence which a reasonable mind might accept as adequate to justify a conclusion. 24

Time and again this Court has said that "if doubt exists between the evidence presented by the employer and the
employee, the scales of justice must be tilted in favor of the latter." 25 Here, we entertain no doubt. Private respondent
since the beginning was an employee of, not an industrial partner in, the trucking business.

Coming now to the second issue, was private respondent validly dismissed by petitioners?

Petitioners contend that it was private respondent who refused to go back to work. The decision of the Labor Arbiter
pointed out that during the conciliation proceedings, petitioners requested respondent Sahot to report back for work.
However, in the same proceedings, Sahot stated that he was no longer fit to continue working, and instead he demanded
separation pay. Petitioners then retorted that if Sahot did not like to work as a driver anymore, then he could be given a
job that was less strenuous, such as working as a checker. However, Sahot declined that suggestion. Based on the
foregoing recitals, petitioners assert that it is clear that Sahot was not dismissed but it was of his own volition that he did
not report for work anymore.

In his decision, the Labor Arbiter concluded that:

While it may be true that respondents insisted that complainant continue working with respondents despite his alleged
illness, there is no direct evidence that will prove that complainants illness prevents or incapacitates him from performing
the function of a driver. The fact remains that complainant suddenly stopped working due to boredom or otherwise when
he refused to work as a checker which certainly is a much less strenuous job than a driver. 26

But dealing the Labor Arbiter a reversal on this score the NLRC, concurred in by the Court of Appeals, held that:

While it was very obvious that complainant did not have any intention to report back to work due to his illness which
incapacitated him to perform his job, such intention cannot be construed to be an abandonment. Instead, the same should
have been considered as one of those falling under the just causes of terminating an employment. The insistence of
respondent in making complainant work did not change the scenario.

It is worthy to note that respondent is engaged in the trucking business where physical strength is of utmost requirement
(sic). Complainant started working with respondent as truck helper at age twenty-three (23), then as truck driver since
1965. Complainant was already fifty-nine (59) when the complaint was filed and suffering from various illness triggered by
his work and age.
 254

x x x27

In termination cases, the burden is upon the employer to show by substantial evidence that the termination was for lawful
cause and validly made.28 Article 277(b) of the Labor Code puts the burden of proving that the dismissal of an employee
was for a valid or authorized cause on the employer, without distinction whether the employer admits or does not admit
the dismissal.29 For an employees dismissal to be valid, (a) the dismissal must be for a valid cause and (b) the employee
must be afforded due process.30

Article 284 of the Labor Code authorizes an employer to terminate an employee on the ground of disease, viz:

Art. 284. Disease as a ground for termination- An employer may terminate the services of an employee who has been
found to be suffering from any disease and whose continued employment is prohibited by law or prejudicial to his health
as well as the health of his co-employees: xxx

However, in order to validly terminate employment on this ground, Book VI, Rule I, Section 8 of the Omnibus
Implementing Rules of the Labor Code requires:

Sec. 8. Disease as a ground for dismissal- Where the employee suffers from a disease and his continued employment is
prohibited by law or prejudicial to his health or to the health of his co-employees, the employer shall not terminate his
employment unless there is a certification by competent public health authority that the disease is of such nature or at
such a stage that it cannot be cured within a period of six (6) months even with proper medical treatment. If the disease or
ailment can be cured within the period, the employer shall not terminate the employee but shall ask the employee to take
a leave. The employer shall reinstate such employee to his former position immediately upon the restoration of his normal
health. (Italics supplied).

As this Court stated in Triple Eight integrated Services, Inc. vs. NLRC, 31 the requirement for a medical certificate under
Article 284 of the Labor Code cannot be dispensed with; otherwise, it would sanction the unilateral and arbitrary
determination by the employer of the gravity or extent of the employees illness and thus defeat the public policy in the
protection of labor.

In the case at bar, the employer clearly did not comply with the medical certificate requirement before Sahots dismissal
was effected. In the same case of Sevillana vs. I.T. (International) Corp., we ruled:

Since the burden of proving the validity of the dismissal of the employee rests on the employer, the latter should likewise
bear the burden of showing that the requisites for a valid dismissal due to a disease have been complied with. In the
absence of the required certification by a competent public health authority, this Court has ruled against the validity of the
employees dismissal. It is therefore incumbent upon the private respondents to prove by the quantum of evidence
required by law that petitioner was not dismissed, or if dismissed, that the dismissal was not illegal; otherwise, the
dismissal would be unjustified. This Court will not sanction a dismissal premised on mere conjectures and suspicions, the
evidence must be substantial and not arbitrary and must be founded on clearly established facts sufficient to warrant his
separation from work.32

In addition, we must likewise determine if the procedural aspect of due process had been complied with by the employer.

From the records, it clearly appears that procedural due process was not observed in the separation of private respondent
by the management of the trucking company. The employer is required to furnish an employee with two written notices
before the latter is dismissed: (1) the notice to apprise the employee of the particular acts or omissions for which his
dismissal is sought, which is the equivalent of a charge; and (2) the notice informing the employee of his dismissal, to be
issued after the employee has been given reasonable opportunity to answer and to be heard on his defense. 33 These, the
petitioners failed to do, even only for record purposes. What management did was to threaten the employee with
dismissal, then actually implement the threat when the occasion presented itself because of private respondents painful
left thigh.

All told, both the substantive and procedural aspects of due process were violated. Clearly, therefore, Sahots dismissal is
tainted with invalidity.
 255

On the last issue, as held by the Court of Appeals, respondent Jaime Sahot is entitled to separation pay. The law is clear
on the matter. An employee who is terminated because of disease is entitled to "separation pay equivalent to at least one
month salary or to one-half month salary for every year of service, whichever is greater xxx." 34 Following the formula set in
Art. 284 of the Labor Code, his separation pay was computed by the appellate court at P2,080 times 36 years (1958 to
1994) or P74,880. We agree with the computation, after noting that his last monthly salary was P4,160.00 so that one-half
thereof is P2,080.00. Finding no reversible error nor grave abuse of discretion on the part of appellate court, we are
constrained to sustain its decision. To avoid further delay in the payment due the separated worker, whose claim was filed
way back in 1994, this decision is immediately executory. Otherwise, six percent (6%) interest per annum should be
charged thereon, for any delay, pursuant to provisions of the Civil Code.

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals dated February 29, 2000 is AFFIRMED.
Petitioners must pay private respondent Jaime Sahot his separation pay for 36 years of service at the rate of one-half
monthly pay for every year of service, amounting to P74,880.00, with interest of six per centum (6%) per annum from
finality of this decision until fully paid.

Costs against petitioners.

SO ORDERED.

G.R. No. 114311 November 29, 1996

COSMIC LUMBER CORPORATION, petitioner,

vs.
COURT OF APPEAL and ISIDRO PEREZ, respondents.

BELLOSILLO, J.:

COSMIC LUMBER CORPORATION through its General Manager executed on 28 January 1985 a Special Power
of Attorney appointing Paz G. Villamil-Estrada as attorney-in-fact

. . . to initiate, institute and file any court action for the ejectment of third persons and/or squatters of the
entire lot 9127 and 443 and covered by TCT Nos. 37648 and 37649, for the said squatters to remove
their houses and vacate the premises in order that the corporation may take material possession of the
entire lot, and for this purpose, to appear at the pre-trial conference and enter into any stipulation of facts
and/or compromise agreement so far as it shall protect the rights and interest of the corporation in the
aforementioned lots. 1

On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of attorney, instituted an action for the
ejectment of private respondent Isidro Perez and recover the possession of a portion of Lot No. 443 before the
Regional Trial Court of Dagupan, docketed as Civil Case No. D-7750. 2
 256

On 25 November 1985 Villamil-Estrada entered into a Compromise Agreement with respondent Perez, the terms
of which follow:

1. That as per relocation sketch plan dated June 5, 1985 prepared by Engineer Rodolfo dela Cruz the
area at present occupied by defendant wherein his house is located is 333 square meters on the
easternmost part of lot 443 and which portion has been occupied by defendant for several years now;

2. That to buy peace said defendant pays unto the plaintiff through herein attorney-in-fact the sum of
P26,640.00 computed at P80.00/square meter;

3. That plaintiff hereby recognizes ownership and possession of the defendant by virtue of this
compromise agreement over said portion of 333 square m. of lot 443 which portion will be located on the
easternmost part as indicated in the sketch as annex A;

4. Whatever expenses of subdivision, registration, and other incidental expenses shall be shouldered by
the defendant. 3

On 27 November 1985 the "Compromise Agreement" was approved by the trial court and judgment was rendered
in accordance therewith. 4

Although the decision became final and executory it was not executed within the 5-year period from date of its
finality allegedly due to the failure of petitioner to produce the owner's duplicate copy of Title No. 37649 needed to
segregate from Lot No. 443 the portion sold by the attorney-in-fact, Paz G. Villamil-Estrada, to private respondent
under the compromise agreement. Thus on 25 January 1993 respondent filed a complaint to revive the judgment,
docketed as Civil Case No. D-10459. 5

Petitioner asserts that it was only when the summons in Civil Case No. D-10459 for the revival of judgment was
served upon it that it came to know of the compromise agreement entered into between Paz G. Villamil-Estrada
and respondent Isidro Perez upon which the trial court based its decision of 26 July 1993 in Civil Case No. D-
7750. Forthwith, upon learning of the fraudulent transaction, petitioner sought annulment of the decision of the
trial court before respondent Court of Appeals on the ground that the compromise agreement was void because:
(a) the attorney-in-fact did not have the authority to dispose of, sell, encumber or divest the plaintiff of its
ownership over its real property or any portion thereof; (b) the authority of the attorney-in-fact was confined to the
institution and filing of an ejectment case against third persons/squatters on the property of the plaintiff, and to
cause their eviction therefrom; (c) while the special power of attorney made mention of an authority to enter into a
compromise agreement, such authority was in connection with, and limited to, the eviction of third
persons/squatters thereat, in order that "the corporation may take material possession of the entire lot;" (d) the
amount of P26,640.00 alluded to as alleged consideration of said agreement was never received by the plaintiff;
(e) the private defendant acted in bad faith in. the execution of said agreement knowing fully well the want of
authority of the attorney-in-fact to sell, encumber or dispose of the real property of plaintiff; and, (f) the disposal of
a corporate property indispensably requires a Board Resolution of its Directors, a fact which is wanting in said
Civil Case No. D-7750, and the General Manager is not the proper officer to encumber a corporate property. 6

On 29 October 1993 respondent court dismissed the complaint on the basis of its finding that not one of the
grounds for annulment, namely, lack of jurisdiction, fraud or illegality was shown to exist. 7 It also denied the
motion for reconsideration filed by petitioner, discoursing that the alleged nullity of the compromise judgment on
the ground that petitioner's attorney-in-fact Villamil-Estrada was not authorized to sell the subject propety may be
raised as a defense in the execution of the compromise judgment as it does not bind petitioner, but not as a
ground for annulment of judgment because it does not affect the jurisdiction of the trial court over the action nor
does it amount to extrinsic fraud. 8

Petitioner challenges this verdict. It argues that the decision of the trial court is void because the compromise
agreement upon which it was based is void. Attorney-in-fact Villamil-Estrada did not possess the authority to sell
or was she armed with a Board Resolution authorizing the sale of its property. She was merely empowered to
enter into a compromise agreement in the recovery suit she was authorized to file against persons squatting on
Lot No. 443, such authority being expressly confined to the "ejectment of third persons or squatters of . . . lot . . .
(No.) 443 . . . for the said squatters to remove their houses and vacate the premises in order that the corporation
may take material possession of the entire lot . . ."
 257

We agree with petitioner. The authority granted Villamil-Estrada under the special power of attorney was explicit
and exclusionary: for her to institute any action in court to eject all persons found on Lots Nos. 9127 and 443 so
that petitioner could take material possession thereof, and for this purpose, to appear at the pre-trial and enter
into any stipulation of facts and/or compromise agreement but only insofar as this was protective of the rights and
interests of petitioner in the property. Nowhere in this authorization was Villamil-Estrada granted expressly or
impliedly any power to sell the subject property nor a portion thereof. Neither can a conferment of the power to
sell be validly inferred from the specific authority "to enter into a compromise agreement" because of the explicit
limitation fixed by the grantor that the compromise entered into shall only be "so far as it shall protect the rights
and interest of the corporation in the aforementioned lots." In the context of the specific investiture of powers to
Villamil-Estrada, alienation by sale of an immovable certainly cannot be deemed protective of the right of
petitioner to physically possess the same, more so when the land was being sold for a price of P80.00 per square
meter, very much less than its assessed value of P250.00 per square meter, and considering further that
petitioner never received the proceeds of the sale.

When the sale of a piece of land or any interest thereon is through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void. 9 Thus the authority of an agent to execute a contract for the sale of real
estate must be conferred in writing and must give him specific authority, either to conduct the general business of
the principal or to execute a binding contract containing terms and conditions which are in the contract he did
execute. 10 A special power of attorney is necessary to enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a valuable consideration. 11The express mandate
required by law to enable an appointee of an agency (couched) in general terms to sell must be one that
expressly mentions a sale or that includes a sale as a necessary ingredient of the act mentioned. 12 For the
principal to confer the right upon an agent to sell real estate, a power of attorney must so express the powers of
the agent in clear and unmistakable language. When there is any reasonable doubt that the language so used
conveys such power, no such construction shall be given the document. 13

It is therefore clear that by selling to respondent Perez a portion of petitioner's land through a compromise
agreement, Villamil-Estrada acted without or in obvious authority. The sale ipso jure is consequently void. So is
the compromise agreement. This being the case, the judgment based thereon is necessarily void. Antipodal to the
opinion expressed by respondent court in resolving petitioner's motion for reconsideration, the nullity of the
settlement between Villamil-Estrada and Perez impaired the jurisdiction of the trial court to render its decision
based on the compromise agreement. In Alviar v. Court of First Instance of La Union, 14 the Court held

. . . this court does not hesitate to hold that the judgment in question is null and void ab initio. It is not
binding upon and cannot be executed against the petitioners. It is evident that the compromise upon
which the judgment was based was not subscribed by them . . . Neither could Attorney Ortega bind them
validly in the compromise because he had no special authority . . .

As the judgment in question is null and void ab initio, it is evident that the court acquired no jurisdiction to
render it, much less to order the execution thereof . . .

. . . A judgment, which is null and void ab initio, rendered by a court without jurisdiction to do so, is without
legal efficacy and may properly be impugned in any proceeding by the party against whom it is sought to
be enforced . . .

This ruling was adopted in Jacinto v. Montesa,15 by Mr. Justice J. B.L. Reyes, a much-respected authority on civil
law, where the Court declared that a judgment based on a compromise entered into by an attorney without
specific authority from the client is void. Such judgment may be impugned and its execution restrained in any
proceeding by the party against whom it is sought to be enforced. The Court also observed that a defendant
against whom a judgment based on a compromise is sought to be enforced may file a petition for certiorari to
quash the execution. He could not move to have the compromise set aside and then appeal from the order of
denial since he was not a party to the compromise. Thus it would appear that the obiter of the appellate court that
the alleged nullity of the compromise agreement should be raised as a defense against its enforcement is not
legally feasible. Petitioner could not be in a position to question the compromise agreement in the action to revive
the compromise judgment since it was never privy to such agreement. Villamil-Estrada who signed the
compromise agreement may have been the attorney-in-fact but she could not legally bind petitioner thereto as
she was not entrusted with a special authority to sell the land, as required in Art. 1878, par. (5), of the Civil Code.
 258

Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition the Court of Appeals to annul and
set aside judgments of Regional Trial Courts. 16 "Thus, the Intermediate Appellant Court (now Court of Appeals)
shall exercise . . . (2) Exclusive original jurisdiction over action for annulment of judgments of the Regional Trial
Courts . . ." However, certain requisites must first be established before a final and executory judgment can be the
subject of an action for annulment. It must either be void for want of jurisdiction or for lack of due process of law,
or it has been obtained by fraud. 17

Conformably with law and the above-cited authorities, the petition to annul the decision of the trial court in Civil
Case No. D-7750 before the Court of Appeals was proper. Emanating as it did from a void compromise
agreement, the trial court had no jurisdiction to render a judgment based thereon. 18

It would also appear, and quite contrary to the finding of the appellate court, that the highly reprehensible conduct
of attorney-in-fact Villamil-Estrada in Civil Case No. 7750 constituted an extrinsic or collateral fraud by reason of
which the judgment rendered thereon should have been struck down. Not all the legal semantics in the world can
becloud the unassailable fact that petitioner was deceived and betrayed by its attorney-in-fact, Villamil-Estrada
deliberately concealed from petitioner, her principal, that a compromise agreement had been forged with the end-
result that a portion of petitioner's property was sold to the deforciant, literally for a song. Thus completely kept
unaware of its agent's artifice, petitioner was not accorded even a fighting chance to repudiate the settlement so
much so that the judgment based thereon became final and executory.

For sure, the Court of Appeals restricted the concept of fraudulent acts within too narrow limits. Fraud may
assume different shapes and be committed in as many different ways and here lies the danger of attempting to
define fraud. For man in his ingenuity and fertile imagination will always contrive new schemes to fool the unwary.

There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg. 129, where it is one the effect of which
prevents a party from hearing a trial, or real contest, or from presenting all of his case to the court, or where it
operates upon matters, not pertaining to the judgment itself, but to the manner in which it was procured so that
there is not a fair submission of the controversy. In other words, extrinsic fraud refers to any fraudulent act of the
prevailing party in the litigation which is committed outside of the trial of the case, whereby the defeated party has
been prevented from exhibiting fully his side of the case by fraud or deception practiced on him by his
opponent. 19 Fraud is extrinsic where the unsuccessful party has been prevented from exhibiting fully his case, by
fraud or deception practiced on him by his opponent, as by keeping him away from court, a false promise of a
compromise; or where the defendant never had knowledge of the suit, being kept in ignorance by the acts of the
plaintiff; or where an attorney fraudulently or without authority connives at his defeat; these and similar cases
which show that there has never been a real contest in the trial or hearing of the case are reasons for which a
new suit may be sustained to set aside and annul the former judgment and open the case for a new and fair
hearing. 20

It may be argued that petitioner knew of the compromise agreement since the principal is chargeable with and
bound by the knowledge of or notice to his agent received while the agent was acting as such. But the general
rule is intended to protect those who exercise good faith and not as a shield for unfair dealing. Hence there is a
well-established exception to the general rule as where the conduct and dealings of the agent are such as to raise
a clear presumption that he will not communicate to the principal the facts in controversy. 21The logical reason for
this exception is that where the agent is committing a fraud, it would be contrary to common sense to presume or
to expect that he would communicate the facts to the principal. Verily, when an agent is engaged in the
perpetration of a fraud upon his principal for his own exclusive benefit, he is not really acting for the principal but
is really acting for himself, entirely outside the scope of his agency. 22 Indeed, the basic tenets of agency rest on
the highest considerations of justice, equity and fair play, and an agent will not be permitted to pervert his
authority to his own personal advantage, and his act in secret hostility to the interests of his principal transcends
the power afforded him. 23

WHEREFORE, the petition is GRANTED. The decision and resolution of respondent Court of Appeals dated 29
October 1993 and 10 March 1994, respectively, as well as the decision of the Regional Trial Court of Dagupan
City in Civil Case No. D-7750 dated 27 November 1985, are NULLIFIED and SET ASIDE. The "Compromise
Agreement" entered into between Attorney-in-fact Paz G. Villamil-Estrada and respondent Isidro Perez is
declared VOID. This is without prejudice to the right of petitioner to pursue its complaint against private
respondent Isidro Perez in Civil Case No. D-7750 for the recovery of possession of a portion of Lot No. 443. SO
ORDERED.
 259

G.R. No. 163720 December 16, 2004

GENEVIEVE LIM, petitioner,

vs.
FLORENCIO SABAN, respondents.

DECISION

TINGA, J.:

Before the Court is a Petition for Review on Certiorari assailing the Decision1 dated October 27, 2003 of the Court of
Appeals, Seventh Division, in CA-G.R. V No. 60392.2

The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square meter lot in Cebu City (the "lot"), entered into
an Agreement and Authority to Negotiate and Sell (Agency Agreement) with respondent Florencio Saban (Saban) on
February 8, 1994. Under the Agency Agreement, Ybaez authorized Saban to look for a buyer of the lot for Two Hundred
Thousand Pesos (P200,000.00) and to mark up the selling price to include the amounts needed for payment of taxes,
transfer of title and other expenses incident to the sale, as well as Sabans commission for the sale. 3

Through Sabans efforts, Ybaez and his wife were able to sell the lot to the petitioner Genevieve Lim (Lim) and the
spouses Benjamin and Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of the lot as indicated in the Deed of
Absolute Sale is Two Hundred Thousand Pesos (P200,000.00).4 It appears, however, that the vendees agreed to
purchase the lot at the price of Six Hundred Thousand Pesos (P600,000.00), inclusive of taxes and other incidental
expenses of the sale. After the sale, Lim remitted to Saban the amounts of One Hundred Thirteen Thousand Two
Hundred Fifty Seven Pesos (P113,257.00) for payment of taxes due on the transaction as well as Fifty Thousand Pesos
(P50,000.00) as brokers commission.5 Lim also issued in the name of Saban four postdated checks in the aggregate
amount of Two Hundred Thirty Six Thousand Seven Hundred Forty Three Pesos (P236,743.00). These checks were Bank
of the Philippine Islands (BPI) Check No. 1112645 dated June 12, 1994 for P25,000.00; BPI Check No. 1112647 dated
June 19, 1994 for P18,743.00; BPI Check No. 1112646 dated June 26, 1994 for P25,000.00; and Equitable PCI Bank
Check No. 021491B dated June 20, 1994 for P168,000.00.

Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to Lim. In the letter Ybaez asked Lim to cancel all
the checks issued by her in Sabans favor and to "extend another partial payment" for the lot in his (Ybaezs) favor. 6

After the four checks in his favor were dishonored upon presentment, Saban filed a Complaint for collection of sum of
money and damages against Ybaez and Lim with the Regional Trial Court (RTC) of Cebu City on August 3, 1994. 7 The
case was assigned to Branch 20 of the RTC.

In his Complaint, Saban alleged that Lim and the Spouses Lim agreed to purchase the lot for P600,000.00, i.e., with a
mark-up of Four Hundred Thousand Pesos (P400,000.00) from the price set by Ybaez. Of the total purchase price
of P600,000.00, P200,000.00 went to Ybaez, P50,000.00 allegedly went to Lims agent, and P113,257.00 was given to
Saban to cover taxes and other expenses incidental to the sale. Lim also issued four (4) postdated checks 8 in favor of
Saban for the remaining P236,743.00.9

Saban alleged that Ybaez told Lim that he (Saban) was not entitled to any commission for the sale since he concealed
the actual selling price of the lot from Ybaez and because he was not a licensed real estate broker. Ybaez was able to
convince Lim to cancel all four checks.

Saban further averred that Ybaez and Lim connived to deprive him of his sales commission by withholding payment of
the first three checks. He also claimed that Lim failed to make good the fourth check which was dishonored because the
account against which it was drawn was closed.
 260

In his Answer, Ybaez claimed that Saban was not entitled to any commission because he concealed the actual selling
price from him and because he was not a licensed real estate broker.

Lim, for her part, argued that she was not privy to the agreement between Ybaez and Saban, and that she issued stop
payment orders for the three checks because Ybaez requested her to pay the purchase price directly to him, instead of
coursing it through Saban. She also alleged that she agreed with Ybaez that the purchase price of the lot was
only P200,000.00.

Ybaez died during the pendency of the case before the RTC. Upon motion of his counsel, the trial court dismissed the
case only against him without any objection from the other parties.10

On May 14, 1997, the RTC rendered its Decision11 dismissing Sabans complaint, declaring the four (4) checks issued by
Lim as stale and non-negotiable, and absolving Lim from any liability towards Saban.

Saban appealed the trial courts Decision to the Court of Appeals.

On October 27, 2003, the appellate court promulgated its Decision12 reversing the trial courts ruling. It held that Saban
was entitled to his commission amounting to P236,743.00.13

The Court of Appeals ruled that Ybaezs revocation of his contract of agency with Saban was invalid because the agency
was coupled with an interest and Ybaez effected the revocation in bad faith in order to deprive Saban of his commission
and to keep the profits for himself.14

The appellate court found that Ybaez and Lim connived to deprive Saban of his commission. It declared that Lim is liable
to pay Saban the amount of the purchase price of the lot corresponding to his commission because she issued the four
checks knowing that the total amount thereof corresponded to Sabans commission for the sale, as the agent of Ybaez.
The appellate court further ruled that, in issuing the checks in payment of Sabans commission, Lim acted as an
accommodation party. She signed the checks as drawer, without receiving value therefor, for the purpose of lending her
name to a third person. As such, she is liable to pay Saban as the holder for value of the checks. 15

Lim filed a Motion for Reconsideration of the appellate courts Decision, but her Motion was denied by the Court of
Appeals in a Resolution dated May 6, 2004.16

Not satisfied with the decision of the Court of Appeals, Lim filed the present petition.

Lim argues that the appellate court ignored the fact that after paying her agent and remitting to Saban the amounts due
for taxes and transfer of title, she paid the balance of the purchase price directly to Ybaez. 17

She further contends that she is not liable for Ybaezs debt to Saban under the Agency Agreement as she is not privy
thereto, and that Saban has no one but himself to blame for consenting to the dismissal of the case against Ybaez and
not moving for his substitution by his heirs.18

Lim also assails the findings of the appellate court that she issued the checks as an accommodation party for Ybaez and
that she connived with the latter to deprive Saban of his commission.19

Lim prays that should she be found liable to pay Saban the amount of his commission, she should only be held liable to
the extent of one-third (1/3) of the amount, since she had two co-vendees (the Spouses Lim) who should share such
liability.20

In his Comment, Saban maintains that Lim agreed to purchase the lot for P600,000.00, which consisted of
the P200,000.00 which would be paid to Ybaez, the P50,000.00 due to her broker, the P113,257.00 earmarked for taxes
and other expenses incidental to the sale and Sabans commission as broker for Ybaez. According to Saban, Lim
assumed the obligation to pay him his commission. He insists that Lim and Ybaez connived to unjustly deprive him of his
commission from the negotiation of the sale.21

The issues for the Courts resolution are whether Saban is entitled to receive his commission from the sale; and,
assuming that Saban is entitled thereto, whether it is Lim who is liable to pay Saban his sales commission.
 261

The Court gives due course to the petition, but agrees with the result reached by the Court of Appeals.

The Court affirms the appellate courts finding that the agency was not revoked since Ybaez requested that Lim make
stop payment orders for the checks payable to Saban only after the consummation of the sale on March 10, 1994. At that
time, Saban had already performed his obligation as Ybaezs agent when, through his (Sabans) efforts, Ybaez
executed the Deed of Absolute Sale of the lot with Lim and the Spouses Lim.

To deprive Saban of his commission subsequent to the sale which was consummated through his efforts would be a
breach of his contract of agency with Ybaez which expressly states that Saban would be entitled to any excess in the
purchase price after deducting the P200,000.00 due to Ybaez and the transfer taxes and other incidental expenses of
the sale.22

In Macondray & Co. v. Sellner,23 the Court recognized the right of a broker to his commission for finding a suitable buyer
for the sellers property even though the seller himself consummated the sale with the buyer.24 The Court held that it would
be in the height of injustice to permit the principal to terminate the contract of agency to the prejudice of the broker when
he had already reaped the benefits of the brokers efforts.

In Infante v. Cunanan, et al.,25 the Court upheld the right of the brokers to their commissions although the seller revoked
their authority to act in his behalf after they had found a buyer for his properties and negotiated the sale directly with the
buyer whom he met through the brokers efforts. The Court ruled that the sellers withdrawal in bad faith of the brokers
authority cannot unjustly deprive the brokers of their commissions as the sellers duly constituted agents.

The pronouncements of the Court in the aforecited cases are applicable to the present case, especially considering that
Saban had completely performed his obligations under his contract of agency with Ybaez by finding a suitable buyer to
preparing the Deed of Absolute Sale between Ybaez and Lim and her co-vendees. Moreover, the contract of agency
very clearly states that Saban is entitled to the excess of the mark-up of the price of the lot after deducting Ybaezs share
of P200,000.00 and the taxes and other incidental expenses of the sale.

However, the Court does not agree with the appellate courts pronouncement that Sabans agency was one coupled with
an interest. Under Article 1927 of the Civil Code, an agency cannot be revoked if a bilateral contract depends upon it, or if
it is the means of fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the
contract of partnership and his removal from the management is unjustifiable. Stated differently, an agency is deemed as
one coupled with an interest where it is established for the mutual benefit of the principal and of the agent, or for the
interest of the principal and of third persons, and it cannot be revoked by the principal so long as the interest of the agent
or of a third person subsists. In an agency coupled with an interest, the agents interest must be in the subject matter of
the power conferred and not merely an interest in the exercise of the power because it entitles him to compensation.
When an agents interest is confined to earning his agreed compensation, the agency is not one coupled with an interest,
since an agents interest in obtaining his compensation as such agent is an ordinary incident of the agency relationship. 26

Sabans entitlement to his commission having been settled, the Court must now determine whether Lim is the proper party
against whom Saban should address his claim.

Sabans right to receive compensation for negotiating as broker for Ybaez arises from the Agency Agreement between
them. Lim is not a party to the contract. However, the record reveals that she had knowledge of the fact that Ybaez set
the price of the lot at P200,000.00 and that the P600,000.00the price agreed upon by her and Sabanwas more than
the amount set by Ybaez because it included the amount for payment of taxes and for Sabans commission as broker for
Ybaez.

According to the trial court, Lim made the following payments for the lot: P113,257.00 for taxes, P50,000.00 for her
broker, and P400.000.00 directly to Ybaez, or a total of Five Hundred Sixty Three Thousand Two Hundred Fifty Seven
Pesos (P563,257.00).27 Lim, on the other hand, claims that on March 10, 1994, the date of execution of the Deed of
Absolute Sale, she paid directly to Ybaez the amount of One Hundred Thousand Pesos (P100,000.00) only, and gave to
Saban P113,257.00 for payment of taxes and P50,000.00 as his commission,28 and One Hundred Thirty Thousand Pesos
(P130,000.00) on June 28, 1994,29 or a total of Three Hundred Ninety Three Thousand Two Hundred Fifty Seven Pesos
(P393,257.00). Ybaez, for his part, acknowledged that Lim and her co-vendees paid him P400,000.00 which he said was
the full amount for the sale of the lot. 30 It thus appears that he received P100,000.00 on March 10, 1994, acknowledged
receipt (through Saban) of the P113,257.00 earmarked for taxes and P50,000.00 for commission, and received the
 262

balance of P130,000.00 on June 28, 1994. Thus, a total of P230,000.00 went directly to Ybaez. Apparently, although the
amount actually paid by Lim was P393,257.00, Ybaez rounded off the amount to P400,000.00 and waived the difference.

Lims act of issuing the four checks amounting to P236,743.00 in Sabans favor belies her claim that she and her co-
vendees did not agree to purchase the lot at P600,000.00. If she did not agree thereto, there would be no reason for her
to issue those checks which is the balance of P600,000.00 less the amounts of P200,000.00 (due to Ybaez), P50,000.00
(commission), and the P113,257.00 (taxes). The only logical conclusion is that Lim changed her mind about agreeing to
purchase the lot at P600,000.00 after talking to Ybaez and ultimately realizing that Sabans commission is even more
than what Ybaez received as his share of the purchase price as vendor. Obviously, this change of mind resulted to the
prejudice of Saban whose efforts led to the completion of the sale between the latter, and Lim and her co-vendees. This
the Court cannot countenance.

The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is enlightening for the facts therein are similar to the
circumstances of the present case. In that case, Consejo Infante asked Jose Cunanan and Juan Mijares to find a buyer
for her two lots and the house built thereon for Thirty Thousand Pesos (P30,000.00) . She promised to pay them five
percent (5%) of the purchase price plus whatever overprice they may obtain for the property. Cunanan and Mijares
offered the properties to Pio Noche who in turn expressed willingness to purchase the properties. Cunanan and Mijares
thereafter introduced Noche to Infante. However, the latter told Cunanan and Mijares that she was no longer interested in
selling the property and asked them to sign a document stating that their written authority to act as her agents for the sale
of the properties was already cancelled. Subsequently, Infante sold the properties directly to Noche for Thirty One
Thousand Pesos (P31,000.00). The Court upheld the right of Cunanan and Mijares to their commission, explaining that

[Infante] had changed her mind even if respondent had found a buyer who was willing to close the deal, is a
matter that would not give rise to a legal consequence if [Cunanan and Mijares] agreed to call off the transaction
in deference to the request of [Infante]. But the situation varies if one of the parties takes advantage of the
benevolence of the other and acts in a manner that would promote his own selfish interest. This act is unfair as
would amount to bad faith. This act cannot be sanctioned without according the party prejudiced the reward which
is due him. This is the situation in which [Cunanan and Mijares] were placed by [Infante]. [Infante] took advantage
of the services rendered by [Cunanan and Mijares], but believing that she could evade payment of their
commission, she made use of a ruse by inducing them to sign the deed of cancellation.This act of subversion
cannot be sanctioned and cannot serve as basis for [Infante] to escape payment of the commission agreed
upon.31

The appellate court therefore had sufficient basis for concluding that Ybaez and Lim connived to deprive Saban of his
commission by dealing with each other directly and reducing the purchase price of the lot and leaving nothing to
compensate Saban for his efforts.

Considering the circumstances surrounding the case, and the undisputed fact that Lim had not yet paid the balance
of P200,000.00 of the purchase price of P600,000.00, it is just and proper for her to pay Saban the balance
of P200,000.00.

Furthermore, since Ybaez received a total of P230,000.00 from Lim, or an excess of P30,000.00 from his asking price
of P200,000.00, Saban may claim such excess from Ybaezs estate, if that remedy is still available, 32 in view of the trial
courts dismissal of Sabans complaint as against Ybaez, with Sabans express consent, due to the latters demise on
November 11, 1994.33

The appellate court however erred in ruling that Lim is liable on the checks because she issued them as an
accommodation party. Section 29 of the Negotiable Instruments Law defines an accommodation party as a person "who
has signed the negotiable instrument as maker, drawer, acceptor or indorser, without receiving value therefor, for the
purpose of lending his name to some other person." The accommodation party is liable on the instrument to a holder for
value even though the holder at the time of taking the instrument knew him or her to be merely an accommodation party.
The accommodation party may of course seek reimbursement from the party accommodated. 34

As gleaned from the text of Section 29 of the Negotiable Instruments Law, the accommodation party is one who meets all
these three requisites, viz: (1) he signed the instrument as maker, drawer, acceptor, or indorser; (2) he did not receive
value for the signature; and (3) he signed for the purpose of lending his name to some other person. In the case at bar,
while Lim signed as drawer of the checks she did not satisfy the two other remaining requisites.
 263

The absence of the second requisite becomes pellucid when it is noted at the outset that Lim issued the checks in
question on account of her transaction, along with the other purchasers, with Ybaez which was a sale and, therefore, a
reciprocal contract. Specifically, she drew the checks in payment of the balance of the purchase price of the lot subject of
the transaction. And she had to pay the agreed purchase price in consideration for the sale of the lot to her and her co-
vendees. In other words, the amounts covered by the checks form part of the cause or consideration from Ybaezs end,
as vendor, while the lot represented the cause or consideration on the side of Lim, as vendee. 35 Ergo, Lim received value
for her signature on the checks.

Neither is there any indication that Lim issued the checks for the purpose of enabling Ybaez, or any other person for that
matter, to obtain credit or to raise money, thereby totally debunking the presence of the third requisite of an
accommodation party.

WHEREFORE, in view of the foregoing, the petition is DISMISSED.

SO ORDERED.

G.R. No. 151319 November 22, 2004

MANILA MEMORIAL PARK CEMETERY, INC., petitioner,

vs.
PEDRO L. LINSANGAN, respondent.
 264

DECISION

TINGA, J.:

For resolution in this case is a classic and interesting texbook question in the law on agency.

This is a petition for review assailing the Decision 1 of the Court of Appeals dated 22 June 2001, and its Resolution 2dated
12 December 2001 in CA G.R. CV No. 49802 entitled "Pedro L. Linsangan v. Manila Memorial Cemetery, Inc. et al.,"
finding Manila Memorial Park Cemetery, Inc. (MMPCI) jointly and severally liable with Florencia C. Baluyot to respondent
Atty. Pedro L. Linsangan.

The facts of the case are as follows:

Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden State at the Holy Cross
Memorial Park owned by petitioner (MMPCI). According to Baluyot, a former owner of a memorial lot under Contract No.
25012 was no longer interested in acquiring the lot and had opted to sell his rights subject to reimbursement of the
amounts he already paid. The contract was for P95,000.00. Baluyot reassured Atty. Linsangan that once reimbursement
is made to the former buyer, the contract would be transferred to him. Atty. Linsangan agreed and gave Baluyot
P35,295.00 representing the amount to be reimbursed to the original buyer and to complete the down payment to
MMPCI.3 Baluyot issued handwritten and typewritten receipts for these payments. 4

Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issued Contract No. 28660, a new contract
covering the subject lot in the name of the latter instead of old Contract No. 25012. Atty. Linsangan protested, but Baluyot
assured him that he would still be paying the old price of P95,000.00 with P19,838.00 credited as full down payment
leaving a balance of about P75,000.00.5

Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15), Block 83, Garden Estate I
denominated as Contract No. 28660 and the Official Receipt No. 118912 dated 6 April 1985 for the amount of
P19,838.00. Contract No. 28660 has a listed price of P132,250.00. Atty. Linsangan objected to the new contract price, as
the same was not the amount previously agreed upon. To convince Atty. Linsangan, Baluyot executed a
document6 confirming that while the contract price is P132,250.00, Atty. Linsangan would pay only the original price of
P95,000.00.

The document reads in part:

The monthly installment will start April 6, 1985; the amount of P1,800.00 and the difference will be issued as
discounted to conform to the previous price as previously agreed upon. --- P95,000.00

Prepared by:

(Signed)

(MRS.) FLORENCIA C. BALUYOT

Agency Manager
Holy Cross Memorial Park

4/18/85

Dear Atty. Linsangan:

 265

This will confirm our agreement that while the offer to purchase under Contract No. 28660 states that the total
price of P132,250.00 your undertaking is to pay only the total sum of P95,000.00 under the old price. Further the
total sum of P19,838.00 already paid by you under O.R. # 118912 dated April 6, 1985 has been credited in the
total purchase price thereby leaving a balance of P75,162.00 on a monthly installment of P1,800.00 including
interests (sic) charges for a period of five (5) years.

(Signed)

FLORENCIA C. BALUYOT

By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted Official Receipt No. 118912. As
requested by Baluyot, Atty. Linsangan issued twelve (12) postdated checks of P1,800.00 each in favor of MMPCI. The
next year, or on 29 April 1986, Atty. Linsangan again issued twelve (12) postdated checks in favor of MMPCI.

On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was cancelled for reasons the latter
could not explain, and presented to him another proposal for the purchase of an equivalent property. He refused the new
proposal and insisted that Baluyot and MMPCI honor their undertaking.

For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan filed a Complaint 7 for Breach
of Contract and Damages against the former.

Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No. 28660 was cancelled conformably
with the terms of the contract8 because of non-payment of arrearages.9 MMPCI stated that Baluyot was not an agent but
an independent contractor, and as such was not authorized to represent MMPCI or to use its name except as to the
extent expressly stated in the Agency Manager Agreement.10 Moreover, MMPCI was not aware of the arrangements
entered into by Atty. Linsangan and Baluyot, as it in fact received a down payment and monthly installments as indicated
in the contract.11 Official receipts showing the application of payment were turned over to Baluyot whom Atty. Linsangan
had from the beginning allowed to receive the same in his behalf. Furthermore, whatever misimpression that Atty.
Linsangan may have had must have been rectified by the Account Updating Arrangement signed by Atty. Linsangan
which states that he "expressly admits that Contract No. 28660 'on account of serious delinquencyis now due for
cancellation under its terms and conditions.'''12

The trial court held MMPCI and Baluyot jointly and severally liable.13 It found that Baluyot was an agent of MMPCI and that
the latter was estopped from denying this agency, having received and enchased the checks issued by Atty. Linsangan
and given to it by Baluyot. While MMPCI insisted that Baluyot was authorized to receive only the down payment, it allowed
her to continue to receive postdated checks from Atty. Linsangan, which it in turn consistently encashed. 14

The dispositive portion of the decision reads:

WHEREFORE, judgment by preponderance of evidence is hereby rendered in favor of plaintiff declaring Contract
No. 28660 as valid and subsisting and ordering defendants to perform their undertakings thereof which covers
burial lot No. A11 (15), Block 83, Section Garden I, Holy Cross Memorial Park located at Novaliches, Quezon
City. All payments made by plaintiff to defendants should be credited for his accounts. NO DAMAGES, NO
ATTORNEY'S FEES but with costs against the defendants.

The cross claim of defendant Manila Memorial Cemetery Incorporated as against defendant Baluyot is GRANTED
up to the extent of the costs.

SO ORDERED.15

MMPCI appealed the trial court's decision to the Court of Appeals.16 It claimed that Atty. Linsangan is bound by the written
contract with MMPCI, the terms of which were clearly set forth therein and read, understood, and signed by the former. 17 It
also alleged that Atty. Linsangan, a practicing lawyer for over thirteen (13) years at the time he entered into the contract,
is presumed to know his contractual obligations and is fully aware that he cannot belatedly and unilaterally change the
terms of the contract without the consent, much less the knowledge of the other contracting party, which was MMPCI. And
 266

in this case, MMPCI did not agree to a change in the contract and in fact implemented the same pursuant to its clear
terms. In view thereof, because of Atty. Linsangan's delinquency, MMPCI validly cancelled the contract.

MMPCI further alleged that it cannot be held jointly and solidarily liable with Baluyot as the latter exceeded the terms of
her agency, neither did MMPCI ratify Baluyot's acts. It added that it cannot be charged with making any
misrepresentation, nor of having allowed Baluyot to act as though she had full powers as the written contract expressly
stated the terms and conditions which Atty. Linsangan accepted and understood. In canceling the contract, MMPCI
merely enforced the terms and conditions imposed therein.18

Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was the former's obligation, as a party
knowingly dealing with an alleged agent, to determine the limitations of such agent's authority, particularly when such
alleged agent's actions were patently questionable. According to MMPCI, Atty. Linsangan did not even bother to verify
Baluyot's authority or ask copies of official receipts for his payments. 19

The Court of Appeals affirmed the decision of the trial court. It upheld the trial court's finding that Baluyot was an agent of
MMPCI at the time the disputed contract was entered into, having represented MMPCI's interest and acting on its behalf
in the dealings with clients and customers. Hence, MMPCI is considered estopped when it allowed Baluyot to act and
represent MMPCI even beyond her authority.20 The appellate court likewise found that the acts of Baluyot bound MMPCI
when the latter allowed the former to act for and in its behalf and stead. While Baluyot's authority "may not have been
expressly conferred upon her, the same may have been derived impliedly by habit or custom, which may have been an
accepted practice in the company for a long period of time."21 Thus, the Court of Appeals noted, innocent third persons
such as Atty. Linsangan should not be prejudiced where the principal failed to adopt the needed measures to prevent
misrepresentation. Furthermore, if an agent misrepresents to a purchaser and the principal accepts the benefits of such
misrepresentation, he cannot at the same time deny responsibility for such misrepresentation. 22 Finally, the Court of
Appeals declared:

There being absolutely nothing on the record that would show that the court a quo overlooked, disregarded, or
misinterpreted facts of weight and significance, its factual findings and conclusions must be given great weight and should
not be disturbed by this Court on appeal.

WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and the appealed decision in Civil Case
No. 88-1253 of the Regional Trial Court, National Capital Judicial Region, Branch 57 of Makati, is hereby
AFFIRMED in toto.

SO ORDERED.23

MMPCI filed its Motion for Reconsideration,24 but the same was denied for lack of merit.25

In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously erred in disregarding the plain terms
of the written contract and Atty. Linsangan's failure to abide by the terms thereof, which justified its cancellation. In
addition, even assuming that Baluyot was an agent of MMPCI, she clearly exceeded her authority and Atty. Linsangan
knew or should have known about this considering his status as a long-practicing lawyer. MMPCI likewise claims that the
Court of Appeals erred in failing to consider that the facts and the applicable law do not support a judgment against
Baluyot only "up to the extent of costs."26

Atty. Linsangan argues that he did not violate the terms and conditions of the contract, and in fact faithfully performed his
contractual obligations and complied with them in good faith for at least two years. 27 He claims that contrary to MMPCI's
position, his profession as a lawyer is immaterial to the validity of the subject contract and the case at bar. 28 According to
him, MMPCI had practically admitted in its Petition that Baluyot was its agent, and thus, the only issue left to be resolved
is whether MMPCI allowed Baluyot to act as though she had full powers to be held solidarily liable with the latter. 29

We find for the petitioner MMPCI.

The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the Rules of Court is limited to reviewing
only errors of law, not fact, unless the factual findings complained of are devoid of support by the evidence on record or
the assailed judgment is based on misapprehension of facts.30 In BPI Investment Corporation v. D.G. Carreon Commercial
Corporation,31 this Court ruled:
 267

There are instances when the findings of fact of the trial court and/or Court of Appeals may be reviewed by the
Supreme Court, such as (1) when the conclusion is a finding grounded entirely on speculation, surmises and
conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) where there is a grave
abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact
are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the
same is contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to those of
the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are
based; (9) when the facts set forth in the petition as well as in the petitioners' main and reply briefs are not
disputed by the respondents; and (10) the findings of fact of the Court of Appeals are premised on the supposed
absence of evidence and contradicted by the evidence on record. 32

In the case at bar, the Court of Appeals committed several errors in the apprehension of the facts of the case, as well as
made conclusions devoid of evidentiary support, hence we review its findings of fact.

By the contract of agency, a person binds himself to render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter.33 Thus, the elements of agency are (i) consent, express or
implied, of the parties to establish the relationship; (ii) the object is the execution of a juridical act in relation to a third
person; (iii) the agent acts as a representative and not for himself; and (iv) the agent acts within the scope of his
authority.34

In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its Agency Manager Agreement; an
agency manager such as Baluyot is considered an independent contractor and not an agent. 35However, in the same
contract, Baluyot as agency manager was authorized to solicit and remit to MMPCI offers to purchase interment spaces
belonging to and sold by the latter.36 Notwithstanding the claim of MMPCI that Baluyot was an independent contractor, the
fact remains that she was authorized to solicit solely for and in behalf of MMPCI. As properly found both by the trial court
and the Court of Appeals, Baluyot was an agent of MMPCI, having represented the interest of the latter, and having been
allowed by MMPCI to represent it in her dealings with its clients/prospective buyers.

Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be bound by the contract procured by Atty.
Linsangan and solicited by Baluyot.

Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces obtained on forms provided by
MMPCI. The terms of the offer to purchase, therefore, are contained in such forms and, when signed by the buyer and an
authorized officer of MMPCI, becomes binding on both parties.

The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by MMPCI showed a total list price of
P132,250.00. Likewise, it was clearly stated therein that "Purchaser agrees that he has read or has had read to him this
agreement, that he understands its terms and conditions, and that there are no covenants, conditions, warranties or
representations other than those contained herein."37 By signing the Offer to Purchase, Atty. Linsangan signified that he
understood its contents. That he and Baluyot had an agreement different from that contained in the Offer to Purchase is of
no moment, and should not affect MMPCI, as it was obviously made outside Baluyot's authority. To repeat, Baluyot's
authority was limited only to soliciting purchasers. She had no authority to alter the terms of the written contract provided
by MMPCI. The document/letter "confirming" the agreement that Atty. Linsangan would have to pay the old price was
executed by Baluyot alone. Nowhere is there any indication that the same came from MMPCI or any of its officers.

It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the
burden of proof is upon them to establish it.38 The basis for agency is representation and a person dealing with an agent is
put upon inquiry and must discover upon his peril the authority of the agent.39 If he does not make such an inquiry, he is
chargeable with knowledge of the agent's authority and his ignorance of that authority will not be any excuse.40

As noted by one author, the ignorance of a person dealing with an agent as to the scope of the latter's authority is no
excuse to such person and the fault cannot be thrown upon the principal. 41 A person dealing with an agent assumes the
risk of lack of authority in the agent. He cannot charge the principal by relying upon the agent's assumption of authority
that proves to be unfounded. The principal, on the other hand, may act on the presumption that third persons dealing with
his agent will not be negligent in failing to ascertain the extent of his authority as well as the existence of his agency.42
 268

In the instant case, it has not been established that Atty. Linsangan even bothered to inquire whether Baluyot was
authorized to agree to terms contrary to those indicated in the written contract, much less bind MMPCI by her commitment
with respect to such agreements. Even if Baluyot was Atty. Linsangan's friend and known to be an agent of MMPCI, her
declarations and actions alone are not sufficient to establish the fact or extent of her authority. 43 Atty. Linsangan as a
practicing lawyer for a relatively long period of time when he signed the contract should have been put on guard when
their agreement was not reflected in the contract. More importantly, Atty. Linsangan should have been alerted by the fact
that Baluyot failed to effect the transfer of rights earlier promised, and was unable to make good her written commitment,
nor convince MMPCI to assent thereto, as evidenced by several attempts to induce him to enter into other contracts for a
higher consideration. As properly pointed out by MMPCI, as a lawyer, a greater degree of caution should be expected of
Atty. Linsangan especially in dealings involving legal documents. He did not even bother to ask for official receipts of his
payments, nor inquire from MMPCI directly to ascertain the real status of the contract, blindly relying on the
representations of Baluyot. A lawyer by profession, he knew what he was doing when he signed the written contract, knew
the meaning and value of every word or phrase used in the contract, and more importantly, knew the legal effects which
said document produced. He is bound to accept responsibility for his negligence.

