Case1163 1172

Chavez vs Gonzales 32 SCRA 547
(waaah cannot find)

Piczon vs Piczon 61 SCRA 67
(cannot find also 404 error lol)
G.R. No. 124242 January 21, 2005
SAN LORENZO DEVELOPMENT CORPORATION, petitioner,

vs.
COURT OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA
ZAVALLA LU, respondents.
DECISION
TINGA, J.:
From a coaptation of the records of this case, it appears that respondents Miguel Lu and
Pacita Zavalla, (hereinafter, the Spouses Lu) owned two (2) parcels of land situated in
Sta. Rosa, Laguna covered by TCT No. T-39022 and TCT No. T-39023 both measuring
15,808 square meters or a total of 3.1616 hectares.
On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to
respondent Pablo Babasanta, (hereinafter, Babasanta) for the price of fifteen pesos
(P15.00) per square meter. Babasanta made a downpayment of fifty thousand pesos
(P50,000.00) as evidenced by a memorandum receipt issued by Pacita Lu of the same
date. Several other payments totaling two hundred thousand pesos (P200,000.00) were
made by Babasanta.
Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution of
a final deed of sale in his favor so that he could effect full payment of the purchase price.
In the same letter, Babasanta notified the spouses about having received information that
the spouses sold the same property to another without his knowledge and consent. He
demanded that the second sale be cancelled and that a final deed of sale be issued in his
favor.
In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having

agreed to sell the property to him at fifteen pesos (P15.00) per square meter. She,
however, reminded Babasanta that when the balance of the purchase price became due,
he requested for a reduction of the price and when she refused, Babasanta backed out of
the sale. Pacita added that she returned the sum of fifty thousand pesos (P50,000.00) to
Babasanta through Eugenio Oya.
On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court
(RTC), Branch 31, of San Pedro, Laguna, a Complaint for Specific Performance and
Damages1 against his co-respondents herein, the Spouses Lu. Babasanta alleged that the
lands covered by TCT No. T- 39022 and T-39023 had been sold to him by the spouses at
fifteen pesos (P15.00) per square meter. Despite his repeated demands for the execution
of a final deed of sale in his favor, respondents allegedly refused.
In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta
and when the total advances of Pacita reached fifty thousand pesos (P50,000.00), the
latter and Babasanta, without the knowledge and consent of Miguel Lu, had verbally
agreed to transform the transaction into a contract to sell the two parcels of land to
Babasanta with the fifty thousand pesos (P50,000.00) to be considered as the
downpayment for the property and the balance to be paid on or before 31 December
1987. Respondents Lu added that as of November 1987, total payments made by
Babasanta amounted to only two hundred thousand pesos (P200,000.00) and the latter
allegedly failed to pay the balance of two hundred sixty thousand pesos (P260,000.00)
despite repeated demands. Babasanta had purportedly asked Pacita for a reduction of the
price from fifteen pesos (P15.00) to twelve pesos (P12.00) per square meter and when the
Spouses Lu refused to grant Babasanta’s request, the latter rescinded the contract to sell
and declared that the original loan transaction just be carried out in that the spouses
would be indebted to him in the amount of two hundred thousand pesos (P200,000.00).
Accordingly, on 6 July 1989, they purchased Interbank Manager’s Check No. 05020269
in the amount of two hundred thousand pesos (P200,000.00) in the name of Babasanta to
show that she was able and willing to pay the balance of her loan obligation.
Babasanta later filed an Amended Complaint dated 17 January 19903 wherein he prayed
for the issuance of a writ of preliminary injunction with temporary restraining order and
the inclusion of the Register of Deeds of Calamba, Laguna as party defendant. He
contended that the issuance of a preliminary injunction was necessary to restrain the
transfer or conveyance by the Spouses Lu of the subject property to other persons.
The Spouses Lu filed their Opposition4 to the amended complaint contending that it
raised new matters which seriously affect their substantive rights under the original
complaint. However, the trial court in its Order dated 17 January 19905 admitted the
amended complaint.
On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC)

filed a Motion for Intervention6 before the trial court. SLDC alleged that it had legal
interest in the subject matter under litigation because on 3 May 1989, the two parcels of
land involved, namely Lot 1764-A and 1764-B, had been sold to it in a Deed of Absolute
Sale with Mortgage.7 It alleged that it was a buyer in good faith and for value and
therefore it had a better right over the property in litigation.
In his Opposition to SLDC’s motion for intervention,8 respondent Babasanta demurred
and argued that the latter had no legal interest in the case because the two parcels of land
involved herein had already been conveyed to him by the Spouses Lu and hence, the
vendors were without legal capacity to transfer or dispose of the two parcels of land to
the intervenor.
Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene.
SLDC filed its Complaint-in-Intervention on 19 April 1990.9 Respondent Babasanta’s
motion for the issuance of a preliminary injunction was likewise granted by the trial court
in its Order dated 11 January 199110 conditioned upon his filing of a bond in the amount
of fifty thousand pesos (P50,000.00).
SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu

executed in its favor an Option to Buy the lots subject of the complaint. Accordingly, it
paid an option money in the amount of three hundred sixteen thousand one hundred sixty
pesos (P316,160.00) out of the total consideration for the purchase of the two lots of one
million two hundred sixty-four thousand six hundred forty pesos (P1,264,640.00). After
the Spouses Lu received a total amount of six hundred thirty-two thousand three hundred
twenty pesos (P632,320.00) they executed on 3 May 1989 a Deed of Absolute Sale with
Mortgage in its favor. SLDC added that the certificates of title over the property were
delivered to it by the spouses clean and free from any adverse claims and/or notice of lis
pendens. SLDC further alleged that it only learned of the filing of the complaint
sometime in the early part of January 1990 which prompted it to file the motion to
intervene without delay. Claiming that it was a buyer in good faith, SLDC argued that it
had no obligation to look beyond the titles submitted to it by the Spouses Lu particularly
because Babasanta’s claims were not annotated on the certificates of title at the time the
lands were sold to it.
After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the sale
of the property to SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two
hundred thousand pesos (P200,000.00) with legal interest plus the further sum of fifty
thousand pesos (P50,000.00) as and for attorney’s fees. On the complaint-in-intervention,
the trial court ordered the Register of Deeds of Laguna, Calamba Branch to cancel the
notice of lis pendens annotated on the original of the TCT No. T-39022 (T-7218) and No.
T-39023 (T-7219).
Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta
and SLDC did not register the respective sales in their favor, ownership of the property
should pertain to the buyer who first acquired possession of the property. The trial court
equated the execution of a public instrument in favor of SLDC as sufficient delivery of
the property to the latter. It concluded that symbolic possession could be considered to
have been first transferred to SLDC and consequently ownership of the property
pertained to SLDC who purchased the property in good faith.
Respondent Babasanta appealed the trial court’s decision to the Court of Appeals alleging
in the main that the trial court erred in concluding that SLDC is a purchaser in good faith
and in upholding the validity of the sale made by the Spouses Lu in favor of SLDC.
Respondent spouses likewise filed an appeal to the Court of Appeals. They contended
that the trial court erred in failing to consider that the contract to sell between them and
Babasanta had been novated when the latter abandoned the verbal contract of sale and
declared that the original loan transaction just be carried out. The Spouses Lu argued that
since the properties involved were conjugal, the trial court should have declared the
verbal contract to sell between Pacita Lu and Pablo Babasanta null and void ab initio for
lack of knowledge and consent of Miguel Lu. They further averred that the trial court
erred in not dismissing the complaint filed by Babasanta; in awarding damages in his
favor and in refusing to grant the reliefs prayed for in their answer.
On 4 October 1995, the Court of Appeals rendered its Decision11 which set aside the
judgment of the trial court. It declared that the sale between Babasanta and the Spouses
Lu was valid and subsisting and ordered the spouses to execute the necessary deed of
conveyance in favor of Babasanta, and the latter to pay the balance of the purchase price
in the amount of two hundred sixty thousand pesos (P260,000.00). The appellate court
ruled that the Absolute Deed of Sale with Mortgage in favor of SLDC was null and void
on the ground that SLDC was a purchaser in bad faith. The Spouses Lu were further
ordered to return all payments made by SLDC with legal interest and to pay attorney’s
fees to Babasanta.
SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate
court.12 However, in a Manifestation dated 20 December 1995,13 the Spouses Lu informed
the appellate court that they are no longer contesting the decision dated 4 October 1995.
In its Resolution dated 11 March 1996,14 the appellate court considered as withdrawn the
motion for reconsideration filed by the Spouses Lu in view of their manifestation of 20
December 1995. The appellate court denied SLDC’s motion for reconsideration on the
ground that no new or substantial arguments were raised therein which would warrant
modification or reversal of the court’s decision dated 4 October 1995.
Hence, this petition.
SLDC assigns the following errors allegedly committed by the appellate court:
THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT
A BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU
OBTAINED FROM IT THE CASH ADVANCE OF P200,000.00, SAN LORENZO WAS
PUT ON INQUIRY OF A PRIOR TRANSACTION ON THE PROPERTY.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE

ESTABLISHED FACT THAT THE ALLEGED FIRST BUYER, RESPONDENT
BABASANTA, WAS NOT IN POSSESSION OF THE DISPUTED PROPERTY WHEN
SAN LORENZO BOUGHT AND TOOK POSSESSION OF THE PROPERTY AND NO
ADVERSE CLAIM, LIEN, ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED
ON THE TITLES.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT

RESPONDENT BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT
SAN LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED
PROPERTY.
THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS

FULL CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT
REVERSED AND SET ASIDE THE DECISION OF THE TRIAL COURT
UPHOLDING THE TITLE OF SAN LORENZO AS A BUYER AND FIRST
POSSESSOR IN GOOD FAITH. 15
SLDC contended that the appellate court erred in concluding that it had prior notice of
Babasanta’s claim over the property merely on the basis of its having advanced the
amount of two hundred thousand pesos (P200,000.00) to Pacita Lu upon the latter’s
representation that she needed the money to pay her obligation to Babasanta. It argued
that it had no reason to suspect that Pacita was not telling the truth that the money would
be used to pay her indebtedness to Babasanta. At any rate, SLDC averred that the amount
of two hundred thousand pesos (P200,000.00) which it advanced to Pacita Lu would be
deducted from the balance of the purchase price still due from it and should not be
construed as notice of the prior sale of the land to Babasanta. It added that at no instance
did Pacita Lu inform it that the lands had been previously sold to Babasanta.
Moreover, SLDC stressed that after the execution of the sale in its favor it immediately
took possession of the property and asserted its rights as new owner as opposed to
Babasanta who has never exercised acts of ownership. Since the titles bore no adverse
claim, encumbrance, or lien at the time it was sold to it, SLDC argued that it had every
reason to rely on the correctness of the certificate of title and it was not obliged to go
beyond the certificate to determine the condition of the property. Invoking the
presumption of good faith, it added that the burden rests on Babasanta to prove that it was
aware of the prior sale to him but the latter failed to do so. SLDC pointed out that the
notice of lis pendens was annotated only on 2 June 1989 long after the sale of the
property to it was consummated on 3 May 1989.1awphi1.nét
Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu

informed the Court that due to financial constraints they have no more interest to pursue
their rights in the instant case and submit themselves to the decision of the Court of
Appeals.16
On the other hand, respondent Babasanta argued that SLDC could not have acquired
ownership of the property because it failed to comply with the requirement of registration
of the sale in good faith. He emphasized that at the time SLDC registered the sale in its
favor on 30 June 1990, there was already a notice of lis pendens annotated on the titles of
the property made as early as 2 June 1989. Hence, petitioner’s registration of the sale did
not confer upon it any right. Babasanta further asserted that petitioner’s bad faith in the
acquisition of the property is evident from the fact that it failed to make necessary inquiry
regarding the purpose of the issuance of the two hundred thousand pesos (P200,000.00)
manager’s check in his favor.
The core issue presented for resolution in the instant petition is who between SLDC and
Babasanta has a better right over the two parcels of land subject of the instant case in
view of the successive transactions executed by the Spouses Lu.
To prove the perfection of the contract of sale in his favor, Babasanta presented a
document signed by Pacita Lu acknowledging receipt of the sum of fifty thousand pesos
(P50,000.00) as partial payment for 3.6 hectares of farm lot situated at Barangay Pulong,
Sta. Cruz, Sta. Rosa, Laguna.17 While the receipt signed by Pacita did not mention the
price for which the property was being sold, this deficiency was supplied by Pacita Lu’s
letter dated 29 May 198918 wherein she admitted that she agreed to sell the 3.6 hectares of
land to Babasanta for fifteen pesos (P15.00) per square meter.
An analysis of the facts obtaining in this case, as well as the evidence presented by the
parties, irresistibly leads to the conclusion that the agreement between Babasanta and the
Spouses Lu is a contract to sell and not a contract of sale.
Contracts, in general, are perfected by mere consent,19 which is manifested by the

meeting of the offer and the acceptance upon the thing which are to constitute the
contract. The offer must be certain and the acceptance absolute.20 Moreover, contracts
shall be obligatory in whatever form they may have been entered into, provided all the
essential requisites for their validity are present.21
The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand
pesos (P50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot situated
in Sta. Rosa, Laguna. While there is no stipulation that the seller reserves the ownership
of the property until full payment of the price which is a distinguishing feature of a
contract to sell, the subsequent acts of the parties convince us that the Spouses Lu never
intended to transfer ownership to Babasanta except upon full payment of the purchase
price.
Babasanta’s letter dated 22 May 1989 was quite telling. He stated therein that despite his
repeated requests for the execution of the final deed of sale in his favor so that he could
effect full payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta
himself recognized that ownership of the property would not be transferred to him until
such time as he shall have effected full payment of the price. Moreover, had the sellers
intended to transfer title, they could have easily executed the document of sale in its
required form simultaneously with their acceptance of the partial payment, but they did
not. Doubtlessly, the receipt signed by Pacita Lu should legally be considered as a
perfected contract to sell.
The distinction between a contract to sell and a contract of sale is quite germane. In a
contract of sale, title passes to the vendee upon the delivery of the thing sold; whereas in
a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass
until the full payment of the price.22 In a contract of sale, the vendor has lost and cannot
recover ownership until and unless the contract is resolved or rescinded; whereas in a
contract to sell, title is retained by the vendor until the full payment of the price, such
payment being a positive suspensive condition and failure of which is not a breach but an
event that prevents the obligation of the vendor to convey title from becoming effective.23
The perfected contract to sell imposed upon Babasanta the obligation to pay the balance
of the purchase price. There being an obligation to pay the price, Babasanta should have
made the proper tender of payment and consignation of the price in court as required by
law. Mere sending of a letter by the vendee expressing the intention to pay without the
accompanying payment is not considered a valid tender of payment.24 Consignation of the
amounts due in court is essential in order to extinguish Babasanta’s obligation to pay the
balance of the purchase price. Glaringly absent from the records is any indication that
Babasanta even attempted to make the proper consignation of the amounts due, thus, the
obligation on the part of the sellers to convey title never acquired obligatory force.
On the assumption that the transaction between the parties is a contract of sale and not a
contract to sell, Babasanta’s claim of ownership should nevertheless fail.
Sale, being a consensual contract, is perfected by mere consent25 and from that moment,
the parties may reciprocally demand performance.26 The essential elements of a contract
of sale, to wit: (1) consent or meeting of the minds, that is, to transfer ownership in
exchange for the price; (2) object certain which is the subject matter of the contract; (3)
cause of the obligation which is established.27
The perfection of a contract of sale should not, however, be confused with its
consummation. In relation to the acquisition and transfer of ownership, it should be noted
that sale is not a mode, but merely a title. A mode is the legal means by which dominion
or ownership is created, transferred or destroyed, but title is only the legal basis by which
to affect dominion or ownership.28 Under Article 712 of the Civil Code, "ownership and
other real rights over property are acquired and transmitted by law, by donation, by
testate and intestate succession, and in consequence of certain contracts, by tradition."
Contracts only constitute titles or rights to the transfer or acquisition of ownership, while
delivery or tradition is the mode of accomplishing the same.29 Therefore, sale by itself
does not transfer or affect ownership; the most that sale does is to create the obligation to
transfer ownership. It is tradition or delivery, as a consequence of sale, that actually
transfers ownership.
Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee
from the moment it is delivered to him in any of the ways specified in Article 1497 to
1501.30 The word "delivered" should not be taken restrictively to mean transfer of actual
physical possession of the property. The law recognizes two principal modes of delivery,
to wit: (1) actual delivery; and (2) legal or constructive delivery.
Actual delivery consists in placing the thing sold in the control and possession of the
vendee.31 Legal or constructive delivery, on the other hand, may be had through any of
the following ways: the execution of a public instrument evidencing the sale;32
symbolical tradition such as the delivery of the keys of the place where the movable sold
is being kept;33 traditio longa manu or by mere consent or agreement if the movable sold
cannot yet be transferred to the possession of the buyer at the time of the sale;34 traditio
brevi manu if the buyer already had possession of the object even before the sale;35 and
traditio constitutum possessorium, where the seller remains in possession of the property
in a different capacity.36
Following the above disquisition, respondent Babasanta did not acquire ownership by the
mere execution of the receipt by Pacita Lu acknowledging receipt of partial payment for
the property. For one, the agreement between Babasanta and the Spouses Lu, though
valid, was not embodied in a public instrument. Hence, no constructive delivery of the
lands could have been effected. For another, Babasanta had not taken possession of the
property at any time after the perfection of the sale in his favor or exercised acts of
dominion over it despite his assertions that he was the rightful owner of the lands. Simply
stated, there was no delivery to Babasanta, whether actual or constructive, which is
essential to transfer ownership of the property. Thus, even on the assumption that the
perfected contract between the parties was a sale, ownership could not have passed to
Babasanta in the absence of delivery, since in a contract of sale ownership is transferred
to the vendee only upon the delivery of the thing sold.37
However, it must be stressed that the juridical relationship between the parties in a double
sale is primarily governed by Article 1544 which lays down the rules of preference
between the two purchasers of the same property. It provides:
Art. 1544. 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.
The principle of primus tempore, potior jure (first in time, stronger in right) gains greater
significance in case of double sale of immovable property. When the thing sold twice is
an immovable, the one who acquires it and first records it in the Registry of Property,
both made in good faith, shall be deemed the owner.38 Verily, the act of registration must
be coupled with good faith— that is, the registrant must have no knowledge of the defect
or lack of title of his vendor or must not have been aware of facts which should have put
him upon such inquiry and investigation as might be necessary to acquaint him with the
defects in the title of his vendor.39
Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired
knowledge of Babasanta’s claim. Babasanta, however, strongly argues that the
registration of the sale by SLDC was not sufficient to confer upon the latter any title to
the property since the registration was attended by bad faith. Specifically, he points out
that at the time SLDC registered the sale on 30 June 1990, there was already a notice of
lis pendens on the file with the Register of Deeds, the same having been filed one year
before on 2 June 1989.
Did the registration of the sale after the annotation of the notice of lis pendens obliterate
the effects of delivery and possession in good faith which admittedly had occurred prior
to SLDC’s knowledge of the transaction in favor of Babasanta?
We do not hold so.
It must be stressed that as early as 11 February 1989, the Spouses Lu executed the Option
to Buy in favor of SLDC upon receiving P316,160.00 as option money from SLDC. After
SLDC had paid more than one half of the agreed purchase price of P1,264,640.00, the
Spouses Lu subsequently executed on 3 May 1989 a Deed of Absolute Sale in favor or
SLDC. At the time both deeds were executed, SLDC had no knowledge of the prior
transaction of the Spouses Lu with Babasanta. Simply stated, from the time of execution
of the first deed up to the moment of transfer and delivery of possession of the lands to
SLDC, it had acted in good faith and the subsequent annotation of lis pendens has no
effect at all on the consummated sale between SLDC and the Spouses Lu.
A purchaser in good faith is one who buys property of another without notice that some
other person has a right to, or 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 the claim or interest of
some other person in the property.40 Following the foregoing definition, we rule that
SLDC qualifies as a buyer in good faith since there is no evidence extant in the records
that it had knowledge of the prior transaction in favor of Babasanta. At the time of the
sale of the property to SLDC, the vendors were still the registered owners of the property
and were in fact in possession of the lands.l^vvphi1.net Time and again, this Court has
ruled that a person dealing with the owner of registered land is not bound to go beyond
the certificate of title as he is charged with notice of burdens on the property which are
noted on the face of the register or on the certificate of title.41 In assailing knowledge of
the transaction between him and the Spouses Lu, Babasanta apparently relies on the
principle of constructive notice incorporated in Section 52 of the Property Registration
Decree (P.D. No. 1529) which reads, thus:
Sec. 52. Constructive notice upon registration. – Every conveyance, mortgage, lease, lien,
attachment, order, judgment, instrument or entry affecting registered land shall, if
registered, filed, or entered in the office of the Register of Deeds for the province or city
where the land to which it relates lies, be constructive notice to all persons from the time
of such registering, filing, or entering.
However, the constructive notice operates as such¾by the express wording of Section
52¾from the time of the registration of the notice of lis pendens which in this case was
effected only on 2 June 1989, at which time the sale in favor of SLDC had long been
consummated insofar as the obligation of the Spouses Lu to transfer ownership over the
property to SLDC is concerned.
More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta
the annotation of the notice of lis pendens cannot help Babasanta’s position a bit and it is
irrelevant to the good or bad faith characterization of SLDC as a purchaser. A notice of lis
pendens, as the Court held in Nataño v. Esteban,42 serves as a warning to a prospective
purchaser or incumbrancer that the particular property is in litigation; and that he should
keep his hands off the same, unless he intends to gamble on the results of the litigation."
Precisely, in this case SLDC has intervened in the pending litigation to protect its rights.
Obviously, SLDC’s faith in the merit of its cause has been vindicated with the Court’s
present decision which is the ultimate denouement on the controversy.
The Court of Appeals has made capital43 of SLDC’s averment in its Complaint-in-
Intervention44 that at the instance of Pacita Lu it issued a check for P200,000.00 payable
to Babasanta and the confirmatory testimony of Pacita Lu herself on cross-examination.45
However, there is nothing in the said pleading and the testimony which explicitly relates
the amount to the transaction between the Spouses Lu and Babasanta for what they attest
to is that the amount was supposed to pay off the advances made by Babasanta to Pacita
Lu. In any event, the incident took place after the Spouses Lu had already executed the
Deed of Absolute Sale with Mortgage in favor of SLDC and therefore, as previously
explained, it has no effect on the legal position of SLDC.
Assuming ex gratia argumenti that SLDC’s registration of the sale had been tainted by
the prior notice of lis pendens and assuming further for the same nonce that this is a case
of double sale, still Babasanta’s claim could not prevail over that of SLDC’s. In Abarquez
v. Court of Appeals,46 this Court had the occasion to rule that if a vendee in a double sale
registers the sale after he has acquired knowledge of a previous sale, the registration
constitutes a registration in bad faith and does not confer upon him any right. If the
registration is done in bad faith, it is as if there is no registration at all, and the buyer who
has taken possession first of the property in good faith shall be preferred.
In Abarquez, the first sale to the spouses Israel was notarized and registered only after the
second vendee, Abarquez, registered their deed of sale with the Registry of Deeds, but the
Israels were first in possession. This Court awarded the property to the Israels because
registration of the property by Abarquez lacked the element of good faith. While the facts
in the instant case substantially differ from that in Abarquez, we would not hesitate to rule
in favor of SLDC on the basis of its prior possession of the property in good faith. Be it
noted that delivery of the property to SLDC was immediately effected after the execution
of the deed in its favor, at which time SLDC had no knowledge at all of the prior
transaction by the Spouses Lu in favor of Babasanta.1a\^/phi1.net
The law speaks not only of one criterion. The first criterion is priority of entry in the
registry of property; there being no priority of such entry, the second is priority of
possession; and, in the absence of the two priorities, the third priority is of the date of
title, with good faith as the common critical element. Since SLDC acquired possession of
the property in good faith in contrast to Babasanta, who neither registered nor possessed
the property at any time, SLDC’s right is definitely superior to that of Babasanta’s.
At any rate, the above discussion on the rules on double sale would be purely academic
for as earlier stated in this decision, the contract between Babasanta and the Spouses Lu
is not a contract of sale but merely a contract to sell. In Dichoso v. Roxas,47 we had the
occasion to rule that Article 1544 does not apply to a case where there was a sale to one
party of the land itself while the other contract was a mere promise to sell the land or at
most an actual assignment of the right to repurchase the same land. Accordingly, there
was no double sale of the same land in that case.
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of
Appeals appealed from is REVERSED and SET ASIDE and the decision of the Regional
Trial Court, Branch 31, of San Pedro, Laguna is REINSTATED. No costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.
Footnotes
1
RTC Records, pp. 1-11.
2
Id. at 30-37.
3
Id. at 73-90.
4
Id. at 104-106.
5
Id. at 96.
6
Id. at 98- 100.
7
Id. at 116-119.
8
Id. at 120-121.
9
Id. at 162-168.
10
Id. at 287-288.
11
Penned by Justice Cesar D. Francisco, concurred in by Justices Eubulo G.
Verzola and Oswaldo D. Agcaoili.
12
CA Rollo, pp. 204-220 for SLDC and pp. 224-230 for Spouses Lu.
13
Id. at 251.
14
Id. at 261-262.
15
Rollo, pp. 19-20.
16
Id. at 347-348.
17
RTC Records, p. 9.
18
Rollo, p. 11.
19
Art. 1315, Civil Code.
20
21
Tan v. Lim, 357 Phil. 452 (1998); Cenido v. Apacionado, 376 Phil. 801 (1999).
22
Ong v. Court of Appeals, 361 Phil. 228 (1999).
23
Odyssey Park, Inc. v. Court of Appeals, 345 Phil. 475 (1997).
24
Vda. de Zulueta, et.al., v. Octaviano, 205 Phil. 247 (1983).
25
Co v. Court of Appeals, 349 Phil. 745 (1998); Fule v. Court of Appeals, 350
Phil. 349 (1998).
26
Xentrex Automotive, Inc. v. Court of Appeals, 353 Phil. 258 (1998).
27
San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, 357 Phil.
631 (1998); Archipelago Management and Marketing Corporation v. Court of
Appeals, 359 Phil. 363 (1998.
28
Villanueva, Philippine Law on Sales, 1995 Edition, at p. 5.
29
Gonzales v. Rojas, 16 Phil. 51 (1910); Ocejo, Perez and Co. v. International
Bank, 37 Phil. 631 (1917-18); Fidelity and Deposit Co. v. Wilson, 8 Phil. 51
(1907).
30
Art. 1495, Civil Code
31
32
33
Art. 1498, par. 2, Civil Code.
34
35
Ibid.
36
37
Dawson v. Register of Deeds of Quezon City, 356 Phil. 1037 (1998).
38
Nuguid v. Court of Appeals, G.R. No. 77423, 13 March 1989, 171 SCRA 213;
Bautista v. Court of Appeals, G.R. No. 106042, 28 February 1994, 230 SCRA
446.
39
Balatbat v. Court of Appeals, 329 Phil. 858 (1996).
40
Bautista v. Court of Appeals, supra note 39.
41
Viray v. Court of Appeals, 350 Phil. 107 (1998); Heirs of Leopoldo Vencilao, Sr.
v. Court of Appeals, 351 Phil. 815 (1998); Heirs of Spouses Benito Gavino and
Juana Euste v. Court of Appeals, 353 Phil. 686 (1998).
42
124 Phil. 1067, 1072 (1966); citation omitted.
43
Rollo, pp. 25-29.
44
RTC Records, p. 165.
45
TSN, September 19, 1991, pp. 11-12, 14-15, 19.
46
G.R. No. 95843, 2 September 1992, 213 SCRA 415 citing Palanca v. Director of
Lands, 43 Phil. 146 (1922); Cagaoan v. Cagaoan, 43 Phil. 554 (1922); Fernandez
v. Mercader, 43 Phil. 581 (1922).
47
11 Phil. 768 (1908).
G.R. No. 77365 April 7, 1992
RITA CALEON, petitioner,

vs.
AGUS DEVELOPMENT CORPORATION and COURT OF APPEALS,
respondents.
BIDIN, J.:
This is a petition for review on certiorari seeking the reversal of the January 28,
1987 decision of the Court of Appeals in CA-G.R. SP No. 10990 entitled "Rita
Caleon V. Hon. Samilo Barlongay, et al." dismissing the petition for review of the
decision of the Regional Trial Court of Manila, Branch 34, which affirmed the
decision of the Metropolitan Trial Court of Manila, Branch XII, ejecting the
petitioner.
The undisputed facts of the case are as follows:
Private respondent Agus Development Corporation is the owner of a parcel of