The trial and appellate courts found MMPCI liable based on ratification and estoppel. For the trial court, MMPCI's acts of
accepting and encashing the checks issued by Atty. Linsangan as well as allowing Baluyot to receive checks drawn in the
name of MMPCI confirm and ratify the contract of agency. On the other hand, the Court of Appeals faulted MMPCI in
failing to adopt measures to prevent misrepresentation, and declared that in view of MMPCI's acceptance of the benefits
of Baluyot's misrepresentation, it can no longer deny responsibility therefor.

The Court does not agree. Pertinent to this case are the following provisions of the Civil Code:

Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and the
principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the
limits of the powers granted by the principal. In this case, however, the agent is liable if he undertook to secure
the principal's ratification.

Art. 1910. The principal must comply with all the obligations that the agent may have contracted within the scope
of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he
ratifies it expressly or tacitly.

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the
former allowed the latter to act as though he had full powers.

Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless he ratifies them, expressly or
impliedly. Only the principal can ratify; the agent cannot ratify his own unauthorized acts. Moreover, the principal must
have knowledge of the acts he is to ratify.44

Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another without
authority. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior authority.
Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and circumstances
relating to the unauthorized act of the person who assumed to act as agent. Thus, if material facts were suppressed or
unknown, there can be no valid ratification and this regardless of the purpose or lack thereof in concealing such facts and
regardless of the parties between whom the question of ratification may arise. 45Nevertheless, this principle does not apply
if the principal's ignorance of the material facts and circumstances was willful, or that the principal chooses to act in
ignorance of the facts.46 However, in the absence of circumstances putting a reasonably prudent man on inquiry,
ratification cannot be implied as against the principal who is ignorant of the facts. 47

No ratification can be implied in the instant case.

A perusal of Baluyot's Answer48 reveals that the real arrangement between her and Atty. Linsangan was for the latter to
pay a monthly installment of P1,800.00 whereas Baluyot was to shoulder the counterpart amount of P1,455.00 to meet
the P3,255.00 monthly installments as indicated in the contract. Thus, every time an installment falls due, payment was to
be made through a check from Atty. Linsangan for P1,800.00 and a cash component of P1,455.00 from
Baluyot.49 However, it appears that while Atty. Linsangan issued the post-dated checks, Baluyot failed to come up with her
 269

part of the bargain. This was supported by Baluyot's statements in her letter 50 to Mr. Clyde Williams, Jr., Sales Manager of
MMPCI, two days after she received the copy of the Complaint. In the letter, she admitted that she was remiss in her
duties when she consented to Atty. Linsangan's proposal that he will pay the old price while the difference will be
shouldered by her. She likewise admitted that the contract suffered arrearages because while Atty. Linsangan issued the
agreed checks, she was unable to give her share of P1,455.00 due to her own financial difficulties. Baluyot even asked for
compassion from MMPCI for the error she committed.

Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as MMPCI is concerned, the
contract price was P132,250.00, as stated in the Offer to Purchase signed by Atty. Linsangan and MMPCI's authorized
officer. The down payment of P19,838.00 given by Atty. Linsangan was in accordance with the contract as well. Payments
of P3,235.00 for at least two installments were likewise in accord with the contract, albeit made through a check and partly
in cash. In view of Baluyot's failure to give her share in the payment, MMPCI received only P1,800.00 checks, which were
clearly insufficient payment. In fact, Atty. Linsangan would have incurred arrearages that could have caused the earlier
cancellation of the contract, if not for MMPCI's application of some of the checks to his account. However, the checks
alone were not sufficient to cover his obligations.

If MMPCI was aware of the arrangement, it would have refused the latter's check payments for being insufficient. It would
not have applied to his account the P1,800.00 checks. Moreover, the fact that Baluyot had to practically explain to
MMPCI's Sales Manager the details of her "arrangement" with Atty. Linsangan and admit to having made an error in
entering such arrangement confirm that MMCPI had no knowledge of the said agreement. It was only when Baluyot filed
her Answer that she claimed that MMCPI was fully aware of the agreement.

Neither is there estoppel in the instant case. The essential elements of estoppel are (i) conduct of a party amounting to
false representation or concealment of material facts or at least calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (ii) intent, or at least
expectation, that this conduct shall be acted upon by, or at least influence, the other party; and (iii) knowledge, actual or
constructive, of the real facts.51

While there is no more question as to the agency relationship between Baluyot and MMPCI, there is no indication that
MMPCI let the public, or specifically, Atty. Linsangan to believe that Baluyot had the authority to alter the standard
contracts of the company. Neither is there any showing that prior to signing Contract No. 28660, MMPCI had any
knowledge of Baluyot's commitment to Atty. Linsangan. One who claims the benefit of an estoppel on the ground that he
has been misled by the representations of another must not have been misled through his own want of reasonable care
and circumspection.52 Even assuming that Atty. Linsangan was misled by MMPCI's actuations, he still cannot invoke the
principle of estoppel, as he was clearly negligent in his dealings with Baluyot, and could have easily determined, had he
only been cautious and prudent, whether said agent was clothed with the authority to change the terms of the principal's
written contract. Estoppel must be intentional and unequivocal, for when misapplied, it can easily become a most
convenient and effective means of injustice.53 In view of the lack of sufficient proof showing estoppel, we refuse to hold
MMPCI liable on this score.

Likewise, this Court does not find favor in the Court of Appeals' findings that "the authority of defendant Baluyot may not
have been expressly conferred upon her; however, the same may have been derived impliedly by habit or custom which
may have been an accepted practice in their company in a long period of time." A perusal of the records of the case fails
to show any indication that there was such a habit or custom in MMPCI that allows its agents to enter into agreements for
lower prices of its interment spaces, nor to assume a portion of the purchase price of the interment spaces sold at such
lower price. No evidence was ever presented to this effect.

As the Court sees it, there are two obligations in the instant case. One is the Contract No. 28660 between MMPCI and by
Atty. Linsangan for the purchase of an interment space in the former's cemetery. The other is the agreement between
Baluyot and Atty. Linsangan for the former to shoulder the amount P1,455.00, or the difference between P95,000.00, the
original price, and P132,250.00, the actual contract price.

To repeat, the acts of the agent beyond the scope of his authority do not bind the principal unless the latter ratifies the
same. It also bears emphasis that when the third person knows that the agent was acting beyond his power or authority,
the principal cannot be held liable for the acts of the agent. If the said third person was aware of such limits of authority,
he is to blame and is not entitled to recover damages from the agent, unless the latter undertook to secure the principal's
ratification.54
 270

This Court finds that Contract No. 28660 was validly entered into both by MMPCI and Atty. Linsangan. By affixing his
signature in the contract, Atty. Linsangan assented to the terms and conditions thereof. When Atty. Linsangan incurred
delinquencies in payment, MMCPI merely enforced its rights under the said contract by canceling the same.

Being aware of the limits of Baluyot's authority, Atty. Linsangan cannot insist on what he claims to be the terms of
Contract No. 28660. The agreement, insofar as the P95,000.00 contract price is concerned, is void and cannot be
enforced as against MMPCI. Neither can he hold Baluyot liable for damages under the same contract, since there is no
evidence showing that Baluyot undertook to secure MMPCI's ratification. At best, the "agreement" between Baluyot and
Atty. Linsangan bound only the two of them. As far as MMPCI is concerned, it bound itself to sell its interment space to
Atty. Linsangan for P132,250.00 under Contract No. 28660, and had in fact received several payments in accordance with
the same contract. If the contract was cancelled due to arrearages, Atty. Linsangan's recourse should only be against
Baluyot who personally undertook to pay the difference between the true contract price of P132,250.00 and the original
proposed price of P95,000.00. To surmise that Baluyot was acting on behalf of MMPCI when she promised to shoulder
the said difference would be to conclude that MMPCI undertook to pay itself the difference, a conclusion that is very
illogical, if not antithetical to its business interests.

However, this does not preclude Atty. Linsangan from instituting a separate action to recover damages from Baluyot, not
as an agent of MMPCI, but in view of the latter's breach of their separate agreement. To review, Baluyot obligated herself
to pay P1,455.00 in addition to Atty. Linsangan's P1,800.00 to complete the monthly installment payment under the
contract, which, by her own admission, she was unable to do due to personal financial difficulties. It is undisputed that
Atty. Linsangan issued the P1,800.00 as agreed upon, and were it not for Baluyot's failure to provide the balance,
Contract No. 28660 would not have been cancelled. Thus, Atty. Linsangan has a cause of action against Baluyot, which
he can pursue in another case.

WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated 22 June 2001 and its
Resolution dated 12 December 2001 in CA- G.R. CV No. 49802, as well as the Decision in Civil Case No. 88-1253 of the
Regional Trial Court, Makati City Branch 57, are hereby REVERSED and SET ASIDE. The Complaint in Civil Case No.
88-1253 is DISMISSED for lack of cause of action. No pronouncement as to costs.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

 271

G.R. NO. 150066 April 13, 2007

SPS. EMMANUEL (deceased) and EDNA CHUA and SPS. MANUEL and MARIA CHUA, Petitioners,
vs.
MSGR. VIRGILIO SORIANO. Substituted by Sister Mary Virgilia Celestino Soriano, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision 1dated
September 21, 2001 of the Court of Appeals (CA) in CA-G.R. CV No. 56568 which affirmed with modification the
Decision2 dated July 10, 1997 of the Regional Trial Court, Branch 81, Quezon City (RTC) in Civil Case No. Q-90-6439.

The factual background of the case is as follows:

Msgr. Virgilio C. Soriano (Soriano) owned a 1,600 square meter parcel of land located in Barangay Banlat, Quezon City,
covered by Transfer Certificate of Title (TCT) No. 363471 of the Registry of Deeds of Quezon City.

Sometime in the early months of 1988, Sorianos first cousin and godson, Emmanuel C. Celestino, Sr. (Celestino) asked
Soriano to lend him TCT No. 363471 as a security for a loan to be used in the business operation of Celestinos company,
Digital Philippines, Inc.3 Acceding to Celestinos request, Soriano executed on March 29, 1988 a Special Power of
Attorney (SPA) authorizing Celestino to mortgage said property.4

Then came the June 11, 1988 fire that gutted a portion of the Quezon City Hall and destroyed in the process the original
copy of TCT No. 363471 on file with the Registry of Deeds of Quezon City.

On August 22, 1988, Soriano executed a SPA authorizing Celestino and one Carlito Castro to initiate administrative
reconstitution proceedings of TCT No. 363471.5 On April 17, 1990, the reconstituted title, TCT No. RT-3611 (363471) PR
1686, was issued.6

During the pendency of the administrative reconstitution proceedings, Soriano asked Celestino whether there was any
truth to the spreading rumor that he had already sold the subject property. 7 Celestino denied the rumor but informed
Soriano that the subject property was mortgaged with a foreign bank. 8 Dissatisfied with Celestino's explanation, Soriano
made inquiries with the Registry of Deeds of Quezon City9 and discovered, to his dismay, that TCT No. 363471 had been
canceled by TCT No. 1451410 in the name of spouses Emmanuel and Edna Chua and spouses Manuel and Maria Chua
(Chuas). By virtue of a SPA11 dated March 9, 1989 with Soriano's purported signature, Celestino sold to the Chuas the
property in an Absolute Deed of Sale12 dated July 4, 1989 for 500,000.00.

Claiming that his signature in the SPA is a forgery, Soriano filed on August 20, 1990 a complaint against Celestino and
the Chuas for annulment of deed of sale and special power of attorney, cancellation of title and reconveyance with
damages.13
 272

The defense of Celestino is that he was duly authorized to sell the property14 while the Chuas contend that they are
purchasers in good faith since they bought the property from Celestino by virtue of a SPA which was duly inscribed and
annotated on the owner's duplicate of the TCT and the tax declaration and that they have duly inspected the property
before purchasing it.15

Soriano died during the pendency of the trial. 16 He was substituted by his sister, Florencia Celestino Soriano, also known
as Sister Mary Virgilia Celestino Soriano (Sis. Soriano).17

On July 10, 1997, the RTC rendered its Decision18 in favor of Soriano, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Declaring the special power of attorney dated March 19, 1985 and the Deed of Sale dated July 4, 1989 as
without legal force and effect;

2. Declaring Transfer Certificate of Title No. 14514 in the name of the defendants Chuas as null and void;

3. Directing defendants Chuas to reconvey the subject property to plaintiff Soriano.

4. Ordering defendant Celestino to pay to the plaintiff the amounts of 100,000.00 as moral damages,
20,000.00 as attorneys fees and 10,000.00 as litigation expenses;

5. Ordering defendant Celestino to pay to the defendants Chuas the amount of 500,000.00 plus interest at the
legal rate from July 4, 1989 until fully paid;

6. Ordering defendant Celestino to pay the defendants Chuas the amounts of 20,000.00 as attorneys fees and
10,000.00 as litigation expenses.

With costs against defendant Celestino.

SO ORDERED.19

The RTC held that Soriano's purported signature in the SPA dated March 9, 1989 is a forgery based on the opinion of
expert witness Arcadio A. Ramos, Chief of the Questioned Documents Division of the National Bureau of Investigation
(NBI), that a comparison of Soriano's sample signature and the one appearing on the SPA dated March 9, 1989 revealed
that they were "not written by one and the same person;"20 that the Chuas are not purchasers in good faith since they did
not personally verify the title of the subject property but relied only upon its tax declaration; that the Chuas were placed on
guard to ascertain the authenticity of the authority of Celestino since they were not dealing with Soriano, the registered
owner.

Dissatisfied, Celestino and the Chuas filed separate appeals with the CA, docketed singly as CA-G.R. No. 56568.21On
September 21, 2001, the CA rendered its Decision,22 the dispositive portion of which reads:

WHEREFORE, for the lack of merit, this Court DISMISSES the appeal and AFFIRMS the appealed Decision except
paragraph number 3 of the dispositive part which is hereby completely DELETED and replaced with the following: 3. The
Register of Deeds of Quezon City is ordered to reinstate and reactivate Transfer Certificate of Title No. RT-3611 (363471)
PR-1686 in the name of appellee Soriano.

SO ORDERED.23

The CA held that that there was no cogent reason to set aside the RTCs reliance on the testimony of the expert witness
since there is no contrary evidence to rebut the same. The CA also agreed with the RTCs findings that the Chuas are not
purchasers in good faith since they failed to determine the veracity of Celestinos alleged authority to sell the property.

No appeal was filed by Celestino. The Chuas filed the present petition anchored on the following grounds:
 273

THE HONORABLE COURT OF APPEALS HAS DECIDED A QUESTION IN A WAY NOT PROBABLY IN ACCORD
WITH THE LAW AND WITH THE DECISIONS OF THE HONORABLE SUPREME COURT; AND

THE HONORABLE COURT OF APPEALS HAS SO FAR DEPARTED FROM THE ACCEPTED AND USUAL COURSE
OF JUDICIAL PROCEEDINGS.24

The Chuas argue that they are purchasers in good faith since they dealt with Celestino who had in his possession the
owner's duplicate title and the SPA dated March 9, 1989 with Sorianos purported signature; that the SPA was inscribed
and annotated in the owner's duplicate title; that since verification with the original title in the Registry of Deeds of Quezon
City was not possible, they checked the tax declaration of the property; that the SPA dated March 9, 1989 was duly
annotated in the tax declaration; that they inspected the property and found three squatter occupants; that they paid off
the two squatters and appointed the third squatter occupant as caretaker of the property; that Soriano was responsible for
his predicament since he entrusted the owners duplicate title to Celestino; that the fact that Sorianos purported signature
in the SPA dated March 9, 1989 was later declared by the NBI handwriting expert as a forgery is of no moment since they
are not handwriting experts and they had the right to assume that the SPA was perfectly legal for otherwise, it could not
have been annotated at the back of the title.

Sis. Soriano, on the other hand, avers that the Chuas are not purchasers in good faith since they failed to check the
veracity of Celestino's alleged authority to sell the property; that had the Chuas conferred with Soriano about the sale
transaction proposed by Celestino, they would have readily discovered the fraud being then hatched by Celestino.

Emmanuel Chua died during the pendency of the present petition. 25 He was substituted by his surviving spouse and co-
petitioner, Edna L. Chua, and his children, Erlyn, Ericson, Emmanuel and Elise, all surnamed Chua. 26

The sole issue to be resolved in the present petition is this: whether or not the Chuas are purchasers in good faith.

The question of whether or not a person is a purchaser in good faith is a factual matter that will generally be not delved
into by this Court, since only questions of law may be raised in petitions for review.27

The established rule is that in the exercise of the Supreme Courts power of review, the Court, not being a trier of facts,
does not normally embark on a re-examination of the evidence presented by the contending parties during the trial of the
case considering that the findings of facts of the CA are conclusive and binding on the Court. 28 This rule, however, has
several well-recognized exceptions: (1) when the findings are grounded entirely on speculation, surmises or conjectures;
(2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4)
when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when in
making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions
of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as
well as in the petitioners main and reply briefs are not disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would
justify a different conclusion.29 Exception (4) is present in the instant case.

A purchaser in good faith is one who buys property without notice that some other person has a right to or interest in such
property and pays its fair price before he has notice of the adverse claims and interest of another person in the same
property. The honesty of intention which constitutes good faith implies a freedom from knowledge of circumstances which
ought to put a person on inquiry.30 As the Court enunciated in Lim v. Chuatoco:31

x x x good faith consists in the possessors belief that the person from whom he received the thing was the owner of the
same and could convey his title. Good faith, while it is always to be presumed in the absence of proof to the contrary,
requires a well founded belief that the person from whom title was received was himself the owner of the land, with the
right to convey it. There is good faith where there is an honest intention to abstain from taking any unconscientious
advantage from another. Otherwise stated, good faith is the opposite of fraud and it refers to the state of mind which is
manifested by the acts of the individual concerned. 32

Consistently, this Court has ruled that every person dealing with registered land may safely rely on the correctness of the
certificate of title issued therefor and the law will in no way oblige him to go beyond the certificate to determine the
condition of the property. Where there is nothing in the certificate of title to indicate any cloud or vice in the ownership of
 274

the property, or any encumbrance thereon, the purchaser is not required to explore further than what the Torrens Title
upon its face indicates in quest for any hidden defects or inchoate right that may subsequently defeat his right thereto. 33

However, when a person who deals with registered land through someone who is not the registered owner, he is
expected to look behind the certificate of title and examine all the factual circumstances, in order to determine if the
vendor has the capacity to transfer any interest in the land. 34 He has the duty to ascertain the identity of the person with
whom he is dealing and the latters legal authority to convey.35

The law "requires a higher degree of prudence from one who buys from a person who is not the registered owner,
although the land object of the transaction is registered. While one who buys from the registered owner does not need to
look behind the certificate of title, one who buys from one who is not the registered owner is expected to examine not only
the certificate of title but all factual circumstances necessary for him to determine if there are any flaws in the title of the
transferor, or in his capacity to transfer the land." 36

The strength of buyers inquiry on the sellers capacity or legal authority to sell depends on the proof of capacity of the
seller. If the proof of capacity consists of a special power of attorney duly notarized, mere inspection of the face of such
public document already constitutes sufficient inquiry. If no such special power of attorney is provided or there is one but
there appear flaws in its notarial acknowledgment, mere inspection of the document will not do; the buyer must show that
his investigation went beyond the document and into the circumstances of its execution. 37

In the present case, the Chuas were dealing with Celestino, Sorianos attorney-in-fact, who presented Sorianos duplicate
title, a SPA dated March 9, 1989 with Sorianos purported signature, and tax declaration.

An examination of the assailed SPA shows that it is valid and regular on its face. It contains a notarial seal.38 A notarial
seal is a mark, image or impression on a document which would indicate that the notary public has officially signed
it.39 The long-standing rule is that documents acknowledged before a notary public have the evidentiary weight with
respect to their due execution and regularity.40 The assailed SPA is a notarized document and therefore, presumed to be
valid and duly executed.

Thus, the reliance by the Chuas on the notarial acknowledgment found in the duly notarized SPA presented by Celestino
is sufficient evidence of good faith. The Chuas need not prove anything more for it is already the function of the notarial
acknowledgment to establish the appearance of the parties to the document, its due execution and authenticity.41

Moreover, the SPA was accepted by the Register of Deeds. It was registered with the Registry of Deeds of Quezon
City42 and inscribed and annotated in the owner's duplicate title, 43 further bolstering the appearance of due execution and
regularity.

The fact that Soriano's purported signature in the SPA dated March 9, 1989 was declared to be a forgery does not alter
the Chuas status as purchasers in good faith. The Court's recent pronouncements in Bautista v. Silva44 are enlightening
to quote:

When the document under scrutiny is a special power of attorney that is duly notarized, we know it to be a public
document where the notarial acknowledgment is prima facie evidence of the fact of its due execution. A purchaser
presented with such a document would have no choice between knowing and finding out whether a forger lurks beneath
the signature on it. The notarial acknowledgment has removed the choice from him and replaced it with a presumption
sanctioned by law that the affiant appeared before the notary public and acknowledged that he executed the document,
understood its import and signed it. In reality, he is deprived of such choice not because he is incapable of knowing and
finding out but because, under our notarial system, he has been given the luxury of merely relying on the presumption of
regularity of a duly notarized SPA. And he cannot be faulted for that because it is precisely that fiction of regularity which
holds together commercial transactions across borders and time. 45

Thus, the fact that Sorianos signature in the SPA dated March 9, 1989 was subsequently declared by the trial court to
have been falsified would not revoke the title subsequently issued title in favor of the Chuas. With the property in question
having already passed to the hands of purchasers in good faith, it is now of no moment that some irregularity attended the
issuance of the SPA, consistent with our pronouncement in Heirs of Spouses Benito Gavino and Juana Euste v. Court of
Appeals,46 to wit:
 275

x x x, the general rule that the direct result of a previous void contract cannot be valid, is inapplicable in this case
as it will directly contravene the Torrens system of registration. Where innocent third persons, relying on the
correctness of the certificate of title thus issued, acquire rights over the property, the court cannot disregard such rights
and order the cancellation of the certificate. The effect of such outright cancellation will be to impair public
confidence in the certificate of title. The sanctity of the Torrens system must be preserved; otherwise, everyone
dealing with the property registered under the system will have to inquire in every instance as to whether the title
had been regularly or irregularly issued, contrary to the evident purpose of the law.47

Being purchasers in good faith, the Chuas already acquired valid title to the property. A purchaser in good faith holds an
indefeasible title to the property and he is entitled to the protection of the law. Accordingly, TCT No. 14514 issued in the
name of the Chuas is valid. The amount of 500,000.00, representing the purchase price in the Absolute Deed of
Sale48 dated July 4, 1989, which the RTC directed Celestino to pay to the Chuas should instead be paid to Soriano as part
of the actual damages awarded to him. Such amount shall earn interest rate of 6% from August 20, 1990, the time of the
filing of the complaint until its full payment before finality of judgment. After the judgment becomes final and executory
until the obligation is satisfied, the amount due shall earn interest at 12% per year, the interim period being deemed
equivalent to a forbearance of credit.49

For the Court to uphold the effects of a SPA that is rooted in falsity may be disconcerting. Yet whatever sympathies may
be judicially appreciated for the deceived party must be balanced in deference to the protection afforded by law to the
purchaser in good faith. If such innocence or good faith is established by the evidence, or insufficiently rebutted by the
disputant, then the corresponding duty of the Court is simply to affirm the rights of the purchaser in good faith. It is
mischief at worse, and error at least, for a court to misread or inflate the facts to justify a ruling for the defrauded party, no
matter how wronged he or she may be.50

WHEREFORE, the petition is GRANTED. Petitioners are hereby declared purchasers in good faith. Accordingly, the
Decision of the Court of Appeals dated September 21, 2001 in CA-G.R. CV No. 56568 is PARTLY REVERSED and SET
ASIDE insofar as it affirms the Decision of the Regional Trial Court, Branch 81, Quezon City dated July 10, 1997 in Civil
Case No. Q-90-6439 finding the Chuas as purchasers in bad faith.

The Decision dated July 10, 1997 of the Regional Trial Court, Branch 81, Quezon City (RTC) in Civil Case No. Q-90-6439
is MODIFIED to read as follows:

1. Declaring the special power of attorney dated March 9, 1985 and the Deed of Sale dated July 4, 1989 and the
Transfer Certificate of Title No. 14514 in the name of the defendants Chuas as valid;

2. Ordering Celestino to pay plaintiff the amount of 500,000.00 as actual damages, with interest rate of 6% p.a.
computed from the time of the filing of the complaint until its full payment before finality of judgment; thereafter, if
the amount adjudged remains unpaid, the interest rate shall be 12% p.a. computed from the time the judgment
becomes final and executory until fully satisfied;

3. Ordering defendant Celestino to pay to the plaintiff the amounts of 100,000.00 as moral damages,
20,000.00 as attorneys fees and 10,000.00 as litigation expenses;

With costs against defendant Celestino.

SO ORDERED.

No costs.

SO ORDERED.
 276

G.R. No. 187769 June 4, 2014

ALVIN PATRIMONIO, Petitioner,

vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.

DECISION

BRION, J.:

Assailed in this petition for review on certiorari 1 under Rule 45 of the Revised Rules of Court is the decision 2 dated
September 24, 2008 and the resolution3 dated April 30, 2009 of the Court of Appeals (CA) in CA-G.R. CV No. 82301. The
appellate court affirmed the decision of the Regional Trial Court (RTC) of Quezon City, Branch 77, dismissing the
complaint for declaration of nullity of loan filed by petitioner Alvin Patrimonio and ordering him to pay respondent Octavio
Marasigan III (Marasigan) the sum of 200,000.00.

The Factual Background

The facts of the case, as shown by the records, are briefly summarized below.

The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business venture under the name of
Slam Dunk Corporation (Slum Dunk), a production outfit that produced mini-concerts and shows related to basketball.
Petitioner was already then a decorated professional basketball player while Gutierrez was a well-known sports columnist.

In the course of their business, the petitioner pre-signed several checks to answer for the expenses of Slam Dunk.
Although signed, these checks had no payees name, date or amount. The blank checks were entrusted to Gutierrez with
the specific instruction not to fill them out without previous notification to and approval by the petitioner. According to
petitioner, the arrangement was made so that he could verify the validity of the payment and make the proper
arrangements to fund the account.

In the middle of 1993, without the petitioners knowledge and consent, Gutierrez went to Marasigan (the petitioners
former teammate), to secure a loan in the amount of 200,000.00 on the excuse that the petitioner needed the money for
the construction of his house. In addition to the payment of the principal, Gutierrez assured Marasigan that he would be
paid an interest of 5% per month from March to May 1994.

After much contemplation and taking into account his relationship with the petitioner and Gutierrez, Marasigan acceded to
Gutierrez request and gave him 200,000.00 sometime in February 1994. Gutierrez simultaneously delivered to
Marasigan one of the blank checks the petitioner pre-signed with Pilipinas Bank, Greenhills Branch, Check No. 21001764
with the blank portions filled out with the words "Cash" "Two Hundred Thousand Pesos Only", and the amount of
"200,000.00". The upper right portion of the check corresponding to the date was also filled out with the words "May 23,
1994" but the petitioner contended that the same was not written by Gutierrez.

On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason "ACCOUNT CLOSED." It was later
revealed that petitioners account with the bank had been closed since May 28, 1993.

Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several demand letters to the petitioner asking
for the payment of 200,000.00, but his demands likewise went unheeded. Consequently, he filed a criminal case for
violation of B.P. 22 against the petitioner, docketed as Criminal Case No. 42816.
 277

On September 10, 1997, the petitioner filed before the Regional Trial Court (RTC) a Complaint for Declaration of Nullity of
Loan and Recovery of Damages against Gutierrez and co-respondent Marasigan. He completely denied authorizing the
loan or the checks negotiation, and asserted that he was not privy to the parties loan agreement.

Only Marasigan filed his answer to the complaint. In the RTCs order dated December 22, 1997,Gutierrez was declared in
default.

The Ruling of the RTC

The RTC ruled on February 3,2003 in favor of Marasigan. 4 It found that the petitioner, in issuing the pre-signed blank
checks, had the intention of issuing a negotiable instrument, albeit with specific instructions to Gutierrez not to negotiate
or issue the check without his approval. While under Section 14 of the Negotiable Instruments Law Gutierrez had the
prima facie authority to complete the checks by filling up the blanks therein, the RTC ruled that he deliberately violated
petitioners specific instructions and took advantage of the trust reposed in him by the latter.

Nonetheless, the RTC declared Marasigan as a holder in due course and accordingly dismissed the petitioners complaint
for declaration of nullity of the loan. It ordered the petitioner to pay Marasigan the face value of the check with a right to
claim reimbursement from Gutierrez.

The petitioner elevated the case to the Court of Appeals (CA), insisting that Marasigan is not a holder in due course. He
contended that when Marasigan received the check, he knew that the same was without a date, and hence, incomplete.
He also alleged that the loan was actually between Marasigan and Gutierrez with his check being used only as a security.

The Ruling of the CA

On September 24, 2008, the CA affirmed the RTC ruling, although premised on different factual findings. After careful
analysis, the CA agreed with the petitioner that Marasigan is not a holder in due course as he did not receive the check in
good faith.

The CA also concluded that the check had been strictly filled out by Gutierrez in accordance with the petitioners authority.
It held that the loan may not be nullified since it is grounded on an obligation arising from law and ruled that the petitioner
is still liable to pay Marasigan the sum of 200,000.00.

After the CA denied the subsequent motion for reconsideration that followed, the petitioner filed the present petition for
review on certiorari under Rule 45 of the Revised Rules of Court.

The Petition

The petitioner argues that: (1) there was no loan between him and Marasigan since he never authorized the borrowing of
money nor the checks negotiation to the latter; (2) under Article 1878 of the Civil Code, a special power of attorney is
necessary for an individual to make a loan or borrow money in behalf of another; (3) the loan transaction was between
Gutierrez and Marasigan, with his check being used only as a security; (4) the check had not been completely and strictly
filled out in accordance with his authority since the condition that the subject check can only be used provided there is
prior approval from him, was not complied with; (5) even if the check was strictly filled up as instructed by the petitioner,
Marasigan is still not entitled to claim the checks value as he was not a holder in due course; and (6) by reason of the bad
faith in the dealings between the respondents, he is entitled to claim for damages.

The Issues

Reduced to its basics, the case presents to us the following issues:

1. Whether the contract of loan in the amount of 200,000.00 granted by respondent Marasigan to petitioner,
through respondent Gutierrez, may be nullified for being void;

2. Whether there is basis to hold the petitioner liable for the payment of the 200,000.00 loan;
 278

3. Whether respondent Gutierrez has completely filled out the subject check strictly under the authority given by
the petitioner; and

4. Whether Marasigan is a holder in due course.

The Courts Ruling

The petition is impressed with merit.

We note at the outset that the issues raised in this petition are essentially factual in nature. The main point of inquiry of
whether the contract of loan may be nullified, hinges on the very existence of the contract of loan a question that, as
presented, is essentially, one of fact. Whether the petitioner authorized the borrowing; whether Gutierrez completely filled
out the subject check strictly under the petitioners authority; and whether Marasigan is a holder in due course are also
questions of fact, that, as a general rule, are beyond the scope of a Rule 45 petition.

The rule that questions of fact are not the proper subject of an appeal by certiorari, as a petition for review under Rule 45
is limited only to questions of law, is not an absolute rule that admits of no exceptions. One notable exception is when the
findings off act of both the trial court and the CA are conflicting, making their review necessary. 5 In the present case, the
tribunals below arrived at two conflicting factual findings, albeit with the same conclusion, i.e., dismissal of the complaint
for nullity of the loan. Accordingly, we will examine the parties evidence presented.

I. Liability Under the Contract of Loan

The petitioner seeks to nullify the contract of loan on the ground that he never authorized the borrowing of money. He
points to Article 1878, paragraph 7 of the Civil Code, which explicitly requires a written authority when the loan is
contracted through an agent. The petitioner contends that absent such authority in writing, he should not be held liable for
the face value of the check because he was not a party or privy to the agreement.

Contracts of Agency May be Oral Unless The Law Requires a Specific Form

Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person "binds himself to render some
service or to do something in representation or on behalf of another, with the consent or authority of the latter." Agency
may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the
agency, knowing that another person is acting on his behalf without authority.

As a general rule, a contract of agency may be oral. 6 However, it must be written when the law requires a specific form,
for example, in a sale of a piece of land or any interest therein through an agent.

Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before an agent can loan or
borrow money in behalf of the principal, to wit:

Art. 1878. Special powers of attorney are necessary in the following cases:

xxxx

(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are
under administration. (emphasis supplied)

Article 1878 does not state that the authority be in writing. As long as the mandate is express, such authority may be
either oral or written. We unequivocably declared in Lim Pin v. Liao Tian, et al., 7 that the requirement under Article 1878 of
the Civil Code refers to the nature of the authorization and not to its form. Be that as it may, the authority must be duly
established by competent and convincing evidence other than the self serving assertion of the party claiming that such
authority was verbally given, thus:

The requirements of a special power of attorney in Article 1878 of the Civil Code and of a special authority in Rule 138 of
the Rules of Court refer to the nature of the authorization and not its form. The requirements are met if there is a clear
 279

mandate from the principal specifically authorizing the performance of the act. As early as 1906, this Court in Strong v.
Gutierrez-Repide (6 Phil. 680) stated that such a mandate may be either oral or written, the one vital thing being that it
shall be express. And more recently, We stated that, if the special authority is not written, then it must be duly established
by evidence:

x x x the Rules require, for attorneys to compromise the litigation of their clients, a special authority. And while the same
does not state that the special authority be in writing the Court has every reason to expect that, if not in writing, the same
be duly established by evidence other than the self-serving assertion of counsel himself that such authority was verbally
given him.(Home Insurance Company vs. United States lines Company, et al., 21 SCRA 863; 866: Vicente vs. Geraldez,
52 SCRA 210; 225). (emphasis supplied).

The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner Should be Nullified for Being Void; Petitioner is
Not Bound by the Contract of Loan.

A review of the records reveals that Gutierrez did not have any authority to borrow money in behalf of the
petitioner.1wphi1Records do not show that the petitioner executed any special power of attorney (SPA) in favor of
Gutierrez. In fact, the petitioners testimony confirmed that he never authorized Gutierrez (or anyone for that matter),
whether verbally or in writing, to borrow money in his behalf, nor was he aware of any such transaction:

ALVIN PATRIMONIO (witness)

ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney in writing authorizing him to borrow using
your money?

WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8

xxxx

Marasigan however submits that the petitioners acts of pre-signing the blank checks and releasing them to Gutierrez
suffice to establish that the petitioner had authorized Gutierrez to fill them out and contract the loan in his behalf.

Marasigans submission fails to persuade us.

In the absence of any authorization, Gutierrez could not enter into a contract of loan in behalf of the petitioner. As held in
Yasuma v. Heirs of De Villa,9 involving a loan contracted by de Villa secured by real estate mortgages in the name of East
Cordillera Mining Corporation, in the absence of an SPA conferring authority on de Villa, there is no basis to hold the
corporation liable, to wit:

The power to borrow money is one of those cases where corporate officers as agents of the corporation need a special
power of attorney. In the case at bar, no special power of attorney conferring authority on de Villa was ever presented. x x
x There was no showing that respondent corporation ever authorized de Villa to obtain the loans on its behalf.

xxxx

Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the corporation liable since
there was no authority, express, implied or apparent, given to de Villa to borrow money from petitioner. Neither was there
any subsequent ratification of his act.

xxxx

The liability arising from the loan was the sole indebtedness of de Villa (or of his estate after his death). (citations omitted;
emphasis supplied).

This principle was also reiterated in the case of Gozun v. Mercado,10 where this court held:
 280

Petitioner submits that his following testimony suffices to establish that respondent had authorized Lilian to obtain a loan
from him.

xxxx

Petitioners testimony failed to categorically state, however, whether the loan was made on behalf of respondent or of his
wife. While petitioner claims that Lilian was authorized by respondent, the statement of account marked as Exhibit "A"
states that the amount was received by Lilian "in behalf of Mrs. Annie Mercado.

It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that she was acting for and in
behalf of respondent. She thus bound herself in her personal capacity and not as an agent of respondent or anyone for
that matter.

It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property executed by an
agent, it must upon its face purport to be made, signed and sealed in the name of the principal, otherwise, it will bind the
agent only. It is not enough merely that the agent was in fact authorized to make the mortgage, if he has not acted in the
name of the principal. x x x (emphasis supplied).

In the absence of any showing of any agency relations or special authority to act for and in behalf of the petitioner, the
loan agreement Gutierrez entered into with Marasigan is null and void. Thus, the petitioner is not bound by the parties
loan agreement.

Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not legally sufficient because the
authority to enter into a loan can never be presumed. The contract of agency and the special fiduciary relationship
inherent in this contract must exist as a matter of fact. The person alleging it has the burden of proof to show, not only the
fact of agency, but also its nature and extent.11 As we held in People v. Yabut:12

Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut, Jr., in Caloocan City cannot,
contrary to the holding of the respondent Judges, be licitly taken as delivery of the checks to the complainant Alicia P.
Andan at Caloocan City to fix the venue there. He did not take delivery of the checks as holder, i.e., as "payee" or
"indorsee." And there appears to beno contract of agency between Yambao and Andan so as to bind the latter for the acts
of the former. Alicia P. Andan declared in that sworn testimony before the investigating fiscal that Yambao is but her
"messenger" or "part-time employee." There was no special fiduciary relationship that permeated their dealings. For a
contract of agency to exist, the consent of both parties is essential, the principal consents that the other party, the agent,
shall act on his behalf, and the agent consents so to act. It must exist as a fact. The law makes no presumption thereof.
The person alleging it has the burden of proof to show, not only the fact of its existence, but also its nature and extent.
This is more imperative when it is considered that the transaction dealt with involves checks, which are not legal tender,
and the creditor may validly refuse the same as payment of obligation.(at p. 630). (emphasis supplied)

The records show that Marasigan merely relied on the words of Gutierrez without securing a copy of the SPA in favor of
the latter and without verifying from the petitioner whether he had authorized the borrowing of money or release of the
check. He was thus bound by the risk accompanying his trust on the mere assurances of Gutierrez.

No Contract of Loan Was Perfected Between Marasigan And Petitioner, as The Latters Consent Was Not Obtained.

Another significant point that the lower courts failed to consider is that a contract of loan, like any other contract, is subject
to the rules governing the requisites and validity of contracts in general. 13 Article 1318 of the Civil Code14enumerates the
essential requisites for a valid contract, namely:

1. consent of the contracting parties;

2. object certain which is the subject matter of the contract; and

3. cause of the obligation which is established.

In this case, the petitioner denied liability on the ground that the contract lacked the essential element of consent. We
agree with the petitioner. As we explained above, Gutierrez did not have the petitioners written/verbal authority to enter
 281

into a contract of loan. While there may be a meeting of the minds between Gutierrez and Marasigan, such agreement
cannot bind the petitioner whose consent was not obtained and who was not privy to the loan agreement. Hence, only
Gutierrez is bound by the contract of loan.

True, the petitioner had issued several pre-signed checks to Gutierrez, one of which fell into the hands of Marasigan. This
act, however, does not constitute sufficient authority to borrow money in his behalf and neither should it be construed as
petitioners grant of consent to the parties loan agreement. Without any evidence to prove Gutierrez authority, the
petitioners signature in the check cannot be taken, even remotely, as sufficient authorization, much less, consent to the
contract of loan. Without the consent given by one party in a purported contract, such contract could not have been
perfected; there simply was no contract to speak of.15

With the loan issue out of the way, we now proceed to determine whether the petitioner can be made liable under the
check he signed.

II. Liability Under the Instrument

The answer is supplied by the applicable statutory provision found in Section 14 of the Negotiable Instruments Law (NIL)
which states:

Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in any material particular, the person in possession
thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper
delivered by the person making the signature in order that the paper may be converted into a negotiable instrument
operates as a prima facie authority to fill it up as such for any amount. In order, however, that any such instrument when
completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up
strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is
negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it
had been filled up strictly in accordance with the authority given and within a reasonable time.

This provision applies to an incomplete but delivered instrument. Under this rule, if the maker or drawer delivers a pre-
signed blank paper to another person for the purpose of converting it into a negotiable instrument, that person is deemed
to have prima facie authority to fill it up. It merely requires that the instrument be in the possession of a person other than
the drawer or maker and from such possession, together with the fact that the instrument is wanting in a material
particular, the law presumes agency to fill up the blanks.16

In order however that one who is not a holder in due course can enforce the instrument against a party prior to the
instruments completion, two requisites must exist: (1) that the blank must be filled strictly in accordance with the authority
given; and (2) it must be filled up within a reasonable time. If it was proven that the instrument had not been filled up
strictly in accordance with the authority given and within a reasonable time, the maker can set this up as a personal
defense and avoid liability. However, if the holder is a holder in due course, there is a conclusive presumption that
authority to fill it up had been given and that the same was not in excess of authority. 17

In the present case, the petitioner contends that there is no legal basis to hold him liable both under the contract and loan
and under the check because: first, the subject check was not completely filled out strictly under the authority he has
given and second, Marasigan was not a holder in due course.

Marasigan is Not a Holder in Due Course

The Negotiable Instruments Law (NIL) defines a holder in due course, thus:

Sec. 52 A holder in due course is a holder who has taken the instrument under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it had been previously
dishonored, if such was the fact;

(c) That he took it in good faith and for value;

 282

(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title
of the person negotiating it.(emphasis supplied)

Section 52(c) of the NIL states that a holder in due course is one who takes the instrument "in good faith and for value." It
also provides in Section 52(d) that in order that one may be a holder in due course, it is necessary that at the time it was
negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

Acquisition in good faith means taking without knowledge or notice of equities of any sort which could beset up against a
prior holder of the instrument.18 It means that he does not have any knowledge of fact which would render it dishonest for
him to take a negotiable paper. The absence of the defense, when the instrument was taken, is the essential element of
good faith.19

As held in De Ocampo v. Gatchalian:20

In order to show that the defendant had "knowledge of such facts that his action in taking the instrument amounted to bad
faith," it is not necessary to prove that the defendant knew the exact fraud that was practiced upon the plaintiff by the
defendant's assignor, it being sufficient to show that the defendant had notice that there was something wrong about his
assignor's acquisition of title, although he did not have notice of the particular wrong that was committed.

It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted with fraud. It is not
necessary that he should know the particulars or even the nature of the fraud, since all that is required is knowledge of
such facts that his action in taking the note amounted bad faith.

The term bad faith does not necessarily involve furtive motives, but means bad faith in a commercial sense. The manner
in which the defendants conducted their Liberty Loan department provided an easy way for thieves to dispose of their
plunder. It was a case of "no questions asked." Although gross negligence does not of itself constitute bad faith, it is
evidence from which bad faith may be inferred. The circumstances thrust the duty upon the defendants to make further
inquiries and they had no right to shut their eyes deliberately to obvious facts. (emphasis supplied).

In the present case, Marasigans knowledge that the petitioner is not a party or a privy to the contract of loan, and
correspondingly had no obligation or liability to him, renders him dishonest, hence, in bad faith. The following exchange is
significant on this point:

WITNESS: AMBET NABUS

Q: Now, I refer to the second call after your birthday. Tell us what you talked about?

A: Since I celebrated my birthday in that place where Nap and I live together with the other crew, there were several
visitors that included Danny Espiritu. So a week after my birthday, Bong Marasigan called me up again and he was fuming
mad. Nagmumura na siya. Hinahanap niya si hinahanap niya si Nap, dahil pinagtataguan na siya at sinabi na niya na
kailangan I-settle na niya yung utang ni Nap, dahil

xxxx

WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa kung saan ang tsekeng tumalbog (He
told me that we have to fix it up before it) mauwi pa kung saan

xxxx

Q: What was your reply, if any?

A: I actually asked him. Kanino ba ang tseke na sinasabi mo?

(Whose check is it that you are referring to or talking about?)

Q: What was his answer?

 283

A: It was Alvins check.

Q: What was your reply, if any?

A: I told him do you know that it is not really Alvin who borrowed money from you or what you want to appear

xxxx

Q: What was his reply?

A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang maiipit dito.(T.S.N., Ambet Nabus, July 27,
2000; pp.65-71; emphasis supplied)21

Since he knew that the underlying obligation was not actually for the petitioner, the rule that a possessor of the instrument
is prima facie a holder in due course is inapplicable. As correctly noted by the CA, his inaction and failure to verify, despite
knowledge of that the petitioner was not a party to the loan, may be construed as gross negligence amounting to bad
faith.

Yet, it does not follow that simply because he is not a holder in due course, Marasigan is already totally barred from
recovery. The NIL does not provide that a holder who is not a holder in due course may not in any case recover on the
instrument.22 The only disadvantage of a holder who is not in due course is that the negotiable instrument is subject to
defenses as if it were non-negotiable.23 Among such defenses is the filling up blank not within the authority.

On this point, the petitioner argues that the subject check was not filled up strictly on the basis of the authority he gave.
He points to his instruction not to use the check without his prior approval and argues that the check was filled up in
violation of said instruction.

Check Was Not Completed Strictly Under The Authority Given by The Petitioner

Our own examination of the records tells us that Gutierrez has exceeded the authority to fill up the blanks and use the
check.1wphi1 To repeat, petitioner gave Gutierrez pre-signed checks to be used in their business provided that he could
only use them upon his approval. His instruction could not be any clearer as Gutierrez authority was limited to the use of
the checks for the operation of their business, and on the condition that the petitioners prior approval be first secured.

While under the law, Gutierrez had a prima facie authority to complete the check, such prima facie authority does not
extend to its use (i.e., subsequent transfer or negotiation)once the check is completed. In other words, only the authority
to complete the check is presumed. Further, the law used the term "prima facie" to underscore the fact that the authority
which the law accords to a holder is a presumption juris tantumonly; hence, subject to subject to contrary proof. Thus,
evidence that there was no authority or that the authority granted has been exceeded may be presented by the maker in
order to avoid liability under the instrument.

In the present case, no evidence is on record that Gutierrez ever secured prior approval from the petitioner to fill up the
blank or to use the check. In his testimony, petitioner asserted that he never authorized nor approved the filling up of the
blank checks, thus:

ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write the date, May 23, 1994?

WITNESS: No, sir.

Q: Did you authorize anyone including Nap Gutierrez to put the word cash? In the check?

A: No, sir.

Q: Did you authorize anyone including Nap Gutierrez to write the figure 200,000 in this check?

A: No, sir.
 284

Q: And lastly, did you authorize anyone including Nap Gutierrez to write the words 200,000 only xx in this check?

A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24

Notably, Gutierrez was only authorized to use the check for business expenses; thus, he exceeded the authority when he
used the check to pay the loan he supposedly contracted for the construction of petitioner's house. This is a clear violation
of the petitioner's instruction to use the checks for the expenses of Slam Dunk. It cannot therefore be validly concluded
that the check was completed strictly in accordance with the authority given by the petitioner.

Considering that Marasigan is not a holder in due course, the petitioner can validly set up the personal defense that the
blanks were not filled up in accordance with the authority he gave. Consequently, Marasigan has no right to enforce
payment against the petitioner and the latter cannot be obliged to pay the face value of the check.

WHEREFORE, in view of the foregoing, judgment is hereby rendered GRANTING the petitioner Alvin Patrimonio's petition
for review on certiorari. The appealed Decision dated September 24, 2008 and the Resolution dated April 30, 2009 of the
Court of Appeals are consequently ANNULLED AND SET ASIDE. Costs against the respondents.

SO ORDERED.
 285

G.R. No. 90027 March 3, 1993

CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,

vs.
THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

Dolorfino & Dominguez Law Offices for petitioner.

Danilo B. Banares for private respondent.

DAVIDE, JR., J.:

Is the contractual relation between a commercial bank and another party in a contract of rent of a safety deposit box with
respect to its contents placed by the latter one of bailor and bailee or one of lessor and lessee?

This is the crux of the present controversy.

On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon and Paula Pugao entered into
an agreement whereby the former purchased from the latter two (2) parcels of land for a consideration of P350,625.00. Of
this amount, P75,725.00 was paid as downpayment while the balance was covered by three (3) postdated checks. Among
the terms and conditions of the agreement embodied in a Memorandum of True and Actual Agreement of Sale of Land
were that the titles to the lots shall be transferred to the petitioner upon full payment of the purchase price and that the
owner's copies of the certificates of titles thereto, Transfer Certificates of Title (TCT) Nos. 284655 and 292434, shall be
deposited in a safety deposit box of any bank. The same could be withdrawn only upon the joint signatures of a
representative of the petitioner and the Pugaos upon full payment of the purchase price. Petitioner, through Sergio
Aguirre, and the Pugaos then rented Safety Deposit Box No. 1448 of private respondent Security Bank and Trust
Company, a domestic banking corporation hereinafter referred to as the respondent Bank. For this purpose, both signed a
contract of lease (Exhibit "2") which contains, inter alia, the following conditions:

13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control
of the same.

14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it
assumes absolutely no liability in connection therewith. 1

After the execution of the contract, two (2) renter's keys were given to the renters one to Aguirre (for the petitioner) and
the other to the Pugaos. A guard key remained in the possession of the respondent Bank. The safety deposit box has two
(2) keyholes, one for the guard key and the other for the renter's key, and can be opened only with the use of both keys.
Petitioner claims that the certificates of title were placed inside the said box.

Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots at a price of P225.00 per
square meter which, as petitioner alleged in its complaint, translates to a profit of P100.00 per square meter or a total of
P280,500.00 for the entire property. Mrs. Ramos demanded the execution of a deed of sale which necessarily entailed the
production of the certificates of title. In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the
respondent Bank on 4 October 1979 to open the safety deposit box and get the certificates of title. However, when
opened in the presence of the Bank's representative, the box yielded no such certificates. Because of the delay in the
reconstitution of the title, Mrs. Ramos withdrew her earlier offer to purchase the lots; as a consequence thereof, the
petitioner allegedly failed to realize the expected profit of P280,500.00. Hence, the latter filed on 1 September 1980 a
 286

complaint2 for damages against the respondent Bank with the Court of First Instance (now Regional Trial Court) of Pasig,
Metro Manila which docketed the same as Civil Case No. 38382.

In its Answer with Counterclaim,3 respondent Bank alleged that the petitioner has no cause of action because of
paragraphs 13 and 14 of the contract of lease (Exhibit "2"); corollarily, loss of any of the items or articles contained in the
box could not give rise to an action against it. It then interposed a counterclaim for exemplary damages as well as
attorney's fees in the amount of P20,000.00. Petitioner subsequently filed an answer to the counterclaim.4

In due course, the trial court, now designated as Branch 161 of the Regional Trial Court (RTC) of Pasig, Metro Manila,
rendered a decision5 adverse to the petitioner on 8 December 1986, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered dismissing plaintiff's complaint.

On defendant's counterclaim, judgment is hereby rendered ordering plaintiff to pay defendant the amount
of FIVE THOUSAND (P5,000.00) PESOS as attorney's fees.

With costs against plaintiff.6

The unfavorable verdict is based on the trial court's conclusion that under paragraphs 13 and 14 of the contract of lease,
the Bank has no liability for the loss of the certificates of title. The court declared that the said provisions are binding on
the parties.

Its motion for reconsideration7 having been denied, petitioner appealed from the adverse decision to the respondent Court
of Appeals which docketed the appeal as CA-G.R. CV No. 15150. Petitioner urged the respondent Court to reverse the
challenged decision because the trial court erred in (a) absolving the respondent Bank from liability from the loss, (b) not
declaring as null and void, for being contrary to law, public order and public policy, the provisions in the contract for lease
of the safety deposit box absolving the Bank from any liability for loss, (c) not concluding that in this jurisdiction, as well as
under American jurisprudence, the liability of the Bank is settled and (d) awarding attorney's fees to the Bank and denying
the petitioner's prayer for nominal and exemplary damages and attorney's fees. 8

In its Decision promulgated on 4 July 1989,9 respondent Court affirmed the appealed decision principally on the theory
that the contract (Exhibit "2") executed by the petitioner and respondent Bank is in the nature of a contract of lease by
virtue of which the petitioner and its co-renter were given control over the safety deposit box and its contents while the
Bank retained no right to open the said box because it had neither the possession nor control over it and its contents. As
such, the contract is governed by Article 1643 of the Civil Code 10 which provides:

Art. 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment or use
of a thing for a price certain, and for a period which may be definite or indefinite. However, no lease for
more than ninety-nine years shall be valid.

It invoked Tolentino vs. Gonzales 11 which held that the owner of the property loses his control over the
property leased during the period of the contract and Article 1975 of the Civil Code which provides:

Art. 1975. The depositary holding certificates, bonds, securities or instruments which earn interest shall
be bound to collect the latter when it becomes due, and to take such steps as may be necessary in order
that the securities may preserve their value and the rights corresponding to them according to law.

The above provision shall not apply to contracts for the rent of safety deposit boxes.

and then concluded that "[c]learly, the defendant-appellee is not under any duty to maintain the contents of the
box. The stipulation absolving the defendant-appellee from liability is in accordance with the nature of the contract
of lease and cannot be regarded as contrary to law, public order and public policy." 12 The appellate court was
quick to add, however, that under the contract of lease of the safety deposit box, respondent Bank is not
completely free from liability as it may still be made answerable in case unauthorized persons enter into the vault
area or when the rented box is forced open. Thus, as expressly provided for in stipulation number 8 of the
contract in question:
 287

8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and
beyond this, the Bank will not be responsible for the contents of any safe rented from it. 13

Its motion for reconsideration 14 having been denied in the respondent Court's Resolution of 28 August 1989, 15petitioner
took this recourse under Rule 45 of the Rules of Court and urges Us to review and set aside the respondent Court's ruling.
Petitioner avers that both the respondent Court and the trial court (a) did not properly and legally apply the correct law in
this case, (b) acted with grave abuse of discretion or in excess of jurisdiction amounting to lack thereof and (c) set a
precedent that is contrary to, or is a departure from precedents adhered to and affirmed by decisions of this Court and
precepts in American jurisprudence adopted in the Philippines. It reiterates the arguments it had raised in its motion to
reconsider the trial court's decision, the brief submitted to the respondent Court and the motion to reconsider the latter's
decision. In a nutshell, petitioner maintains that regardless of nomenclature, the contract for the rent of the safety deposit
box (Exhibit "2") is actually a contract of deposit governed by Title XII, Book IV of the Civil Code of the
Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the loss of the certificates of title pursuant to
Article 1972 of the said Code which provides:

Art. 1972. The depositary is obliged to keep the thing safely and to return it, when required, to the
depositor, or to his heirs and successors, or to the person who may have been designated in the contract.
His responsibility, with regard to the safekeeping and the loss of the thing, shall be governed by the
provisions of Title I of this Book.

If the deposit is gratuitous, this fact shall be taken into account in determining the degree of care that the
depositary must observe.

Petitioner then quotes a passage from American Jurisprudence 17 which is supposed to expound on the prevailing
rule in the United States, to wit:

The prevailing rule appears to be that where a safe-deposit company leases a safe-deposit box or safe
and the lessee takes possession of the box or safe and places therein his securities or other valuables,
the relation of bailee and bail or is created between the parties to the transaction as to such securities or
other valuables; the fact that the
safe-deposit company does not know, and that it is not expected that it shall know, the character or
description of the property which is deposited in such safe-deposit box or safe does not change that
relation. That access to the contents of the safe-deposit box can be had only by the use of a key retained
by the lessee ( whether it is the sole key or one to be used in connection with one retained by the lessor)
does not operate to alter the foregoing rule. The argument that there is not, in such a case, a delivery of
exclusive possession and control to the deposit company, and that therefore the situation is entirely
different from that of ordinary bailment, has been generally rejected by the courts, usually on the ground
that as possession must be either in the depositor or in the company, it should reasonably be considered
as in the latter rather than in the former, since the company is, by the nature of the contract, given
absolute control of access to the property, and the depositor cannot gain access thereto without the
consent and active participation of the company. . . . (citations omitted).

and a segment from Words and Phrases 18 which states that a contract for the rental of a bank safety deposit box
in consideration of a fixed amount at stated periods is a bailment for hire.

Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law and public policy and
should be declared null and void. In support thereof, it cites Article 1306 of the Civil Code which provides that parties to a
contract may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order or public policy.

After the respondent Bank filed its comment, this Court gave due course to the petition and required the parties to
simultaneously submit their respective Memoranda.

The petition is partly meritorious.

We agree with the petitioner's contention that the contract for the rent of the safety deposit box is not an ordinary contract
of lease as defined in Article 1643 of the Civil Code. However, We do not fully subscribe to its view that the same is a
contract of deposit that is to be strictly governed by the provisions in the Civil Code on deposit; 19 the contract in the case
 288

at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of lease under Article 1643 because
the full and absolute possession and control of the safety deposit box was not given to the joint renters the petitioner
and the Pugaos. The guard key of the box remained with the respondent Bank; without this key, neither of the renters
could open the box. On the other hand, the respondent Bank could not likewise open the box without the renter's key. In
this case, the said key had a duplicate which was made so that both renters could have access to the box.

Hence, the authorities cited by the respondent Court 20 on this point do not apply. Neither could Article 1975, also relied
upon by the respondent Court, be invoked as an argument against the deposit theory. Obviously, the first paragraph of
such provision cannot apply to a depositary of certificates, bonds, securities or instruments which earn interest if such
documents are kept in a rented safety deposit box. It is clear that the depositary cannot open the box without the renter
being present.

We observe, however, that the deposit theory itself does not altogether find unanimous support even in American
jurisprudence. We agree with the petitioner that under the latter, the prevailing rule is that the relation between a bank
renting out safe-deposit boxes and its customer with respect to the contents of the box is that of a bail or and bailee, the
bailment being for hire and mutual benefit. 21 This is just the prevailing view because:

There is, however, some support for the view that the relationship in question might be more properly
characterized as that of landlord and tenant, or lessor and lessee. It has also been suggested that it
should be characterized as that of licensor and licensee. The relation between a bank, safe-deposit
company, or storage company, and the renter of a safe-deposit box therein, is often described as
contractual, express or implied, oral or written, in whole or in part. But there is apparently no jurisdiction in
which any rule other than that applicable to bailments governs questions of the liability and rights of the
parties in respect of loss of the contents of safe-deposit boxes. 22 (citations omitted)

In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this
jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the General Banking Act 23pertinently
provides:

Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions
other than building and loan associations may perform the following services:

(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit
boxes for the safeguarding of such effects.

xxx xxx xxx

The banks shall perform the services permitted under subsections (a), (b) and (c) of this section
as depositories or as agents. . . . 24 (emphasis supplied)

Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of
funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this principal function. A contract of deposit may be entered into
orally or in writing 25 and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order or public policy. The depositary's responsibility for the safekeeping of the objects deposited in the
case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in performing
its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement. 26 In the absence
of any stipulation prescribing the degree of diligence required, that of a good father of a family is to be observed. 27 Hence,
any stipulation exempting the depositary from any liability arising from the loss of the thing deposited on account of fraud,
negligence or delay would be void for being contrary to law and public policy. In the instant case, petitioner maintains that
conditions 13 and 14 of the questioned contract of lease of the safety deposit box, which read:

13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control
of the same.
 289

14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it
assumes absolutely no liability in connection therewith. 28

are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition for
indeed, said provisions are inconsistent with the respondent Bank's responsibility as a depositary under Section
72(a) of the General Banking Act. Both exempt the latter from any liability except as contemplated in condition 8
thereof which limits its duty to exercise reasonable diligence only with respect to who shall be admitted to any
rented safe, to wit:

8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and
beyond this, the Bank will not be responsible for the contents of any safe rented from it. 29

Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not
correct to assert that the Bank has neither the possession nor control of the contents of the box since in fact, the
safety deposit box itself is located in its premises and is under its absolute control; moreover, the respondent
Bank keeps the guard key to the said box. As stated earlier, renters cannot open their respective boxes unless
the Bank cooperates by presenting and using this guard key. Clearly then, to the extent above stated, the
foregoing conditions in the contract in question are void and ineffective. It has been said:

With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the
parties, since the relation is a contractual one, may by special contract define their respective duties or
provide for increasing or limiting the liability of the deposit company, provided such contract is not in
violation of law or public policy. It must clearly appear that there actually was such a special contract,
however, in order to vary the ordinary obligations implied by law from the relationship of the parties;
liability of the deposit company will not be enlarged or restricted by words of doubtful meaning. The
company, in renting
safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or
negligence or that of its agents or servants, and if a provision of the contract may be construed as an
attempt to do so, it will be held ineffective for the purpose. Although it has been held that the lessor of a
safe-deposit box cannot limit its liability for loss of the contents thereof through its own negligence, the
view has been taken that such a lessor may limits its liability to some extent by agreement or
stipulation. 30 (citations omitted)

Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the petition should be dismissed,
but on grounds quite different from those relied upon by the Court of Appeals. In the instant case, the respondent Bank's
exoneration cannot, contrary to the holding of the Court of Appeals, be based on or proceed from a characterization of the
impugned contract as a contract of lease, but rather on the fact that no competent proof was presented to show that
respondent Bank was aware of the agreement between the petitioner and the Pugaos to the effect that the certificates of
title were withdrawable from the safety deposit box only upon both parties' joint signatures, and that no evidence was
submitted to reveal that the loss of the certificates of title was due to the fraud or negligence of the respondent Bank. This
in turn flows from this Court's determination that the contract involved was one of deposit. Since both the petitioner and
the Pugaos agreed that each should have one (1) renter's key, it was obvious that either of them could ask the Bank for
access to the safety deposit box and, with the use of such key and the Bank's own guard key, could open the said box,
without the other renter being present.

Since, however, the petitioner cannot be blamed for the filing of the complaint and no bad faith on its part had been
established, the trial court erred in condemning the petitioner to pay the respondent Bank attorney's fees. To this extent,
the Decision (dispositive portion) of public respondent Court of Appeals must be modified.

WHEREFORE, the Petition for Review is partially GRANTED by deleting the award for attorney's fees from the 4 July
1989 Decision of the respondent Court of Appeals in CA-G.R. CV No. 15150. As modified, and subject to the
pronouncement We made above on the nature of the relationship between the parties in a contract of lease of safety
deposit boxes, the dispositive portion of the said Decision is hereby AFFIRMED and the instant Petition for Review is
otherwise DENIED for lack of merit.

No pronouncement as to costs.

SO ORDERED.
 290

Feliciano, Bidin, Romero and Melo, JJ., concur.

Gutierrez, Jr., J., is on leave.

 291

G.R. No. 126780 February 17, 2005

YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA PAYAM, petitioners,

vs.
THE COURT OF APPEALS and MAURICE McLOUGHLIN, respondents.

DECISION

TINGA, J.:

The primary question of interest before this Court is the only legal issue in the case: It is whether a hotel may evade
liability for the loss of items left with it for safekeeping by its guests, by having these guests execute written waivers
holding the establishment or its employees free from blame for such loss in light of Article 2003 of the Civil Code which
voids such waivers.

Before this Court is a Rule 45 petition for review of the Decision1 dated 19 October 1995 of the Court of Appeals which
affirmed the Decision2 dated 16 December 1991 of the Regional Trial Court (RTC), Branch 13, of Manila, finding YHT
Realty Corporation, Brunhilda Mata-Tan (Tan), Erlinda Lainez (Lainez) and Anicia Payam (Payam) jointly and solidarily
liable for damages in an action filed by Maurice McLoughlin (McLoughlin) for the loss of his American and Australian
dollars deposited in the safety deposit box of Tropicana Copacabana Apartment Hotel, owned and operated by YHT
Realty Corporation.

The factual backdrop of the case follow.

Private respondent McLoughlin, an Australian businessman-philanthropist, used to stay at Sheraton Hotel during his trips
to the Philippines prior to 1984 when he met Tan. Tan befriended McLoughlin by showing him around, introducing him to
important people, accompanying him in visiting impoverished street children and assisting him in buying gifts for the
children and in distributing the same to charitable institutions for poor children. Tan convinced McLoughlin to transfer from
Sheraton Hotel to Tropicana where Lainez, Payam and Danilo Lopez were employed. Lopez served as manager of the
hotel while Lainez and Payam had custody of the keys for the safety deposit boxes of Tropicana. Tan took care of
McLoughlin's booking at the Tropicana where he started staying during his trips to the Philippines from December 1984 to
September 1987.3

On 30 October 1987, McLoughlin arrived from Australia and registered with Tropicana. He rented a safety deposit box as
it was his practice to rent a safety deposit box every time he registered at Tropicana in previous trips. As a tourist,
McLoughlin was aware of the procedure observed by Tropicana relative to its safety deposit boxes. The safety deposit
box could only be opened through the use of two keys, one of which is given to the registered guest, and the other
remaining in the possession of the management of the hotel. When a registered guest wished to open his safety deposit
box, he alone could personally request the management who then would assign one of its employees to accompany the
guest and assist him in opening the safety deposit box with the two keys.4

McLoughlin allegedly placed the following in his safety deposit box: Fifteen Thousand US Dollars (US$15,000.00) which
he placed in two envelopes, one envelope containing Ten Thousand US Dollars (US$10,000.00) and the other envelope
Five Thousand US Dollars (US$5,000.00); Ten Thousand Australian Dollars (AUS$10,000.00) which he also placed in
another envelope; two (2) other envelopes containing letters and credit cards; two (2) bankbooks; and a checkbook,
arranged side by side inside the safety deposit box.5

On 12 December 1987, before leaving for a brief trip to Hongkong, McLoughlin opened his safety deposit box with his key
and with the key of the management and took therefrom the envelope containing Five Thousand US Dollars
 292

(US$5,000.00), the envelope containing Ten Thousand Australian Dollars (AUS$10,000.00), his passports and his credit
cards.6 McLoughlin left the other items in the box as he did not check out of his room at the Tropicana during his short visit
to Hongkong. When he arrived in Hongkong, he opened the envelope which contained Five Thousand US Dollars
(US$5,000.00) and discovered upon counting that only Three Thousand US Dollars (US$3,000.00) were enclosed
therein.7 Since he had no idea whether somebody else had tampered with his safety deposit box, he thought that it was
just a result of bad accounting since he did not spend anything from that envelope. 8

After returning to Manila, he checked out of Tropicana on 18 December 1987 and left for Australia. When he arrived in
Australia, he discovered that the envelope with Ten Thousand US Dollars (US$10,000.00) was short of Five Thousand
US Dollars (US$5,000). He also noticed that the jewelry which he bought in Hongkong and stored in the safety deposit
box upon his return to Tropicana was likewise missing, except for a diamond bracelet.9

When McLoughlin came back to the Philippines on 4 April 1988, he asked Lainez if some money and/or jewelry which he
had lost were found and returned to her or to the management. However, Lainez told him that no one in the hotel found
such things and none were turned over to the management. He again registered at Tropicana and rented a safety deposit
box. He placed therein one (1) envelope containing Fifteen Thousand US Dollars (US$15,000.00), another envelope
containing Ten Thousand Australian Dollars (AUS$10,000.00) and other envelopes containing his traveling
papers/documents. On 16 April 1988, McLoughlin requested Lainez and Payam to open his safety deposit box. He
noticed that in the envelope containing Fifteen Thousand US Dollars (US$15,000.00), Two Thousand US Dollars
(US$2,000.00) were missing and in the envelope previously containing Ten Thousand Australian Dollars
(AUS$10,000.00), Four Thousand Five Hundred Australian Dollars (AUS$4,500.00) were missing.10

When McLoughlin discovered the loss, he immediately confronted Lainez and Payam who admitted that Tan opened the
safety deposit box with the key assigned to him. 11 McLoughlin went up to his room where Tan was staying and confronted
her. Tan admitted that she had stolen McLoughlin's key and was able to open the safety deposit box with the assistance
of Lopez, Payam and Lainez.12 Lopez also told McLoughlin that Tan stole the key assigned to McLoughlin while the latter
was asleep.13

McLoughlin requested the management for an investigation of the incident. Lopez got in touch with Tan and arranged for
a meeting with the police and McLoughlin. When the police did not arrive, Lopez and Tan went to the room of McLoughlin
at Tropicana and thereat, Lopez wrote on a piece of paper a promissory note dated 21 April 1988. The promissory note
reads as follows:

I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00 and US$2,000.00 or its equivalent in Philippine
currency on or before May 5, 1988.14

Lopez requested Tan to sign the promissory note which the latter did and Lopez also signed as a witness. Despite the
execution of promissory note by Tan, McLoughlin insisted that it must be the hotel who must assume responsibility for the
loss he suffered. However, Lopez refused to accept the responsibility relying on the conditions for renting the safety
deposit box entitled "Undertaking For the Use Of Safety Deposit Box,"15 specifically paragraphs (2) and (4) thereof, to wit:

2. To release and hold free and blameless TROPICANA APARTMENT HOTEL from any liability arising from any loss in
the contents and/or use of the said deposit box for any cause whatsoever, including but not limited to the presentation or
use thereof by any other person should the key be lost;

...

4. To return the key and execute the RELEASE in favor of TROPICANA APARTMENT HOTEL upon giving up the use of
the box.16

On 17 May 1988, McLoughlin went back to Australia and he consulted his lawyers as to the validity of the
abovementioned stipulations. They opined that the stipulations are void for being violative of universal hotel practices and
customs. His lawyers prepared a letter dated 30 May 1988 which was signed by McLoughlin and sent to President
Corazon Aquino.17 The Office of the President referred the letter to the Department of Justice (DOJ) which forwarded the
same to the Western Police District (WPD).18
 293

After receiving a copy of the indorsement in Australia, McLoughlin came to the Philippines and registered again as a hotel
guest of Tropicana. McLoughlin went to Malacaang to follow up on his letter but he was instructed to go to the DOJ. The
DOJ directed him to proceed to the WPD for documentation. But McLoughlin went back to Australia as he had an urgent
business matter to attend to.

For several times, McLoughlin left for Australia to attend to his business and came back to the Philippines to follow up on
his letter to the President but he failed to obtain any concrete assistance. 19

McLoughlin left again for Australia and upon his return to the Philippines on 25 August 1989 to pursue his claims against
petitioners, the WPD conducted an investigation which resulted in the preparation of an affidavit which was forwarded to
the Manila City Fiscal's Office. Said affidavit became the basis of preliminary investigation. However, McLoughlin left
again for Australia without receiving the notice of the hearing on 24 November 1989. Thus, the case at the Fiscal's Office
was dismissed for failure to prosecute. Mcloughlin requested the reinstatement of the criminal charge for theft. In the
meantime, McLoughlin and his lawyers wrote letters of demand to those having responsibility to pay the damage. Then he
left again for Australia.

Upon his return on 22 October 1990, he registered at the Echelon Towers at Malate, Manila. Meetings were held between
McLoughlin and his lawyer which resulted to the filing of a complaint for damages on 3 December 1990 against YHT
Realty Corporation, Lopez, Lainez, Payam and Tan (defendants) for the loss of McLoughlin's money which was
discovered on 16 April 1988. After filing the complaint, McLoughlin left again for Australia to attend to an urgent business
matter. Tan and Lopez, however, were not served with summons, and trial proceeded with only Lainez, Payam and YHT
Realty Corporation as defendants.

After defendants had filed their Pre-Trial Brief admitting that they had previously allowed and assisted Tan to open the
safety deposit box, McLoughlin filed an Amended/Supplemental Complaint20 dated 10 June 1991 which included another
incident of loss of money and jewelry in the safety deposit box rented by McLoughlin in the same hotel which took place
prior to 16 April 1988.21 The trial court admitted the Amended/Supplemental Complaint.

During the trial of the case, McLoughlin had been in and out of the country to attend to urgent business in Australia, and
while staying in the Philippines to attend the hearing, he incurred expenses for hotel bills, airfare and other transportation
expenses, long distance calls to Australia, Meralco power expenses, and expenses for food and maintenance, among
others.22

After trial, the RTC of Manila rendered judgment in favor of McLoughlin, the dispositive portion of which reads:

WHEREFORE, above premises considered, judgment is hereby rendered by this Court in favor of plaintiff and against the
defendants, to wit:

1. Ordering defendants, jointly and severally, to pay plaintiff the sum of US$11,400.00 or its equivalent in
Philippine Currency of 342,000.00, more or less, and the sum of AUS$4,500.00 or its equivalent in Philippine
Currency of 99,000.00, or a total of 441,000.00, more or less, with 12% interest from April 16 1988 until said
amount has been paid to plaintiff (Item 1, Exhibit CC);

2. Ordering defendants, jointly and severally to pay plaintiff the sum of 3,674,238.00 as actual and consequential
damages arising from the loss of his Australian and American dollars and jewelries complained against and in
prosecuting his claim and rights administratively and judicially (Items II, III, IV, V, VI, VII, VIII, and IX, Exh. "CC");

3. Ordering defendants, jointly and severally, to pay plaintiff the sum of 500,000.00 as moral damages (Item X,
Exh. "CC");

4. Ordering defendants, jointly and severally, to pay plaintiff the sum of 350,000.00 as exemplary damages (Item
XI, Exh. "CC");

5. And ordering defendants, jointly and severally, to pay litigation expenses in the sum of 200,000.00 (Item XII,
Exh. "CC");
 294

6. Ordering defendants, jointly and severally, to pay plaintiff the sum of 200,000.00 as attorney's fees, and a fee
of 3,000.00 for every appearance; and

7. Plus costs of suit.

SO ORDERED.23

The trial court found that McLoughlin's allegations as to the fact of loss and as to the amount of money he lost were
sufficiently shown by his direct and straightforward manner of testifying in court and found him to be credible and worthy
of belief as it was established that McLoughlin's money, kept in Tropicana's safety deposit box, was taken by Tan without
McLoughlin's consent. The taking was effected through the use of the master key which was in the possession of the
management. Payam and Lainez allowed Tan to use the master key without authority from McLoughlin. The trial court
added that if McLoughlin had not lost his dollars, he would not have gone through the trouble and personal inconvenience
of seeking aid and assistance from the Office of the President, DOJ, police authorities and the City Fiscal's Office in his
desire to recover his losses from the hotel management and Tan.24

As regards the loss of Seven Thousand US Dollars (US$7,000.00) and jewelry worth approximately One Thousand Two
Hundred US Dollars (US$1,200.00) which allegedly occurred during his stay at Tropicana previous to 4 April 1988, no
claim was made by McLoughlin for such losses in his complaint dated 21 November 1990 because he was not sure how
they were lost and who the responsible persons were. But considering the admission of the defendants in their pre-trial
brief that on three previous occasions they allowed Tan to open the box, the trial court opined that it was logical and
reasonable to presume that his personal assets consisting of Seven Thousand US Dollars (US$7,000.00) and jewelry
were taken by Tan from the safety deposit box without McLoughlin's consent through the cooperation of Payam and
Lainez.25

The trial court also found that defendants acted with gross negligence in the performance and exercise of their duties and
obligations as innkeepers and were therefore liable to answer for the losses incurred by McLoughlin. 26

Moreover, the trial court ruled that paragraphs (2) and (4) of the "Undertaking For The Use Of Safety Deposit Box" are not
valid for being contrary to the express mandate of Article 2003 of the New Civil Code and against public policy. 27 Thus,
there being fraud or wanton conduct on the part of defendants, they should be responsible for all damages which may be
attributed to the non-performance of their contractual obligations.28

The Court of Appeals affirmed the disquisitions made by the lower court except as to the amount of damages awarded.
The decretal text of the appellate court's decision reads:

THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED but modified as follows:

The appellants are directed jointly and severally to pay the plaintiff/appellee the following amounts:

1) 153,200.00 representing the peso equivalent of US$2,000.00 and AUS$4,500.00;

2) 308,880.80, representing the peso value for the air fares from Sidney [sic] to Manila and back for a total of
eleven (11) trips;

3) One-half of 336,207.05 or 168,103.52 representing payment to Tropicana Apartment Hotel;

4) One-half of 152,683.57 or 76,341.785 representing payment to Echelon Tower;

5) One-half of 179,863.20 or 89,931.60 for the taxi xxx transportation from the residence to Sidney [sic] Airport
and from MIA to the hotel here in Manila, for the eleven (11) trips;

6) One-half of 7,801.94 or 3,900.97 representing Meralco power expenses;

7) One-half of 356,400.00 or 178,000.00 representing expenses for food and maintenance;

 295

8) 50,000.00 for moral damages;

9) 10,000.00 as exemplary damages; and

10) 200,000 representing attorney's fees.

With costs.

SO ORDERED.29

Unperturbed, YHT Realty Corporation, Lainez and Payam went to this Court in this appeal by certiorari.

Petitioners submit for resolution by this Court the following issues: (a) whether the appellate court's conclusion on the
alleged prior existence and subsequent loss of the subject money and jewelry is supported by the evidence on record; (b)
whether the finding of gross negligence on the part of petitioners in the performance of their duties as innkeepers is
supported by the evidence on record; (c) whether the "Undertaking For The Use of Safety Deposit Box" admittedly
executed by private respondent is null and void; and (d) whether the damages awarded to private respondent, as well as
the amounts thereof, are proper under the circumstances.30

The petition is devoid of merit.

It is worthy of note that the thrust of Rule 45 is the resolution only of questions of law and any peripheral factual question
addressed to this Court is beyond the bounds of this mode of review.

Petitioners point out that the evidence on record is insufficient to prove the fact of prior existence of the dollars and the
jewelry which had been lost while deposited in the safety deposit boxes of Tropicana, the basis of the trial court and the
appellate court being the sole testimony of McLoughlin as to the contents thereof. Likewise, petitioners dispute the finding
of gross negligence on their part as not supported by the evidence on record.

We are not persuaded.l^vvphi1.net We adhere to the findings of the trial court as affirmed by the appellate court that the
fact of loss was established by the credible testimony in open court by McLoughlin. Such findings are factual and
therefore beyond the ambit of the present petition.1awphi1.nt

The trial court had the occasion to observe the demeanor of McLoughlin while testifying which reflected the veracity of the
facts testified to by him. On this score, we give full credence to the appreciation of testimonial evidence by the trial court
especially if what is at issue is the credibility of the witness. The oft-repeated principle is that where the credibility of a
witness is an issue, the established rule is that great respect is accorded to the evaluation of the credibility of witnesses by
the trial court.31 The trial court is in the best position to assess the credibility of witnesses and their testimonies because of
its unique opportunity to observe the witnesses firsthand and note their demeanor, conduct and attitude under grilling
examination.32

We are also not impressed by petitioners' argument that the finding of gross negligence by the lower court as affirmed by
the appellate court is not supported by evidence. The evidence reveals that two keys are required to open the safety
deposit boxes of Tropicana. One key is assigned to the guest while the other remains in the possession of the
management. If the guest desires to open his safety deposit box, he must request the management for the other key to
open the same. In other words, the guest alone cannot open the safety deposit box without the assistance of the
management or its employees. With more reason that access to the safety deposit box should be denied if the one
requesting for the opening of the safety deposit box is a stranger. Thus, in case of loss of any item deposited in the safety
deposit box, it is inevitable to conclude that the management had at least a hand in the consummation of the taking,
unless the reason for the loss is force majeure.

Noteworthy is the fact that Payam and Lainez, who were employees of Tropicana, had custody of the master key of the
management when the loss took place. In fact, they even admitted that they assisted Tan on three separate occasions in
opening McLoughlin's safety deposit box.33 This only proves that Tropicana had prior knowledge that a person aside from
the registered guest had access to the safety deposit box. Yet the management failed to notify McLoughlin of the incident
and waited for him to discover the taking before it disclosed the matter to him. Therefore, Tropicana should be held
responsible for the damage suffered by McLoughlin by reason of the negligence of its employees.
 296

The management should have guarded against the occurrence of this incident considering that Payam admitted in open
court that she assisted Tan three times in opening the safety deposit box of McLoughlin at around 6:30 A.M. to 7:30 A.M.
while the latter was still asleep.34 In light of the circumstances surrounding this case, it is undeniable that without the
acquiescence of the employees of Tropicana to the opening of the safety deposit box, the loss of McLoughlin's money
could and should have been avoided.

The management contends, however, that McLoughlin, by his act, made its employees believe that Tan was his spouse
for she was always with him most of the time. The evidence on record, however, is bereft of any showing that McLoughlin
introduced Tan to the management as his wife. Such an inference from the act of McLoughlin will not exculpate the
petitioners from liability in the absence of any showing that he made the management believe that Tan was his wife or
was duly authorized to have access to the safety deposit box. Mere close companionship and intimacy are not enough to
warrant such conclusion considering that what is involved in the instant case is the very safety of McLoughlin's deposit. If
only petitioners exercised due diligence in taking care of McLoughlin's safety deposit box, they should have confronted
him as to his relationship with Tan considering that the latter had been observed opening McLoughlin's safety deposit box
a number of times at the early hours of the morning. Tan's acts should have prompted the management to investigate her
relationship with McLoughlin. Then, petitioners would have exercised due diligence required of them. Failure to do so
warrants the conclusion that the management had been remiss in complying with the obligations imposed upon hotel-
keepers under the law.

Under Article 1170 of the New Civil Code, those who, in the performance of their obligations, are guilty of negligence, are
liable for damages. As to who shall bear the burden of paying damages, Article 2180, paragraph (4) of the same Code
provides that the owners and managers of an establishment or enterprise are likewise responsible for damages caused
by their employees in the service of the branches in which the latter are employed or on the occasion of their functions.
Also, this Court has ruled that if an employee is found negligent, it is presumed that the employer was negligent in
selecting and/or supervising him for it is hard for the victim to prove the negligence of such employer. 35 Thus, given the
fact that the loss of McLoughlin's money was consummated through the negligence of Tropicana's employees in allowing
Tan to open the safety deposit box without the guest's consent, both the assisting employees and YHT Realty Corporation
itself, as owner and operator of Tropicana, should be held solidarily liable pursuant to Article 2193. 36

The issue of whether the "Undertaking For The Use of Safety Deposit Box" executed by McLoughlin is tainted with nullity
presents a legal question appropriate for resolution in this petition. Notably, both the trial court and the appellate court
found the same to be null and void. We find no reason to reverse their common conclusion. Article 2003 is controlling,
thus:

Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for
the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the
former as set forth in Articles 1998 to 200137 is suppressed or diminished shall be void.

Article 2003 was incorporated in the New Civil Code as an expression of public policy precisely to apply to situations such
as that presented in this case. The hotel business like the common carrier's business is imbued with public interest.
Catering to the public, hotelkeepers are bound to provide not only lodging for hotel guests and security to their persons
and belongings. The twin duty constitutes the essence of the business. The law in turn does not allow such duty to the
public to be negated or diluted by any contrary stipulation in so-called "undertakings" that ordinarily appear in prepared
forms imposed by hotel keepers on guests for their signature.

In an early case,38 the Court of Appeals through its then Presiding Justice (later Associate Justice of the Court) Jose P.
Bengzon, ruled that to hold hotelkeepers or innkeeper liable for the effects of their guests, it is not necessary that they be
actually delivered to the innkeepers or their employees. It is enough that such effects are within the hotel or inn. 39 With
greater reason should the liability of the hotelkeeper be enforced when the missing items are taken without the guest's
knowledge and consent from a safety deposit box provided by the hotel itself, as in this case.

Paragraphs (2) and (4) of the "undertaking" manifestly contravene Article 2003 of the New Civil Code for they allow
Tropicana to be released from liability arising from any loss in the contents and/or use of the safety deposit box
for any cause whatsoever.40 Evidently, the undertaking was intended to bar any claim against Tropicana for any loss of
the contents of the safety deposit box whether or not negligence was incurred by Tropicana or its employees. The New
Civil Code is explicit that the responsibility of the hotel-keeper shall extend to loss of, or injury to, the personal property of
the guests even if caused by servants or employees of the keepers of hotels or inns as well as by strangers, except as it
may proceed from any force majeure.41 It is the loss through force majeure that may spare the hotel-keeper from liability.
 297

In the case at bar, there is no showing that the act of the thief or robber was done with the use of arms or through an
irresistible force to qualify the same as force majeure.42

Petitioners likewise anchor their defense on Article 200243 which exempts the hotel-keeper from liability if the loss is due to
the acts of his guest, his family, or visitors. Even a cursory reading of the provision would lead us to reject petitioners'
contention. The justification they raise would render nugatory the public interest sought to be protected by the provision.
What if the negligence of the employer or its employees facilitated the consummation of a crime committed by the
registered guest's relatives or visitor? Should the law exculpate the hotel from liability since the loss was due to the act of
the visitor of the registered guest of the hotel? Hence, this provision presupposes that the hotel-keeper is not guilty of
concurrent negligence or has not contributed in any degree to the occurrence of the loss. A depositary is not responsible
for the loss of goods by theft, unless his actionable negligence contributes to the loss. 44

In the case at bar, the responsibility of securing the safety deposit box was shared not only by the guest himself but also
by the management since two keys are necessary to open the safety deposit box. Without the assistance of hotel
employees, the loss would not have occurred. Thus, Tropicana was guilty of concurrent negligence in allowing Tan, who
was not the registered guest, to open the safety deposit box of McLoughlin, even assuming that the latter was also guilty
of negligence in allowing another person to use his key. To rule otherwise would result in undermining the safety of the
safety deposit boxes in hotels for the management will be given imprimatur to allow any person, under the pretense of
being a family member or a visitor of the guest, to have access to the safety deposit box without fear of any liability that
will attach thereafter in case such person turns out to be a complete stranger. This will allow the hotel to evade
responsibility for any liability incurred by its employees in conspiracy with the guest's relatives and visitors.

Petitioners contend that McLoughlin's case was mounted on the theory of contract, but the trial court and the appellate
court upheld the grant of the claims of the latter on the basis of tort.45 There is nothing anomalous in how the lower courts
decided the controversy for this Court has pronounced a jurisprudential rule that tort liability can exist even if there are
already contractual relations. The act that breaks the contract may also be tort. 46

As to damages awarded to McLoughlin, we see no reason to modify the amounts awarded by the appellate court for the
same were based on facts and law. It is within the province of lower courts to settle factual issues such as the proper
amount of damages awarded and such finding is binding upon this Court especially if sufficiently proven by evidence and
not unconscionable or excessive. Thus, the appellate court correctly awarded McLoughlin Two Thousand US Dollars
(US$2,000.00) and Four Thousand Five Hundred Australian dollars (AUS$4,500.00) or their peso equivalent at the time of
payment,47 being the amounts duly proven by evidence.48 The alleged loss that took place prior to 16 April 1988 was not
considered since the amounts alleged to have been taken were not sufficiently established by evidence. The appellate
court also correctly awarded the sum of 308,880.80, representing the peso value for the air fares from Sydney to Manila
and back for a total of eleven (11) trips;49 one-half of 336,207.05 or 168,103.52 representing payment to
Tropicana;50 one-half of 152,683.57 or 76,341.785 representing payment to Echelon Tower; 51 one-half of 179,863.20
or 89,931.60 for the taxi or transportation expenses from McLoughlin's residence to Sydney Airport and from MIA to the
hotel here in Manila, for the eleven (11) trips;52 one-half of 7,801.94 or 3,900.97 representing Meralco power
expenses;53 one-half of 356,400.00 or 178,000.00 representing expenses for food and maintenance. 54

The amount of 50,000.00 for moral damages is reasonable. Although trial courts are given discretion to determine the
amount of moral damages, the appellate court may modify or change the amount awarded when it is palpably and
scandalously excessive.l^vvphi1.net Moral damages are not intended to enrich a complainant at the expense of a
defendant.l^vvphi1.net They are awarded only to enable the injured party to obtain means, diversion or amusements that
will serve to alleviate the moral suffering he has undergone, by reason of defendants' culpable action. 55

The awards of 10,000.00 as exemplary damages and 200,000.00 representing attorney's fees are likewise sustained.

WHEREFORE, foregoing premises considered, the Decision of the Court of Appeals dated 19 October 1995 is hereby
AFFIRMED. Petitioners are directed, jointly and severally, to pay private respondent the following amounts:

(1) US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of payment;

(2) 308,880.80, representing the peso value for the air fares from Sydney to Manila and back for a total of
eleven (11) trips;

(3) One-half of 336,207.05 or 168,103.52 representing payment to Tropicana Copacabana Apartment Hotel;
 298

(4) One-half of 152,683.57 or 76,341.785 representing payment to Echelon Tower;

(5) One-half of 179,863.20 or 89,931.60 for the taxi or transportation expense from McLoughlin's residence to
Sydney Airport and from MIA to the hotel here in Manila, for the eleven (11) trips;

(6) One-half of 7,801.94 or 3,900.97 representing Meralco power expenses;

(7) One-half of 356,400.00 or 178,200.00 representing expenses for food and maintenance;

(8) 50,000.00 for moral damages;

(9) 10,000.00 as exemplary damages; and

(10) 200,000 representing attorney's fees.

With costs. SO ORDERED.

G.R. No. 133317 June 29, 1999

ANTONIO R. AGRA, CAYETANO FERRERIA, NAPOLEON M. GAMO and VICENTE O. NOVALES, petitioners,
vs.
PHILIPPINE NATIONAL BANK, respondent.

PANGANIBAN, J.:

Laches is a recourse in equity. Equity, however, is applied only in the absence, never in contravention, of statutory law.
Thus, laches cannot, as a rule, abate a collection suit filed within the prescriptive period mandated by the Civil Code.

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the November 26, 1997
Decision of the Court of Appeals,1 which disposed as follows:

IN VIEW OF THE FOREGOING, the decision of the lower court is hereby AFFIRMED, with the
modification that the award of attorney's fees is hereby DELETED and the twelve percent (12%) interest
on the P2,500,000.00 the defendant-appellants are to pay PNB should start from August 30, 1976, the
date when the complaint was filed.2

The decreral portion of the aforementioned trial court ruling reads:

WHEREFORE, in view of the foregoing, in the interest of justice, judgment is rendered in favor of the
plaintiff ordering all the sureties jointly and severally, to pay PNB as follows:

a) the amount of P2,500,000.00 plus twelve per centum (12%) accrued

interest from August 1, 1976;

b) ten percent (10%) of the total amount due as attorney's fees and cost
of the suit.

SO ORDERED.

Also assailed by petitioners is the April 2, 1998 Resolution of the Court of Appeals, which denied their Motion for
Reconsideration.3
 299

The Facts

The facts are summarized by the Court of Appeals (CA) in this wise: 4

On August 30, 1976, an action for collection of a sum of money was filed by the Philippine National Bank
(PNB, for brevity) against Fil-Eastern Wood Industries, Inc. (Fil-Eastern, for short) in its capacity as
principal debtor and against Cayetano Ferreria, Pedro Atienza, Vicente O. Novales, Antonio R. Agra, and
Napoleon M. Gamo in their capacity as sureties.

In its complaint, plaintiff PNB alleged that on July 17, 1967 Fil-Eastern was granted a loan in the amount
of [t]wo [m]illion [f]ive [h]undred [t]housand [p]esos (P2,500,000.00) with interest at twelve percent
(12%) per annum. Drawings from said demand loan were made on different dates as evidenced by
several promissory notes and were credited to the account of Fil-Eastern. To secure the payment of the
said loan Fil-Eastern as principal and sureties Ferreria, Atienza, Novales, Agra, and Gamo executed a
Surety Agreement whereby the sureties, jointly and severally with the principal, guaranteed and
warranted to PNB, its successors or assigns, prompt payment of subject obligation including notes, drafts,
bills of exchange, overdrafts and other obligations of every kind, on which Fil-Eastern was indebted or
may thereafter become indebted to PNB. It was further alleged that as of May 31, 1976 the total
indebtedness of Fil-Eastern and its sureties on subject loan amounted to [f]ive [m]illion [t]wo [h]undred
[n]inety-[s]even [t]housand, [n]ine [h]undred [s]eventy-[s]ix [p]esos and [s]eventeen [c]entavos
(P5,297,976.17), excluding attorney's fees. Notwithstanding repeated demands, the defendants refused
and failed to pay their loans.

The defendants (herein sureties) filed separate answers (pp. 49, 68, 205, 208 and 231). Collating these,
We drew the following: All of them claimed that they only signed the Surety Agreement with the
understanding that the same was a mere formality required of the officers of the corporation. They did not
in any way or manner receive a single cent from the proceeds of said loan and/or derive any profit
therefrom. Neither did they receive any consideration valuable or otherwise, from defendant Fil-Eastern.
They further claim that the loan in question was negotiated and approved under highly irregular,
anomalous and suspicious circumstances to the point that the Surety Agreement executed thereafter is
invalid, null and void and from the beginning due to a defect in the consent of the defendants and that
their liabilities under the Surety Agreement, if any, has been extinguished by novation. The cause of
action of the complainant is barred by laches and estoppel in that the plaintiff with full knowledge of the
deteriorating financial condition of Fil-Eastern did not take steps to collect from said defendant corporation
while still solvent. They also maintained that if anyone is liable for the payment of said loan, it is Felipe
Ysmael, Jr. and not them or it is only Fil-Eastern and the controlling officers who profited and made use of
the proceeds of the loan. Defendant Agra likewise said that he was made to sign the Surety Agreement
and he did it because of the moral influence and pressure exerted upon him by Felipe Ysmael, Jr. (their
employer at the time of signing), thereby arousing strong fears of losing a much needed employment to
support his family should he refuse to sign as Surety.

In the order of the trial court dated October 30, 1978, defendant Fil-Eastern was declared in default for its
failure to answer the complaint within the reglementary period and the case was scheduled for pre-trial
conference. The individual defendants with the court's approval thereafter filed an amended third-party
complaint against Felipe Ysmael, Jr.

The amended third-party complaint alleged that at the time of execution of the alleged Surety Agreement
subject matter of the principal complaint, third-party plaintiffs were but employees of Ysmael Steel
Manufacturing Co., owned by third-party-defendant. Third party plaintiffs were in no financial position to
act as sureties to a P2.5 million loan. They became incorporators of original defendant Fil-Eastern
because of fear of losing their employment brought about by the tremendous pressure and moral
influence exerted upon them by their employer-third-party-defendant. They signed the Surety Agreement
upon the order of the third-party-defendant. In signing the said document, the third-party-plaintiffs were
assured by the third-party-defendant that they had nothing to fear and worry about because the latter will
assume all liabilities as well as profits therefrom and that the loan subject of the Surety Agreement was
with the prior approval and blessing of a high government official. They were likewise assured that the
surety agreement was but a formality and that because of such pressure, influence as well as
assurances, third-party-plaintiffs signed the Surety Agreement.
 300

Third-party-defendant Felipe Ysmael, Jr. in his answer alleged that the Surety Agreement was freely and
voluntarily signed and executed by third-party-plaintiffs without any intimidation, undue, improper or
fraudulent representations. Further, granting arguendo that the consent of third-party plaintiffs in signing
said Surety Agreement was vitiated with intimidation, undue influence or fraudulent representation on the
part of third-party-defendant, said Surety Agreement is only voidable and therefore binding unless
annulled by a proper action in court. The third-party-plaintiffs did not file the proper court action for the
annulment of said agreement. They are now barred from filing an action for annulment of said agreement,
the prescriptive period therefor being only four (4) years from the time the defect of the consent had
ceased, and from the discovery of the all[e]ged fraud. In addition, third-party plaintiffs had ratified said
agreement which they signed in July 1967 by signing their names on and execution of several promissory
thereafter.

At the pre-trial conference held on March 21, 1980, the parties failed to agree on a possible amicable
settlement hence the case was set for trial on the merits. On July 5, 1984, during the pendency of the
trial, third-party defendant Felipe Ysmael, Jr. died. He was substituted by his legal heirs Patrick Ysmael
and Jeanne Ysmael as third-party defendants. Defendant Pedro Atienza died on January 4, 1987. It
appearing that he has no legal heirs, the case against him dismissed.

After trial, the regional trial court (RTC) ruled against herein petitioners. On appeal, the CA modified the RTC ruling by
deleting the award of attorney's fees. Hence, this recourse to this Court.

Ruling of the Court of Appeals

In ruling that petitioners were liable under the surety agreement, the Court of Appeals rejected their defense of laches. It
held that "the lapse of seven years and eight months from December 31, 1968 until the judicial demand on August 30,
1976 cannot be considered as unreasonable delay which would necessitate the application of laches. The action filed by
the plaintiff has not yet prescribed. It is well within the ten-year prescriptive period provided for by law wherein actions
based on written contracts can be instituted."5

The Court of Appeals also noted that the "prescriptive period did not begin to run from December 31, 1968 as [herein
petitioners] presupposed. It was only from the time of the judicial demand on August 30, 1976 that the cause of action
accrued. Thus, [private respondent] was well within the prescriptive period of ten years when it instituted the case in
court." The Court of Appeals further ruled that "placing the blame on [PNB] for its failure to immediately pounce upon its
debtors the moment the loan matured is grossly unfair for . . . demand upon the sureties to pay is not necessary."

The appellate court also held that petitioners proved only the first of the following four essential elements of laches: "(1)
conduct on the part of the defendant, or one under whom he claims, giving rise to the situation of which complaint in made
and for which the complainant seeks a remedy; (2) delay in asserting the complainant's rights, the complainant having had
knowledge or notice of the defendant's conduct and having been afforded an opportunity to institute a suit, (3) lack of
knowledge or notice on the part of the defendant that the complainant would assert the right on which he bares his suit;
and (4) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held
barred."

Issues

In their Memorandum, petitioners raise the following issues:6

1. WHETHER OR NOT THE CLAIM OF THE PNB AGAINST THE PETITIONERS IS ALREADY BARRED
BY THE EQUITABLE DEFENSE OF LACHES?

2. WHETHER OR NOT THE RESPECTIVE CONJUGAL PARTNERSHIPS OF THE PETITIONERS

COULD BE HELD LIABLE FOR ANY LIABILITY OF THE PETITIONERS UNDER THE SURETY
AGREEMENT IN FAVOR OF THE PNB?

Under the first issue, petitioners submit four other questions:

 301

1-a WHETHER OR NOT THE EQUITABLE DEFENSE OF LACHES APPLIES INDEPENDENTLY OF

PRESCRIPTION?

1-b WHETHER OR NOT THE CAUSE OF ACTION OF THE PNB AGAINST THE PETITIONERS
ACCRUED ONLY FROM THE TIME OF THE JUDICIAL DEMAND ON AUGUST 30, 1976?

1-c WHETHER OR NOT THE FOUR (4) WELL-SETTLED ELEMENTS OF LACHES ARE PRESENT IN
THIS CASE?

1-d WHETHER OR NOT THE RULING IN THE CASE OF PHILIPPINE NATIONAL BANK VS. COURT
OF APPEALS, 217 SCRA 347, IS APPLICABLE IN THIS INSTANT CASE?

In the main, the issue is whether petitioners may raise the defense of laches in order to avoid their liability under the
surety agreement. Preliminarily, we shall also take up the question of petitioners' liability as sureties.

The Court's Ruling

The appeal is not meritorious.

Preliminary Matter:

Liability of Petitioners as Sureties

The present controversy began when the Philippine National Bank (PNB) sought to enforce the Surety Agreement. The
pertinent provisions of said Agreement are as follows:

WHEREAS, FIL-EASTERN WOOD INDUSTRIES, INC. herein referred to as the Principal, has obtained
and/or desires to obtain certain credits, loans, overdrafts, discounts, etc., from the Creditor, for all of
which the Creditor requires security; and the Surety, on account of valuable consideration received from
the Principal, has agreed and undertake to assist the principal by becoming such Surety.

NOW THEREFORE, for the purpose above mentioned, the Surety, jointly and severally with the Principal,
hereby guarantees and warrants to the Creditor, its successors or assigns, the prompt payment at
maturity of all the notes, drafts, bills of exchange, overdrafts and other obligations of every kind, on which
the Principal may now be indebted or may hereafter become indebted to the Creditor, but the liability of
the Surety shall not at any time exceed the sum of TWO MILLION FIVE HUNDRED THOUSAND ONLY
(P2,500.00.00), Philippine Currency, plus the interest thereon at the rate of (%)per cent annum, and the
cost and expenses of the Creditor incurred in connection with the granting of the credits, loans,
overdrafts, etc., covered by this surety agreement, including those for the custody, maintenance and
preservation of the securities given therefor and also for the collection thereof.

Both the Principal and the Surety shall be considered in default when they fail to pay the obligation upon
maturity with or without demand and in such case the Surety agrees to pay to the creditor, its [successor]
or assigns, all outstanding obligations of the Principal, whether due or not due and whether held by the
Creditor as principal or agent, and it is agreed that a certified statement by the Creditor as to the amount
due from the Principal shall be accepted as correct by the Surety without question.

The Surety expressly waives all rights to demand for payment and notice of non-payment and protest,
and agrees that the securities of every kind, that are now and may hereafter be left with the Creditor, its
successors, indorsees or assigns, as collateral to any evidence of debt or obligations or upon which a lien
may exist thereon may be withdrawn or surrendered at any time, and the time of payment thereof
extended, without notice to, or consent by the Surety; and that the liability on this guaranty shall be
solidary, direct and immediate and not contingent upon the pursuit by the Creditor, its successors,
indorsees or assigns, of whatever remedies it or they have against the Principal or the securities or liens it
or they may possess and the Surety will at any time, whether due or not due, pay to the Creditor with or
without demand upon the Principal, any obligation or indebtedness of the Principal not in excess of the
amount abovementioned.
 302

This instrument is intended to be a complete and perfect indemnity to the Creditor to the extent above
stated, for any indebtedness or liability of any kind owing by the Principal to the Creditor from time to time,
and to be valid and continuous without further notice to the Surety, and may be revoked by the Surety at
any time, but only after forty-eight hours notice in writing to the Creditor, and such revocation shall not
operate to relieve the Surety from responsibility for obligations incurred by the Principal prior to the
termination of such period. (Emphasis supplied.)

It must be stressed that petitioners, as sureties, bound themselves solidarily for the obligation of Fil-Eastern to PNB.
Petitioners admit that they signed the Surety Agreement, but they challenge their liability thereon on the ground that they
were allegedly coerced by their employer into signing the deed. The argument is too late at best.

As pointed out by the Court of Appeals, petitioners failed to challenge their consent to the Agreement within the
prescriptive period. Article 1391 of the Civil Code provides that the action to annul a contract vitiated by intimidation,
violence or undue influence shall be filed within four years from the cessation of such defects. In this case, Petitioners
Agra, Gamo and Novales resigned from Fil-Eastern in 1967, 1968 and 1969, respectively. It was only in 1976, when PNB
sought to enforce the contract, that they alleged a defect in their consent. By their inaction, their alleged cause of action
based on vitiated consent had precribed. There was no question that petitioners, in their capacity as sureties, were
answerable for the obligations of Fil-Eastern to PNB.

We shall now go to the main issue of this case: Whether petitioners may invoke the defense of laches, considering that
PNB's claim had not yet prescribed.

Main Issue: Laches

Petitioners admit that PNB's claim, though filed more than seven years from the maturity of the obligation, fell within the
ten-year prescriptive period. They argue, however, that the cause was already barred by laches, which is defined as "the
failure or neglect for an unreasonable or unexplained length of time to do that which by exercising due diligence, could or
should have been done earlier warranting a presumption that he has abandoned his right or declined to assert it." 7 In
arguing that the appellate court erred in rejecting the defense of laches, petitioners cite four reasons: (1) the defense of
laches applies independently of prescription; (2) the cause of action against petitioners accrued from the maturity of the
obligation, not from the time of judicial demand; (3) the four well-settled elements of laches were duly proven; and (4) PNB
v. CA applies in the instant case. As will be shown below, all these arguments are devoid of merit.

Application of Laches

Assailing the CA ruling that laches was inapplicable because the claim was brought within the ten-year prescriptive
period, petitioners stress that the defense of laches differs from and is applied independently of prescription. In support,
they cite, among others, Nielson & Co., Inc. v. Lepanto Consolidated Mining Co.,8 in which the Supreme Court ruled:

[T]he defense of laches applies independently of prescription. Laches is different from the statute of
limitations. Prescription is concerned with the fact of delay, whereas laches is concerned with the effect of
delay. Prescription is a matter of time; laches is principally a question of inequity of permitting a claim to
be enforced, this inequity being founded on some change in the condition of the property or the relation of
the parties. Prescription is statutory; laches is not. Laches applies in equity; whereas prescription applies
at law. Prescription is based on fixed time, laches is not.

True, prescription is different from laches, but petitioners' reliance on Nielson is misplaced. As held in the aforecited case,
laches is principally a question of equity. Necessarily, "there is no absolute rule as to what constitutes laches or staleness
of demand; each case is to be determined according to its particular circumstances. The question of laches is addressed
to the sound discretion of the court and since laches is an equitable doctrine, its application is controlled by equitable
considerations."9 Petitioners, however, failed to show that the collection suit against herein sureties was inequitable.
Remedies in equity address only situations tainted with inequity, not those expressly governed by statutes. Indeed, the
petitioners failed to prove the presence of all the four established requisites of laches, viz:

(1) conduct on the part of the defendant or one under whom he claims, giving rise to the situation of which
complaint is made and for which the complainant seeks a remedy;
 303

(2) delay in asserting the complainant's right, the complainant having had knowledge or notice of
defendant's conduct and having been afforded an opportunity to institute a suit;

(3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on
which he bases his claim; and

(4) injury or prejudice to the defendant in the event relief accorded to the complainant, or the suit is not
held barred.10

That the first element exists is undisputed. Neither Fil-Eastern nor the sureties, herein petitioners, paid the obligation
under the Surety Agreement.

The second element cannot be deemed to exist. Although the collection suit was filed more than seven years after the
obligation of the sureties became due, the lapse was within the prescriptive period for filing an action. In this light, we find
immaterial petitioners' insistence that the cause of action accrued on December 31, 1968, when the obligation became
due, and not on August 30, 1976, when the judicial demand was made. In either case, both submissions fell within the
ten-year prescriptive period. In any event, "the fact of delay, standing alone, is insufficient to constitute laches."11

Petitioners insist that the delay of seven years was unreasonable and unexplained, because demand was not necessary.
Again we point that, unless reasons of inequitable proportions are adduced, a delay within the prescriptive period is
sanctioned by law and is not considered to be a delay that would bar relief. In Chavez v. Bonto-Perez,12 the Court
reiterated an earlier holding, viz:

Laches is a doctrine in equity while prescription is based on law. Our courts are basically courts of law
and not courts of equity. Thus, laches cannot be invoked to resist the enforcement of an existing legal
right. We have ruled in Arsenal v. Intermediate Appellate Court . . . that it is a long standing principle that
equity follows the law. Courts exercising equity jurisdiction are bound by rules of law and have no
arbitrary discretion to disregard them. In Zabat, Jr. v. Court of Appeals . . ., this Court was more emphatic
in upholding the rules of procedure. We said therein:

As for equity, which has been aptly described as "justice outside legality," this is applied
only in the absence of, and never against, statutory law or, as in this case, judicial rules
of procedure. Aequetas nunquam contravenit legis. This pertinent positive rules being
present here, they should preempt and prevail over all abstract arguments based only on
equity.

Thus, where the claim was filed within the three-year statutory period, recovery therefore cannot be
barred by laches.

Petitioners also failed to prove the third element of laches. It is absurd to maintain that petitioners did not know that PNB
would assert its right under the Surety Agreement. It is unnatural, if not unheard of, for banks to condone debts without
adequate recompense in some other form. Petitioners have not given us reason why they assumed that PNB would not
enforce the Agreement against them.

Finally, petitioners maintain that the fourth element is present because they would suffer damage or injury as a result of
PNB's claim. This is the crux of the controversy. In addition to the payment of the amount stipulated in the Agreement,
other equitable grounds were enumerated by petitioners, viz:

1. Petitioners acted as sureties under pressure from Felipe "Baby" Ysmael, Jr., the headman of the
Ysmael Group of Companies where the petitioners were all employed in various executive positions.

2. Petitioners did not receive a single centavo in consideration of their acting as sureties.

3. The surety agreement was not really a requisite for the grant of the loan to FIL-EASTERN because the
first release on the loan was made on July 17, 1967, or even before the Surety Agreement was executed
by petitioners on July 21, 1967.
 304

4. Petitioners were assured that the Surety Agreement was merely a formality, and they had reason to
believe that assurance because the loan was principally secured by an assignment of 15% of the
proceeds of the sale of logs of FIL-EASTERN to Iwai & Co., Ltd., and such assignment was clearly stated
in PNB Board Resolution No. 407. In fact, while it was expressly stated in all of the eight (8) promissory
notes covering the releases of the loan that the said loan was secured by 15% of the contract of sale with
Iwai & Co., Ltd., only three (3) promissory notes stated that the loan was also secured by the "joint and
several signatures of the officers of the corporation". It is to be noted that no mention was even made of
the joint and several signatures of petitioners as sureties. In other words, the principal security was the
assignment of 15% of the contract for the sale of logs to Iwai & Co., Ltd.

5. For reasons not explained by PNB, PNB did not collect the 15% of the proceeds of the sale of the logs
to Iwai & Co., Ltd., and such failure resulted in the non-collection of the P2,500,000.00 demand loan, or at
least a portion of it.

6. For reasons likewise unexplained by PNB, PNB did not make any demand upon petitioners to pay the
unpaid loan of FIL-EASTERN until after FIL-EASTERN had become bankrupt, and PNB was aware of this
fact because it foreclosed the chattel mortgages on the other loans of FIL-EASTERN which were secured
by said chattel mortgages.13 (Emphasis found in the original.)

These circumstances do not justify the application of laches. Rather, they disclose petitioners' failure to understand the
language and the nature of the Surety Arrangement. They cannot now argue that the Surety Agreement was merely a
formality, secondary to the assignment of 15 percent of the proceeds of the sale of Fil-Eastern's logs to Iwai and Co., Ltd.
Neither can they rely on PNB's failure to collect the assigned share in the sale of the logs or to make a demand on
petitioners until after Fil-Eastern had become bankrupt. The Court stresses that the obligation of a surety is direct, primary
and absolute. Thus, the Court has held:

[A]lthough the contract of a surety is in essence secondary only to a valid principal obligation, his liability
to the creditor or promisee of the principal is said to be direct, primary, and absolute; in other words, he is
directly and equally bound with the principal. The surety therefore becomes liable for the debt or duty of
another although he possesses no direct or personal interest over the obligations nor does he receive any
benefit therefrom.14

When petitioners signed as sureties, they expressly and unequivocally agreed to the stipulation that "the liability on this
guaranty shall be solidary, direct and immediate and not contingent upon the pursuit by the creditor, its successors,
indorsees or assigns, of whatever remedies it or they have against the principal or the securities or liens it or they may
possess."

If they had mistaken the import of the Surety Agreement, they could have easily asked for its revocation. The Agreement
stipulates that it "may be revoked by the Surety at any time, but only after forty-eight hours notice in writing to the Creditor,
and such revocation shall not operate to relieve the Surety from responsibility for obligations incurred by the Principal prior
to the terrmnation of such period." This they did not do.

Equally unavailing is petitioners' allegation that the Surety Agreement was not a requisite for the grant of the loan. Even if
their assertion is true, the fact remains that they signed the contract and voluntarily bound themselves to be solidarily
liable for the loan amounting to P2,500,000.

The other "equitable" circumstances above enumerated fail to support petitioners' cause. As earlier stated, petitioners are
already barred from questioning the voluntariness of their consent. Furthermore, this Court has categorically ruled that a
surety is liable for the debt of another, although he or she received no benefit therefrom. 15

Clearly, aside from the fact that the collection suit was filed only after the lapse of seven years from the date the obligation
became due and demandable, petitioners failed to adduce any showing of inequity. Hence, the rules on equity cannot
protect them.

Applicability of PNB v. CA
 305

Petitioners allege that the CA committed grave error in failing to apply PNB v. Court of Appeals,16 which they insist to be
analogous to the present case. The facts in said case are as follows:

Private Respondent B.P. Mata & Co. Inc. (Mata), is a private corporation engaged in providing goods and
services to shipping companies. Since 1966, it has acted as a manning or crewing agent for several
foreign firms, one of which is Star Kist foods, Inc., USA (Star Kist). As part of their agreement, Mata
makes advances for the crew's basic personal needs. Subsequently, Mata sends monthly billings to its
foreign principal Star Kist, which in turn reimburses Mata by sending a telegraphic transfer through banks
for credit to the latter's account.

Against this background, on February 21, 1975, Security Pacific National Bank (SEPAC) of Los Angeles
which had an agency arrangement with Philippine National Bank (PNB), transmitted a cable message to
the International Department of PNB to pay the amount of US$14,000 to Mata by crediting the latter's
account with the Insular Bank of Asia and America (IBAA), per order of Star Kist. Upon receipt of this
cabled message on February 24, 1975, PNB's International Department noticed an error and sent a
service message to SEPAC Bank. The latter replied with the instructions that the amount of US$14,000
should only be for US$1,400.

On the basis of the cable message dated February 24, 1975, Cashier's Check No. 269522 in the amount
of US$1,400 (P9,772.96) representing reimbursement from Star Kist, was issued by the Star Kist for the
account of Mata on February 25, 1975 through the Insular Bank of Asia and America (IBAA).

However, fourteen days after or on March 11, 1975, PNB effected another payment through Cashier's
Check No. 270271 in the amount of US$14,000 (P97,878.60) purporting to be another transmittal of
reimbursement from Star Kist, private respondent's foreign principal.

Six years later, or more specifically, on May 13, 1981, PNB requested Mata for refund of US$14,000
(P97,878.60) after it discovered its error in effecting the second payment.

On February 4, 1982, PNB filed a civil case for collection and refund of US$14,000 against Mata arguing
that based on a constructive trust under Article 1456 of the Civil Code, it has a right to recover the said
amount it erroneously credited to respondent Mata.17

On the ground of laches, the Court decided against the claim of PNB, stating that:

[i]t is amazing that it took petitioner almost seven years before it discovered that it had erroneously paid
private respondent. Petitioner would attribute its mistake to the heavy volume of international transactions
handled by the Cable and Remittance Division of the International Department of PNB. Such specious
reasoning is not persuasive. It is unbelievable for a bank, and a government bank at that, which regularly
publishes its balanced financial statements annually or more frequently, by the quarter, to notice its error
only seven years later. As a universal bank with worldwide operations, PNB cannot afford to commit such
costly mistakes. Moreover, as between parties where negligence is imputable to one and not to the other,
the former must perforce bear the consequences of its neglect. Hence, petitioner should bear the cost of
its own negligence.

Petitioners maintain that the delay in PNB v. CA was even shorter than that in the present case. If the bank in the
aforesaid case was negligent in not discovering the overpayment, herein petitioners assert that the negligence was even
more culpable in the present case. They add that, given the standard practice of banks to flag delinquent accounts, the
inaction for almost seven years of herein respondent bank was gross and inexcusable.

We are not persuaded. There are no absolute rules in the application of equity, and each case must be examined in the
light of its peculiar facts. In PNB v. CA, there was a mistake, an inexcusable one, on the part of petitioner bank in making
an overpayment and repeating the same error fourteen days later. If the bank could not immediately discover the mistake
despite all its agents and employees, the beneficiary of the amount could not be expected to do so. It is, thus, inequitable
to allow PNB to collect the amount, after such a long delay, from the beneficiary who had assumed, after all those years,
that the amount really belonged to it.
 306

In the present case, there is no showing of any mistake or any inequity. The fact alone that seven years had lapsed before
PNB filed the collection suit does not mean that it discovered the obligation of the sureties only then. There was a Surety
Arrangement, and the law says that the said contract can be enforced by action within ten years. The bank and the
sureties all knew that the action to enforce the contract did not have to be filed immediately. In other words, the bank
committed no mistake or inequitable conduct that needed correction, and the sureties had no misconception about their
liabilities under the contract.

Clearly, petitioners have no recourse in equity, because they failed to show any inequity on the part of PNB.

Additional Issue:

Liability of Conjugal Assets

In their Memorandum, petitioners belatedly ask the Court to rule that, in case of a court ruling adverse to them, the
conjugal properties would not be liable for the husbands' debts that did not redound to the benefit of the conjugal
partnership.8

This issue cannot be allowed, for it is being raised for the first time only in petitioners' Memorandum. Issues, arguments,
theories and causes of action not raised below may no longer be posed on appeal. 19 Furthermore, petitioners are asking
the Court to issue a ruling on a hypothetical situation. In effect, they are asking the Court to render an advisory opinion, a
task which is beyond its constitutional mandate.

WHEREFORE, the petition is hereby DENIED and the assailed Decision of the Court of Appeals is AFFIRMED. Costs
against petitioners.1wphi1.nt

SO ORDERED.

G.R. No. 151060. August 31, 2005

JN DEVELOPMENT CORPORATION, and SPS. RODRIGO and LEONOR STA. ANA, Petitioners,
vs.
PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION, respondent.

G.R. No. 151311. August 31, 2005

NARCISO V. CRUZ, Petitioners,

vs.
PHILIPPINE EXPORT and FOREIGN LOAN GUARANTEE CORPORATION, Respondent.

DECISION

TINGA, J.:

Before us are consolidated petitions questioning the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 61318,
entitled Philippine Export and Foreign Loan Guarantee Corporation v. JN Development Corporation, et al., which reversed
the Decision of the Regional Trial Court (RTC) of Makati, Branch 60.
 307

On 13 December 1979, petitioner JN Development Corporation ("JN") and Traders Royal Bank (TRB) entered into an
agreement whereby TRB would extend to JN an Export Packing Credit Line for Two Million Pesos (2,000,000.00). The
loan was covered by several securities, including a real estate mortgage 2 and a letter of guarantee from respondent
Philippine Export and Foreign Loan Guarantee Corporation ("PhilGuarantee"), now Trade and Investment Development
Corporation of the Philippines, covering seventy percent (70%) of the credit line. 3 With PhilGuarantee issuing a guarantee
in favor of TRB,4 JN, petitioner spouses Rodrigo and Leonor Sta. Ana5and petitioner Narciso Cruz6 executed a Deed of
Undertaking7 (Undertaking) to assure repayment to PhilGuarantee.

It appears that JN failed to pay the loan to TRB upon its maturity; thus, on 8 October 1980 TRB requested PhilGuarantee
to make good its guarantee.8 PhilGuarantee informed JN about the call made by TRB, and inquired about the action of JN
to settle the loan.9 Having received no response from JN, on 10 March 1981 PhilGuarantee paid TRB Nine Hundred Thirty
Four Thousand Eight Hundred Twenty Four Pesos and Thirty Four Centavos (934,824.34). 10 Subsequently,
PhilGuarantee made several demands on JN, but the latter failed to pay. On 30 May 1983, JN, through Rodrigo Sta. Ana,
proposed to settle the obligation "by way of development and sale" of the mortgaged property. 11 PhilGuarantee, however,
rejected the proposal.

PhilGuarantee thus filed a Complaint12 for collection of money and damages against herein petitioners.

In its Decision dated 20 August 1998, the RTC dismissed PhilGuarantees Complaint as well as the counterclaim of
petitioners. It ruled that petitioners are not liable to reimburse PhilGuarantee what it had paid to TRB. Crucial to this
holding was the courts finding that TRB was able to foreclose the real estate mortgage executed by JN, thus
extinguishing petitioners obligation.13 Moreover, there was no showing that after the said foreclosure, TRB had demanded
from JN any deficiency or the payment of the difference between the proceeds of the foreclosure sale and the actual
loan.14 In addition, the RTC held that since PhilGuarantees guarantee was good for only one year from 17 December
1979, or until 17 December 1980, and since it was not renewed after the expiry of said period, PhilGuarantee had no
more legal duty to pay TRB on 10 March 1981.15 The RTC likewise ruled that Cruz cannot be held liable under the
Undertaking since he was not the one who signed the document, in line with its finding that his signature found in the
records is totally different from the signature on the Undertaking. 16

According to the RTC, the failure of TRB to sue JN for the recovery of the loan precludes PhilGuarantee from seeking
recoupment from the spouses Sta. Ana and Cruz what it paid to TRB. Thus, PhilGuarantees payment to TRB amounts to
a waiver of its right under Art. 2058 of the Civil Code.17

Aggrieved by the RTC Decision, PhilGuarantee appealed to the CA. The appellate court reversed the RTC and ordered
petitioners to pay PhilGuarantee Nine Hundred Thirty Four Thousand Six Hundred Twenty Four Pesos and Thirty Four
Centavos (934,624.34), plus service charge and interest.18

In reaching its denouement, the CA held that the RTCs finding that the loan was extinguished by virtue of the foreclosure
sale of the mortgaged property had no factual support, 19 and that such finding is negated by Rodrigo Sta. Anas testimony
that JN did not receive any notice of foreclosure from PhilGuarantee or from TRB. 20 Moreover, Sta. Ana even offered the
same mortgaged property to PhilGuarantee to settle its obligations with the latter. 21

The CA also ruled that JNs obligation had become due and demandable within the one-year period of effectivity of the
guarantee; thus, PhilGuarantees payment to TRB conformed with its guarantee, although the payment itself was effected
one year after the maturity date of the loan.22 Contrary to the trial courts finding, the CA ruled that the contract of
guarantee was not extinguished by the alleged lack of evidence on PhilGuarantees consent to the extensions granted by
TRB to JN.23 Interpreting Art. 2058 of the Civil Code,24 the appellate court explained that while the provision states that the
guarantor cannot be compelled to pay unless the properties of the debtor are exhausted, the guarantor is not precluded
from waiving the benefit of excussion and paying the obligation altogether.25

Finally, the CA found that Narciso Cruz was unable to prove the alleged forgery of his signature in the Undertaking, the
evidence presented not being sufficient to overcome the presumption of regularity of the Undertaking which is a notarized
document. 26

Petitioners sought reconsideration of the Decision and prayed for the admission of documents evidencing the foreclosure
of the real estate mortgage, but the motion for reconsideration was denied by the CA for lack of merit. The CA ruled that
the documentary evidence presented by petitioners cannot be considered as newly discovered evidence, it being already
 308

in existence while the case was pending before the trial court, the very forum before which it should have been presented.
Besides, a foreclosure sale per se is not proof of petitioners payment of the loan to PhilGuarantee, the CA added.27

So now before the Court are the separate petitions for review of the CA Decision. JN and the spouses Sta. Ana,
petitioners in G.R. No. 151060, posit that the CA erred in interpreting Articles 2079, 2058, and 2059 of the Civil Code in
its Decision.28 Meanwhile, petitioner Narciso Cruz in G.R. No. 151311 claims that the CA erred when it held that
petitioners are liable to PhilGuarantee despite its payment after the expiration of its contract of guarantee and the lack of
PhilGuarantees consent to the extensions granted by TRB to JN. Moreover, Cruz questions the reversal of the ruling of
the trial court anent his liability as a signatory to the Undertaking. 29

On the other hand, PhilGuarantee maintains that the date of default, not the actual date of payment, determines the
liability of the guarantor and that having paid TRB when the loan became due, it should be indemnified by petitioners. 30 It
argues that, contrary to petitioners claim, there could be no waiver of its right to excussion more explicit than its act of
payment to TRB very directly.31 Besides, the right to excussion is for the benefit of the guarantor and is not a defense for
the debtor to raise and use to evade liability.32 Finally, PhilGuarantee maintains that there is no sufficient evidence proving
the alleged forgery of Cruzs signature on the Undertaking, which is a notarized document and as such must be accorded
the presumption of regularity.33

The Court finds for PhilGuarantee.

Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in
case the latter should fail to do so.34 The guarantor who pays for a debtor, in turn, must be indemnified by the
latter.35 However, the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of
the debtor and resorted to all the legal remedies against the debtor.36 This is what is otherwise known as the benefit of
excussion.

It is clear that excussion may only be invoked after legal remedies against the principal debtor have been expanded.
Thus, it was held that the creditor must first obtain a judgment against the principal debtor before assuming to run after
the alleged guarantor, "for obviously the exhaustion of the principals property cannot even begin to take place before
judgment has been obtained."37 The law imposes conditions precedent for the invocation of the defense. Thus, in order
that the guarantor may make use of the benefit of excussion, he must set it up against the creditor upon the latters
demand for payment and point out to the creditor available property of the debtor within the Philippines sufficient to cover
the amount of the debt.38

While a guarantor enjoys the benefit of excussion, nothing prevents him from paying the obligation once demand is made
on him. Excussion, after all, is a right granted to him by law and as such he may opt to make use of it or waive it.
PhilGuarantees waiver of the right of excussion cannot prevent it from demanding reimbursement from petitioners. The
law clearly requires the debtor to indemnify the guarantor what the latter has paid.39

Petitioners claim that PhilGuarantee had no more obligation to pay TRB because of the alleged expiration of the contract
of guarantee is untenable. The guarantee, dated17 December 1979, states:

In the event of default by JNDC and as a consequence thereof, PHILGUARANTEE is made to pay its obligation arising
under the aforesaid guarantee PHILGUARANTEE shall pay the BANK the amount of 1.4 million or 70% of the total
obligation unpaid

....

This guarantee shall be valid for a period of one (1) year from date hereof but may be renewed upon payment by JNDC of
the guarantee fee at the same rate of 1.5% per annum.40

The guarantee was only up to 17 December 1980. JNs obligation with TRB fell due on 30 June 1980, and demand on
PhilGuarantee was made by TRB on 08 October 1980. That payment was actually made only on 10 March 1981 does not
take it out of the terms of the guarantee. What is controlling is that default and demand on PhilGuarantee had taken place
while the guarantee was still in force.
 309

There is likewise no merit in petitioners claim that PhilGuarantees failure to give its express consent to the alleged
extensions granted by TRB to JN had extinguished the guarantee. The requirement that the guarantor should consent to
any extension granted by the creditor to the debtor under Art. 2079 is for the benefit of the guarantor. As such, it is
likewise waivable by the guarantor. Thus, even assuming that extensions were indeed granted by TRB to JN,
PhilGuarantee could have opted to waive the need for consent to such extensions. Indeed, a guarantor is not precluded
from waiving his right to be notified of or to give his consent to extensions obtained by the debtor. Such waiver is not
contrary to public policy as it is purely personal and does not affect public interest. 41 In the instant case, PhilGuarantees
waiver can be inferred from its actual payment to TRB after the latters demand, despite JNs failure to pay the
renewal/guarantee fee as indicated in the guarantee.42

For the above reasons, there is no basis for petitioners claim that PhilGuarantee was a mere volunteer payor and had no
legal obligation to pay TRB. The law does not prohibit the payment by a guarantor on his own volition, heedless of the
benefit of excussion. In fact, it recognizes the right of a guarantor to recover what it has paid, even if payment was made
before the debt becomes due,43 or if made without notice to the debtor,44 subject of course to some conditions.

Petitioners invocation of our ruling in Willex Plastic Industries, Corp. v. Court of Appeals 45 is misplaced, if not irrelevant. In
the said case, the guarantor claimed that it could not be proceeded against without first exhausting all of the properties of
the debtor. The Court, finding that there was an express renunciation of the benefit of excussion in the contract of
guarantee, ruled against the guarantor.

The cited case finds no application in the case a quo. PhilGuarantee is not invoking the benefit of excussion. It cannot be
overemphasized that excussion is a right granted to the guarantor and, therefore, only he may invoke it at his discretion.

The benefit of excussion, as well as the requirement of consent to extensions of payment, is a protective device pertaining
to and conferred on the guarantor. These may be invoked by the guarantor against the creditor as defenses to bar the
unwarranted enforcement of the guarantee. However, PhilGuarantee did not avail of these defenses when it paid its
obligation according to the tenor of the guarantee once demand was made on it. What is peculiar in the instant case is
that petitioners, the principal debtors themselves, are muddling the issues and raising the same defenses against the
guarantor, which only the guarantor may invoke against the creditor, to avoid payment of their own obligation to the
guarantor. The Court cannot countenance their self-seeking desire to be exonerated from the duty to reimburse
PhilGuarantee after it had paid TRB on their behalf and to unjustly enrich themselves at the expense of PhilGuarantee.

Petitioners assert that TRBs alleged foreclosure of the real estate mortgage over the land executed as security for the
loan agreement had extinguished PhilGuarantees obligation; thus, PhilGuarantees recourse should be directed against
TRB, as per the pari-passu provision46 in the contract of guarantee.47 We disagree.

The foreclosure was made on 27 August 1993, "after the case was submitted for decision in 1992 and before the issuance
of the decision of the court a quo in 1998".48 Thus, foreclosure was resorted to by TRB against JN when they both had
become aware that PhilGuarantee had already paid TRB and that there was a pending case filed by PhilGuarantee
against petitioners. This matter was not raised and proved in the trial court, nor in the appeal before the CA, but raised for
the first time in petitioners motion for reconsideration in the CA. In their appellants Brief, petitioners claimed that "there
was no need for the defendant-appellee JNDC to present any evidence before the lower court to show that indeed
foreclosure of the REM took place."49 As properly held by the CA,

Firstly, the documents evidencing foreclosure of mortgage cannot be considered as newly discovered evidence. The
said documents were already subsisting and should have been presented during the trial of the case. The alleged
foreclosure sale was made on August 23, 1993 while the decision was rendered by the trial court on August 20, 1998
about five (5) years thereafter. These documents were likewise not submitted by the defendants-appellees when they
submitted their appellees Brief to this Court. Thus, these cannot be considered as newly discovered evidence but are
more correctly ascribed as suppressed forgotten evidence Secondly, the alleged foreclosure sale is not proof of
payment of the loan by defendant-appellees to the plaintiffs-appellants.50

Besides, the complaint a quo was filed by PhilGuarantee as guarantor for JN, and its cause of action was premised on its
payment of JNs obligation after the latters default. PhilGuarantee was well within its rights to demand reimbursement for
such payment made, regardless of whether the creditor, TRB, was subsequently able to obtain payment from JN. If
double payment was indeed made, then it is JN which should go after TRB, and not PhilGuarantee. Petitioners have no
one to blame but themselves, having allowed the foreclosure of the property for the full value of the loan despite
knowledge of PhilGuarantees payment to TRB. Having been aware of such payment, they should have opposed the
 310

foreclosure, or at the very least, filed a supplemental pleading with the trial court informing the same of the foreclosure
sale.

Likewise, petitioners cannot invoke the pari-passu clause in the guarantee, not being parties to the said agreement. The
clause is clearly for the benefit of the guarantor and no other.

The Court notes the letter51 of Rodrigo Sta. Ana offering, by way of settlement of JNs obligations to PhilGuarantee, the
very same parcel of land mortgaged as security for the loan agreement. This further weakens the position of petitioners,
since it becomes obvious that they acknowledged the payment made by PhilGuarantee on their behalf and that they were
in fact willing to negotiate with PhilGuarantee for the settlement of the said obligation before the filing of the complaint a
quo.

Anent the issue of forgery, the CA is correct in reversing the decision of the trial court. Save for the denial of Narciso Cruz
that it was not his signature in the Undertaking and the perfunctory comparison of the signatures, nothing in the records
would support the claim of forgery. Forgery cannot be presumed and must be proved by clear, positive and convincing
evidence and the burden of proof lies on the party alleging forgery.52 Mere denial will not suffice to overcome the positive
value of the Undertaking, which is a notarized document, has in its favor the presumption of regularity, and carries the
evidentiary weight conferred upon it with respect to its due execution. 53 Even in cases where the alleged forged signature
was compared to samples of genuine signatures to show its variance therefrom, this Court still found such evidence
insufficient.54 Mere variance of the signatures cannot be considered as conclusive proof that the same were forged.55

WHEREFORE, the consolidated petitions are DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 61318 is
AFFIRMED.

No pronouncement as to costs.

SO ORDERED.
 311

G.R. No. 187403 February 12, 2014

TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE PHILIPPINES (Formerly PHILIPPINE EXPORT
AND FOREIGN LOAN GUARANTEE CORPORATION.), Petitioner,
vs.
ASIA PACES CORPORATION, PACES INDUSTRIAL CORPORATION, NICOLAS C. BALDERRAMA, SIDDCOR
INSURANCE CORPORATION (now MEGA PACIFIC INSURANCE CORPORATION), PHILIPPINE PHOENIX SURETY
AND INSURANCE, INC., PARAMOUNT INSURANCE CORPORATION,* AND FORTUNE LIFE AND GENERAL
INSURANCE COMPANY, Respondents.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari 1 are the Decision2 dated April 30, 2008 and Resolution3 dated March 27,
2009 of the Court of Appeals (CA) in CA-G.R. CV No. 86558 which affirmed the Decision4 dated April 29, 2005 of the
Regional Trial Court of Makati, Branch 132 (RTC) in Civil Case No. 95-1812. The CA upheld the RTCs finding that the
 312

liabilities of Paramount Insurance Corporation (Paramount), and respondents Philippine Phoenix Surety and Insurance,
Inc. (Phoenix), Mega Pacific Insurance Corporation5 (Mega Pacific), and Fortune Life and General Insurance Company
(Fortune) on their respective counter-surety bonds have been extinguished due to the extension of the principal
obligations these bonds covered, to which said respondents did not give their consent.

The Facts

On January 19, 1981, respondents Asia Paces Corporation (ASPAC) and Paces Industrial Corporation (PICO) entered
into a sub-contracting agreement, denominated as "200 KV Transmission Lines Contract No. 20-/80-II Civil Works &
Electrical Erection," with the Electrical Projects Company of Libya (ELPCO), as main contractor, for the construction and
erection of a double circuit bundle phase conductor transmission line in the country of Libya. To finance its working capital
requirements, ASPAC obtained loans from foreign banks Banque Indosuez and PCI Capital (Hong Kong) Limited (PCI
Capital) which, upon the latters request, were secured by several Letters of Guarantee issued by petitioner Trade and
Investment Development Corporation of the Philippines (TIDCORP), 6then Philippine Export and Foreign Loan Guarantee
Corp., a government owned and controlled corporation created for the primary purpose of, among others, "guarantee[ing],
with the prior concurrence of the Monetary Board, subject to the rules and regulations that the Monetary Board may
prescribe, approved foreign loans, in whole or in part, granted to any entity, enterprise or corporation organized or
licensed to engage in business in the Philippines."7Under the Letters of Guarantee, TIDCORP irrevocably and
unconditionally guaranteed full payment of ASPACs loan obligations to Banque Indosuez and PCI Capital in the event of
default by the latter.8 The denominations of these letters, including the loan agreements secured by each, are detailed as
follows:9

LETTER OF GUARANTEE LOAN AGREEMENT SECURED CREDITOR

Letter of Guarantee No. 82-446 F Loan Agreement dated March 9, 1982 Banque
dated March 11, 1982 (with an extension dated March 25, Indosuez
(LG No. 82-446 F) 1983), in the amount of US$250,000.00

Letter of Guarantee No. 82-498 F Loan Agreement dated June 10, 1982, PCI
dated June 10, 1982 in the amount of US$250,000.00 Capital
(LG No. 82-498 F)

Letter of Guarantee No. 82-548 F Loan Agreement dated October 5, 1982, PCI
dated October 5, 1982 in the amount of US$2,000,000.00 Capital
(LG No. 82-548 F)

As a condition precedent to the issuance by TIDCORP of the Letters of Guarantee, ASPAC, PICO, and ASPACs
President, respondent Nicolas C. Balderrama (Balderrama) had to execute several Deeds of Undertaking,10 binding
themselves to jointly and severally pay TIDCORP for whatever damages or liabilities it may incur under the
aforementioned letters. In the same light, ASPAC, as principal debtor, entered into surety agreements (Surety Bonds) with
Paramount, Phoenix, Mega Pacific and Fortune (bonding companies), as sureties, also holding themselves solidarily
liable to TIDCORP, as creditor, for whatever damages or liabilities the latter may incur under the Letters of
Guarantee.11 The details of said bonds, including their respective coverage amounts and expiration dates, among others,
are as follows:

SURETY BOND LETTER OF COVERAGE BONDING FINAL

GUARANTEE AMOUNT12 COMPANY/ EXPIRATION
COVERED SURETY DATE

Surety Bond No.

LG No. 82-446 F 2,752,000.00 Paramount March 5, 198614
G(16)0194313

Surety Bond No.

1,845,000.00 Paramount June 4, 198616
G(16)0190615
LG No. 82-498 F
Surety Bond No. November 21,
1,849,000.00 Fortune
G(16)1549517 198518
 313

Surety Bond No. September 28,

11,970,000.00 Phoenix
G(16)0190319 198520
LG No. 82-548 F
Surety Bond No. Mega September 28,
5,030,000.00
G(16)0149721 Pacific 198522

ASPAC eventually defaulted on its loan obligations to Banque Indosuez and PCI Capital, prompting them to demand
payment from TIDCORP under the Letters of Guarantee. The demand letter of Banque Indosuez was sent to TIDCORP
on March 5, 1984,23 while that of PCI Capital was sent on February 21, 1985. 24 In turn, TIDCORP demanded payment
from Paramount,25 Phoenix,26 Mega Pacific,27 and Fortune28 under the Surety Bonds. TIDCORPs demand letters to the
bonding companies were sent on May 28, 1985, or before the final expiration dates of all the Surety Bonds, but to no
avail.29

Taking into account the moratorium request30 issued by the Minister of Finance of the Republic of the Philippines
(whereby members of the international banking community were requested to grant government financial
institutions,31 such as TIDCORP, among others, a 90-day roll over from their foreign debts beginning October 17, 1983),
TIDCORP and its various creditor banks, such as Banque Indosuez and PCI Capital, forged a Restructuring
Agreement32 on April 16, 1986, extending the maturity dates of the Letters of Guarantee.33 The bonding companies were
not privy to the Restructuring Agreement and, hence, did not give their consent to the payment extensions granted by
Banque Indosuez and PCI Capital, among others, in favor of TIDCORP. Nevertheless, following new payment
schedules,34 TIDCORP fully settled its obligations under the Letters of Guarantee to both Banque Indosuez and PCI
Capital on December 1, 1992, and April 19 and June 4, 1991, respectively. 35 Seeking payment for the damages and
liabilities it had incurred under the Letters of Guarantee and with its previous demands therefor left unheeded, TIIDCORP
filed a collection case36 against: (a) ASPAC, PICO, and Balderrama on account of their obligations under the deeds of
undertaking; and (b) the bonding companies on account of their obligations under the Surety Bonds.

The RTC Ruling

In a Decision37 dated April 29, 2005, the RTC partially granted TIDCORPs complaint and thereby found ASPAC, PICO,
and Balderrama jointly and severally liable to TIDCORP in the sum of 277,891,359.66 pursuant to the terms of the
Deeds of Undertaking, but absolved the bonding companies from liability on the ground that the moratorium request and
the consequent payment extensions granted by Banque Indosuez and PCI Capital in TIDCORPs favor without their
consent extinguished their obligations under the Surety Bonds. As basis, the RTC cited Article 2079 of the Civil Code
which provides that an extension granted to the debtor by the creditor without the consent of the guarantor/surety
extinguishes the guaranty/suretyship, and, in this relation, added that the bonding companies "should not be held liable as
sureties for the extended period."38

Dissatisfied, TIDCORP and Balderrama filed separate appeals before the CA. 39 For its part, TIDCORP averred, among
others, that Article 2079 of the Civil Code is only limited to contracts of guaranty, and, hence, should not apply to contracts
of suretyship. Meanwhile, Balderrama theorized that the main contractors (i.e., ELPCO) failure to pay ASPAC due to the
war/political upheaval in Libya which further resulted in the latters inability to pay Banque Indosuez and PCI Capital had
the effect of releasing him from his obligations under the Deeds of Undertaking.

The CA Ruling

In a Decision40 dated April 30, 2008, the CA upheld the RTCs ruling that the moratorium request "had the effect of an
extension granted to a debtor, which extension was without the consent of the guarantor, and thus released the surety
companies from their respective liabilities under the issued surety bonds" pursuant to Article 2079 of the Civil Code. 41 To
this end, it noted that "the maturity of the foreign loans was extended to December 31, 1989 or up to December 31, 1994
as provided under Section 4.01 of the Restructuring Agreement," and that "said extension is beyond the expiry date[s] of
the surety bonds x x x and the maturity date of the principal obligations it purportedly secured, which extension was
without [the bonding companies] consent,"42 It further discredited TIDCORPs contention that Article 2079 of the Civil
Code is only limited to contracts of guaranty by citing the Courts pronouncement on the provisions applicability to
suretyships in the case of Security Bank and Trust Co., Inc. v. Cuenca 43 (Security Bank). As for Balderrama, the CA
debunked his assignment of error, ratiocinating that "[h]is undertaking to pay is not dependent upon the payment to be
made by ELPCO to ASPAC."44 The CA, however, modified the RTC decision to the extent of holding ASPAC, PICO, and
Balderrama liable to TIDCORP for attorneys fees in the reasonable amount of 2,000,000.00 since the payment of
attorneys fees was stipulated by the parties in the Deed of Undertaking dated April 2, 1982.45
 314

Aggrieved, TIDCORP and Balderrama filed separate motions for reconsideration, 46 which were, however, denied in a
Resolution47 dated March 27, 2009. Only TIDCORP elevated the matter to the Court on appeal. Pending resolution
thereof, or on October 6, 2010, TIDCORP filed a Motion for Partial Withdrawal48 of its claim against Paramount in view of
their Compromise Agreement49 dated June 24, 2010 which was approved50 by the CA in CA-G.R. CV No. 92818, entitled
"Trade & Investment Corporation of the Phils., et al. v. Roblet Industrial Construction Corp. and Paramount Insurance
Corp., et al."51

The Issue Before the Court

The essential issue raised for the Courts resolution is whether or not the CA erred in holding that the bonding companies
liabilities to TIDCORP under the Surety Bonds have been extinguished by the payment extensions granted by Banque
Indosuez and PCI Capital to TIDCORP under the Restructuring Agreement.

The Courts Ruling

The petition is granted.

A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the
obligation of the latter, and their liabilities are interwoven as to be inseparable. Although the contract of a surety is in
essence secondary only to a valid principal obligation, his liability to the creditor is direct, primary and absolute; he
becomes liable for the debt and duty of another although he possesses no direct or personal interest over the obligations
nor does he receive any benefit therefrom. 52 The fundamental reason therefor is that a contract of suretyship effectively
binds the surety as a solidary debtor. This is provided under Article 2047 of the Civil Code which states:

Article 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal
debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall
be observed. In such case the contract is called a suretyship. (Emphasis and underscoring supplied)

Thus, since the surety is a solidary debtor, it is not necessary that the original debtor first failed to pay before the surety
could be made liable; it is enough that a demand for payment is made by the creditor for the suretys liability to attach. 53

Article 1216 of the Civil Code provides that:

Article 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The
demand made against one of them shall not be an obstacle to those which may subsequently be directed against the
others, so long as the debt has not been fully collected.

Comparing a suretys obligations with that of a guarantor, the Court, in the case of Palmares v. CA, 54 illumined that a
surety is responsible for the debts payment at once if the principal debtor makes default, whereas a guarantor pays only if
the principal debtor is unable to pay, viz.:55

A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor.1wphi1 A suretyship is
an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay. Stated differently, a surety
promises to pay the principals debt if the principal will not pay, while a guarantor agrees that the creditor, after proceeding
against the principal, may proceed against the guarantor if the principal is unable to pay. A surety binds himself to perform
if the principal does not, without regard to his ability to do so. A guarantor, on the other hand, does not contract that the
principal will pay, but simply that he is able to do so. In other words, a surety undertakes directly for the payment and is so
responsible at once if the principal debtor makes default, while a guarantor contracts to pay if, by the use of due diligence,
the debt cannot be made out of the principal debtor.

(Emphases and underscoring supplied; citations omitted)

Despite these distinctions, the Court in Cochingyan, Jr. v. R&B Surety & Insurance Co., Inc., 56 and later in the case of
Security Bank, held that Article 2079 of the Civil Code, which pertinently provides that "[a]n extension granted to the
 315

debtor by the creditor without the consent of the guarantor extinguishes the guaranty," equally applies to both contracts of
guaranty and suretyship. The rationale therefor was explained by the Court as follows:57

The theory behind Article 2079 is that an extension of time given to the principal debtor by the creditor without the suretys
consent would deprive the surety of his right to pay the creditor and to be immediately subrogated to the creditors
remedies against the principal debtor upon the maturity date. The surety is said to be entitled to protect himself against
the contingency of the principal debtor or the indemnitors becoming insolvent during the extended period. (Emphasis and
underscoring supplied; citations omitted)

Applying these principles, the Court finds that the payment extensions granted by Banque Indosuez and PCI Capital to
TIDCORP under the Restructuring Agreement did not have the effect of extinguishing the bonding companies obligations
to TIDCORP under the Surety Bonds, notwithstanding the fact that said extensions were made without their consent. This
is because Article 2079 of the Civil Code refers to a payment extension granted by the creditor to the principal debtor
without the consent of the guarantor or surety. In this case, the Surety Bonds are suretyship contracts which secure the
debt of ASPAC, the principal debtor, under the Deeds of Undertaking to pay TIDCORP, the creditor, the damages and
liabilities it may incur under the Letters of Guarantee, within the bounds of the bonds respective coverage periods and
amounts. No payment extension was, however, granted by TIDCORP in favor of ASPAC in this regard; hence, Article
2079 of the Civil Code should not be applied with respect to the bonding companies liabilities to TIDCORP under the
Surety Bonds.

The payment extensions granted by Banque Indosuez and PCI Capital pertain to TIDCORPs own debt under the Letters
of Guarantee wherein it (TIDCORP) irrevocably and unconditionally guaranteed full payment of ASPACs loan obligations
to the banks in the event of its (ASPAC) default. In other words, the Letters of Guarantee secured ASPACs loan
agreements to the banks. Under this arrangement, TIDCORP therefore acted 58 as a guarantor,59 with ASPAC as the
principal debtor, and the banks as creditors.

Proceeding from the foregoing discussion, it is quite clear that there are two sets of transactions that should be treated
separately and distinctly from one another following the civil law principle of relativity of contracts "which provides that
contracts can only bind the parties who entered into it, and it cannot favor or prejudice a third person, even if he is aware
of such contract and has acted with knowledge thereof."60 Verily, as the Surety Bonds concern ASPACs debt to
TIDCORP and not TIDCORPs debt to the banks, the payments extensions (which conversely concern TIDCORPs debt
to the banks and not ASPACs debt to TIDCORP) would not deprive the bonding companies of their right to pay their
creditor (TIDCORP) and to be immediately subrogated to the latters remedies against the principal debtor (ASPAC) upon
the maturity date. It must be stressed that these payment extensions did not modify the terms of the Letters of Guarantee
but only provided for a new payment scheme covering TIDCORPs liability to the banks. In fine, considering the
inoperability of Article 2079 of the Civil Code in this case, the bonding companies liabilities to TIDCORP under the Surety
Bonds except those issued by Paramount and covered by its Compromise Agreement with TIDCORP have not been
extinguished. Since these obligations arose and have been duly demanded within the coverage periods of all the Surety
Bonds,61 TIDCORPs claim is hereby granted and the CAs ruling on this score consequently reversed. Nevertheless,
given that no appeal has been filed on Balderramas adjudged liability or on the award of attorney's fees, the CA's
dispositions on these matters are now deemed as final and executory.

WHEREFORE, the petition is GRANTED. The Decision dated April 30, 2008 and Resolution dated March 27, 2009 of the
Court of Appeals in CA-G.R. CV No. 86558 are MODIFIED in that respondents Philippine Phoenix Surety and Insurance,
Inc., Mega Pacific Insurance Corporation, Fortune Life and General Insurance Company are ORDERED to fulfill their
respective obligations to petitioner Trade and Investment Development Corporation of the Philippines (TIDCORP) under
the Surety Bonds subject of this case, discounting the obligations arising from the Surety Bonds issued by Paramount
Insurance Corporation and covered by its Compromise Agreement with TIDCORP.

SO ORDERED.
 316

G.R. No. 132287 January 24, 2006

SPOUSES BONIFACIO and FAUSTINA PARAY, and VIDAL ESPELETA, Petitioners,

vs.
DRA. ABDULIA C. RODRIGUEZ, MIGUELA R. JARIOL assisted by her husband ANTOLIN JARIOL, SR., LEONORA
NOLASCO assisted by her husband FELICIANO NOLASCO, DOLORES SOBERANO assisted by her husband
JOSE SOBERANO, JR., JULIA R. GENEROSO, TERESITA R. NATIVIDAD and GENOVEVA R. SORONIO assisted
by her husband ALFONSO SORONIO, Respondents.
 317

DECISION

TINGA, J.:

The assailed decision of the Court of Appeals took off on the premise that pledged shares of stock auctioned off in a
notarial sale could still be redeemed by their owners. This notion is wrong, and we thus reverse.