land denominated as Lot 39, Block 28, situated at 1611-1619 Lealtad, Sampaloc,
Manila, which it leased to petitioner Rita Caleon for a monthly rental of P180.00.
Petitioner constructed on the lot leased a 4-door apartment building.
Without the consent of the private respondent, the petitioner sub-leased two of
the four doors of the apartment to Rolando Guevarra and Felicisima Estrada for a
monthly rental of P350.00 each. Upon learning of the sub-lease, private
respondent through counsel demanded in writing that the petitioner vacate the
leased premises (Rollo, Annex "A", p. 20).
For failure of petitioner to comply with the demand, private respondent filed a
complaint for ejectment (Civil Case No. 048908) with the Metropolitan Trial Court
of Manila, Branch XII against the petitioner citing as ground therefor the
provisions of Batas Pambansa Blg. 25, Section 5, which is the unauthorized sub-
leasing of part of the leased premises to third persons without securing the
consent of the lessor within the required sixty (60)-day period from the
promulgation of the new law (B.P. 25). (Rollo, Petition, p. 8).
After trial, the court a quo rendered its decision ordering petitioner and all
persons claiming possession under her (a) to vacate the premises alluded to in
the complaint; (b) to remove whatever improvement she introduced on the
property; (c) to pay private respondent the amount of P2,000.00 as attorney's
fees; and (d) to pay the costs (Rollo, Annex "A", p. 19).
Petitioner appealed the decision to the Regional Trial Court and on November
24, 1980, presiding judge of the RTC, the Hon. Samilo Barlongay, affirmed in toto
the decision of the Metropolitan Trial Court (Rollo, Annex "A", p. 19).
The decision of the Regional Trial Court was appealed to the Court of Appeals for
review. The respondent Court of Appeals rendered its decision dated January 28,
1987, the dispositive portion of which reads as follows:
PREMISES CONSIDERED, the petition not being prima facie meritorious, the
same is outright dismissed.
SO ORDERED. (Rollo, Annex "A", p. 21)
Hence, the petition for review on certiorari.
The principal issue in this case is whether or not the lease of an apartment
includes a sublease of the lot on which it is constructed, as would constitute a
ground for ejectment under Batas Pambansa BLg. 25.
Petitioner is of the view that Batas Pambansa Blg. 25 is not applicable because
what she leased was her own apartment house which does not include a
sublease of the lot she leased from private respondent on which the apartment is
constructed.
Petitioner's contention is untenable.
This issue has already been laid to rest in the case of Duellome v. Gotico (7
SCRA 841 [1963]) where this Court ruled that the lease of a building naturally
includes the lease of the lot, and the rentals of the building includes those of the
lot. Thus:
. . . the lease of a building would naturally include the lease of the lot and that the
rentals of the building include the rentals of the lot.
xxx xxx xxx
Furthermore, under our Civil Code, the occupancy of a building or house not only
suggests but implies the tenancy or possession in fact of the land on which they
are constructed. This is not a new pronouncement. An extensive elaboration of
this rule was discussed by this Court in the case of Baquiran, et al., v. Baquiran,
et al., 53 O.G. p. 1130.
. . . the Court of Appeals should have found the herein appellees

lessees of the house, and for all legal purposes, of the lot on
which it was built as well.
But petitioner insists that the ruling in the aforecited case is not applicable to the
case at bar because the former is a damage suit while the latter is an ejectment
case.
Be that as it may, this Court has categorically answered in the affirmative, the
principal question, common to both cases and on which rests the resolution of
the issues involved therein. Under the above ruling it is beyond dispute that
petitioner in leasing her apartment has also subleased the lot on which it is
constructed which lot belongs to private respondent. Consequently, she has
violated the provisions of Section 5, Batas Pambansa Blg. 25 which is a ground
for Ejectment.
Section 5 of Batas Pambansa Blg. 25 enumerates the grounds for judicial
ejectment, among which is the subleasing of residential units without the written
consent of the owner/lessor, to wit:
Se. 5 Grounds for judicial ejectment. Ejectment shall be allowed on the following
grounds:
a) Subleasing or assignment of lease of residential units in whole or in part, with

the written consent of the owner/lessor: Provided that in the case of subleases or
assignments executed prior to the approval of this Act, the sublessor/assignor
shall have sixty days from the effectivity of this Act within which to obtain the
written approval of the owner/lessor or terminate the sublease or assignment.
Section 2(b) of Batas Pambansa Blg. 25 defines the term residential unit as
follows:
Sec. 2. Definition of Terms — Unless otherwise indicated wherever in this Act,

the following shall have the following meaning:
xxx xxx xxx
b. A residential unit — refers to an apartment, house and/or land on which

another's dwelling is located used for residential purposes and shall include not
only buildings, parts or units thereof used solely as dwelling places, except
motels, motel rooms, hotels, hotel rooms, boarding houses, dormitories, rooms
and bedspaces for rent, but also those used for home industries, retail stores, or
other business purposes if the owner thereof and his family actually live therein
and use it principally for dwelling purposes: . . .
Petitioner argued further that Batas Pambansa Blg. 25 cannot be applied in this
case because there is a perfected contract of lease without any express
prohibition on subleasing which had been in effect between petitioner and private
respondent long before the enactment of Batas Pambansa Blg. 25. Therefore,
the application of said law to the case at bar is unconstitutional as an impairment
of the obligation of contracts.
It is well settled that all presumptions are indulged in favor of constitutionality;

one who attacks a statute, alleging unconstitutionality must prove its invalidity
beyond a reasonable doubt (Victoriano v. Elizalde Rope Workers' Union, 59
SCRA 54 [1974]). In fact, this Court does not decide questions of a constitutional
nature unless that question is properly raised and presented in appropriate cases
and is necessary to a determination of the case, i.e., the issue of constitutionality
must be the very lis mota presented (Tropical Homes, Inc. v. National Housing
Authority, 152 SCRA 540 [1987]).
In any event, it is now beyond question that the constitutional guaranty of non-
impairment of obligations of contract is limited by and subject to the exercise of
police power of the state in the interest of public health, safety, morals and
general welfare (Kabiling, et al. v. National Housing Authority, 156 SCRA 623
[1987]). In spite of the constitutional prohibition, the State continues to possess
authority to safeguard the vital interests of its people. Legislation appropriate to
safeguarding said interest may modify or abrogate contracts already in effect
(Victoriano v. Elizalde Rope Workers' Union, et al., supra). In fact, every contract
affecting public interest suffers a congenital infirmity in that it contains an implied
reservation of the police power as a postulate of the existing legal order. This
power can be activated at anytime to change the provisions of the contract, or
even abrogate it entirely, for the promotion or protection of the general welfare.
Such an act will not militate against the impairment clause, which is subject to
and limited by the paramount police power (Villanueva v. Castañeda, 154 SCRA
142 [1987]).
Batas Pambansa Blg. 25, "An Act Regulating Rentals of Dwelling Units or of
Land On Which Another's Dwelling is Located and For Other Purposes" shows
that the subject matter of the law is the regulation of rentals and is intended only
for dwelling units with specified monthly rentals constructed before the law
became effective (Baens v. Court of Appeals, 125 SCRA 634 [1983]).
Batas Pambansa Blg. 25 is derived from P.D. No. 20 which has been declared by
this Court as a police power legislation, applicable to leases entered into prior to
July 14, 1971 (effectivity date of RA 6539), so that the applicability thereof to
existing contracts cannot be denied (Gutierrez v. Cantada, 90 SCRA 1 [1979]).
Finally, petitioner invokes, among others, the promotion of social justice policy of
the New Constitution. Like P.D. No. 20, the objective of Batas Pambansa Blg. 25
is to remedy the plight of lessees, but such objective is not subject to exploitation
by the lessees for whose benefit the law was enacted. Thus, the prohibition
provided for in the law against the sublease of the premises without the consent
of the owner. As enunciated by this Court, it must be remembered that social
justice cannot be invoked to trample on the rights of property owners, who under
our Constitution and laws are also entitled to protection. The social justice
consecrated in our Constitution was not intended to take away rights from a
person and give them to another who is not entitled thereto (Salonga v. Farrales,
105 SCRA 360 [1981]).
WHEREFORE, the Petition is Denied for lack of merit and the assailed decision
of the Court of Appeals is Affirmed.
SO ORDERED.
Gutierrez, Jr., Davide, Jr. and Romero, JJ., concur.
Feliciano, J., is on leave.

JACINTO TANGUILIG doing business under the name and style J.M.T.
ENGINEERING AND GENERAL MERCHANDISING, petitioner, vs. COURT OF
APPEALS and VICENTE HERCE JR., respondents.
DECISION
BELLOSILLO, J.:
This case involves the proper interpretation of the contract entered into between the
parties.
Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name
and style J. M. T. Engineering and General Merchandising proposed to respondent
Vicente Herce Jr. to construct a windmill system for him. After some negotiations they
agreed on the construction of the windmill for a consideration of P60,000.00 with a one-
year guaranty from the date of completion and acceptance by respondent Herce Jr. of the
project. Pursuant to the agreement respondent paid petitioner a down payment of
P30,000.00 and an installment payment of P15,000.00, leaving a balance of P15,000.00.
On 14 March 1988, due to the refusal and failure of respondent to pay the balance,
petitioner filed a complaint to collect the amount. In his Answer before the trial court
respondent denied the claim saying that he had already paid this amount to the San Pedro
General Merchandising Inc. (SPGMI) which constructed the deep well to which the
windmill system was to be connected. According to respondent, since the deep well
formed part of the system the payment he tendered to SPGMI should be credited to his
account by petitioner. Moreover, assuming that he owed petitioner a balance of
P15,000.00, this should be offset by the defects in the windmill system which caused the
structure to collapse after a strong wind hit their place. [1]
i
Petitioner denied that the construction of a deep well was included in the agreement to
build the windmill system, for the contract price of P60,000.00 was solely for the
windmill assembly and its installation, exclusive of other incidental materials needed for
the project. He also disowned any obligation to repair or reconstruct the system and
insisted that he delivered it in good and working condition to respondent who accepted
the same without protest. Besides, its collapse was attributable to a typhoon, a force
majeure, which relieved him of any liability.
In finding for plaintiff, the trial court held that the construction of the deep well was not
part of the windmill project as evidenced clearly by the letter proposals submitted by
petitioner to respondent. [2] It noted that "[i]f the intention of the parties is to include the
ii
construction of the deep well in the project, the same should be stated in the proposals.
In the absence of such an agreement, it could be safely concluded that the construction of
the deep well is not a part of the project undertaken by the plaintiff." [3] With respect to
iii
the repair of the windmill, the trial court found that "there is no clear and convincing
proof that the windmill system fell down due to the defect of the construction." [4]iv
The Court of Appeals reversed the trial court. It ruled that the construction of the deep
well was included in the agreement of the parties because the term "deep well" was
mentioned in both proposals. It also gave credence to the testimony of respondent's
witness Guillermo Pili, the proprietor of SPGMI which installed the deep well, that
petitioner Tanguilig told him that the cost of constructing the deep well would be
deducted from the contract price of P60,000.00. Upon these premises the appellate court
concluded that respondent's payment of P15,000.00 to SPGMI should be applied to his
remaining balance with petitioner thus effectively extinguishing his contractual
obligation. However, it rejected petitioner's claim of force majeure and ordered the latter
to reconstruct the windmill in accordance with the stipulated one-year guaranty.
His motion for reconsideration having been denied by the Court of Appeals, petitioner
now seeks relief from this Court. He raises two issues: firstly, whether the agreement to
construct the windmill system included the installation of a deep well and, secondly,
whether petitioner is under obligation to reconstruct the windmill after it collapsed.
We reverse the appellate court on the first issue but sustain it on the second.
The preponderance of evidence supports the finding of the trial court that the installation
of a deep well was not included in the proposals of petitioner to construct a windmill
system for respondent. There were in fact two (2) proposals: one dated 19 May 1987
which pegged the contract price at P87,000.00 (Exh. "1"). This was rejected by
respondent. The other was submitted three days later, i.e., on 22 May 1987 which
contained more specifications but proposed a lower contract price of P60,000.00 (Exh.
"A"). The latter proposal was accepted by respondent and the construction immediately
followed. The pertinent portions of the first letter-proposal (Exh. "1") are reproduced
hereunder -
In connection with your Windmill System and Installation, we would like to quote to you
as follows:
One (1) Set - Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity, 14 feet in
diameter, with 20 pieces blade, Tower 40 feet high, including mechanism which is not
advisable to operate during extra-intensity wind. Excluding cylinder pump.
UNIT CONTRACT PRICE P87,000.00
The second letter-proposal (Exh. "A") provides as follows:
In connection with your Windmill system Supply of Labor Materials and Installation,
operated water pump, we would like to quote to you as follows -
One (1) set - Windmill assembly for 2 inches or 3 inches deep-well pump, 6 Stroke, 14
feet diameter, 1-lot blade materials, 40 feet Tower complete with standard appurtenances
up to Cylinder pump, shafting U.S. adjustable International Metal.
One (1) lot - Angle bar, G. I. pipe, Reducer Coupling, Elbow Gate valve, cross Tee
coupling.
One (1) lot - Float valve.
One (1) lot - Concreting materials foundation.
F. O. B. Laguna
Contract Price P60,000.00
Notably, nowhere in either proposal is the installation of a deep well mentioned, even
remotely. Neither is there an itemization or description of the materials to be used in
constructing the deep well. There is absolutely no mention in the two (2) documents that
a deep well pump is a component of the proposed windmill system. The contract prices
fixed in both proposals cover only the features specifically described therein and no other.
While the words "deep well" and "deep well pump" are mentioned in both, these do not
indicate that a deep well is part of the windmill system. They merely describe the type of
deep well pump for which the proposed windmill would be suitable. As correctly pointed
out by petitioner, the words "deep well" preceded by the prepositions "for" and
"suitable for" were meant only to convey the idea that the proposed windmill would be
appropriate for a deep well pump with a diameter of 2 to 3 inches. For if the real intent
of petitioner was to include a deep well in the agreement to construct a windmill, he
would have used instead the conjunctions "and" or "with." Since the terms of the
instruments are clear and leave no doubt as to their meaning they should not be disturbed.
Moreover, it is a cardinal rule in the interpretation of contracts that the intention of

the parties shall be accorded primordial consideration [5] and, in case of doubt, their
v
contemporaneous and subsequent acts shall be principally considered. [6] An examination

vi
of such contemporaneous and subsequent acts of respondent as well as the attendant

circumstances does not persuade us to uphold him.
Respondent insists that petitioner verbally agreed that the contract price of P60,000.00
covered the installation of a deep well pump. He contends that since petitioner did not
have the capacity to install the pump the latter agreed to have a third party do the work
the cost of which was to be deducted from the contract price. To prove his point, he
presented Guillermo Pili of SPGMI who declared that petitioner Tanguilig approached
him with a letter from respondent Herce Jr. asking him to build a deep well pump as "part
of the price/contract which Engineer (Herce) had with Mr. Tanguilig." [7]
vii
We are disinclined to accept the version of respondent. The claim of Pili that Herce Jr.
wrote him a letter is unsubstantiated. The alleged letter was never presented in court by
private respondent for reasons known only to him. But granting that this written
communication existed, it could not have simply contained a request for Pili to install a
deep well; it would have also mentioned the party who would pay for the undertaking. It
strains credulity that respondent would keep silent on this matter and leave it all to
petitioner Tanguilig to verbally convey to Pili that the deep well was part of the
windmill construction and that its payment would come from the contract price of
P60,000.00.
We find it also unusual that Pili would readily consent to build a deep well the payment
for which would come supposedly from the windmill contract price on the mere
representation of petitioner, whom he had never met before, without a written
commitment at least from the former. For if indeed the deep well were part of the
windmill project, the contract for its installation would have been strictly a matter
between petitioner and Pili himself with the former assuming the obligation to pay the
price. That it was respondent Herce Jr. himself who paid for the deep well by handing
over to Pili the amount of P15,000.00 clearly indicates that the contract for the deep well
was not part of the windmill project but a separate agreement between respondent and
Pili. Besides, if the price of P60,000.00 included the deep well, the obligation of
respondent was to pay the entire amount to petitioner without prejudice to any action that
Guillermo Pili or SPGMI may take, if any, against the latter. Significantly, when asked
why he tendered payment directly to Pili and not to petitioner, respondent explained,
rather lamely, that he did it "because he has (sic) the money, so (he) just paid the money
in his possession." [8]
viii
Can respondent claim that Pili accepted his payment on behalf of petitioner? No.
While the law is clear that "payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or any person
authorized to receive it,". [9] It does not appear from the record that Pili and/or
ix
SPGMI was so authorized.
Respondent cannot claim the benefit of the law concerning "payments made by a third
person." [10] The Civil Code provisions do not apply in the instant case because no
x
creditor-debtor relationship between petitioner and Guillermo Pili and/or SPGMI has
been established regarding the construction of the deep well. Specifically, witness Pili
did not testify that he entered into a contract with petitioner for the construction of
respondent's deep well. If SPGMI was really commissioned by petitioner to construct
the deep well, an agreement particularly to this effect should have been entered into.
The contemporaneous and subsequent acts of the parties concerned effectively belie
respondent's assertions. These circumstances only show that the construction of the well
by SPGMI was for the sole account of respondent and that petitioner merely supervised
the installation of the well because the windmill was to be connected to it. There is no
legal nor factual basis by which this Court can impose upon petitioner an obligation he
did not expressly assume nor ratify.
The second issue is not a novel one. In a long line of cases [11] this Court has
xi
consistently held that in order for a party to claim exemption from liability by reason of
fortuitous event under Art. 1174 of the Civil Code the event should be the sole and
proximate cause of the loss or destruction of the object of the contract. In Nakpil vs.
Court of Appeals, [12] four (4) requisites must concur: (a) the cause of the breach of the
xii
obligation must be independent of the will of the debtor; (b) the event must be either
unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from
any participation in or aggravation of the injury to the creditor.
Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous
event. Interestingly, the evidence does not disclose that there was actually a typhoon on
the day the windmill collapsed. Petitioner merely stated that there was a "strong wind."
But a strong wind in this case cannot be fortuitous - unforeseeable nor unavoidable. On
the contrary, a strong wind should be present in places where windmills are constructed,
otherwise the windmills will not turn.
The appellate court correctly observed that "given the newly-constructed windmill
system, the same would not have collapsed had there been no inherent defect in it which
could only be attributable to the appellee." [13] It emphasized that respondent had in his
xiii
favor the presumption that "things have happened according to the ordinary course
of nature and the ordinary habits of life." [14] This presumption has not been rebutted by
xiv
petitioner.
Finally, petitioner's argument that private respondent was already in default in the
payment of his outstanding balance of P15,000.00 and hence should bear his own loss, is
untenable. In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon him. xv
[15] When the windmill failed to function properly it became incumbent upon petitioner to
institute the proper repairs in accordance with the guaranty stated in the contract. Thus,
respondent cannot be said to have incurred in delay; instead, it is petitioner who should
bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil Code
is explicit on this point that if a person obliged to do something fails to do it, the same
shall be executed at his cost.
WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE

JR. is directed to pay petitioner JACINTO M. TANGUILIG the balance of P15,000.00
with interest at the legal rate from the date of the filing of the complaint. In return,
petitioner is ordered to "reconstruct subject defective windmill system, in accordance
with the one-year guaranty" [16]and to complete the same within three (3) months from
xvi
the finality of this decision.
SO ORDERED.
Padilla, (Chairman), Vitug, Kapunan, and Hermosisima, JJ., concur.

i[1] TSN, 20 December 1988, pp. 10-12.
ii[2] Exh. "A" and Exh. "1."
iii[3] Rollo, p. 36.
iv[4] Id., p. 37.
v[5] Kasilag v. Rodriguez, 69 Phil. 217 (1939).
vi[6] Art. 1371, New Civil Code; GSIS v. Court of Appeals, G.R. No. 52478, 30 October 1986, 145
SCRA 311; Serrano v. Court of Appeals, No. L-46357, 9 October 1985, 139 SCRA 179.
vii[7] TSN, 13 April 1989, pp. 18-19.
viii[8] TSN, 13 April 1989, p. 22.
ix[9] Art. 1240, New Civil Code.
x[10] Arts. 1236 and 1237, New Civil Code .
xi[11] Nakpil v. Court of Appeals, Nos. L-47851, L-47863, L-47896, 3 October 1986, 144 SCRA 596;
National Power Corporation v. Court of Appeals, G.R. Nos. L-47379 and 47481, 16 May 1988, 161
SCRA 334; National Power Corporation v. Court of Appeals, G.R. Nos. 103442-45, 21 May 1993, 222
SCRA 415.
xii[12] See Note 11.
xiii[13] Rollo, p. 44.
xiv[14] Sec. 3, par. (y), Rule 131, Revised Rules on Evidence.
xv[15] Art. 1169, last par., New Civil Code.
xvi[16] See CA Decision, p. 7; Rollo, p. 27.
PHILIPPINE CHARTER INSURANCE CORPORATION,

Petitioner,
- versus -
CENTRAL COLLEGES OF THE PHILIPPINES and DYNAMIC PLANNERS
AND CONSTRUCTION CORPORATION,
Respondents.
G.R. Nos. 180631-33
Present:
VELASCO, JR., J., Chairperson,

PERALTA,
ABAD,
MENDOZA, and
PERLAS-BERNABE, JJ.
Promulgated:
February 22, 2012
X --------------------------------------------------------------------------------------X
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure challenging the June 29, 2007 Decision[1] and November 19, 2007
Resolution[2] of the Court of Appeals (CA) in the consolidated cases CA-G.R. SP Nos.
90361, 90383 and 90384.
THE FACTS
On May 16, 2000, Central Colleges of the Philippines (CCP), an educational

institution, contracted the services of Dynamic Planners and Construction Corporation
(DPCC) to be its general contractor for the construction of its five (5)-storey school
building at No. 39 Aurora Boulevard, Quezon City, with a total contract price of
P248,000,000.00. As embodied in a Contract Agreement,[3] the construction of the
entire building would be done in two phases with each phase valued at P124,000,000.00.
To guarantee the fulfillment of the obligation, DPCC posted three (3) bonds, all
issued by the Philippine Charter Insurance Corporation (PCIC), namely: (1) Surety
Bond No. PCIC-45542, dated June 25, 2003, amounting to P7,031,460.74;[4] (2)
Performance Bond No. PCIC-45541[5] in the amount of P2,929,775.31 which was
subsequently increased to P6,199,999.99 through Bond Endorsement No. E-2003/12527;
[6] and (3) Performance Bond No. PCIC-46172 for P692,890.74.[7] All the bonds were
callable on demand and set to expire on October 30, 2003.
The Phase 1 of the project was completed without issue. Thereafter, CCP paid
DPCC P14,880,000.00 or 12% of the agreed price of P124,000,000.00 with a check
dated March 14, 2002 as downpayment for the Phase 2 of the project.
The Phase 2 of the project, however, encountered numerous delays. When CCP
audited DPCC on July 25, 2003, only 47% of the work to be done was actually finished.
Thus, in a letter dated October 29, 2003 addressed to DPCC and PCIC, CCP
informed them of the breach in the contract and its plan to claim on the construction
bonds. Pertinent portions of the letter are herein quoted:
You are both hereby NOTIFIED that the Bonds referred to above for the faithful
performance of a Contract, dated 16 May 2000 for the construction of CCP
EXTENSION BLDG. (Phase 2) at 39 Aurora Blvd., Quezon City, Metro Manila
and the Variation Order No. 2 has been breached by the CONTRACTOR for
which reason, the CENTRAL COLLEGES OF THE PHILIPPINES, as owner,
hereby gives NOTICE that it will file an action on the said performance and
surety bonds.[8]
On November 6, 2003, CCP notified DPCC and PCIC that only 51% of the
project was completed, which was way behind the construction schedule, prompting it to
declare the occurrence of default against DPCC. It formally requested PCIC to remit the
proceeds of the bonds.[9]
On November 14, 2003, DPCC wrote PCIC confirming the finding that Phase 2
was only 51% finished and, at the same time, requesting for the extension of its
performance and surety bonds because the supposed revision of the plans would require
more days.[10]
In a letter dated November 21, 2003, CCP notified PCIC that because of DPCC’s
inability to complete the project on time, it decided to terminate its contract with the
latter and to continue the construction on its own. The full text of the letter is herein
reproduced:
We acknowledge the receipt of your letter dated November 14, 2003 and we are
in the process of compiling the documents you requested. The said documents
will be submitted as soon as possible.
Furthermore, we would like to reiterate that your principal, the Dynamic

Planners & Construction Corporation has breached the Contract of Agreement
dated May 16, 2000 by having completed only an estimated 51% of the
construction of the 5-storey CCP Extension Building, Phase 2 and has therefore
failed to perform the work within the agreed schedule.
In view thereof, as stated in our earlier letter of 6 November 2003, we were

compelled to declare the occurrence of a default on the part of your principal,
and have terminated their contract. Please remit to us the proceeds of the
captioned Bonds within the earliest possible time.
The Central Colleges of the Philippines will complete the construction of the 5-
storey CCP Extension Building, Phase 2 on its own.[11]
Meanwhile, on December 5, 2003, PCIC informed DPCC that it had approved its
request for extension of the bonds.[12]
Eventually, negotiations to continue on with the construction between CCP and
DPCC reached a dead end. CCP hired another contractor to work on the school site.
On August 13, 2004, CCP sent a letter to PCIC of its final demand for the
payment of P13,924,351.47 as indicated in the bonds.[13]
On August 20, 2004, PCIC denied CCP’s claims against the three bonds.[14]
Thus, on October 28, 2004, CCP filed a complaint with request for arbitration
before the Construction Industry Arbitration Commission (CIAC) against DPCC and
PCIC.[15] In its complaint, CCP prayed that CIAC hold DPCC and PCIC, jointly and
severally liable, against the following bonds:
1. Under Surety Bond No. 45542, the amount of Php7,031,460.74 plus

legal interest from the date of demand until full payment thereof;
2. Under Performance Bond Nos. PCIC-45541 [Bond Endorsement Nos.

E-2003/12527] and PCIC-46172, the amount of Php6,892,890.73 plus legal
interest from the date of demand until full payment thereof; and
3. Php100,000.00 as and for attorney’s fees.[16]

In their Answer,[17] DPCC and PCIC denied any liability and proffered that CCP
unlawfully withheld the materials, equipment, formworks and scaffoldings left at the
premises amounting to P4,232,264.12.
On June 3, 2005, the CIAC rendered a decision in favor of CCP. It gave the
following reasons:
1. Claimant was legally justified in terminating the Contract;
2. On the issue of whether claimant faithfully complied with its

contractual obligation in respect of (a) the release of the downpayment, (b) the
delivery of the drawings for construction, and (c) the payment of progress
billings, there is no record that Dynamic protested the delay in the delivery of
the site, the delay in the submission of technical plans and demanded as a result
thereof the corresponding adjustment of the Contract Period or the Contract
Price. The issue of delay in the reduction of the down payment is moot since
Dynamic acquiesced in the reduction of the down payment from 15% to 12% and
the issue of payment of the 12 th progress billing arose as a consequence of a
legitimate issue as to the percentage of completion of the work by Dynamic as of
August 2003.
3. Dynamic’s percentage of accomplishment as of the date of the

termination of the Contract was 57.33% at P71,089,200.
4. The original Contract Price was P124,000,000. To this amount shall

be added the price of Variation Order No. 2 of P13,857,814.87 or an adjusted
Contract Price of P137,857,814.87. Deducting P110,000,792.87, the
overpayment to Dynamic is P27,779,022.00. However, Claimant is entitled to
an award not exceeding the amount of its claims in its Complaint and in the
Terms of Reference.
5. Dynamic failed to produce evidence to show that it was not paid the
balance of the Contract Price for Phase 1 of the Project.
6. Surety is liable to Claimant under the Performance and Surety Bonds it

issued in favor of Claimant. The liability of Surety is to indemnify Claimant for
the un-recouped down payment [which] shall not exceed P7,031,460.74 under
the Surety Bond and for not more than P6,892,890.73 under the Performance
Bonds.
7. If Surety is obliged to pay these amounts to Claimant, it is entitled, on

its cross-claim, to indemnity from Dynamic.
8. Claimant’s claims under the Surety and Performance Bonds are not
time-barred.
9. Surety is not barred by estoppel from denying liability under the Surety
and Performance Bonds.
10. Claimant’s request to Dynamic to extend the term of these bonds,

Dynamic’s request to Surety to extend their terms and Surety’s grant of the
extension requested have no adverse legal effect upon the rights and obligations
of the parties.
11. The contractual time-bar embodied in the bonds is valid and binding.
12. Dynamic is entitled to its claims for the payment of P1,732,264.14 for
materials and of P2,500,000.00 for the equipment, formworks and scaffolding
left at the site.
13. The claims for payment of moral, exemplary and temperate damages
and for attorney’s fees are denied.
14. The parties shall bear their own cost of arbitration.[18]
Thus, CIAC disposed of the case finding DPCC liable to pay CCP P7,031,460.74
from the Surety Bond representing the unrecouped downpayment and P6,892,890.73
from its Performance Bond for a total of P13,924,351.47. The CIAC likewise ordered
CCP to pay DPCC P1,732,264.12 corresponding to the construction materials left at the
site and P2,500,000.00 for the cost of equipment, formworks and scaffoldings
appropriated by CCP or a total of P4,232,264.12. The fallo reads:
WHEREFORE, award is hereby made against Respondent Dynamic
Planners and Construction Corporation and Respondent Philippine Charter
Insurance Corporation, ordering them, jointly and severally, to pay Claimant,
Central Colleges of the Philippines the amount of P7,031,460.74 under the
Surety Bond as un-recouped down payment, and the amount of P6,892,890.73
under the Performance Bond or the total amount of P13,924,351.47.
Award is likewise made against Claimant, Central Colleges of the

Philippines, ordering the latter to pay Respondent Dynamic Planners and
Construction Corporation, the amount of P1,732,264.12 for the latter’s materials
left at the Project Site and the amount of P2,500,000.00 as the cost of its
equipment, formworks and scaffoldings which were appropriated by the former
or the total amount of P4,232,264.12.
Offsetting the amount due claimant Central Colleges of the Philippines

from Respondent Dynamic Planners and Construction Corporation and that due
the latter from the former, there is a net amount of P9,692,087.37 which
Respondent Dynamic Planners and Construction Corporation is hereby ordered
to pay Claimant Central Colleges of the Philippines with interest at the rate of
6% per annum from the date of this Final Award and 12% per annum from the
time this Final Award becomes final and executory and until it is fully paid in
accordance with Eastern Shipping Lines, Inc. vs. Court of Appeals (1994) 234
SCRA 78.
The joint and several liability of Respondent Philippine Charter