The facts, as culled from the record, follow.

Respondents were the owners, in their respective personal capacities, of shares of stock in a corporation known as the
Quirino-Leonor-Rodriguez Realty Inc.1 Sometime during the years 1979 to 1980, respondents secured by way of pledge
of some of their shares of stock to petitioners Bonifacio and Faustina Paray ("Parays") the payment of certain loan
obligations. The shares pledged are listed below:

Miguel Rodriguez Jariol .1,000 shares covered by Stock Certifi-

cates No. 011, 060, 061 & 062;

Abdulia C. Rodriguez . 300 shares covered by Stock Certificates

No. 023 & 093;

Leonora R. Nolasco .. 407 shares covered by Stock Certificates

No. 091 & 092;

Genoveva Soronio. 699 shares covered by Stock Certificates

No. 025, 059 & 099;

Dolores R. Soberano. 699 shares covered by Stock Certificates

No. 021, 053, 022 & 097;

Julia Generoso .. 1,100 shares covered by Stock Certificates

No. 085, 051, 086 & 084;

Teresita Natividad.. 440 shares covered by Stock Certificates

Nos. 054 & 0552

When the Parays attempted to foreclose the pledges on account of respondents failure to pay their loans, respondents
filed complaints with the Regional Trial Court (RTC) of Cebu City. The actions, which were consolidated and tried before
RTC Branch 14, Cebu City, sought the declaration of nullity of the pledge agreements, among others. However the RTC,
in its decision3 dated 14 October 1988, dismissed the complaint and gave "due course to the foreclosure and sale at
public auction of the various pledges subject of these two cases." 4 This decision attained finality after it was affirmed by
the Court of Appeals and the Supreme Court. The Entry of Judgment was issued on 14 August 1991.

Respondents then received Notices of Sale which indicated that the pledged shares were to be sold at public auction on 4
November 1991. However, before the scheduled date of auction, all of respondents caused the consignation with the RTC
Clerk of Court of various amounts. It was claimed that respondents had attempted to tender these payments to the
Parays, but had been rebuffed. The deposited amounts were as follows:

Abdulia C. Rodriguez.. P 120,066.66 .. 14 Oct. 1991

 318

Leonora R. Nolasco . 277,381.82 .. 14 Oct. 1991

Genoveva R. Soronio 425,353.50 .. 14 Oct. 1991

38,385.44 .. 14 Oct. 1991

Julia R. Generoso .. 638,385.00 .. 25 Oct. 1991

Teresita R. Natividad . 264,375.00 .. 11 Nov. 1991

Dolores R. Soberano .. 12,031.61.. 25 Oct. 1991

520,216.39 ..11 Nov. 1991

Miguela Jariol . 490,000.00.. 18 Oct. 1991

88,000.00 ..18 Oct. 19915

Notwithstanding the consignations, the public auction took place as scheduled, with petitioner Vidal Espeleta successfully
bidding the amount of P6,200,000.00 for all of the pledged shares. None of respondents participated or appeared at the
auction of 4 November 1991.

Respondents instead filed on 13 November 1991 a complaint seeking the declaration of nullity of the concluded public
auction. The complaint, docketed as Civil Case No. CEB-10926, was assigned to Branch 16 of the Cebu City RTC.
Respondents argued that their tender of payment and subsequent consignations served to extinguish their loan
obligations and discharged the pledge contracts. Petitioners countered that the auction sale was conducted pursuant to
the final and executory judgment in Civil Cases Nos. R-20120 and 20131, and that the tender of payment and
consignations were made long after their obligations had fallen due.

The Cebu City RTC dismissed the complaint, expressing agreement with the position of the Parays. 6 It held, among
others that respondents had failed to tender or consign payments within a reasonable period after default and that the
proper remedy of respondents was to have participated in the auction sale. 7 The Court of Appeals Eighth Division
however reversed the RTC on appeal, ruling that the consignations extinguished the loan obligations and the subject
pledge contracts; and the auction sale of 4 November 1991 as null and void. 8 Most crucially, the appellate court chose to
uphold the sufficiency of the consignations owing to an imputed policy of the law that favored redemption and mandated a
liberal construction to redemption laws. The attempts at payment by respondents were characterized as made in the
exercise of the right of redemption.

The Court of Appeals likewise found fault with the auction sale, holding that there was a need to individually sell the
various shares of stock as they had belonged to different pledgors. Thus, it was observed that the minutes of the auction
sale should have specified in detail the bids submitted for each of the shares of the pledgors for the purpose of knowing
the price to be paid by the different pledgors upon redemption of the auctioned sales of stock.

Petitioners now argue before this Court that they were authorized to refuse as they did the tender of payment since they
were undertaking the auction sale pursuant to the final and executory decision in Civil Cases Nos. R-20120 and 20131,
which did not authorize the payment of the principal obligation by respondents. They point out that the amounts consigned
could not extinguish the principal loan obligations of respondents since they were not sufficient to cover the interests due
on the debt. They likewise argue that the essential procedural requisites for the auction sale had been satisfied.

We rule in favor of petitioners.

The fundamental premise from which the appellate court proceeded was that the consignations made by respondents
should be construed in light of the rules of redemption, as if respondents were exercising such right. In that perspective,
the Court of Appeals made three crucial conclusions favorable to respondents: that their act of consigning the payments
with the RTC should be deemed done in the exercise of their right of redemption; that the buyer at public auction does
not ipso facto become the owner of the pledged shares pending the lapse of the one-year redemptive period; and that the
collective sale of the shares of stock belonging to several individual owners without specification of the apportionment in
 319

the applications of payment deprives the individual owners of the opportunity to know of the price they would have to pay
for the purpose of exercising the right of redemption.

The appellate courts dwelling on the right of redemption is utterly off-tangent. The right of redemption involves payments
made by debtors after the foreclosure of their properties, and not those made or attempted to be made, as in this case,
before the foreclosure sale. The proper focus of the Court of Appeals should have been whether the consignations made
by respondents sufficiently acquitted them of their principal obligations. A pledge contract is an accessory contract, and is
necessarily discharged if the principal obligation is extinguished.

Nonetheless, the Court is now confronted with this rather new fangled theory, as propounded by the Court of Appeals,
involving the right of redemption over pledged properties. We have no hesitation in pronouncing such theory as
discreditable.

Preliminarily, it must be clarified that the subject sale of pledged shares was an extrajudicial sale, specifically a notarial
sale, as distinguished from a judicial sale as typified by an execution sale. Under the Civil Code, the foreclosure of a
pledge occurs extrajudicially, without intervention by the courts. All the creditor needs to do, if the credit has not been
satisfied in due time, is to proceed before a Notary Public to the sale of the thing pledged.9

In this case, petitioners attempted as early as 1980 to proceed extrajudicially with the sale of the pledged shares by public
auction. However, extrajudicial sale was stayed with the filing of Civil Cases No. R-20120 and 20131, which sought to
annul the pledge contracts. The final and executory judgment in those cases affirmed the pledge contracts and disposed
them in the following fashion:

WHEREFORE, premises considered, judgment is hereby rendered dismissing the complaints at bar, and

(1) Declaring the various pledges covered in Civil Cases Nos. R-20120 and R-20131 valid and effective; and

(2) Giving due course to the foreclosure and sale at public auction of the various pledges subject of these two
cases.

Costs against the plaintiffs.

SO ORDERED.10

The phrase "giving due course to the foreclosure and sale at public auction of the various pledges subject of these two
cases" may give rise to the impression that such sale is judicial in character. While the decision did authorize the sale by
public auction, such declaration could not detract from the fact that the sale so authorized is actually extrajudicial in
character. Note that the final judgment in said cases expressly did not direct the sale by public auction of the pledged
shares, but instead upheld the right of the Parays to conduct such sale at their own volition.

Indeed, as affirmed by the Civil Code,11 the decision to proceed with the sale by public auction remains in the sole
discretion of the Parays, who could very well choose not to hold the sale without violating the final judgments in the
aforementioned civil cases. If the sale were truly in compliance with a final judgment or order, the Parays would have no
choice but to stage the sale for then the order directing the sale arises from judicial compulsion. But nothing in the
dispositive portion directed the sale at public auction as a mandatory recourse, and properly so since the sale of pledged
property in public auction is, by virtue of the Civil Code, extrajudicial in character.

The right of redemption as affirmed under Rule 39 of the Rules of Court applies only to execution sales, more precisely
execution sales of real property.

The Court of Appeals expressly asserted the notion that pledged property, necessarily personal in character, may be
redeemed by the creditor after being sold at public auction. Yet, as a fundamental matter, does the right of redemption
exist over personal property? No law or jurisprudence establishes or affirms such right. Indeed, no such right exists.

The right to redeem property sold as security for the satisfaction of an unpaid obligation does not exist preternaturally.
Neither is it predicated on proprietary right, which, after the sale of property on execution, leaves the judgment debtor and
vests in the purchaser. Instead, it is a bare statutory privilege to be exercised only by the persons named in the statute. 12
 320

The right of redemption over mortgaged real property sold extrajudicially is established by Act No. 3135, as amended. The
said law does not extend the same benefit to personal property. In fact, there is no law in our statute books which vests
the right of redemption over personal property. Act No. 1508, or the Chattel Mortgage Law, ostensibly could have served
as the vehicle for any legislative intent to bestow a right of redemption over personal property, since that law governs the
extrajudicial sale of mortgaged personal property, but the statute is definitely silent on the point. And Section 39 of the
1997 Rules of Civil Procedure, extensively relied upon by the Court of Appeals, starkly utters that the right of redemption
applies to real properties, not personal properties, sold on execution.

Tellingly, this Court, as early as 1927, rejected the proposition that personal property may be covered by the right of
redemption. In Sibal 1. v. Valdez,13 the Court ruled that sugar cane crops are personal property, and thus, not subject to
the right of redemption.14 No countervailing statute has been enacted since then that would accord the right of redemption
over personal property, hence the Court can affirm this decades-old ruling as effective to date.

Since the pledged shares in this case are not subject to redemption, the Court of Appeals had no business invoking and
applying the inexistent right of redemption. We cannot thus agree that the consigned payments should be treated with
liberality, or somehow construed as having been made in the exercise of the right of redemption. We also must reject the
appellate courts declaration that the buyer of at the public auction is not "ipso facto" rendered the owner of the auctioned
shares, since the debtor enjoys the one-year redemptive period to redeem the property. Obviously, since there is no right
to redeem personal property, the rights of ownership vested unto the purchaser at the foreclosure sale are not entangled
in any suspensive condition that is implicit in a redemptive period.

The Court of Appeals also found fault with the apparent sale in bulk of the pledged shares, notwithstanding the fact that
these shares were owned by several people, on the premise the pledgors would be denied the opportunity to know
exactly how much they would need to shoulder to exercise the right to redemption. This concern is obviously rendered a
non-issue by the fact that there can be no right to redemption in the first place. Rule 39 of the Rules of Court does provide
for instances when properties foreclosed at the same time must be sold separately, such as in the case of lot sales for
real property under Section 19. However, these instances again pertain to execution sales and not extrajudicial sales. No
provision in the Rules of Court or in any law requires that pledged properties sold at auction be sold separately.

On the other hand, under the Civil Code, it is the pledgee, and not the pledgor, who is given the right to choose which of
the items should be sold if two or more things are pledged.15 No similar option is given to pledgors under the Civil Code.
Moreover, there is nothing in the Civil Code provisions governing the extrajudicial sale of pledged properties that prohibits
the pledgee of several different pledge contracts from auctioning all of the pledged properties on a single occasion, or
from the buyer at the auction sale in purchasing all the pledged properties with a single purchase price. The relative
insignificance of ascertaining the definite apportionments of the sale price to the individual shares lies in the fact that once
a pledged item is sold at auction, neither the pledgee nor the pledgor can recover whatever deficiency or excess there
may be between the purchase price and the amount of the principal obligation.16

A different ruling though would obtain if at the auction, a bidder expressed the desire to bid on a determinate number or
portion of the pledged shares. In such a case, there may lie the need to ascertain with particularity which of the shares are
covered by the bid price, since not all of the shares may be sold at the auction and correspondingly not all of the pledge
contracts extinguished. The same situation also would lie if one or some of the owners of the pledged shares participated
in the auction, bidding only on their respective pledged shares. However, in this case, none of the pledgors participated in
the auction, and the sole bidder cast his bid for all of the shares. There obviously is no longer any practical reason to
apportion the bid price to the respective shares, since no matter how slight or significant the value of the purchase price
for the individual share is, the sale is completed, with the pledgor and the pledgee not entitled to recover the excess or the
deficiency, as the case may be. To invalidate the subject auction solely on this point serves no cause other than to
celebrate formality for formalitys sake.

Clearly, the theory adopted by the Court of Appeals is in shambles, and cannot be resurrected. The question though yet
remains whether the consignations made by respondents extinguished their respective pledge contracts in favor of the
Parays so as to enjoin the latter from auctioning the pledged shares.

There is no doubt that if the principal obligation is satisfied, the pledges should be terminated as well. Article 2098 of the
Civil Code provides that the right of the creditor to retain possession of the pledged item exists only until the debt is paid.
Article 2105 of the Civil Code further clarifies that the debtor cannot ask for the return of the thing pledged against the will
of the creditor, unless and until he has paid the debt and its interest. At the same time, the right of the pledgee to
 321

foreclose the pledge is also established under the Civil Code. When the credit has not been satisfied in due time, the
creditor may proceed with the sale by public auction under the procedure provided under Article 2112 of the Code.

Respondents argue that their various consignations made prior to the auction sale discharged them from the loan and the
pledge agreements. They are mistaken.

Petitioners point out that while the amounts consigned by respondents could answer for their respective principal loan
obligations, they were not sufficient to cover the interests due on these loans, which were pegged at the rate of 5% per
month or 60% per annum. Before this Court, respondents, save for Dolores Soberano, do not contest this interest rate as
alleged by petitioners. Soberano, on the other hand, challenges this interest rate as "usurious." 17

The particular pledge contracts did not form part of the records elevated to this Court. However, the 5% monthly interest
rate was noted in the statement of facts in the 14 October 1988 RTC Decision which had since become final. Moreover,
the said decision pronounced that even assuming that the interest rates of the various loans were 5% per month, "it is
doubtful whether the interests so charged were exorbitantly or excessively usurious. This is because for sometime now,
usury has become legally inexistent."18 The finality of this 1988 Decision is a settled fact, and thus the time to challenge
the validity of the 5% monthly interest rate had long passed. With that in mind, there is no reason for the Court to disagree
with petitioners that in order that the consignation could have the effect of extinguishing the pledge contracts, such
amounts should cover not just the principal loans, but also the 5% monthly interests thereon.

It bears noting that the Court of Appeals also ruled that respondents had satisfied the requirements under Section 18,
Rule 39, which provides that the judgment obligor may prevent the sale by paying the amount required by the execution
and the costs that have been incurred therein.19 However, the provision applies only to execution sales, and not extra-
judicial sales, as evidenced by the use of the phrases "sale of property on execution" and "judgment obligor." The
reference is inapropos, and even if it were applicable, the failure of the payment to cover the interests due renders it
insufficient to stay the sale.

The effect of the finality of the judgments in Civil Cases Nos. R-20120 and R-20131 should also not be discounted.
Petitioners right to proceed with the auction sale was affirmed not only by law, but also by a final court judgment. Any
subsequent court ruling that would enjoin the petitioners from exercising such right would have the effect of superseding a
final and executory judgment.

Finally, we cannot help but observe that respondents may have saved themselves much trouble if they simply participated
in the auction sale, as they are permitted to bid themselves on their pledged properties.20 Moreover, they would have had
a better right had they

matched the terms of the highest bidder.21 Under the circumstances, with the high interest payments that accrued after
several years, respondents were even placed in a favorable position by the pledge agreements, since the creditor would
be unable to recover any deficiency from the debtors should the sale price be insufficient to cover the principal amounts
with interests. Certainly, had respondents participated in the auction, there would have been a chance for them to recover
the shares at a price lower than the amount that was actually due from them to the Parays. That respondents failed to
avail of this beneficial resort wholly accorded them by law is their loss. Now, all respondents can recover is the amounts
they had consigned.

WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Appeals is SET ASIDE and the decision of
the Cebu City RTC, Branch 16, dated 18 November 1992 is REINSTATED. Costs against respondents.

SO ORDERED.
322
 323

G.R. No. 139436 January 25, 2006

ENRICO B. VILLANUEVA and EVER PAWNSHOP, Petitioners,

vs.
SPS. ALEJO SALVADOR and VIRGINIA SALVADOR, Respondents.

DECISION

GARCIA, J.:

Assailed and sought to be set aside in this petition for review on certiorari under Rule 45 of the Rules of Court is the July
16, 1999 decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 49965, which affirmed in toto an earlier decision2 of
the Regional Trial Court (RTC) at Pasig in Civil Case No. 62334.

The pertinent facts:

On December 20, 1991, herein respondents, the spouses Alejo Salvador and Virginia Salvador (Salvadors, collectively),
secured a loan of P7,650.00 from petitioner Ever Pawnshop owned and managed by co-petitioner Enrico B. Villanueva
(Villanueva). On January 23, 1992, the Salvadors took out a second loan of P5,400.00 pledging, just like in the first loan
transaction, jewelry items. Pawnshop Ticket No. 29919, covering the first loan, indicated April 10, 1992 as the last day to
redeem the jewelries pawned, whereas the redemption period for the items given as security for the second loan under
Pawnshop Ticket No. 30792 fell on May 22, 1992.

The separate redemption periods came and went, but the Salvadors failed to redeem the pawned pieces of jewelry.
Nonetheless, on June 1, 1992, their son paid Ever Pawnshop P7,000.00, the amount to be applied against the first loan
of P7,650.00. On account of this development, Pawnshop Ticket No. 29919 was cancelled and replaced by Pawnshop
Ticket No. 34932. Vis--vis the second loan, Ever Pawnshop agreed to the extension of the maturity date to June 30,
1992, provided the Salvadors pay 20% of their second loan obligation on or before June 4, 1992, failing which the
securing items shall be auctioned as scheduled. Unlike in the first loan, however, a new pawn ticket was not issued for the
second loan.

In the meantime, Ever Pawnshop issued a notice announcing the public auction sale on June 4, 1992 of all January 1 to
31, 1992 unredeemed pledges. The notice appeared in the Classified Ads Section of the Manila Bulletin on June 4, 1992,
the very day of the auction itself.

On July 1, 1992, the Salvadors repaired to the pawnshop in a bid to renew the second loan by tendering the aforesaid
20% of the amount due thereon, only to be informed that the pledged jewelry had already been auctioned as scheduled
on June 4, 1992. As found by the CA, however, pieces of the pawned jewelry items were still in the shop, 3 indicating that
Ever Pawnshop either bought some of the unredeemed pledges or did not sell them.

A month after, Mrs. Salvador attempted to redeem the jewelry items pledged for the first loan, as renewed, but all she got
in response were unclear information as to their whereabouts.
 324

On August 7, 1992, Mr. Salvador tendered payment of the amount due on both loans, with a demand for the return of the
jewelry thus pledged. Ever Pawnshop, however, refused to accept the tender.

Such was the state of things when, on August 11, 1992, at the RTC-Pasig City, the Salvadors filed a complaint for
damages against Villanueva and Ever Pawnshop arising from the sale without notice of the two (2) sets of jewelry pledged
as security for both loans. The complaint, docketed as Civil Case No. 62334, was eventually raffled to Branch 164 of the
court.

Barely two days after Villanueva et al., received summons, their counsel informed the Salvadors of his clients willingness
to accept payment heretofore tendered for the redemption of the jewelry pledged to secure the first loan. The Salvadors,
however, turned down this belated offer.

Answering, Villanueva and Ever Pawnshop, as defendants a quo, averred, inter alia, that by letters dated March 23, 1992
and May 5, 1992, Ever Pawnshop reminded the Salvadors of the maturity dates and redemption period of their loans. Also
alleged in the answer with counterclaim for damages was the publication in the June 4, 1992 issue of the Manila
Bulletin of the notice of public auction of all unredeemed pledges from January 1 to 31, 1992.

Eventually, in a decision4 dated January 25, 1995, the trial court, on its finding that the set of jewelry covered by the
renewed first and second loans were sold without the necessary notice, rendered judgment for the Salvadors, to wit:

WHEREFORE, the Court hereby renders judgment in favor of the plaintiffs [Salvadors] and against the defendants
[Villanueva and Ever Pawnshop]. Defendants are hereby ordered to pay to the plaintiffs:

1. The sum of P20,000.00 by way of moral damages;

2. The sum of P5,400.00 as the value of the jewelry sold under the second loan;

3. The sum of P5,000.00 as and for attorneys fees; and

4. The costs of suit.

Defendants are also ordered to restore to the possession of the [Salvadors] the jewelry that they pawned under the first
loan, covered by pawn ticket nos. 29919 and 34932, upon payment by the plaintiffs of the redemption price due last 10
August 1992.

The counterclaim of the defendants is dismissed.

SO ORDERED. (Words in bracket added.)

Therefrom, petitioners went on appeal to the CA whereat their recourse was docketed as CA-G.R. CV No. 49965.

As stated at the threshold hereof, the CA, in its decision of July 16, 1999, affirmed in toto that of the trial court, the
affirmance being predicated on the following main justifications:

As the trial court correctly pointed out, the May 5, 1992 "List of Notified Clients" (Exhs. 6, 6-A, 6-B ) . . . including the
names of the [respondents] and Ticket Nos. 29919 and 30792 is not proof that notices were actually sent to
[respondents]. While the list contains 132 names, only 98 [postage] stamps were purchased, hence, it cannot be
determined who among the 132 people were sent notices.

And as surmised by the trial court, the set of jewelry pledged to secure the first loan must have been auctioned, as
scheduled on May 7, 1992, but that by mistake the pledge was renewed (on June 1, 1992), that is why it was only after
the [petitioners] received the summons in late August 1992 when probably they recovered the pledged jewelry that they
expressed willingness to accept the [respondents] tender of payment for the redemption of said pledge jewelry securing
the first (renewed) loan.
 325

Admittedly, the [respondents] did not pay their loans on maturity. But [petitioners] breached their contractual and legal
obligation to inform the [respondents] of the public auction of the jewelry securing it.

Furthermore, [petitioners] failed to comply with the requirements . . . that the notice must be published during the week
preceding the sale in two daily newspapers of general circulation in the city or municipality. The paid notice of public
auction to be held on June 4, 1992 by Ever Pawnshop was published only on even date, and only in one newspaper, the
Manila Bulletin. And particularly with respect to the second loan, why was the jewelry pledged to secure it included in the
June 4, 1992 auction when plaintiffs had up to that date to pay 20% of the amount due thereunder as a condition to its
renewal?

xxx xxx xxx

Anent the questioned award of moral damages: Even assuming that [respondents] failure to pay their obligation on
maturity amounts to contributory negligence, that does not abate the award of moral damages in their favor given the
[petitioners] failure to comply with the contractual and statutory requirements before the pledged jewelry was auctioned
which failure amounts to misconduct contemplated in Article 2220 of the New Civil Code basis of the award thereof
(Laguna Tayabas Bus Company v. Cornista 11 SCRA 181- 182 (Words in bracket added)

Hence, this petition on the following issues:

1. Whether the items of jewelry under the first loan were actually sold by the petitioners;

2. Whether valid notice of the sale of the pledged jewelry was effected;

3. Whether the award of P20,000.00 as moral damages and P5,000.00 as attorneys fees are proper; and

4. Whether the trial and appellate courts erred in ordering both the petitioners to pay damages.

Under the first issue, petitioners fault the CA in holding that the jewelry pledged under the first loan was sold by them.

Doubtless, the first issue raised by petitioners relates to the correctness of the factual finding of the CA confirmatory of
that of the trial court on the disposition of the set of jewelry covered by Pawnshop Ticket No. 34932. Such issue is
beyond the province of the Court to review since it is not its function to analyze or weigh all over again the evidence or
premises supportive of such factual determination. 5 The Court has consistently held that the findings of the CA must be
accorded great weight and shall not be disturbed on appeal, save for the most compelling and cogent reasons,6 like when
manifest error has been committed.7

As nothing in the record indicates any of such exceptions, the factual conclusion of the CA that petitioners indeed sold the
jewelry items given to secure the first loan must be affirmed.

Indeed, petitioner pawnshop expressed willingness to accept tender of payment and to return the pawned jewelry only
after being served with summons. Apparently, Ever Pawnshop had found a way to recover said jewelry by that time. If, as
aptly observed by the CA, the jewelry had never been sold, as petitioners so allege, but had been in their possession all
along, they could have provided a plausible explanation for the initial refusal to accept tender of payment and to return the
jewelry. Petitioners belated overture to accept payment after spurning the initial offer to pay can only be due to the fact
that, when respondents offered to pay the first time around, they (petitioners) no longer had possession of the jewelry
items in question, having previously disposed of them.

Moving on to the second issue, petitioners argue that the respondents were effectively put on notice of the sale of the
pledged jewelries, the maturity date and expiry date of redemption period of the two loans being indicated on the face of
each of the covering pawnshop tickets. Pressing the point, petitioners invite attention to the caveat printed on the dorsal
side of the tickets stating that the pledged items shall be auctioned off in the event they are not redeemed before the
expiry date of the redemption period.

We are not persuaded by petitioners faulty argument.

 326

Section 13 of Presidential Decree (P.D.) 114, otherwise known as the Pawnshop Regulation Act, and even the terms and
conditions of the pledge itself, accord the pawner a 90-day grace period from the date of maturity of the loan obligation
within which to redeem the pawn. But even before the lapse of the 90-day period, the same Decree requires the
pawnbroker to notify the defaulting debtor of the proposed auction sale. Section 14 thereof provides:

Section 14. Disposition of pawn on default of pawner.In the event the pawner fails to redeem the pawn within ninety
days from the date of maturity of the obligation . . ., the pawnbroker may sell . . . any article taken or received by him in
pawn: Provided, however, that the pawner shall be duly notified of such sale on or before the termination of the ninety-day
period, the notice particularly stating the date, hour and place of the sale.

However, over and above the foregoing prescription is the mandatory requirement for the publication of such notice once
in at least two daily newspapers during the week preceding the date of the auction sale. 8

The CA cannot really be faulted for making short shrift of petitioners posture respecting their alleged compliance with the
notice requirement in question. As it were, petitioner Ever Pawnshop, as determined by the CA, only caused publication of
the auction in one newspaper, i.e., the Manila Bulletin, and on the very day of the scheduled auction sale itself, instead of
a week preceding the sale as prescribed by Section 15 of P.D. 114. Verily, a notice of an auction sale made on the very
scheduled auction day itself defeats the purpose of the notice, which is to inform a pawner beforehand that a sale is to
occur so that he may have that last chance to redeem his pawned items.

This brings us to the issue of the award of moral damages which petitioners correctly tag as erroneous, and, therefore,
should be deleted.

While proof of pecuniary loss is unnecessary to justify an award of moral damages, the amount of indemnity being left to
the sound discretion of the court, it is, nevertheless, essential that the claimant satisfactorily proves the existence of the
factual basis of the damages9 and its causal connection to defendants wrongful act or omission. This is so because moral
damages, albeit incapable of pecuniary estimation, are designed to compensate the claimant for actual injury suffered and
not to impose a penalty on the wrongdoer.10 There is thus merit on petitioners assertion that proof of moral suffering must
precede a moral damage award.11

The conditions required in awarding moral damages are: (1) there must be an injury, whether physical, mental or
psychological, clearly sustained by the claimant; (2) there must be a culpable act or omission factually established; (3) the
wrongful act or omission of the defendant must be the proximate cause of the injury sustained by the claimant; and (4) the
award of damages is predicated on any of the cases stated in Article 2219 of the Civil Code. 12

While there need not be a showing that the defendant acted in a wanton or malevolent manner, as this is a requirement
for an award of exemplary damages,13 there must still be proof of fraudulent action or bad faith for a claim for moral
damages to succeed.14 Then, too, moral damages are generally not recoverable in culpa contractual except when bad
faith supervenes and is proven.15

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity
and conscious doing of a wrong, a breach of known duty through some motive or interest or ill-will that partakes of the
nature of the fraud.16 And to the person claiming moral damages rests the onus of proving by convincing evidence the
existence of bad faith, for good faith is presumed.17

As aptly pointed out by petitioners, the trial court concluded that the respondents "cause of action arose merely from
the negligence of the herein [petitioners]."18 It may be that gross negligence may sometimes amount to bad faith. 19 But
what is before us is a matter of simple negligence only, it being the trial courts categorical finding that the case came
about owing to petitioners mistake in renewing the loan when the sale of the article to secure the loan had already been
effected. Wrote the trial court:

"What must have happened next was that the jewelry under the first loan was sold, as scheduled, on 7 May 1992. Due to
an oversight, the defendants mistakenly renewed the first loan on 1 June 1992, issuing pawn ticket number 34932 in the
process."20 [Emphasis supplied]

The CAs reliance on Article 2220 of the Civil Code in affirming the award of moral damages is misplaced. Said article
provides:
 327

Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under
the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant
acted fraudulently or in bad faith.

Clear it is from the above that before moral damages may be assessed thereunder, the defendants act must be vitiated
by bad faith or that there is willful intent to injure. Simply put, moral damages cannot arise from simple negligence.

The award of attorneys fees should, likewise, be struck down, both the CA and trial court having failed to explain
respondents entitlement thereto. As a matter of sound practice, an award of attorneys fee has always been regarded as
the exception rather than the rule. Counsels fees are, to be sure, not awarded every time a party prevails in a suit
because of the policy that no premium should be placed on the right to litigate. Attorneys fees, as part of damages, are
assessed only in the instances specified in Article 2208 of the Civil Code. 21 And it is necessary for the trial court to make
express findings of fact and law that would bring the case within the exception. In short, the factual, legal or equitable
justification for the award must be set forth in the text of the decision. 22 The matter of attorneys fees cannot be touched
only in the fallo of the decision, else the award should be thrown out for being speculative and conjectural. 23

Certainly not lost on the Court is the fact that petitioners, after being served with summons, made an attempt to obviate
litigation by offering to accept tender of payment and return the jewelry. This offer, however belated, could have saved
much expense on the part of both parties, as well as the precious time of the court itself. The respondents chose to turn
down this offer and pursue judicial recourse. With this in mind, it hardly seems fair to award them attorneys fees at
petitioners expense.

The final issue relating to the question of whether or not both respondents are liable for damages has, for all intent and
purposes, been rendered moot and academic by the disposition just made. We need not dwell on it any further. Besides,
this particular issue has only made its debut in the present recourse. And it is a well-entrenched rule that issues not raised
below cannot be resolved on review in higher courts. 24 A question that was never raised in the court below cannot be
allowed to be raised for the first time on appeal without offending basic rules of fair play, justice and due process. 25

WHEREFORE, with the MODIFICATION that the awards of moral damages and attorneys fees are deleted, the decision
under review is hereby AFFIRMED.

No pronouncement as to cost.

SO ORDERED.
 328

G.R. No. 171569 August 1, 2011

UNION BANK OF THE PHILIPPINES,

vs.
ALAIN* JUNIAT, WINWOOD APPAREL, INC., WINGYAN APPAREL, INC., NONWOVEN FABRIC
PHILIPPINES,Respondents.

DECISION

DEL CASTILLO, J.:

To have a binding effect on third parties, a contract of pledge must appear in a public instrument. 1

This Petition for Review on Certiorari2 under Rule 45 of the Rules of Court assails the June 23, 2005 Decision 3 and the
February 9, 2006 Resolution4 of the Court of Appeals (CA) in CA-G.R. CV No. 66392.

Factual Antecedents

Petitioner Union Bank of the Philippines (Union Bank) is a universal

banking corporation organized and existing under Philippine laws. 5

Respondents Winwood Apparel, Inc. (Winwood) and Wingyan Apparel, Inc. (Wingyan) are domestic corporations
engaged in the business of apparel manufacturing.6 Both respondent corporations are owned and operated by respondent
Alain Juniat (Juniat), a French national based in Hongkong.7 Respondent Nonwoven Fabric Philippines, Inc. (Nonwoven)
is a Philippine corporation engaged in the manufacture and sale of various types of nonwoven fabrics.8

On September 3, 1992, petitioner filed with the Regional Trial Court (RTC) of Makati, Branch 57, a Complaint 9 with prayer
for the issuance of ex-parte writs of preliminary attachment and replevin against Juniat, Winwood, Wingyan, and the
person in possession of the mortgaged motorized sewing machines and equipment.10 Petitioner alleged that Juniat, acting
for and in behalf of Winwood and Wingyan, executed a promissory note 11 dated April 11, 1992 and a Chattel
Mortgage12 dated March 27, 1992 over several motorized sewing machines and other allied equipment to secure their
obligation arising from export bills transactions to petitioner in the amount of 1,131,134.35; 13 that as additional security
for the obligation, Juniat executed a Continuing Surety Agreement 14dated April 11, 1992 in favor of petitioner;15 that the
loan remains unpaid;16 and that the mortgaged motorized sewing machines are insufficient to answer for the obligation.17
 329

On September 10, 1992, the RTC issued writs of preliminary attachment and replevin in favor of petitioner.18 The writs
were served by the Sheriff upon Nonwoven as it was in possession of the motorized sewing machines and
equipment.19 Although Nonwoven was not impleaded in the complaint filed by petitioner, the RTC likewise served
summons upon Nonwoven since it was in possession of the motorized sewing machines and equipment.20

On September 28, 1992, Nonwoven filed an Answer,21 contending that the unnotarized Chattel Mortgage executed in
favor of petitioner has no binding effect on Nonwoven and that it has a better title over the motorized sewing machines
and equipment because these were assigned to it by Juniat pursuant to their Agreement22 dated May 9, 1992.23 Juniat,
Winwood, and Wingyan, on the other hand, were declared in default for failure to file an answer within the reglementary
period.24

On November 23, 1992, petitioner filed a Motion to Sell Chattels Seized by Replevin,25 praying that the motorized sewing
machines and equipment be sold to avoid depreciation and deterioration. 26 However, on May 18, 1993, before the RTC
could act on the motion, petitioner sold the attached properties for the amount of 1,350,000.00. 27

Nonwowen moved to cite the officers of petitioner in contempt for selling the attached properties, but the RTC denied the
same on the ground that Union Bank acted in good faith.28

Ruling of the Regional Trial Court

On May 20, 1999, the RTC of Makati, Branch 145, 29 rendered a Decision30 in favor of petitioner. The RTC ruled that both
the Chattel Mortgage dated March 27, 1992 in favor of petitioner and the Agreement dated May 9, 1992 in favor of
Nonwoven have no obligatory effect on third persons because these documents were not notarized. 31However, since the
Chattel Mortgage in favor of petitioner was executed earlier, petitioner has a better right over the motorized sewing
machines and equipment under the doctrine of "first in time, stronger in right" (prius tempore, potior jure). 32 Thus, the RTC
disposed of the case in this wise:

WHEREFORE, above premises considered, judgment is hereby rendered as follows:

1.] Declaring the [petitioner] UNION BANK OF THE PHILIPPINES, as having the better right to the goods and/or
machineries subject of the Writs of Preliminary Attachment and Replevin issued by this Court on September 10,
1992.

2.] Declaring the [petitioner] as entitled to the proceeds of the sale of the subject machineries in the amount of
1,350,000.00;

3.] Declaring [respondents] Allain Juniat, Winwood Apparel, Inc. and Wingyan Apparel, Inc. to be jointly and
severally liable to the [petitioner], for the deficiency between the proceeds of the sale of the machineries subject
of this suit [1,350,000.00] and original claim of the plaintiff [1,919,907.03], in the amount of 569,907.03, with
legal interest at the rate of 12% per annum from date of this judgment until fully paid; and

4.] Declaring [respondents] Allain Juniat, Winwood Apparel, Inc. and Wingyan Apparel, Inc. to be jointly and
severally liable to the [petitioner] for the amount of 50,000.00 as reasonable attorneys fees; and

5.] Cost of this suit against the [respondents].

SO ORDERED.33

Nonwoven moved for reconsideration34 but the RTC denied the same in its

Order35 dated July 14, 1999.

Ruling of the Court of Appeals

On appeal, the CA reversed the ruling of the RTC. The CA ruled that the contract of pledge entered into between Juniat
and Nonwoven is valid and binding, and that the motorized sewing machines and equipment were ceded to Nonwoven by
 330

Juniat by virtue of a dacion en pago.36 Thus, the CA declared Nonwoven entitled to the proceeds of the sale of the
attached properties.37 The fallo reads:

WHEREFORE, premises considered, the assailed decision is hereby REVERSED and SET ASIDE. [Petitioner] Union
Bank of the Philippines is hereby DIRECTED to pay Nonwoven Fabric Philippines, Inc. 1,350,000.00, the amount it
holds in escrow, realized from the May 18, 1993 sale of the machineries to avoid deterioration during pendency of suit. No
pronouncement as to costs.

SO ORDERED.38

Petitioner sought reconsideration39 which was denied by the CA in a Resolution40 dated February 9, 2006.

Issues

Hence, the present recourse where petitioner interposes the following issues:

1. Whether x x x the Court of Appeals committed serious reversible error in setting aside the Decision of the trial
court holding that Union Bank of the Philippines had a better right over the machineries seized/levied upon in the
proceedings before the trial court and/or the proceeds of the sale thereof;

2. Whether x x x the Court of Appeals seriously erred in holding that [Nonwoven] has a valid claim over the
subject sewing machines.41

Petitioners Arguments

Echoing the reasoning of the RTC, petitioner insists that it has a better title to the proceeds of the sale. 42 Although the
Chattel Mortgage executed in its favor was not notarized, petitioner insists that it is nevertheless valid, and thus, has
preference over a subsequent unnotarized agreement.43 Petitioner further claims that except for the said agreement, no
other evidence was presented by Nonwoven to show that the motorized sewing machines and equipment were indeed
transferred to them by Juniat/Winwood/Wingyan.44

Respondent Nonwovens Arguments

Nonwoven, on the other hand, claims ownership over the proceeds of the sale under Article 1544 45 of the Civil Code on
double sale, which it claims can be applied by analogy in the instant case. 46 Nonwoven contends that since its prior
possession over the motorized sewing machines and equipment was in good faith, it has a better title over the proceeds
of the sale.47 Nonwoven likewise maintains that petitioner has no right over the proceeds of the sale because the Chattel
Mortgage executed in its favor was unnotarized, unregistered, and without an affidavit of good faith.48

Our Ruling

The petition has merit.

Nonwoven lays claim to the attached motorized sewing machines and equipment pursuant to the Agreement it entered
into with Juniat, to wit:

Hong Kong, 9th May, 1992

With reference to talks held this morning at the Holiday Inn Golden Mile Coffee Shop, among the following parties:

a. Redflower Garments Inc. Mrs. Maglipon

b. Nonwoven Fabrics Phils. Inc. Mr. J. Tan

c. Winwood Apparel Inc./Wing Yan Apparel, Inc. Mr. A. Juniat, Mrs. S. Juniat
 331

IT WAS AGREED THAT:

a. Settlement of the accounts between Nonwoven Fabrics Phils. Inc. and Winwood Apparel Inc./Wing Yan Apparel, Inc.
should be effected as agreed through partial payment by L/C with the balance to be settled at a later date for which
Winwood Apparel, Inc. agrees to consign 94 sewing machines, 3 snap machines and 2 boilers, presently in the care of
Redflower Garments Inc., to the care of Nonwoven Fabrics Phils., Inc. as guarantee. Meanwhile, Nonwoven will resume
delivery to Winwood/Win Yang as usual.

x x x x49 (Emphasis supplied.)

It insists that since the attached properties were assigned or ceded to it by Juniat, it has a better right over the proceeds of
the sale of the attached properties than petitioner, whose claim is based on an unnotarized Chattel Mortgage.

We do not agree.

Indeed, the unnotarized Chattel Mortgage executed by Juniat, for and in behalf of Wingyan and Winwood, in favor of
petitioner does not bind Nonwoven. 50 However, it must be pointed out that petitioners primary cause of action is for a sum
of money with prayer for the issuance of ex-parte writs of attachment and replevin against Juniat, Winwood, Wingyan, and
the person in possession of the motorized sewing machines and equipment.51 Thus, the fact that the Chattel Mortgage
executed in favor of petitioner was not notarized does not affect petitioners cause of action. Petitioner only needed to
show that the loan of Juniat, Wingyan and Winwood remains unpaid and that it is entitled to the issuance of the writs
prayed for. Considering that writs of attachment and replevin were issued by the RTC, 52Nonwoven had to prove that it has
a better right of possession or ownership over the attached properties.1avvphil This it failed to do.

A perusal of the Agreement dated May 9, 1992 clearly shows that the sewing machines, snap machines and boilers were
pledged to Nonwoven by Juniat to guarantee his obligation. However, under Article 2096 of the Civil Code, "[a] pledge
shall not take effect against third persons if a description of the thing pledged and the date of the pledge do not appear in
a public instrument." Hence, just like the chattel mortgage executed in favor of petitioner, the pledge executed by Juniat in
favor of Nonwoven cannot bind petitioner.

Neither can we sustain the finding of the CA that: "The machineries were ceded to THIRD PARTY NONWOVEN by way of
dacion en pago, a contract later entered into by WINWOOD/WINGYAN and THIRD PARTY NONWOVEN." 53As aptly
pointed out by petitioner, no evidence was presented by Nonwoven to show that the attached properties were
subsequently sold to it by way of a dacion en pago. Also, there is nothing in the Agreement dated May 9, 1992 to indicate
that the motorized sewing machines, snap machines and boilers were ceded to Nonwoven as payment for the Wingyans
and Winwoods obligation. It bears stressing that there can be no transfer of ownership if the delivery of the property to the
creditor is by way of security.54 In fact, in case of doubt as to whether a transaction is one of pledge or dacion en pago,
the presumption is that it is a pledge as this involves a lesser transmission of rights and interests.55

In view of the foregoing, we are constrained to reverse the ruling of the CA. Nonwoven is not entitled to the proceeds of
the sale of the attached properties because it failed to show that it has a better title over the same.

WHEREFORE, the petition is hereby GRANTED. The assailed June 23, 2005 Decision and the February 9, 2006
Resolution of the Court of Appeals in CA-G.R. CV No. 66392 are hereby REVERSED and SET ASIDE. The May 20, 1999
Decision of the Regional Trial Court of Makati, Branch 145, is hereby REINSTATED and AFFIRMED.

SO ORDERED.
 332

GR NO. 146021 March 10, 2006

BANK OF THE PHILIPPINE ISLANDS, Petitioner,

vs.
ELIZABETH G. SARMIENTO, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari filed by Bank of the Philippine Islands (petitioner) seeking to annul the
Decision dated September 15, 20001 and the Resolution dated November 13, 20002 of the Court of Appeals (CA) in CA
G.R. CV No. 50135 affirming in toto the decision of the Regional Trial Court of Quezon City dismissing the complaint for
sum of money filed by petitioner against Elizabeth Sarmiento (respondent).

The factual backdrop as found by the CA is as follows:

Appellee Sarmiento was the assistant manager of appellant bank's Espaa Branch. Sometime in 1987, the Espaa
Branch was investigated for several alleged anomalous transactions involving time deposits (Exhibit A). Among the
suspects in the alleged scam was appellee Sarmiento. From October 10, 1987 to June 30, 1988, appellee Sarmiento did
not regularly report for work but went to her office in the bank only once in a while. She however received her full salary
for the said period totaling P116,003.52. Subsequently, she received a demand from the appellant bank to return said
amount because it was mistakenly paid to her. She refused to do so and so appellant bank instituted an action for
collection in the court below.

Appellant bank asserted that since appellee Sarmiento did not actually work during the period adverted to, she was not
therefore, entitled to receive any salary. The payment to her of said salary was a mistake.

According to appellee Sarmiento however, when an internal audit was being undertaken in connection with the
investigation of the alleged bank scam, Vice President Arturo Kimseng of the Audit Department of appellant bank verbally
directed her to stop working while the investigation was going on. This directive was obviously for the purpose of
preventing appellee Sarmiento from tampering with the records or from influencing her subordinates to cover-up for her. It
was because of said oral instruction that appellee Sarmiento went to office sparingly. 3

On April 3, 1995, the Regional Trial Court of Quezon City, Branch 98, dismissed 4 the complaint for failure of petitioner to
establish its case by preponderance of evidence with costs against it. The trial court found that the principle of solutio
indebiti upon which petitioner based its complaint for a sum of money is untenable. It ruled that since respondent was
petitioner's Assistant Manager at the Espaa Branch, she was a managerial employee who was not under obligation to
punch in her card in the bundy clock; that she was allowed to visit the business establishments of petitioner's several
clients thus she could not be seen reporting for work which was not a conclusive proof that she was not rendering service
to her employer; that respondent was lawfully entitled for payment of her salaries for the period from October 10, 1987 to
June 30, 1988, amounting to P116,003.52; that petitioner's averment that during the periods aforementioned respondent
had already ceased reporting rest on a very shaky ground since respondent claimed that she was instructed by
petitioner's Assistant Vice-President of the Auditing Department to refrain from reporting regularly inasmuch as there was
an on-going internal audit; that petitioner failed to present countervailing evidence on this point, hence such claim
remained unrebutted; and that petitioner did not even bother to adduce clear and convincing evidence when the services
of respondent was terminated.
 333

Petitioner filed its appeal with the CA which in a Decision dated September 15, 2000 affirmed the Decision of the trial
court and dismissed the appeal. Petitioner's motion for reconsideration was likewise denied in a Resolution dated
November 13, 2000.

In finding for the respondent, the CA made the following disquisition:

These are admitted or fully established facts which constitute the foundation of this Court's verdict, to wit:

1. Appellee Sarmiento was an assistant manager of appellant bank's Espaa Branch and therefore was a
managerial employee.

2. As a managerial employee, appellee Sarmiento was not required to report for work in accordance with a
definite time schedule.

3. For the period, October 10, 1987 to June 30, 1988, appellee Sarmiento went to her office only once in a while
but received her full salary for said period.

4. According to appellant bank, appellee Sarmiento's services in said bank were terminated on August 26, 1988.
Consequently, for the period, October 10, 1987 to June 30, 1988, appellee was still an employee of the bank.

5. During the period in question, appellee Sarmiento was not suspended from office.

6. No criminal, civil or administrative action has been instituted by appellant bank against appellee Sarmiento.

In this suit, the basis of appellant's bank's claim for reimbursement of the salary paid to appellee Sarmiento for the period
in question is the rule of "no work, no pay". Since she did not work during the period in question, she was not entitled to
any salary. Appellee Sarmiento counters this position with the argument that the reason why she did not report for work
regularly was because she was verbally instructed by Vice-President Arturo Kimseng not to report for work while the
investigation in the bank was going on. Consequently, it was not her desire, much less her fault, that she went to office
very rarely.

The only issue to resolve is whether or not appellee Sarmiento was indeed verbally instructed by Vice President Arturo
Kimseng not to report for work while the investigation was still going on.

It is true that Vice President Arturo Kimseng denied having given said oral instruction to appellee Sarmiento. That
notwithstanding, this Court shares the view of the lower court that indeed appellee Sarmiento was enjoined from reporting
for work during the period of investigation.

This is plausible because it jibes with the common practice in the business world. When a managerial employee is under
investigation, the employer has three options. First: to suspend the managerial employee during the period of
investigation - but this entails notice and hearing to comply with the demands of administrative due process. Second: to
allow the managerial employee to continue working during the period of investigation so that the employer can derive
benefit out of the salary being paid to the former. Third: to let the managerial employee discontinue working during the
period of investigation but continue paying his salary. Usually, the employers choose the third option because they
consider the salary paid without work a reasonable price to pay for ensuring the integrity of the records under the control
and to avoid influence being exerted upon subordinate employees who may be potential witnesses against the former.

If there had been no such instruction to appellee Sarmiento, why did not the branch manager or even higher corporate
officials call her attention for not reporting to office regularly? If her attention was called but she continued to be absent,
why was she not suspended? Why was her salary paid? These questions were not satisfactorily answered by appellant
bank.

Accordingly, this Court holds that the payment of the salary to appellee Sarmiento during the period in question was
correct and the latter's receipt was legal. She has therefore, no obligation to return it. 5

Hence, the instant petition for review on the following grounds:

 334

I. The Honorable Court of Appeals erred in holding based on a misapprehension of facts that the "only issue to
resolve is whether it is true or not that appellee Sarmiento was indeed verbally instructed by Vice President Arturo
Kimseng not to report for work while the investigation was still going on."

II. In connection with the foregoing, the Honorable Court of Appeals also erred in holding without any basis at all,
that it "shares the view of the lower court that indeed appellee Sarmiento was enjoined from reporting for work
during the period of investigation."

III. The Honorable Court of Appeals erred in holding based entirely on speculations, surmises or conjecturesthat
"the payment of the salary to appellee Sarmiento during the period in question was correct and the latter's receipt
(thereof) was legal" and accordingly, "she has therefore no obligation to return it."

IV. The Honorable Court of Appeals erred in dismissing the appeal of BPI and affirming the Decision under
appeal. 6

Respondent filed her Comment. Subsequently, upon directive of the Court, the parties submitted their respective
memoranda.