Insurance Corporation with Respondent Dynamic Planners and Construction
Corporation is accordingly reduced to P9,692,087.37. In the event of payment
by Respondent Philippine Charter Insurance Corporation, the latter is entitled
to indemnity from its co-Respondent Dynamic Planners and Construction
Corporation up to the full amount of such payment. In the event of delay in
making payment to indemnify Respondent Philippine Charter Insurance
Corporation, Respondent Dynamic Planners Charter Insurance Corporation
shall pay interest at the rate of 21% per annum in accordance with the
Indemnity Agreement between them.
All other claims, counterclaims and cross-claims not otherwise

determined in this Final Award are deemed denied for lack of merit.
SO ORDERED.[19]
All the parties appealed the CIAC decision to the CA. PCIC’s appeal was
docketed as CA-G.R. SP No. 90361;[20] CCP’s appeal was docketed as CA-G.R. SP
No. 90383;[21] and DPCC’s appeal was docketed as CA-G.R. SP No. 90384.[22]
Eventually, the cases were consolidated.[23]
On June 29, 2007, the CA modified CIAC’s earlier decision.[24] The CA found
that DPCC was already in delay for managing to complete only 51% of the construction
work necessary to finish the Phase 2 of the project. It held that due to DPCC’s
inexcusable delay, CCP was legally within its rights to terminate the contract with it. It
likewise did not give weight to PCIC’s defense that Bond No. 46172 was already
released because the said issue was never raised before the CIAC and was raised for the
first time on appeal.[25] The CA, however, deleted the award of cost of the materials,
equipment, formworks and scaffoldings allegedly left by DPCC at the work site for its
failure to prove the actual costs of said materials.[26] It added, “In any event, the cost of
such materials, equipment, formworks and scaffoldings cannot be deducted from
Philippine Charter’s liability on the bond, as the credit does not belong to the latter but
to Dynamic.”[27] Accordingly, the decretal portion of the CA decision reads:
WHEREFORE, the Final Award, dated 03 June 2005, of the Construction

Industry Arbitration Commission (CIAC) in CIAC Case No. 36-2004 is
AFFIRMED with MODIFICATION, in that the award to Dynamic Planners and
Construction Corporation of its counterclaim for materials, equipment,
formworks and scaffoldings left at the work site in the total amount of
P4,232,264.12 is DELETED.
Philippine Charter Insurance Corporation and Dynamic Planners and

Construction Corporation are ORDERED jointly and severally to pay Central
Colleges of the Philippines the total amount of P13,924,351.47 under Surety
Bond No. PCIC-45542, Performance Bond No. PCIC-45541 (as modified by
Bond Endorsement No. E-2003/12527), and Performance Bond No. PCIC-
46172. Said amount shall bear interest at the rate of 6% per annum from the
date of demand made on 29 October 2003. However, for any amount not yet
paid after the date of the finality of this decision, the rate of interest on the
payable amount shall be increased to 12% per annum from the date when this
decision becomes final and executory until it is fully paid.
SO ORDERED.[28]
PCIC moved for the reconsideration of the said decision, but the CA disposed of it
with a denial in its November 19, 2007 Resolution.
Hence, this petition.[29]
In its Memorandum,[30] PCIC submits the following issues for resolution:
1st Issue: Whether or not the CA grossly erred in sustaining the

CIAC award finding petitioner liable to respondent CCP under the
performance bonds and the surety bond?
2nd Issue: Whether or not the CA grossly erred in upholding the

CIAC award pronouncing respondent CCP as rightfully and
justifiably entitled to terminate the contract agreement?
3rd Issue: Whether or not the CA grossly erred in deleting the

counterclaim of respondent DPCC covering the costs of materials,
equipment, formworks and scaffoldings left at site and in denying
petitioner to benefit from the counterclaim?[31]
PCIC argues that the CA erred in sustaining the award of P692,890.74
representing Performance Bond PCIC-46172 because the obligation guaranteed by said
performance bond was already completed, therefore, no liability should attach against
the said bond.[32]
In this regard, the petitioner has a point.
Although this particular issue was not expressly raised in the parties’ Terms of
Reference,[33] nevertheless, the issue on Performance Bond PCIC- 46172 was
extensively discussed during the arbitral tribunal’s hearing of February 21, 2005. To
accurately reflect what transpired on said hearing, relevant portions of the transcript of
stenographic notes are herein quoted:
ATTY. G. Q. ENRIQUEZ:[34]
I am calling your attention to Bond PCIC-45542.
MR. CRISPINO P. REYES:[35]
You are calling my attention where?
ATTY. G. Q. ENRIQUEZ:
In the terms of Reference, can we please get the copy of that so that we
can be reminded?
ATTY. B.G. FAJARDO:
There are only two, Counsel-the Performance and the Surety Bond.
Performance Bond in the amount of-
MR. CRISPINO P. REYES:
We’re interested in 45542 and we’re interested in 45541. What we’re no

longer interested in, we have to be candid to this Honorable Tribunal, we are no
longer interested, [we] no longer want to collect on Performance Bond 46172.
ATTY. A.V. CAMARA:[36]
At this point in time, we would like to be of record that although that

Bond 46172 covering the amount of P692,890.74 per their declaration had
already been satisfied that is why only two bonds now are being…
ATTY. J.N. RABOCA:
May I make a qualification with that, your Honor? It’s not that it was
satisfied. It’s that the Claimant is not claiming anymore because all the works
under this bond were already accomplished.
Yes, because you have already a Certificate of Acceptance.
ATTY. J.N. RABOCA:
Correct.
So, we’re just narrowing down into two bonds.
ATTY. A.V. CAMARA:
The two bonds.
Okay.
ATTY. A.V. CAMARA:

Then therefore the liability on 46172 should be released. They are only
covered by the pleadings especially the Complaint.
MR. CRISPINO P. REYES:
We do not dispute this.[37] [Emphases supplied]
It is clear from the testimony of Crispino P. Reyes, CCP’s President, that the
school no longer wants to collect on Performance Bond PCIC 46172 (with a value of
P692,890.74). This statement before the arbitral tribunal is a judicial admission
effectively settling the issue with respect to PCIC 46172. Section 4, Rule 129 of the
Rules of Court provides:
Sec. 4. Judicial admissions. – An admission, verbal or written, made by a party

in the course of the proceedings in the same case, does not require proof. The admission
may be contradicted only by showing that it was made through palpable mistake or that
no such admission was made.
A party may make judicial admissions in (a) the pleadings; (b) during the trial,
either by verbal or written manifestations or stipulations; or (c) in other stages of the
judicial proceeding.[38] It is an established principle that judicial admissions cannot be
contradicted by the admitter who is the party himself[39] and binds the person who
makes the same, and absent any showing that this was made thru palpable mistake, no
amount of rationalization can offset it.[40]
Since CCP, through its President, judicially admitted that it is no longer interested
in pursuing PCIC-46172, the scope of its claim will just be confined to Surety Bond No.
PCIC-45542 and Performance Bond No. PCIC-45541.
PCIC claims that DPCC was already in default as early as September 4, 2003,[41]
hence, the ten-day reglementary period to file a claim on the bonds should have been
reckoned from such date and filed on September 14, 2003. PCIC claims that CCP
notified them only on October 29, 2003 which is already beyond the limitation that any
claim on the bonds should be presented in writing within ten (10) days from the
expiration of the bond or from the occurrence of the default or failure of the principal,
whichever is earliest.[42]
The Court finds itself unable to agree. Article 1169 of the New Civil Code
provides:
Art. 1169. Those obliged to deliver or to do something incur in delay

from the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.
The civil law concept of delay or default commences from the time the obligor
demands, judicially or extrajudicially, the fulfillment of the obligation from the obligee.
In legal parlance, demand is the assertion of a legal or procedural right.[43] Hence,
DPCC incurred delay from the time CCP called its attention that it had breached the
contract and extrajudicially demanded the fulfillment of its commitment against the
bonds.
It is the obligor’s culpable delay, not merely the time element, which gives the
obligee the right to seek the performance of the obligation. As such, CCP’s cause of
action accrued from the time that DPCC became in culpable delay as contemplated in
the surety and performance bonds. In fact, Surety Bond PCIC-45542,[44] Performance
Bond PCIC-45541[45] and PCIC-46172 each specified how claims should be made
against it:
Surety Bond PCIC-45542[46]
The liability of PHILIPPINE CHARTER INSURANCE CORPORATION, under

this bond will expire on October 30, 2003; Furthermore, it is hereby agreed and
understood that PHILIPPINE CHARTER INSURANCE CORPORATION will not be
liable for any claim not presented to it in writing within FIFTEEN (15) DAYS from the
expiration of this bond, and that the Obligee hereby waives its right to claim or file any
court action against the surety after the termination of FIFTEEN (15) DAYS from the
time its cause of action accrues.
Performance Bond PCIC-45541[47] and PCIC-46172:[48]
The liability of PHILIPPINE CHARTER INSURANCE CORPORATION, under

this bond will expire on October 30, 2003; Furthermore, it is hereby agreed and
understood that PHILIPPINE CHARTER INSURANCE CORPORATION will not be
liable for any claim not presented to it in writing within TEN (10) DAYS from the
expiration of this bond or from the occurrence of the default or failure of the Principal,
whichever is the earliest, and the Obligee hereby waives its right to file any claims
against the Surety after termination of the period of ten (10) DAYS above mentioned
after which time this bond shall definitely terminate and be deemed absolutely
cancelled.
Thus, DPCC became in default on October 29, 2003 when CCP informed it in
writing of the breach of the contract agreement and demanded the fulfillment of its
obligation against the bonds. Consequently, the November 6, 2003 letter that CCP sent
to PCIC properly complied with the notice of claim requirement set forth in the said
bonds.
Upon notice of default of obligor DPCC, PCIC’s liability, as surety, was already
attached. A surety under Article 2047 of the New Civil Code solidarily binds itself with
the principal debtor to assure the fulfillment of the obligation:
Art. 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 supplied]
The case of Asset Builders Corporation v. Stronghold Insurance Company, Inc.

[49] explains how a surety agreement works:
As provided in Article 2047, the surety undertakes to be bound solidarily

with the principal obligor. That undertaking makes a surety agreement an
ancillary contract as it presupposes the existence of a principal contract.
Although the contract of a surety is in essence secondary only to a valid principal
obligation, the surety becomes liable for the debt or duty of another although it
possesses no direct or personal interest over the obligations nor does it receive
any benefit therefrom.[50] Let it be stressed that notwithstanding the fact that
the surety contract is secondary to the principal obligation, the surety assumes
liability as a regular party to the undertaking.[51]
Stronghold Insurance Company, Inc. v. Republic-Asahi Glass
Corporation,[52] reiterating the ruling in Garcia v. Court of Appeals,
[53] expounds on the nature of the surety’s liability:
X x x. The surety’s obligation is not an original and direct one for

the performance of his own act, but merely accessory or collateral to the
obligation contracted by the principal. Nevertheless, although 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.
Suretyship, in essence, contains two types of relationship – the principal

relationship between the obligee and the obligor, and the accessory surety
relationship between the principal and the surety. In this arrangement, the
obligee accepts the surety’s solidary undertaking to pay if the obligor does not
pay. Such acceptance, however, does not change in any material way the obligee’s
relationship with the principal obligor. Neither does it make the surety an active
party to the principal obligee-obligor relationship. Thus, the acceptance does not
give the surety the right to intervene in the principal contract. The surety’s role
arises only upon the obligor’s default, at which time, it can be directly held liable
by the obligee for payment as a solidary obligor.[54] [Emphases supplied]
Having acted as a surety, PCIC is duty bound to perform what it has guaranteed
on its surety and performance bonds, all of which are callable on demand, occasioned by
its principal’s default.
PCIC also proffers that CCP did not file any claim against the bonds after its
extension.[55]
The Court is not persuaded. CCP need not file another claim as to the supposed
extended bonds because the October 29, 2003 letter was sufficient notice to PCIC and
DPCC of the latter’s default and its intention to proceed against the surety and
performance bonds. Moreover, the extension of the bonds was only approved and
relayed by PCIC to DPCC on December 5, 2003 or after the October 29, 2003 Notice of
Default.
As to whether CCP was legally warranted in terminating the contract with DPCC
for its failure to comply with its obligation, the Court affirms the CA’s disquisition. The
option to terminate the contract is clearly apparent in the parties’ agreement.
Specifically, Article 16 of the Contract Agreement provides:
ARTICLE 16
Termination
16.1 The OWNER shall have the right to terminate this CONTRACT after
giving fifteen (15) days notice in writing for any of the following causes:
16.1.1. Substantial failure on the part of the CONTRACTOR

in fulfilling its obligation;
16.1.2. Assignment or sub-contracting of any of the works

herein by the CONTRACTOR without approval by the OWNER;
16.1.3 The CONTRACTOR is willfully violating any of the

material conditions, stipulations and covenants of this CONTRACT
and/or the attachments hereto. In the event of termination of this
CONTRACT pursuant to the above, any amount owing to the
CONTRACTOR at the time of such termination for services already
rendered and/or materials delivered and taken over by the OWNER
shall be withheld by the OWNER pending the determination of
value of damages sustained by the OWNER by reason of such
termination and payment of such damages by the CONTRACTOR.
The Court also finds nothing improper in the deletion by the CA of the award of
actual damages in favor of DPCC. Actual or compensatory damages means the adequate
compensation for pecuniary loss suffered and for profits the obligee failed to obtain. To
be entitled to actual or compensatory damages, it is basic that there must be pleading and
proof of actual damages suffered.[56] Equally vital to the fact that the amount of loss
must be capable of proof, such loss must also be actually proven with a reasonable
degree of certainty, premised upon competent proof or the best evidence obtainable.[57]
The burden of proof of the damage suffered is, consequently, imposed on the party
claiming it[58] who, in turn, should present the best evidence available in support of his
claim. It could include sales and delivery receipts, cash and check vouchers and other
pieces of documentary evidence of the same nature pertaining to the items he is seeking
to recover. In the absence of corroborative evidence, it has been held that self-serving
statements of account are not sufficient basis for an award of actual damages.[59]
Moreover, a claim for actual damages cannot be predicated on flimsy, remote,
speculative, and insubstantial proof.[60] Thus, courts are required to state the factual
bases of the award.[61]
In this case, DPCC was not able to establish that it is entitled to the actual
damages that it prayed for in its counterclaim. As the CA put it, “while Dynamic
(DPCC) presented receipts issued by its suppliers of materials, equipment, formworks
and scaffoldings, it failed to prove that the items in the receipts correspond to the items
allegedly left at the work site.”[62] Besides, the Court cannot grant a relief in its favor
because DPCC did not appeal the decision of the CA.
WHEREFORE, the petition is PARTLY GRANTED. The June 29, 2007

Decision of the Court of Appeals in CA-G.R. SP Nos. 90361, 90383 and 90384 is
MODIFIED to read as follows:
Philippine Charter Insurance Corporation and Dynamic Planners and

Construction Corporation are ordered to, jointly and severally, pay Central
Colleges of the Philippines the total amount of P13,231,460.73 under
Surety Bond No. PCIC-45542 and Performance Bond No. PCIC-45541 (as
modified by Bond Endorsement No. E-2003/12527). Said amount shall bear
interest at the rate of 6% per annum from the date of demand made on
October 29, 2003. For any amount not yet paid after the date of the finality
of this decision, however, the rate of interest on the payable amount shall be
increased to 12% per annum from the date when this decision becomes
final and executory until it is fully paid.
SO ORDERED.
G.R. No. 126490 March 31, 1998
ESTRELLA PALMARES, petitioner,

vs.
COURT OF APPEALS and M.B. LENDING CORPORATION, respondents.
REGALADO, J.:
Where a party signs a promissory note as a co-maker and binds herself to be jointly and
severally liable with the principal debtor in case the latter defaults in the payment of the loan,
is such undertaking of the former deemed to be that of a surety as an insurer of the debt, or of
a guarantor who warrants the solvency of the debtor?
Pursuant to a promissory note dated March 13, 1990, private respondent M.B. Lending
Corporation extended a loan to the spouses Osmeña and Merlyn Azarraga, together with
petitioner Estrella Palmares, in the amount of P30,000.00 payable on or before May 12, 1990,
with compounded interest at the rate of 6% per annum to be computed every 30 days from
the date thereof. 1 On four occasions after the execution of the promissory note and even after
the loan matured, petitioner and the Azarraga spouses were able to pay a total of P16,300.00,
thereby leaving a balance of P13,700.00. No payments were made after the last payment on
September 26, 1991. 2
Consequently, on the basis of petitioner's solidary liability under the promissory note,
respondent corporation filed a complaint 3 against petitioner Palmares as the lone party-
defendant, to the exclusion of the principal debtors, allegedly by reason of the insolvency of
the latter.
In her Amended Answer with Counterclaim, 4 petitioner alleged that sometime in August 1990,
immediately after the loan matured, she offered to settle the obligation with respondent
corporation but the latter informed her that they would try to collect from the spouses
Azarraga and that she need not worry about it; that there has already been a partial payment
in the amount of P17,010.00; that the interest of 6% per month compounded at the same rate
per month, as well as the penalty charges of 3% per month, are usurious and
unconscionable; and that while she agrees to be liable on the note but only upon default of
the principal debtor, respondent corporation acted in bad faith in suing her alone without
including the Azarragas when they were the only ones who benefited from the proceeds of the
loan.
During the pre-trial conference, the parties submitted the following issues for the resolution of
the trial court: (1) what the rate of interest, penalty and damages should be; (2) whether the
liability of the defendant (herein petitioner) is primary or subsidiary; and (3) whether the
defendant Estrella Palmares is only a guarantor with a subsidiary liability and not a co-maker
with primary liability. 5
Thereafter, the parties agreed to submit the case for decision based on the pleadings filed
and the memoranda to be submitted by them. On November 26, 1992, the Regional Trial
Court of Iloilo City, Branch 23, rendered judgment dismissing the complaint without prejudice
to the filing of a separate action for a sum of money against the spouses Osmeña and Merlyn
Azarraga who are primarily liable on the instrument. 6 This was based on the findings of the
court a quo that the filing of the complaint against herein petitioner Estrella Palmares, to the
exclusion of the Azarraga spouses, amounted to a discharge of a prior party; that the offer
made by petitioner to pay the obligation is considered a valid tender of payment sufficient to
discharge a person's secondary liability on the instrument; as co-maker, is only secondarily
liable on the instrument; and that the promissory note is a contract of adhesion.
Respondent Court of Appeals, however, reversed the decision of the trial court, and rendered
judgment declaring herein petitioner Palmares liable to pay respondent corporation:
1. The sum of P13,700.00 representing the outstanding balance still due and owing with interest at six
percent (6%) per month computed from the date the loan was contracted until fully paid;
2. The sum equivalent to the stipulated penalty of three percent (3%) per month, of the outstanding
balance;
3. Attorney's fees at 25% of the total amount due per stipulations;
4. Plus costs of suit. 7
Contrary to the findings of the trial court, respondent appellate court declared that petitioner
Palmares is a surety since she bound herself to be jointly and severally or solidarily liable with
the principal debtors, the Azarraga spouses, when she signed as a co-maker. As such,
petitioner is primarily liable on the note and hence may be sued by the creditor corporation for
the entire obligation. It also adverted to the fact that petitioner admitted her liability in her
Answer although she claims that the Azarraga spouses should have been impleaded.
Respondent court ordered the imposition of the stipulated 6% interest and 3% penalty
charges on the ground that the Usury Law is no longer enforceable pursuant to Central Bank
Circular No. 905. Finally, it rationalized that even if the promissory note were to be considered
as a contract of adhesion, the same is not entirely prohibited because the one who adheres to
the contract is free to reject it entirely; if he adheres, he gives his consent.
Hence this petition for review on certiorari wherein it is asserted that:
A. The Court of Appeals erred in ruling that Palmares acted as surety and is therefore solidarily liable to
pay the promissory note.
1. The terms of the promissory note are vague. Its conflicting provisions do not establish Palmares'
solidary liability.
2. The promissory note contains provisions which establish the co-maker's liability as that of a guarantor.
3. There is no sufficient basis for concluding that Palmares' liability is solidary.
4. The promissory note is a contract of adhesion and should be construed against M. B. Lending
Corporation.
5. Palmares cannot be compelled to pay the loan at this point.
B. Assuming that Palmares' liability is solidary, the Court of Appeals erred in strictly imposing the
interests and penalty charges on the outstanding balance of the promissory note.
The foregoing contentions of petitioner are denied and contradicted in their material points by
respondent corporation. They are further refuted by accepted doctrines in the American
jurisdiction after which we patterned our statutory law on surety and guaranty. This case then
affords us the opportunity to make an extended exposition on the ramifications of these two
specialized contracts, for such guidance as may be taken therefrom in similar local
controversies in the future.
The basis of petitioner Palmares' liability under the promissory note is expressed in this wise:
ATTENTION TO CO-MAKERS: PLEASE READ WELL

I, Mrs. Estrella Palmares, as the Co-maker of the above-quoted loan, have fully understood the contents
of this Promissory Note for Short-Term Loan:
That as Co-maker, I am fully aware that I shall be jointly and severally or solidarily liable with the above
principal maker of this note;
That in fact, I hereby agree that M.B. LENDING CORPORATION may demand payment of the above
loan from me in case the principal maker, Mrs. Merlyn Azarraga defaults in the payment of the note
subject to the same conditions above-contained. 8
Petitioner contends that the provisions of the second and third paragraph are conflicting in
that while the second paragraph seems to define her liability as that of a surety which is joint
and solidary with the principal maker, on the other hand, under the third paragraph her liability
is actually that of a mere guarantor because she bound herself to fulfill the obligation only in
case the principal debtor should fail to do so, which is the essence of a contract of guaranty.
More simply stated, although the second paragraph says that she is liable as a surety, the
third paragraph defines the nature of her liability as that of a guarantor. According to
petitioner, these are two conflicting provisions in the promissory note and the rule is that
clauses in the contract should be interpreted in relation to one another and not by parts. In
other words, the second paragraph should not be taken in isolation, but should be read in
relation to the third paragraph.
In an attempt to reconcile the supposed conflict between the two provisions, petitioner avers
that she could be held liable only as a guarantor for several reasons. First, the words "jointly
and severally or solidarily liable" used in the second paragraph are technical and legal terms
which are not fully appreciated by an ordinary layman like herein petitioner, a 65-year old
housewife who is likely to enter into such transactions without fully realizing the nature and
extent of her liability. On the contrary, the wordings used in the third paragraph are easier to
comprehend. Second, the law looks upon the contract of suretyship with a jealous eye and
the rule is that the obligation of the surety cannot be extended by implication beyond specified
limits, taking into consideration the peculiar nature of a surety agreement which holds the
surety liable despite the absence of any direct consideration received from either the principal
obligor or the creditor. Third, the promissory note is a contract of adhesion since it was
prepared by respondent M.B. Lending Corporation. The note was brought to petitioner
partially filled up, the contents thereof were never explained to her, and her only participation
was to sign thereon. Thus, any apparent ambiguity in the contract should be strictly construed
against private respondent pursuant to Art. 1377 of the Civil Code. 9
Petitioner accordingly concludes that her liability should be deemed restricted by the clause in
the third paragraph of the promissory note to be that of a guarantor.
Moreover, petitioner submits that she cannot as yet be compelled to pay the loan because the
principal debtors cannot be considered in default in the absence of a judicial or extrajudicial
demand. It is true that the complaint alleges the fact of demand, but the purported demand
letters were never attached to the pleadings filed by private respondent before the trial court.
And, while petitioner may have admitted in her Amended Answer that she received a demand
letter from respondent corporation sometime in 1990, the same did not effectively put her or
the principal debtors in default for the simple reason that the latter subsequently made a
partial payment on the loan in September, 1991, a fact which was never controverted by
herein private respondent.
Finally, it is argued that the Court of Appeals gravely erred in awarding the amount of
P2,745,483.39 in favor of private respondent when, in truth and in fact, the outstanding
balance of the loan is only P13,700.00. Where the interest charged on the loan is exorbitant,
iniquitous or unconscionable, and the obligation has been partially complied with, the court
may equitably reduce the penalty 10 on grounds of substantial justice. More importantly,
respondent corporation never refuted petitioner's allegation that immediately after the loan
matured, she informed said respondent of her desire to settle the obligation. The court should,
therefore, mitigate the damages to be paid since petitioner has shown a sincere desire for a
compromise. 11
After a judicious evaluation of the arguments of the parties, we are constrained to dismiss the
petition for lack of merit, but to except therefrom the issue anent the propriety of the monetary
award adjudged to herein respondent corporation.
At the outset, let it here be stressed that even assuming arguendo that the promissory note
executed between the parties is a contract of adhesion, it has been the consistent holding of
the Court that contracts of adhesion are not invalid per se and that on numerous occasions
the binding effects thereof have been upheld. The peculiar nature of such contracts
necessitate a close scrutiny of the factual milieu to which the provisions are intended to apply.
Hence, just as consistently and unhesitatingly, but without categorically invalidating such
contracts, the Court has construed obscurities and ambiguities in the restrictive provisions of
contracts of adhesion strictly albeit not unreasonably against the drafter thereof when justified
in light of the operative facts and surrounding circumstances. 12 The factual scenario obtaining
in the case before us warrants a liberal application of the rule in favor of respondent
corporation.
The Civil Code pertinently provides:
Art. 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.
It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulation shall control. 13 In the case at bar, petitioner expressly bound herself to be jointly
and severally or solidarily liable with the principal maker of the note. The terms of the contract
are clear, explicit and unequivocal that petitioner's liability is that of a surety.
Her pretension that the terms "jointly and severally or solidarily liable" contained in the second
paragraph of her contract are technical and legal terms which could not be easily understood
by an ordinary layman like her is diametrically opposed to her manifestation in the contract
that she "fully understood the contents" of the promissory note and that she is "fully aware" of
her solidary liability with the principal maker. Petitioner admits that she voluntarily affixed her
signature thereto; ergo, she cannot now be heard to claim otherwise. Any reference to the
existence of fraud is unavailing. Fraud must be established by clear and convincing evidence,
mere preponderance of evidence not even being adequate. Petitioner's attempt to prove fraud
must, therefore, fail as it was evidenced only by her own uncorroborated and, expectedly,
self-serving allegations. 14
Having entered into the contract with full knowledge of its terms and conditions, petitioner is
estopped to assert that she did so under a misapprehension or in ignorance of their legal
effect, or as to the legal effect of the undertaking. 15 The rule that ignorance of the contents of
an instrument does not ordinarily affect the liability of one who signs it also applies to
contracts of suretyship. And the mistake of a surety as to the legal effect of her obligation is
ordinarily no reason for relieving her of liability. 16
Petitioner would like to make capital of the fact that although she obligated herself to be jointly
and severally liable with the principal maker, her liability is deemed restricted by the
provisions of the third paragraph of her contract wherein she agreed "that M.B. Lending
Corporation may demand payment of the above loan from me in case the principal maker,
Mrs. Merlyn Azarraga defaults in the payment of the note," which makes her contract one of
guaranty and not suretyship. The purported discordance is more apparent than real.
A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the
debtor. 17 A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking
that the debtor shall pay. 18 Stated differently, a surety promises to pay the principal's 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. 19 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. 20 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. 21
Quintessentially, the undertaking to pay upon default of the principal debtor does not
automatically remove it from the ambit of a contract of suretyship. The second and third
paragraphs of the aforequoted portion of the promissory note do not contain any other
condition for the enforcement of respondent corporation's right against petitioner. It has not
been shown, either in the contract or the pleadings, that respondent corporation agreed to
proceed against herein petitioner only if and when the defaulting principal has become
insolvent. A contract of suretyship, to repeat, is that wherein one lends his credit by joining in
the principal debtor's obligation, so as to render himself directly and primarily responsible with
him, and without reference to the solvency of the principal. 22
In a desperate effort to exonerate herself from liability, petitioner erroneously invokes the rule
on strictissimi juris, which holds that when the meaning of a contract of indemnity or guaranty
has once been judicially determined under the rule of reasonable construction applicable to all
written contracts, then the liability of the surety, under his contract, as thus interpreted and
construed, is not to be extended beyond its strict meaning. 23 The rule, however, will apply only
after it has been definitely ascertained that the contract is one of suretyship and not a contract
of guaranty. It cannot be used as an aid in determining whether a party's undertaking is that of
a surety or a guarantor.
Prescinding from these jurisprudential authorities, there can be no doubt that the stipulation
contained in the third paragraph of the controverted suretyship contract merely elucidated on
and made more specific the obligation of petitioner as generally defined in the second
paragraph thereof. Resultantly, the theory advanced by petitioner, that she is merely a
guarantor because her liability attaches only upon default of the principal debtor, must
necessarily fail for being incongruent with the judicial pronouncements adverted to above.
It is a well-entrenched rule that in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall also be principally considered. 24 Several
attendant factors in that genre lend support to our finding that petitioner is a surety. For one,
when petitioner was informed about the failure of the principal debtor to pay the loan, she
immediately offered to settle the account with respondent corporation. Obviously, in her mind,
she knew that she was directly and primarily liable upon default of her principal. For another,
and this is most revealing, petitioner presented the receipts of the payments already made,
from the time of initial payment up to the last, which were all issued in her name and of the
Azarraga spouses. 25 This can only be construed to mean that the payments made by the
principal debtors were considered by respondent corporation as creditable directly upon the
account and inuring to the benefit of petitioner. The concomitant and simultaneous
compliance of petitioner's obligation with that of her principals only goes to show that, from
the very start, petitioner considered herself equally bound by the contract of the principal
makers.
In this regard, we need only to reiterate the rule that a surety is bound equally and absolutely
with the principal, 26 and as such is deemed an original promisor and debtor from the
beginning. 27 This is because in suretyship there is but one contract, and the surety is bound
by the same agreement which binds the principal. 28 In essence, the contract of a surety starts
with the agreement, 29 which is precisely the situation obtaining in this case before the Court.
It will further be observed that petitioner's undertaking as co-maker immediately follows the
terms and conditions stipulated between respondent corporation, as creditor, and the principal
obligors. A surety is usually bound with his principal by the same instrument, executed at the
same time and upon the same consideration; he is an original debtor, and his liability is
immediate and direct. 30 Thus, it has been held that where a written agreement on the same
sheet of paper with and immediately following the principal contract between the buyer and
seller is executed simultaneously therewith, providing that the signers of the agreement
agreed to the terms of the principal contract, the signers were "sureties" jointly liable with the
buyer. 31 A surety usually enters into the same obligation as that of his principal, and the
signatures of both usually appear upon the same instrument, and the same consideration
usually supports the obligation for both the principal and the surety. 32
There is no merit in petitioner's contention that the complaint was prematurely filed because
the principal debtors cannot as yet be considered in default, there having been no judicial or
extrajudicial demand made by respondent corporation. Petitioner has agreed that respondent
corporation may demand payment of the loan from her in case the principal maker defaults,
subject to the same conditions expressed in the promissory note. Significantly, paragraph (G)
of the note states that "should I fail to pay in accordance with the above schedule of payment,
I hereby waive my right to notice and demand." Hence, demand by the creditor is no longer
necessary in order that delay may exist since the contract itself already expressly so declares.
33
As a surety, petitioner is equally bound by such waiver.
Even if it were otherwise, demand on the sureties is not necessary before bringing suit
against them, since the commencement of the suit is a sufficient demand. 34 On this point, it
may be worth mentioning that a surety is not even entitled, as a matter of right, to be given
notice of the principal's default. Inasmuch as the creditor owes no duty of active diligence to
take care of the interest of the surety, his mere failure to voluntarily give information to the
surety of the default of the principal cannot have the effect of discharging the surety. The
surety is bound to take notice of the principal's default and to perform the obligation. He
cannot complain that the creditor has not notified
him in the absence of a special agreement to that effect in the contract of suretyship. 35
The alleged failure of respondent corporation to prove the fact of demand on the principal
debtors, by not attaching copies thereof to its pleadings, is likewise immaterial. In the absence
of a statutory or contractual requirement, it is not necessary that payment or performance of
his obligation be first demanded of the principal, especially where demand would have been
useless; nor is it a requisite, before proceeding against the sureties, that the principal be
called on to account. 36 The underlying principle therefor is that a suretyship is a direct contract
to pay the debt of another. A surety is liable as much as his principal is liable, and absolutely
liable as soon as default is made, without any demand upon the principal whatsoever or any
notice of default. 37 As an original promisor and debtor from the beginning, he is held ordinarily
to know every default of his principal. 38
Petitioner questions the propriety of the filing of a complaint solely against her to the exclusion
of the principal debtors who allegedly were the only ones who benefited from the proceeds of
the loan. What petitioner is trying to imply is that the creditor, herein respondent corporation,
should have proceeded first against the principal before suing on her obligation as surety. We
disagree.
A creditor's right to proceed against the surety exists independently of his right to proceed
against the principal. 39 Under Article 1216 of the Civil Code, the creditor may proceed against
any one of the solidary debtors or some or all of them simultaneously. The rule, therefore, is
that if the obligation is joint and several, the creditor has the right to proceed even against the
surety alone. 40 Since, generally, it is not necessary for the creditor to proceed against a
principal in order to hold the surety liable, where, by the terms of the contract, the obligation of
the surety is the same that of the principal, then soon as the principal is in default, the surety
is likewise in default, and may be sued immediately and before any proceedings are had
against the principal. 41 Perforce, in accordance with the rule that, in the absence of statute or
agreement otherwise, a surety is primarily liable, and with the rule that his proper remedy is to
pay the debt and pursue the principal for reimbursement, the surety cannot at law, unless
permitted by statute and in the absence of any agreement limiting the application of the
security, require the creditor or obligee, before proceeding against the surety, to resort to and
exhaust his remedies against the principal, particularly where both principal and surety are
equally bound. 42
We agree with respondent corporation that its mere failure to immediately sue petitioner on
her obligation does not release her from liability. Where a creditor refrains from proceeding
against the principal, the surety is not exonerated. In other words, mere want of diligence or
forbearance does not affect the creditor's rights vis-a-vis the surety, unless the surety requires
him by appropriate notice to sue on the obligation. Such gratuitous indulgence of the principal
does not discharge the surety whether given at the principal's request or without it, and
whether it is yielded by the creditor through sympathy or from an inclination to favor the
principal, or is only the result of passiveness. The neglect of the creditor to sue the principal at
the time the debt falls due does not discharge the surety, even if such delay continues until
the principal becomes insolvent. 43 And, in the absence of proof of resultant injury, a surety is
not discharged by the creditor's mere statement that the creditor will not look to the surety, 44
or that he need not trouble himself. 45 The consequences of the delay, such as the subsequent
insolvency of the principal, 46 or the fact that the remedies against the principal may be lost by
lapse of time, are immaterial. 47
The raison d'être for the rule is that there is nothing to prevent the creditor from proceeding
against the principal at any time. 48 At any rate, if the surety is dissatisfied with the degree of
activity displayed by the creditor in the pursuit of his principal, he may pay the debt himself
and become subrogated to all the rights and remedies of the creditor. 49
It may not be amiss to add that leniency shown to a debtor in default, by delay permitted by
the creditor without change in the time when the debt might be demanded, does not constitute
an extension of the time of payment, which would release the surety. 50 In order to constitute
an extension discharging the surety, it should appear that the extension was for a definite
period, pursuant to an enforceable agreement between the principal and the creditor, and that
it was made without the consent of the surety or with a reservation of rights with respect to
him. The contract must be one which precludes the creditor from, or at least hinders him in,
enforcing the principal contract within the period during which he could otherwise have
enforced it, and which precludes the surety from paying the debt. 51
None of these elements are present in the instant case. Verily, the mere fact that respondent
corporation gave the principal debtors an extended period of time within which to comply with
their obligation did not effectively absolve here in petitioner from the consequences of her
undertaking. Besides, the burden is on the surety, herein petitioner, to show that she has
been discharged by some act of the creditor, 52 herein respondent corporation, failing in which
we cannot grant the relief prayed for.
As a final issue, petitioner claims that assuming that her liability is solidary, the interests and
penalty charges on the outstanding balance of the loan cannot be imposed for being illegal
and unconscionable. Petitioner additionally theorizes that respondent corporation intentionally
delayed the collection of the loan in order that the interests and penalty charges would
accumulate. The statement, likewise traversed by said respondent, is misleading.
In an affidavit 53 executed by petitioner, which was attached to her petition, she stated, among
others, that:
8. During the latter part of 1990, I was surprised to learn that Merlyn Azarraga's loan has been released
and that she has not paid the same upon its maturity. I received a telephone call from Mr. Augusto
Banusing of MB Lending informing me of this fact and of my liability arising from the promissory note
which I signed.
9. I requested Mr. Banusing to try to collect first from Merlyn and Osmeña Azarraga. At the same time, I
offered to pay MB Lending the outstanding balance of the principal obligation should he fail to collect
from Merlyn and Osmeña Azarraga. Mr. Banusing advised me not to worry because he will try to collect
first from Merlyn and Osmeña Azarraga.
10. A year thereafter, I received a telephone call from the secretary of Mr. Banusing who reminded that
the loan of Merlyn and Osmeña Azarraga, together with interest and penalties thereon, has not been
paid. Since I had no available funds at that time, I offered to pay MB Lending by delivering to them a
parcel of land which I own. Mr. Banusing's secretary, however, refused my offer for the reason that they
are not interested in real estate.
11. In March 1992, I received a copy of the summons and of the complaint filed against me by MB
Lending before the RTC-Iloilo. After learning that a complaint was filed against me, I instructed Sheila
Gatia to go to MB Lending and reiterate my first offer to pay the outstanding balance of the principal
obligation of Merlyn Azarraga in the amount of P30,000.00.
12. Ms. Gatia talked to the secretary of Mr. Banusing who referred her to Atty. Venus, counsel of MB
Lending.
13. Atty. Venus informed Ms. Gatia that he will consult Mr. Banusing if my offer to pay the outstanding
balance of the principal obligation loan (sic) of Merlyn and Osmeña Azarraga is acceptable. Later, Atty.
Venus informed Ms. Gatia that my offer is not acceptable to Mr. Banusing.
The purported offer to pay made by petitioner can not be deemed sufficient and substantial in
order to effectively discharge her from liability. There are a number of circumstances which
conjointly inveigh against her aforesaid theory.
1. Respondent corporation cannot be faulted for not immediately demanding payment from
petitioner. It was petitioner who initially requested that the creditor try to collect from her
principal first, and she offered to pay only in case the creditor fails to collect. The delay, if any,
was occasioned by the fact that respondent corporation merely acquiesced to the request of
petitioner. At any rate, there was here no actual offer of payment to speak of but only a
commitment to pay if the principal does not pay.
2. Petitioner made a second attempt to settle the obligation by offering a parcel of land which
she owned. Respondent corporation was acting well within its rights when it refused to accept
the offer. The debtor of a thing cannot compel the creditor to receive a different one, although
the latter may be of the same value, or more valuable than that which is due. 54 The obligee is
entitled to demand fulfillment of the obligation or performance as stipulated. A change of the
object of the obligation would constitute novation requiring the express consent of the parties.
55
3. After the complaint was filed against her, petitioner reiterated her offer to pay the
outstanding balance of the obligation in the amount of P30,000.00 but the same was likewise
rejected. Again, respondent corporation cannot be blamed for refusing the amount being
offered because it fell way below the amount it had computed, based on the stipulated
interests and penalty charges, as owing and due from herein petitioner. 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. 56 In other words, the prestation
must be fulfilled completely. A person entering into a contract has a right to insist on its
performance in all particulars. 57
Petitioner cannot compel respondent corporation to accept the amount she is willing to pay
because the moment the latter accepts the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection, then the obligation shall be
deemed fully complied with. 58 Precisely, this is what respondent corporation wanted to avoid
when it continually refused to settle with petitioner at less than what was actually due under
their contract.
This notwithstanding, however, we find and so hold that the penalty charge of 3% per month
and attorney's fees equivalent to 25% of the total amount due are highly inequitable and
unreasonable.
It must be remembered that from the principal loan of P30,000.00, the amount of P16,300.00
had already been paid even before the filing of the present case. Article 1229 of the Civil
Code provides that the court shall equitably reduce the penalty when the principal obligation
has been partly or irregularly complied with by the debtor. And, even if there has been no
performance, the penalty may also be reduced if it is iniquitous or leonine.
In a case previously decided by this Court which likewise involved private respondent M.B.
Lending Corporation, and which is substantially on all fours with the one at bar, we decided to
eliminate altogether the penalty interest for being excessive and unwarranted under the
following rationalization:
Upon the matter of penalty interest, we agree with the Court of Appeals that the economic impact of the
penalty interest of three percent (3 %) per month on total amount due but unpaid should be equitably
reduced. The purpose for which the penalty interest is intended — that is, to punish the obligor — will
have been sufficiently served by the effects of compounded interest. Under the exceptional
circumstances in the case at bar, e.g., the original amount loaned was only P15,000.00; partial payment
of P8,600.00 was made on due date; and the heavy (albeit still lawful) regular compensatory interest, the
penalty interest stipulated in the parties' promissory note is iniquitous and unconscionable and may be
equitably reduced further by eliminating such penalty interest altogether. 59
Accordingly, the penalty interest of 3% per month being imposed on petitioner should similarly
be eliminated.
Finally, with respect to the award of attorney's fees, this Court has previously ruled that even
with an agreement thereon between the parties, the court may nevertheless reduce such
attorney's fees fixed in the contract when the amount thereof appears to be unconscionable
or unreasonable. 60 To that end, it is not even necessary to show, as in other contracts, that it
is contrary to morals or public policy. 61 The grant of attorney's fees equivalent to 25% of the
total amount due is, in our opinion, unreasonable and immoderate, considering the minimal
unpaid amount involved and the extent of the work involved in this simple action for collection
of a sum of money. We, therefore, hold that the amount of P10,000.00 as and for attorney's
fee would be sufficient in this case. 62
WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to the

MODIFICATION that the penalty interest of 3% per month is hereby deleted and the award of
attorney's fees is reduced to P10,000.00.
SO ORDERED.
Melo, Puno, Mendoza and Martinez, JJ., concur.
Footnotes
1 Annex C, Petition; Rollo, 49.
2 Rollo, 38.
3 Annex D, id., ibid., 51.
4 Annex H, id., ibid., 69.
5 Rollo, 76.
6 Annex I, Petition; Rollo, 73; penned by Presiding Judge Tito G. Gustilo.
7 Annex A, id., ibid., 36; Associate Justice Jose C. de la Rama, ponente, with Associate Justices
Emeterio C. Cui and Eduardo G. Montenegro, concurring.
8 Rollo, 50.
9 Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity.
10 Article 1229, Civil Code.
11 Citing Article 2031, id.
12 Philippine Airlines, Inc. vs. Court of Appeals, et al., G.R. No. 119706, March 14, 1996, 255
SCRA 48.
13 Abella vs. Court of Appeals, et al., G.R. No. 107606, June 20, 1996, 257 SCRA 482.
14 Inciong, Jr., vs. Court of Appeals, et al., G.R. No. 96405, June 26, 1996, 257 SCRA 578.
15 72 CJS, Principal and Surety, § 83, 565.
16 Churchill vs. Bradley, 5 A. 189.
17 Northern State Bank of Grand Forks vs. Bellamy, 125 N.W. 888.
18 Shearer vs. R.S. Peele & Co., 36 N.E. 455.
19 W.T. Rawleigh Co. vs. Overstreet, et al., 32 S.E. 2d 574.
20 Manry vs. Waxelbaum Co., 33 S.E. 701.
21 40A Words and Phrases 429.
22 Erbelding vs. Noland, Co., Inc., 64 S.E. 2d 218.
23 Covey, et al. vs. Schiesswohl, 114 P. 292.

25 Rollo, 67-68.
26 18A Words and Phrases 657.
27 Hall, et al. vs. Weaver, 34 F. 104.
28 Howell vs. Commissioner of Internal Revenue, 69 F, 2d 447.
29 Shores-Mueller Co. vs. Palmer, et al., 216 S.W. 295.
30 Treweek vs. Howard, et al., 39 P. 20.
31 W.T. Rawleigh Co. vs. Overstreet, et al., 32 S.E. 2d 574.
32 Liquidating Midland Bank vs. Stecker, et al., 179 N.E. 504.
34 Rowe, et al. vs. Bank of New Brockton, 92 So. 643.
35 74 Am Jur 2d, Principal and Surety, § 35, 36.
36 Smith vs. US, 8 L Ed 130.
37 Rouse, et al. vs. Wooten, 53 S.E. 430.
38 Hall vs. Weaver, 34 F. 104.
39 Christenson vs. Diversified Builders, Inc., et al., 331 F. 2d 992.
40 74 Am Jur 2d, Principal and Surety, § 144, 103.
41 Standard Accident Insurance Co. vs. Standard Oil Co., 133 So. 2d 539; School District No.
65 of Lincoln County vs. Universal Surety Co., 135 N.W. 2d 232; Depot Realty Syndicate vs.
Enterprise Brewing Co., 171 P. 223.
42 72 CJS, Principal and Surety, § 287, 744-745.
43 74 Am Jur 2d, Principal and Surety, § 68, 53-54.
44 First National Bank of Huntington vs. Williams, et al., 26 N.E. 75.
45 National Bank of Commerce vs. Gilvin, 152 S.W. 652.
46 Kerby, et al. vs. State ex rel. Frohmiller, 157 P. 2d 698.
48 Scott vs. Gaulding, et al., 122 ALR 200.

49 74 Am Jur 2d, Principal and Surety, § 68 53.
50 Ibid., id., §59, 48-49.
52 Op. cit., § 270, 723.
53 Annex E, Petition; Rollo, 54.
55 Padilla, A., Civil Code Annotated, Vol. IV, 1987 ed., 434.
57 Tolentino, A., Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. IV,
1986 ed., 280.
59 Magallanes, et al. vs. Court of Appeals, et al., G.R. No. 112614, May 16, 1994, Third Division,
Minute Resolution.
60 Security Bank & Trust Co., et al. vs. Court of Appeals, et al., G.R. No. 117009, October 11,
1995, 249 SCRA 206.
61 Medco Industrial Corporation, et al. vs. The Hon. Court of Appeals, et al., G.R. No. 84610,
November 24, 1988, 167 SCRA 838.
62 Supra, fn. 59.
G.R. No. 100594. March 10, 1993.]
BINALBAGAN TECH. INC., and HERMILO J. NAVA, petitioners, vs. THE COURT OF APPEALS,
MAGDALENA L. PUENTEVELLA, ANGELINA P. ECHAUS, ROMULO L. PUENTEVELLA,
RENATO L. PUENTEVELLA, NOLI L. PUENTEVELLA and NELIA LOURDES P. JACINTO,
respondents.
Mateo Valenzuela for petitioners.
Hilado, Hagad & Hilado for private respondents.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTY CANNOT DEMAND

PERFORMANCE OF AN OBLIGATION UNLESS HE IS IN A POSITION TO COMPLY WITH HIS
OWN OBLIGATIONS. — A party to a contract cannot demand performance of the other party's
obligations unless he is in a position to comply with his own obligations. Similarly, the right to rescind
a contract can be demanded only if a party thereto is ready, willing and able to comply with his own
obligations thereunder (Art. 1191, Civil Code; Seva vs. Berwin, 48 Phil. 581 [1926]; Paras, Civil Code
of the Philippines, 12th ed. Vol. IV, p. 200). In a contract of sale, the vendor is bound to transfer the
ownership of and deliver, as well as warrant, the thing which is the object of the sale (Art. 1495, Civil
Code); he warrants that the buyer shall, from the time ownership is passed, have and enjoy the legal
and peaceful possession of the thing.
2. ID.; PRESCRIPTIVE PERIOD WITHIN WHICH TO INSTITUTE ACTION UPON A WRITTEN

CONTRACT; CASE AT BAR. — The prescriptive period within which to institute an action upon a
written contract is ten years (Art. 1144, Civil Code). The cause of action of private respondent Echaus
is based on the deed of sale executed on May 11, 1967, whereby ownership of the subdivision lots was
transferred to petitioner. She filed Civil Case No. 1354 for recovery of title and damages only on
October 8, 1982. From May 11, 1967 to October 8, 1982, more than fifteen (15) years elapsed.
Seemingly, the 10-year prescriptive period had expired before she brought her action to recover title.
However, the period 1974 to 1982 should be deducted in computing the prescriptive period for the
reason that from 1974 to 1982, private respondent Echaus was not in a legal position to initiate action
against petitioner since as aforestated, through no fault of hers, her warranty against eviction was
breached. Deducting eight years (1974 to 1982) from the period 1967 to 1982, only seven years
elapsed. Consequently, Civil Case No. 1354 was filed within the 10-year prescriptive period.
DECISION
MELO, J p:
The petition for review on certiorari now before us seeks to reverse the decision of the Court of
Appeals promulgated on March 27, 1991 in CA-G.R. CV No. 24635 (de Pano, Cacdac (P), and
Vailoces, JJ .).
The facts of the case, as borne out by the record, are as follows:
On May 11, 1967, private respondents, through Angelina P. Echaus, in her capacity as Judicial
Administrator of the intestate estate of Luis B. Puentevella, executed a Contract to Sell and a Deed of
Sale of forty-two subdivision lots within the Phib-Khik Subdivision of the Puentebella family,
conveying and transferring said lots to petitioner Binalbagan Tech., Inc. (hereinafter referred to as
Binalbagan). In turn Binalbagan, through its president, petitioner Hermilio J. Nava (hereinafter referred
to as Nava), executed an Acknowledgment of Debt with Mortgage Agreement, mortgaging said lots in
favor of the estate of Puentebella.
Upon the transfer to Binalbagan of titles to the 42 subdivision lots, said petitioner took possession of
the lots and the building and improvements thereon. Binalbagan started operating a school on the
property from 1967 when the titles and possession of the lots were transferred to it.
It appears that there was a pending case, Civil Case No. 7435 of Regional Trial Court stationed at
Himamaylan, Negros Occidental. Relative to said case we shall quote the findings of fact of the Court
of Appeals in its decision dated October 30, 1978 in CA-G.R. No. 4211-R:
To have a better perspective of the background facts leading to the filing of this instant case on appeal,
there is a need to make reference to the circumstances surrounding the filing of Civil Case No. 7435, to
wit:
The intestate estate of the late Luis B. Puentebella as registered owner of several subdivision lots,
specifically mentioned in paragraph 2 of plaintiffs' complaint, thru Judicial Administratrix, Angelina L.
Puentevella sold said aforementioned lots to Raul Javellana with the condition that the vendee-
promisee would not transfer his rights to said lots without the express consent of Puentevella and that
in case of the cancellation of the contract by reason of the violation of any of the terms thereof, all
payments therefor made and all improvements introduced on the property shall pertain to the promissor
and shall be considered as rentals for the use and occupation thereof.
Javellana having failed to pay the installments for a period of five years, Civil Case No. 7435 was filed
by defendant Puentevella against Raul Javellana and the Southern Negros Colleges which was
impleaded as a party defendant it being in actual possession thereof, for the rescission of their contract
to sell and the recovery of possession of the lots and buildings with damages.
Accordingly, after trial, judgment was rendered in favor of Puentevella and thereafter, defendants
Deputy Sheriffs served a copy of the writ of execution on the Acting Director of the Southern Negros
College and delivered possession of the lots and buildings to defendant Puentevella's representative,
Mrs. Manuel Gentapanan, and further levied execution on the books and school equipment, supplies,
library, apparatus, etc. to satisfy the monetary portion of the judgment under execution on October 27,
1967. Said books, equipment, etc. as reflected in the Depositary Receipt, (Exh. "B") dated October 28,
1965, were delivered by the Sheriffs to the Acting Director of the Southern Negros College as
depositary of the same.
Came December 29, 1965 when the plaintiffs in the instant case on appeal filed their Third-Party Claim
based on an alleged Deed of Sale executed in their favor by spouses Jose and Lolita Lopez, thus
Puentevella was constrained to assert physical possession of the premises to counteract the fictitious
and unenforceable claim of herein plaintiffs.
Upon the filing of the instant case for injunction and damages on January 3, 1966, an ex-parte writ of
preliminary injunction was issued by the Honorable Presiding Judge Carlos Abiera, which order,
however, was elevated to the Honorable Court of Appeals which issued a writ of preliminary injunction
ordering Judge Carlos Abiera or any other persons or persons in his behalf to refrain from further
enforcing the injunction issued by him in this case and from further issuing any other writs or
prohibitions which would in any manner affect the enforcement of the judgment rendered in Civil Case
7435, pending the finality of the decision of the Honorable Court of Appeals in the latter case. Thus,
defendant Puentevella was restored to the possession of the lots and buildings subject of this case.
However, plaintiffs filed a petition for review with the Supreme Court which issued a restraining order
against the sale of the properties claimed by the spouses-plaintiffs [in Abierra vs. Court of Appeals, 45
SCRA 314].
When the Supreme Court dissolved the aforesaid injunction issued by the Court of Appeals, possession
of the building and other property was taken from petitioner Binalbagan and given to the third-party
claimants, the de la Cruz spouses. Petitioner Binalbagan transferred its school to another location. In
the meantime, an appeal was interposed by the defendants in Civil Case No. 293 with the Court of
Appeals where the appeal was docketed as CA-G.R. No. 42211-R. On October 30, 1978, the Court of
Appeals rendered judgment, reversing the appealed decision in Civil Case No. 293. On April 29, 1981,
judgment was entered in CA-G.R. No. 42211, and the record of the case was remanded to the court of
origin on December 22, 1981. Consequently, in 1982 the judgment in Civil Case No. 7435 was finally
executed and enforced, and petitioner was restored to the possession of the subdivision lots on May 31,
1982. It will be noted that petitioner was not in possession of the lots from 1974 to May 31, 1982.
After petitioner Binalbagan was again placed in possession of the subdivision lots, private respondent
Angelina Echaus demanded payment from petitioner Binalbagan for the subdivision lots, enclosing in
the letter of demand a statement of account as of September 1982 showing a total amount due of
P367,509.93, representing the price of the land and accrued interest as of that date.
As petitioner Binalbagan failed to effect payment, private respondent Angelina P. Echaus filed on
October 8, 1982 Civil Case No. 1354 of the Regional Trial Court of the Sixth Judicial Region stationed
in Himamaylan, Negros Occidental against petitioners for recovery of title and damages. An amended
complaint was filed by private respondent Angelina P. Echaus by including her mother, brothers, and
sisters as co-plaintiffs, which was admitted by the trial court on March 18, 1983.
After trial, the trial court rendered a decision on August 30, 1989, the dispositive portion of which reads
as follows:
IN VIEW OF THE FOREGOING, and inasmuch as there is no fraud and since the action on the written
contract, Exh. "C", has long prescribed, judgment is hereby rendered in favor of the defendants and
against the plaintiffs dismissing the amended complaint.
The counterclaim is likewise dismissed for lack of sufficient proof. Each shall bear their respective
expenses of litigation (pp. 71-72, Rollo).
Private respondents appealed to the Court of Appeals which rendered a decision on March 27, 1991,
disposing:
WHEREFORE, premises considered, the appealed decision is REVERSED and SET ASIDE and a new
one is rendered ordering the appellee Binalbagan Tech. Inc., through any of its officers, to execute a
deed of conveyance or any other instrument, transferring and returning unto the appellants the
ownership and titles of the subject 42 subdivision lots. Costs against appellees. (pp. 51-52, Rollo)
Thus, this petition for review on certiorari wherein petitioners assign the following alleged errors of the
Court of Appeals:
First Error
The Court of Appeals erred in holding that the cause of action of the respondents has not prescribed.
Second Error
The Court of Appeals erred in holding that Civil Case No. 293 interrupts the running of the period of
the prescription.
Third Error
The Court of Appeals erred in citing the cases of David-Garlitos and Rivero vs. Rivero to support its
contention that the period of prescription was interrupted in the case at bar.
Fourth Error
The finding of facts of the Honorable Court of Appeals in reversing the lower court decision has no
basis and is contradicted by the evidence on record of the case at bar as well as the admission of
parties." (p. 16, Rollo)
The main issue of this case is: Whether private respondents' cause of action in Civil Case No. 1354 is
barred by prescription.
On this point the Court of Appeals held:
As it is evident that there was an interruption during the period from 1974 up to 1982, the period of
prescription, as correctly maintained by the appellants, was tolled during such period, due to the
injunctive writ in Civil Case No. 293 as discussed earlier when the vendors could not maintain the
vendee in possession, and consequently was in no position to legally demand payment of the price.
Accordingly, while it may be conceded that appellants' cause of action to demand performance had
accrued on June 10, 1967 due to the appellee institution's default in the payment of the first installment
which became due on that date, the running of prescription was interrupted in 1974 when, from the
words of the lower court itself, "the Supreme Court reversed the Court of Appeal's decision and
dissolved the injunction which the latter court had earlier issued in Civil Case No. 293, possession of
the building and other properties was taken from defendant Binalbagan Tech. Inc. and given to the de la
Cruz spouses, through Southern Negros College". And the period of prescription commenced to run
anew only on May 31, 1982 when the appellants were finally able to fully implement the already
executory judgment in Case No. 7435, and thus restore appellees in possession of the 42 subdivision
lots.
In other words, the period of prescription was interrupted, because from 1974 up to 1982, the
appellants themselves could not have restored unto the appellees the possession of the 42 subdivision
lots precisely because of the preliminary injunction mentioned elsewhere. Consequently, the appellants
could not have prospered in any suit to compel performance or payment from the appellees-buyers,
because the appellants themselves were in no position to perform their own corresponding obligation to
deliver to and maintain said buyers in possession of the lots subject matter of the sale. (Article 1458,
1495, 1537, Civil Code). (pp 49-50, Rollo)
We agree with the Court of Appeals.
A party to a contract cannot demand performance of the other party's obligations unless he is in a
position to comply with his own obligations. Similarly, the right to rescind a contract can be demanded
only if a party thereto is ready, willing and able to comply with his own obligations thereunder (Art.
1191, Civil Code; Seva vs. Berwin, 48 Phil. 581 [1926]; Paras, Civil Code of the Philippines, 12th ed.
Vol. IV, p. 200). In a contract of sale, the vendor is bound to transfer the ownership of and deliver, as
well as warrant, the thing which is the object of the sale (Art. 1495, Civil Code); he warrants that the
buyer shall, from the time ownership is passed, have and enjoy the legal and peaceful possession of the
thing —
ARTICLE 1547. In a contract of sale, unless a contrary intention appears, there is:
(1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the
ownership is to pass, and that the buyer shall from that time have and enjoy the legal and peaceful
possession of the thing.
xxx xxx xxx
As afore-stated, petitioner was evicted from the subject subdivision lots in 1974 by virtue of a court
order in Civil Case No. 293 and reinstated to the possession thereof only in 1982. During the period,
therefore, from 1974 to 1982, seller private respondent Angelina Echaus' warranty against eviction
given to buyer petitioner was breached though, admittedly, through no fault of her own. It follows that
during that period, 1974 to 1982, private respondent Echaus was not in a legal position to demand
compliance of the prestation of petitioner to pay the price of said subdivision lots. In short, her right to
demand payment was suspended during that period, 1974-1982.
The prescriptive period within which to institute an action upon a written contract is ten years (Art.
1144, Civil Code). The cause of action of private respondent Echaus is based on the deed of sale
aforementioned. The deed of sale whereby private respondent Echaus transferred ownership of the
subdivision lots was executed on May 11, 1967. She filed Civil Case No. 1354 for recovery of title and
damages only on October 8, 1982. From May 11, 1967 to October 8, 1982, more than fifteen (15) years
elapsed. Seemingly, the 10-year prescriptive period had expired before she brought her action to
recover title. However, the period 1974 to 1982 should be deducted in computing the prescriptive
period for the reason that, as above discussed, from 1974 to 1982, private respondent Echaus was not in
a legal position to initiate action against petitioner since as aforestated, through no fault of hers, her
warranty against eviction was breached. In the case of Daniel vs. Garlitos, (95 Phil. 387 [1954]), it was
held that a court order deferring action on the execution of judgment suspended the running of the 5-
year period for execution of a judgment. Here the execution of the judgment in Civil Case No. 7435
was stopped by the writ of preliminary injunction issued in Civil Case No. 293. It was only when Civil
Case No. 293 was dismissed that the writ of execution in Civil Case Na. 7435 could be implemented
and petitioner Binalbagan restored to the possession of the subject lots.
Deducting eight years (1974 to 1982) from the period 1967 to 1982, only seven years elapsed.
Consequently, Civil Case No. 1354 was filed within the 10-year prescriptive period. Working against
petitioner's position too is the principle against unjust enrichment which would certainly be the result if
petitioner is allowed to own the 42 lots without full payment thereof.
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No.
24635 is AFFIRMED.
SO ORDERED.
Feliciano, Bidin, Davide, Jr. and Romero, JJ ., concur.
Gutierrez, Jr., J ., on terminal leave.
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.
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 than usual because it came from a delivery of materials in Langcaan,
Dasmarinas, Cavite. 6 Significantly, 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.
Padilla, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.
Footnotes
1 Assigned to RTC-Br. 21, Imus, Cavite, presided over by Judge Roy S. del Rosario, Rollo, p.
68.
2 Decision penned by Justice Manuel C. Herrera, concurred in by Justices Cezar D. Francisco

and Buenaventura J. Guerrero, Rollo, p. 38.
3 Art. 1170, Civil Code.
4 TSN, 6 December 1991, pp. 22-23.
5 TSN, 19 September 1991, p. 47.
6 TSN, 6 December 1991, p. 35.
7 Art. 1169, last par., Civil Code.
8 Dichoso v. Court of Appeals, G.R. No. 55613, 10 December 1990, 192 SCRA 169; People v.
Rosario, G.R. No. 108789, 18 July 1995, 246 SCRA 658.
9 Philippine Airlines, Inc. v. Court of Appeals, G.R. Nos. 50504-05, 13 August 1990, 188 SCRA
461.
G.R. No. 164186 October 4, 2010
FINANCIAL BUILDING CORPORATION,

vs.
CORPORATION, BLOOMFIELD EDUCATIONAL FOUNDATION, INC., RODOLFO J.
LAGERA, MA. ERLINDA J. LAGERA AND JOSAPHAT R. BRAVANTE, RUDLIN
INTERNATIONAL Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 164347
RUDLIN INTERNATIONAL CORPORATION, BLOOMFIELD EDUCATIONAL