Petitioner claims that: when the CA declared that the only issue to resolve is whether it is true or not that appellee
Sarmiento was indeed verbally instructed by Assistant Vice-President Arturo Kimseng (AVP Kimseng) not to report for
work while the investigation was still going on, the CA impliedly acknowledged that it is convinced that respondent did not
report for work while the investigation was going on; petitioner fully agrees with the CA in making such an assumption as it
was based on the evidence on record; it was even respondent who admitted in her Answer to the complaint as well as in
her testimony in cross-examination that she stopped reporting for work on September 12, 1987; the CA erred in its
assumption that AVP Kimseng had the power or authority to order or direct respondent not to report for work since no
evidence was presented by the defense to that effect; AVP Kimseng rebutted such claim when he testified that he had no
authority to do so; if it was really petitioner's intention not to allow respondent to report for work and yet pay her salaries,
there is no reason why it should now proceed to recover from her; it is not uncommon for an employee who is under
investigation to cease from reporting for work on her own because she does not want to cooperate or to participate in the
investigation being conducted.

The Court dismisses the petition.

It is a settled rule that in the exercise of the Supreme Court's power of review, the Court is not a trier of facts and does not
normally undertake the re-examination of the evidence presented by the contending parties during the trial of the case
considering that the findings of facts of the CA are conclusive and binding on the Court. 7 Jurisprudence has recognized
several exceptions in which factual issues may be resolved by this Court, such as: (1) when the findings are grounded
entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts;
(5) when the findings of facts are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues
of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are
contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are
based; (9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the
evidence on record; or (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a different conclusion. 8 None of these exceptions find application in the
present case.

After a thorough review of the instant case, the Court finds that the petition raises no substantial question of law. The
questions raised as to whether or not respondent was verbally instructed not to report for work by petitioner's AVP
Kimseng while the investigation was going on and whether he possesses such authority considering that on rebuttal, he
denied having given such instruction claiming that he had no authority to do so, are patently questions of fact beyond the
pale of Rule 45 of the Rules of Court which mandates that only questions of law be raised in the petition.

The Court finds no cogent reason to deviate from the findings of the trial court and the CA that respondent is entitled to
the payment of her salary from October 10, 1987 to June 30, 1988. Petitioner's witness, Eduardo Cascarro, Head of the
Branches Division Investigation Unit, testified that respondent was terminated only on August 26, 1988, 9 thus, there is no
 335

question that respondent was still an employee of petitioner during the period in question. There was no showing that
respondent was even suspended during the said period.

Although respondent testified that she stopped reporting for work on September 12, 1987, she also testified on cross-
examination that she still went to her office from September to December 1987 although admittedly she was not doing
anything but she still received her salary. The Court likewise agrees with the CA that respondent could not be faulted for
not reporting for work because she merely complied with the verbal instruction of AVP Kimseng not to report for work
when the latter was conducting the investigation of the branch for anomalies. While AVP Kimseng denied that he made
such instruction and declared that he had no authority to give such instruction, the trial court gave more credence to the
testimony of respondent that indeed she was instructed not to report for work.

We find no cogent reason to disturb the findings of the trial court in light of the settled rule that the evaluation of the
testimonies of witnesses by the trial court is entitled to the highest respect because such court has the direct opportunity
to observe the witnesses' demeanor and manner of testifying and thus, is in a better position to assess their credibility. 10

The CA finding was supported by the evidence on record. Petitioner contends that respondent was not reporting for work
from October 10, 1987 to June 30, 1988, however, petitioner failed to show why its Espaa Branch Manager allowed
respondent to be absent or not to do anything during that period if indeed there was no such instruction from AVP
Kimseng for her not to report for work. It bears stressing that as an Assistant Branch Manager, respondent has some
official duties to perform pertaining to the internal operation of petitioner's branch and yet her Branch Manager allowed her
to be absent for such a long period of time without calling her attention on such absences. The only plausible explanation
is that, as declared by respondent, which remained unrebutted, she had relayed to her Branch Manager the verbal
instruction of AVP Kimseng for her not to report for work while the investigation was on-going. If indeed there was no such
instruction, the Branch Manager could have immediately called respondent's attention regarding her absences and that
she should have been required to perform her official duties inside the branch office. And if she continued to be absent,
she could have been sanctioned or given the corresponding memorandum. Moreover, there is no evidence to show that
such absences, if unauthorized, were reported by the Branch Manager to higher authorities of petitioner. On the contrary,
without qualification or reservation, respondent's salary and other benefits were given to her by petitioner during the said
period.

Petitioner insists that its payment of respondent's salary was by mistake since respondent who chose not to report for
work was not entitled to it under the principle of "no work, no pay", thus she has the obligation to return the same.
Petitioner based such contention on the principle of solutio indebiti under Article 215411 of the Civil Code.

There is solutio indebiti where: (1) payment is made when there exists no binding relation between the payor, who has no
duty to pay, and the person who received the payment; and (2) the payment is made through mistake, and not through
liberality or some other cause. x x x The quasi-contract of solutio indebiti is based on the ancient principle that no one
shall enrich himself unjustly at the expense of another.12

Both elements are lacking in the present case. Mr. Cascarro, the Head of the Branches Division Investigation Unit, had
categorically stated that respondent was only terminated from service on August 26, 1988. Respondent was not
suspended from office. Consequently, during the period in question, there still existed an employer-employee relationship
between petitioner and respondent which entitled respondent to the payment of her salary during the said period. Thus,
there can be no mistaken payment in this case. Moreover, it has been shown that the payment of respondent's salary was
with the knowledge and approval of respondent's immediate superior officers. Hence, the principle of solutio indebiti finds
no application in this case.

WHEREFORE, the petition is DENIED and the Decision dated September 15, 2000 and the Resolution dated November
13, 2000 of the Court of Appeals are AFFIRMED.

Costs against petitioner.

SO ORDERED.
336
 337

G.R. No. 157906 November 2, 2006

JOAQUINITA P. CAPILI, Petitioner,

vs.
SPS. DOMINADOR CARDAA and ROSALITA CARDAA, Respondents.

DECISION

QUISUMBING, J.:

Before us is a petition for review assailing the Decision 1 dated October 18, 2002 of the Court of Appeals in CA-G.R. CV.
No. 54412, declaring petitioner liable for negligence that resulted in the death of Jasmin Cardaa, a school child aged 12,
enrolled in Grade 6, of San Roque Elementary School, where petitioner is the principal. Likewise assailed is the
Resolution2 dated March 20, 2003 denying reconsideration.

The facts are as follows:

On February 1, 1993, Jasmin Cardaa was walking along the perimeter fence of the San Roque Elementary School when
a branch of a caimito tree located within the school premises fell on her, causing her instantaneous death. Thus, her
parents - Dominador and Rosalita Cardaa - filed a case for damages before the Regional Trial Court of Palo, Leyte
against petitioner.

The Cardaas alleged in their complaint that even as early as December 15, 1992, a resident of the barangay, Eufronio
Lerios, reported on the possible danger the tree posed to passersby. Lerios even pointed to the petitioner the tree that
stood near the principals office. The Cardaas averred that petitioners gross negligence and lack of foresight caused the
death of their daughter.

Petitioner denied the accusation and said that at that time Lerios had only offered to buy the tree. She also denied
knowing that the tree was dead and rotting. To prove her point, she presented witnesses who attested that she had
brought up the offer of Lerios to the other teachers during a meeting on December 15, 1992 and assigned Remedios
Palaa to negotiate the sale.

In a Decision3 dated February 5, 1996, the trial court dismissed the complaint for failure of the respondents to establish
negligence on the part of the petitioner.

On appeal, the Court of Appeals reversed the trial courts decision. The appellate court found the appellee (herein
petitioner) liable for Jasmins death, as follows:

Foregoing premises considered, the instant appeal is GRANTED. Appellee Joaquinita Capili is hereby declared liable for
negligence resulting to the death of Jasmin D. Cardaa. She is hereby ordered to indemnify appellants, parents of
Jasmin, the following amounts:
 338

1. For the life of Jasmin D. Cardaa P50,000.00;

2. For burial expenses 15,010.00;

3. For moral damages 50,000.00;

4. For attorneys fees and litigation 10,000.00.

expenses

SO ORDERED.4

Petitioners motion for reconsideration was denied. Petitioner now comes before us submitting the following issues for our
resolution:

WHETHER OR NOT THE COURT OF APPEALS VIS--VIS THE SET OF FACTS STATED IN THE
CHALLENGED DECISION, ERRED IN FINDING THE PETITIONER NEGLIGENT AND THEREFORE LIABLE
FOR DAMAGES UNDER ARTICLE 2206 OF THE CIVIL CODE AND IN ORDERING THE PETITIONER TO PAY
DAMAGES TO THE RESPONDENTS; AND

II

WHETHER OR NOT THE COURT OF APPEALS ERRED IN DENYING PETITIONERS MOTION FOR
RECONSIDERATION.5

On the other hand, respondents posit the following issue:

Whether or not the Decision of the Honorable Court of Appeals, Twelfth Division, in CA G.R. CV. No. 54412 promulgated
on October 18, 2002 should be affirmed and respected, thus remain undisturbed. 6

Primarily, the issue is whether petitioner is negligent and liable for the death of Jasmin Cardaa.

Petitioner asserts that she was not negligent about the disposal of the tree since she had assigned her next-in-rank,
Palaa, to see to its disposal; that despite her physical inspection of the school grounds, she did not observe any
indication that the tree was already rotten nor did any of her 15 teachers inform her that the tree was already rotten; 7 and
that moral damages should not be granted against her since there was no fraud nor bad faith on her part.

On the other hand, respondents insist that petitioner knew that the tree was dead and rotting, yet, she did not exercise
reasonable care and caution which an ordinary prudent person would have done in the same situation.

To begin, we have to point out that whether petitioner was negligent or not is a question of fact which is generally not
proper in a petition for review, and when this determination is supported by substantial evidence, it becomes conclusive
and binding on this Court.8 However, there is an exception, that is, when the findings of the Court of Appeals are
incongruent with the findings of the lower court.9 In our view, the exception finds application in the present case.

The trial court gave credence to the claim of petitioner that she had no knowledge that the tree was already dead and
rotting and that Lerios merely informed her that he was going to buy the tree for firewood. It ruled that petitioner exercised
the degree of care and vigilance which the circumstances require and that there was an absence of evidence that would
require her to use a higher standard of care more than that required by the attendant circumstances. 10 The Court of
Appeals, on the other hand, ruled that petitioner should have known of the condition of the tree by its mere sighting and
that no matter how hectic her schedule was, she should have had the tree removed and not merely delegated the task to
Palaa. The appellate court ruled that the dead caimito tree was a nuisance that should have been removed soon after
petitioner had chanced upon it.11
 339

A negligent act is an inadvertent act; it may be merely carelessly done from a lack of ordinary prudence and may be one
which creates a situation involving an unreasonable risk to another because of the expectable action of the other, a third
person, an animal, or a force of nature. A negligent act is one from which an ordinary prudent person in the actors
position, in the same or similar circumstances, would foresee such an appreciable risk of harm to others as to cause him
not to do the act or to do it in a more careful manner.12

The probability that the branches of a dead and rotting tree could fall and harm someone is clearly a danger that is
foreseeable. As the school principal, petitioner was tasked to see to the maintenance of the school grounds and safety of
the children within the school and its premises. That she was unaware of the rotten state of a tree whose falling branch
had caused the death of a child speaks ill of her discharge of the responsibility of her position.

In every tort case filed under Article 2176 of the Civil Code, plaintiff has to prove by a preponderance of evidence: (1) the
damages suffered by the plaintiff; (2) the fault or negligence of the defendant or some other person for whose act he must
respond; and (3) the connection of cause and effect between the fault or negligence and the damages incurred. 13

The fact, however, that respondents daughter, Jasmin, died as a result of the dead and rotting tree within the schools
premises shows that the tree was indeed an obvious danger to anyone passing by and calls for application of the principle
of res ipsa loquitur.

The doctrine of res ipsa loquitur applies where (1) the accident was of such character as to warrant an inference that it
would not have happened except for the defendants negligence; (2) the accident must have been caused by an agency
or instrumentality within the exclusive management or control of the person charged with the negligence complained of;
and (3) the accident must not have been due to any voluntary action or contribution on the part of the person injured.14

The effect of the doctrine of res ipsa loquitur is to warrant a presumption or inference that the mere falling of the branch of
the dead and rotting tree which caused the death of respondents daughter was a result of petitioners negligence, being
in charge of the school.

In the case of D.M. Consunji, Inc. v. Court of Appeals,15 this Court held:

As a rule of evidence, the doctrine of res ipsa loquitur is peculiar to the law of negligence which recognizes that prima
facie negligence may be established without direct proof and furnishes a substitute for specific proof of negligence.

The concept of res ipsa loquitur has been explained in this wise:

While negligence is not ordinarily inferred or presumed, and while the mere happening of an accident or injury will not
generally give rise to an inference or presumption that it was due to negligence on defendants part, under the doctrine
of res ipsa loquitur, which means, literally, the thing or transaction speaks for itself, or in one jurisdiction, that the thing or
instrumentality speaks for itself, the facts or circumstances accompanying an injury may be such as to raise a
presumption, or at least permit an inference of negligence on the part of the defendant, or some other person who is
charged with negligence.

x x x where it is shown that the thing or instrumentality which caused the injury complained of was under the control or
management of the defendant, and that the occurrence resulting in the injury was such as in the ordinary course of things
would not happen if those who had its control or management used proper care, there is sufficient evidence, or, as
sometimes stated, reasonable evidence, in the absence of explanation by the defendant, that the injury arose from or was
caused by the defendants want of care.

The procedural effect of the doctrine of res ipsa loquitur is that petitioners negligence is presumed once respondents
established the requisites for the doctrine to apply. Once respondents made out a prima facie case of all requisites, the
burden shifts to petitioner to explain. The presumption or inference may be rebutted or overcome by other evidence and,
under appropriate circumstances a disputable presumption, such as that of due care or innocence, may outweigh the
inference.16

Was petitioners explanation as to why she failed to have the tree removed immediately sufficient to exculpate her?
 340

As the school principal, petitioner was tasked to see to the maintenance of the school grounds and safety of the children
within the school and its premises. That she was unaware of the rotten state of the tree calls for an explanation on her
part as to why she failed to be vigilant.

Petitioner contends she was unaware of the state of the dead and rotting tree because Lerios merely offered to buy the
tree and did not inform her of its condition. Neither did any of her teachers inform her that the tree was an imminent
danger to anyone. She argues that she could not see the immediate danger posed by the tree by its mere sighting even
as she and the other teachers conducted ground inspections. She further argues that, even if she should have been
aware of the danger, she exercised her duty by assigning the disposition of the tree to another teacher.

We find petitioners explanation wanting. As school principal, petitioner is expected to oversee the safety of the schools
premises.1wphi1 The fact that she failed to see the immediate danger posed by the dead and rotting tree shows she
failed to exercise the responsibility demanded by her position.

Moreover, even if petitioner had assigned disposal of the tree to another teacher, she exercises supervision over her
assignee.17 The record shows that more than a month had lapsed from the time petitioner gave instruction to her assistant
Palaa on December 15, 1992, to the time the incident occurred on February 1, 1993. Clearly, she failed to check
seasonably if the danger posed by the rotting tree had been removed. Thus, we cannot accept her defense of lack of
negligence.

Lastly, petitioner questions the award of moral damages. Moral damages are awarded if the following elements exist in
the case: (1) an injury clearly sustained by the claimant; (2) a culpable act or omission factually established; (3) a wrongful
act or omission by the defendant as the proximate cause of the injury sustained by the claimant; and (4) the award of
damages predicated on any of the cases stated in Article 2219 of the Civil Code. 18 However, the person claiming moral
damages must prove the existence of bad faith by clear and convincing evidence for the law always presumes good faith.
It is not enough that one merely suffered sleepless nights, mental anguish, and serious anxiety as the result of the
actuations of the other party. Invariably, such action must be shown to have been willfully done in bad faith or with ill
motive.19 Under the circumstances, we have to concede that petitioner was not motivated by bad faith or ill motive vis--
vis respondents daughters death. The award of moral damages is therefore not proper.

In line with applicable jurisprudence, we sustain the award by the Court of Appeals of 50,000 as indemnity for the death
of Jasmin,20 and 15,010 as reimbursement of her burial expenses.21

WHEREFORE, the petition is DENIED. The Decision dated October 18, 2002 and the Resolution dated March 20, 2003,
of the Court of Appeals in CA-G.R. CV. No. 54412 are AFFIRMED with MODIFICATION such that the award of moral
damages is hereby deleted.

Costs against petitioner.

SO ORDERED.
 341

G.R. No. 174089 January 25, 2012

ORIX METRO LEASING AND FINANCE CORPORATION (Formerly CONSOLIDATED ORIX LEASING AND FINANCE
CORPORATION), Petitioner,
vs.
MINORS: DENNIS, MYLENE, MELANIE and MARIKRIS, all surnamed MANGALINAO y DIZON, MANUEL M. ONG,
LORETO LUCILO, SONNY LI, AND ANTONIO DE LOS SANTOS, Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 174266

SONNY LI and ANTONIO DE LOS SANTOS, Petitioners,

vs.
MINORS: DENNIS, MYLENE, MELANIE and MARIKRIS, all surnamed MANGALINAO y DIZON, LORETO LUCILO,
CONSOLIDATED ORIX LEASING AND FINANCE CORPORATION and MANUEL M. ONG,Respondents.

DECISION

DEL CASTILLO, J.:

The ones at fault are to answer for the effects of vehicular accidents.

A multiple-vehicle collision in North Luzon Expressway (NLEX) resulting in the death of all the passengers in one vehicle,
including the parents and a sibling of the surviving orphaned minor heirs, compelled the latter to file an action for damages
against the registered owners and drivers of the two 10-wheeler trucks that collided with their parents Nissan Pathfinder
(Pathfinder).

Assailed in these consolidated Petitions for Review on Certiorari1 filed by Orix Metro Leasing and Finance Corporation
(Orix)2 and by Sonny Li (Sonny) and Antonio delos Santos (Antonio) 3 are the October 27, 2005 Decision4 and August 17,
2006 Resolution5 of the Court of Appeals (CA) in CA-G.R. CV No. 70530.

Factual Antecedents

On June 27, 1990, at about 11:15 p.m., three vehicles were traversing the two-lane northbound NLEX in the vicinity
of Barangay Tibag, Pulilan, Bulacan. It was raining that night.

Anacleto Edurese, Jr. (Edurese) was driving a Pathfinder with plate number BBG-334. His Isabela-bound passengers
were the owners of said vehicle, spouses Roberto and Josephine Mangalinao (Mangalinao spouses), their daughter
Marriane, housemaid Rufina Andres and helper Armando Jebueza (Jebueza). Before them on the outer lane was a
Pampanga-bound Fuso 10-wheeler truck (Fuso), with plate number PAE-160, driven by Loreto Lucilo (Loreto), who was
with truck helper Charlie Palomar (Charlie). The Fuso was then already moving in an erratic and swerving
motion.6 Following behind the Pathfinder was another 10-wheeler truck, an Isuzu Cargo (Isuzu) with plate number PNS-
768 driven by Antonio, who was then with helper Rodolfo Navia (Rodolfo).
 342

Just when the Pathfinder was already cruising along the NLEXs fast lane and about to overtake the Fuso, the latter
suddenly swerved to the left and cut into the Pathfinders lane thereby blocking its way. As a result, the Pathfinder hit the
Fusos left door and left body.7 The impact caused both vehicles to stop in the middle of the expressway. Almost instantly,
the inevitable pileup happened. Although Antonio stepped on the brakes, 8 the Isuzus front crashed9 into the rear of the
Pathfinder leaving it a total wreck.10 Soon after, the Philippine National Construction Corporation (PNCC) patrol arrived at
the scene of the accident and informed the Pulilan police about the vehicular mishap. Police Investigator SPO2
Emmanuel Banag responded at about 2:15-2:30 a.m. of June 28, 1990 and investigated the incident as gathered from the
information and sketch11 provided by the PNCC patrol as well as from the statements12 provided by the truck helpers
Charlie and Rodolfo.

In the meantime, the Mangalinao spouses, the driver Edurese, and the helper Jebueza were declared dead on the spot
while 6-month old Marriane and the housemaid were declared dead on arrival at a nearby hospital. 13 The occupants of the
trucks escaped serious injuries and death.

As their letters14 to the registered owners of the trucks demanding compensation for the accident were ignored, the minor
children of the Mangalinao spouses, Dennis, Mylene, Melanie and Marikris, through their legal guardian, 15consequently
filed on January 16, 1991 a Complaint16 for damages based on quasi-delict, before the Regional Trial Court (RTC) of
Makati which was docketed as Civil Case No. 91-123.17 They impleaded the drivers Loreto and Antonio, as well as the
registered owners of the Fuso and the Isuzu trucks, namely Orix and Sonny, 18 respectively. The children imputed
recklessness, negligence, and imprudence on the truck drivers for the deaths of their sister and parents; while they hold
Sonny and Orix equally liable for failing to exercise the diligence of a good father of a family in the selection and
supervision of their respective drivers. The children demanded payment of more than 10.5 million representing damages
and attorneys fees.

Orix in its Motion to Dismiss19 interposed that it is not the actual owner of the Fuso truck. As the trial court denied the
motion,20 it then filed its Answer with Compulsory Counterclaim and Cross-claim.21 Orix reiterated that the children had no
cause of action against it because on September 9, 1983, it already sold the Fuso truck to MMO Trucking owned by
Manuel Ong (Manuel).22 The latter being the alleged owner at the time of the collision, Orix filed a Third Party
Complaint23 against Manuel, a.k.a. Manuel Tan.

In their Answer with Compulsory Counterclaim and Cross-Claim,24 Sonny and Antonio attributed fault for the accident
solely on Loretos reckless driving of his truck which suddenly stopped and slid across the highway. They claimed that
Sonny had exercised the expected diligence required of an employer; that Antonio had been all along driving with care;
and, that with the abrupt and unexpected collision of the vehicles before him and their precarious proximity, he had no
way of preventing his truck from hitting the Pathfinder.

For failing to file any responsive pleading, both Manuel and Loreto were declared in default. 25

Ruling of the Regional Trial Court

After trial, the court a quo issued a Decision26 on February 9, 2001 finding Sonny, Antonio, Loreto and Orix liable for
damages. It likewise ruled in favor of Orix anent its third party complaint, the latter having sufficiently proven that Manuel
of MMO Trucking is the real owner of the Fuso.

The dispositive portion of the RTC Decision states:

Wherefore, premises considered, judgment is hereby rendered in favor of plaintiffs and against the defendants, ordering
the latter to pay plaintiffs, jointly and severally, the following:

1. 3,077,000.00 as actual damages;

2. 2,000,000.00 as moral damages;
3. 1,000,000.00 as exemplary damages; and
4. 400,000.00 as and for reasonable attorneys fees
5. legal interest at six percent (6%) per annum on the above-stated amounts from the filing of the complaint on
January 16, 1991 until fully paid; and
6. costs of suit and expenses of litigation.
 343

Third party defendant Manuel M. Ong is ordered to indemnify third party plaintiff [Orix] for the amounts adjudged against
the latter in this case.

SO ORDERED. 27

Ratiocinating its finding of recklessness on both truck drivers, the RTC said:

The evidence leaves no doubt that both truck drivers were at fault and should be held liable. Lucilo, who was driving the
Fuso truck, was reckless when he caused the swerving of his vehicle directly on the lane of the Pathfinder to his left. The
Pathfinder had no way to avoid a collision because it was about to pass the truck when suddenly blocked. On the other
hand, the Isuzu truck was practically tailgating the Pathfinder on the dark slippery highway such that when the Pathfinder
collided with the Fuso truck, it became inevitable for the Isuzu truck to crash into the Pathfinder. So, de los Santos, the
driver of the Isuzu truck was likewise reckless.28

In an attempt to exonerate itself, Orix appealed to the CA29 followed by Sonny and Antonio.30 All of them challenged the
factual findings and conclusions of the court a quo with regard to their respective liabilities, each pinpointing to the
negligence of the other and vice versa. All of them likewise assailed the amounts the RTC awarded to the minors for lack
of basis.

Ruling of the Court of Appeals

On October 27, 2005, the CA rendered its Decision31 affirming the factual findings of the trial court of reckless driving. It
said:

It may be true that it was the Nissan Pathfinder which first hit and bumped and eventually crashed into the Fuso truck.
However, this would not have happened if the truck did not swerve into the lane of the Nissan Pathfinder. As afore-
mentioned [sic], the latter had no way then to avoid a collision because it was about to overtake the former.

As a motorist, Lucilo [Loreto] should have operated his truck with reasonable caution considering the width, traffic, grades,
crossing, curvatures, visibility and other conditions of the highway and the conditions of the atmosphere and weather. He
should have carefully and cautiously driven his vehicle so as not to have endangered the property or the safety or rights of
other persons. By failing to drive with reasonable caution, Lucilo is, hence, liable for the resultant vehicle collision.

Neither do [we] find credence in delos Santos claim that he is without liability for the vehicular collision. We cannot
overemphasize the primacy in probative value of physical evidence, that mute but eloquent manifestation of the truth. An
examination of the destroyed front part of the Isuzu truck, as shown by photographic evidence, clearly indicates strong
bumping of the rear of the Pathfinder. The photographs belie delos Santos claim that he was driving at a safe speed and
even slowed down when he noticed the [erratic] traveling of the Fuso truck. In fact, by his own admission, it was a matter
of seconds before his Isuzu truck hit the Nissan Pathfinder - a clear indication that he did not actually [slow] down
considering the weather and road condition at that time. Had he been actually prudent in driving, the impact on the Nissan
Pathfinder would not have been that great or he might have even taken evasive action to avoid hitting it. Sadly, that was
not the case as shown by the evidence on record.32

The CA also ruled that Orix, as the registered owner of the Fuso, is considered in the eyes of the law and of third persons
responsible for the deaths of the passengers of the Pathfinder, regardless of the lack of an employer-employee
relationship between it and the driver Loreto.

The CA modified the award of damages as follows:

1. 150,000.00 as indemnity for the death of Spouses Roberto and Josephine Mangalinao and their daughter
Marianne Mangalinao;
2. 2,000,000.00 for loss of earning capacity;
3. 64,200.00 for funeral expenses;
4. 1,000,000.00 as moral damages;
5. 1,000,000.00 as exemplary damages;
6. 400,000.00 as attorneys fees.
 344

If the amounts adjudged remain unpaid upon the finality of this decision, the interest rate shall be twelve percent (12%)
per annum computed from the time the judgment bec[a]me final and executory until fully satisfied.

The six percent (6%) interest per annum from the filing of the complaint indicated in the assailed decision is DELETED.

SO ORDERED.33

Orix and Sonny joined by Antonio, filed their separate Motions for Reconsideration 34 but same were denied in a
Resolution35 dated August 17, 2006.

Hence, these consolidated petitions.

Petitioners Respective Arguments

Orixs contentions in its petition may be summarized as follows:

1. It is not the owner and operator of the Fuso at the time of the collision and should not be held responsible for
compensating the minor children of the Mangalinaos;
2. The Fusos swerving towards the inner lane where the Pathfinder is cruising is attributable not to the alleged
negligence of Loreto but to adverse driving conditions, i.e., the stormy weather and slippery road;
3. The CA has no reliable evidentiary basis for computing loss of earning capacity as the Balance Sheet and Income
Statement of Roberto Mangalinao, as certified by accountant Wilfredo de Jesus for the year 1989, is hearsay
evidence; and
4. The award of attorneys fees sustained by the CA is not justified and is exorbitant.

On the other hand, Sonny and Antonio argue in their petition that:

1. the CA erred in affirming the trial courts erroneous finding that the Isuzu was tailgating, which is contradicted by
the material evidence on record;
2. the proximate cause of the death of the victims is Loretos gross negligence. Antonio should have been accorded
the benefit of the emergency rule wherein he was immediately confronted with a sudden danger and had no time
to think of how to avoid it;
3. the CA should not have awarded damages and attorneys fees because of the total absence of evidence to
substantiate them.

In short, petitioners want us to review the finding of negligence by the CA of both truck drivers, the solidary liability of Orix
as the registered owner of the Fuso, and the propriety of the damages the CA awarded in favor of the Mangalinao
children.

Our Ruling

The finding of negligence of petitioners as found by the lower courts is binding

Negligence and proximate cause are factual issues.36 Settled is the rule that this Court is not a trier of facts, and the
concurrence of the findings of fact of the courts below are conclusive. "A petition for review on certiorari under Rule 45 of
the Rules of Court should include only questions of law - questions of fact are not reviewable"37 save for several
exceptions,38 two of which petitioners invoke, i.e., that the finding is grounded on speculations, surmises, and
conjectures, and that the judgment is based on a misapprehension of facts.

There is no compelling reason to disturb the lower courts factual conclusions.

With regard to the Fuso, we note the statement given by the helper Charlie before the Pulilan police immediately after the
incident:

T: Pakisalaysay mo nga ang mga pangyayari?

 345

S: Nuon nga pong oras at petsang nabanggit habang ako ay sakay ng isang truck patungo Pampanga at sa lugar ng
pinangyarihan ay namireno ang aking driver dahil sa madulas at nagawi kami sa gawing kaliwa (inner lane) na isang
mabilis na pajero (Nissan 4x4) ang bumangga sa gawing unahan hanggang sa tagiliran gawing kaliwa, na ang nasabing
pajero ay papalusot (overtake) na pagkatapos nuon ay may isa (1) pang truck na bumangga sa hulihan. 39

Based on the helpers statement, the Fuso had lost control, skidded to the left and blocked the way of the Pathfinder,
which was about to overtake. The Pathfinder had absolutely no chance to avoid the truck. Instead of slowing down and
moving towards the shoulder in the highway if it really needed to stop, it was very negligent of Loreto to abruptly hit the
brake in a major highway wherein vehicles are highly likely to be at his rear. He opened himself up to a major danger and
naturally, a collision was imminent.

On the other hand, the parties for the Isuzu contend that the CA erred in ruling that the truck was moving at a fast speed
and was tailgating. They assert that they be absolved because the fault lay entirely on the Fuso, which had been
zigzagging along the highway. They aver that when the Fuso and the Pathfinder collided in the middle of the highway with
the Fuso blocking both lanes of the northbound stretch, there was no room left for driver Antonio to maneuver to avoid
them, and that the Pathfinder was hit as a natural consequence.

The Isuzus driver, Antonio, claims that he and the two vehicles before him were travelling at the right lane of the highway,
and on his part, he was travelling at a speed of 50-60 kph and that he was three cars away from the Pathfinder. When the
Pathfinder hit the left side of the Fuso, he stepped on the brake but still struck the Pathfinder. 40He further narrated:

CROSS-EXAMINATION BY ATTY. DOMINGO:

Q And what was this if you noticed anything before the incident happened?

A The Fu[s]o Cargo Truck was swerving from left to right, Sir.

Q How long before this collision did you notice this kind of travelling on the part of the Fu[s]o Cargo Truck?

A About 15 to 20 minutes, Sir.

Q When you noticed this, what if anything, did you do?

A I slow[ed] down, Sir.

Q When you said you slow[ed] down, at what speed do you mean you were travelling?

A More or less 50 kph., Sir.

Q So prior to that, you were travelling faster than 50 to 60 kph. Is that correct?

A Yes, Sir.

Q And [in spite] of that, you testified that you hit the Nissan Pathfinder after it hit the Fu[s]o Cargo Truck?

A Despite the fact that it slow[ed] down, I also hit the Nissan Pathfinder when I skidded because of the slippery
condition of the road at that time.

Q And it was precisely this slippery condition of the road that you are talking about that caused you to hit the
Nissan Pathfinder?

A Yes, Sir.41

xxxx
 346

Q I will just go back to the incident on the collision. At what particular point in the vehicle you were driving hit the
Nissan Pathfinder? At what portion of the Nissan Pathfinder was it hit by the vehicle that you were driving?

A At the rear portion of the Nissan Pathfinder, Sir.

Q What portion, the right o[r] the left portion of the rear?

A I hit the right side of the rear portion of the Nissan Pathfinder, Sir.

Q And what happened to the Nissan Pathfinder after you hit it on the right rear portion?

A The back portion of the Nissan Pathfinder was damaged, Sir.

Q And what was the extent of the [damage] on the back portion?

A The rear portion was extensively damaged, Sir.

Q After you hit the rear portion of the Nissan Pathfinder, did your vehicle hit any other portion of that Nissan
Pathfinder?

A None, Sir.

Q After you hit the Nissan Pathfinder at the rear, in what manner did it move, if it moved?

A After I hit the rear portion of the Nissan Pathfinder, it did not move anymore, but I also hit the right side of the
Fu[s]o Cargo Truck, Sir.

COURT:

For a while, what part of the Fu[s]o Cargo Truck did you hit?

WITNESS:

A I hit the sidings of the Fu[s]o Cargo Truck, Your Honor.42

xxxx

CROSS-EXAMINATION BY ATTY. GUERRERO:

Q When the Pathfinder hit the Fu[s]o Truck, were you still behind the Pathfinder?

A Yes, Sir.

Q [Were you] still in the same lane that you were travelling 30 minutes before the impact?

A Yes, Sir.

Q You did not move from your lane [in spite] of the collision between the Pathfinder and the Fu[s]o Truck?

A No, Sir. I did not move. I stayed on my lane.43

xxxx

REDIRECT EXAMINATION BY ATTY. NATIVIDAD:

 347

Q You stated a while ago, during the cross-examination by counsel that the moment you saw the Nissan
Pathfinder [smash] against the side of the Fu[s]o, you did not move your Truck anymore. Why did you not swerve
to the left or to the right?

A Because there was an [oncoming] bus signalling [sic] to me, Sir.

Q How about to the right, why did you not abruptly maneuver your truck to the right to avoid hitting the Nissan
Pathfinder?

A I cannot move my truck to the right side because my truck will not pass thorugh [sic] the lane because it is very
narrow and if I will do that, I might fall on the other side of the highway where houses were standing.

Q You said that you were unable to pass through the right side of the road. Why [were you] not able to pass
[through] to the right side[?] You said it was too narrow. Why is it too narrow?

A Because the Fu[s]o Truck cut across the highway and my truck cannot pass through that space. It is only in the
fast lane where I can pass through, Sir.

Q All the while this bumping or the impact between the Nissan Pathfinder and the Fu[s]o Truck and your bumping
against the Nissan Pathfinder happened in a few seconds only. Is that correct?

A Yes, Sir.44

The exact positions of the vehicles upon a perusal of the sketch 45 (drawn only after the Fuso was moved to the shoulder to
decongest traffic) would show that both the Pathfinder and the Isuzu rested on the highway diagonally. The left part of the
former occupied the right portion of the inner lane while the rest of its body was already on the outer lane, indicating that it
was about to change lane, i.e., to the inner lane to overtake. Meanwhile, the point of collision between the Pathfinder and
the Isuzu occurred on the right portion of the outer lane, with the Isuzus front part ramming the Pathfinders rear, while the
rest of the 10-wheelers body lay on the shoulder of the road.

We are not convinced that the Isuzu is without fault. As correctly found by the CA, the smashed front of the Isuzu strongly
indicates the strong impact of the ramming of the rear of the Pathfinder that pinned its passengers. Furthermore, Antonio
admitted that despite stepping on the brakes, the Isuzu still suddenly smashed into the rear of the Pathfinder causing
extensive damage to it, as well as hitting the right side of the Fuso. These militate against Antonios claim that he was
driving at a safe speed, that he had slowed down, and that he was three cars away. Clearly, the Isuzu was not within the
safe stopping distance to avoid the Pathfinder in case of emergency. Thus, the Emergency Rule invoked by petitioners
will not apply. Such principle states:

[O]ne who suddenly finds himself in a place of danger, and is required to act without time to consider the best means that
may be adopted to avoid the impending danger, is not guilty of negligence, if he fails to adopt what subsequently and
upon reflection may appear to have been a better method, unless the emergency in which he finds himself is brought
about by his own negligence.46

Considering the wet and slippery condition of the road that night, Antonio should have been prudent to reduce his speed
and increase his distance from the Pathfinder. Had he done so, it would be improbable for him to have hit the vehicle in
front of him or if he really could not avoid hitting it, prevent such extensive wreck to the vehicle in front. With the glaring
evidence, he obviously failed to exercise proper care in his driving.

Orix as the operator on record of the

Fuso truck is liable to the heirs of the victims of the mishap

Orix cannot point fingers at the alleged real owner to exculpate itself from vicarious liability under Article 2180 47 of the Civil
Code. Regardless of whoever Orix claims to be the actual owner of the Fuso by reason of a contract of sale, it is
nevertheless primarily liable for the damages or injury the truck registered under it have caused. It has already been
explained:
 348

Were a registered owner allowed to evade responsibility by proving who the supposed transferee or owner is, it would be
easy for him, by collusion with others or otherwise, to escape said responsibility and transfer the same to an indefinite
person, or to one who possesses no property with which to respond financially for the damage or injury done. A victim of
recklessness on the public highways is usually without means to discover or identify the person actually causing the injury
or damage. He has no means other than by a recourse to the registration in the Motor Vehicles Office to determine who is
the owner. The protection that the law aims to extend to him would become illusory were the registered owner given the
opportunity to escape liability by disproving his ownership. x x x 48

Besides, the registered owners have a right to be indemnified by the real or actual owner of the amount that they may be
required to pay as damage for the injury caused to the plaintiff, 49 which Orix rightfully acknowledged by filing a third-party
complaint against the owner of the Fuso, Manuel.

The heirs deserve to receive the damages awarded by the CA, with modifications as to their amounts

With regard to actual damages, one is entitled to an adequate compensation only for such pecuniary loss suffered by him
as he has duly proved.50 Anent the funeral and burial expenses, the receipts issued by San Roque Funeral Homes 51 in the
amount of 57,000.00 and by St. Peter Memorial Homes52 in the amount of 50,000.00, as supported by the testimonies
of the witnesses who secured these documents, prove payment by the respondent heirs of the funeral costs not only of
their deceased relatives but of the latters helpers as well, and thus we find it proper to award the total amount of
107,000.00.

In addition to 150,000.00 indemnity for the death of the spouses Mangalinao and their daughter Marianne as a result
of quasi-delict, actual damages shall likewise include the loss of the earning capacity of the deceased. 53 In this case, the
CA awarded 2,000,000.00, which it found reasonable after considering the income statement of Roberto Mangalinao as
of the year 1989.54 Petitioners challenge this for lack of basis, arguing that the CA failed to consider the formula provided
by this Court,55 and that the income statement was not even testified to by the accountant who prepared such document.

In its Decision, the CA, while recognizing that there is a formula provided for computing the loss of the earning capacity of
the victims, itself acknowledged that such formula cannot be used to arrive at the net earning capacity using the 1989
income statement alone, more so when such was not authenticated by the proper party. If the net income stated therein
was used in the formula, the CA would have awarded the Mangalinao heirs more than 18,000,000.00. It did not,
however, use the income statement as its sole gauge.

While the net income had not been sufficiently established, the Court recognizes the fact that the Mangalinao heirs had
suffered loss deserving of compensation. What the CA awarded is in actuality a form of temperate damages. Such form of
damages under Article 222456 of the Civil Code is given in the absence of competent proof on the actual damages
suffered.57 "In the past, we awarded temperate damages in lieu of actual damages for loss of earning capacity where
earning capacity is plainly established but no evidence was presented to support the allegation of the injured partys
actual income."58 In this case, Roberto Mangalinao, the breadwinner of the family, was a businessman engaged in buying
and selling palay and agricultural supplies that required high capital in its operations and was only 37 at the time of his
death. Moreover, the Pathfinder which the Mangalinaos own, became a total wreck. Under the circumstances, we find the
award of 500,000.00 as temperate damages as reasonable.59 lawphi1

Moral damages,60 it must be stressed, are not intended to enrich plaintiff at the expense of the defendant. They are
awarded to enable the injured party to obtain means, diversions, or amusements that will serve to alleviate the moral
suffering he/she had undergone due to the other partys culpable action and must, perforce, be proportional to the
suffering inflicted.61 While the children did not testify before the court, undoubtedly, they suffered the pain and ordeal of
losing both their parents and sibling and hence, the award of moral damages is justified. However, the amount must be
reduced to 500,000.00.62

"In quasi-delicts, exemplary damages may be granted if the defendant acted with gross negligence." 63 It is given by way of
example or correction for the public good.64 Before the court may consider such award, the plaintiff must show his
entitlement first to moral, temperate, or compensatory damages,65 which the respondents have. In the case at bench, the
reckless driving of the two trucks involved caused the death of the victims. However, we shall reduce the amount of
exemplary damages to 200,000.00.66

Lastly, because exemplary damages are awarded and that we find it equitable that expenses of litigation should be
recovered,67 we find it sufficient and reasonable enough to grant attorneys fees of 50,000.00. 68
 349

Parenthetically, the Manifestation and Motion with notice of change of address by counsel for respondents; and the
transmittal of CAs rollo consisting of 256 pages with two attached Supreme Court petitions, one folder of original records
and one folder of transcript of stenographic notes, by the Judicial Records Division, CA, are noted.

WHEREFORE, the instant petitions are PARTIALLY GRANTED. The Decision of the Court of Appeals in CA-G.R. CV
No. 70530 is AFFIRMED with MODIFICATIONS. The award of actual damages is hereby INCREASED to 107,000.00.
The award of moral damages is REDUCED to 500,000.00, the award of temperate damages for loss of earning capacity
is likewise REDUCED to 500,000.00, and the award of exemplary damages and of attorneys fees are REDUCED to
200,000.00 and 50,000.00, respectively. All other awards of the Court of Appeals are AFFIRMED.

SO ORDERED.
 350

G.R. No. 129792 December 21, 1999

JARCO MARKETING CORPORATION, LEONARDO KONG, JOSE TIOPE and ELISA PANELO, petitioners,
vs.
HONORABLE COURT OF APPEALS, CONRADO C. AGUILAR and CRISELDA R. AGUILAR, respondents.

DAVIDE, JR., J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioners seek the reversal of the 17 June
1996 decision 1 of the Court of Appeals in C.A. G.R. No. CV 37937 and the resolution 2 denying their motion for
reconsideration. The assailed decision set aside the 15 January 1992 judgment of the Regional Trial Court (RTC), Makati
City, Branch 60 in Civil Case No. 7119 and ordered petitioners to pay damages and attorney's fees to private respondents
Conrado and Criselda (CRISELDA) Aguilar.

Petitioner Jarco Marketing Corporation is the owner of Syvel's Department Store, Makati City. Petitioners Leonardo Kong,
Jose Tiope and Elisa Panelo are the store's branch manager, operations manager, and supervisor, respectively. Private
respondents are spouses and the parents of Zhieneth Aguilar (ZHIENETH).

In the afternoon of 9 May 1983, CRISELDA and ZHIENETH were at the 2nd floor of Syvel's Department Store, Makati
City. CRISELDA was signing her credit card slip at the payment and verification counter when she felt a sudden gust of
wind and heard a loud thud. She looked behind her. She then beheld her daughter ZHIENETH on the floor, her young
body pinned by the bulk of the store's gift-wrapping counter/structure. ZHIENETH was crying and screaming for help.
Although shocked, CRISELDA was quick to ask the assistance of the people around in lifting the counter and retrieving
ZHIENETH from the floor. 3

ZHIENETH was quickly rushed to the Makati Medical Center where she was operated on. The next day ZHIENETH lost
her speech and thereafter communicated with CRISELDA by writing on a magic slate. The injuries she sustained took
their toil on her young body. She died fourteen (14) days after the accident or on 22 May 1983, on the hospital bed. She
was six years old. 4

The cause of her death was attributed to the injuries she sustained. The provisional medical certificate 5 issued by
ZHIENETH's attending doctor described the extent of her injuries:

Diagnoses:

1. Shock, severe, sec. to intra-abdominal injuries due to blunt injury

 351

2. Hemorrhage, massive, intraperitoneal sec. to laceration, (L) lobe liver

3. Rupture, stomach, anterior & posterior walls

4. Complete transection, 4th position, duodenum

5. Hematoma, extensive, retroperitoneal

6. Contusion, lungs, severe

CRITICAL

After the burial of their daughter, private respondents demanded upon petitioners the reimbursement of the
hospitalization, medical bills and wake and funeral expenses 6 which they had incurred. Petitioners refused to pay.
Consequently, private respondents filed a complaint for damages, docketed as Civil Case No. 7119 wherein they sought
the payment of P157,522.86 for actual damages, P300,000 for moral damages, P20,000 for attorney's fees and an
unspecified amount for loss of income and exemplary damages.

In their answer with counterclaim, petitioners denied any liability for the injuries and consequent death of ZHIENETH.
They claimed that CRISELDA was negligent in exercising care and diligence over her daughter by allowing her to freely
roam around in a store filled with glassware and appliances. ZHIENETH too, was guilty of contributory negligence since
she climbed the counter, triggering its eventual collapse on her. Petitioners also emphasized that the counter was made of
sturdy wood with a strong support; it never fell nor collapsed for the past fifteen years since its construction.

Additionally, petitioner Jarco Marketing Corporation maintained that it observed the diligence of a good father of a family
in the selection, supervision and control of its employees. The other petitioners likewise raised due care and diligence in
the performance of their duties and countered that the complaint was malicious for which they suffered besmirched
reputation and mental anguish. They sought the dismissal of the complaint and an award of moral and exemplary
damages and attorney's fees in their favor.

In its decision 7 the trial court dismissed the complaint and counterclaim after finding that the preponderance of the
evidence favored petitioners. It ruled that the proximate cause of the fall of the counter on ZHIENETH was her act of
clinging to it. It believed petitioners' witnesses who testified that ZHIENETH clung to the counter, afterwhich the structure
and the girl fell with the structure falling on top of her, pinning her stomach. In contrast, none of private respondents'
witnesses testified on how the counter fell. The trial court also held that CRISELDA's negligence contributed to
ZHIENETH's accident.

In absolving petitioners from any liability, the trial court reasoned that the counter was situated at the end or corner of the
2nd floor as a precautionary measure hence, it could not be considered as an attractive nuisance. 8 The counter was
higher than ZHIENETH. It has been in existence for fifteen years. Its structure was safe and well-balanced. ZHIENETH,
therefore, had no business climbing on and clinging to it.

Private respondents appealed the decision, attributing as errors of the trial court its findings that: (1) the proximate cause
of the fall of the counter was ZHIENETH's misbehavior; (2) CRISELDA was negligent in her care of ZHIENETH; (3)
petitioners were not negligent in the maintenance of the counter; and (4) petitioners were not liable for the death of
ZHIENETH.

Further, private respondents asserted that ZHIENETH should be entitled to the conclusive presumption that a child below
nine (9) years is incapable of contributory negligence. And even if ZHIENETH, at six (6) years old, was already capable of
contributory negligence, still it was physically impossible for her to have propped herself on the counter. She had a small
frame (four feet high and seventy pounds) and the counter was much higher and heavier than she was. Also, the
testimony of one of the store's former employees, Gerardo Gonzales, who accompanied ZHIENETH when she was
brought to the emergency room of the Makati Medical Center belied petitioners' theory that ZHIENETH climbed the
counter. Gonzales claimed that when ZHIENETH was asked by the doctor what she did, ZHIENETH replied, "[N]othing, I
did not come near the counter and the counter just fell on me." 9 Accordingly, Gonzales' testimony on ZHIENETH's
spontaneous declaration should not only be considered as part of res gestaebut also accorded credit.
 352

Moreover, negligence could not be imputed to CRISELDA for it was reasonable for her to have let go of ZHIENETH at the
precise moment that she was signing the credit card slip.

Finally, private respondents vigorously maintained that the proximate cause of ZHIENETH's death, was petitioners'
negligence in failing to institute measures to have the counter permanently nailed.

On the other hand, petitioners argued that private respondents raised purely factual issues which could no longer be
disturbed. They explained that ZHIENETH's death while unfortunate and tragic, was an accident for which neither
CRISELDA nor even ZHIENETH could entirely be held faultless and blameless. Further, petitioners adverted to the trial
court's rejection of Gonzales' testimony as unworthy of credence.

As to private respondent's claim that the counter should have been nailed to the ground, petitioners justified that it was not
necessary. The counter had been in existence for several years without any prior accident and was deliberately placed at
a corner to avoid such accidents. Truth to tell, they acted without fault or negligence for they had exercised due diligence
on the matter. In fact, the criminal case 10 for homicide through simple negligence filed by private respondents against the
individual petitioners was dismissed; a verdict of acquittal was rendered in their favor.

The Court of Appeals, however, decided in favor of private respondents and reversed the appealed judgment. It found that
petitioners were negligent in maintaining a structurally dangerous counter. The counter was shaped like an inverted
"L" 11 with a top wider than the base. It was top heavy and the weight of the upper portion was neither evenly distributed
nor supported by its narrow base. Thus, the counter was defective, unstable and dangerous; a downward pressure on the
overhanging portion or a push from the front could cause the counter to fall. Two former employees of petitioners had
already previously brought to the attention of the management the danger the counter could cause. But the latter ignored
their concern. The Court of Appeals faulted the petitioners for this omission, and concluded that the incident that befell
ZHIENETH could have been avoided had petitioners repaired the defective counter. It was inconsequential that the
counter had been in use for some time without a prior incident.

The Court of Appeals declared that ZHIENETH, who was below seven (7) years old at the time of the incident, was
absolutely incapable of negligence or other tort. It reasoned that since a child under nine (9) years could not be held liable
even for an intentional wrong, then the six-year old ZHIENETH could not be made to account for a mere mischief or
reckless act. It also absolved CRISELDA of any negligence, finding nothing wrong or out of the ordinary in momentarily
allowing ZHIENETH to walk while she signed the document at the nearby counter.