FOUNDATION, INC., RODOLFO J. LAGERA, MA. ERLINDA J. LAGERA AND JOSAPHAT
R. BRAVANTE, Petitioners,
vs.
FINANCIAL BUILDING CORPORATION, Respondent.
DECISION
VILLARAMA, JR., J.:
The present consolidated petitions for review under Rule 45 assail the Decision1 dated December 12,
2003 of the Court of Appeals (CA) in CA-G.R. CV No. 41224 which affirmed with modification the
Decision2 dated January 12, 1993 of the Regional Trial Court (RTC) of Makati City, Branch 65 in Civil
Case No. 16266.
The Facts
Sometime in October 1985, Rudlin International Corporation (Rudlin) invited proposals from several
contractors to undertake the construction of a three-storey school building and other appurtenances
thereto at Vista Grande, BF Resort Village, Las Piñas, Metro Manila. The contract was eventually
awarded to Financial Building Corporation (FBC), with a bid of P6,933,268.00 as total project cost. On
November 22, 1985, Rudlin represented by its Chairman of the Board and President Rodolfo J. Lagera,
and FBC represented by its Vice-President and Treasurer Jaime B. Lo, executed a Construction
Agreement3 which, among others, provided for the total consideration and liability for delay as follows:
SECTION FOUR
CONTRACT PRICE
The OWNER agrees to pay the CONTRACTOR, for the work stated in Section Two hereof, the total
price of SIX MILLION NINE HUNDRED THIRTY THREE THOUSAND TWO HUNDRED SIXTY
EIGHT PESOS (P6,933,268.00) in accordance with Section five et seq. Payment of this amount is
subject to additions or deductions in accordance with the provisions of this Agreement and of the other
documents to which this Agreement is made subject to.4
xxxx
SECTION TWELVE
TIME OF ESSENCE; EXTENSION OF TIME
Time is of the essence in this Agreement and any delay not due to force majeure will result in injury
and damage to the OWNER in view of which it is hereby stipulated that, in the completion of the work,
the CONTRACTOR shall be liable to the OWNER in the sum equivalent to 1/10 of 1% of the total
contract price for every calendar day of delay (Sundays and Legal Holidays included). Any sums
accruing in favor of the OWNER under this provision shall be deductible from the stipulated Contract
Price or any balance thereof due to the CONTRACTOR.5
The contract also provided for completion date not later than April 30, 1986 unless an extension of time
has been "authorized and approved by the OWNER and the ARCHITECT in writing."6 It appears that
the construction was not finished on said date as Rudlin wrote FBC to complete the project not later
than May 31, 1986, except for the administration wing which Rudlin expected to be turned over to it
"100% complete by June 10, 1986."7
On June 5, 1986, Rudlin and FBC made amendments to their Construction Agreement dated November
22, 1985 through a Letter-Agreement8 signed by Rodolfo J. Lagera and Jaime B. Lo, as follows:
1. Financial Building Corporation ("FBC") shall complete and deliver the Project to Rudlin
International, Inc. ("RII") on or before 10 June 1986.
2. Payment of the balance due on the contract price shall be made after the parties have
reconciled their accounts with regard to the upgrading and downgrading of the work done on
the Project, which reconciliation shall be settled not later than 30 June 1986.
3. RII shall pay FBC the unpaid balance as determined under paragraph 2 hereof, under the
following terms and conditions:
(a) RII shall pay FBC an additional payment of Two Hundred Fifty Thousand Pesos
(P250,000.00) upon signing hereof, receipt of which is hereby acknowledged. This is in
addition to the Two Hundred Fifty Thousand Pesos (P250,000.00) paid on 29 May 1986.
(b) The rest of the unpaid balance shall be payable within a period of ninety (90) days
from the date the said balance is determined in accordance with paragraph 2 hereof,
adequately secured by post dated checks and the same to earn interest at the prevailing
bank rates. There shall be a moratorium of thirty (30) days, the payments to be made in
accordance with the following schedule:
On or before 15 July 1986 -25%On or before 31 July 1986 -25%On or before 15 August 1986 -25%On
or before 31 August 1986 -25%
TOTAL
PAYMENTS DUE -100%This Letter-Agreement amends the corresponding provisions of the
Construction Agreement dated 22 November 1985, except that Section 12 thereof is hereby waived.9
(Emphasis supplied.)
On June 15, 1986, the subject school building, "Bloomfield Academy," was inaugurated and utilized by
Rudlin upon the start of the school year. From the exchange of correspondence between FBC and
Rudlin, it can be gleaned that no reconciliation of accounts took place pursuant to the Letter-Agreement
dated June 5, 1986. FBC demanded payment of the balance of the adjusted contract price per its
computation, but it was not heeded by Rudlin.
On March 10, 1987, FBC filed in the RTC a suit for a sum of money with prayer for preliminary
attachment against Rudlin, Bloomfield Educational Foundation, Inc. (Bloomfield) and their officers,
directors or stockholders, namely: Rodolfo J. Lagera, Ma. Erlinda J. Lagera and Josaphat R. Bravante.
FBC alleged that the total and final contract price, inclusive of additives and deductives which are
covered by valid documents, is P7,324,128.44; that Rudlin paid FBC only P4,874,920.14, thus leaving
a balance of P2,449,208.30; and that despite repeated demands by FBC, Rudlin refused to pay its
obligations. FBC further prayed for legal interest on the amount of P2,449,208.30 from the time it
became due and demandable, attorney’s fees equivalent to 25% of the total amount due, moral and
exemplary damages and the cost of suit.10
The trial court granted the prayer for preliminary attachment but before the sheriff could implement the
writ issued by the court, Rudlin filed the proper counter bond.
In their Answer with Counterclaim,11 defendants denied the allegations of the complaint. Rudlin
averred that the Construction Agreement did not reflect the true contract price agreed upon, which is
P6,006,965.00. The amount of P6,933,268.00, which is FBC’s bid price, was indicated in the
Construction Agreement solely for the purpose of obtaining a higher amount of loan from the Bank of
Philippine Islands (BPI). The execution of said document was made with the understanding between
FBC and Rudlin that the contract price stated therein would be decreased to a mutually acceptable
contract price. However, due to inadvertence, the parties forgot to sign an agreement fixing the true
contract price.
Rudlin also denied that the construction of the project was completed by FBC. The original completion
date, April 30, 1986, was later moved to June 10, 1986. But despite the extension given by Rudlin, FBC
still has not completed the project. Neither did FBC deliver to Rudlin a complete release of all liens
arising out of the Construction Agreement or receipts in full in lieu thereof, as well as an affidavit that
the releases and receipts include all the labor, interests and equipment for which a claim or action can
be filed, as required under Section Eight of the Construction Agreement. In fact, for non-payment by
FBC of one of its sub-contractors, Rudlin was sued as a co-defendant with FBC in Civil Case No.
15734 pending before the RTC of Makati, Branch 138.
Rudlin likewise claimed that many portions of the work performed by FBC are incomplete and/or
faulty, defective and deficient (valued at P1,180,127.35), for which reason Architect Eduardo R.
Quezon has not certified on the full performance and completion of the project. The work done by FBC
was thus not accepted by Rudlin for valid reasons. Rudlin had already paid FBC the total amount of
P5,564,219.58. After considering the 10% retention money and the value of additives and deductives,
Rudlin had actually overpaid FBC by P415,701.34. Clearly, Rudlin does not owe FBC the amount
stated in its Complaint; FBC likewise had sent a final demand letter dated March 2, 1987 to Rudlin
which mentioned only the amount of P115,000.00 as Rudlin’s outstanding accountability.
As to Bloomfield and the individual defendants, they contended that not being parties to the
Construction Agreement, FBC has no cause of action against them. Moreover, in their dealings with
FBC, they acted with justice, honesty and good faith.
Under its counterclaim, Rudlin invoked the provision in the Construction Agreement granting the
Owner the right to terminate the contract and take over the construction works upon default of the
Contractor who abandons or fails to complete the project, or fails to carry out the work in accordance
with the provisions of the Contract Documents, and to deduct the costs from whatever payment is due
or to become due to the Contractor. Rudlin asserted that despite demands it made upon FBC, the latter
still failed and refused to complete and make good its obligations under the Construction Agreement
and to correct faulty and defective works.
In its Reply,12 FBC asserted that the demand letter dated March 2, 1987 pertains to another account of
Rudlin. FBC asserted that its failure to deliver releases of some liens was due to Rudlin’s failure to pay
the amount claimed in the complaint. At any rate, by the very fact that Rudlin is actually making use of
the school building constructed by FBC, it is deemed to have accepted the work.
By agreement of the parties, the trial court appointed three Commissioners to resolve factual issues
pertaining to the construction of the subject building, specifically the following:
1) Adherence or non-adherence to the plan and specifications;
2) Additives, deductives, defects and faults in the construction; [and]
3) Completion or non-completion of the project.13
The Commissioners conducted ocular inspection of the subject school building on February 23, 1988,
March 6, 1988, March 12, 1988, April 25, 1988, April 26, 1988 and May 12, 1988.14 On September 28,
1989, they submitted a detailed report on their findings and conclusions, including the additives
(modifications and additional works, the value of which are to be reimbursed by the Owner) and
deductives (deficiencies and cost of repairs done by the Owner and other expenses which shall be
deducted from the contract price due to the Contractor).15 FBC submitted its comments on the said
report denying any responsibility for the alleged defects and deficiencies found by the commissioners
and insisting that it had fully performed all the works in accordance with the plans, specifications and
modifications as approved by Rudlin.
During the trial, the following witnesses testified: Jaime Beltran Lo, Alexander E. Reyes, Gregorio P.
Pineda, Rodolfo J. Lagera, Teresita L. Ngan Tian, Carolina F. Bodoy, and the court-appointed
commissioners Engr. Alberto R. Payumo, Architect Agaton R. Sabino and Edmundo B. Flores.
Ruling of the RTC
In its decision,16 the trial court concluded that as shown by the Commissioners’ Report, the subject
school building had several defects. It found untenable FBC’s denial of any responsibility for the
defects caused by the inferior quality of waterproofing material used by its subcontractor, INDESCO,
citing Section Eleven of the Construction Agreement whereby the Contractor assumes full
responsibility for the acts, negligence or omissions of all its employees, as well as for those of its
subcontractor and the latter’s employees. Moreover, the modifications to the original plans and
specifications, which gave rise to the deductives and additives, were not shown to have been approved
by Rudlin nor concurred in by the project Architect, contrary to FBC’s allegation.
The trial court thus decreed:
In view of the foregoing, the complaint against defendant Rudlin is dismissed. Considering that
defendant Bloomfield Educational Foundation was not a party to the Construction Agreement, the
complaint against the latter is dismissed. Plaintiff having failed to prove that defendants Rodolfo
Lagera, Ma. Erlinda Lagera and Josaphat Bravante acted in their personal capacities, the complaint
against them is likewise dismissed.
There being bad faith on the part of defendant Rudlin in that it deliberately failed to disclose the true
contract price, defendants’ counterclaim is dismissed.
No pronouncement as to costs.
SO ORDERED.17
Both FBC and Rudlin filed notices of appeal.
Ruling of the CA
While the CA upheld the dismissal of the complaint as against the individual defendants and
Bloomfield, it found that FBC was able to substantiate its claim against Rudlin for the unpaid balance
of the contract price of P6,933,268.00 (not P6,006,965.00), which after considering the additives and
deductives, the direct payment made by Rudlin, cost of chargeable materials and rebates, would still
leave the amount of P1,508,464.84 due to FBC based on the Summary of Contract Revisions and
Unpaid Balances on which Gregorio P. Pineda testified.18
According to the CA, if not for the alleged construction defects and supposed additives and deductives,
Rudlin could have considered the building "complete", as in fact the school building is already being
used as such by Rudlin. In resolving the issues pertinent to said construction defects, the CA declared
that it cannot rely solely on the Commissioners’ Report considering that the commissioners who tried
to explain their "conclusions" contained in the said report testified that these were made "not exactly
what they actually intended to report." The CA then grouped the defects noted by the commissioners
during the ocular inspection as follows: (1) the defect in the waterproofing of the gutter and the water
stains and delamination of plywood and tiles reasonably presumed as caused by the water seepage; (2)
the hairline cracks on walls, beams and floors; (3) the cracks which extend to the outer portion of the
walls; (4) cracks on the floors; (5) the gap between the inner wall and the beams at the conference
room; (6) missing components such as tiles, door locksets and cold water knob. Based on the
testimonies of Commissioners Sabino and Payumo, the CA observed that the causes of the foregoing
defects were not fully established; that these may be considered as either ordinary defects due to wear
and tear or construction defects, depending on the interpretation that a party would like to adopt; and
the commissioners who testified had admitted that they themselves were not certain of the "causes" and
were merely stating their respective opinions on the possible causes of the noted defects.
Analyzing the evidence on record, the CA concluded that FBC was not liable for the defect in
waterproofing and delay in the completion of the works for the following reasons: (1) the changing of
the brand of the waterproofing used in the gutter was fully discussed during the regular meeting
between the representatives of FBC and Architect Quezon; it was in fact Josaphat Bravante who
selected the subcontractor and the brand of the waterproofing to be used; (2) there was no convincing
proof that FBC failed to supervise the performance of said subcontractor chosen by Rudlin; (3)
Gregorio P. Pineda who was present during the aforesaid meetings was competent to testify on the
preparation of the minutes of the meetings (Exhibits "EE" and "GG" to "WW"), pursuant to which the
additives and deductives were made, and that Rudlin’s silence on this matter only supports such a
conclusion; (4) Rudlin’s claim that it undertook repairs on the defects in the construction for which the
amount of P350,000.00 was supposedly spent, was not supported by any receipt or concrete evidence
other than the self-serving testimony of Rodolfo J. Lagera; (5) there was no formal walk-through made
and certification by the architect because Architect Quezon ignored FBC’s letter requesting the said
final walk-through, the relationship between the parties at that time having turned sour; and (6)
Rudlin’s reliance on Section Twelve of the Construction Agreement is misplaced, the Letter-Agreement
dated June 5, 1986 shows that the parties agreed for a new date of completion of the school building
and the schedule of payment of the remaining construction price.
The CA thus ordered Rudlin to pay FBC the remaining balance of P1,508,464.84.19
Rudlin filed a motion for reconsideration while FBC moved for partial reconsideration of the CA
decision. The CA denied both motions under its Resolution dated June 23, 2004.20
The Cases
Petitioner FBC in G.R. No. 164186 seeks modification of the CA Decision insofar as it failed to include
legal interest on the amount which Rudlin was adjudged still liable to pay FBC (P1,508,464.84) and
attorney’s fees and litigation expenses equivalent to 25% of the total award. FBC likewise prays that
the individual defendants and Bloomfield be declared solidarily liable with Rudlin.21
In G.R. No. 164347, petitioner Rudlin contends that the CA resolved the issues of the case in a way that
is not in accord with the law and applicable jurisprudence and contradicted by the evidence on record.
In particular, Rudlin assails the CA in perfunctorily denying its Motion for Reconsideration dated
January 7, 2004; in not finding that petitioners fully substantiated their assertion that the Construction
Agreement is not reflective of the true intent of the parties; in not finding that Bloomfield Academy
Building was not actually completed as scheduled in violation of the Construction Agreement and
causing Rudlin to spend P350,000.00 for the same; in not declaring -- as correctly found by the trial
court – that FBC is liable for the defects in the waterproofing since the change in waterproofing
specifications was not approved by Rudlin nor concurred in by the Project Engineer, and that some
modifications to the original plans and specifications which gave rise to the additives and deductive
were not approved by Rudlin nor concurred in by the Project Engineer; and in not holding that Rudlin’s
claim for damages by reason of delay is with legal and factual basis.22
From the foregoing, the issues to be resolved are: (1) whether FBC is liable for the defects in the
construction of the subject school building and delay in the completion of the works; (2) after
considering the payments, deductives and additives and other charges admitted, whether Rudlin is still
liable for the balance of the contract price and the amount thereof; and (3) whether Rudlin is entitled to
its counterclaim.
Our Ruling
The resolution of these cases calls for a reexamination of facts. While generally, the Court is not a trier
of facts, a recognized exception thereto is a situation where the findings of fact of the CA and the trial
court are conflicting.23
Contrary to the findings of the appellate court, we hold that the facts on record clearly established
FBC’s liability for the defects and deficiencies so numerous that it took several days for the court-
appointed commissioners to complete the ocular inspection. The CA tried to minimize the impact of
such findings by declaring that the Commissioners’ Report cannot be the sole basis for determining
whether FBC faithfully complied with all its undertakings and obligations under the Construction
Agreement. However, the glaring fact remains that there were construction defects which have been
described in detail under each inspection date. While it is true that the commissioners who testified
gave different opinions as to whether the noted defects and deficiencies were due to substandard
materials and poor workmanship or the same was just the result of ordinary wear and tear and even lack
of maintenance, the court can properly evaluate the common findings and conclusions reflected in the
Commissioners’ Report based on the totality of evidence.
Perusing the records, we are unable to agree with the appellate court’s view that the testimonies given
in court by the commissioners had left uncertain the determination of the nature of the defects and
deficiencies, i.e., whether these are construction defects or merely due to improper maintenance.
First, it stands undisputed that the damage wrought by water seepage causing water stains, leaking
roofs, peeling off of paint, cracks on walls and delamination of plywood, among others, was so
pervasive on many portions of the building that even after the same was inaugurated in time for the
school opening on June 15, 1986, most of the classrooms and administrative offices, as well as other
common areas such as the lobby and comfort rooms, could not be properly utilized as their defective
condition posed danger to the teachers and students. It must be noted that at the time of ocular
inspection in 1988, it was barely two years from the time the building was actually used and yet the
overall structure of the building was severely impaired by the defective waterproofing and other
deficiencies. Prior to the court-authorized inspection, those visible defects had been photographed
under the supervision of Rodolfo J. Lagera, which further confirmed the findings of the
commissioners.24 The CA thus erred in giving weight to FBC’s claim that the seepage of water into the
beams, walls and floor can be attributed to lack of proper maintenance, citing the declarations of FBC’s
Alexander E. Reyes and Commissioner Payumo who allegedly found "piles of dirt collected on the
gutter and when the dirt was removed, the water flowed down to the spout." Given the extent of the
defects and deficiencies found in the school building, this simplistic explanation from FBC is
unacceptable.
Although Commissioner Sabino testified that it was possible that the water seepage was caused by the
clogging of the downspout due to lack of maintenance in clearing the gutter of dirt, Commissioner
Payumo, an engineer, testified that whether the building is properly maintained on that aspect does not
really matter because good waterproofing should always hold and prevent seepage whenever there is
accumulation of rainwater in the gutter of the roof. Engr. Payumo stated that waterproofing should hold
for a period of at least five years:
ATTY. FERNANDEZ (continuing)
Q In other words, Mr. Witness, from what you saw, the water proofing there was for poor
maintenance, the owner did not remove the dirt.
A No sir, because if the water proofing is good, it should not fade [sic, should read as fail].
xxxx
ATTY. AUTEA: (TO WITNESS)
Q Based on the standard of practice on the construction industry, how long should a water
proofing pool [sic, should read as hold]?
xxxx
WITNESS
A The practice is about five (5) years.
COURT:
Before the water proofing fail?
A Yes, your Honor.25 (Emphasis supplied.)
We thus cannot agree with the CA’s stance that in view of the disagreement expressed by the
commissioners in their testimonies, it would be unjust to hold FBC responsible for the substandard
waterproofing. The following conclusions set forth in the Commissioners’ Report are categorical in
declaring the omissions, deviations and negligence of the Contractor (FBC) in the execution of the
construction project, to wit:
1. The subject construction project, i.e., Bloomfield Academy located at Wilfredo Tecson
Avenue, Vista Grande, BF Resort Village, Las Pinas, Metro Manila, has been completed with a
lot of deficiencies and defects in the work.
2. There were additives and deductives done without proper and formal approval from any of
the parties.
3. There was no formal approved cost adjustments nor contract time for the additive and
deductive works.
4. There were portions of the subject construction project that [were] not in accordance [with]
the agreed plans and specifications.
5. There were no formal request nor approval for some deviations from the plans and
specifications from the owners nor from the Architect.
6. There were several portions of the subject construction project that we found defective and
below standards which were found during the ocular inspection done by the Commissioners and
[were] reflected in the stenographic report.
7. Some deficiencies and defects in the works and the punchlist of Architect [were] not acted
upon nor any repairs made to date as required under the contract prior to acceptance.
8. Some items in the Architect’s punchlist although repaired and acted on [were] never formally
turned over nor accepted.
9. There was no contract time adjustment on the lapsed contract time for the original contract
and for the additional works done.
10. There was no formal turn-over made by the contractor nor acceptance on the part of the
owner of the project.
11. There are provisions in the contract that were violated or have not been followed by the
contractor in his performance of the project like the non-submittal of the various bonds (Section
16, M and N) and other contract documents needed in the execution of the contract as some of
the findings of the commissioner in the investigation.26 (Emphasis supplied.)
The CA, however, declared that notwithstanding the damage caused by water seepage, Rudlin cannot
claim that the building was not completed and that the only reason which could have justified Rudlin’s
refusal to pay the balance is the liability of FBC for changing the specified waterproofing brand from
John Mans Ville to Neo-pren Elastomeric. The CA thus ruled:
... it appears beyond cavil that the changing of the brand of the waterproofing used in the gutter was
fully discussed during the regular meeting between the representatives of plaintiff-appellant FBC and
Architect Quezon. In fact, it was the defendant-appellant Rudlin through defendant-appellant Josaphat
Bravante who selected the sub-contractor and the brand of waterproofing to be used in the gutter. As
the general contractor, plaintiff-appellant FBC was only duty bound to supervise the performance of the
sub-contractor and see to it that the proper procedure was properly followed. In the absence of any
convincing proof that plaintiff-appellant FBC failed to supervise the performance of the sub-contractor,
it is highly unjust on the part of plaintiff-appellant FBC to be held liable and even be required to re-do
the whole work using the original specified brand at its own expense. A contrary ruling would lead to a
scenario where the owner of the subject building would start imposing the use of cheaper materials to
save money because after all when the substituted materials fail, the contractor can nevertheless be held
liable.27 (Italics supplied.)
We do not agree. The purported minutes of meetings, wherein the modifications to the original plans
and specifications, particularly the change of waterproofing were allegedly discussed and approved by
Rudlin’s representative in the person of Josaphat Bravante (Exhibits "EE" and "GG" to "WW"28), were
not given credence by the trial court as these actually showed that not all such modifications have been
approved. Moreover, the trial court held that FBC failed to prove their due execution and authenticity.
But the CA reversed the trial court and held that witness Gregorio P. Pineda who was present in the said
meetings was competent to testify on the contents and due execution of the aforesaid Exhibits "EE" and
"GG" to "WW".
Even assuming arguendo that the change in waterproofing brand was indeed taken up during a meeting
in the presence of Rudlin’s representative, we cannot agree with the CA’s position that the alleged
verbal assent by Josaphat Bravante in the purported minutes of meetings29 was sufficient evidence of
the Owner’s approval of the modifications in the original plans and specifications.1avvphil Likewise,
the letter dated July 7, 198630 of FBC’s project engineer Alexander E. Reyes informing Architect
Quezon that the change in waterproofing brand was approved by Bravante is at best, self-serving, and
the same does not bind Rudlin.
Under Section Nine of the Construction Agreement, Architect Quezon, as representative of the Owner,
is the one vested with the general supervision and direction of the work and who is authorized to "reject
work which does not conform to the Contract Documents" and to formally stop such work or a portion
thereof when necessary.31 More explicitly, Section Ten of the same agreement provides that the Owner
shall give all instructions to the Contractor through the Architect.
FBC therefore cannot escape liability for the poor quality of waterproofing on the ground that Rudlin’s
representative was present during the meeting when the change in brand to be used was allegedly
discussed with his concurrence. The requirements for a valid change or modification in the original
plans and specifications were clearly set out in Section Fifteen of the Construction Agreement, which
provides:
SECTION FIFTEEN
WORK CHANGES
The OWNER reserves the right to order work changes in the nature of additions, deletions, or
modifications, without invalidating this Agreement. All changes shall be authorized by a written change
order signed by the OWNER and by the ARCHITECT.
Work shall be changed, and the completion time shall be modified only as set out in the written change
order. Any adjustment in the Contract Price resulting in a credit or a charge to the OWNER shall be
determined by written agreement of the parties, before starting the work involved in the change.32
As it is, the modification effected by FBC on waterproofing work was never approved in writing by
Architect Quezon and Rudlin. Contrary to the appellate court’s declaration that Rudlin by its silence
impliedly approved the change in waterproofing brand, the letter dated September 1, 1986 of Architect
Quezon to Jimmy Lo deplored the unauthorized change in the specified brand exacerbated by defective
application, and required FBC to re-do such work. Said letter reads:
DEAR JIMMY,
SOMETIME IN JUNE 1986, OUR GROUP DISCUSSED IN ADVANCE WITH MS. LINDA
LAGERA, THE POSSIBILITY OF LEAKS IN THE PROJECT, DUE TO CHANGE IN OUR
SPECIFICATIONS. WE ALSO ASKED ENGR. ALEX REYES TO WRITE US OFFICIALLY
REGARDING CHANGE ON WATERPROOFING SPECIFICATIONS AND SUBSTITUTION OF
ANOTHER BRAND WITHOUT OUR APPROVAL. THE SPECIFIED BRAND IS BIRD & SONS
OR JOHNS MANVILLE AGAINST NEOPRENE AS SUBSTITUTE, A PRODUCT WHICH WE
ARE NOT USE TO.
YOUR ENGINEER CLAIMS THAT THEY WERE ASKED TO MADE CHANGES BY MR. PAT
BRAVANTE AS PART OF THE DOWNGRADING OF THE PROJECT, BUT SOMEHOW ERRORS
WERE MADE IN THE EXECUTION OF THE WORK. THE SITUATION IS NOW HOPELESSLY
SNARLED. DUE TO MANY LEAKS IN THE PROJECT, ESPECIALLY AT THE
ADMINISTRATION AREA AND LEAVING US WITHOUT ASSURANCE ON YOUR PART ON
THE CORRECTIVE MEASURE OF THIS PROBLEM.
THIS REQUIRE URGENT ACTION ON YOUR SIDE TO RE-DO ALL WATERPROOFING