The Court of Appeals also rejected the testimonies of the witnesses of petitioners. It found them biased and prejudiced. It
instead gave credit to the testimony of disinterested witness Gonzales. The Court of Appeals then awarded P99,420.86 as
actual damages, the amount representing the hospitalization expenses incurred by private respondents as evidenced by
the hospital's statement of account. 12 It denied an award for funeral expenses for lack of proof to substantiate the same.
Instead, a compensatory damage of P50,000 was awarded for the death of ZHIENETH.

We quote the dispositive portion of the assailed decision, 13 thus:

WHEREFORE, premises considered, the judgment of the lower court is SET ASIDE and another one is
entered against [petitioners], ordering them to pay jointly and severally unto [private respondents] the
following:

1. P50,000.00 by way of compensatory damages for the death of

Zhieneth Aguilar, with legal interest (6% p.a.) from 27 April 1984;

2. P99,420.86 as reimbursement for hospitalization expenses incurred;

with legal interest (6% p.a.) from 27 April 1984;

3. P100,000.00 as moral and exemplary damages;

4. P20,000.00 in the concept of attorney's fees; and

5. Costs.
 353

Private respondents sought a reconsideration of the decision but the same was denied in the Court of Appeals'
resolution 14 of 16 July 1997.

Petitioners now seek the reversal of the Court of Appeals' decision and the reinstatement of the judgment of the trial court.
Petitioners primarily argue that the Court of Appeals erred in disregarding the factual findings and conclusions of the trial
court. They stress that since the action was based on tort, any finding of negligence on the part of the private respondents
would necessarily negate their claim for damages, where said negligence was the proximate cause of the injury
sustained. The injury in the instant case was the death of ZHIENETH. The proximate cause was ZHIENETH's act of
clinging to the counter. This act in turn caused the counter to fall on her. This and CRISELDA's contributory negligence,
through her failure to provide the proper care and attention to her child while inside the store, nullified private respondents'
claim for damages. It is also for these reasons that parents are made accountable for the damage or injury inflicted on
others by their minor children. Under these circumstances, petitioners could not be held responsible for the accident that
befell ZHIENETH.

Petitioners also assail the credibility of Gonzales who was already separated from Syvel's at the time he testified; hence,
his testimony might have been tarnished by ill-feelings against them.

For their part, private respondents principally reiterated their arguments that neither ZHIENETH nor CRISELDA was
negligent at any time while inside the store; the findings and conclusions of the Court of Appeals are substantiated by the
evidence on record; the testimony of Gonzales, who heard ZHIENETH comment on the incident while she was in the
hospital's emergency room should receive credence; and finally, ZHIENETH's part of the res gestaedeclaration "that she
did nothing to cause the heavy structure to fall on her" should be considered as the correct version of the gruesome
events.

We deny the petition.

The two issues to be resolved are: (1) whether the death of ZHIENETH was accidental or attributable to negligence; and
(2) in case of a finding of negligence, whether the same was attributable to private respondents for maintaining a defective
counter or to CRISELDA and ZHIENETH for failing to exercise due and reasonable care while inside the store premises.

An accident pertains to an unforeseen event in which no fault or negligence attaches to the defendant. 15 It is "a fortuitous
circumstance, event or happening; an event happening without any human agency, or if happening wholly or partly
through human agency, an event which under the circumstances is unusual or unexpected by the person to whom it
happens." 16

On the other hand, negligence is the omission to do something which a reasonable man, guided by those considerations
which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and
reasonable man would not do. 17 Negligence is "the failure to observe, for the protection of the interest of another person,
that degree of care, precaution and vigilance which the circumstances justly demand, whereby such other person suffers
injury." 18

Accident and negligence are intrinsically contradictory; one cannot exist with the other. Accident occurs when the person
concerned is exercising ordinary care, which is not caused by fault of any person and which could not have been
prevented by any means suggested by common prudence. 19

The test in determining the existence of negligence is enunciated in the landmark case of Plicart v. Smith, 20 thus: Did the
defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person
would have used in the same situation? If not, then he is guilty of negligence. 21

We rule that the tragedy which befell ZHIENETH was no accident and that ZHIENETH's death could only be attributed to
negligence.

We quote the testimony of Gerardo Gonzales who was at the scene of the incident and accompanied CRISELDA and
ZHIENETH to the hospital:

Q While at the Makati Medical Center, did you hear or notice anything while the child was
being treated?
 354

A At the emergency room we were all surrounding the child. And when the doctor asked
the child "what did you do," the child said "nothing, I did not come near the counter and
the counter just fell on me."

Q (COURT TO ATTY. BELTRAN)

You want the words in Tagalog to be translated?

ATTY. BELTRAN

Yes, your Honor.

COURT

Granted. Intercalate "wala po, hindi po ako lumapit doon. Basta bumagsak." 22

This testimony of Gonzales pertaining to ZHIENETH's statement formed (and should be admitted as) part of the res
gestae under Section 42, Rule 130 of the Rules of Court, thus:

Part of res gestae. Statements made by a person while a startling occurrence is taking place or
immediately prior or subsequent thereto with respect to the circumstances thereof, may be given in
evidence as part of the res gestae. So, also, statements accompanying an equivocal act material to the
issue, and giving it a legal significance, may be received as part of the res gestae.

It is axiomatic that matters relating to declarations of pain or suffering and statements made to a physician are generally
considered declarations and admissions. 23 All that is required for their admissibility as part of the res gestae is that they
be made or uttered under the influence of a startling event before the declarant had the time to think and concoct a
falsehood as witnessed by the person who testified in court. Under the circumstances thus described, it is unthinkable for
ZHIENETH, a child of such tender age and in extreme pain, to have lied to a doctor whom she trusted with her life. We
therefore accord credence to Gonzales' testimony on the matter, i.e., ZHIENETH performed no act that facilitated her
tragic death. Sadly, petitioners did, through their negligence or omission to secure or make stable the counter's base.

Gonzales' earlier testimony on petitioners' insistence to keep and maintain the structurally unstable gift-wrapping counter
proved their negligence, thus:

Q When you assumed the position as gift wrapper at the second floor, will you please
describe the gift wrapping counter, were you able to examine?

A Because every morning before I start working I used to clean that counter and since
not nailed and it was only standing on the floor, it was shaky.

xxx xxx xxx

Q Will you please describe the counter at 5:00 o'clock [sic] in the afternoon on [sic] May 9
1983?

A At that hour on May 9, 1983, that counter was standing beside the verification counter.
And since the top of it was heavy and considering that it was not nailed, it can collapse at
anytime, since the top is heavy.

xxx xxx xxx

Q And what did you do?

A I informed Mr. Maat about that counter which is [sic] shaky and since Mr. Maat is fond
of putting display decorations on tables, he even told me that I would put some
 355

decorations. But since I told him that it not [sic] nailed and it is shaky he told me "better
inform also the company about it." And since the company did not do anything about the
counter, so I also did not do anything about the counter. 24 [Emphasis supplied]

Ramon Guevarra, another former employee, corroborated the testimony of Gonzales, thus:

Q Will you please described [sic] to the honorable Court the counter where you were
assigned in January 1983?

xxx xxx xxx

A That counter assigned to me was when my supervisor ordered me to carry that counter
to another place. I told him that the counter needs nailing and it has to be nailed because
it might cause injury or accident to another since it was shaky.

Q When that gift wrapping counter was transferred at the second floor on February 12,
1983, will you please describe that to the honorable Court?

A I told her that the counter wrapper [sic] is really in good [sic] condition; it was shaky. I
told her that we had to nail it.

Q When you said she, to whom are you referring to [sic]?

A I am referring to Ms. Panelo, sir.

Q And what was the answer of Ms. Panelo when you told her that the counter was
shaky?

A She told me "Why do you have to teach me. You are only my subordinate and you are
to teach me?" And she even got angry at me when I told her that.

xxx xxx xxx

Q From February 12, 1983 up to May 9, 1983, what if any, did Ms. Panelo or any
employee of the management do to that (sic)

xxx xxx xxx

Witness:

None, sir. They never nailed the counter. They only nailed the counter after the accident
happened. 25 [Emphasis supplied]

Without doubt, petitioner Panelo and another store supervisor were personally informed of the danger posed by the
unstable counter. Yet, neither initiated any concrete action to remedy the situation nor ensure the safety of the store's
employees and patrons as a reasonable and ordinary prudent man would have done. Thus, as confronted by the situation
petitioners miserably failed to discharge the due diligence required of a good father of a family.

On the issue of the credibility of Gonzales and Guevarra, petitioners failed to establish that the former's testimonies were
biased and tainted with partiality. Therefore, the allegation that Gonzales and Guevarra's testimonies were blemished by
"ill feelings" against petitioners since they (Gonzales and Guevarra) were already separated from the company at the
time their testimonies were offered in court was but mere speculation and deserved scant consideration.

It is settled that when the issue concerns the credibility of witnesses, the appellate courts will not as a general rule disturb
the findings of the trial court, which is in a better position to determine the same. The trial court has the distinct advantage
of actually hearing the testimony of and observing the deportment of the witnesses. 26 However, the rule admits of
 356

exceptions such as when its evaluation was reached arbitrarily or it overlooked or failed to appreciate some facts or
circumstances of weight and substance which could affect the result of the case. 27 In the instant case, petitioners failed to
bring their claim within the exception.

Anent the negligence imputed to ZHIENETH, we apply the conclusive presumption that favors children below nine (9)
years old in that they are incapable of contributory negligence. In his book, 28 former Judge Cezar S. Sangco stated:

In our jurisdiction, a person under nine years of age is conclusively presumed to have acted without
discernment, and is, on that account, exempt from criminal liability. The same presumption and a like
exemption from criminal liability obtains in a case of a person over nine and under fifteen years of age,
unless it is shown that he has acted with discernment. Since negligence may be a felony and a quasi-
delict and required discernment as a condition of liability, either criminal or civil, a child under nine years
of age is, by analogy, conclusively presumed to be incapable of negligence; and that the presumption of
lack of discernment or incapacity for negligence in the case of a child over nine but under fifteen years of
age is a rebuttable one, under our law. The rule, therefore, is that a child under nine years of age must be
conclusively presumed incapable of contributory negligence as a matter of law. [Emphasis supplied]

Even if we attribute contributory negligence to ZHIENETH and assume that she climbed over the counter, no injury should
have occurred if we accept petitioners' theory that the counter was stable and sturdy. For if that was the truth, a frail six-
year old could not have caused the counter to collapse. The physical analysis of the counter by both the trial court and
Court of Appeals and a scrutiny of the evidence 29 on record reveal otherwise, i.e., it was not durable after all. Shaped like
an inverted "L," the counter was heavy, huge, and its top laden with formica. It protruded towards the customer waiting
area and its base was not secured. 30

CRISELDA too, should be absolved from any contributory negligence. Initially, ZHIENETH held on to CRISELDA's waist,
later to the latter's hand. 31 CRISELDA momentarily released the child's hand from her clutch when she signed her credit
card slip. At this precise moment, it was reasonable and usual for CRISELDA to let go of her child. Further, at the time
ZHIENETH was pinned down by the counter, she was just a foot away from her mother; and the gift-wrapping counter
was just four meters away from CRISELDA. 32 The time and distance were both significant. ZHIENETH was near her
mother and did not loiter as petitioners would want to impress upon us. She even admitted to the doctor who treated her
at the hospital that she did not do anything; the counter just fell on her.

WHEREFORE, in view of all the foregoing, the instant petition is DENIED and the challenged decision of the Court of
Appeals of 17 June 1996 in C.A. G.R. No. CV 37937 is hereby AFFIRMED.

Costs against petitioners.

SO ORDERED.
 357

G.R. No. 132266 December 21, 1999

CASTILEX INDUSTRIAL CORPORATION, petitioner,

vs.
VICENTE VASQUEZ, JR. and LUISA SO VASQUEZ, and CEBU DOCTORS' HOSPITAL, INC., respondents.
 358

DAVIDE, JR., C.J.:

The pivotal issue in this petition is whether an employer may be held vicariously liable for the death resulting from the
negligent operation by a managerial employee of a company-issued vehicle.

The antecedents, as succinctly summarized by the Court of Appeals, are as follows:

On 28 August 1988, at around 1:30 to 2:00 in the morning, Romeo So Vasquez, was driving a Honda
motorcycle around Fuente Osmea Rotunda. He was traveling counter-clockwise, (the normal flow of
traffic in a rotunda) but without any protective helmet or goggles. He was also only carrying a Student's
Permit to Drive at the time. Upon the other hand, Benjamin Abad [was a] manager of Appellant Castilex
Industrial Corporation, registered owner [of] a Toyota Hi-Lux Pick-up with plate no. GBW-794. On the
same date and time, Abad drove the said company car out of a parking lot but instead of going around
the Osmea rotunda he made a short cut against [the] flow of the traffic in proceeding to his route to
General Maxilom St. or to Belvic St.

In the process, the motorcycle of Vasquez and the pick-up of Abad collided with each other causing
severe injuries to the former. Abad stopped his vehicle and brought Vasquez to the Southern Islands
Hospital and later to the Cebu Doctor's Hospital.

On September 5, 1988, Vasquez died at the Cebu Doctor's Hospital. It was there that Abad signed an
acknowledgment of Responsible Party (Exhibit K) wherein he agreed to pay whatever hospital bills,
professional fees and other incidental charges Vasquez may incur.

After the police authorities had conducted the investigation of the accident, a Criminal Case was filed
against Abad but which was subsequently dismissed for failure to prosecute. So, the present action for
damages was commenced by Vicente Vasquez, Jr. and Luisa So Vasquez, parents of the deceased
Romeo So Vasquez, against Jose Benjamin Abad and Castilex Industrial Corporation. In the same action,
Cebu Doctor's Hospital intervened to collect unpaid balance for the medical expense given to Romeo So
Vasquez.1

The trial court ruled in favor of private respondents Vicente and Luisa Vasquez and ordered Jose Benjamin Abad
(hereafter ABAD) and petitioner Castilex Industrial Corporation (hereafter CASTILEX) to pay jointly and solidarily (1)
Spouses Vasquez, the amounts of P8,000.00 for burial expenses; P50,000.00 as moral damages; P10,000.00 as
attorney's fees; and P778,752.00 for loss of earning capacity; and (2) Cebu Doctor's Hospital, the sum of P50,927.83 for
unpaid medical and hospital bills at 3% monthly interest from 27 July 1989 until fully paid, plus the costs of litigation. 2

CASTILEX and ABAD separately appealed the decision.

In its decision3 of 21 May 1997, the Court of Appeals affirmed the ruling of the trial court holding ABAD and CASTILEX
liable but held that the liability of the latter is "only vicarious and not solidary" with the former. It reduced the award of
damages representing loss of earning capacity from P778,752.00 to P214,156.80; and the interest on the hospital and
medical bills, from 3% per month to 12% per annum from 5 September 1988 until fully paid.

Upon CASTILEX's motion for reconsideration, the Court of Appeals modified its decision by (1) reducing the award of
moral damages from P50,000 to P30,000 in view of the deceased's contributory negligence; (b) deleting the award of
attorney's fees for lack of evidence; and (c) reducing the interest on hospital and medical bills to 6% per annum from 5
September 1988 until fully paid.4

Hence, CASTILEX filed the instant petition contending that the Court of Appeals erred in (1) applying to the case the fifth
paragraph of Article 2180 of the Civil Code, instead of the fourth paragraph thereof; (2) that as a managerial employee,
ABAD was deemed to have been always acting within the scope of his assigned task even outside office hours because
he was using a vehicle issued to him by petitioner; and (3) ruling that petitioner had the burden to prove that the employee
was not acting within the scope of his assigned task.

Jose Benjamin ABAD merely adopted the statement of facts of petitioner which holds fast on the theory of negligence on
the part of the deceased.
 359

On the other hand, respondents Spouses Vasquez argue that their son's death was caused by the negligence of
petitioner's employee who was driving a vehicle issued by petitioner and who was on his way home from overtime work
for petitioner; and that petitioner is thus liable for the resulting injury and subsequent death of their son on the basis of the
fifth paragraph of Article 2180. Even if the fourth paragraph of Article 2180 were applied, petitioner cannot escape liability
therefor. They moreover argue that the Court of Appeals erred in reducing the amount of compensatory damages when
the award made by the trial court was borne both by evidence adduced during the trial regarding deceased's wages and
by jurisprudence on life expectancy. Moreover, they point out that the petition is procedurally not acceptable on the
following grounds: (1) lack of an explanation for serving the petition upon the Court of Appeals by registered mail, as
required under Section 11, Rule 13 of the Rules of Civil Procedure; and (2) lack of a statement of the dates of the
expiration of the original reglementary period and of the filing of the motion for extension of time to file a petition for
review.

For its part, respondent Cebu Doctor's Hospital maintains that petitioner CASTILEX is indeed vicariously liable for the
injuries and subsequent death of Romeo Vasquez caused by ABAD, who was on his way home from taking snacks after
doing overtime work for petitioner. Although the incident occurred when ABAD was not working anymore "the inescapable
fact remains that said employee would not have been situated at such time and place had he not been required by
petitioner to do overtime work." Moreover, since petitioner adopted the evidence adduced by ABAD, it cannot, as the
latter's employer, inveigle itself from the ambit of liability, and is thus estopped by the records of the case, which it failed to
refute.

We shall first address the issue raised by the private respondents regarding some alleged procedural lapses in the
petition.

Private respondent's contention of petitioner's violation of Section 11 of Rule 13 and Section 4 of Rule 45 of the 1997
Rules of Civil Procedure holds no water.

Sec. 11 of Rule 13 provides:

Sec. 11. Priorities in modes of services and filing. Whenever practicable, the service and filing of
pleadings and other papers shall be done personally. Except with respect to papers emanating from the
court, a resort to other modes must be accompanied by a written explanation why the service or filing was
not done personally. A violation of this Rule may be cause to consider the paper as not filed.

The explanation why service of a copy of the petition upon the Court of Appeals was done by registered mail is found on
Page 28 of the petition. Thus, there has been compliance with the aforequoted provision.

As regards the allegation of violation of the material data rule under Section 4 of Rule 45, the same is unfounded. The
material dates required to be stated in the petition are the following: (1) the date of receipt of the judgment or final order or
resolution subject of the petition; (2) the date of filing of a motion for new trial or reconsideration, if any; and (3) the date of
receipt of the notice of the denial of the motion. Contrary to private respondent's claim, the petition need not indicate the
dates of the expiration of the original reglementary period and the filing of a motion for extension of time to file the petition.
At any rate, aside from the material dates required under Section 4 of Rule 45, petitioner CASTILEX also stated in the first
page of the petition the date it filed the motion for extension of time to file the petition.

Now on the merits of the case.

The negligence of ABAD is not an issue at this instance. Petitioner CASTILEX presumes said negligence but claims that it
is not vicariously liable for the injuries and subsequent death caused by ABAD.

Petitioner contends that the fifth paragraph of Article 2180 of the Civil Code should only apply to instances where the
employer is not engaged in business or industry. Since it is engaged in the business of manufacturing and selling furniture
it is therefore not covered by said provision. Instead, the fourth paragraph should apply.

Petitioner's interpretation of the fifth paragraph is not accurate. The phrase "even though the former are not engaged in
any business or industry" found in the fifth paragraph should be interpreted to mean that it is not necessary for the
employer to be engaged in any business or industry to be liable for the negligence of his employee who is acting within
the scope of his assigned task.5
 360

A distinction must be made between the two provisions to determine what is applicable. Both provisions apply to
employers: the fourth paragraph, to owners and managers of an establishment or enterprise; and the fifth paragraph, to
employers in general, whether or not engaged in any business or industry. The fourth paragraph covers negligent acts of
employees committed either in the service of the branches or on the occasion of their functions, while the fifth paragraph
encompasses negligent acts of employees acting within the scope of their assigned task. The latter is an expansion of the
former in both employer coverage and acts included. Negligent acts of employees, whether or not the employer is
engaged in a business or industry, are covered so long as they were acting within the scope of their assigned task, even
though committed neither in the service of the branches nor on the occasion of their functions. For, admittedly, employees
oftentimes wear different hats. They perform functions which are beyond their office, title or designation but which,
nevertheless, are still within the call of duty.

This court has applied the fifth paragraph to cases where the employer was engaged in a business or industry such as
truck operators6 and banks.7 The Court of Appeals cannot, therefore, be faulted in applying the said paragraph of Article
2180 of the Civil Code to this case.

Under the fifth paragraph of Article 2180, whether or not engaged in any business or industry, an employer is liable for the
torts committed by employees within the scope of his assigned tasks. But it is necessary to establish the employer-
employee relationship; once this is done, the plaintiff must show, to hold the employer liable, that the employee was acting
within the scope of his assigned task when the tort complained of was committed. It is only then that the employer may
find it necessary to interpose the defense of due diligence in the selection and supervision of the employee.8

It is undisputed that ABAD was a Production Manager of petitioner CASTILEX at the time of the tort occurrence. As to
whether he was acting within the scope of his assigned task is a question of fact, which the court a quo and the Court of
Appeals resolved in the affirmative.

Well-entrenched in our jurisprudence is the rule that the factual findings of the Court of Appeals are entitled to great
respect, and even finality at times. This rule is, however, subject to exceptions such as when the conclusion is grounded
on speculations, surmises, or conjectures.9 Such exception obtain in the present case to warrant review by this Court of
the finding of the Court of Appeals that since ABAD was driving petitioner's vehicle he was acting within the scope of his
duties as a manager.

Before we pass upon the issue of whether ABAD was performing acts within the range of his employment, we shall first
take up the other reason invoked by the Court of Appeals in holding petitioner CASTILEX vicariously liable for ABAD's
negligence, i.e., that the petitioner did not present evidence that ABAD was not acting within the scope of his assigned
tasks at the time of the motor vehicle mishap. Contrary to the ruling of the Court of Appeals, it was not incumbent upon
the petitioner to prove the same. It was enough for petitioner CASTILEX to deny that ABAD was acting within the scope of
his duties; petitioner was not under obligation to prove this negative averment. Ei incumbit probatio qui dicit, non qui
negat (He who asserts, not he who denies, must prove). The Court has consistently applied the ancient rule that if the
plaintiff, upon whom rests the burden of proving his cause of action, fails to show in a satisfactory manner facts which he
bases his claim, the defendant is under no obligation to prove his exception or defense. 10

Now on the issue of whether the private respondents have sufficiently established that ABAD was acting within the scope
of his assigned tasks.

ABAD, who was presented as a hostile witness, testified that at the time of the incident, he was driving a company-issued
vehicle, registered under the name of petitioner. He was then leaving the restaurant where he had some snacks and had
a chat with his friends after having done overtime work for the petitioner.

No absolutely hard and fast rule can be stated which will furnish the complete answer to the problem of whether at a given
moment, an employee is engaged in his employer's business in the operation of a motor vehicle, so as to fix liability upon
the employer because of the employee's action or inaction; but rather, the result varies with each state of facts. 11

In Filamer Christian Institute v. Intermediate Appellant Court, 12 this Court had the occasion to hold that acts done within
the scope of the employee's assigned tasks includes "any act done by an employee in furtherance of the interests of the
employer or for the account of the employer at the time of the infliction of the injury or damages."

The court a quo and the Court of Appeals were one in holding that the driving by a manager of a company-issued vehicle
is within the scope of his assigned tasks regardless of the time and circumstances.
 361

We do not agree. The mere fact that ABAD was using a service vehicle at the time of the injurious incident is not of itself
sufficient to charge petitioner with liability for the negligent operation of said vehicle unless it appears that he was
operating the vehicle within the course or scope of his employment.

The following are principles in American Jurisprudence on the employer's liability for the injuries inflicted by the negligence
of an employee in the use of an employer's motor vehicle:

I. Operation of Employer's Motor Vehicle in Going to

or from Meals

It has been held that an employee who uses his employer's vehicle in going from his work to a place where he intends to
eat or in returning to work from a meal is not ordinarily acting within the scope of his employment in the absence of
evidence of some special business benefit to the employer. Evidence that by using the employer's vehicle to go to and
from meals, an employee is enabled to reduce his time-off and so devote more time to the performance of his duties
supports the finding that an employee is acting within the scope of his employment while so driving the vehicle. 13

II. Operation of Employer's Vehicle in Going to

or from Work

In the same vein, traveling to and from the place of work is ordinarily a personal problem or concern of the employee, and
not a part of his services to his employer. Hence, in the absence of some special benefit to the employer other than the
mere performance of the services available at the place where he is needed, the employee is not acting within the scope
of his employment even though he uses his employer's motor vehicle. 14

The employer may, however, be liable where he derives some special benefit from having the employee drive home in the
employer's vehicle as when the employer benefits from having the employee at work earlier and, presumably, spending
more time at his actual duties. Where the employee's duties require him to circulate in a general area with no fixed place
or hours of work, or to go to and from his home to various outside places of work, and his employer furnishes him with a
vehicle to use in his work, the courts have frequently applied what has been called the "special errand" or "roving
commission" rule, under which it can be found that the employee continues in the service of his employer until he actually
reaches home. However, even if the employee be deemed to be acting within the scope of his employment in going to or
from work in his employer's vehicle, the employer is not liable for his negligence where at the time of the accident, the
employee has left the direct route to his work or back home and is pursuing a personal errand of his own.

III. Use of Employer's Vehicle Outside Regular Working Hours

An employer who loans his motor vehicle to an employee for the latter's personal use outside of regular working hours is
generally not liable for the employee's negligent operation of the vehicle during the period of permissive use, even where
the employer contemplates that a regularly assigned motor vehicle will be used by the employee for personal as well as
business purposes and there is some incidental benefit to the employer. Even where the employee's personal purpose in
using the vehicle has been accomplished and he has started the return trip to his house where the vehicle is normally
kept, it has been held that he has not resumed his employment, and the employer is not liable for the employee's
negligent operation of the vehicle during the return trip. 15

The foregoing principles and jurisprudence are applicable in our jurisdiction albeit based on the doctrine of respondent
superior, not on the principle of bonus pater familias as in ours. Whether the fault or negligence of the employee is
conclusive on his employer as in American law or jurisprudence, or merely gives rise to the presumption juris tantum of
negligence on the part of the employer as in ours, it is indispensable that the employee was acting in his employer's
business or within the scope of his assigned task. 16

In the case at bar, it is undisputed that ABAD did some overtime work at the petitioner's office, which was located in
Cabangcalan, Mandaue City. Thereafter, he went to Goldie's Restaurant in Fuente Osmea, Cebu City, which is about
seven kilometers away from petitioner's place of business. 17 A witness for the private respondents, a sidewalk vendor,
testified that Fuente Osmea is a "lively place" even at dawn because Goldie's Restaurant and Back Street were still open
and people were drinking thereat. Moreover, prostitutes, pimps, and drug addicts littered the place. 18
 362

At the Goldie's Restaurant, ABAD took some snacks and had a chat with friends. It was when ABAD was leaving the
restaurant that the incident in question occurred. That same witness for the private respondents testified that at the time of
the vehicular accident, ABAD was with a woman in his car, who then shouted: "Daddy, Daddy!" 19 This woman could not
have been ABAD's daughter, for ABAD was only 29 years old at the time.

To the mind of this Court, ABAD was engaged in affairs of his own or was carrying out a personal purpose not in line with
his duties at the time he figured in a vehicular accident. It was then about 2:00 a.m. of 28 August 1988, way beyond the
normal working hours. ABAD's working day had ended; his overtime work had already been completed. His being at a
place which, as petitioner put it, was known as a "haven for prostitutes, pimps, and drug pushers and addicts," had no
connection to petitioner's business; neither had it any relation to his duties as a manager. Rather, using his service vehicle
even for personal purposes was a form of a fringe benefit or one of the perks attached to his position.

Since there is paucity of evidence that ABAD was acting within the scope of the functions entrusted to him, petitioner
CASTILEX had no duty to show that it exercised the diligence of a good father of a family in providing ABAD with a
service vehicle. Thus, justice and equity require that petitioner be relieved of vicarious liability for the consequences of the
negligence of ABAD in driving its vehicle. 20

WHEREFORE, the petition is GRANTED, and the appealed decision and resolution of the Court of Appeals is AFFIRMED
with the modification that petitioner Castilex Industrial Corporation be absolved of any liability for the damages caused by
its employee, Jose Benjamin Abad.

SO ORDERED.

Puno, Kapunan, Pardo and Ynares-Santiago, JJ., concur.

G.R. No. 126297 January 31, 2007

PROFESSIONAL SERVICES, INC., Petitioner,

vs.
NATIVIDAD and ENRIQUE AGANA, Respondents.

x-----------------------x

G.R. No. 126467 January 31, 2007

NATIVIDAD (Substituted by her children MARCELINO AGANA III, ENRIQUE AGANA, JR., EMMA AGANA ANDAYA,
JESUS AGANA, and RAYMUND AGANA) and ENRIQUE AGANA, Petitioners,
vs.
JUAN FUENTES, Respondent.

x- - - - - - - - - - - - - - - - - - - -- - - - x

G.R. No. 127590 January 31, 2007

MIGUEL AMPIL, Petitioner,

vs.
NATIVIDAD AGANA and ENRIQUE AGANA, Respondents.
 363

DECISION

SANDOVAL-GUTIERREZ, J.:

Hospitals, having undertaken one of mankinds most important and delicate endeavors, must assume the grave
responsibility of pursuing it with appropriate care. The care and service dispensed through this high trust, however
technical, complex and esoteric its character may be, must meet standards of responsibility commensurate with the
undertaking to preserve and protect the health, and indeed, the very lives of those placed in the hospitals keeping. 1

Assailed in these three consolidated petitions for review on certiorari is the Court of Appeals Decision 2 dated September
6, 1996 in CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198 affirming with modification the Decision3dated March 17,
1993 of the Regional Trial Court (RTC), Branch 96, Quezon City in Civil Case No. Q-43322 and nullifying its Order dated
September 21, 1993.

The facts, as culled from the records, are:

On April 4, 1984, Natividad Agana was rushed to the Medical City General Hospital (Medical City Hospital) because of
difficulty of bowel movement and bloody anal discharge. After a series of medical examinations, Dr. Miguel Ampil,
petitioner in G.R. No. 127590, diagnosed her to be suffering from "cancer of the sigmoid."

On April 11, 1984, Dr. Ampil, assisted by the medical staff 4 of the Medical City Hospital, performed an anterior resection
surgery on Natividad. He found that the malignancy in her sigmoid area had spread on her left ovary, necessitating the
removal of certain portions of it. Thus, Dr. Ampil obtained the consent of Natividads husband, Enrique Agana, to permit
Dr. Juan Fuentes, respondent in G.R. No. 126467, to perform hysterectomy on her.

After Dr. Fuentes had completed the hysterectomy, Dr. Ampil took over, completed the operation and closed the incision.

However, the operation appeared to be flawed. In the corresponding Record of Operation dated April 11, 1984, the
attending nurses entered these remarks:

"sponge count lacking 2

"announced to surgeon searched (sic) done but to no avail continue for closure."

On April 24, 1984, Natividad was released from the hospital. Her hospital and medical bills, including the doctors fees,
amounted to P60,000.00.

After a couple of days, Natividad complained of excruciating pain in her anal region. She consulted both Dr. Ampil and Dr.
Fuentes about it. They told her that the pain was the natural consequence of the surgery. Dr. Ampil then recommended
that she consult an oncologist to examine the cancerous nodes which were not removed during the operation.

On May 9, 1984, Natividad, accompanied by her husband, went to the United States to seek further treatment. After four
months of consultations and laboratory examinations, Natividad was told she was free of cancer. Hence, she was advised
to return to the Philippines.

On August 31, 1984, Natividad flew back to the Philippines, still suffering from pains. Two weeks thereafter, her daughter
found a piece of gauze protruding from her vagina. Upon being informed about it, Dr. Ampil proceeded to her house
where he managed to extract by hand a piece of gauze measuring 1.5 inches in width. He then assured her that the pains
would soon vanish.

Dr. Ampils assurance did not come true. Instead, the pains intensified, prompting Natividad to seek treatment at the
Polymedic General Hospital. While confined there, Dr. Ramon Gutierrez detected the presence of another foreign object
in her vagina -- a foul-smelling gauze measuring 1.5 inches in width which badly infected her vaginal vault. A recto-vaginal
fistula had formed in her reproductive organs which forced stool to excrete through the vagina. Another surgical operation
was needed to remedy the damage. Thus, in October 1984, Natividad underwent another surgery.
 364

On November 12, 1984, Natividad and her husband filed with the RTC, Branch 96, Quezon City a complaint for damages
against the Professional Services, Inc. (PSI), owner of the Medical City Hospital, Dr. Ampil, and Dr. Fuentes, docketed as
Civil Case No. Q-43322. They alleged that the latter are liable for negligence for leaving two pieces of gauze inside
Natividads body and malpractice for concealing their acts of negligence.

Meanwhile, Enrique Agana also filed with the Professional Regulation Commission (PRC) an administrative complaint for
gross negligence and malpractice against Dr. Ampil and Dr. Fuentes, docketed as Administrative Case No. 1690. The
PRC Board of Medicine heard the case only with respect to Dr. Fuentes because it failed to acquire jurisdiction over Dr.
Ampil who was then in the United States.

On February 16, 1986, pending the outcome of the above cases, Natividad died and was duly substituted by her above-
named children (the Aganas).

On March 17, 1993, the RTC rendered its Decision in favor of the Aganas, finding PSI, Dr. Ampil and Dr. Fuentes liable
for negligence and malpractice, the decretal part of which reads:

WHEREFORE, judgment is hereby rendered for the plaintiffs ordering the defendants PROFESSIONAL SERVICES, INC.,
DR. MIGUEL AMPIL and DR. JUAN FUENTES to pay to the plaintiffs, jointly and severally, except in respect of the award
for exemplary damages and the interest thereon which are the liabilities of defendants Dr. Ampil and Dr. Fuentes only, as
follows:

1. As actual damages, the following amounts:

a. The equivalent in Philippine Currency of the total of US$19,900.00 at the rate of P21.60-US$1.00, as
reimbursement of actual expenses incurred in the United States of America;

b. The sum of P4,800.00 as travel taxes of plaintiffs and their physician daughter;

c. The total sum of P45,802.50, representing the cost of hospitalization at Polymedic Hospital, medical
fees, and cost of the saline solution;

2. As moral damages, the sum of P2,000,000.00;

3. As exemplary damages, the sum of P300,000.00;

4. As attorneys fees, the sum of P250,000.00;

5. Legal interest on items 1 (a), (b), and (c); 2; and 3 hereinabove, from date of filing of the complaint until full
payment; and

6. Costs of suit.

SO ORDERED.

Aggrieved, PSI, Dr. Fuentes and Dr. Ampil interposed an appeal to the Court of Appeals, docketed as CA-G.R. CV No.
42062.

Incidentally, on April 3, 1993, the Aganas filed with the RTC a motion for a partial execution of its Decision, which was
granted in an Order dated May 11, 1993. Thereafter, the sheriff levied upon certain properties of Dr. Ampil and sold them
for P451,275.00 and delivered the amount to the Aganas.

Following their receipt of the money, the Aganas entered into an agreement with PSI and Dr. Fuentes to indefinitely
suspend any further execution of the RTC Decision. However, not long thereafter, the Aganas again filed a motion for an
alias writ of execution against the properties of PSI and Dr. Fuentes. On September 21, 1993, the RTC granted the
motion and issued the corresponding writ, prompting Dr. Fuentes to file with the Court of Appeals a petition for certiorari
 365

and prohibition, with prayer for preliminary injunction, docketed as CA-G.R. SP No. 32198. During its pendency, the Court
of Appeals issued a Resolution5 dated October 29, 1993 granting Dr. Fuentes prayer for injunctive relief.

On January 24, 1994, CA-G.R. SP No. 32198 was consolidated with CA-G.R. CV No. 42062.

Meanwhile, on January 23, 1995, the PRC Board of Medicine rendered its Decision6 in Administrative Case No. 1690
dismissing the case against Dr. Fuentes. The Board held that the prosecution failed to show that Dr. Fuentes was the one
who left the two pieces of gauze inside Natividads body; and that he concealed such fact from Natividad.

On September 6, 1996, the Court of Appeals rendered its Decision jointly disposing of CA-G.R. CV No. 42062 and CA-
G.R. SP No. 32198, thus:

WHEREFORE, except for the modification that the case against defendant-appellant Dr. Juan Fuentes is hereby
DISMISSED, and with the pronouncement that defendant-appellant Dr. Miguel Ampil is liable to reimburse defendant-
appellant Professional Services, Inc., whatever amount the latter will pay or had paid to the plaintiffs-appellees, the
decision appealed from is hereby AFFIRMED and the instant appeal DISMISSED.

Concomitant with the above, the petition for certiorari and prohibition filed by herein defendant-appellant Dr. Juan Fuentes
in CA-G.R. SP No. 32198 is hereby GRANTED and the challenged order of the respondent judge dated September 21,
1993, as well as the alias writ of execution issued pursuant thereto are hereby NULLIFIED and SET ASIDE. The bond
posted by the petitioner in connection with the writ of preliminary injunction issued by this Court on November 29, 1993 is
hereby cancelled.

Costs against defendants-appellants Dr. Miguel Ampil and Professional Services, Inc.

SO ORDERED.

Only Dr. Ampil filed a motion for reconsideration, but it was denied in a Resolution 7 dated December 19, 1996.

Hence, the instant consolidated petitions.

In G.R. No. 126297, PSI alleged in its petition that the Court of Appeals erred in holding that: (1) it is estopped from
raising the defense that Dr. Ampil is not its employee; (2) it is solidarily liable with Dr. Ampil; and (3) it is not entitled to its
counterclaim against the Aganas. PSI contends that Dr. Ampil is not its employee, but a mere consultant or independent
contractor. As such, he alone should answer for his negligence.

In G.R. No. 126467, the Aganas maintain that the Court of Appeals erred in finding that Dr. Fuentes is not guilty of
negligence or medical malpractice, invoking the doctrine of res ipsa loquitur. They contend that the pieces of gauze are
prima facie proofs that the operating surgeons have been negligent.

Finally, in G.R. No. 127590, Dr. Ampil asserts that the Court of Appeals erred in finding him liable for negligence and
malpractice sans evidence that he left the two pieces of gauze in Natividads vagina. He pointed to other probable causes,
such as: (1) it was Dr. Fuentes who used gauzes in performing the hysterectomy; (2) the attending nurses failure to
properly count the gauzes used during surgery; and (3) the medical intervention of the American doctors who examined
Natividad in the United States of America.

For our resolution are these three vital issues: first, whether the Court of Appeals erred in holding Dr. Ampil liable for
negligence and malpractice; second, whether the Court of Appeals erred in absolving Dr. Fuentes of any liability; and
third, whether PSI may be held solidarily liable for the negligence of Dr. Ampil.

I - G.R. No. 127590

Whether the Court of Appeals Erred in Holding Dr. Ampil

Liable for Negligence and Malpractice.

 366

Dr. Ampil, in an attempt to absolve himself, gears the Courts attention to other possible causes of Natividads detriment.
He argues that the Court should not discount either of the following possibilities: first, Dr. Fuentes left the gauzes in
Natividads body after performing hysterectomy; second, the attending nurses erred in counting the gauzes; and third, the
American doctors were the ones who placed the gauzes in Natividads body.

Dr. Ampils arguments are purely conjectural and without basis. Records show that he did not present any evidence to
prove that the American doctors were the ones who put or left the gauzes in Natividads body. Neither did he submit
evidence to rebut the correctness of the record of operation, particularly the number of gauzes used. As to the alleged
negligence of Dr. Fuentes, we are mindful that Dr. Ampil examined his (Dr. Fuentes) work and found it in order.

The glaring truth is that all the major circumstances, taken together, as specified by the Court of Appeals, directly point to
Dr. Ampil as the negligent party, thus:

First, it is not disputed that the surgeons used gauzes as sponges to control the bleeding of the patient during the
surgical operation.

Second, immediately after the operation, the nurses who assisted in the surgery noted in their report that the
sponge count (was) lacking 2; that such anomaly was announced to surgeon and that a search was done but to
no avail prompting Dr. Ampil to continue for closure x x x.

Third, after the operation, two (2) gauzes were extracted from the same spot of the body of Mrs. Agana where the
surgery was performed.

An operation requiring the placing of sponges in the incision is not complete until the sponges are properly removed, and
it is settled that the leaving of sponges or other foreign substances in the wound after the incision has been closed is at
least prima facie negligence by the operating surgeon.8 To put it simply, such act is considered so inconsistent with due
care as to raise an inference of negligence. There are even legions of authorities to the effect that such act is negligence
per se.9

Of course, the Court is not blind to the reality that there are times when danger to a patients life precludes a surgeon from
further searching missing sponges or foreign objects left in the body. But this does not leave him free from any obligation.
Even if it has been shown that a surgeon was required by the urgent necessities of the case to leave a sponge in his
patients abdomen, because of the dangers attendant upon delay, still, it is his legal duty to so inform his patient within a
reasonable time thereafter by advising her of what he had been compelled to do. This is in order that she might seek relief
from the effects of the foreign object left in her body as her condition might permit. The ruling in Smith v. Zeagler 10 is
explicit, thus:

The removal of all sponges used is part of a surgical operation, and when a physician or surgeon fails to remove a sponge
he has placed in his patients body that should be removed as part of the operation, he thereby leaves his operation
uncompleted and creates a new condition which imposes upon him the legal duty of calling the new condition to his
patients attention, and endeavoring with the means he has at hand to minimize and avoid untoward results likely to ensue
therefrom.

Here, Dr. Ampil did not inform Natividad about the missing two pieces of gauze. Worse, he even misled her that the pain
she was experiencing was the ordinary consequence of her operation. Had he been more candid, Natividad could have
taken the immediate and appropriate medical remedy to remove the gauzes from her body. To our mind, what was initially
an act of negligence by Dr. Ampil has ripened into a deliberate wrongful act of deceiving his patient.

This is a clear case of medical malpractice or more appropriately, medical negligence. To successfully pursue this kind of
case, a patient must only prove that a health care provider either failed to do something which a reasonably prudent
health care provider would have done, or that he did something that a reasonably prudent provider would not have done;
and that failure or action caused injury to the patient. 11 Simply put, the elements are duty, breach, injury and proximate
causation. Dr, Ampil, as the lead surgeon, had the duty to remove all foreign objects, such as gauzes, from Natividads
body before closure of the incision. When he failed to do so, it was his duty to inform Natividad about it. Dr. Ampil
breached both duties. Such breach caused injury to Natividad, necessitating her further examination by American doctors
and another surgery. That Dr. Ampils negligence is the proximate cause 12 of Natividads injury could be traced from his
act of closing the incision despite the information given by the attending nurses that two pieces of gauze were still
missing. That they were later on extracted from Natividads vagina established the causal link between Dr. Ampils
 367

negligence and the injury. And what further aggravated such injury was his deliberate concealment of the missing gauzes
from the knowledge of Natividad and her family.

II - G.R. No. 126467

Whether the Court of Appeals Erred in Absolving

Dr. Fuentes of any Liability

The Aganas assailed the dismissal by the trial court of the case against Dr. Fuentes on the ground that it is contrary to the
doctrine of res ipsa loquitur. According to them, the fact that the two pieces of gauze were left inside Natividads body is a
prima facie evidence of Dr. Fuentes negligence.

We are not convinced.

Literally, res ipsa loquitur means "the thing speaks for itself." It is the rule that the fact of the occurrence of an injury, taken
with the surrounding circumstances, may permit an inference or raise a presumption of negligence, or make out a
plaintiffs prima facie case, and present a question of fact for defendant to meet with an explanation. 13 Stated differently,
where the thing which caused the injury, without the fault of the injured, is under the exclusive control of the defendant
and the injury is such that it should not have occurred if he, having such control used proper care, it affords reasonable
evidence, in the absence of explanation that the injury arose from the defendants want of care, and the burden of proof is
shifted to him to establish that he has observed due care and diligence.14

From the foregoing statements of the rule, the requisites for the applicability of the doctrine of res ipsa loquitur are: (1) the
occurrence of an injury; (2) the thing which caused the injury was under the control and management of the defendant; (3)
the occurrence was such that in the ordinary course of things, would not have happened if those who had control or
management used proper care; and (4) the absence of explanation by the defendant. Of the foregoing requisites, the
most instrumental is the "control and management of the thing which caused the injury." 15

We find the element of "control and management of the thing which caused the injury" to be wanting. Hence, the doctrine
of res ipsa loquitur will not lie.

It was duly established that Dr. Ampil was the lead surgeon during the operation of Natividad. He requested the
assistance of Dr. Fuentes only to perform hysterectomy when he (Dr. Ampil) found that the malignancy in her sigmoid
area had spread to her left ovary. Dr. Fuentes performed the surgery and thereafter reported and showed his work to Dr.
Ampil. The latter examined it and finding everything to be in order, allowed Dr. Fuentes to leave the operating room. Dr.
Ampil then resumed operating on Natividad. He was about to finish the procedure when the attending nurses informed
him that two pieces of gauze were missing. A "diligent search" was conducted, but the misplaced gauzes were not found.
Dr. Ampil then directed that the incision be closed. During this entire period, Dr. Fuentes was no longer in the operating
room and had, in fact, left the hospital.

Under the "Captain of the Ship" rule, the operating surgeon is the person in complete charge of the surgery room and all
personnel connected with the operation. Their duty is to obey his orders. 16 As stated before, Dr. Ampil was the lead
surgeon. In other words, he was the "Captain of the Ship." That he discharged such role is evident from his following
conduct: (1) calling Dr. Fuentes to perform a hysterectomy; (2) examining the work of Dr. Fuentes and finding it in order;
(3) granting Dr. Fuentes permission to leave; and (4) ordering the closure of the incision. To our mind, it was this act of
ordering the closure of the incision notwithstanding that two pieces of gauze remained unaccounted for, that caused injury
to Natividads body. Clearly, the control and management of the thing which caused the injury was in the hands of Dr.
Ampil, not Dr. Fuentes.

In this jurisdiction, res ipsa loquitur is not a rule of substantive law, hence, does not per se create or constitute an
independent or separate ground of liability, being a mere evidentiary rule. 17 In other words, mere invocation and
application of the doctrine does not dispense with the requirement of proof of negligence. Here, the negligence was
proven to have been committed by Dr. Ampil and not by Dr. Fuentes.

III - G.R. No. 126297

 368

Whether PSI Is Liable for the Negligence of Dr. Ampil

The third issue necessitates a glimpse at the historical development of hospitals and the resulting theories concerning
their liability for the negligence of physicians.

Until the mid-nineteenth century, hospitals were generally charitable institutions, providing medical services to the lowest
classes of society, without regard for a patients ability to pay. 18 Those who could afford medical treatment were usually
treated at home by their doctors.19 However, the days of house calls and philanthropic health care are over. The modern
health care industry continues to distance itself from its charitable past and has experienced a significant conversion from
a not-for-profit health care to for-profit hospital businesses. Consequently, significant changes in health law have
accompanied the business-related changes in the hospital industry. One important legal change is an increase in hospital
liability for medical malpractice. Many courts now allow claims for hospital vicarious liability under the theories of
respondeat superior, apparent authority, ostensible authority, or agency by estoppel. 20

In this jurisdiction, the statute governing liability for negligent acts is Article 2176 of the Civil Code, which reads:

Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a
quasi-delict and is governed by the provisions of this Chapter.

A derivative of this provision is Article 2180, the rule governing vicarious liability under the doctrine of respondeat superior,
thus:

ART. 2180. The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions, but also for
those of persons for whom one is responsible.

x x x x x x

The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their
employees in the service of the branches in which the latter are employed or on the occasion of their functions.

Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of
their assigned tasks even though the former are not engaged in any business or industry.

x x x x x x

The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the
diligence of a good father of a family to prevent damage.

A prominent civilist commented that professionals engaged by an employer, such as physicians, dentists, and
pharmacists, are not "employees" under this article because the manner in which they perform their work is not within the
control of the latter (employer). In other words, professionals are considered personally liable for the fault or negligence
they commit in the discharge of their duties, and their employer cannot be held liable for such fault or negligence. In the
context of the present case, "a hospital cannot be held liable for the fault or negligence of a physician or surgeon in the
treatment or operation of patients."21

The foregoing view is grounded on the traditional notion that the professional status and the very nature of the physicians
calling preclude him from being classed as an agent or employee of a hospital, whenever he acts in a professional
capacity.22 It has been said that medical practice strictly involves highly developed and specialized knowledge, 23 such that
physicians are generally free to exercise their own skill and judgment in rendering medical services sans
interference.24 Hence, when a doctor practices medicine in a hospital setting, the hospital and its employees are deemed
to subserve him in his ministrations to the patient and his actions are of his own responsibility. 25

The case of Schloendorff v. Society of New York Hospital26 was then considered an authority for this view. The
"Schloendorff doctrine" regards a physician, even if employed by a hospital, as an independent contractor because of the
skill he exercises and the lack of control exerted over his work. Under this doctrine, hospitals are exempt from the
 369

application of the respondeat superior principle for fault or negligence committed by physicians in the discharge of their
profession.

However, the efficacy of the foregoing doctrine has weakened with the significant developments in medical care. Courts
came to realize that modern hospitals are increasingly taking active role in supplying and regulating medical care to
patients. No longer were a hospitals functions limited to furnishing room, food, facilities for treatment and operation, and
attendants for its patients. Thus, in Bing v. Thunig, 27 the New York Court of Appeals deviated from the Schloendorff
doctrine, noting that modern hospitals actually do far more than provide facilities for treatment. Rather, they regularly
employ, on a salaried basis, a large staff of physicians, interns, nurses, administrative and manual workers. They charge
patients for medical care and treatment, even collecting for such services through legal action, if necessary. The court
then concluded that there is no reason to exempt hospitals from the universal rule of respondeat superior.