WORKS, USING OUR SPECIFICATIONS WITHOUT ANY EXPENSE TO THE OWNER AS PART
OF THE GENERAL CONDITIONS OF THE CONTRACT DOCUMENT. ANYTHING YOU CAN
DO TO EXPIDITE (sic) CORRECTION OF THE ERROR ON THE PROJECT WILL BE GREATLY
APPRECIATED.33 (Emphasis supplied.)
At this point, it bears to stress that the June 5, 1986 Letter-Agreement signed by both FBC and Rudlin,
which extended the completion time to June 10, 1986 expressly amended only the corresponding
provisions of the Construction Agreement pertaining to completion date and schedule of payment of the
balance due to FBC, which was conditioned on the reconciliation of the upgrading and downgrading of
the work done by the contractor. Said Letter-Agreement did not relieve FBC as contractor of
responsibility for defects under its warranties under the Construction Agreement, which include those
works performed by its subcontractor. The pertinent provisions of the Construction Agreement showed
that FBC was obligated to correct and/or re-execute defective work before and after final payment,
pursuant to its general warranties as contractor, thus:
SECTION FOURTEEN
CORRECTING WORK
1. BEFORE FINAL PAYMENT
The CONTRACTOR shall promptly remove from the premises all works and materials condemned by
the ARCHITECT as failing to conform with the Contract Documents, whether incorporated in the work
or not, and the CONTRACTOR shall promptly replace and reexecute the work in accordance with the
Contract Documents and without expense to the OWNER.
If the CONTRACTOR does not remove such condemned work and materials within a reasonable time
fixed by the written notice, the OWNER may remove them and may store the materials at the expense
of the CONTRACTOR. If the CONTRACTOR does not pay the expenses for such removal within ten
(10) days, the OWNER may, after written notice to the CONTRACTOR, sell such materials at auction
or at a private sale and shall account for the net proceeds thereof, after deducting all the costs and
expenses that should have been borne by the CONTRACTOR. This does not preclude other actions or
remedies which the OWNER may have against the CONTRACTOR.
2. AFTER FINAL PAYMENT
Neither the final certificate for payment nor any provision in the Contract Documents shall relieve the
CONTRACTOR of responsibility for faulty materials or workmanship. It shall remedy any defects due
thereto and pay for any damage to other work resulting therefrom, which shall appear within the
specified guaranty period. All questions arising under this provision shall be subject to arbitration in
case of failure of the parties to arrive at an agreement.
xxxx
SECTION SIXTEEN
GUARANTY-WARRANTY
The CONTRACTOR shall, in case of work performed by its subcontractors, secure warranties from
said subcontractors and deliver copies of the same to the ARCHITECT or OWNER upon completion of
the work.
The CONTRACTOR shall and does hereby warrant and guarantee the following:
(a) All works, for a period of one (1) year from the date of completion as evidenced by the date
of final acceptance in writing of the entire work by the OWNER.
(b) All work performed by it directly or performed by its sub-contractors, shall be free from any
defects of materials and workmanship.
(c) The CONTRACTOR further agrees that it will, at its own expense, repair and/or replace all
such defective materials or work, and all other work damaged thereby which becomes defective
during the term of this Guaranty-Warranty. (Emphasis supplied.)
The above-stipulated period of warranty has not even commenced considering that even if Bloomfield
proceeded with the inauguration in time for the opening of classes, there was no formal turn over of the
building to Rudlin and no final acceptance in writing was made by Rudlin. FBC faulted Architect
Quezon whose alleged absence and refusal to meet with their officers and to conduct the final walk-
through, prevented it from having the building formally turned over to the Owner. Such contention is
unfounded because the evidence on record reveals that it was FBC which defaulted on its obligations
under the Construction Agreement. FBC is bound by its undertaking under Section Fourteen (1) to
replace and re-execute defective waterproofing and correct the damage such had caused to the structure
and finishing of the building.
In a letter dated September 17, 1986 addressed to FBC’s lawyer, Rudlin’s lawyer responded to FBC’s
demands for payment, as follows:
We write in behalf of our client, RUDLIN INTERNATIONAL, INC., in reply to your letter dated 20
August 1986 and the letter of your client, Financial Building Corporation (FBC) dated 12 August 1986,
regarding your client’s alleged remaining balance with our client under the above-captioned
Agreement.
We would like to remind your client that our client has not yet accepted the Project nor has Architect
Eduardo R. Quezon certified that FBC has fully performed and completed the Project. Neither has your
client delivered to our client a complete release of all liens arising out of the Agreement or receipts in
full in lieu thereof, and an affidavit that the releases and receipts include all the labor, interests and
equipment for which a claim or action can be filed, as required under Section Eight of said Agreement.
We would also like to call your attention to the letter of Architect Quezon to our client dated 10
September 1986, a copy of which is attached as Annex "A", enumerating therein what your client has
to submit/furnish, and pay our client before any final payment is made by our client to your client.
Further, we would like to inform you that the uncompleted and/on faulty work, defects and deficiencies
in the Project which were enumerated in the Punch List dated 27 June 1986 and received by FBC on 30
June 1986, have not been completed and/or corrected by FBC. Our client requested said Architect
Quezon to update the same. We are forwarding to you a copy of the updated Punch List dated 10
September 1986 which is attached hereto as Annex "B".lawphil.net Moreover, your client should visit
the Project to see, among other things, how the administrative offices, library, chapel and classrooms
get flooded when it rains. This situation poses a hazard to the health and life of the students, teachers
and staff of Bloomfield Academy.
Moreover, based on the Updated Tabulation Report of Architect Eduardo R. Quezon in relation to his
Additive and Deductive Evaluation Report, a copy of which is attached as Annex "C", it appears that
whatever minimum balance which FBC may have against our client will not even be sufficient to
complete the Project, to undertake correction of its faulty and defective work, and to cover the 10%
cash retention. It appears further that our client has overpaid your client by Four Hundred Fifteen
Thousand Seven Hundred One and 34/100 Pesos (P415,701.34).
We are, therefore, giving your client fifteen (15) days from your receipt of this letter to complete and
make good its undertakings/obligations under the Agreement. Failure on the part of your client to do so
will leave our client no other alternative but to invoke the provisions of said Agreement declaring your
client in default, and cause the Project to be completed and the deficiencies corrected, deducting the
costs from whatever payment which may be due to your client, and collecting from your client the
difference.
Further, please advise your client that there will be legal constraints for our Atty. Avelino J. Cruz, Jr. to
mediate between your client and our client under the circumstances. Please be assured, however, that
like you, we are advising our client to opt for a reasonable resolution of the problem.34
In its letter-reply dated September 24, 1986 of FBC’s counsel, FBC insisted that Rudlin still owed it the
sum of P2.4 million, more or less; that it cannot turn over the project because Architect Quezon refused
to meet with FBC’s engineers to discuss the additives and deductives work summary; that Architect
Quezon’s letter cannot be made the basis of FBC’s obligations under the Construction Agreement; and
that the punch list dated June 27, 1986 is only a dilatory document as certain items being purely
additional works should be excluded. FBC protested the leaks and flooding mentioned by Rudlin’s
counsel, which FBC said are minor items which can be easily corrected as in fact it was corrected by
the waterproofing subcontractor INDESCO which was referred by Rudlin. To solve the problem, FBC
proposed that the corrective works be done by Rudlin provided the price thereof be approved by FBC
and Rudlin will not spend more than P50,000.00 therefor. As to the 10% retention fund, FBC advised
that per understanding with Rudlin, this was waived in view of the commitment of FBC to finish the
project to the best of its funding ability.35
FBC then suggested that Rudlin release the sum of P500,000.00 so that FBC can pay its suppliers and
to enable it to submit the required affidavit of complete payment of labor and material men; that
Rudlin’s retained architect complete the reconciliation of the additive and deductive works with FBC;
and thereafter, to arrange payment backed up by sufficient collaterals.36
In its subsequent letter dated October 3, 1986, FBC again pressed for payment and further distanced
itself from INDESCO, claiming that negotiations for the waterproofing works with INDESCO was
handled by Rudlin’s Mr. Bravante. FBC informed Rudlin that it was advised by INDESCO that the
waterproofing complaints have been attended to.37 But since the roof leaks and flooding of the corridor
and classrooms persisted despite the repairs supposedly done by the subcontractor, Rudlin formally
notified its lawyer that it was invoking the contractor’s warranty under the Construction Agreement and
sought assistance to have the said defects and deficiencies corrected by the Contractor.38 Consequently,
Rudlin through a letter dated October 14, 1986 signed by its Vice-President and Chief Operating
Officer, Teresita L. Ngan Tian, advised FBC that the latter’s request for payment "has been held in
abeyance until the waterproofing job is completed to the satisfaction of the Owners."39
We find that in withholding payment of the balance of the contract price, Rudlin properly exercised its
rights under the Construction Agreement. The CA thus erred in ordering Rudlin to pay FBC the balance
of the contract price which was computed as follows:
1. Contract PriceP 6,933,268.002. AdditivesP 1,074,385.53Total Additive CostP 8,007,653.533.

DeductivesP 886,706.454. Direct PaymentP 4,874,920.145. Chargeable MaterialsP 727,688.906.
RebatesP 9,793.22Total PaymentsP 6,499,188.71
TOTAL
UNPAID BALANCEP 1,508,464.8440The above computation was based solely on the Summary of
Contract Revisions and Unpaid Balances submitted by FBC’s witness Gregorio P. Pineda. Rudlin
submitted its own computation based on what it claims as the true contract price of P6,006,965.00 and
asserting that the following should be deducted: P4,878,920.14 as payments to FBC which the latter
admitted; P727,688.90 direct payments to suppliers also admitted by FBC; deductives of P1,180,127.35
representing the cost of modifications in the original plans and specifications which were not approved
by Rudlin and its architect; and P350,000.00 for the repairs undertaken by Rudlin.
Considering that FBC had not completed the corrective/repair works in accordance with the Contract
Documents and as approved or certified in writing by the Architect as to its completion, its demand for
the payment of the final balance was premature. Under the Letter-Agreement dated June 5, 1986, final
payment was subject to reconciliation of their accounts regarding the upgrading and downgrading done
on the project. Obviously, this cannot be complied with unless FBC as the defaulting party completes
the repair/corrective works for only then can the actual cost of additives and deductives be determined.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him.41 When the substandard waterproofing
caused extensive damage to the school building, it was incumbent upon FBC to institute at its own
expense the proper repairs in accordance with the guaranty-warranty stated in the Construction
Agreement. Thus, Rudlin cannot be said to have incurred delay in the reconciliation of accounts, as a
precondition for final payment; instead, it is FBC who was guilty of delay by its stubborn refusal to
replace or re-execute the defective waterproofing of the subject school building.
On the issue of the correct total contract price, we hold that Rudlin failed to substantiate its claim that
the contract price stated in the Construction Agreement (P6,933,268.00) was not the true contract price
because it had an understanding with FBC’s Jaime B. Lo that they would decrease said amount to a
mutually acceptable amount.
Under the general rule in Section 9 of Rule 130 of the Rules of Court, when the terms of an agreement
were reduced in writing, as in this case, it is deemed to contain all the terms agreed upon and no
evidence of such terms can be admitted other than the contents thereof. Rudlin argues that under
Section 9, Rule 130, a party may present evidence to modify, explain or add to the terms of the written
agreement if it is put in issue in the pleading, "[t]he failure of the written agreement to express the true
intent and the agreement of the parties thereto." Assuming as true Rudlin’s claim that Exhibit "7" failed
to accurately reflect an intent of the parties to fix the total contract price at P6,006,965.00, Rudlin failed
to avail of its right to seek the reformation of the instrument to the end that such true intention may be
expressed.
Evidence of a prior or contemporaneous verbal agreement is generally not admissible to vary,

contradict or defeat the operation of a valid contract.42 Section 9 of Rule 130 of the Rules of Court
states:
SEC. 9. Evidence of written agreements.—When the terms of an agreement have been reduced to
writing, it is considered as containing all the terms agreed upon and there can be, between the parties
and their successors-in-interest, no evidence of such terms other than the contents of the written
agreement.
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.
Rudlin cannot invoke the exception under (a) or (b) of the above provision. Such exception obtains
only where "the written contract is so ambiguous or obscure in terms that the contractual intention of
the parties cannot be understood from a mere reading of the instrument. In such a case, extrinsic
evidence of the subject matter of the contract, of the relations of the parties to each other, and of the
facts and circumstances surrounding them when they entered into the contract may be received to
enable the court to make a proper interpretation of the instrument."43
Under the fourth exception, however, Rudlin’s evidence is admissible to show the existence of such
other terms agreed to by the parties after the execution of the contract. But apart from the Bar Chart and
Cash Flow Chart prepared by FBC, and the testimony of Rodolfo J. Lagera, no competent evidence
was adduced by Rudlin to prove that the amount of P6,006,965.00 stated therein as contract price was
the actual decreased amount that FBC and Rudlin found mutually acceptable. As to the affidavits
executed by Architect Quezon and his associate Roberto R. Antonio,44 the same do not serve as
competent proof of the purported actual contract price as they did not testify thereon. Significantly, the
June 5, 1986 Letter-Agreement did not at all mention the total contract price. Likewise, there is nothing
in the various letters sent by Rudlin to FBC while construction was in progress and even subsequent to
the execution of the said Letter-Agreement indicating that Rudlin corrected the contract price of
P6,933,268.00 which FBC had repeatedly mentioned in its letters and documents.45
As to Rudlin’s counterclaim for reimbursement of its expenses in repairing the defective waterproofing,
not a single receipt was presented by Rudlin to prove that such expense was actually incurred by it.
Under the Civil Code, one is entitled to an adequate compensation only for such pecuniary loss
suffered by him as he has duly proved. The award of actual damages must be based on the evidence
presented, not on the personal knowledge of the court; and certainly not on flimsy, remote, speculative
and nonsubstantial proof.461avvphi1
The testimony of Rodolfo J. Lagera on the total cost allegedly spent by Rudlin in repairing the
waterproofing works does not suffice. A court cannot rely on speculations, conjectures or guesswork as
to the fact of damage but must depend upon competent proof that they have indeed been suffered by the
injured party and on the basis of the best evidence obtainable as to the actual amount thereof. It must
point out specific facts that could provide the gauge for measuring whatever compensatory or actual
damages were borne.47
The counterclaim for attorney’s fees must likewise be denied. We have stressed that the award of
attorney’s fees is the exception rather than the rule, as they are not always awarded every time a party
prevails in a suit because of the policy that no premium should be placed on the right to litigate.
Attorney’s fees as part of damages is awarded only in the instances specified in Article 2208 of the
Civil Code.48
ART. 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial
costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s
plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen’s compensation and employer’s liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney’s fees and
expenses of litigation should be recovered.
In all cases, the attorney’s fees and expenses of litigation must be reasonable.
None of the foregoing situations obtains in the case at bar.
WHEREFORE, the petition in G.R. No. 164186 is DENIED while the petition in G.R. No. 164347 is
PARTLY GRANTED. The Decision dated December 12, 2003 of the Court of Appeals in CA-G.R. CV
No. 41224 is REVERSED and SET ASIDE, and the Decision dated January 12, 1993 of the Regional
Trial Court of Makati City, Branch 65 in Civil Case No. 16266 is REINSTATED.
No costs.
SO ORDERED.
MARTIN S. VILLARAMA, JR.
Associate Justice
WE CONCUR:
CONCHITA CARPIO MORALES

Associate Justice
Chairperson
ARTURO D. BRION
Associate JusticeLUCAS P. BERSAMIN
Associate JusticeMARIA LOURDES P. A. SERENO
Associate Justice
ATT E S TAT I O N
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
CONCHITA CARPIO MORALES

Associate Justice
Chairperson, Third Division
C E R T I F I CAT I O N
Pursuant to Section 13, Article VIII of the 1987 Constitution and the Division Chairperson’s
Attestation, I certify that the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Court’s Division.
RENATO C. CORONA
Chief Justice
Footnotes
1
CA rollo, pp. 831-854. Penned by Associate Justice Remedios A. Salazar-Fernando and
concurred in by Associate Justices Eubulo G. Verzola and Edgardo F. Sundiam (now deceased).
2
Records, pp. 1135-1139. Penned by Judge Salvador S. Abad Santos.
3
Id. at 578-598.
4
Id. at 581.
5
Id. at 592.
6
Id. at 580.
7
Id. at 622.
8
Id. at 602-603.
9
Id.
10
Id. at 1-5.
11
Id. at 96-110.
12
Id. at 113-114.
13
Id. at 392.
14
Id. at 290-371.
15
Id. at 392-418.
16
Id. at 1135-1139.
17
Id. at 1139.
18
CA rollo, pp. 831-854.
19
Id. at 853.
20
Id. at 1090-1093.
21
Rollo (G.R. No. 164186), pp. 22-40.
22
Rollo (G.R. No. 164347), pp. 36-38.
23
Continental Cement Corp. v. Filipinas (PREFAB) Systems, Inc., G.R. Nos. 176917 & 176919,
August 4, 2009, 595 SCRA 215, 224-225, citing Santos v. Lumbao, G.R. No. 169129, March
28, 2007, 519 SCRA 408.
24
Records, pp. 1259-1280.
25
TSN, August 1, 1991, p. 40; TSN, June 27, 1991, pp. 19-20.
26
Id. at 417.
27
28
Records, pp. 710-711, 714-739.
29
Except for Exhibit "EE", all the rest (Exhibits "GG" to "WW") were unsigned by Architect
Quezon and Rudlin.
30
Records, p. 660.
31
Section Nine (a) and (f), records, pp. 1228-1229.
32
Records, p. 1238.
33
Id. at 1281.
34
Id. at 680-682.
35
Id. at 687-689.
36
Id. at 690.
37
Id. at 696-697.
38
Id. at 1283.
39
Id. at 1282.
40
41
Tanguilig v. Court of Appeals, G.R. No. 117190, January 2, 1997, 266 SCRA 78, 87.
42
Lapulapu Foundation, Inc. v. Court of Appeals, 466 Phil. 53, 62 (2004), citing MC
Engineering, Inc. v. Court of Appeals, G.R. No. 104047, April 3, 2002, 380 SCRA 116, 137.
43
Seaoil Petroleum Corporation v. Autocorp Group, G.R. No. 164326, October 17, 2008, 569
SCRA 387, 396-397, citing Ortañez v. CA, 334 Phil. 514, 519-520 (1997) & Heirs of Amparo
del Rosario v. Aurora Santos, et al., 194 Phil. 670, 687 (1981).
44
Records, pp. 1184-1185, 1202-1203.
45
Id. at 602-603, 623, 629, 741.
46
Adrian Wilson International Associates, Inc. v. TMX Philippines, Inc., G.R. No. 162608, July
26, 2010, p. 16, citing Spouses Ong v. Court of Appeals, 361 Phil. 338, 353 (1999) and Civil
Code, Art. 2199.
47
Tan v. G.V.T. Engineering Services, G.R. No. 153057, August 7, 2006, 498 SCRA 93, 110-
111, citing Lagon v. Hooven Comalco Industries, Inc., 402 Phil. 404, 424-425 (2001).
48
Padillo v. Court of Appeals, G.R. No. 119707, November 29, 2001, 371 SCRA 27, 46-47.
The Lawphil Project - Arellano Law Foundation
G.R. No. 108129 September 23, 1999
AEROSPACE CHEMICAL INDUSTRIES, INC., petitioner,

vs.
COURT OF APPEALS, PHILIPPINE PHOSPHATE FERTILIZER, CORP., respondents.
QUISUMBING, J.:
This petition for review assails the Decision 1 dated August 19, 1992, of the Court of Appeals,
which set aside the judgment of the Regional Trial Court of Pasig, Branch 151. The case
stemmed from a complaint filed by the buyer (herein petitioner) against the seller (private
respondent) for alleged breach of contract. Although petitioner prevailed in the trial court, the
appellate court reversed and instead found petitioner guilty of delay and therefore liable for
damages, as follows:
WHEREFORE, the Decision of the court a quo is SET ASIDE and a new one rendered,
dismissing the complaint with costs against the plaintiff (herein petitioner) and, on the
counterclaim, ordering the plaintiff Aerospace Chemical Industries, Inc. to pay the defendant,
Philippine Phosphate Fertilizer Corporation the sum of P324,516.63 representing the balance of
the maintenance cost and tank rental charges incurred by the defendant for the failure of the
plaintiff to haul the rest of the rest of the sulfuric acid on the designated date.
Costs against plaintiff-appellee. 2
As gleaned from the records, the following are the antecedents:
On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five hundred
(500) metric tons of sulfuric acid from private respondent Philippine Phosphate Fertilizer
Corporation (Philphos). The contract 3 was in letter-form as follows:
27 June 1986
AEROSPACE INDUSTRIES INC.
203 E. Fernandez St.
San Juan, Metro Manila
Attention: Mr. Melecio Hernandez
Manager
Subject : Sulfuric Acid Shipment
Gentlemen:
This is to confirm our agreement to supply your Sulfuric Acid requirement under the following
terms and conditions:
A. Commodity : Sulfuric Acid in Bulk
B. Concentration : 98-99% H2SO4
C. Quantity : 500 MT-100 MT Ex-Basay
400 MT Ex-Sangi
D. Price : US$ 50.00/MT-FOB Cotcot,
Basay, Negros Or.
US$ 54.00/MT-FOB Sangi, Cebu
E. Payment : Cash in Philippine currency
payable to Philippine Phosphate
Fertilizer Corp. (MAKATI) at
PCIB selling rate at the time of
payment at least five (5) days prior
to shipment date.
F. Shipping Conditions
1. Laycan : July
2. Load port : Cotcot, Basay, Negros Or. and
Atlas Pier, Sangi, Cebu
xxx xxx xxx
11. Other terms and Conditions: To be mutually agreed upon.
Very truly yours,
Philippine Phosphate Fertilizer Corp.
Signed: Herman J. Rustia
Sr. Manager, Materials & Logistics
CONFORME:
AEROSPACE INDUSTRIES, INC.

Signed: Mr. Melecio Hernandez
Manager
Initially set beginning July 1986, the agreement provided that the buyer shall pay its
purchases in equivalent Philippine currency value, five days prior to the shipment date.
Petitioner as buyer committed to secure the means of transport to pick-up the purchases from
private respondent's loadports. Per agreement, one hundred metric tons (100 MT) of sulfuric
acid should be taken from Basay, Negros Oriental storage tank, while the remaining four
hundred metric tons (400 MT) should be retrieved from Sangi, Cebu.
On August 6, 1986, private respondent sent an advisory letter 4 to petitioner to withdraw the
sulfuric acid purchased at Basay because private respondent had been incurring incremental
expense of two thousand (P2,000.00) pesos for each day of delay in shipment.
On October 3, 1986, petitioner paid five hundred fifty-three thousand, two hundred eighty
(P553,280.00) pesos for 500 MT of sulfuric acid.
On November 19, 1986, petitioner chartered M/T Sultan Kayumanggi, owned by Ace Bulk
Head Services. The vessel was assigned to carry the agreed volumes of freight from
designated loading areas. M/T Kayumanggi withdrew only 70.009 MT of sulfuric acid from
Basay because said vessel heavily tilted on its port side. Consequently, the master of the ship
stopped further loading. Thereafter, the vessel underwent repairs.
In a demand letter 5 dated December 12, 1986, private respondent asked petitioner to retrieve
the remaining sulfuric acid in Basay tanks so that said tanks could be emptied on or before
December 15, 1986. Private respondent said that it would charge petitioner the storage and
consequential costs for the Basay tanks, including all other incremental expenses due to
loading delay, if petitioner failed to comply.
On December 18, 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but withdrew only
157.51 MT of sulfuric acid. Again, the vessel tilted. Further loading was aborted. Two survey
reports conducted by the Societe Generale de Surveillance (SGS) Far East Limited, dated
December 17, 1986 and January 2, 1987, attested to these occurrences.
Later, on a date not specified in the record, M/T Sultan Kayumanggi sank with a total of
227.51 MT of sulfuric acid on board.1âwphi1.nêt
Petitioner chartered another vessel, M/T Don Victor, with a capacity of approximately 500 MT.
6
On January 26 and March 20, 1987, Melecio Hernandez, acting for the petitioner, addressed
letters to private respondent, concerning additional orders of sulfuric acid to replace its
sunken purchases, which letters are hereunder excerpted:
January 26, 1987
xxx xxx xxx

We recently charter another vessel M/T DON VICTOR who will be authorized by us to lift the
balance approximately 272.49 MT.
We request your goodselves to grant us for another Purchase Order with quantity of 227.51 MT
and we are willing to pay the additional order at the prevailing market price, provided the lifting
of the total 500 MT be centered/confined to only one safe berth which is Atlas Pier, Sangi, Cebu.
7
March 20, 1987
This refers to the remaining balance of the above product quantity which were not loaded to the
authorized cargo vessel, M/T Sultan Kayumanggi at your load port — Sangi, Toledo City.
Please be advised that we will be getting the above product quantity within the month of April
1987 and we are arranging for a 500 MT Sulfuric Acid inclusive of which the remaining balance:
272.49 MT an additional product quantity thereof of 227.51 MT. 8
Petitioner's letter 9 dated May 15, 1987, reiterated the same request to private respondent.
On January 25, 1988, petitioner's counsel, Atty. Pedro T. Santos, Jr., sent a demand letter 10 to
private respondent for the delivery of the 272.49 MT of sulfuric acid paid by his client, or the
return of the purchase price of three hundred seven thousand five hundred thirty
(P307,530.00) pesos. Private respondent in reply, 11 on March 8, 1988, instructed petitioner to
lift the remaining 30 MT of sulfuric acid from Basay, or pay maintenance and storage
expenses commencing August 1, 1986.
On July 6, 1988, petitioner wrote another letter, insisting on picking up its purchases
consisting of 272.49 MT and an additional of 227.51 MT of sulfuric acid. According to
petitioner it had paid the chartered vessel for the full capacity of 500 MT, stating that:
With regard to our balance of sulfuric acid — product at your shore tank/plant for 272.49 metric
ton that was left by M/T Sultana Kayumanggi due to her sinking, we request for an additional
quantity of 227.51 metric ton of sulfuric acid, 98% concentration.
The additional quantity is requested in order to complete the shipment, as the chartered vessel
schedule to lift the high grade sulfuric acid product is contracted for her full capacity/load which
is 500 metric tons more or less.
We are willing to pay the additional quantity — 227.51 metric tons high grade sulfuric acid in the
prevailing price of the said product. 12
xxx xxx xxx
By telephone, petitioner requested private respondent's Shipping Manager, Gil Belen, to get
its additional order of 227.51 MT of sulfuric acid at Isabel, Leyte. 13 Belen relayed the
information to his associate, Herman Rustia, the Senior Manager for Imports and International
Sales of private respondent. In a letter dated July 22, 1988, Rustia replied:
Subject: Sulfuric Acid Ex-Isabel
Gentlemen:
Confirming earlier telcon with our Mr. G.B. Belen, we regret to inform you that we cannot
accommodate your request to lift Sulfuric Acid ex-Isabel due to Pyrite limitation and delayed
arrival of imported Sulfuric Acid from Japan. 14
On July 25, 1988, petitioner's counsel wrote to private respondent another demand letter for
the delivery of the purchases remaining, or suffer tedious legal action his client would
commence.
On May 4, 1989, petitioner filed a complaint for specific performance and/or damages before
the Regional Trial Court of Pasig, Branch 151. Private respondent filed its answer with
counterclaim, stating that it was the petitioner who was remiss in the performance of its
obligation in arranging the shipping requirements of its purchases and, as a consequence,
should pay damages as computed below:
Advanced Payment by Aerospace (Oct. 3, 1986) P553,280.00
Less Shipments
70.009 MT sulfuric acid P72,830.36
151.51 MT sulfuric acid 176,966.27 (249,796.63)
—————— ——————
Balance P303,483.37
Less Charges
Basay Maintenance Expense
from Aug. 15 to Dec. 15, 1986
(P2,000.00/day x 122 days) P244,000.00
Sangi — Tank Rental
from Aug. 15, 1986 to Aug. 15, 1987
(P32,000.00/mo. x 12 mos.) 384,000.00 (628,000.00)
—————— ——————
Receivable/Counterclaim (P324,516.63)
===========
Trial ensued and after due proceedings, judgment was rendered by the trial court in
petitioner's favor, disposing as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant, directing
the latter to pay the former the following sums:
1. P306,060.77 — representing the value of the undelivered 272.49 metric tons
of sulfuric acid plaintiff paid to defendant;
2. P91,818.23 — representing unrealized profits, both items with 12% interest

per annum from May 4, 1989, when the complaint was filed until fully paid;
3. P30,000.00 — as exemplary damages; and
4. P30,000.00 — as attorney's fees and litigation expenses, both last items also
with 12% interest per annum from date hereof until fully paid.
Defendant's counterclaims are hereby dismissed for lack of merit.
Costs against defendant. 15
In finding for the petitioner, the trial court held that the petitioner was absolved in its obligation
to pick-up the remaining sulfuric acid because its failure was due to force majeure. According
to the trial court, it was private respondent who committed a breach of contract when it failed
to accommodate the additional order of the petitioner, to replace those that sank in the sea,
thus:
To begin with, even if we assume that it is incumbent upon the plaintiff to "lift" the sulfuric acid it
ordered from defendant, the fact that force majeure intervened when the vessel which was
previouly (sic) listing, but which the parties, including a representative of the defendant, did not
mind, sunk, has the effect of absolving plaintiff from "lifting" the sulfuric acid at the designated
load port. But even assuming the plaintiff cannot be held entirely blameless, the allegation that
plaintiff agreed to a payment of a 2,000-peso incremental expenses per day to defendant for
delayed "lifting has not been proven." . . .
Also, if it were true that plaintiff is indebted to defendant, why did defendant accept a second
additional order after the transaction in litigation? Why also, did defendant not send plaintiff
statements of account until after 3 years?
All these convince the Court that indeed, defendant must return what plaintiff has paid it for the
goods which the latter did not actually receive. 16
On appeal by private respondent, the Court of Appeals reversed the decision of the trial court,
as follows:
Based on the facts of this case as hereinabove set forth, it is clear that the plaintiff had the
obligation to withdraw the full amount of 500 MT of sulfuric acid from the defendant's loadport at
Basay and Sangi on or before August 15, 1986. As early as August 6, 1986 it had been
accordingly warned by the defendant that any delay in the hauling of the commodity would mean
expenses on the part of the defendant amounting to P2,000.00 a day. The plaintiff sent its
vessel, the "M/T Sultan Kayumanggi", only on November 19, 1987. The vessel, however; was
not capable of loading the entire 500 MT and in fact, with its load of only 227.519 MT, it sank.
Contrary to the position of the trial court, the sinking of the "M/T Sultan Kayumanggi" did not
absolve the plaintiff from its obligation to lift the rest of the 272.481 MT of sulfuric acid at the
agreed time. It was the plaintiff's duty to charter another vessel for the purpose. It did contract
for the services of a new vessel, the "M/T Don Victor", but did not want to lift the balance of
272.481 MT only but insisted that its additional order of 227.51 MT be also given by the
defendant to complete 500 MT. apparently so that the vessel may be availed of in its full
capacity.
xxx xxx xxx
We find no basis for the decision of the trial court to make the defendant liable to the plaintiff not
only for the cost of the sulfuric acid, which the plaintiff itself failed to haul, but also for unrealized
profits as well as exemplary damages and attorney's fees. 17
Respondent Court of Appeals found the petitioner guilty of delay and negligence in the
performance of its obligation. It dismissed the complaint of petitioner and ordered it to pay
damages representing the counterclaim of private respondent.
The motion for reconsideration filed by petitioner was denied by respondent court in its
Resolution dated December 21, 1992, for lack of merit.
Petitioner now comes before us, assigning the following errors:
I.
RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT

TO HAVE COMMITTED A BREACH OF CONTRACT WHEN IT IS NOT DISPUTED THAT
PETITIONER PAID IN FULL THE VALUE OF 500 MT OF SULFURIC ACID TO PRIVATE
RESPONDENT BUT THE LATTER WAS ABLE TO DELIVER TO PETITIONER ONLY 227.51
M.T.
II.
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING PETITIONER LIABLE

FOR DAMAGES TO PRIVATE RESPONDENT ON THE BASIS OF A XEROX COPY OF AN
ALLEGED AGREEMENT TO HOLD PETITIONER LIABLE FOR DAMAGES FOR THE DELAY
WHEN PRIVATE RESPONDENT FAILED TO PRODUCE THE ORIGINAL IN
CONTRAVENTION OF THE RULES ON EVIDENCE.
III.
RESPONDENT COURT OF APPEALS ERRED IN FAILING TO CONSIDER THE UNDISPUTED

FACTS THAT PETITIONER'S PAYMENT FOR THE GOODS WAS RECEIVED BY PRIVATE
RESPONDENT WITHOUT ANY QUALIFICATION AND THAT PRIVATE RESPONDENT
ENTERED INTO ANOTHER CONTRACT TO SUPPLY PETITIONER 227.519 MT OF
SULFURIC ACID IN ADDITION TO THE UNDELIVERED BALANCE AS PROOF THAT ANY
DELAY OF PETITIONER WAS DEEMED WAIVED BY SAID ACTS OF RESPONDENT.
IV.
RESPONDENT COURT OF APPEALS ERRED IN NOT CONSIDERING THE LAW THAT

WHEN THE SALE INVOLVES FUNGIBLE GOODS AS IN THIS CASE THE EXPENSES FOR
STORAGE AND MAINTENANCE ARE FOR THE ACCOUNT OF THE SELLER (ARTICLE 1504
CIVIL CODE).
V.
RESPONDENT COURT OF APPEALS ERRED IN FAILING TO RENDER JUDGMENT FOR

PETITIONER AFFIRMING THE DECISION OF THE TRIAL COURT.
From the assigned errors, we synthesize the pertinent issues raised by the petitioner as
follows:
1. Did the respondent court err in holding that the petitioner committed breach of
contract, considering that:
a) the petitioner allegedly paid the full value of its purchases,

yet received only a portion of said purchases?
b) petitioner and private respondent allegedly had also agreed

for the purchase and supply of an additional 227.519 MT of
sulfuric acid, hence prior delay, if any, had been waived?
2. Did the respondent court err in awarding damages to private respondent?
3. Should expenses for the storage and preservation of the purchased fungible
goods, namely sulfuric acid, be on seller's account pursuant to Article 1504 of
the Civil Code?
To resolve these issues, petitioner urges us to review factual findings of respondent court and
its conclusion that the petitioner was guilty of delay in the performance of its obligation.
According to petitioner, that conclusion is contrary to the factual evidence. It adds that
respondent court disregarded the rule that findings of the trial court are given weight, with the
highest degree of respect. Claiming that respondent court's findings conflict with those of the
trial court, petitioner prays that the trial court's findings be upheld over those of the appellate
court.
Petitioner argues that it paid the purchase price of sulfuric acid, five (5) days prior to the
withdrawal thereof, or on October 3, 1986, hence, it had complied with the primary condition
set in the sales contract. Petitioner claims its failure to pick-up the remaining purchases on
time was due to a storm, a force majeure, which sank the vessel. It thus claims exemption
from liability to pay damages. Petitioner also contends that it was actually the private
respondent's shipping officer, who advised petitioner to buy the additional 227.51 MT of
sulfuric acid, so as to fully utilize the capacity of the vessel it chartered. Petitioner insists that
when its ship was ready to pick-up the remaining balance of 272.49 MT of sulfuric acid,
private respondent could not comply with the contract commitment due to "pyrite limitation."
While we agree with petitioner that when the findings of the Court of Appeals are contrary to
those of the trial court, 18 this Court may review those findings, we find the appellate court's
conclusion that petitioner violated the subject contract amply supported by preponderant
evidence. Petitioner's claim was predicated merely on the allegations of its employee, Melecio
Hernandez, that the storm or force majeure caused the petitioner's delay and failure to lift the
cargo of sulfuric acid at the designated loadports. In contrast, the appellate court discounted
Hernandez' assertions. For on record, the storm was not the proximate cause of petitioner's
failure to transport its purchases on time. The survey report submitted by a third party
surveyor, SGS Far East Limited, revealed that the vessel, which was unstable, was incapable
of carrying the full load of sulfuric acid. Note that there was a premature termination of loading
in Basay, Negros Oriental. The vessel had to undergo several repairs before continuing its
voyage to pick-up the balance of cargo at Sangi, Cebu. Despite repairs, the vessel still failed
to carry the whole lot of 500 MT of sulfuric acid due to ship defects like listing to one side. Its
unfortunate sinking was not due to force majeure. It sunk because it was, based on SGS
survey report, unstable and unseaworthy.
Witness surveyor Eugenio Rabe's incident report, dated December 13, 1986 in Basay, Negros
Oriental, elucidated this point:
Loading was started at 1500hrs. November 19. At 1600Hrs. November 20, loading operation
was temporarily stopped by the vessel's master due to ships stability was heavily tilted to port
side, ship's had tried to transfer the loaded acid to stbdside but failed to do so, due to their
auxiliary pump on board does not work out for acid.
xxx xxx xxx
Note. Attending surveyor arrived BMC Basay on November 22, due to delayed advice of said
vessel Declared quantity loaded onboard based on data's provided by PHILPHOS
representative.
On November 26, two representative of shipping company arrived Basay to assist the situation,
at 1300Hrs repairing and/or welding of tank number 5 started at 1000Hrs November 27,
repairing and/or welding was suspended due to the explosion of tank no. 5. Explosion ripped
about two feet of the double bottom tank.
November 27 up to date no progress of said vessel. 19
While at Sangi, Cebu, the vessel's condition (listing) did not improve as the survey report
therein noted:
Declared quantity loaded on board was based on shore tank withdrawal due to ship's incomplete
tank calibration table. Barge displacement cannot be applied due to ship was listing to Stboard
side which has been loaded with rocks to control her stability. 20
These two vital pieces of information were totally ignored by trial court. The appellate court
correctly took these into account, significantly. As to the weather condition in Basay, the
appellate court accepted surveyor Rabe's testimony, thus:
Q. Now, Mr. Witness, what was the weather condition then at Basay, Negros
Oriental during the loading operation of sulfuric acid on board the Sultana
Kayumanggi?
A. Fair, sir. 21
Since the third party surveyor was neither petitioner's nor private respondent's employee, his
professional report should carry more weight than that of Melecio Hernandez, an employee of
petitioner. Petitioner, as the buyer, was obligated under the contract to undertake the shipping
requirements of the cargo from the private respondent's loadports to the petitioner's
designated warehouse. It was petitioner which chartered M/T Sultan Kayumanggi. The vessel
was petitioner's agent. When it failed to comply with the necessary loading conditions of
sulfuric acid, it was incumbent upon petitioner to immediately replace M/T Sultan Kayumanggi
with another seaworthy vessel. However, despite repeated demands, petitioner did not
comply seasonably.
Additionally, petitioner claims that private respondent's employee, Gil Belen, had
recommended to petitioner to fully utilize the vessel, hence petitioner's request for additional
order to complete the vessel's 500 MT capacity. This claim has no probative pertinence nor
solid basis. A party who asserts that a contract of sale has been changed or modified has the
burden of proving the change or modification by clear and convincing evidence. 22 Repeated
requests and additional orders were contained in petitioner's letters to private respondent. In
contrast, Belen's alleged action was only verbal; it was not substantiated at all during the trial.
Note that, using the vessel to full capacity could redound to petitioner's advantage, not the
other party's. If additional orders were at the instance of private respondent, the same must
be properly proved together with its relevance to the question of delay. Settled is the principle
in law that proof of verbal agreements offered to vary the terms of written agreements is
inadmissible, under the parol evidence rule. 23 Belen's purported recommendation could not
be taken at face value and, obviously, cannot excuse petitioner's default.
Respondent court found petitioner's default unjustified, and on this conclusion we agree:
It is not true that the defendant was not in a position to deliver the 272.481 MT which was the
balance of the original 500 MT purchased by the plaintiff. The whole lot of 500 MT was ready for
lifting as early as August 15, 1986. What the defendant could not sell to the plaintiff was the
additional 227.51 MT which said plaintiff was ordering, for the reason that the defendant was
short of the supply needed. The defendant, however, had no obligation to agree to this additional
order and may not be faulted for its inability to meet the said additional requirements of the
plaintiff. And the defendant's incapacity to agree to the delivery of another 227.51 MT is not a
legal justification for the plaintiffs refusal to lift the remaining 272.481.
It is clear from the plaintiff's letters to the defendant that it wanted to send the "M/T Don Victor"
only if the defendant would confirm that it was ready to deliver 500 MT. Because the defendant
could not sell another 227.51 MT to the plaintiff, the latter did not send a new vessel to pick up
the balance of the 500 MT originally contracted for by the parties. This, inspite the
representations made by the defendant for the hauling thereof as scheduled and its reminders
that any expenses for the delay would be for the account of the plaintiff. 24
We are therefore constrained to declare that the respondent court did not err when it absolved
private respondent from any breach of contract.
Our next inquiry is whether damages have been properly awarded against petitioner for its
unjustified delay in the performance of its obligation under the contract. Where there has been
breach of contract by the buyer, the seller has a right of action for damages. Following this
rule, a cause of action of the seller for damages may arise where the buyer refuses to remove
the goods, such that buyer has to remove them. 25 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.
Delay begins from the time the obligee judicially or extrajudicially demands from the obligor
the performance of the obligation. 26 Art. 1169 states:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
In order that the debtor may be in default, it is necessary that the following requisites be
present: (1) that the obligation be demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires the performance judicially or
extrajudicially. 27
In the present case, private respondent required petitioner to ship out or lift the sulfuric acid
as agreed, otherwise petitioner would be charged for the consequential damages owing to
any delay. As stated in private respondent's letter to petitioner, dated December 12, 1986:
Subject: M/T "KAYUMANGGI"
Gentlemen:
This is to reiterate our telephone advice and our letter HJR-8612-031 dated 2 December 1986
regarding your sulfuric acid vessel, M/T "KAYUMANGGI".
As we have, in various instances, advised you, our Basay wharf will have to be vacated 15th
December 1986 as we are expecting the arrival of our chartered vessel purportedly to haul our
equipments and all other remaining assets in Basay. This includes our sulfuric acid tanks. We
regret, therefore, that if these tanks are not emptied on or before the 15th of December, we
either have to charge you for the tanks waiting time at Basay and its consequential costs (i.e.
chartering of another vessel for its second pick-up at Basay, handling, etc.) as well as all other
incremental costs on account of the protracted loading delay. 28 (Emphasis supplied)
Indeed the above demand, which was unheeded, justifies the finding of delay. But when did
such delay begin? The above letter constitutes private respondent's extrajudicial demand for
the petitioner to fulfill its obligation, and its dateline is significant. Given its date, however, we
cannot sustain the finding of the respondent court that petitioner's delay started on August 6,
1986. The Court of Appeals had relied on private respondent's earlier letter to petitioner of
that date for computing the commencement of delay. But as averred by petitioner, said letter
of August 6th is not a categorical demand. What it showed was a mere statement of fact, that
"[F]for your information any delay in Sulfuric Acid withdrawal shall cost us incremental
expenses of P2,000.00 per day." Noteworthy, private respondent accepted the full payment by
petitioner for purchases on October 3, 1986, without qualification, long after the August 6th
letter. In contrast to the August 6th letter, that of December 12th was a categorical demand.
Records reveal that a tanker ship had to pick-up sulfuric acid in Basay, then proceed to get
the remaining stocks in Sangi, Cebu. A period of three days appears to us reasonable for a
vessel to travel between Basay and Sangi. Logically, the computation of damages arising
from the shipping delay would then have to be from December 15, 1986, given said
reasonable period after the December 12th letter. More important, private respondent was
forced to vacate Basay wharf only on December 15th. Its Basay expenses incurred before
December 15, 1986, were necessary and regular business expenses for which the petitioner
should not be obliged to pay.
Note that private respondent extended its lease agreement for Sangi, Cebu storage tank until
August 31, 1987, solely for petitioner's sulfuric acid. It stands to reason that petitioner should
reimburse private respondent's rental expenses of P32,000 monthly, commencing December
15, 1986, up to August 31, 1987, the period of the extended lease. Note further that there is
nothing on record refuting the amount of expenses abovecited. Private respondent presented
in court two supporting documents: first, the lease agreement pertaining to the equipment,
and second a letter dated June 15, 1987, sent by Atlas Fertilizer Corporation to private
respondent representing the rental charges incurred. Private respondent is entitled to recover
the payment for these charges. It should be reimbursed the amount of two hundred seventy
two thousand
(P272,000.00) 29 pesos, corresponding to the total amount of rentals from December 15, 1986
to August 31, 1987 of the Sangi, Cebu storage tank.
Finally, we note also that petitioner tries to exempt itself from paying rental expenses and
other damages by arguing that expenses for the preservation of fungible goods must be
assumed by the seller. Rental expenses of storing sulfuric acid should be at private
respondent's account until ownership is transferred, according to petitioner. However, the
general rule that before delivery, the risk of loss is borne by the seller who is still the owner, is
not applicable in this case because petitioner had incurred delay in the performance of its
obligation. Article 1504 of the Civil Code clearly states:
Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is
transferred to the buyer, but when the ownership therein is transferred to the buyer the goods
are at the buyer's risk whether actual delivery has been made or not, except that:
xxx xxx xxx
(2) Where actual delivery has been delayed through the fault of either the buyer or seller the
goods are at the risk of the party at fault. (emphasis supplied)
On this score, we quote with approval the findings of the appellate court, thus:
. . . The defendant [herein private respondent] was not remiss in reminding the plaintiff that it
would have to bear the said expenses for failure to lift the commodity for an unreasonable length
of time.
But even assuming that the plaintiff did not consent to be so bound, the provisions of Civil Code
come in to make it liable for the damages sought by the defendant.
Art. 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.
Certainly, the plaintiff [herein petitioner] was guilty of negligence and delay in the performance of
its obligation to lift the sulfuric acid on August 15, 1986 and had contravened the tenor of its
letter-contract with the defendant. 30
As pointed out earlier, petitioner is guilty of delay, after private respondent made the
necessary extrajudicial demand by requiring petitioner to lift the cargo at its designated
loadports. When petitioner failed to comply with its obligations under the contract it became
liable for its shortcomings. Petitioner is indubitably liable for proven damages.
Considering, however, that petitioner made an advance payment for the unlifted sulfuric acid
in the amount of three hundred three thousand, four hundred eighty three pesos and thirty
seven centavos (P303,483.37), it is proper to set-off this amount against the rental expenses
initially paid by private respondent. It is worth noting that the adjustment and allowance of
private respondent's counterclaim or set-off in the present action, rather than by another
independent action, is encouraged by the law. Such practice serves to avoid circuitry of
action, multiplicity of suits, inconvenience, expense, and unwarranted consumption of the
court's time. 31 The trend of judicial decisions is toward a liberal extension of the right to avail
of counterclaims or set-offs. 32 The rules on counterclaims are designed to achieve the
disposition of a whole controversy involving the conflicting claims of interested parties at one
time and in one action, provided all parties can be brought before the court and the matter
decided without prejudicing the right of any party. 33 Set-off in this case is proper and
reasonable. It involves deducting P272,000.00 (rentals) from P303,483.37 (advance
payment), which will leave the amount of P31,483.37 refundable to petitioner.
WHEREFORE, the petition is hereby DENIED. The assailed decision of the Court of Appeals
in CA G.R. CV No. 33802 is AFFIRMED, with MODIFICATION that the amount of damages
awarded in favor of private respondent is REDUCED to Two hundred seventy two thousand
pesos (P272,000.00). It is also ORDERED that said amount of damages be OFFSET against
petitioner's advance payment of Three hundred three thousand four hundred eighty three
pesos and thirty-seven centavos (P303,483.37) representing the price of the 272.481 MT of
sulfuric acid not lifted. Lastly, it is ORDERED that the excess amount of thirty one thousand,
four hundred eighty three pesos and thirty seven centavos (P31,483.37) be RETURNED
soonest by private respondent to herein petitioner.1âwphi1.nêt
Costs against the petitioner.
SO ORDERED.
Bellosillo, Mendoza and Buena, JJ., concur.
Footnotes
1 Rollo, pp. 36-45, Penned by Justice Associate Justice Salome A. Montoya, concurred in by Justices
Jose C. Campos and Serafin V.C. Guingona, of the Special Fifth Division of the Court of Appeals.
2 Rollo p. 44.
3 Records, pp. 5-6.
4 Id. at 136.
5 Id. at 137.
6 TSN, September 1, 1989, pp. 28-29.
7 Records, pp. 47-48. Emphasis ours.
8 Id. at 49.
9 Id. at 50.
10 Id. at 41.
11 Id. at 138.
12 Id. at 40.
13 Id. at 65, Affidavit of Gil B. Belen.
14 Id. at 46.
15 Rollo, p. 51.
16 Id. at 52-53.
17 Id. at 41-42.
18 Mijares vs. CA, 271 SCRA 558, 566 (1997), citing Cuizon vs. Court of Appeals, 260 SCRA 645,
(1996); Floro vs. Llenado, 244 SCRA 713 (1995).
19 Records, p. 21.
20 Id. at 23.
21 TSN, December 20, 1989, p. 6.
22 77 Corpus Juris Secundum, Sales, Section 86, Evidence, p. 773.
23 Gerales vs. Court of Appeals, 218 SCRA 638, 648-649 (1993); citing Continental Airlines Inc. vs.
Santiago. 172 SCRA 490 (1989).
24 Rollo, p. 42.
25 78 Corpus Juris Secundum, Sales, Action for Damages, Section 462, Right of Action, p. 112.
26 SSS vs. Moonwalk Development and Housing Corporation, 221 SCRA 119, 127 (1993).
27 Id. at 128.
28 Records, p. 137.
29 P32,000 x 8.5 months.
30 Rollo, pp. 43-44.
31 Development Bank of the Philippines vs. Court of Appeals, 249 SCRA 331, 341 (1995).
32 Id., citing 20 Am. Jur. 2d, Counterclaim, 237-238.
33 Id., citing Kuenzel vs. Universal Carloading and Distributing Co., Inc. (1939) 29 F. Supp. 407.
FAR EAST BANK AND TRUST COMPANY, petitioner, vs. COURT OF APPEALS and SMP, INC.,
respondents.
DECISION
BELLOSILLO, J.:
FAR EAST BANK AND TRUST COMPANY filed a Complaint against Clothespak Manufacturing
Phils., Inc. (hereafter CLOTHESPAK) for recovery of sums of money before the Regional Trial Court
of Pasig City.[1]
On 14 March 1995 the trial court issued a Writ of Preliminary Attachment by virtue of which the
Sheriff levied on the personal properties found in the premises of CLOTHESPAK. On 28 March 1995
respondent SMP, Inc. (hereafter SMP) filed an Affidavit of Third-Party Claim asserting ownership over
4,000 bags of General Purpose (GPS) polystyrene products included among the attached properties. On
6 April 1995 petitioner posted a Sheriff's Indemnity Bond issued by Siddcor Insurance Corporation
(hereafter SIDDCOR).
On 21 May 1996 the trial court ruled that the third-party claim can be best and fully ventilated in a
vindicatory action under Sec. 17, Rule 39, of the Rules of Court.[2] On 13 January and 7 March 1997 it
denied reconsideration.[3] Thereafter, a Decision was rendered in favor of petitioner and a Writ of
Execution was accordingly issued upon the judgment becoming final and executory. Petitioner acquired
the attached goods as highest bidder in the public auction.
Meanwhile, on 26 February 1997 respondent SMP filed a Complaint for damages against petitioner, the
Sheriff and SIDDCOR before the Regional Trial Court of Quezon City, docketed as Civil Case No. Q-
97-30372, pertinent portions of which read -
5. Plaintiff is engaged in the manufacture, production, formulation, tolling, distribution, trading, selling,
import and export of polystyrene products and such other businesses related to or connected with
polystyrene products.
6. On January 19, 1995, Maria Teresa Michaela Ong, one of the Sales Executives of plaintiff,
personally undertook the acceptance and servicing of a purchase order of CLOTHESPAK
MANUFACTURING PHILS., INC. (CLOTHESPAK for brevity) for 4,000 bags or sacks of General
Purpose (GPS) polystyrene products to be made by CLOTHESPAK into "plastic hangers" x x x x
7. Pursuant to such Purchase Order, the ordered products (4,000 bags) were delivered on January 23,
24, 25, and 27, 1995 to the plant of CLOTHESPAK located at Bo. Panungyanan, General Trias, Cavite
City, for which Delivery Receipts were issued x x x x
8. The total selling price of the above delivered products amounted to U.S. $118,500, as evidenced by
Sales Invoices Nos. 5509, 5510, and 5511 x x x x
9. As "payment" for the goods ordered and duly delivered, CLOTHESPAK issued postdated checks in
favor of plaintiff SMP, INC. and delivered the same to Maria Teresa Michaela Ong upon delivery of the
ordered goods x x x x As agreed upon, the ownership over the goods delivered was explicitly retained
by SMP until all the above-enumerated postdated checks shall have cleared and honored as good by the
bank, with the understanding that SMP can get back the goods delivered at any time in case the
check(s) are dishonored and returned by the bank for any reason, as contained in the Provisional
Receipt issued by SMP to CLOTHESPAK upon receipt by SMP of the above postdated checks x x x x
10. When the above checks were deposited by SMP on their maturity dates, the drawee bank
dishonored and returned them for the reason "Account Closed" x x x x
14. Deputy Sheriff Alejandro Loquinario of RTC-Pasig City x x x made an actual levy/attachment on
the properties found on the premises of CLOTHESPAK at Panungyanan, Gen. Trias, Cavite on various
dates in March 1995 before several witnesses including the representative of FEBTC. Among the
properties levied/attached were "plastic resins" and "plastic hangers," as evidenced by the Notice of
Levy/Attachment issued and submitted by Deputy Sheriff Loquinario for March 14, 1995 (plastic
resins), March 15, 1995 (plastic resins) and March 16, 1995 (plastic hangers) x x x x
The LISTS OF INVENTORY attached to the Notice of Levy/Attachment did not fully describe with
specificity the materials or goods attached; most of the sacks were described merely as "RAW
MATERIALS' and 'GRINDED;' a few were labeled "DOW" which indicates a foreign brand and
therefore probably imported. This would seem to indicate that FEBTC directed the Sheriff to attach any
and all goods found in the premises of CLOTHESPAK without regard as to whether they are those
"goods intended to be attached," and most likely in order to make it difficult to trace, verify or check,
the Sheriff just listed the goods without detailed description or identification. Since FEBTC was
desperate in recovering whatever it can recover from its credit exposure to CLOTHESPAK, even goods
clearly not owned by FEBTC by virtue of its alleged Trust Receipts just had to be attached for any
reason.
Yet, it is clear from the allegations made in FEBTC's Complaint (Annex "G") that it was only after
goods imported by CLOTHESPAK and allegedly paid for through LC/TR. Hence, FEBTC should have
attached only those plastic products that were imported and not those that are locally produced like
those of SMP.
15. Yet, the main bulk of the plastic goods/materials attached by the sheriff belonged to the plaintiff as
can easily be seen from the pictures of the sacks of goods attached which show clearly the labels
"TOPRENE" (a brand name) and "SMP INCORPORATED" and Paseo de Blas, Valenzuela,
Philippines", all of which indicate that the goods/materials are owned by plaintiff and locally made.
The pictures were taken in the place where the sheriff brought the goods for safe-keeping, i.e, at the
Tacoma Warehouse, Port Area, Manila x x x x[4]
On 8 April 1997 SIDDCOR filed a Motion to Dismiss the Complaint on the assertion that no action
was filed by respondent SMP against the Sheriff within 120 days from the filing of the bond as
provided in Sec. 17, Rule 39, of the Rules of Court. On 10 April 1997 petitioner and the Sheriff filed a
Manifestation and Motion for a Bill of Particulars and Production of Documents. Movants averred that
CLOTHESPAK was an indispensable party; that the Complaint did not state a cause of action; and, that
certain allegations therein should be particularized.
On 15 July 1997 the trial court granted the Motion of SIDDCOR. It found that indeed the case was
filed beyond the 120-day period, relieving SIDDCOR from any liability. On the other hand, it denied
the Motion of petitioner and the Sheriff. It expressed the view that CLOTHESPAK was not responsible
for the attachment and necessarily could not be made defendant in the present case; that the allegations
in the Complaint were sufficient bases for them to properly formulate their defenses; and, that the
matters they sought to be particularized were evidentiary in character and should therefore be threshed
out during the trial proper.
On 12 August 1997 petitioner filed another Motion this time seeking the dismissal of the Complaint
anchored on these grounds: (a) the Complaint stated no cause of action; and, (b) the cause of action, if
any, was barred by prior judgment since the third-party claim of respondent SMP was denied in Civil
Case No. 65006.
On 24 October 1997 the trial court denied petitioner's Motion explaining that the Complaint alleged
ultimate facts constituting a cause of action and that from the denial of respondent SMP's third- party
claim, SMP could file a separate action to vindicate its claim to the properties.[5] On 25 November
1997 reconsideration was denied.[6]
Through a Petition for Certiorari and Mandamus petitioner assailed the 24 October and 25 November
1997 Orders of the trial court before the Court of Appeals. On 31 July 1998 the Petition was dismissed.
The appellate court concurred in the finding of the trial court that the Complaint stated a cause of action
and held that neither certiorari nor mandamus was a proper remedy.[7] On 16 September 1998
reconsideration was denied.[8]
Petitioner asserts that the Complaint of respondent SMP does not state a cause of action because on the
basis of the allegations therein, subject goods were already owned by CLOTHESPAK at the time of
attachment. Petitioner also claims that respondent SMP raised a new theory in Civil Case No. Q-97-
30372, i.e., that respondent SMP retained ownership of the goods based on a provisional receipt
wherein its collector acknowledged having received postdated checks drawn by CLOTHESPAK and
wherein the same collector placed a handwritten statement thereon that "materials belong to SMP until
your checks clear." Petitioner argues that the statement is a unilateral condition inserted by a mere
collector after delivery of the goods which cannot supersede the covering Sales Invoices prepared
before delivery and signed by CLOTHESPAK stating that the sale was on credit "60 PDC."[9]
Petitioner thus maintains that the trial court acted with grave abuse of discretion tantamount to lack or
excess of jurisdiction when it did not dismiss the Complaint and respondent Court of Appeals
committed serious error by sustaining the trial court.
There is no merit in the petition. A cause of action is an act or omission of one party in violation of the
legal right of the other. Its essential elements are: (a) the existence of a legal right in the plaintiff; (b) a
correlative legal duty in the defendant; and, (c) an act or omission of the defendant in violation of
plaintiff's right with consequential injury or damage to the plaintiff for which he may maintain an
action for the recovery of damages or other appropriate relief.[10] Readily discernible from the face of
respondent SMP's Complaint is that there is a statement of causes of action. Assuming the facts to be
true, (a) respondent SMP still owns subject goods on account of an agreement with CLOTHESPAK
contained in a provisional receipt that "SMP can get back the goods delivered at any time in case the
check(s) are dishonored and returned by the bank for any reason;" (b) petitioner has a correlative duty
to respect such ownership; and, (c) the act of petitioner in including the goods among the attached
properties violated the right of respondent SMP and entitled it to recover damages or other appropriate
relief. On the basis of those allegations, the trial court can render a valid judgment.
It appears that petitioner outrightly regards as untrue the claim of respondent SMP that it retained
ownership of subject goods; in effect, petitioner contradicts the allegations in the Complaint. This is
improper. In a motion to dismiss a complaint based on lack of cause of action, the question submitted to
the court for determination is the sufficiency of the allegations in the complaint to constitute a cause of
action and not whether those allegations of fact are true, for such motion must hypothetically admit the
truth of the facts alleged in the complaint.[11] Otherwise stated, the test of the sufficiency of the facts
alleged in the complaint is whether, admitting the facts alleged, the court could render a valid judgment
upon the same in accordance with the prayer of the complaint.[12] An inquiry regarding the veracity of
respondent SMP's allegations is not proper in resolving the Motion to Dismiss. As to whether
respondent SMP is still the owner of subject goods is an issue necessitating a full-blown trial on the
merits.
An order denying a motion to dismiss is interlocutory and cannot be the subject of the extraordinary
petition for certiorari or mandamus. The remedy of the aggrieved party is to file an answer and to
interpose as defenses the objections raised in his motion to dismiss, proceed to trial, and in case of an
adverse decision, to elevate the entire case by appeal in due course.[13] However, the rule is not
ironclad. Under certain situations, recourse to certiorari or mandamus is considered appropriate, i.e.,
(a) when the trial court issued the order without or in excess of jurisdiction;[14] (b) where there is patent
grave abuse of discretion by the trial court;[15] or, (c) appeal would not prove to be a speedy and
adequate remedy as when an appeal would not promptly relieve a defendant from the injurious effects
of the patently mistaken order maintaining the plaintiff's baseless action and compelling the defendant
needlessly to go through a protracted trial and clogging the court dockets by another futile case.[16] At
any rate, we find that the Petition for Certiorari and Mandamus filed by petitioner before the Court of
Appeals is not the available remedy. The trial court did not issue the assailed Orders with grave abuse
of discretion, or without or in excess of jurisdiction. The Orders did not produce any injurious effect on
petitioner. Rather, the trial court issued the Orders based on a correct appreciation of the evidence
which made them withstand appellate scrutiny twice.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals of 31 July 1998
sustaining the Orders of the Regional Trial Court-Br.92, Quezon City, which denied petitioner Far East
Bank and Trust Company's Motion to Dismiss respondent SMP, Inc.'s Complaint, and its Resolution of
16 September 1998 denying reconsideration are AFFIRMED. Costs against petitioner.
SO ORDERED.
Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.
G.R. No. 126152 September 28, 1999
PHILIPPINE NATIONAL BANK, petitioner,

vs.
COURT OF APPEALS and LILY S. PUJOL, respondents.
BELLOSILLO, J.:
PHILIPPINE NATIONAL, BANK filed this petition for review on certiorari under Rule 45 of the
Rules of Court assailing the Decision of the Court of Appeals 1 which affirmed the award of
damages by the Regional Trial Court, Branch 154, Pasig City in favor of private respondent
Lily S. Pujol. 2
Sometime prior to 23 October 1990 private respondent Lily S. Pujol opened with petitioner
Philippine National Bank, Mandaluyong Branch (PNB for brevity), an account denominated as
"Combo Account," a combination of Savings Account and Current Account in private
respondent's business name "Pujol Trading," under which checks drawn against private
respondent's checking account could be charged against her Savings Account should the
funds in her Current Account be insufficient to cover the value of her checks. Hence, private
respondent was issued by petitioner a passbook on the front cover of which was typewritten
the words "Combo Deposit Plan."
On 23 October 1990, private respondent issued a check in the amount of P30,000.00 in favor
of her daughter-in-law, Dr. Charisse M. Pujol. When issued and presented for payment,
private respondent had sufficient funds in her Savings Account. However, petitioner
dishonored her check allegedly for insufficiency of funds and debited her account with
P250.00 as penalty charge.1âwphi1.nêt
On 24 October 1990 private respondent issued another check in the amount of P30,000.00 in
favor of her daughter, Ms. Venus P. De Ocampo. When issued and presented for payment
petitioner had sufficient funds in her Savings Account. But, this notwithstanding, petitioner
dishonored her check for insufficiency of funds and debited her account with P250.00 as
penalty charge. On 4 November 1990, after realizing its mistake, petitioner accepted and
honored the second check for P30,000.00 and re-credited to private respondent's account the
P250.00 previously debited as penalty.
Private respondent Lily S. Pujol filed with the Regional Trial Court of Pasig City a complaint
for moral and exemplary damages against petitioner for dishonoring her checks despite
sufficiency of her funds in the bank.
Petitioner admitted in its answer that private respondent Pujol opened a "Combo Account," a
combination of Savings Account and Current Account with its Mandaluyong branch. It
however justified the dishonor of the two (2) checks by claiming that at the time of their
issuance private respondent Pujol's account was not yet operational due to lack of
documentary requirements, to wit: (a) Certificate of Business Registration; (b) Permit to
Operate Business; (c) ID Card; and, (d) Combination Agreement. Petitioner further alleged
that despite the non-compliance with such requirements petitioner placed the sign "Combo
Flag" on respondent Pujol's account out of courtesy and generosity. Petitioner also admitted
that it later honored private respondent's second check, debited the amount stated therein
from her account and re-credited the amount of P250.00 initially charged as penalty.
On 27 September 1994 the trial court rendered a decision ordering petitioner to pay private
respondent Pujol moral damages of P100,000.00 and attorney's fees of P20,000.00. It found
that private respondent suffered mental anguish and besmirched reputation as a result of the
dishonor of her checks, and that being a former member of the judiciary who was expected to
be the embodiment of integrity and good behavior, she was subjected to embarrassment due
to the erroneous dishonor of her checks by petitioner.
The Court of Appeals affirmed in toto the decision of the trial court. Hence, petitioner comes to
this Court alleging that the appellate court erred (a) in holding that petitioner was estopped
from denying the existence of a "Combo Account" and the fact that it was operational at the
time of the issuance of the checks because respondent Pujol was issued a Savings Account
passbook bearing the printed words "Combo Deposit Plan;" and, (b) in not holding that the
award by the trial court of moral damages of P100,000.00 and attorney's fees of P20,000.00
was inordinately disproportionate and unconscionable.
We cannot sustain petitioner. Findings of fact and conclusions of the lower courts are entitled
to great weight on appeal and will not be disturbed except for strong and cogent reasons, and
for that matter, the findings of the Court of Appeals especially when they affirm the trial court,
and which are supported by substantial evidence, are almost beyond the power of review by
the Supreme Court. 3
Petitioner does not dispute the fact that private respondent Pujol maintained a Savings
Account as well as a Current Account with its Mandaluyong Branch and that private
respondent applied for a "Combination Deposit Plan" where checks issued against the
Current Account of the drawer shall be charged automatically against the latter's Savings
Account if her funds in the Current Account be insufficient to cover her checks. There was
also no question that the Savings Account passbook of respondent Pujol contained the
printed words "Combo Deposit Plan" without qualification or condition that it would take effect
only after submission of certain requirements. Although petitioner presented evidence before
the trial court to prove that the arrangement was not yet operational at the time respondent
Pujol issued the two (2) checks, it failed to prove that she had actual knowledge that it was
not yet operational at the time she issued the checks considering that the passbook in her
Savings Account already indicated the words "Combo Deposit Plan." Hence, respondent Pujol
had justifiable reason to believe, based on the description in her passbook, that her accounts
were effectively covered by the arrangement during the issuance of the checks. Either by its
own deliberate act, or its negligence in causing the "Combo Deposit Plan" to be placed in the
passbook, petitioner is considered estopped to deny the existence of and perfection of the
combination deposit agreement with respondent Pujol. Estoppel in pais or equitable estoppel
arises when one, by his acts, representations or admissions, or by his silence when he ought
to speak out, intentionally or through culpable negligence, induces another to believe certain
facts to exist and such other rightfully relies and acts on such belief so that he will be
prejudiced if the former is permitted to deny the existence of such facts. 4
As found by the Court of Appeals, petitioner knew it committed a mistake in dishonoring the
checks of respondent Pujol. This was based on the testimony of Pedro Lopez, petitioner's
employee, that after the second check was dishonored, petitioner examined respondent
Pujol's account and learned that there was sufficient funds in the Savings Account, and that
only after the second check was dishonored did petitioner rectify its error. 5 The appellate
court also found that respondent Pujol, who is a retired judge and community leader, issued
the first check dated 23 October 1990 to her daughter-in-law, Dr. Charisse Pujol, who in turn
indorsed the check to her mother. The latter needed the money to refloat two (2) of their
vessels which sank during a typhoon. When the check was dishonored for insufficient funds,
private respondent's daughter-in-law confronted the former which subjected her to
embarrassment and humiliation. Petitioner issued the second check dated 24 October 1990
to daughter Venus de Ocampo as payment for the expenses of her round trip ticket to the
United States which were shouldered by her son-in-law, husband of Venus de Ocampo. When
the second check was initially dishonored for insufficiency of funds, she again suffered
serious anxiety and mental anguish that her son-in-law would no longer hold her in high
esteem. 6
This Court has ruled that a bank is under obligation to treat the accounts of its depositors with
meticulous care whether such account consists only of a few hundred pesos or of millions of
pesos. Responsibility arising from negligence in the performance of every kind of obligation is
demandable. While petitioner's negligence in this case may not have been attended with
malice and bad faith, nevertheless, it caused serious anxiety, embarrassment and humiliation
to private respondent Lily S. Pujol for which she is entitled to recover reasonable moral
damages. 7 In the case of Leopoldo Araneta v. Bank of America 8 we held that it can hardly be
possible that a customer's check can be wrongfully refused payment without some
impeachment of his credit which must in fact be an actual injury, although he cannot, from the
nature of the case, furnish independent and distinct proof thereof.
Damages are not intended to enrich the complainant at the expense of the defendant, and
there is no hard-and-fast rule in the determination of what would be a fair amount of moral
damages since each case must be governed by its own peculiar facts. The yardstick should
be that it is not palpably and scandalously excessive. In this case, the award of P100,000.00
is reasonable considering the reputation and social standing of private respondent Pujol and
applying our rulings in similar cases involving banks' negligence with regard to the accounts
of their depositors. 9 The award of attorney's fees in the amount of P20,000.00 is proper for
respondent Pujol was compelled to litigate to protect her interest. 10
WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals which
affirmed the award by the Regional Trial Court of Pasig City of moral damages of
P100,000.00 and attorney's fees of P20,000.00 in favor of private respondent Lily S. Pujol is
AFFIRMED. Costs against petitioner.1âwphi1.nêt
SO ORDERED.
Mendoza, Quisumbing and Buena, JJ., concur.
Footnotes
1 Decision penned by Associate Justice Antonio M. Martinez of the Court of Appeals (later of the
Supreme Court), concurred in by Associate Justice Ricardo P. Galvez (now Solicitor General) and
Hilarion L. Aquino.
2 Decision penned by Judge Ramon R. Buenaventura, RTC-Br. 154, Pasig City.
3 Atlantic Gulf and Pacific Company of Manila, Inc. v. Court of Appeals, G.R. Nos. 114841-42, 23 August
1995, 247 SCRA 606.
4 Panay Electric Co., Inc. v. Court of Appeals, G.R. No. 81939, 29 June 1989, 174 SCRA 500.
5 Rollo, p. 32.
6 Ibid.
7 Metropolitan Bank and Trust Company v. Court of Appeals, G.R. No 112576, 26 October 1994, 237
SCRA 761.
8 No. L-25414, 30 July 1971, 40 SCRA 144.
9 Tan v. Court of Appeals, G.R. No. 108555, 20 December 1994, 239 SCRA 310.
10 Ibid.
G.R. No. 126389 July 10, 1998
SOUTHEASTERN COLLEGE INC., petitioner,
vs.
COURT OF APPEALS, JUANITA DE JESUS VDA. DE DIMAANO, EMERITA DIMAANO,

REMEDIOS DIMAANO, CONSOLACION DIMAANO and MILAGROS DIMAANO,
respondents.
PURISIMA, J.:
Petition for review under Rule 45 of the Rules of Court seeking to set aside the Decision 1
promulgated on July 31, 1996, and Resolution 2 dated September 12, 1996 of the Court of
Appeals 3 in CA-G.R. No. 41422, entitled "Juanita de Jesus vda. de Dimaano, et al. vs.
Southeastern College, Inc.", which reduced the moral damages awarded below from
P1,000,000.00 to P200,000.00. 4 The Resolution under attack denied petitioner's motion for
reconsideration.
Private respondents are owners of a house at 326 College Road, Pasay City, while petitioner
owns a four-storey school building along the same College Road. On October 11, 1989, at
about 6:30 in the morning, a powerful typhoon "Saling" hit Metro Manila. Buffeted by very
strong winds, the roof of petitioner's building was partly ripped off and blown away, landing on
and destroying portions of the roofing of private respondents' house. After the typhoon had
passed, an ocular inspection of the destroyed building was conducted by a team of engineers
headed by the city building official, Engr. Jesus L. Reyna. Pertinent aspects of the latter's
Report 5 dated October 18, 1989 stated, as follows:
5. One of the factors that may have led to this calamitous event is the formation of the building in
the area and the general direction of the wind. Situated in the peripheral lot is an almost U-
shaped formation of 4-storey building. Thus, with the strong winds having a westerly direction,
the general formation of the building becomes a big funnel-like structure, the one situated along
College Road, receiving the heaviest impact of the strong winds. Hence, there are portions of
the roofing, those located on both ends of the building, which remained intact after the storm.
6. Another factor and perhaps the most likely reason for the dislodging of the roofing structural
trusses is the improper anchorage of the said trusses to the roof beams. The 1/2' diameter steel
bars embedded on the concrete roof beams which serve as truss anchorage are not bolted nor
nailed to the trusses. Still, there are other steel bars which were not even bent to the trusses,
thus, those trusses are not anchored at all to the roof beams.
It then recommended that "to avoid any further loss and damage to lives, limbs and
property of persons living in the vicinity," the fourth floor of subject school building be
declared as a "structural hazard."
In their Complaint 6 before the Regional Trial Court of Pasay City, Branch 117, for damages
based on culpa aquiliana, private respondents alleged that the damage to their house
rendered the same uninhabitable, forcing them to stay temporarily in others' houses. And so
they sought to recover from petitioner P117,116.00, as actual damages, P1,000,000.00, as
moral damages, P300,000.00, as exemplary damages and P100,000.00, for and as attorney's
fees; plus costs.
In its Answer, petitioner averred that subject school building had withstood several
devastating typhoons and other calamities in the past, without its roofing or any portion
thereof giving way; that it has not been remiss in its responsibility to see to it that said school
building, which houses school children, faculty members, and employees, is "in tip-top
condition"; and furthermore, typhoon "Saling" was "an act of God and therefore beyond
human control" such that petitioner cannot be answerable for the damages wrought thereby,
absent any negligence on its part.
The trial court, giving credence to the ocular inspection report to the effect that subject school
building had a "defective roofing structure," found that, while typhoon "Saling" was
accompanied by strong winds, the damage to private respondents' houses "could have been
avoided if the construction of the roof of [petitioner's] building was not faulty." The dispositive
portion of the lower court's decision 7 reads, thus:
WHEREFORE, in view of the foregoing, the Court renders judgment (sic) in favor of the plaintiff
(sic) and against the defendants, (sic) ordering the latter to pay jointly and severally the former
as follows:
a) P117,116.00, as actual damages, plus litigation expenses;
b) P1,000,000.00 as moral damages;
c) P100,000.00 as attorney's fees;
d) Costs of the instant suit.
The claim for exemplary damages is denied for the reason that the defendants (sic) did in a
wanton fraudulent, reckless, oppressive or malevolent manner.
In its appeal to the Court of Appeals, petitioner assigned as errors, 8 that:
I
THE TRIAL COURT ERRED IN HOLDING THAT TYPHOON "SALING", AS AN ACT OF GOD,
IS NOT "THE SOLE AND ABSOLUTE REASON" FOR THE RIPPING-OFF OF THE SMALL
PORTION OF THE ROOF OF SOUTHEASTERN'S FOUR (4) STOREY SCHOOL BUILDING.
II
THE TRIAL COURT ERRED IN HOLDING THAT "THE CONSTRUCTION OF THE ROOF OF
DEFENDANT'S SCHOOL BUILDING WAS FAULTY" NOTWITHSTANDING THE ADMISSION
THAT THERE WERE TYPHOONS BEFORE BUT NOT AS GRAVE AS TYPHOON "SALING"
WHICH IS THE DIRECT AND PROXIMATE CAUSE OF THE INCIDENT.
III
THE TRIAL COURT ERRED IN AWARDING ACTUAL AND MORAL DAMAGES AS WELL AS
ATTORNEY'S FEES AND LITIGATION EXPENSES AND COSTS OF SUIT TO DIMAANOS
WHEN THEY HAVE NOT INCURRED ACTUAL DAMAGES AT ALL AS DIMAANOS HAVE
ALREADY SOLD THEIR PROPERTY, AN INTERVENING EVENT THAT RENDERS THIS CASE
MOOT AND ACADEMIC.
IV
THE TRIAL COURT ERRED IN ORDERING THE ISSUANCE OF THE WRIT OF EXECUTION
INSPITE OF THE PERFECTION OF SOUTHEASTERN'S APPEAL WHEN THERE IS NO
COMPELLING REASON FOR THE ISSUANCE THERETO.
As mentioned earlier, respondent Court of Appeals affirmed with modification the trial court's
disposition by reducing the award of moral damages from P1,000,000.00 to P200,000.00.
Hence, petitioner's resort to this Court, raising for resolution the issues of:
1. Whether or not the award of actual damages [sic] to respondent Dimaanos on the basis of
speculation or conjecture, without proof or receipts of actual damage, [sic] legally feasible or
justified.
2. Whether or not the award of moral damages to respondent Dimaanos, with the latter having
suffered, actual damage has legal basis.
3. Whether or not respondent Dimaanos who are no longer the owner of the property, subject
matter of the case, during its pendency, has the right to pursue their complaint against petitioner
when the case was already moot and academic by the sale of the property to third party.
4. Whether or not the award of attorney's fees when the case was already moot academic [sic]
legally justified.
5. Whether or not petitioner is liable for damage caused to others by typhoon "Saling" being an
act of God.
6. Whether or not the issuance of a writ of execution pending appeal, ex-parte or without
hearing, has support in law.
The pivot of inquiry here, determinative of the other issues, is whether the damage on the roof
of the building of private respondents resulting from the impact of the falling portions of the
school building's roof ripped off by the strong winds of typhoon "Saling", was, within legal
contemplation, due to fortuitous event? If so, petitioner cannot be held liable for the damages
suffered by the private respondents. This conclusion finds support in Article 1174 of Civil
Code, which provides:
Art 1174. Except in cases expressly 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.
The antecedent of fortuitous event or caso fortuito is found in the Partidas which defines it as
"an event which takes place by accident and could not have been foreseen." 9 Escriche
elaborates it as "an unexpected event or act of God which could neither be foreseen nor
resisted." 10 Civilist Arturo M. Tolentino adds that "[f]ortuitous events may be produced by two
general causes: (1) by nature, such as earthquakes, storms, floods, epidemics, fires, etc. and
(2) by the act of man, such as an armed invasion, attack by bandits, governmental
prohibitions, robbery, etc." 11
In order that a fortuitous event may exempt a person from liability, it is necessary that he be
free from any previous negligence or misconduct by reason of which the loss may have been
occasioned. 12 An act of God cannot be invoked for the protection of a person who has been
guilty of gross negligence in not trying to forestall its possible adverse consequences. When a
person's negligence concurs with an act of God in producing damage or injury to another,
such person is not exempt from liability by showing that the immediate or proximate cause of
the damages or injury was a fortuitous event. When the effect is found to be partly the result
of the participation of man — whether it be from active intervention, or neglect, or failure to act
— the whole occurrence is hereby humanized, and removed from the rules applicable to acts
of God. 13
In the case under consideration, the lower court accorded full credence to the finding of the
investigating team that subject school building's roofing had "no sufficient anchorage to hold it
in position especially when battered by strong winds." Based on such finding, the trial court
imputed negligence to petitioner and adjudged it liable for damages to private respondents.
After a thorough study and evaluation of the evidence on record, this Court believes
otherwise, notwithstanding the general rule that factual findings by the trail court, especially
when affirmed by the appellate court, are binding and conclusive upon this Court. 14 After a
careful scrutiny of the records and the pleadings submitted by the parties, we find exception
to this rule and hold that the lower courts misappreciated the evidence proffered.
There is no question that a typhoon or storm is a fortuitous event, a natural occurrence which
may be foreseen but is unavoidable despite any amount of foresight, diligence or care. 15 In
order to be exempt from liability arising from any adverse consequence engendered thereby,
there should have been no human participation amounting to a negligent act. 16 In other
words; the person seeking exoneration from liability must not be guilty of negligence.
Negligence, as commonly understood, is conduct which naturally or reasonably creates
undue risk or harm to others. It may be the failure to observe that degree of care, precaution,
and vigilance which the circumstances justify demand, 17 or the omission to do something
which a prudent and reasonable man, guided by considerations which ordinarily regulate the
conduct of human affairs, would
do. 18 From these premises, we proceed to determine whether petitioner was negligent, such
that if it were not, the damage caused to private respondents' house could have been
avoided?
At the outset, it bears emphasizing that a person claiming damages for the negligence of
another has the burden of proving the existence of fault or negligence causative of his injury
or loss. The facts constitutive of negligence must be affirmatively established by competent
evidence, 19 not merely by presumptions and conclusions without basis in fact. Private
respondents, in establishing the culpability of petitioner, merely relied on the aforementioned
report submitted by a team which made an ocular inspection of petitioner's school building
after the typhoon. As the term imparts, an ocular inspection is one by means of actual sight or
viewing. 20 What is visual to the eye through, is not always reflective of the real cause behind.
For instance, one who hears a gunshot and then sees a wounded person, cannot always
definitely conclude that a third person shot the victim. It could have been self-inflicted or
caused accidentally by a stray bullet. The relationship of cause and effect must be clearly
shown.
In the present case, other than the said ocular inspection, no investigation was conducted to
determine the real cause of the partial unroofing of petitioner's school building. Private
respondents did not even show that the plans, specifications and design of said school
building were deficient and defective. Neither did they prove any substantial deviation from
the approved plans and specifications. Nor did they conclusively establish that the
construction of such building was basically flawed. 21
On the other hand, petitioner elicited from one of the witnesses of private respondents, city
building official Jesus Reyna, that the original plans and design of petitioner's school building
were approved prior to its construction. Engr. Reyna admitted that it was a legal requirement
before the construction of any building to obtain a permit from the city building official (city
engineer, prior to the passage of the Building Act of 1977). In like manner, after construction
of the building, a certification must be secured from the same official attesting to the
readiness for occupancy of the edifice. Having obtained both building permit and certificate of
occupancy, these are, at the very least, prima facie evidence of the regular and proper
construction of subject school building. 22
Furthermore, when part of its roof needed repairs of the damage inflicted by typhoon "Saling",
the same city official gave the go-signal for such repairs — without any deviation from the
original design — and subsequently, authorized the use of the entire fourth floor of the same
building. These only prove that subject building suffers from no structural defect, contrary to
the report that its "U-shaped" form was "structurally defective." Having given his unqualified
imprimatur, the city building official is presumed to have properly performed his duties 23 in
connection therewith.
In addition, petitioner presented its vice president for finance and administration who testified
that an annual maintenance inspection and repair of subject school building were regularly
undertaken. Petitioner was even willing to present its maintenance supervisor to attest to the
extent of such regular inspection but private respondents agreed to dispense with his
testimony and simply stipulated that it would be corroborative of the vice president's narration.
Moreover, the city building official, who has been in the city government service since 1974,
admitted in open court that no complaint regarding any defect on the same structure has ever
been lodged before his office prior to the institution of the case at bench. It is a matter of
judicial notice that typhoons are common occurrences in this country. If subject school
building's roofing was not firmly anchored to its trusses, obviously, it could not have withstood
long years and several typhoons even stronger than "Saling."
In light of the foregoing, we find no clear and convincing evidence to sustain the judgment of
the appellate court. We thus hold that petitioner has not been shown negligent or at fault
regarding the construction and maintenance of its school building in question and that
typhoon "Saling" was the proximate cause of the damage suffered by private respondents'
house.
With this disposition on the pivotal issue, private respondents' claim for actual and moral
damages as well as attorney's fees must fail. 24 Petitioner cannot be made to answer for a
purely fortuitous event. 25 More so because no bad faith or willful act to cause damage was
alleged and proven to warrant moral damages.
Private respondents failed to adduce adequate and competent proof of the pecuniary loss
they actually incurred. 26 It is not enough that the damage be capable of proof but must be
actually proved with a reasonable degree of certainty, pointing out specific facts that afford a
basis for measuring whatever compensatory damages are borne. 27 Private respondents
merely submitted an estimated amount needed for the repair of the roof their subject building.
What is more, whether the "necessary repairs" were caused ONLY by petitioner's alleged
negligence in the maintenance of its school building, or included the ordinary wear and tear of
the house itself, is an essential question that remains indeterminable.
The Court deems unnecessary to resolve the other issues posed by petitioner.
As regards the sixth issue, however, the writ of execution issued on April 1, 1993 by the trial
court is hereby nullified and set aside. Private respondents are ordered to reimburse any
amount or return to petitioner any property which they may have received by virtue of the
enforcement of said writ.
WHEREFORE, the petition is GRANTED and the challenged Decision is REVERSED. The
complaint of private respondents in Civil Case No. 7314 before the trial court a quo is ordered
DISMISSED and the writ of execution issued on April 1, 1993 in said case is SET ASIDE.
Accordingly, private respondents are ORDERED to return to petitioner any amount or
property received by them by virtue of said writ. Costs against the private respondents.
SO ORDERED.
Narvasa, C.J., Romero and Kapunan, JJ., concur.
# Footnotes
1 Rollo, pp. 28-41.

2 Ibid., p. 42.
3 Seventh Division, composed of J. Jose dela Rama, ponente; with JJ. Emeterio C. Cui
(chairman) and Eduardo G. Montenegro, concurring.
4 CA Decision, p. 13; Rollo, p. 40.
5 Records, pp. 127-128.
6 Ibid., pp. 1-3.
7 CA, rollo, pp. 63-69.
8 Rollo, pp. 20-21.
9 Tolentino, Civil Code of the Philippines, 1991 ed., Col IV, p. 126.
10 Ibid.
11 Ibid.
12 Ibid., p. 130, citing Tan Chiong vs. Inchausti, 22 Phil 152, 1912. Nakpil & Sons vs. Court of
Appeals, 144 SCRA 596, 607, October 3, 1986. See also Metal Forming Corporation vs. Office
of the President, 247 SCRA 731, 728-739, August 28, 1995.
13 Nakpil & Sons, vs. Court of Appeals, Ibid., pp. 606-607. See also Ilocos Norte Electric Co. vs.
Court of Appeals, 179 SCRA 5, 15, November 6, 1989.
14 Fuentes vs. Court of Appeals, 268 SCRA 703, February 26, 1997; Atlantic Gulf & Pacific
Company of Manila, Inc. vs. Court of Appeals, 247 SCRA 606, August 23, 1995; Acebedo
Optical Co., vs. Court of Appeals, 250 SCRA 409, November 29, 1995.
15 Nakpil & Sons, vs. Court of Appeals, supra, p. 606, citing 1 CJS 1174.
16 Batangas Laguan Tayabas Bus Co. vs. Intermediate Appellate Court, 167 SCRA 379, 386,
November 14, 1988.
17 Valenzuela vs. Court of Appeals, 253 SCRA 303, February 7, 1996. cf. Quibal vs.
Sandiganbayan, 244 SCRA 224, May 22, 1195; Citibank, NA vs. Gatchalian, 240 SCRA 212,
January 18, 1995.
18 Layugan vs. Intermediate Appellate Court, 167 SCRA 363, 372-273, November 14, 1988;
Philippine Bank of Commerce vs. Court of Appeals, GR No. 97626, March 14, 1997.
19 Philippine Long Distance Telephone Co., Inc. vs. Court of Appeals, 178 SCRA 94, 106,
September 29, 1989, citing Barcelo vs. manila Electric Railroad & Light Co., 29 Phil 351,
January 28, 1915.
20 Webster's Third New International Dictionary, 1971 ed.; Moreno, Philippine Law Dictionary,
2nd ed.
21 CF, Nakpil & Sons vs. Court of Appeals, supra. See also Quisumbing Sr. vs. Court of
Appeals, 189 SCRA 605, September 14, 1990.
22 cf. Yap Kim Chuan vs. Tiaoqui, 31 Phil 433, September 18, 1915.
23 Tatad vs. Garcia Jr., 243 SCRA 436, April 6, 1995; People vs. Figueroa, 248 SCRA 679,
October 2, 1995.
24 Toyota Shaw, Inc. vs. Court of Appeals, 244 SCRA 320, May 23, 1995; Custodio vs. Court of
Appeals, 253, SCRA 483, February 9, 1996; Syquia vs. Court of Appeals, 217 SCRA 624,
January 27, 1993.
25 Itan Chiong vs. Inchausti, supra.
26 Baliwag Transit, Inc. vs. Court of Appeals, 256 SCRA 746, May 15, 1996.
27 Del Mundo vs. Court of Appeals, 240 SCRA 348, January 20, 1995.

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Chavez vs Gonzales 32 SCRA 547

(waaah cannot find)

G.R. No. 124242 January 21, 2005

SAN LORENZO DEVELOPMENT CORPORATION, petitioner,

In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having

On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC)

SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu

Hence, this petition.

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT

THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS

Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu

Contracts, in general, are perfected by mere consent,19 which is manifested by the

We do not hold so.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

G.R. No. 77365 April 7, 1992

RITA CALEON, petitioner,

The undisputed facts of the case are as follows:

Private respondent Agus Development Corporation is the owner of a parcel of

SO ORDERED. (Rollo, Annex "A", p. 21)

Hence, the petition for review on certiorari.

Petitioner's contention is untenable.

xxx xxx xxx

. . . the Court of Appeals should have found the herein appellees

a) Subleasing or assignment of lease of residential units in whole or in part, with

Sec. 2. Definition of Terms — Unless otherwise indicated wherever in this Act,

xxx xxx xxx

b. A residential unit — refers to an apartment, house and/or land on which

It is well settled that all presumptions are indulged in favor of constitutionality;

Gutierrez, Jr., Davide, Jr. and Romero, JJ., concur.

Feliciano, J., is on leave.

UNIT CONTRACT PRICE P87,000.00

The second letter-proposal (Exh. "A") provides as follows:

One (1) lot - Float valve.

One (1) lot - Concreting materials foundation.

Contract Price P60,000.00

Moreover, it is a cardinal rule in the interpretation of contracts that the intention of

contemporaneous and subsequent acts shall be principally considered. [6] An examination

of such contemporaneous and subsequent acts of respondent as well as the attendant

SPGMI was so authorized.

WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE

the finality of this decision.

Padilla, (Chairman), Vitug, Kapunan, and Hermosisima, JJ., concur.

ii[2] Exh. "A" and Exh. "1."

iii[3] Rollo, p. 36.

iv[4] Id., p. 37.

v[5] Kasilag v. Rodriguez, 69 Phil. 217 (1939).

vii[7] TSN, 13 April 1989, pp. 18-19.

viii[8] TSN, 13 April 1989, p. 22.

ix[9] Art. 1240, New Civil Code.

x[10] Arts. 1236 and 1237, New Civil Code .

xii[12] See Note 11.

xiii[13] Rollo, p. 44.

xiv[14] Sec. 3, par. (y), Rule 131, Revised Rules on Evidence.

xv[15] Art. 1169, last par., New Civil Code.

xvi[16] See CA Decision, p. 7; Rollo, p. 27.

PHILIPPINE CHARTER INSURANCE CORPORATION,

VELASCO, JR., J., Chairperson,

February 22, 2012

On May 16, 2000, Central Colleges of the Philippines (CCP), an educational

Furthermore, we would like to reiterate that your principal, the Dynamic

In view thereof, as stated in our earlier letter of 6 November 2003, we were

1. Under Surety Bond No. 45542, the amount of Php7,031,460.74 plus