In our shores, the nature of the relationship between the hospital and the physicians is rendered inconsequential in view
of our categorical pronouncement in Ramos v. Court of Appeals 28 that for purposes of apportioning responsibility in
medical negligence cases, an employer-employee relationship in effect exists between hospitals and their attending and
visiting physicians. This Court held:

"We now discuss the responsibility of the hospital in this particular incident. The unique practice (among private hospitals)
of filling up specialist staff with attending and visiting "consultants," who are allegedly not hospital employees, presents
problems in apportioning responsibility for negligence in medical malpractice cases. However, the difficulty is more
apparent than real.

In the first place, hospitals exercise significant control in the hiring and firing of consultants and in the conduct of their
work within the hospital premises. Doctors who apply for consultant slots, visiting or attending, are required to submit
proof of completion of residency, their educational qualifications, generally, evidence of accreditation by the appropriate
board (diplomate), evidence of fellowship in most cases, and references. These requirements are carefully scrutinized by
members of the hospital administration or by a review committee set up by the hospital who either accept or reject the
application. x x x.

After a physician is accepted, either as a visiting or attending consultant, he is normally required to attend clinico-
pathological conferences, conduct bedside rounds for clerks, interns and residents, moderate grand rounds and patient
audits and perform other tasks and responsibilities, for the privilege of being able to maintain a clinic in the hospital,
and/or for the privilege of admitting patients into the hospital. In addition to these, the physicians performance as a
specialist is generally evaluated by a peer review committee on the basis of mortality and morbidity statistics, and
feedback from patients, nurses, interns and residents. A consultant remiss in his duties, or a consultant who regularly falls
short of the minimum standards acceptable to the hospital or its peer review committee, is normally politely terminated.

In other words, private hospitals, hire, fire and exercise real control over their attending and visiting consultant staff.
While consultants are not, technically employees, x x x, the control exercised, the hiring, and the right to terminate
consultants all fulfill the important hallmarks of an employer-employee relationship, with the exception of the payment of
wages. In assessing whether such a relationship in fact exists, the control test is determining. Accordingly, on the basis of
the foregoing, we rule that for the purpose of allocating responsibility in medical negligence cases, an employer-employee
relationship in effect exists between hospitals and their attending and visiting physicians. "

But the Ramos pronouncement is not our only basis in sustaining PSIs liability. Its liability is also anchored upon the
agency principle of apparent authority or agency by estoppel and the doctrine of corporate negligence which have gained
acceptance in the determination of a hospitals liability for negligent acts of health professionals. The present case serves
as a perfect platform to test the applicability of these doctrines, thus, enriching our jurisprudence.

Apparent authority, or what is sometimes referred to as the "holding

out" theory, or doctrine of ostensible agency or agency by estoppel, 29 has its origin from the law of agency. It imposes
liability, not as the result of the reality of a contractual relationship, but rather because of the actions of a principal or an
employer in somehow misleading the public into believing that the relationship or the authority exists.30 The concept is
essentially one of estoppel and has been explained in this manner:

"The principal is bound by the acts of his agent with the apparent authority which he knowingly permits the agent to
assume, or which he holds the agent out to the public as possessing. The question in every case is whether the principal
 370

has by his voluntary act placed the agent in such a situation that a person of ordinary prudence, conversant with business
usages and the nature of the particular business, is justified in presuming that such agent has authority to perform the
particular act in question.31

The applicability of apparent authority in the field of hospital liability was upheld long time ago in Irving v. Doctor Hospital
of Lake Worth, Inc.32 There, it was explicitly stated that "there does not appear to be any rational basis for excluding the
concept of apparent authority from the field of hospital liability." Thus, in cases where it can be shown that a hospital, by
its actions, has held out a particular physician as its agent and/or employee and that a patient has accepted treatment
from that physician in the reasonable belief that it is being rendered in behalf of the hospital, then the hospital will be liable
for the physicians negligence.

Our jurisdiction recognizes the concept of an agency by implication or estoppel. Article 1869 of the Civil Code reads:

ART. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his
failure to repudiate the agency, knowing that another person is acting on his behalf without authority.

In this case, PSI publicly displays in the lobby of the Medical City Hospital the names and specializations of the physicians
associated or accredited by it, including those of Dr. Ampil and Dr. Fuentes. We concur with the Court of Appeals
conclusion that it "is now estopped from passing all the blame to the physicians whose names it proudly paraded in the
public directory leading the public to believe that it vouched for their skill and competence." Indeed, PSIs act is
tantamount to holding out to the public that Medical City Hospital, through its accredited physicians, offers quality health
care services. By accrediting Dr. Ampil and Dr. Fuentes and publicly advertising their qualifications, the hospital created
the impression that they were its agents, authorized to perform medical or surgical services for its patients. As expected,
these patients, Natividad being one of them, accepted the services on the reasonable belief that such were being
rendered by the hospital or its employees, agents, or servants. The trial court correctly pointed out:

x x x regardless of the education and status in life of the patient, he ought not be burdened with the defense of absence of
employer-employee relationship between the hospital and the independent physician whose name and competence are
certainly certified to the general public by the hospitals act of listing him and his specialty in its lobby directory, as in the
case herein. The high costs of todays medical and health care should at least exact on the hospital greater, if not
broader, legal responsibility for the conduct of treatment and surgery within its facility by its accredited physician or
surgeon, regardless of whether he is independent or employed."33

The wisdom of the foregoing ratiocination is easy to discern. Corporate entities, like PSI, are capable of acting only
through other individuals, such as physicians. If these accredited physicians do their job well, the hospital succeeds in its
mission of offering quality medical services and thus profits financially. Logically, where negligence mars the quality of its
services, the hospital should not be allowed to escape liability for the acts of its ostensible agents.

We now proceed to the doctrine of corporate negligence or corporate responsibility.

One allegation in the complaint in Civil Case No. Q-43332 for negligence and malpractice is that PSI as owner, operator
and manager of Medical City Hospital, "did not perform the necessary supervision nor exercise diligent efforts in the
supervision of Drs. Ampil and Fuentes and its nursing staff, resident doctors, and medical interns who assisted Drs. Ampil
and Fuentes in the performance of their duties as surgeons." 34 Premised on the doctrine of corporate negligence, the trial
court held that PSI is directly liable for such breach of duty.

We agree with the trial court.

Recent years have seen the doctrine of corporate negligence as the judicial answer to the problem of allocating hospitals
liability for the negligent acts of health practitioners, absent facts to support the application of respondeat superior or
apparent authority. Its formulation proceeds from the judiciarys acknowledgment that in these modern times, the duty of
providing quality medical service is no longer the sole prerogative and responsibility of the physician. The modern
hospitals have changed structure. Hospitals now tend to organize a highly professional medical staff whose competence
and performance need to be monitored by the hospitals commensurate with their inherent responsibility to provide quality
medical care.35
 371

The doctrine has its genesis in Darling v. Charleston Community Hospital. 36 There, the Supreme Court of Illinois held that
"the jury could have found a hospital negligent, inter alia, in failing to have a sufficient number of trained nurses attending
the patient; failing to require a consultation with or examination by members of the hospital staff; and failing to review the
treatment rendered to the patient." On the basis of Darling, other jurisdictions held that a hospitals corporate negligence
extends to permitting a physician known to be incompetent to practice at the hospital. 37 With the passage of time, more
duties were expected from hospitals, among them: (1) the use of reasonable care in the maintenance of safe and
adequate facilities and equipment; (2) the selection and retention of competent physicians; (3) the overseeing or
supervision of all persons who practice medicine within its walls; and (4) the formulation, adoption and enforcement of
adequate rules and policies that ensure quality care for its patients. 38 Thus, in Tucson Medical Center, Inc. v. Misevich,39 it
was held that a hospital, following the doctrine of corporate responsibility, has the duty to see that it meets the standards
of responsibilities for the care of patients. Such duty includes the proper supervision of the members of its medical staff.
And in Bost v. Riley,40 the court concluded that a patient who enters a hospital does so with the reasonable expectation
that it will attempt to cure him. The hospital accordingly has the duty to make a reasonable effort to monitor and oversee
the treatment prescribed and administered by the physicians practicing in its premises.

In the present case, it was duly established that PSI operates the Medical City Hospital for the purpose and under the
concept of providing comprehensive medical services to the public. Accordingly, it has the duty to exercise reasonable
care to protect from harm all patients admitted into its facility for medical treatment. Unfortunately, PSI failed to perform
such duty. The findings of the trial court are convincing, thus:

x x x PSIs liability is traceable to its failure to conduct an investigation of the matter reported in the nota bene of the count
nurse. Such failure established PSIs part in the dark conspiracy of silence and concealment about the gauzes. Ethical
considerations, if not also legal, dictated the holding of an immediate inquiry into the events, if not for the benefit of the
patient to whom the duty is primarily owed, then in the interest of arriving at the truth. The Court cannot accept that the
medical and the healing professions, through their members like defendant surgeons, and their institutions like PSIs
hospital facility, can callously turn their backs on and disregard even a mere probability of mistake or negligence by
refusing or failing to investigate a report of such seriousness as the one in Natividads case.

It is worthy to note that Dr. Ampil and Dr. Fuentes operated on Natividad with the assistance of the Medical City Hospitals
staff, composed of resident doctors, nurses, and interns. As such, it is reasonable to conclude that PSI, as the operator of
the hospital, has actual or constructive knowledge of the procedures carried out, particularly the report of the attending
nurses that the two pieces of gauze were missing. In Fridena v. Evans, 41 it was held that a corporation is bound by the
knowledge acquired by or notice given to its agents or officers within the scope of their authority and in reference to a
matter to which their authority extends. This means that the knowledge of any of the staff of Medical City Hospital
constitutes knowledge of PSI. Now, the failure of PSI, despite the attending nurses report, to investigate and inform
Natividad regarding the missing gauzes amounts to callous negligence. Not only did PSI breach its duties to oversee or
supervise all persons who practice medicine within its walls, it also failed to take an active step in fixing the negligence
committed. This renders PSI, not only vicariously liable for the negligence of Dr. Ampil under Article 2180 of the Civil
Code, but also directly liable for its own negligence under Article 2176. In Fridena, the Supreme Court of Arizona held:

x x x In recent years, however, the duty of care owed to the patient by the hospital has expanded. The emerging trend is
to hold the hospital responsible where the hospital has failed to monitor and review medical services being provided within
its walls. See Kahn Hospital Malpractice Prevention, 27 De Paul . Rev. 23 (1977).

Among the cases indicative of the emerging trend is Purcell v. Zimbelman, 18 Ariz. App. 75,500 P. 2d 335 (1972). In
Purcell, the hospital argued that it could not be held liable for the malpractice of a medical practitioner because he was an
independent contractor within the hospital. The Court of Appeals pointed out that the hospital had created a professional
staff whose competence and performance was to be monitored and reviewed by the governing body of the hospital, and
the court held that a hospital would be negligent where it had knowledge or reason to believe that a doctor using the
facilities was employing a method of treatment or care which fell below the recognized standard of care.

Subsequent to the Purcell decision, the Arizona Court of Appeals held that a hospital has certain inherent responsibilities
regarding the quality of medical care furnished to patients within its walls and it must meet the standards of responsibility
commensurate with this undertaking. Beeck v. Tucson General Hospital, 18 Ariz. App. 165, 500 P. 2d 1153 (1972). This
court has confirmed the rulings of the Court of Appeals that a hospital has the duty of supervising the competence of the
doctors on its staff. x x x.

x x x x x x
 372

In the amended complaint, the plaintiffs did plead that the operation was performed at the hospital with its knowledge, aid,
and assistance, and that the negligence of the defendants was the proximate cause of the patients injuries. We find that
such general allegations of negligence, along with the evidence produced at the trial of this case, are sufficient to support
the hospitals liability based on the theory of negligent supervision."

Anent the corollary issue of whether PSI is solidarily liable with Dr. Ampil for damages, let it be emphasized that PSI, apart
from a general denial of its responsibility, failed to adduce evidence showing that it exercised the diligence of a good
father of a family in the accreditation and supervision of the latter. In neglecting to offer such proof, PSI failed to discharge
its burden under the last paragraph of Article 2180 cited earlier, and, therefore, must be adjudged solidarily liable with Dr.
Ampil. Moreover, as we have discussed, PSI is also directly liable to the Aganas.

One final word. Once a physician undertakes the treatment and care of a patient, the law imposes on him certain
obligations. In order to escape liability, he must possess that reasonable degree of learning, skill and experience required
by his profession. At the same time, he must apply reasonable care and diligence in the exercise of his skill and the
application of his knowledge, and exert his best judgment.

WHEREFORE, we DENY all the petitions and AFFIRM the challenged Decision of the Court of Appeals in CA-G.R. CV
No. 42062 and CA-G.R. SP No. 32198. Costs against petitioners PSI and Dr. Miguel Ampil. SO ORDERED.

G.R. No. 172122 June 22, 2007

MERCURY DRUG CORPORATION and ROLANDO J. DEL ROSARIO, petitioners,

vs.
SPOUSES RICHARD HUANG and CARMEN HUANG, and STEPHEN HUANG, respondents.

DECISION

PUNO, C.J.:

On appeal are the Decision1 and Resolution2 of the Court of Appeals in CA-G.R. CV No. 83981, dated February 16, 2006
and March 30, 2006, respectively which affirmed with modification the Decision 3 of the Regional Trial Court (RTC) of
Makati City, dated September 29, 2004. The trial court found petitioners jointly and severally liable to pay respondents
damages for the injuries sustained by respondent Stephen Huang, son of respondent spouses Richard and Carmen
Huang.

First, the facts:

Petitioner Mercury Drug Corporation (Mercury Drug) is the registered owner of a six-wheeler 1990 Mitsubishi Truck with
plate number PRE 641 (truck). It has in its employ petitioner Rolando J. del Rosario as driver. Respondent spouses
Richard and Carmen Huang are the parents of respondent Stephen Huang and own the red 1991 Toyota Corolla GLI
Sedan with plate number PTT 775 (car).

These two vehicles figured in a road accident on December 20, 1996 at around 10:30 p.m. within the municipality of
Taguig, Metro Manila. Respondent Stephen Huang was driving the car, weighing 1,450 kg., while petitioner Del Rosario
was driving the truck, weighing 14,058 kg. Both were traversing the C-5 Highway, north bound, coming from the general
direction of Alabang going to Pasig City. The car was on the left innermost lane while the truck was on the next lane to its
right, when the truck suddenly swerved to its left and slammed into the front right side of the car. The collision hurled the
car over the island where it hit a lamppost, spun around and landed on the opposite lane. The truck also hit a lamppost,
ran over the car and zigzagged towards, and finally stopped in front of Buellah Land Church.

At the time of the accident, petitioner Del Rosario only had a Traffic Violation Receipt (TVR). His drivers license had been
confiscated because he had been previously apprehended for reckless driving.

The car, valued at 300,000.00, was a total wreck. Respondent Stephen Huang sustained massive injuries to his spinal
cord, head, face, and lung. Despite a series of operations, respondent Stephen Huang is paralyzed for life from his chest
down and requires continuous medical and rehabilitation treatment.
 373

Respondents fault petitioner Del Rosario for committing gross negligence and reckless imprudence while driving, and
petitioner Mercury Drug for failing to exercise the diligence of a good father of a family in the selection and supervision of
its driver.

In contrast, petitioners allege that the immediate and proximate cause of the accident was respondent Stephen Huangs
recklessness. According to petitioner Del Rosario, he was driving on the left innermost lane when the car bumped the
trucks front right tire. The truck then swerved to the left, smashed into an electric post, crossed the center island, and
stopped on the other side of the highway. The car likewise crossed over the center island and landed on the same portion
of C-5. Further, petitioner Mercury Drug claims that it exercised due diligence of a good father of a family in the selection
and supervision of all its employees.

The trial court, in its Decision dated September 29, 2004, found petitioners Mercury Drug and Del Rosario jointly and
severally liable to pay respondents actual, compensatory, moral and exemplary damages, attorneys fees, and litigation
expenses. The dispositive portion reads:

WHEREFORE, judgment is rendered finding defendants Mercury Drug Corporation, Inc. and Rolando del Rosario, jointly
and severally liable to pay plaintiffs Spouses Richard Y. Huang and Carmen G. Huang, and Stephen Huang the following
amounts:

1. Two Million Nine Hundred Seventy Three Thousand Pesos (2,973,000.00) actual damages;

2. As compensatory damages:

a. Twenty Three Million Four Hundred Sixty One Thousand, and Sixty-Two Pesos (23,461,062.00) for life care cost of
Stephen;

b. Ten Million Pesos (10,000,000.00) as and for lost or impaired earning capacity of Stephen;

3. Four Million Pesos (4,000,000.00) as moral damages;

4. Two Million Pesos (2,000,000.00) as exemplary damages; and

5. One Million Pesos (1,000,000.00) as attorneys fees and litigation expense. 4

On February 16, 2006, the Court of Appeals affirmed the decision of the trial court but reduced the award of moral
damages to 1,000,000.00. The appellate court also denied the motion for reconsideration filed by petitioners.

Hence, this appeal.

Petitioners cite the following grounds for their appeal:

1. That the subject Decision which dismissed the appeal of petitioners herein but AFFIRMED WITH MODIFICATION the
decision of the Regional Trial Court, Branch 64, Makati City, in that the award of moral damages was reduced to
1,000,000.00 and its Resolution dated March 30, 2006, which dismissed outright the Motion for Reconsideration must be
set aside because the Honorable Court of Appeals committed reversible error:

A. IN DENYING OUTRIGHTLY THE MOTION FOR RECONSIDERATION ON ALLEGEDLY BEING FILED OUT OF TIME
FOR ONE DAY;

B. IN ACCORDING GREATER WEIGHT TO THE EVIDENCE ADDUCED BY THE RESPONDENTS HEREIN AND
COMPLETELY DISREGARDING THE DEFENSE INTERPOSED BY THE PETITIONERS HEREIN;

C. IN DISREGARDING COMPLETELY ALL EVIDENCES PRESENTED BY THE PETITIONERS HEREIN AND

PROCEEDED TO RENDER ITS DECISION BASED ON PRESUMPTIONS AND PERSONAL OPINIONS OF PEOPLE
WHO ARE NOT WITNESSES TO THE ACCIDENT;
 374

D. IN AWARDING DAMAGES IN FAVOR OF RESPONDENTS HEREIN;

E. IN FINDING THAT MERCURY DRUG CORPORATION FAILED TO EXERCISE THE DILIGENCE REQUIRED IN
SUPERVISING ITS EMPLOYEES DESPITE OVERWHELMING EVIDENCE PRESENTED BY PETITIONER COMPANY;

F. IN FINDING THAT PETITIONER ROLANDO DEL ROSARIO WAS NEGLIGENT IN DRIVING THE TRUCK AT THE
TIME OF ACCIDENT AND TOTALLY DISREGARDING THE EVIDENCES PRESENTED DURING THE TRIAL OF THE
CASE.

G. IN PRESENTING ONLY IN THE DECISION TESTIMONIES FAVORABLE TO THE RESPONDENTS HEREIN AND
COMPLETELY DISREGARDING THE EVIDENCES PRESENTED BY THE PETITIONERS HEREIN WHICH
CONTRADICTED SUCH TESTIMONIES NOT ONLY THROUGH ORAL TESTIMONIES BUT AS WELL AS
DOCUMENTARY EVIDENCES.5

We affirm the findings of the trial court and the appellate court that petitioner Del Rosario was negligent. The evidence
does not support petitioners claim that at the time of the accident, the truck was at the left inner lane and that it was
respondent Stephen Huangs car, at its right, which bumped the right front side of the truck. Firstly, petitioner Del Rosario
could not precisely tell which part of the truck was hit by the car, 6 despite the fact that the truck was snub-nosed and a lot
higher than the car. Petitioner Del Rosario could not also explain why the car landed on the opposite lane of C-5 which
was on its left side. He said that "the car did not pass in front of him after it hit him or under him or over him or behind
him."7 If the truck were really at the left lane and the car were at its right, and the car hit the truck at its front right side, t he
car would not have landed on the opposite side, but would have been thrown to the right side of the C-5 Highway.
Noteworthy on this issue is the testimony of Dr. Marlon Rosendo H. Daza, an expert in the field of physics. He conducted
a study based on the following assumptions provided by respondents:

1. Two vehicles collided;

2. One vehicle is ten times heavier, more massive than the other;

3. Both vehicles were moving in the same direction and at the same speed of about 85 to 90 kilometers per hour;

4. The heavier vehicle was driving at the innermost left lane, while the lighter vehicle was at its right.

Dr. Daza testified that given the foregoing assumptions, if the lighter vehicle hits the right front portion of the heavier
vehicle, the general direction of the light vehicle after the impact would be to the right side of the heavy vehicle, not the
other way around. The truck, he opined, is more difficult to move as it is heavier. It is the car, the lighter vehicle, which
would move to the right of, and away from the truck. Thus, there is very little chance that the car will move towards the
opposite side, i.e., to the left of the truck.

Dr. Daza also gave a further study on the basis of the same assumptions except that the car is on the left side of the
truck, in accordance with the testimony of respondent Stephen Huang. Dr. Daza concluded that the general direction of
the car after impact would be to the left of the truck. In this situation, the middle island against which the car was pinned
would slow down the car, and enable the truck to catch up and hit the car again, before running over it. 8

To support their thesis, petitioners tried to show the damages that the truck sustained at its front right side. The attempt
does not impress. The photographs presented were taken a month after the accident, and Rogelio Pantua, the
automechanic who repaired the truck and authenticated the photographs, admitted that there were damages also on the
left side of the truck.9

Worse still, petitioner Del Rosario further admitted that after the impact, he lost control of the truck and failed to apply his
brakes. Considering that the car was smaller and lighter than the six-wheeler truck, the impact allegedly caused by the car
when it hit the truck could not possibly be so great to cause petitioner to lose all control that he failed to even step on the
brakes. He testified, as follows:

ATTY. DIAZ:

May I proceed, Your Honor. You were able to apply the brakes, were you sir?
 375

WITNESS:

No more, sir, because I went over the island.

ATTY. DIAZ:

Because as you said you lost control, correct sir?

WITNESS:

Yes, sir.

ATTY. DIAZ:

In other words, sir from the time your truck was hit according to you up to the time you rested on the shoulder, you
traveled fifty meters?

WITNESS:

Yes, sir, about that distance.

ATTY. DIAZ:

And this was despite the fact that you were only traveling at the speed of seventy five kilometers per hour, jumped over
the island, hit the lamppost, and traveled the three lanes of the opposite lane of C-5 highway, is that what you want to
impress upon this court?

WITNESS:

Yes, sir.10

We therefore find no cogent reason to disturb the findings of the RTC and the Court of Appeals. The evidence proves
petitioner Del Rosarios negligence as the direct and proximate cause of the injuries suffered by respondent Stephen
Huang. Petitioner Del Rosario failed to do what a reasonable and prudent man would have done under the circumstances.

We now come to the liability of petitioner Mercury Drug as employer of Del Rosario. Articles 2176 and 2180 of the Civil
Code provide:

Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a
quasi-delict and is governed by the provisions of this Chapter.

Art. 2180. The obligation imposed by article 2176 is demandable not only for ones own acts or omissions, but also for
those of persons for whom one is responsible.

xxx

The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their
employees in the service of the branches in which the latter are employed or on the occasion of their functions.

xxx

The liability of the employer under Art. 2180 of the Civil Code is direct or immediate. It is not conditioned on a prior
recourse against the negligent employee, or a prior showing of insolvency of such employee. It is also joint and solidary
with the employee.11
 376

To be relieved of liability, petitioner Mercury Drug should show that it exercised the diligence of a good father of a family,
both in the selection of the employee and in the supervision of the performance of his duties. Thus, in the selection of its
prospective employees, the employer is required to examine them as to their qualifications, experience, and service
records.12 With respect to the supervision of its employees, the employer should formulate standard operating procedures,
monitor their implementation, and impose disciplinary measures for their breach. To establish compliance with these
requirements, employers must submit concrete proof, including documentary evidence. 13

In the instant case, petitioner Mercury Drug presented testimonial evidence on its hiring procedure. According to Mrs.
Merlie Caamic, the Recruitment and Training Manager of petitioner Mercury Drug, applicants are required to take
theoretical and actual driving tests, and psychological examination. In the case of petitioner Del Rosario, however, Mrs.
Caamic admitted that he took the driving tests and psychological examination when he applied for the position of Delivery
Man, but not when he applied for the position of Truck Man. Mrs. Caamic also admitted that petitioner Del Rosario used a
Galant which is a light vehicle, instead of a truck during the driving tests. Further, no tests were conducted on the motor
skills development, perceptual speed, visual attention, depth visualization, eye and hand coordination and steadiness of
petitioner Del Rosario. No NBI and police clearances were also presented. Lastly, petitioner Del Rosario attended only
three driving seminars on June 30, 2001, February 5, 2000 and July 7, 1984. In effect, the only seminar he attended
before the accident which occurred in 1996 was held twelve years ago in 1984.

It also appears that petitioner Mercury Drug does not provide for a back-up driver for long trips. At the time of the accident,
petitioner Del Rosario has been out on the road for more than thirteen hours, without any alternate. Mrs. Caamic testified
that she does not know of any company policy requiring back-up drivers for long trips.14

Petitioner Mercury Drug likewise failed to show that it exercised due diligence on the supervision and discipline over its
employees. In fact, on the day of the accident, petitioner Del Rosario was driving without a license. He was holding a TVR
for reckless driving. He testified that he reported the incident to his superior, but nothing was done about it. He was not
suspended or reprimanded.15 No disciplinary action whatsoever was taken against petitioner Del Rosario. We therefore
affirm the finding that petitioner Mercury Drug has failed to discharge its burden of proving that it exercised due diligence
in the selection and supervision of its employee, petitioner Del Rosario.

We now consider the damages which respondents should recover from the petitioners.

The trial court awarded the following amounts:

1. Two Million Nine Hundred Seventy-Three Thousand Pesos (2,973,000.00) actual damages;

2. As compensatory damages:

a. Twenty-Three Million Four Hundred Sixty One Thousand, and Sixty-Two Pesos (23,461,062.00) for life care cost of
Stephen;

b. Ten Million Pesos (10,000,000.00) as and for lost or impaired earning capacity of Stephen;

3. Four Million Pesos (4,000,000.00) as moral damages;

4. Two Million Pesos (2,000,000.00) as exemplary damages; and

5. One Million Pesos (1,000,000.00) as attorneys fees and litigation expense.

The Court of Appeals affirmed the decision of the trial court but reduced the award of moral damages to 1,000,000.00.

With regard to actual damages, Art. 2199 of the Civil Code provides that "[E]xcept as provided by law or by stipulation one
is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved x x x." In the
instant case, we uphold the finding that the actual damages claimed by respondents were supported by receipts. The
amount of 2,973,000.00 represented cost of hospital expenses, medicines, medical services and supplies, and nursing
care services provided respondent Stephen from December 20, 1996, the day of the accident, until December 1998.
 377

Petitioners are also liable for all damages which are the natural and probable consequences of the act or omission
complained of.16 The doctors who attended to respondent Stephen are one in their prognosis that his chances of walking
again and performing basic body functions are nil. For the rest of his life, he will need continuous rehabilitation and
therapy to prevent further complications such as pneumonia, bladder and rectum
infection, renal failure, sepsis and severe bed sores, osteoporosis and fractures, and other spinal cord injury-related
conditions. He will be completely dependent on the care and support of his family. We thus affirm the award of
23,461,062.00 for the life care cost of respondent Stephen Huang, based on his average monthly expense and the
actuarial computation of the remaining years that he is expected to live; and the conservative amount of 10,000,000.00,
as reduced by the trial court, for the loss or impairment of his earning capacity, 17 considering his age, probable life
expectancy, the state of his health, and his mental and physical condition before the accident. He was only seventeen
years old, nearly six feet tall and weighed 175 pounds. He was in fourth year high school, and a member of the school
varsity basketball team. He was also class president and editor-in-chief of the school annual. He had shown very good
leadership qualities. He was looking forward to his college life, having just passed the entrance examinations of the
University of the Philippines, De La Salle University, and the University of Asia and the Pacific. The University of Sto.
Tomas even offered him a chance to obtain an athletic scholarship, but the accident prevented him from attending the
basketball try-outs. Without doubt, he was an exceptional student. He excelled both in his academics and extracurricular
undertakings. He is intelligent and motivated, a go-getter, as testified by Francisco Lopez, respondent Stephen Huangs
godfather and a bank executive.18 Had the accident not happened, he had a rosy future ahead of him. He wanted to
embark on a banking career, get married and raise children. Taking into account his outstanding abilities, he would have
enjoyed a successful professional career in banking. But, as Mr. Lopez stated, it is highly unlikely for someone like
respondent to ever secure a job in a bank. To his knowledge, no bank has ever hired a person suffering with
the kind of disability as Stephen Huangs.19

We likewise uphold the award of moral and exemplary damages and attorneys fees.

"The award of moral damages is aimed at a restoration, within the limits of the possible, of the spiritual status quo
ante."20 Moral damages are designed to compensate and alleviate in some way the physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury
unjustly caused a person. Although incapable of pecuniary computation, they must be proportionate to the suffering
inflicted.21 The amount of the award bears no relation whatsoever with the wealth or means of the offender.

In the instant case, respondent Stephen Huang and respondent spouses Richard and Carmen Huang testified to the
intense suffering they continue to experience as a result of the accident. Stephen recounted the nightmares and traumas
he suffers almost every night when he relives the accident. He also gets depression when he thinks of his bleak future. He
feels frustration and embarrassment in needing to be helped with almost everything and in his inability to do simple things
he used to do. Similarly, respondent spouses and the rest of the family undergo their own private suffering. They live with
the day-to-day uncertainty of respondent Stephen Huangs condition. They know that the chance of full recovery is nil.
Moreover, respondent Stephen Huangs paralysis has made him prone to many other illnesses. His family, especially
respondent spouses, have to make themselves available for Stephen twenty-four hours a day. They have patterned their
daily life around taking care of him, ministering to his daily needs, altering the lifestyle to which they had been
accustomed.

Respondent Carmen Huangs brother testified on the insensitivity of petitioner Mercury Drug towards the plight of
respondent. Stephen, viz.:

Maybe words cannot describe the anger that we feel towards the defendants. All the time that we were going through the
crisis, there was none (sic) a single sign of nor offer of help, any consolation or anything whatsoever. It is funny because,
you know, I have many colleagues, business associates, people even as far as United States, Japan, that I probably met
only once, when they found out, they make a call, they sent card, they write small notes, but from the defendant, absolute
silence. They didnt care, and worst, you know, this is a company that have (sic) all the resources to help us. They were
(sic) on our part, it was doubly painful because we have no choice but to go back to them and buy the medicines that we
need for Stephen. So, I dont know how someone will really have no sense of decency at all to at least find out what
happened to my son, what is his condition, or if there is anything that they can do to help us. 22

On the matter of exemplary damages, Art. 2231 of the Civil Code provides that in cases of quasi-delicts, exemplary
damages may be granted if the defendant acted with gross negligence. The records show that at the time of the accident,
petitioner Del Rosario was driving without a license because he was previously ticketed for reckless driving. The evidence
also shows that he failed to step on his brakes immediately after the impact. Had petitioner Del Rosario done so, the
 378

injuries which respondent Stephen sustained could have been greatly reduced. Wanton acts such as that committed by
petitioner Del Rosario need be suppressed; and employers like petitioner Mercury Drug should be more circumspect in
the observance of due diligence in the selection and supervision of their employees. The award of exemplary damages in
favor of the respondents is therefore justified.

With the award of exemplary damages, we also affirm the grant of attorneys fees to respondents. 23 In addition, attorneys
fees may be granted when a party is compelled to litigate or incur expenses to protect his interest by reason of an
unjustified act of the other party.24

Cost against petitioners.

IN VIEW THEREOF, the petition is DENIED. The Decision and Resolution of the Court of Appeals dated February 16,
2006 and March 30, 2006, respectively, in CA-G.R. CV No. 83981, are AFFIRMED.

SO ORDERED.

G.R. No. 175540 April 7, 2014

DR. FILOTEO A. ALANO, Petitioner,

vs.
ZENAIDA MAGUD-LOGMAO, Respondent.

DECISION

PERALTA, J.:

This deals with the Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that the Decision1of the
Court of Appeals (CA), dated March 31, 2006, adjudging petitioner liable for damages, and the Resolution 2dated
November 22, 2006, denying petitioner's motion for reconsideration thereof, be reversed and set aside.

The CA's narration of facts is accurate, to wit:

 379

Plaintiff-appellee Zenaida Magud-Logmao is the mother of deceased Arnelito Logmao. Defendant-appellant Dr. Filoteo
Alano is the Executive Director of the National Kidney Institute (NKI).

At around 9:50 in the evening of March 1, 1988, Arnelito Logmao, then eighteen (18) years old, was brought to the East
Avenue Medical Center (EAMC) in Quezon City by two sidewalk vendors, who allegedly saw the former fall from the
overpass near the Farmers Market in Cubao, Quezon City. The patients data sheet identified the patient as Angelito
Lugmoso of Boni Avenue, Mandaluyong. However, the clinical abstract prepared by Dr. Paterno F. Cabrera, the surgical
resident on-duty at the Emergency Room of EAMC, stated that the patient is Angelito [Logmao].

Dr. Cabrera reported that [Logmao] was drowsy with alcoholic breath, was conscious and coherent; that the skull x-ray
showed no fracture; that at around 4:00 oclock in the morning of March 2, 1988, [Logmao] developed generalized
seizures and was managed by the neuro-surgery resident on-duty; that the condition of [Logmao] progressively
deteriorated and he was intubated and ambu-bagging support was provided; that admission to the Intensive Care Unit
(ICU) and mechanical ventilator support became necessary, but there was no vacancy at the ICU and all the ventilator
units were being used by other patients; that a resident physician of NKI, who was rotating at EAMC, suggested that
[Logmao] be transferred to NKI; and that after arrangements were made, [Logmao] was transferred to NKI at 10:10 in the
morning.

At the NKI, the name Angelito [Logmao] was recorded as Angelito Lugmoso. Lugmoso was immediately attended to and
given the necessary medical treatment. As Lugmoso had no relatives around, Jennifer B. Misa, Transplant Coordinator,
was asked to locate his family by enlisting police and media assistance. Dr. Enrique T. Ona, Chairman of the Department
of Surgery, observed that the severity of the brain injury of Lugmoso manifested symptoms of brain death. He requested
the Laboratory Section to conduct a tissue typing and tissue cross-matching examination, so that should Lugmoso expire
despite the necessary medical care and management and he would be found to be a suitable organ donor and his family
would consent to organ donation, the organs thus donated could be detached and transplanted promptly to any
compatible beneficiary.

Jennifer Misa verified on the same day, March 2, 1988, from EAMC the identity of Lugmoso and, upon her request, she
was furnished by EAMC a copy of the patients date sheet which bears the name Angelito Lugmoso, with address at Boni
Avenue, Mandaluyong. She then contacted several radio and television stations to request for air time for the purpose of
locating the family of Angelito Lugmoso of Boni Avenue, Mandaluyong, who was confined at NKI for severe head injury
after allegedly falling from the Cubao overpass, as well as Police Station No. 5, Eastern Police District, whose area of
jurisdiction includes Boni Avenue, Mandaluyong, for assistance in locating the relatives of Angelito Lugmoso.
Certifications were issued by Channel 4, ABS-CBN and GMA attesting that the request made by the NKI on March 2,
1988 to air its appeal to locate the family and relatives of Angelito Lugmoso of Boni Avenue, Mandaluyong was
accommodated. A Certification was likewise issued by Police Station No. 5, Eastern Police District, Mandaluyong attesting
to the fact that on March 2, 1988, at about 6:00 p.m., Jennifer Misa requested for assistance to immediately locate the
family and relatives of Angelito Lugmoso and that she followed up her request until March 9, 1988.

On March 3, 1988, at about 7:00 oclock in the morning, Dr. Ona was informed that Lugmoso had been pronounced brain
dead by Dr. Abdias V. Aquino, a neurologist, and by Dr. Antonio Rafael, a neurosurgeon and attending physician of
Lugmoso, and that a repeat electroencephalogram (EEG) was in progress to confirm the diagnosis of brain death. Two
hours later, Dr. Ona was informed that the EEG recording exhibited a flat tracing, thereby confirming that Lugmoso was
brain dead. Upon learning that Lugmoso was a suitable organ donor and that some NKI patients awaiting organ donation
had blood and tissue types compatible with Lugmoso, Dr. Ona inquired from Jennifer Misa whether the relatives of
Lugmoso had been located so that the necessary consent for organ donation could be obtained. As the extensive search
for the relatives of Lugmoso yielded no positive result and time being of the essence in the success of organ
transplantation, Dr. Ona requested Dr. Filoteo A. Alano, Executive Director of NKI, to authorize the removal of specific
organs from the body of Lugmoso for transplantation purposes. Dr. Ona likewise instructed Dr. Rose Marie Rosete-
Liquete to secure permission for the planned organ retrieval and transplantation from the Medico-Legal Office of the
National Bureau of Investigation (NBI), on the assumption that the incident which lead to the brain injury and death of
Lugmoso was a medico legal case.

On March 3, 1988, Dr. Alano issued to Dr. Ona a Memorandum, which reads as follows:

This is in connection with the use of the human organs or any portion or portions of the human body of the deceased
patient, identified as a certain Mr. Angelito Lugmoso who was brought to the National Kidney Institute on March 2, 1988
from the East Avenue Medical Center.
 380

As shown by the medical records, the said patient died on March 3, 1988 at 9:10 in the morning due to craniocerebral
injury. Please make certain that your Department has exerted all reasonable efforts to locate the relatives or next of kin of
the said deceased patient such as appeal through the radios and television as well as through police and other
government agencies and that the NBI [Medico-Legal] Section has been notified and is aware of the case.

If all the above has been complied with, in accordance with the provisions of Republic Act No. 349 as amended and P.D.
856, permission and/or authority is hereby given to the Department of Surgery to retrieve and remove the kidneys,
pancreas, liver and heart of the said deceased patient and to transplant the said organs to any compatible patient who
maybe in need of said organs to live and survive.

A Certification dated March 10, 1988 was issued by Dr. Maximo Reyes, Medico-Legal Officer of the NBI, stating that he
received a telephone call from Dr. Liquete on March 3, 1988 at 9:15 a.m. regarding the case of Lugmoso, who was
declared brain dead; that despite efforts to locate the latters relatives, no one responded; that Dr. Liquete sought from
him a second opinion for organ retrieval for donation purposes even in the absence of consent from the family of the
deceased; and that he verbally agreed to organ retrieval.

At 3:45 in the afternoon of March 3, 1988, a medical team, composed of Dr. Enrique Ona, as principal surgeon, Drs.
Manuel Chua-Chiaco, Jr., Rose Marie Rosete-Liquete, Aurea Ambrosio, Ludivino de Guzman, Mary Litonjua, Jaime
Velasquez, Ricardo Fernando, and Myrna Mendoza, removed the heart, kidneys, pancreas, liver and spleen of Lugmoso.
The medical team then transplanted a kidney and the pancreas of Lugmoso to Lee Tan Hoc and the other kidney of
Lugmoso to Alexis Ambustan. The transplant operation was completed at around 11:00 oclock in the evening of March 3,
1988.

On March 4, 1988, Dr. Antonio R. Paraiso, Head of the Cadaver Organ Retrieval Effort (CORE) program of NKI, made
arrangements with La Funeraria Oro for the embalmment of the cadaver of Lugmoso good for a period of fifteen (15) days
to afford NKI more time to continue searching for the relatives of the latter. On the same day, Roberto Ortega, Funeral
Consultant of La Funeraria Oro, sent a request for autopsy to the NBI. The Autopsy Report and Certification of Post-
Mortem Examination issued by the NBI stated that the cause of death of Lugmoso was intracranial hemorrhage
secondary to skull fracture.

On March 11, 1988, the NKI issued a press release announcing its successful double organ transplantation. Aida
Doromal, a cousin of plaintiff, heard the news aired on television that the donor was an eighteen (18) year old boy whose
remains were at La Funeraria Oro in Quezon City. As the name of the donor sounded like Arnelito Logmao, Aida informed
plaintiff of the news report.

It appears that on March 3, 1988, Arlen Logmao, a brother of Arnelito, who was then a resident of 17-C San Pedro Street,
Mandaluyong, reported to Police Station No. 5, Eastern Police District, Mandaluyong that the latter did not return home
after seeing a movie in Cubao, Quezon City, as evidenced by a Certification issued by said Station; and that the relatives
of Arnelito were likewise informed that the latter was missing. Upon receiving the news from Aida, plaintiff and her other
children went to La Funeraria Oro, where they saw Arnelito inside a cheap casket.

On April 29, 1988, plaintiff filed with the court a quo a complaint for damages against Dr. Emmanuel Lenon, Taurean
Protectors Agency, represented by its Proprietor, Celso Santiago, National Kidney Institute, represented by its Director,
Dr. Filoteo A. Alano, Jennifer Misa, Dr. Maximo Reyes, Dr. Enrique T. Ona, Dr. Manuel Chua-Chiaco, Jr., Dr. Rose Marie
O. Rosete-Liquete, Dr. Aurea Z. Ambrosio, Dr. Ludivino de Guzman, Dr. Mary Litonjua, Dr. Jaime Velasquez, Dr. Ricardo
Fernando, Dr. Myrna Mendoza, Lee Tan Koc, Alexis Ambustan, Dr. Antonio R. Paraiso, La Funeraria Oro, Inc.,
represented by its President, German E. Ortega, Roberto Ortega alias Bobby Ortega, Dr. Mariano B. Cueva, Jr., John
Doe, Peter Doe, and Alex Doe in connection with the death of her son Arnelito. Plaintiff alleged that defendants conspired
to remove the organs of Arnelito while the latter was still alive and that they concealed his true identity.

On January 17, 2000, the court a quo rendered judgment finding only Dr. Filoteo Alano liable for damages to plaintiff and
dismissing the complaint against the other defendants for lack of legal basis. 3

After finding petitioner liable for a quasi-delict, the Regional Trial Court of Quezon City (RTC) ordered petitioner to pay
respondent 188,740.90 as actual damages; 500,000.00 as moral damages; 500,000.00 as exemplary damages;
300,000.00 as attorney's fees; and costs of suit. Petitioner appealed to the CA.

On March 31, 2006, the CA issued its Decision, the dispositive portion of which reads as follows:
 381

WHEREFORE, the Decision appealed from is AFFIRMED, with MODIFICATION by DELETING the award of 188,740.90
as actual damages and REDUCING the award of moral damages to 250,000.00, the award of exemplary damages to
200,000.00 and the award of attorney's fees to 100,000.00.

SO ORDERED.4

Petitioner then elevated the matter to this Court via a petition for review on certiorari, where the following issues are
presented for resolution:

A. WHETHER THE COURT OF APPEALS DISREGARDED EXISTING JURISPRUDENCE PRONOUNCED BY

THIS HONORABLE SUPREME COURT IN HOLDING PETITIONER DR. FILOTEO ALANO LIABLE FOR MORAL
AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES DESPITE THE FACT THAT THE ACT OF THE
PETITIONER IS NOT THE PROXIMATE CAUSE NOR IS THERE ANY FINDING THAT THE ACT OF THE
PETITIONER WAS THE PROXIMATE CAUSE OF THE INJURY OR DAMAGE ALLEGEDLY SUSTAINED BY
RESPONDENT ZENAIDA MAGUD-LOGMAO.

B. WHETHER THE COURT OF APPEALS GRAVELY ERRED IN REFUSING AND/OR FAILING TO DECLARE
THAT PETITIONER DR. ALANO ACTED IN GOOD FAITH AND PURSUANT TO LAW WHEN HE ISSUED THE
AUTHORIZATION TO REMOVE AND RETRIEVE THE ORGANS OF ANGELITO LUGMOSO (LATER
IDENTIFIED TO BE IN FACT ARNELITO LOGMAO) CONSIDERING THAT NO NEGLIGENCE CAN BE
ATTRIBUTED OR IMPUTED ON HIM IN HIS PERFORMANCE OF AN ACT MANDATED BY LAW.

C. WHETHER THE COURT OF APPEALS GRAVELY ERRED IN AWARDING RESPONDENT ZENAIDA

MAGUD-LOGMAO MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES THAT ARE NOT IN
ACCORDANCE WITH AND ARE CONTRARY TO ESTABLISHED JURISPRUDENCE.5

The first two issues boil down to the question of whether respondent's sufferings were brought about by petitioner's
alleged negligence in granting authorization for the removal or retrieval of the internal organs of respondent's son who had
been declared brain dead.

Petitioner maintains that when he gave authorization for the removal of some of the internal organs to be transplanted to
other patients, he did so in accordance with the letter of the law, Republic Act (R.A.) No. 349, as amended by Presidential
Decree (P.D.) 856, i.e., giving his subordinates instructions to exert all reasonable efforts to locate the relatives or next of
kin of respondent's son. In fact, announcements were made through radio and television, the assistance of police
authorities was sought, and the NBI Medico-Legal Section was notified. Thus, petitioner insists that he should not be held
responsible for any damage allegedly suffered by respondent due to the death of her son and the removal of her sons
internal organs for transplant purposes.

The appellate court affirmed the trial court's finding that there was negligence on petitioner's part when he failed to ensure
that reasonable time had elapsed to locate the relatives of the deceased before giving the authorization to remove said
deceased's internal organs for transplant purposes. However, a close examination of the records of this case would reveal
that this case falls under one of the exceptions to the general rule that factual findings of the trial court, when affirmed by
the appellate court, are binding on this Court. There are some important circumstances that the lower courts failed to
consider in ascertaining whether it was the actions of petitioner that brought about the sufferings of respondent. 6

The Memorandum dated March 3, 1988 issued by petitioner, stated thus:

As shown by the medical records, the said patient died on March 3, 1988 at 9:10 in the morning due to craniocerebral
injury. Please make certain that your Department has exerted all reasonable efforts to locate the relatives or next-of-kin of
the said deceased patient, such as appeal through the radios and television, as well as through police and other
government agencies and that the NBI [Medico-Legal] Section has been notified and is aware of the case.

If all the above has been complied with, in accordance with the provisions of Republic Act No. 349 as amended and P.D.
856, permission and/or authority is hereby given to the Department of Surgery to retrieve and remove the kidneys,
pancreas, liver and heart of the said deceased patient and to transplant the said organs to any compatible patient who
maybe in need of said organs to live and survive. 7
 382

A careful reading of the above shows that petitioner instructed his subordinates to "make certain" that "all reasonable
efforts" are exerted to locate the patient's next of kin, even enumerating ways in which to ensure that notices of the death
of the patient would reach said relatives. It also clearly stated that permission or authorization to retrieve and remove the
internal organs of the deceased was being given ONLY IF the provisions of the applicable law had been complied with.
Such instructions reveal that petitioner acted prudently by directing his subordinates to exhaust all reasonable means of
locating the relatives of the deceased. He could not have made his directives any clearer. He even specifically mentioned
that permission is only being granted IF the Department of Surgery has complied with all the requirements of the law.
Verily, petitioner could not have been faulted for having full confidence in the ability of the doctors in the Department of
Surgery to comprehend the instructions, obeying all his directives, and acting only in accordance with the requirements of
the law.

Furthermore, as found by the lower courts from the records of the case, the doctors and personnel of NKI disseminated
notices of the death of respondent's son to the media and sought the assistance of the appropriate police authorities as
early as March 2, 1988, even before petitioner issued the Memorandum. Prior to performing the procedure for retrieval of
the deceased's internal organs, the doctors concerned also the sought the opinion and approval of the Medico-Legal
Officer of the NBI.

Thus, there can be no cavil that petitioner employed reasonable means to disseminate notifications intended to reach the
relatives of the deceased. The only question that remains pertains to the sufficiency of time allowed for notices to reach
the relatives of the deceased.

If respondent failed to immediately receive notice of her son's death because the notices did not properly state the name
or identity of the deceased, fault cannot be laid at petitioner's door. The trial and appellate courts found that it was the
EAMC, who had the opportunity to ascertain the name of the deceased, who recorded the wrong information regarding
the deceased's identity to NKI. The NKI could not have obtained the information about his name from the patient, because
as found by the lower courts, the deceased was already unconscious by the time he was brought to the NKI.

Ultimately, it is respondent's failure to adduce adequate evidence that doomed this case.1wphi1 As stated in Otero v.
Tan,8"[i]n civil cases, it is a basic rule that the party making allegations has the burden of proving them by a
preponderance of evidence. The parties must rely on the strength of their own evidence and not upon the weakness of the
defense offered by their opponent."9 Here, there is to proof that, indeed, the period of around 24 hours from the time
notices were disseminated, cannot be considered as reasonable under the circumstances. They failed to present any
expert witness to prove that given the medical technology and knowledge at that time in the 1980's, the doctors could or
should have waited longer before harvesting the internal organs for transplantation.

Verily, the Court cannot, in conscience, agree with the lower court. Finding petitioner liable for damages is improper. It
should be emphasized that the internal organs of the deceased were removed only after he had been declared brain
dead; thus, the emotional pain suffered by respondent due to the death of her son cannot in any way be attributed to
petitioner. Neither can the Court find evidence on record to show that respondent's emotional suffering at the sight of the
pitiful state in which she found her son's lifeless body be categorically attributed to petitioner's conduct.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals, dated March 31, 2006, is REVERSED
and SET ASIDE. The complaint against petitioner is hereby DISMISSED.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice