G.R. No.

162523 November 25, 2009

NORTON RESOURCES AND DEVELOPMENT CORPORATION, Petitioner,

vs.
ALL ASIA BANK CORPORATION,* Respondent.

DECISION
NACHURA, J.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil Procedure, seeking the reversal of the Court of Appeals (CA) Decision2 dated November 28, 2002 which set aside the Decision3 of the Regional
Trial Court (RTC) of Davao City, Branch 14, dated August 27, 1999.

The Facts

Petitioner Norton Resources and Development Corporation (petitioner) is a domestic corporation engaged in the business of construction and development of housing subdivisions based in Davao City, while respondent All Asia Bank
Corporation (respondent), formerly known as Banco Davao-Davao City Development Bank, is a domestic banking corporation operating in Davao City.

On April 13, 1982, petitioner applied for and was granted a loan by respondent in the amount of Three Million Eight Hundred Thousand Pesos (₱3,800,000.00) as evidenced by a Loan Agreement.4 The loan was intended for the
construction of 160 housing units on a 3.9 hectare property located in Matina Aplaya, Davao City which was subdivided by petitioner per Subdivision Sketch Plan.5 To speed up the processing of all documents necessary for the release
of the funds, petitioner allegedly offered respondent a service/commitment fee of ₱320,000.00 for the construction of 160 housing units, or at ₱2,000.00 per unit. The offer having been accepted, both parties executed a Memorandum
of Agreement6 (MOA) on the same date.

As guarantor, the Home Financing Corporation (HFC), a government entity tasked to encourage lending institutions to participate in the government's housing programs, extended security coverage obligating itself to pay the said loan
upon default of petitioner. Out of the loan proceeds in the amount of ₱3,800,000.00, respondent deducted in advance the amount of ₱320,000.00 as commitment/service fee.

Unfortunately, petitioner was only able to construct 35 out of the 160 housing units proposed to be constructed under the contract. In addition, petitioner defaulted in the payment of its loan obligation. Thus, respondent made a call on
the unconditional cash guarantee of HFC. In order to recover from HFC, respondent assigned to HFC its interest over the mortgage by virtue of a Deed of Assignment7 on August 28, 1983 coupled with the delivery of the Transfer
Certificate of Title.

As of August 2, 1983, the outstanding obligation of petitioner amounted to ₱3,240,757.99. HFC paid only ₱2,990,757.99, withholding the amount of ₱250,000.00. Upon payment, HFC executed a Deed of Release of Mortgage8 on
February 14, 1984, thereby canceling the mortgage of all properties listed in the Deed of Assignment. Respondent made several demands from HFC for the payment of the amount of ₱250,000.00 but HFC continued to withhold the
same upon the request of petitioner. Thus, respondent filed an action to recover the ₱250,000.00 with the RTC, Branch 15, of Davao City, docketed as Civil Case No. 17048.9 On April 13, 1987, said RTC rendered a Decision10 in favor
of respondent, the dispositive portion thereof reads as follows:

IN VIEW WHEREOF, judgment is hereby rendered as follows:

1. The defendant shall return to the plaintiff the ₱250,000.00 with legal interest to be computed from April 12, 1984 until fully paid.

2. The defendant shall pay the plaintiff fifty thousand pesos (₱50,000.00) as attorney’s fees and ₱7,174.82 as collection expenses.

3. The defendant shall pay the costs of this suit.

SO ORDERED.11

HFC appealed to the CA which, in turn, sustained the decision of the RTC. The CA decision became final and executory.

However, on February 22, 1993, petitioner filed a Complaint12 for Sum of Money, Damages and Attorney’s Fees against respondent with the RTC, docketed as Civil Case No. 21-880-93. Petitioner alleged that the ₱320,000.00
commitment/service fee mentioned in the MOA was to be paid on a per-unit basis at ₱2,000.00 per unit. Inasmuch as only 35 housing units were constructed, petitioner posited that it was only liable to pay ₱70,000.00 and not the whole
amount of ₱320,000.00, which was deducted in advance from the proceeds of the loan. As such, petitioner demanded the return of ₱250,000.00, representing the commitment fee for the 125 housing units left unconstructed and unduly
collected by respondent.

In its Answer,13 respondent denied that the ₱320,000.00 commitment/service fee provided in the MOA was broken down into ₱2,000.00 per housing unit for 160 units. Moreover, respondent averred that petitioner’s action was already
barred by res judicata considering that the present controversy had already been settled in a previous judgment rendered by RTC, Branch 15, of Davao City in Civil Case No. 17048.

The RTC's Ruling

After trial on the merits, the RTC rendered a Decision14 on August 27, 1999 in favor of petitioner. It held that the amount of ₱320,000.00, as commitment/service fee provided in the MOA, was based on the 160 proposed housing units
at ₱2,000.00 per unit. Since petitioner was able to

construct only 35 units, there was overpayment to respondent in the amount of ₱250,000.00. Thus, the RTC disposed of the case in this wise:

THE FOREGOING CONSIDERED, judgment is hereby rendered for the plaintiff and against the defendant ordering the said defendant:

1. To pay the plaintiff the amount of TWO HUNDRED FIFTY THOUSAND PESOS (₱250,000.00) with interest at the legal rate reckoned from February 22, 1993, the date of the filing of the plaintiff’s complaint until the same
shall have been fully paid and satisfied;

2. To pay the plaintiff the sum of THIRTY THOUSAND PESOS (₱30,000.00) representing litigation expenses;

3. To pay the plaintiff the sum of SIXTY TWO THOUSAND FIVE HUNDRED PESOS (₱62,500.00) as and for attorney’s fees; and

4. To pay the costs.

SO ORDERED.15

Aggrieved, respondent appealed to the CA.16

The CA's Ruling

On November 28, 2002, the CA reversed the ruling of the RTC. The CA held that from the literal import of the MOA, nothing was mentioned about the arrangement that the payment of the commitment/service fee of ₱320,000.00 was
on a per unit basis valued at ₱2,000.00 per housing unit and dependent upon the actual construction or completion of said units. The CA opined that the MOA duly contained all the terms agreed upon by the parties.

Undaunted, petitioner filed a Motion for Reconsideration17 which was, however, denied by the CA in its Resolution18dated February 13, 2004.

Hence, this Petition which raised the following issues:

1. WHETHER OR NOT THE MEMORANDU[M] OF AGREEMENT (MOA) REFLECTS THE TRUE INTENTION OF THE PARTIES[;]

2. WHETHER OR NOT HEREIN PETITIONER IS ENTITLED TO RECOVER THE AMOUNT OF TWO HUNDRED [FIFTY] THOUSAND PESOS REPRESENTING THE ONE HUNDRED TWENTY FIVE (125)
UNCONSTRUCTED HOUSING UNITS AT TWO THOUSAND PESOS (PHP. 2,000.00) EACH AS AGREED [; AND]

3. WHETHER OR NOT VICTOR FACUNDO AS THE VICE PRESIDENT AND GENERAL MANAGER AT THE TIME THE AFOREMENTIONED MOA WAS EXECUTED, W AS AUTHORIZED TO ENTER INTO [AN]
AGREEMENT AND TO NEGOTIATE THE TERMS AND CONDITIONS THEREOF TO THEIR CLIENTELE. 19

Our Ruling

The instant Petition is bereft of merit.

Our ruling in Benguet Corporation, et al. v. Cesar Cabildo20 is instructive:

The cardinal rule in the interpretation of contracts is embodied in the first paragraph of Article 1370 of the Civil Code: "[i]f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control." This provision is akin to the "plain meaning rule" applied by Pennsylvania courts, which assumes that the intent of the parties to an instrument is "embodied in the writing itself, and when the
words are clear and unambiguous the intent is to be discovered only from the express language of the agreement." It also resembles the "four corners" rule, a principle which allows courts in some cases to search beneath the semantic
surface for clues to meaning. A court's purpose in examining a contract is to interpret the intent of the contracting parties, as objectively manifested by them. The process of interpreting a contract requires the court to make a preliminary
inquiry as to whether the contract before it is ambiguous. A contract provision is ambiguous if it is susceptible of two reasonable alternative interpretations. Where the written terms of the contract are not ambiguous and can only be
read one way, the court will interpret the contract as a matter of law. If the contract is determined to be ambiguous, then the interpretation of the contract is left to the court, to resolve the ambiguity in the light of the intrinsic evidence.

In our jurisdiction, the rule is thoroughly discussed in Bautista v. Court of Appeals:

The rule is that where the language of a contract is plain and unambiguous, its meaning should be determined without reference to extrinsic facts or aids. The intention of the parties must be gathered from that language, and from that
language alone. Stated differently, where the language of a written contract is clear and unambiguous, the contract must be taken to mean that which, on its face, it purports to mean, unless some good reason can be assigned to show
that the words should be understood in a different sense. Courts cannot make for the parties better or more equitable agreements than they themselves have been satisfied to make, or rewrite contracts because they operate harshly
or inequitably as to one of the parties, or alter them for the benefit of one party and to the detriment of the other, or by construction, relieve one of the parties from the terms which he voluntarily consented to, or impose on him those
which he did not.21

Moreover, Section 9, Rule 130 of the Revised Rules of Court clearly provides:

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 "parol evidence rule" forbids any addition to or contradiction of the terms of a written instrument by testimony or other evidence purporting to show that, at or before the execution of the parties' written agreement, other or different
terms were agreed upon by the parties, varying the purport of the written contract. When an agreement has been reduced to writing, the parties cannot be permitted to adduce evidence to prove alleged practices which, to all purposes,
would alter the terms of the written agreement. Whatever is not found in the writing is understood to have been waived and abandoned.22 None of the above-cited exceptions finds application in this case, more particularly the alleged
failure of the MOA to express the true intent and agreement of the parties concerning the commitment/service fee of ₱320,000.00.

In this case, paragraph 4 of the MOA plainly states:

4. That the CLIENT offers and agrees to pay a commitment and service fee of THREE HUNDRED TWENTY THOUSAND PESOS (₱320,000.00), which shall be paid in two (2) equal installments, on the same dates as the first and
second partial releases of the proceeds of the loan.23

As such, we agree with the findings of the CA when it aptly and judiciously held, to wit:

Unmistakably, the testimonies of Antonio Soriano and Victor Facundo jibed in material points especially when they testified that the ₱320,000.00 commitment/service fee mentioned in Paragraph 4 of Exhibit "B" is not to be paid in lump
sum but on a per unit basis valued at ₱2,000.00 per housing unit. But a careful scrutiny of such testimonies discloses that they are not in accord with the documentary evidence on record. It must be stressed that both Antonio Soriano
and Victor Facundo testified that the ₱320,000.00 commitment/service fee was arrived at by multiplying ₱2,000.00, the cost per housing unit; by 160, the total number of housing units proposed to be constructed by the [petitioner] as
evidenced by a certain subdivision survey plan of [petitioner] marked as Exhibit "C."
xxxx

Looking closely at Exhibit "C," noticeable are the date of survey of the subdivision which is May 15-31, 1982 and the date of its approval which is June 25, 1982, which dates are unmistakably later than the execution of the Loan
Agreement (Exhibit "A") and Exhibit "B" which was on April 13, 1982. With these dates, we cannot lose sight of the fact that it was impossible for Victor Facundo to have considered Exhibit "C" as one of the documents presented by
[petitioner] to support its proposal that the commitment/service fee be paid on a per unit basis at ₱2,000.00 a unit. x x x.

xxxx

To stress, there is not even a slim possibility that said blue print (referring to Exhibit "C") was submitted to [respondent] bank during the negotiation of the terms of Exhibit "B" and was made the basis for the computation of ₱320,000.00
commitment/service fee. As seen on its face, Exhibit "C" was approved in a much later date than the execution of Exhibit "B" which was on April 13, 1982. In addition, as viewed from the foregoing testimony, no less than Victor Facundo
himself admitted that there were only 127 proposed housing units instead of 160. Considering these factual milieus, there is sufficient justification to discredit the stance of [petitioner] that Exhibit "B" was not reflective of the true intention
or agreement of the parties. Paragraph 4 of Exhibit "B" is clear and explicit in its terms, leaving no room for different interpretation. Considering the absence of any credible and competent evidence of the alleged true and real intention
of the parties, the terms of Paragraph 4 of Exhibit "B" remains as it was written. Therefore, the payment of ₱320,000.00 commitment/service fee mentioned in Exhibit "B" must be paid in lump sum and not on a per unit basis.
Consequently, we rule that [petitioner] is not entitled to the return of ₱250,000.00.241avvphi1

The agreement or contract between the parties is the formal expression of the parties' rights, duties and obligations. It is the best evidence of the intention of the parties. Thus, 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 no evidence of such terms other than the contents of the written agreement between the parties and their successors in interest. 25 Time and again, we
have stressed the rule that a contract is the law between the parties, and courts have no choice but to enforce such contract so long as it is not contrary to law, morals, good customs or public policy. Otherwise, courts would be interfering
with the freedom of contract of the parties. Simply put, courts cannot stipulate for the parties or amend the latter's agreement, for to do so would be to alter the real intention of the contracting parties when the contrary function of courts
is to give force and effect to the intention of the parties.26

Finally, as correctly observed by respondent, petitioner's claim that the MOA is a contract of adhesion was never raised by petitioner before the lower courts. Settled is the rule that points of law, theories, issues, and arguments not
adequately brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court. They cannot be raised for the first time on appeal. To allow this would be offensive to the basic rules of fair
play, justice and due process.27

A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the
contract, while the other party merely affixes his signature or his "adhesion" thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing.28 It must be borne in mind, however, that contracts
of adhesion are not invalid per se. Contracts of adhesion, where one party imposes a ready-made form of contract on the other, are not entirely prohibited. The one who adheres to the contract is, in reality, free to reject it entirely; if he
adheres, he gives his consent.29

All told, we find no reason to disturb, much less, to reverse the assailed CA Decision.

WHEREFORE, the instant Petition is DENIED and the assailed Court of Appeals Decision is AFFIRMED. Costs against petitioner.

SO ORDERED.
G.R. No. 171146 December 7, 2011

RODOLFO MORLA, Petitioner,

vs.
CORAZON NISPEROS BELMONTE, ABRAHAM U. NISPEROS, PERLITA NISPEROS OCAMPO, ARMANDO U. NISPEROS, ALBERTO U. NISPEROS, HILARIO U. NISPEROS, ARCHIMEDES U. NISPEROS, BUENAFE
NISPEROS PEREZ, ARTHUR U. NISPEROS, AND ESPERANZA URBANO NISPEROS, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

This petition for review on certiorari1 seeks to annul and set aside the March 9, 2005 Decision2 and December 29, 2005 Resolution3 of the Court of Appeals in CA-G.R. CV No. 53527, which affirmed with modification the February 19,
1996 Judgment4 of the Regional Trial Court (RTC) of Ilagan, Isabela, Branch 17 in Civil Case No. 810.

Spouses Alfredo Nisperos and Esperanza Urbano (the Nisperos spouses) were the original homesteaders of an 80,873-square meter tract of public land known and identified as Lot No. 4353 of Pls. 62, situated in Caliguian, Burgos,
Isabela,5 by virtue of Original Certificate of Title (OCT) No. P-1542, issued on May 4, 1951.6

On June 8, 1988, the Nisperos spouses executed a Partial Deed of Absolute Sale,7 wherein they sold a portion of Lot No. 4353 with an area of 50,000 square meters (subject land) to the brothers Ramon and Rodolfo Morla (the Morla
brothers) for the sum of Two Hundred Fifty Thousand Pesos (₱ 250,000.00).

On August 2, 1988, the Morla brothers acknowledged and confirmed in writing (the "1988 contract") that they had bought from the Nisperos spouses the subject land, and that they had agreed to give the Nisperos spouses a period of
ten (10) years within which to repurchase the subject land for the price of Two Hundred Seventy-Five Thousand Pesos (₱ 275,000.00). The 1988 contract was written in Ilocano and executed at the Office of the Barangay Captain in
the Municipality of Burgos, Province of Isabela.8

On June 27, 1994, the Nisperos spouses filed a Complaint9 for Repurchase and/or Recovery of Ownership Plus Damages against the Morla brothers. They alleged that the deed of sale was registered by the Morla brothers only when
they had signified their intention to repurchase their property.10 Thus, Transfer Certificate of Title (TCT) No. 225544 for the subject land was issued in favor of the Morla brothers, and TCT No. 225545,11 for the remaining 30,870 square
meters of Lot No. 4353, to the Nisperos spouses.

In response,12 the Morla brothers claimed that the Nisperos spouses had no cause of action, as the repurchase of the subject land was improper for being outside the five-year period provided under Section 119 of Commonwealth Act
No. 141.13

At the pre-trial conference held on June 19, 1995, the parties settled that the only issue to be resolved by the RTC was whether the 1988 contract executed by the parties, wherein it was stipulated that the Nisperos spouses may
repurchase the land sold to the Morla brothers within a period of ten (10) years, was valid or not.14

On July 28, 1995, the RTC issued an Order15 requiring the parties to submit their position papers or memoranda in light of their agreement to submit the case for Summary Judgment on the issue of the validity of the 1988 contract.
The Nisperos spouses then filed a Motion for Summary Judgment16 on the ground that there was no genuine issue of material facts in the case except for damages and attorney’s fees, which may be heard separately and independently.

On September 15, 1995, the Nisperos spouses deposited the amount of ₱ 275,000.00, with the clerk of court of the RTC for the repurchase of the subject land.17

The RTC rendered its Judgment dated February 19, 1996, the dispositive portion of which reads:

WHEREFORE, for and in consideration of the foregoing, judgment is hereby rendered in favor of the plaintiffs and against the defendants ordering the defendants to reconvey the portion of five (5) hectares of plaintiff’s land covered by
their original title, Original Certificate of Title No. P-1542 unto the plaintiffs and to receive and accept the ₱ 275,000.00 from the plaintiffs as repurchase; to pay attorney’s fees in the amount of ₱ 5,000.00 and to pay the costs of this
suit.18

The RTC said that the only issue to be resolved was the validity of the 1988 contract, which the Morla brothers neither attacked nor denied. The RTC held that it was clear from the 1988 contract, which the Morla brothers executed, that
they had bound themselves to its terms and conditions. The RTC further proclaimed that what was prohibited was the shortening of the five-year redemption period under Section 119 of Commonwealth Act No. 141, and not its
prolongation.19

On March 14, 1996, the Morla brothers moved for the reconsideration20 of the RTC’s judgment on the ground that it could not affect them since they were no longer the real parties-in-interest as they had already sold the subject land to
Rosie Ocampo, married to Delfin Gragasin, and Hilario Bernardino, married to Manolita Morla, on May 2, 1994. 21

The Nisperos spouses, in their Opposition to the Motion for Reconsideration,22 attacked the validity of the purported sale and alleged that such sale in favor of the Morla brothers’ close relatives was a last ditch attempt to win the case.
The Nisperos spouses pointed out that the Morla brothers never mentioned such sale considering that it supposedly happened in May 1994, before the case was instituted in June 1994.23

The RTC denied the Morla brothers’ motion for reconsideration in an Order24 dated July 19, 1996. The RTC noted how such purported sale was not mentioned by the Morla brothers in their confrontations with the Nisperos spouses
prior to the filing of the case, or in any of their pleadings filed before the RTC. The RTC agreed with the Nisperos spouses’ contention that if the sale really did happen, then the Morla brothers should have brought it up at the earliest
opportune time. Finally, the RTC said that the belated issue would not in any way affect the standing of the parties.

The Morla brothers timely25 appealed this decision to the Court of Appeals and assigned the following errors in support thereof:

The TRIAL COURT GRAVELY ERRED IN HOLDING THAT APPELLANTS’ AUGUST 2, 1988 private writing, Exh. "A" WAS AN AGREEMENT BY PARTIES FOR APPELLEES TO REPURCHASE WITHIN TEN (10) YEARS
THEREFROM THE FIVE (5) HECTARES PORTION OF THEIR HOMESTEAD THEY SOLD TO THE FORMER AS PER JUNE 28, 1988 PARTIAL DEED OF ABSOLUTE SALE, EXH. "1" NOTWITHSTANDING THE MANDATORY
FIVE (5) YEARS REPURCHASE PERIOD FROM THE DATE OF SALE PROVIDED BY SECTION 119 OF THE PUBLIC LAND LAW (COMMONWEALTH ACT NO. 141).

II

THE TRIAL COURT GRAVELY ERRED IN RELYING ON THE PRECEDENT LAID IN THE CASES OF MENJE, ET AL., VS. ANGELES, 101 PHIL. 563 AND MANUEL VS. PHILIPPINE NATIONAL BANK, 101 PHIL. 568, WHICH
TREAT OF REDEMPTION OF FORECLOSED HOMESTEAD AFTER FORECLOSURE SALES NOTWITHSTANDING THE CLEAR ISSUE IN THE CASE AT BAR WHICH IS FOR REPURCHASE OF A PORT ION OF A HOMESTEAD. 26

On March 9, 2005, the Court of Appeals affirmed the RTC’s decision, with the deletion of the award of attorney’s fees for lack of basis in the decision, as the only modification. While the Court of Appeals agreed with the Morla brothers’
assertion that the cases cited by the RTC were not applicable to their case, it declared that the RTC did not err in allowing the Nisperos spouses to repurchase the subject land. The Court of Appeals immediately noted that there clearly
was no genuine issue as to any material fact, except for the claim of attorney’s fees. It upheld the validity of the 1988 contract and concurred with the RTC’s rationale that the arrangement to prolong the period for redemption of the
subject land was not prohibited by law as it was in line with the intent of Section 119 "to give the homesteader or patentee every chance to preserve for himself and his family the land that the State had gratuitously given to him as a
reward for his labor in cleaning and cultivating it." The Court of Appeals further held that the 1988 contract, contrary to the Morla brothers’ contention, was not unenforceable as the necessity to embody certain contracts in a public
instrument was only for convenience and not for its validity or enforceability.27

The Morla brothers sought to have this decision reconsidered on the strength of a "newly discovered" Contract of Sale of farm land dated June 28, 1978 (1978 contract). The Morla brothers alleged that this contract, which covered the
subject land, was found only upon the prodding of their new lawyer; thus, even the ten-year period to repurchase the subject land under Article 1606 of the Civil Code had already expired.28

The Court of Appeals issued a Resolution29 on December 29, 2005, denying the Morla brothers’ motion for reconsideration in this wise:

[The Morla brothers] assert a new theory on the basis of a handwritten "contract" dated June 28, 1978 – a private document – allegedly executed by [the Nisperos spouses]. Said document is being introduced for the first time on appeal.
And it is settled that issues not raised in the court a quo cannot be raised for the first time on appeal – in the case at bench, in a motion for reconsideration – for being offensive to the basic rules of fair play, justice and due process x x
x.30

As Ramon Morla died on March 5, 2001, single and without any descendants or ascendants, Rodolfo Morla (petitioner), by himself, elevated the instant case before this Court with the Nisperos spouses as respondents. Alfredo Nisperos,
however, also died on September 19, 2010.31 Consequently, Alfredo Nisperos’ legal heirs filed a motion32 to be substituted as respondents, in lieu of their deceased father. This motion was granted on October 3, 2011 33 thus, Corazon
Nisperos Belmonte, Abraham U. Nisperos, Perlita Nisperos Ocampo, Armando U. Nisperos, Alberto U. Nisperos, Hilario U. Nisperos, Archimedes U. Nisperos, Buenafe Nisperos Perez, and Arthur U. Nisperos, now join their mother
Esperanza Urbano Nisperos as respondents in this case.

Issue

Petitioner, claiming that his petition is of transcendental importance as it poses a novel question of law, is asking us to resolve the following question:

[M]ay parties to a deed of sale of a land covered by a homestead patent extend or prolong the 5-year period of repurchase under Section 119 of Act 141, under a private writing subsequently executed by them?34

The Court’s Ruling

This Court would like to address the admissibility of the 1978 contract at the outset as petitioner posits that by virtue of this contract, the respondents’ claim had already prescribed, even if the redemption period under Section 119 of
Commonwealth Act No. 141 were extended to ten years. Petitioner claims that the June 8, 1988 Partial Deed of Sale was actually the formal culmination of an earlier transaction between the Morla brothers and the Nisperos spouses,
as shown by the 1978 contract. Hence, more than ten years have already lapsed from the time such contract was executed to the time the right to repurchase was sought to be exercised.35

Contrary to petitioner’s allegation in its Motion for Reconsideration before the Court of Appeals, the 1978 contract did not surface only after the appeal; it was actually attached to the Morla brothers’ Answer36 filed with the RTC on July
12, 1994. Referencing this 1978 contract, the Morla brothers stated the following in their Answer:
8. Since June 28, 1978 and continuously up to the present, the defendants are in the open, continuous, exclusive, and notorious actual physical possession, occupation, and cultivation of the (50,000 SQUARE METERS) portion of Lot
No. 4353, Pls-62, as evidenced by a private document, a xerox copy of which document is hereto attached as Annex "2" to this answer.37

During the pre-trial, the Morla brothers and the Nisperos spouses also agreed on only the following stipulation of facts, as stated in the RTC’s June 19, 1995 Order:

1. That the land is a Homestead originally applied for by the plaintiffs and a Homestead Patent and Original Certificate of Title were issued to the plaintiffs;

2. That on August 2, 1988, at Caliguian, Burgos, Isabela, in the presence of the Barangay Captain, an Ilocano writing or contract was acknowledged and confirmed by the defendants and the defendants admitted as to its authenticity;

3. That the Transfer Certificate of Title No. T-225545 is the remaining portion of Three (3) hectares or 30, 873 square meters, which was only issued by the Register of Deeds of Isabela on March 11, 1994, and this remaining portion
was derived from the Original Certificate of Title of Alfredo Nisperos, which is OCT No. P-1542 issued in 1951;

4. That on June 8, 1988, a Partial Deed of Absolute Sale was prepared, as per Doc. No. 419; Page 84; Book 17; Series of 1988, entered into the Notarial Book of Notary Public Severo Ladera;

5. That Transfer Certificate of Title No. T-225544 was registered in the name of the defendants, Rodolfo Morla and Ramon Morla at the Office of the Registry of Deeds of Isabela on March 11, 1994. 38

The Morla brothers’ Position Paper/Memorandum39 likewise reiterated that the sale of the subject land happened on June 8, 1988, and referred to the 1978 contract only to prove their long possession of the subject land, just as they
did in their Answer.

If it were true that the subject land’s ownership was ceded to the Morla brothers as early as 1978, then it is inconceivable that they would forget to bring up this important fact and use it as their key defense when they filed their Answer
to the Complaint on July 12, 1994. Even then, the Morla brothers had every opportunity to correct this lapse as they had always been aware and in possession of the 1978 contract. They could have stipulated it during the pre-trial
conference, or at least stated it in their Position Paper. The theory advanced by the Morla brothers from the very beginning is that they are entitled to the possession of the subject land as the owner thereof because the property was
sold to them by virtue of the Partial Deed of Sale executed on June 8, 1988. They presented the 1978 contract only to prove that they had been in continuous and open possession since 1978. The first time the Morla brothers claimed
ownership, and not mere possession, of the subject land by virtue of the 1978 contract, was in their motion for reconsideration, after they had lost their appeal before the Court of Appeals. The Court of Appeals was correct in not
considering this argument for not having been raised at the earliest opportunity. It is a well-settled rule that "a party who deliberately adopts a certain theory upon which the case was decided by the lower court will not be permitted to
change [it] on appeal."40 "Petitioner is bound by the statements and stipulations he made while the case was being heard in the lower courts." 41 In Manila Electric Company v. Benamira,42 we said:

[I]t is a fundamental rule of procedure that higher courts are precluded from entertaining matters neither alleged in the pleadings nor raised during the proceedings below, but ventilated for the first time only in a motion for reconsideration
or on appeal. The individual respondents are bound by their submissions that AFSISI is their employer and they should not be permitted to change their theory. Such a change of theory cannot be tolerated on appeal, not due to the
strict application of procedural rules but as a matter of fairness. A change of theory on appeal is objectionable because it is contrary to the rules of fair play, justice and due process.43

Having settled the inadmissibility of the 1978 contract, we now go to the legality of the 1988 contract.

Since the subject land was acquired by the Nisperos spouses pursuant to a homestead patent, the applicable law is Commonwealth Act No. 141, or the Public Land Act.44 Section 119 thereof specifically speaks about
repurchases of a homestead or free patent land:

Sec. 119. Every conveyance of land acquired under the free patent or homestead provisions, when proper, shall be subject to repurchase by the applicant, his widow, or legal heirs, within a period of five years from the date of the
conveyance.

The petitioner does not dispute the existence or validity of the 1988 contract. He simply argues that the 10-year repurchase period he and his brother Ramon Morla had agreed to grant the Nisperos spouses, as evidenced by the 1988
contract, was contrary to law and jurisprudence, viz:

In no uncertain terms can the statutory period of five (5) years, which is fixed and non-extendible, be prolonged or extended by agreement of the parties since it runs athwart with the express limitation of the right to repurchase provided
for in Section 119, Act 141. Spouses Nisperos cannot, therefore, use the August 2, 1988 private writing to extend the already expired period granted under the law. To do so is to violate the law. The law must control over the revised
intention of the parties.45 (Emphasis supplied.)

Elucidating on the purpose of the homestead laws, this Court held in Republic of the Philippines v. Court of Appeals46 :

It is well-known that the homestead laws were designed to distribute disposable agricultural lots of the State to land-destitute citizens for their home and cultivation. Pursuant to such benevolent intention the State prohibits the sale or
encumbrance of the homestead (Section 116) within five years after the grant of the patent. After that five-year period the law impliedly permits alienation of the homestead; but in line with the primordial purpose to favor the homesteader
and his family the statute provides that such alienation or conveyance (Section 117) shall be subject to the right of repurchase by the homesteader, his widow or heirs within five years. This section 117 is undoubtedly a complement of
section 116. It aims to preserve and keep in the family of the homesteader that portion of public land which the State had gratuitously given to him. It would, therefore, be in keeping with this fundamental idea to hold, as we hold, that
the right to repurchase exists not only when the original homesteader makes the conveyance, but also when it is made by his widow or heirs. This construction is clearly deducible from the terms of the statute.47

In Fontanilla, Sr. v. Court of Appeals,48 we said:

The applicant for a homestead is to be given all the inducement that the law offers and is entitled to its full protection. Its blessings, however, do not stop with him. This is particularly so in this case as the appellee is the son of the
deceased. There is no question then as to his status of being a legal heir. The policy of the law is not difficult to understand. The incentive for a pioneer to venture into developing virgin land becomes more attractive if he is assured that
his effort will not go for naught should perchance his life be cut short. This is merely a recognition of how closely bound parents and children are in Filipino family. Logic, the sense of fitness and of right, as well as pragmatic considerations
thus call for continued adherence to the policy that not the individual applicant alone but those so closely related to him as are entitled to legal succession may take full advantage of the benefits the law confers.49

We are in full accord with the clear findings and apt ruling of the lower courts. Nowhere in Commonwealth Act No. 141 does it say that the right to repurchase under Section 119 thereof could not be extended by mutual agreement of
the parties involved. Neither would extending the period in Section 119 be against public policy as "the evident purpose of the Public Land Act, especially the provisions thereof in relation to homesteads, is to conserve ownership of
lands acquired as homesteads in the homesteader or his heirs."50 "What cannot be bartered away is the homesteader’s right to repurchase the homestead within five years from its conveyance, as this is what public policy by law seeks
to preserve."51 "This, in our opinion, is the only logical meaning to be given to the law, which must be liberally construed in order to carry out its purpose."52

Petitioner does not dispute that the 1988 contract was executed freely and willingly between him and his late brother, and the Nisperos spouses. "The freedom of contract is both a constitutional and statutory right,"53 and "the contracting
parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy."54 The 1988 contract neither shortens the
period provided under Section 119 nor does away with it. Instead, it gives the Nisperos spouses more time to reacquire the land that the State gratuitously gave them. The 1988 contract therefore is not contrary to law; instead it is
merely in keeping with the purpose of the homestead law. Since the 1988 contract is valid, it should be given full force and effect. In Roxas v. De Zuzuarregui, Jr.,55 we held:
It is basic that a contract is the law between the parties. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Unless the stipulations in a contract are contrary
to law, morals, good customs, public order or public policy, the same are binding as between the parties.56

Petitioner, who freely signed the 1988 contract, cannot now be allowed to renege on his obligation under it, simply because he changed his mind. Article 1308 of the Civil Code provides:

The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.1avvphi1

Petitioner is thus bound by the terms of the 1988 Contract, and must comply with it in good faith. Since the right to repurchase was exercised by the Nisperos spouses before the expiration of the time given to them by the Morla brothers,
the lower courts correctly ruled in their favor.

WHEREFORE, the Petition is hereby DENIED and the March 9, 2005 Decision and December 29, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 53527, are AFFIRMED.

SO ORDERED.

G.R. No. 183789 August 24, 2011

POWER SECTOR ASSETS AND lIABILITIES MANAGEMENT CORPORATION, Petitioner,

vs.
POZZOLANIC PHILIPPINES INCORPORATED, Respondent.

DECISION

PEREZ, J.:

The Case

This petition1 for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure assails (1) the Decision2dated 30 April 2008 of the Regional Trial Court of Quezon City, Branch 96, upholding the validity of respondent’s right of
first refusal and holding such right binding on petitioner, and (2) the Order3 dated 27 June 2008 of the same court, denying petitioner’s Motion for Reconsideration and Supplemental Motion for Reconsideration of the 30 April 2008
Decision of the trial court in Civil Case No. Q-00-40731.

The Antecedents

Petitioner Power Sector Assets and Liabilities Management Corporation (PSALM) is a government-owned and controlled corporation created by virtue of Republic Act No. 9136, otherwise known as the Electric Power Industry Reform
Act (EPIRA) of 2001.4 Its principal purpose is to manage the orderly sale, disposition, and privatization of the National Power Corporation’s (NPC’s) generation assets, real estate and other disposable assets, and Independent Power
Producer (IPP) contracts, with the objective of liquidating all NPC financial obligations and stranded contract costs in an optimal manner.5

Respondent Pozzolanic Philippines Incorporated (Pozzolanic) is the local subsidiary of Pozzolanic Australia Pty. Ltd. (Pozzolanic Australia),6 an Australian corporation which claims to have perfected the techniques in the processing of
fly ash for use in the making of cement.7

In 1986, Pozzolanic Australia won the public bidding for the purchase of the fly ash generated by NPC’s power plant in Batangas.8 Pozzolanic Australia then negotiated with NPC for a long-term contract for the purchase of all fly ash to
be produced by NPC’s future power plants. NPC accepted Pozzolanic Australia’s offer and they entered into a long-term contract, dated 20 October 1987, denominated as "Contract for the Purchase of Fly Ash of Batangas Coal-Fired
Thermal Power Plant Luzon" (the Batangas Contract).9

Under Article I of the contract, NPC, referred to therein as the "CORPORATION," granted Pozzolanic Australia, the "PURCHASER," a right of first refusal to purchase the fly ash generated by the coal-fired plants that may be put up by
NPC in the future. The specific provision of the contract states:

PURCHASER has first option to purchase Fly Ash under similar terms and conditions as herein contained from the second unit of Batangas Coal-Fired Thermal Plant that the CORPORATION may construct. PURCHASER may also
exercise the right of first refusal to purchase fly ash from any new coal-fired plants which will be put up by CORPORATION.10

In 1988, while the necessary clearances and approvals were being obtained by Pozzolanic Australia in connection with the operation of its fly ash business in the Philippines, its major stockholders decided that it would be more
advantageous for the company to organize a Philippine corporation and to assign to such corporation Pozzolanic Australia’s rights to the commercial use of fly ash in the Philippines. Accordingly, in April 1989, respondent Pozzolanic
was formally incorporated to take over Pozzolanic Australia’s business in the Philippines.11 Respondent then commenced to exercise its rights under the Batangas contract in June, 1989.12

In 1998, the Masinloc Coal-Fired Thermal Power Plant (Masinloc Plant) started operations to provide power for NPC. Late that year, respondent began the installation of its fly ash processing equipment in the Masinloc Plant and began
off taking the fly ash produced therein. 13

Subsequently, on 15 February 1999, NPC and respondent, on an interim basis and prior to the conduct of a public bidding for the contract to purchase the Masinloc Plant’s fly ash, executed a contract whereby respondent was given
the right to purchase the said fly ash for a period of one year.14 The fourth and fifth "WHEREAS" clauses of the contract provide:

WHEREAS, under the ‘Contract for the Purchase of the Fly Ash of Batangas Coal-Fired Thermal Power Plant’ dated 20 October 1987, PURCHASER was granted the right of first refusal over any and all fly ash that may be produced
by any of NPC’s coal-fired power plants in the Philippines;

WHEREAS, NPC intends to bid out the long term contract for the Fly Ash that may be produced by the (Masinloc Coal Fired Thermal Power) Plant subject to the second paragraph of Article I of the original contract between the parties
which was signed on 20 October 1987 giving PURCHASER the right of first refusal.15

In October 1999, the Sual Coal-Fired Power Plant started providing electricity in the Luzon region.16 NPC thereafter caused to be published in the Philippine Star and the Manila Bulletin17 an "Invitation to Pre-Qualify and to Bid," inviting
all interested buyers to pre-qualify for the purchase of fly ash from the Masinloc and/or Sual Power Plants.18

As a result, respondent sent letters to NPC calling its attention to respondent’s right of first refusal under the Batangas Contract. It also demanded that any tender documents to be issued in connection with the bidding on the right to
purchase the Masinloc and Sual Plants’ fly ash include notices informing prospective bidders of respondent’s right of first refusal.

In a letter dated 7 March 2000, NPC informed respondent that it had decided to defer indefinitely the bidding on the right to purchase the Masinloc Plant’s fly ash and to proceed first with the bidding on the right to purchase the Sual
Plant’s fly ash. Thus, on 7 April 2000, NPC released the tender documents for the bidding on the Sual Plant’s fly ash, which tender documents made no reference to respondent’s right of first refusal.19
This prompted respondent to file a complaint20 (later amended21 ) with the trial court praying that NPC be ordered to allow Pozzolanic to exercise its right of first refusal by permitting it to match the price and terms offered by the winning
bidder and by awarding the contract for the purchase of the Sual Plant’s fly ash to Pozzolanic if it matches the price and terms offered by said winning bidder.22

While the case was pending before the lower court, NPC decided to also dispose of the fly ash from the Masinloc Plant through public bidding, without allowing respondent to exercise its right of first refusal. Thus, respondent filed a
Supplementary Complaint23 , dated 8 August 2002, praying for the same reliefs as those prayed for in the amended complaint earlier filed, but as regards the Masinloc Plant.24

Meanwhile, on 4 June 2001, Congress enacted the EPIRA (RA 9136) which created PSALM. This resulted in the filing of a Second Supplementary Complaint, dated 5 March 2003, impleading petitioner PSALM as a necessary and
indispensable party.25

The litigation became more complicated when petitioner, NPC, and the Department of Energy entered into a Memorandum of Agreement with the Provincial Government of Zambales and several local government units of Zambales,
pursuant to which the Provincial Government of Zambales was awarded the exclusive right to withdraw the fly ash from the Masinloc Plant.26 With this development, respondent filed a Third Supplementary Complaint seeking the
annulment of the aforesaid Memorandum of Agreement and other documents related thereto. 27 This complaint was dismissed by the trial court on the ground of forum shopping, it appearing that the Province of Zambales, et al. had
previously filed a case against respondent and NPC, claiming exclusive right to withdraw the fly ash of the Masinloc Plant. 28

Respondent appealed the order of dismissal to the Court of Appeals.

On 18 July 2007, while the appeal was pending, respondent and the Provincial Government of Zambales executed an "Agreement" 29 (the Masinloc Contract) by virtue of which the Province of Zambales awarded to respondent the
exclusive right to withdraw the fly ash from the Masinloc Power Plant. Respondent then moved for the dismissal of its appeal in the Court of Appeals. As a result, the assailed Order of the trial court dismissing respondent’s Third
Supplementary Complaint became final.30

Also, previously, on 30 March 2005, respondent and NPC entered into a "Purchase Agreement for the Purchase of Fly Ash of Sual Coal-Fired Thermal Power Plant"31 (the Sual Contract) whereby NPC awarded to respondent the
exclusive right to withdraw the fly ash from the Sual Plant.32

As a result, NPC filed, on 4 February 2008, a Motion to Dismiss33 the Complaint against it on the ground that the issues between it and respondent had become moot and academic. This is in view of the Purchase Agreement executed
by NPC and respondent for the fly ash of the Sual Plant and the Agreement between respondent and the Provincial Government of Zambales with respect to the fly ash of the Masinloc Plant.34

During the hearing on NPC’s Motion to Dismiss held on 7 February 2008, the trial court ordered herein petitioner PSALM and respondent Pozzolanic to comment on the Motion. Petitioner, through counsel, manifested that in addition to
commenting on the Motion to Dismiss, it would also like to challenge, through a position paper, the validity of respondent’s right of first refusal.35

Respondent herein interposed no objection to the Motion to Dismiss.36 On the other hand, in its Comment37 dated 14 February 2008, petitioner asserted that the following issues should first be resolved before a resolution on the Motion
to Dismiss may be had:

1. whether or not fly ash, which is/are [sic] not yet existing, can be considered assets of the government, the disposition of which is subject to government rules particularly public bidding;

2. whether or not the alleged right of first refusal of plaintiff is not contrary to law; and

3. whether or not PSALM is bound by the said alleged right.38

Petitioner thus prayed that resolution on the Motion to Dismiss be held in abeyance pending determination of the issues concerning respondent’s alleged right of first refusal.

Pursuant to its manifestation in open court during the 7 February 2008 hearing on NPC’s Motion to Dismiss, petitioner submitted its Position Paper39 on 29 February 2008 raising the same issues as those in its Comment to NPC’s
Motion to Dismiss. Petitioner prayed that the complaint against it be dismissed and that respondent’s right of first refusal contained in the second paragraph, Article 1 of the Batangas Contract be declared void ab initio for being contrary
to law and public policy.

In an Order40 dated 17 March 2008, the trial court dismissed in toto the Amended Complaint and the First Supplementary Complaint. The Second Supplementary Complaint was PARTIALLY DISMISSED insofar

as it refers to herein respondent’s complaint against NPC only. Thus, on 30 April 2008, the trial court rendered the herein assailed Decision declaring respondent’s right of first refusal valid and binding on petitioner. The Motion for
Reconsideration and Supplemental Motion for Reconsideration filed by petitioner seeking a reversal of the decision of the trial court were both denied for lack of merit.41

Hence, this petition.

The Issues

Petitioner PSALM prays for the reversal of the challenged decision on the following grounds:

1. THE TRIAL COURT WAS DIVESTED OF JURISDICTION AFTER IT ISSUED THE ORDER DATED 17 MARCH 2008 DISMISSING WITH PREJUDICE THE A MENDED COMPLAINT AND THE FIRST SUPPLEMENTARY
COMPLAINT. THUS, THE "DECISION" DATED 30 APRIL 2008 RENDERED SUBSEQUENT TO SUCH DISMISSAL IS NULL AND VOID; AND

2. EVEN ASSUMING THAT THE TRIAL COURT WAS NOT DIVESTED OF JURISDICTION, THE RIGHT OF FIRST REFUSAL IS NOT VALID, AND THEREFORE, WITHOUT BINDING EFFECT, FOR BEING CONTRARY TO PUBLIC
POLICY.

The Court’s Ruling

On whether or not the trial court

was divested of jurisdiction

Petitioner contends that by virtue of the Order of the trial court dated 17 March 2008, respondent’s Amended Complaint was dismissed with prejudice; and, since no motion for reconsideration or appeal was filed by any of the parties in
the lower court, the Order attained finality. Thus, petitioner argues, the trial court can no longer take any further action since it had lost all power or authority over the case. The Order of dismissal effectively deprived it of jurisdiction.42

We cannot subscribe to petitioner’s argument. Petitioner is barred by the doctrine of estoppel from challenging the lower court’s authority to render the 30 April 2008 Decision since it was petitioner itself which called for the exercise of
such authority. In its Comment to NPC’s Motion to Dismiss, it raised the following issues:
1. whether or not fly ash, which is/are [sic] not yet existing, can be considered assets of the government, the disposition of which is subject to government rules particularly public bidding;

2. whether or not the alleged right of first refusal of plaintiff is not contrary to law; and

3. whether or not PSALM is bound by the said alleged right.

Then, again, in its Position Paper, it reiterated the aforesaid issues and petitioned the trial court to dismiss herein respondent’s complaint against it and to invalidate respondent’s right of first refusal as contained in the Batangas Contract.
Clearly, petitioner invoked the court’s jurisdiction by seeking to obtain a definite pronouncement from it. Having thus called upon the court to settle the issues it has raised, petitioner cannot now repudiate that same jurisdiction it has
invoked in the first place.

This Court has consistently held that "a party cannot invoke the jurisdiction of a court to secure affirmative relief against his opponent and after obtaining or failing to obtain such relief, repudiate or question that same jurisdiction."43 The
Supreme Court frowns upon the undesirable practice of a party submitting his case for decision and then accepting the judgment only if favorable, and attacking it for lack of jurisdiction if adverse.44 If a party invokes the jurisdiction of a
court, he cannot thereafter challenge the court’s jurisdiction in the same case. To rule otherwise would amount to speculating on the fortune of litigation, which is against the policy of the Court.45

Petitioner maintains that it had tried to prevent the current situation wherein a decision was rendered by the trial court without a standing complaint. According to petitioner, in its Comment to NPC’s Motion to Dismiss, it prayed for a
deferral of the court’s action on the Motion until after the resolution of the issues it has raised. Thus, petitioner claims, it cannot be faulted for the lower court’s own procedural lapse in dismissing the Amended Complaint despite
petitioner’s prayer.46

Again, we cannot sustain petitioner’s contention.

It must be noted that petitioner did not raise the foregoing argument in its Comment on NPC’s Motion to Dismiss. Neither was it mentioned in the Position Paper it filed before the trial court. Not even in its Motion for Reconsideration of
the herein challenged Decision did petitioner discuss the issue. The matter was raised for the first time in its Supplemental Motion for Reconsideration, thereby giving credence to respondent’s contention that the same was just an
afterthought47 on the part of petitioner.

If petitioner’s claim is to be accepted as true, it should have raised the issue regarding the trial court’s jurisdiction at the very first opportunity, which was, at the time of its receipt of the 17 March 2008 Order dismissing the Amended
and First Supplementary Complaints in toto and only partially dismissing the Second Supplementary Complaint wherein petitioner was impleaded. At that point, petitioner should have been forewarned that the proceedings, as against
it, have not been terminated. Then, too, as far as the issues it raised in its Comment and Position Paper were concerned, no pronouncement had, as yet, been made by the court at the time. Obviously, there were still matters that
needed to be resolved by the court. Thus, if petitioner truly believed that the court had lost its jurisdiction after it dismissed the Amended Complaint, it should have questioned the 17 March 2008 Order of the court which failed to
completely dispose of the case. Instead, it waited for the court to issue the questioned Decision, and only then did petitioner broach the subject. Clearly, under the circumstances, petitioner is estopped from questioning the court’s
jurisdiction.

On the validity of respondent’s

right of first refusal

We hold the right of first refusal granted to respondent in the Batangas Contract invalid for being contrary to public policy as the same violates the requirement of competitive public bidding in the award of government contracts, for the
following reasons:

One: The grant to respondent of the right of first refusal constitutes an unauthorized provision in the contract that was entered into pursuant to the bidding.

By respondent’s own admission, the right of first refusal granted to it was "contractually bargained for and acquired from NPC"48 after it won the public bidding for the purchase of the fly ash produced by the Batangas Power Plant.49This
clearly indicates that the right of first refusal was not included in the bid documents presented to the other bidders who participated in the bidding. As a result, the contract signed by NPC and respondent is different from that which was
bidded out.

It has been held that the three principles in public bidding are: (1) the offer to the public; (2) an opportunity for competition; and (3) a basis for the exact comparison of bids. A regulation of the matter which excludes any of these factors
destroys the distinctive character of the system and thwarts the purpose of its adoption.50

Thus, in the case of Agan, Jr. v. Philippine International Air Terminals Co., Inc. 51 (PIATCO), the Supreme Court declared as null and void, for being contrary to public policy, the Concession Agreement entered into by the government
with PIATCO because it contained provisions that substantially departed from the draft Concession Agreement included in the bid documents.52

Also, in Commission on Audit v. Link Worth International, Inc.,53 the Court affirmed the respective decisions of the trial court and the Court of Appeals annulling the award of a procurement contract to a bidder whose technical proposal
varied from the bid specifications. It appears that during the post-qualification stage, the Bids and Awards Committee of the Commission on Audit considered some factors in the verification and validation of the winning bidder’s proposal
which were extraneous to and not included in the bid documents.54 Thus, the Court emphasized that the function of post-qualification is to verify, inspect and test whether the technical specifications of the goods offered comply with the
requirements of the contract and the bidding documents. It does not give occasion for the procuring entity to arbitrarily exercise its discretion and brush aside the very requirements it specified as vital components of the goods it bids
out.55

In Caltex (Philippines), Inc., et al. v. Delgado Brothers, Inc. et al.,56 the Supreme Court likewise affirmed a decision of the trial court declaring as null and void the amendment to an arrastre contract for the reason that the same was
done without public bidding. Citing the appealed decision, the Court held that:

x x x the said agreement of June 1, 1951 executed and entered into without previous public bidding, is null and void, and can not adversely affect the rights of third parties, x x x and of the public in general. x x x the due execution of a
contract after public bidding is a limitation upon the right of the contracting parties to alter or amend it without another public bidding, for otherwise what would a public bidding be good for if after the execution of a contract after public
bidding, the contracting parties may alter or amend the contract, or even cancel it, at their will? Public biddings are held for the protection of the public, and to give the public the best possible advantages by means of open competition
between the bidders. He who bids or offers the best terms is awarded the contract subject of the bid, and it is obvious that such protection and best possible advantages to the public will disappear if the parties to a contract executed
after public bidding may alter or amend it without another previous public bidding.57

Finally, in Information Technology Foundation of the Philippines v. Commission on Elections,58 the Court nullified the award by the Commission on Elections (COMELEC) of a contract for the automation of the counting and canvassing
of the ballots in the 2004 elections on the ground, among others, that it permitted the winning bidder to change and alter the subject of the contract, in effect allowing a substantive amendment without public bidding.59 Said the Supreme
Court therein: "it is contrary to the very concept of public bidding to permit a variance between the conditions under which the bids are invited and those under which proposals are submitted and approved; or, as in this case, the
conditions under which the bid is won and those under which the awarded contract will be complied with. The substantive amendment of the contract bidded out, without any public bidding – after the bidding process had been concluded
– is violative of the public policy on public biddings, x x x. The whole point in going through the public bidding exercise was completely lost. The very rationale of public bidding was totally subverted by the Commission."60
By its very nature, public bidding aims to protect public interest by giving the public the best possible advantages through open competition. Thus, competition must be legitimate, fair and honest. In the field of government contract law,
competition requires not only bidding upon a common standard, a common basis, upon the same thing, the same subject matter, and the same undertaking, but also that it be legitimate, fair and honest and not designed to injure or
defraud the government.61 An essential element of a publicly bidded contract is that "all bidders must be on equal footing, not simply in terms of application of the procedural rules and regulations imposed by the relevant government
agency, but more importantly, on the contract bidded upon. Each bidder must be able to bid on the same thing."62

As pointed out by the Court in Agan, if the winning bidder is allowed to later include or modify certain provisions in the contract awarded such that the contract is altered in any material respect, then the essence of fair competition in the
public bidding is destroyed. A public bidding would be a farce if, after the contract is awarded, the winning bidder may modify the contract and include provisions which are favorable to it that were not previously made available to the
other bidders.63 The government cannot enter into a contract with the highest bidder and incorporate substantial provisions beneficial to him, not included or contemplated in the terms and specifications upon which the bids were
invited.64

Aside from protecting public interest by giving the public the best possible advantages through open competition, "[a]nother self-evident purpose of public bidding is to avoid or preclude suspicion of favoritism and anomalies in the
execution of public contracts."65 Such bias or partiality and irregularities may be validly presumed if, as in this case, after a contract has been awarded, the parties carry out changes or make amendments thereto which gives the winning
bidder an edge or advantage over the other bidders who participated in the bidding, or which makes the signed contract unfavorable to the government. Thus, there can be no substantial or material change to the parameters of the
project, including the essential terms and conditions of the contract bidded upon, after the contract award.66

The Court acknowledges that a winning bidder is not precluded from modifying or amending certain provisions of the contract bidded upon. However, such changes must not constitute substantial or material amendments that would
alter the basic parameters of the contract and would constitute a denial to the other bidders of the opportunity to bid on the same terms. Hence, the determination of whether or not a modification or amendment of a contract bidded out
constitutes a substantial amendment rests on whether the contract, when taken as a whole, would contain substantially different terms and conditions that would have the effect of altering the technical and/or financial proposals
previously submitted by other bidders. The alteration and modifications in the contract executed between the government and the winning bidder must be such as to render such executed contract to be an entirely different contract from
the one that was bidded upon.67

The grant of the right of first refusal in this case did not only substantially amend the terms of the contract bidded upon, so that resultantly, the other bidders thereto were deprived of the terms and opportunities granted to respondent
after it won the public auction, it so altered the bid terms – the very admission by all parties that the disposal of fly ash must be through public bidding – by effectively barring any and all true biddings in the future. The grant of first refusal
was a grant to respondent of the right to buy fly ash in all coal-fired plants of NPC. Proceeding from the afore-cited jurisprudence, the Batangas Contract is, consequently, a nullity.

Two: The right to buy fly ash precedes and is the basis of the right of first refusal, and the consequent right cannot be acquired together with and at the same time as the precedent right.

The right of first refusal has long been recognized, both legally and jurisprudentially, as valid in our jurisdiction. It is significant to note, however, that in those cases where the right of refusal is upheld by both law and jurisprudence, the
party in whose favor the right is granted has an interest on the object over which the right of first refusal is to be exercised. In those instances, the grant of the right of first refusal is a means to protect such interest.

Thus, Presidential Decree (P.D.) No. 1517,68 as amended by P.D. No. 2016,69 grants to qualified tenants of land in areas declared as urban land reform zones, the right of first refusal to purchase the same within a reasonable
time and at a reasonable price.70 The same right is accorded by Republic Act No. 727971 (Urban Development and Housing Act of 1992) to qualified beneficiaries of socialized housing, with respect to the land they are occupying.
Accordingly, in Valderama v. Macalde,72 Parañaque Kings Enterprises, Inc. v. Court of Appeals,73and Conculada v. Court of Appeals,74 the Supreme Court sustained the tenant’s right of first refusal pursuant to P.D. 1517.

In Polytechnic University of the Philippines v. Court of Appeals75 and Polytechnic University of the Philippines v. Golden Horizon Realty Corporation 76 , this Court upheld the right of refusal of therein respondent private corporations
concerning lots they are leasing from the government.

In the case of Republic v. Sandiganbayan, 77 the Presidential Commission on Good Government (PCGG) sought to exercise its right of first refusal as a stockholder of Eastern Telecommunications Philippines, Inc. (ETPI), a corporation
sequestered by the PCGG, to purchase ETPI shares being sold by another stockholder to a non-stockholder. While the Court recognized that PCGG had a right of first refusal with respect to ETPI’s shares, 78 it nevertheless did not
sustain such right on the ground that the same was not seasonably exercised.79

Finally, in Litonjua v. L & R Corporation,80 the Supreme Court recognized the validity and enforceability of a stipulation in a mortgage contract granting the mortgagee the right of first refusal should the mortgagor decide to sell the
property subject of the mortgage.

In all the foregoing cases, the party seeking to exercise the right has a vested interest in, if not a right to, the subject of the right of first refusal. Thus, on account of such interest, a tenant (with respect to the land occupied), a lessee
(vis-à-vis the property leased), a stockholder (as regards shares of stock), and a mortgagor (in relation to the subject of the mortgage), are all granted first priority to buy the property over which they have an interest in the event of its
sale. Even in the JG Summit Case,81 which case was heavily relied upon by the lower court in its decision and by respondent in support of its arguments, the right of first refusal to the corporation’s shares of stock – later exchanged for
the right to top – granted to KAWASAKI was based on the fact that it was a shareholder in the joint venture for the construction, operation, and management of the Philippine Shipyard and Engineering Corporation (PHILSECO).

In the case at bar, however, there is no basis whatsoever for the grant to respondent of the right of first refusal with respect to the fly ash of NPC power plants since the right to purchase at the time of bidding is that which is precisely
the bidding subject, not yet existent much more vested in respondent.

KAWASAKI’s situation is different from that of respondent in that the former has an established interest in the shares subject of the right of first refusal. In the words of the Court in that case: "KAWASAKI is not a mere non-bidder. It is
a PARTNER in the joint venture x x x."82 (Emphasis supplied).

Further, in the JG Summit Case,83 what was involved was not merely a right to match but a right to top by five percent (5%) the highest bid for the shares subject of the public bidding.84 Undoubtedly, such an arrangement is truly
advantageous to the government. Here, aside from respondent not having a vested interest in the subject matter of the public bidding, its right of first refusal allows it to merely match the highest bid offered at the public auction. This
agreement clearly makes a farce of the bidding process, as the government will merely go through the motion of holding a public bidding and declaring a highest bidder only to award the contract to respondent, who did not even
participate in the bidding.

It is significant to note that, in the tender documents for the bidding of the fly ash of the Masinloc Power Plant, NPC gave respondent the opportunity to top the highest bid by fifteen percent (15%). Respondent protested this, however,
as an infringement upon its alleged right of first refusal to purchase the Masinloc fly ash, as supposedly guaranteed by the Batangas Contract.85

In effect, therefore, in asserting its right of first refusal, what respondent is asking is that it be given undue advantage over any other party interested to purchase the fly ash of NPC’s power plants. Obviously, this cannot be countenanced.
It is inherent in public biddings that there shall be a fair competition among the bidders. The specifications in such biddings provide the common ground or basis for the bidders. The specifications should, accordingly, operate equally or
indiscriminately upon all bidders.86

It should also be pointed out that while respondent maintains that it never sought to disallow the public bidding of the fly ash in question, the records of this case, nevertheless, disclose that the right to withdraw the fly ash of the Sual
and Masinloc Plants was awarded to respondent without the benefit of a public auction.87 Thus, the grant to respondent of the right of first refusal in the Batangas Contract paved the way for respondent to obtain the right to withdraw fly
ash from the aforementioned power plants without public bidding. The second and third "WHEREAS" clauses of the Sual Contract are particularly telling on this score:
WHEREAS, in the Contract for the Purchase of Fly Ash of BCFTPP provides for the "Right of First Refusal" to PURCHASER to purchase fly ash from any new coal-fired plants which will be put up by NPC;

WHEREAS, NPC owns the fly ash generated by the two (2) units of 1,200 MW Sual Coal-Fired Thermal Power Plant (SCFTPP) located at Barangay Pangascasan, Sual, Pangasinan, hereinafter referred to as the Plant;88

With respect to the Masinloc Plant, it will be recalled that the right to

withdraw the fly ash from the same was the subject of the Third Supplementary Complaint, filed by respondent before the trial court to enforce the right of first refusal provision in the Batangas Contract, which complaint was, however,
dismissed on the ground of forum shopping. Nevertheless, while the order of dismissal was on appeal in the Court of Appeals, the right to withdraw the fly ash of the Masinloc Plant was granted to respondent by the Provincial Government
of Zambales, by virtue of which, respondent moved for the dismissal of its appeal, thereby resulting in the finality of the order of dismissal of the trial court.

It can be easily deduced from the foregoing that the Masinloc Contract was likewise sourced from respondent’s supposed right of first refusal, thereby giving respondent preferential right to the fly ash of the Masinloc Plant and allowing
it to withdraw the Plant’s fly ash without having to go through a public bidding. Had the Masinloc Contract not been drafted, it is clear that respondent’s complaint for the enforcement of the provision granting it the right of first refusal
would have continued. The Masinloc Contract, then, is a virtual recognition of respondent’s alleged right of first refusal.

The rationale behind the requirement of a public bidding, as a mode of awarding government contracts, is to ensure that the people get maximum benefits and quality services from the contracts. More significantly, strict compliance
with the requirement of public bidding echoes the call for transparency in government transactions and accountability of public officers. Public biddings are intended to minimize occasions for corruption and temptations to abuse
discretion on the part of government authorities in awarding contracts.89

Based on the afore-quoted "WHEREAS" clauses of the Sual Contract, the right to purchase the fly ash from the Sual Plant was granted to respondent, without having to undergo a public auction, on the basis of its right of first refusal
embodied in the Batangas Contract. This negates respondent’s claim that the right of first refusal granted to it does not preclude a public bidding. The right of first refusal provision was used to subvert the rule that all government
contracts should be awarded after competitive public bidding. This demonstrates the iniquity of allowing the provision to prevail over requirements of public policy. Thus, the evil precisely sought to be prevented by the requirement of
public bidding came to pass in this case: the Sual and Masinloc Contracts were awarded to respondent without any public bidding having been conducted.

Three: The right of first refusal is against the public policy that contracts must be awarded through public bidding.

Respondent would have us sustain its right of first refusal on the ground that Article 1159 of the New Civil Code provides that "obligations arising from contracts have the force of law between the contracting parties and should be
complied with in good faith." Hence, respondent argues, the Batangas Contract is binding upon NPC and respondent and their respective successors-in-interest.90

True, it is a fundamental rule that contracts, once perfected, bind both contracting parties and a contract freely entered into should be respected since a contract is the law between the parties.91 However, it must be understood that
contracts are not the only source of law that govern the rights and obligations between parties. More specifically, no contractual stipulation may contradict law, morals, good customs, public order or public policy.92

The principle of party autonomy in contracts is not an absolute principle. The rule in Article 1306 of our Civil Code is that the contracting parties may establish such stipulations as they may deem convenient provided they are not
contrary to law, morals, good customs, public order or public policy. Thus, counter-balancing the principle of autonomy of contracting parties is the equally general rule that provisions of applicable laws, especially provisions relating to
matters affected with public policy, are deemed written into the contract. Put a little differently, the governing principle is that parties may not contract away applicable provisions of law, especially peremptory provisions dealing with
matters heavily impressed with public interest.93

In this jurisdiction, public bidding is the established procedure in the grant of government contracts. The award of public contracts through public bidding is a matter of public policy.94

Public policy has been defined as that principle under which freedom of contract or private dealing is restricted for the good of the community.95 Under the principles relating to the doctrine of public policy, as applied to the law of
contracts, courts of justice will not recognize or uphold a transaction when its object, operation, or tendency is calculated to be prejudicial to the public welfare, to sound morality or to civic honesty.96

Consistent with the principle that public auction in the conferment of government contract involves public policy, Congress enacted various laws governing the procedure in the conduct of public bidding and prescribing policies and
guidelines therefor. With respect to the disposal of government assets and property, of particular application in this case are Circular Nos. 86-26497 and 89-29698 of the Commission on Audit, dated 16 October 1986 and 27 January
1989, respectively. Both circulars provide that the divestment or disposal of government property shall be undertaken primarily through public auction.99

Respondent puts forth the argument that fly ash is a waste product100 and therefore cannot be considered as an asset of the government within the contemplation of the laws governing disposal of government property.

The peculiarity of fly ash as property of the government is that, from its inception, it is already a residual product. Unlike the government properties subject of P.D. 1445101 and the Government Auditing and Accounting Manual, fly ash
is not property previously utilized by the government in its operations which has become unserviceable. Justifiably, the government did not foresee the possibility of any use for and, much less, of deriving profit from it. Hence, the lack
of a specific law governing its disposal and its non-inclusion in existing laws on the divestment of government property. There is no doubt, however that fly ash is property – and more importantly, asset – of the government. Fly ash is
produced by power plants owned by the government and both the government and respondent derive profit from it. Besides, the fact that respondent is fighting tooth and nail for the right to withdraw the same from NPC’s power plants
is indubitable proof of its value. Its sale is, therefore, subject to the rules on the disposal of government assets and property. Applicable laws form part of, and are read into, contracts without need for any express reference thereto;
more so, to a government contract which is imbued with public interest.102

In the case of Ongsiako v. Gamboa,103 this Court declared that an agreement is against public policy if it is injurious to the interests of the public, contravenes some established interest of society, violates some public statute, is against
good morals, tends to interfere with the public welfare or safety, or, as it is sometimes put, if it is at war with the interests of society and is in conflict with the morals of the time.104

Thus, respondent’s right of first refusal cannot take precedence over the dictates of public policy.

The right of first refusal of respondent being invalid, it follows that it has no binding effect. It does not create an obligation on the part of petitioner to acknowledge the same. Neither does it confer a preferential right upon respondent to
the fly ash of NPC’s power plants.

How, then, does the invalidation of respondent’s right of first refusal affect the Sual and Masinloc Contracts which were executed pursuant to such right?

As discussed above, the right of first refusal granted to respondent in the Batangas Contract paved the way for the award to respondent of the Sual Contract without any public bidding having been conducted therefor. In a long line of
cases, this Court has pronounced that government contracts shall not be entered into or renewed without public bidding. 105 Thus, the Supreme Court has struck down contracts and agreements entered into in violation of this requirement.

In the case of National Food Authority v. Court of Appeals,106 the Court ruled against the legality of negotiated security contracts awarded by the National Food Authority (NFA) to several private security agencies in default of a public
bidding. According to the Court, the NFA’s manifest reluctance to hold a public bidding and award a contract to the winning bidder smacks of favoritism and partiality toward the security agencies to whom it awarded the negotiated
contracts and cannot be countenanced.107
Likewise, in Manila International Airport Authority v. Mabunay,108 the Supreme Court dismissed a petition for review seeking the annulment of a decision of the lower court declaring that under the laws and regulations, it is necessary
for the Manila International Airport Authority to contract for security services through public bidding. The Court reiterated the basic principle that in the execution of all government contracts, public bidding is the accepted method for
arriving at a fair and reasonable price. [I]t ensures that overpricing and favoritism, and other anomalous practices are eliminated or minimized.109

In Chavez v. Public Estates Authority,110 the Amended Joint Venture Agreement (JVA) entered into between the Public Estates Authority and the Amari Coastal Bay and Development Corporation (AMARI) was declared null and void
ab initio because it, among others, sought to convey to AMARI, a private entity, reclaimed public lands without the benefit of a public bidding. The Court cited Section 79 of Presidential Decree (P.D.) No. 1445, otherwise known as the
Government Auditing Code, which requires the government to sell valuable government property through public bidding. 111 The Court stated further that the Commission on Audit implements Section 79 of the Government Auditing
Code through Circular No. 89-296112 dated 27 January 1989. This circular emphasizes that government assets must be disposed of only through public auction.113 In denying respondents’ Second Motions for Reconsideration and
sustaining the invalidity of the Amended JVA, this Court reiterated that the JVA is a negotiated contract which clearly contravenes Section 79 of P.D. 1445.114

Section 79 of P.D. 1445 and COA Circular No. 89-296, among others, were also relied upon by the Supreme Court in declaring as inexistent and void ab initio the Compromise Agreement between the Philippine National Construction
Corporation and Radstock Securities Limited in the case of Strategic Alliance Development Corporation v. Radstock Securities Limited. 115 Under the Compromise Agreement in that case, the PNCC shall dispose of substantial parcels
of land, by way of dacion en pago, in favor of Radstock, a private corporation incorporated in the British Virgin Islands. 116 Citing the aforementioned case of Chavez v. Public Estates Authority,117 the Court echoed the necessity of a
public bidding for the disposal of government properties.118

Finally, in Gana v. Triple Crown Services Inc.,119 the Supreme Court declared as null and void the negotiated contract for janitorial and maintenance services between the Manila International Airport Authority (MIAA) and Goodline
Staffers & Allied Services, Inc. According to the Supreme Court, the constitutional right of Olongapo Maintenance Services, Inc. (OMSI) and Triple Crown Services, Inc. (TCSI), the incumbent service contractors, to equal protection of
the law was violated by MIAA and its general manager when no public bidding was called precisely because the latter were going to award the subject service contracts through negotiation. Worse, the Court continued, the acts of MIAA
and Gana smack of arbitrariness and discrimination as they not only did not call for the required public bidding but also did not even accord OMSI and TCSI the opportunity to submit their proposals in a public bidding.120 1avvphi1

By the very language of the Sual Contract, the same was entered pursuant to respondent’s right of first refusal and in consideration of respondent’s conformity to withdraw its complaint against NPC. The pertinent provisions of the Sual
Contract are herein below quoted:

WHEREAS, NPC and PURCHASER [Pozzolanic] entered into a Contract for the Purchase of Fly Ash of Batangas Coal Fired Thermal Power Plant (BCFTPP) on October 20, 1987 and Contract for the Purchase of Fly Ash of Masinloc
Coal Fired Thermal Power Plant (MCFTPP) dated February 10, 1999;

WHEREAS, in the Contract for the Purchase of Fly Ash of BCFTPP provided for the ‘Right of First Refusal’ to PURCHASER to purchase fly ash from any new coal-fired plants which will be put up by NPC;

WHEREAS, NPC owns the fly ash generated by the two (2) units of 1,200 MW Sual Coal-Fired Thermal Power Plant (SCFTPP) located at Barangay Pangascasan, Sual, Pangasinan, hereinafter referred to as the Plant;

XXX

WHEREAS, PURCHASER filed a case for Specific Performance with Injunction under Civil Case No. Q-00-40731 before the Branch 90 of the Regional Trial Court of Quezon City and which Court issued a Preliminary Injunction against
NPC on the public bidding and sale of Fly Ash of MCFTPP and Sual Coal Fired Thermal Power Plant (SCFTPP);

WHEREAS, in a letter dated December 2, 2004, NPC and PURCHASER have agreed that in order to settle the issue, NPC fully recognizes and honors the ‘Right of First Refusal’ of PURCHASER to the fly ash produced at SCFTPP in
lieu of the fly ash produced at MCFTPP;

WHEREAS, in consideration of NPC’s recognition of the ‘Right of First Refusal’ in said letter dated 2 December 2004 and the execution of this Purchase Agreement, PURCHASER waives any and all claims to the fly ash produced at
MCFTPP and arising out of its rights under the ‘Contract for the Purchase of Fly Ash of the Masinloc Coal-Fired Thermal Power Plant’ dated February 10, 1999;

XXX

ARTICLE VI
WAIVER

NPC hereby fully recognizes and honors the ‘Right of First Refusal’ of PURCHASER to the fly ash produced at SCFTPP in lieu of the fly ash produced at the Masinloc Plant.

XXX

It is agreed that within thirty (30) days from and after execution of this Agreement, NPC and PURCHASER will jointly, together with PSALM Corporation move for the dismissal, with prejudice of Civil Case No. Q-00-40731 at the Regional
Trial Court, Branch 90 of Quezon City.

The pertinent ‘Motion’ for the dismissal of Civil Case No. Q-00-40731, to be filed in Branch 90 of the Regional Trial Court of Quezon City, or before any other Court who may then be hearing the above case, shall include therein a
complete textual copy of this Purchase Agreement, duly signed by all the parties hereto, which shall become an integral part of the compromise, for the dismissal of the said case, to be approved by the Trial Court.

X X X121 (Emphases supplied).

Based on the foregoing, the Sual Contract is clearly a negotiated contract by virtue of which, NPC awards to respondent the right to withdraw the fly ash of the Sual Plant – without public bidding – in exchange for which, respondent (1)
waives its rights to the fly ash of the Masinloc Plant and (2) consents to withdraw its case against NPC. As a result, the Sual Contract is invalid for failure to comply with the rules on public bidding.

The foregoing principles on the necessity of a public bidding for all government contracts obviously apply to the Masinloc Contract as well, the same being a public contract since one of the parties thereto is a government entity. While
its terms do not expressly provide that the same was executed pursuant to the right of first refusal granted to respondent under the Batangas Contract, the circumstances under which it was drafted, as narrated above, clearly indicate
that the Masinloc Contract is a recognition of the challenged right of first refusal. The case filed by respondent for the recognition and enforcement of its right of first refusal was settled only after the execution of the Masinloc Contract,
pursuant to which, respondent was awarded the exclusive right to withdraw the fly ash of the Masinloc Power Plant without the benefit of a public bidding.lawphi1

As adverted to above, the disposal of NPC power plants’ fly ash is governed by COA Circular Nos. 86-264 and 89-296.122 These circulars direct that public auction shall be the primary mode of disposal of assets of the government and
sale through negotiation shall be resorted to only in case of failure of public auction.123 For failure to abide by the requirement of a public bidding in the disposal of government assets, this Court is left with no option but to likewise
declare the Sual and Masinloc Contracts null and void.

In conclusion, this Court stresses that although a right of first refusal is a contractual prerogative recognized by both law and jurisprudence, the grant of such right in this case is invalid for being contrary to public policy.
WHEREFORE, we GRANT the petition for review on certiorari. The Decision dated 30 April 2008 and Order dated 27 June 2008 of the Regional Trial Court of Quezon City, Branch 96 in Civil Case No. Q-00-40731 are hereby REVERSED
AND SET ASIDE. Further, the Batangas, Sual and Masinloc Contracts are hereby declared NULL AND VOID for being contrary to law and public policy. Petitioner is hereby ordered to conduct a bidding of the right to purchase the fly
ash produced by the Batangas, Masinloc and Sual Power Plants within thirty (30) days from the finality of this Decision.

SO ORDERED.

G.R. No. 124290 January 16, 1998

ALLIED BANKING CORPORATION, petitioner,

vs.
COURT OF APPEALS , HON. JOSE C. DE GUZMAN, OSCAR D. TAN-QUECO, LUCIA D. TANQUECO-MATIAS, RUBEN D. TANQUECO and NESTOR D. TANQUECO, respondents.

BELLOSILLO, J.:

There are two (2) main issues in this petition for review: namely, (a) whether a stipulation in a contract of lease to the effect that the contract "may be renewed for a like term at the option of the lessee" is void for being potestative or
violative of the principle of mutuality of contracts under Art. 1308 of the Civil Code and, corollarily, what is the meaning of the clause "may be renewed for a like term at the option of the lessee;" and, (b) whether a lessee has the legal
personality to assail the validity of a deed of donation executed by the lessor over the leased premises.

Spouses Filemon Tanqueco and Lucia Domingo-Tanqueco owned a 512-square meter lot located at No. 2 Sarmiento Street corner Quirino Highway, Novaliches, Quezon City, covered by TCT No. 136779 in their name. On 30 June
1978 they leased the property to petitioner Allied Banking Corporation (ALLIED) for a monthly rental of P1,000.00 for the first three (3) years, adjustable by 25% every three (3) years thereafter. 1 The lease contract specifically states in
its Provision No. 1 that "the term of this lease shall be fourteen (14) years commencing from April 1, 1978 and may be renewed for a like term at the option of the lessee."

Pursuant to their lease agreement, ALLIED introduced an improvement on the property consisting of a concrete building with a floor area of 340-square meters which it used as a branch office. As stipulated, the ownership of the building
would be transferred to the lessors upon the expiration of the original term of the lease.

Sometime in February 1988 the Tanqueco spouses executed a deed of donation over the subject property in favor of their four (4) children, namely, private respondents herein Oscar D. Tanqueco, Lucia Tanqueco-Matias, Ruben D.
Tanqueco and Nestor D. Tanqueco, who accepted the donation in the same public instrument.

On 13 February 1991, a year before the expiration of the contract of lease, the Tanquecos notified petitioner ALLIED that they were no longer interested in renewing the lease. 2 ALLIED replied that it was exercising its option to renew
their lease under the same terms with additional proposals. 3 Respondent Ruben D. Tanqueco, acting in behalf of all the donee-lessors, made a counter-proposal.4 ALLIED however rejected the counter-proposal and insisted on Provision
No. 1 of their lease contract.

When the lease contract expired in 1992 private respondents demanded that ALLIED vacate the premises. But the latter asserted its sole option to renew the lease and enclosed in its reply letter a cashier's check in the amount of
P68,400.00 representing the advance rental payments for six (6) months taking into account the escalation clause. Private respondents however returned the check to ALLIED, prompting the latter to consign the amount in court.

An action for ejectment was commenced before the Metropolitan Trial Court of Quezon City. After trial, the MeTC-Br. 33 declared Provision No. 1 of the lease contract void for being violative of Art. 1308 of the Civil Code thus —

. . . but such provision [in the lease contract], to the mind of the Court, does not add luster to defendant's cause nor constitutes as an unbridled or unlimited license or sanctuary of the defendants to perpetuate its occupancy on the
subject property. The basic intention of the law in any contract is mutuality and equality. In other words, the validity of a contract cannot be left at (sic) the will of one of the contracting parties. Otherwise, it infringes (upon) Article 1308
of the New Civil Code, which provides: The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them . . . Using the principle laid down in the case of Garcia v. Legarda as cornerstone,
it is evident that the renewal of the lease in this case cannot be left at the sole option or will of the defendant notwithstanding provision no. 1 of their expired contract. For that would amount to a situation where the continuance and
effectivity of a contract will depend only upon the sole will or power of the lessee, which is repugnant to the very spirit envisioned under Article 1308 of the New Civil Code . . . . the theory adopted by this Court in the case at bar finds
ample affirmation from the principle echoed by the Supreme Court in the case of Lao Lim v. CA, 191 SCRA 150, 154, 155.

On appeal to the Regional Trial Court, and later to the Court of Appeals, the assailed decision was affirmed.5

On 20 February 1993, while the case was pending in the Court of Appeals ALLIED vacated the leased premises by reason of the controversy.6

ALLIED insists before us that Provision No. 1 of the lease contract was mutually agreed upon hence valid and binding on both parties, and the exercise by petitioner of its option to renew the contract was part of their agreement and in
pursuance thereof.

We agree with petitioner. Article 1308 of the Civil Code expresses what is known in law as the principle of mutuality of contracts. It provides that "the contract must bind both the contracting parties; its validity or compliance cannot be
left to the will of one of them." This binding effect of a contract on both parties is based on the principle that the obligations arising from the contracts have the force of law between the contracting parties, and there must be mutuality
between them based essentially on their equality under which it is repugnant to have one party bound by the contract while leaving the other free therefrom. The ultimate purpose is to render void a contract containing a condition which
makes its fulfillment dependent solely upon the uncontrolled will of one of the contracting parties.

An express agreement which gives the lessee the sole option to renew the lease is frequent and subject to statutory restrictions, valid and binding on the parties. This option, which is provided in the same lease agreement, is
fundamentally part of the consideration in the contract and is no different from any other provision of the lease carrying an undertaking on the part of the lessor to act conditioned on the performance by the lessee. It is a purely executory
contract and at most confers a right to obtain a renewal if there is compliance with the conditions on which the rights is made to depend. The right of renewal constitutes a part of the lessee's interest in the land and forms a substantial
and integral part of the agreement.

The fact that such option is binding only on the lessor and can be exercised only by the lessee does not render it void for lack of mutuality. After all, the lessor is free to give or not to give the option to the lessee. And while the lessee
has a right to elect whether to continue with the lease or not, once he exercises his option to continue and the lessor accepts, both parties are thereafter bound by the new lease agreement. Their rights and obligations become mutually
fixed, and the lessee is entitled to retain possession of the property for the duration of the new lease, and the lessor may hold him liable for the rent therefor. The lessee cannot thereafter escape liability even if he should subsequently
decide to abandon the premises. Mutuality obtains in such a contract and equality exists between the lessor and the lessee since they remain with the same faculties in respect to fulfillment. 7

The case of Lao Lim v. Court of Appeals 8 relied upon by the trial court is not applicable here. In that case, the stipulation in the disputed compromise agreement was to the effect that the lessee would be allowed to stay in the premises
"as long as he needs it and can pay the rents." In the present case, the questioned provision states that the lease "may be renewed for a like term at the option of the lessee." The lessor is bound by the option he has conceded to the
lessee. The lessee likewise becomes bound only when he exercises his option and the lessor cannot thereafter be executed from performing his part of the agreement.
Likewise, reliance by the trial court on the 1967 case of Garcia v. Rita Legarda, Inc., 9 is misplaced. In that case, what was involved was a contract to sell involving residential lots, which gave the vendor the right to declare the contract
called and of no effect upon the failure of the vendee to fulfill any of the conditions therein set forth. In the instant case, we are dealing with a contract of lease which gives the lessee the right to renew the same.

With respect to the meaning of the clause "may be renewed for a like term at the option of the lessee," we sustain petitioner's contention that its exercise of the option resulted in the automatic extension of the contract of lease under
the same terms and conditions. The subject contract simply provides that "the term of this lease shall be fourteen (14) years and may be renewed for a like term at the option of the lessee." As we see it, the only term on which there
has been a clear agreement is the period of the new contract, i.e., fourteen (14) years, which is evident from the clause "may be renewed for a like term at the option of the lessee," the phrase "for a like term" referring to the period. It
is silent as to what the specific terms and conditions of the renewed lease shall be. Shall it be the same terms and conditions as in the original contract, or shall it be under the terms and conditions as may be mutually agreed upon by
the parties after the expiration of the existing lease?

In Ledesma v. Javellana 10 this Court was confronted with a similar problem. In the case the lessee was given the sole option to renew the lease, but the contract failed to specify the terms and conditions that would govern the new
contract. When the lease expired, the lessee demanded an extension under the same terms and conditions. The lessor expressed conformity to the renewal of the contract but refused to accede to the claim of the lessee that the
renewal should be under the same terms and conditions as the original contract. In sustaining the lessee, this Court made the following pronouncement:

. . . in the case of Hicks v. Manila Hotel Company, a similar issue was resolved by this Court. It was held that "such a clause relates to the very contract in which it is placed, and does not permit the defendant upon the renewal of the
contract in which the clause is found, to insist upon different terms and those embraced in the contract to be renewed;" and that "a stipulation to renew always relates to the contract in which it is found and the rights granted thereunder,
unless it expressly provides for variations in the terms of the contract to be renewed."

The same principle is upheld in American Law regarding the renewal of lease contracts. In 50 Am. Jur. 2d, Sec. 1159, at p. 45, we find the following citations: "The rule is well-established that a general covenant to renew or extend a
lease which makes no provision as to the terms of a renewal or extension implies a renewal or extension upon the same terms as provided in the original lease."

In the lease contract under consideration, there is no provision to indicate that the renewal will be subject to new terms and conditions that the parties may yet agree upon. It is to renewal provisions of lease contracts of the kind presently
considered that the principles stated above squarely apply. We do not agree with the contention of the appellants that if it was intended by the parties to renew the contract under the same terms and conditions stipulated in the contract
of lease, such should have expressly so stated in the contract itself. The same argument could easily be interposed by the appellee who could likewise contend that if the intention was to renew the contract of lease under such new
terms and conditions that the parties may agree upon, the contract should have so specified. Between the two assertions, there is more logic in the latter.

The settled rule is that in case of uncertainty as to the meaning of a provision granting extension to a contract of lease, the tenant is the one favored and not the landlord. "As a general rule, in construing provisions relating to renewals
or extensions, where there is any uncertainty, the tenants is favored, and not the landlord, because the latter, having the power of stipulating in his own favor, has neglected to do so; and also upon the principle that every man's grant
is to be taken most strongly against himself (50 Am Jur. 2d, Sec. 1162, p. 48; see also 51 C.J.S. 599).

Besides, if we were to adopt the contrary theory that the terms and conditions to be embodied in the renewed contract were still subject to mutual agreement by and between the parties, then the option — which is an integral part of
the consideration for the contract — would be rendered worthless. For then, the lessor could easily defeat the lessee's right of renewal by simply imposing unreasonable and onerous conditions to prevent the parties from reaching an
agreement, as in the case at bar. As in a statute no word, clause, sentence, provision or part of a contract shall be considered surplusage or superfluous, meaningless, void, insignificant or nugatory, if that can be reasonably avoided.
To this end, a construction which will render every word operative is to be preferred over that which would make some words idle and nugatory.11

Fortunately for respondent lessors, ALLIED vacated the premises on 20 February 1993 indicating its abandonment of whatever rights it had under the renewal clause. Consequently, what remains to be done is for ALLIED to pay rentals
for the continued use of premises until it vacated the same, computed from the expiration of the original term of the contract on 31 March 1992 to the time it actually left the premises on 20 February 1993, deducting therefrom the
amount of P68,400.00 consigned in court by ALLIED and any other amount which it may have deposited or advanced in connection with the lease. Since the old lease contract was deemed renewed under the same terms and conditions
upon the exercise by ALLIED of its option, the basis of the computation of rentals should be the rental rate provided for in the existing contract.

Finally, ALLIED cannot assail the validity of the deed of donation, not being a party thereto. A person who is not principally or subsidiarily bound has no legal capacity to challenge the validity of the contract. 12 He must first have an
interest in it. "Interest" within the meaning of the term means material interest, an interest to be affected by the deed, as distinguished from a mere incidental interest. Hence, a person who is not a party to a contract and for whose
benefit it was not expressly made cannot maintain an action on it, even if the contract, if performed by the parties thereto would incidentally affect him, 13 except when he is prejudiced in his rights with respect to one of the contracting
parties and can show the detriment which could positively result to him from the contract in which he had no intervention. 14 We find none in the instant case.

WHEREFORE, the Decision of the Court of Appeals is REVERSED and SET ASIDE. Considering that petitioner ALLIED BANKING CORPORATION already vacated the leased premises as of 20 February 1993, the renewed lease
contract is deemed terminated as of that date. However, petitioner is required to pay rentals to respondent lessors at the rate provided in their existing contract, subject to computation in view of the consignment in court of P68,400.00
by petitioner, and of such other amounts it may have deposited or advanced in connection with the lease.

SO ORDERED.

G.R. No. 164349 January 31, 2006

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

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

DECISION

CARPIO MORALES, J.:

On January 21, 1991, Editha Hebron Verchez (Editha) was confined at the Sorsogon Provincial Hospital due to an ailment. On even date, her daughter Grace Verchez-Infante (Grace) immediately hied to the Sorsogon Branch of the
Radio Communications of the Philippines, Inc. (RCPI) whose services she engaged to send a telegram to her sister Zenaida Verchez-Catibog (Zenaida) who was residing at 18 Legal St., GSIS Village, Quezon City1 reading: "Send
check money Mommy hospital." For RCPI’s services, Grace paid P10.502 for which she was issued a receipt.3

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

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

In the meantime, Zenaida and her husband, together with her mother Editha left for Quezon City on January 28, 1991 and brought Editha to the Veterans Memorial Hospital in Quezon City where she was confined from January 30,
1991 to March 21, 1991.
The telegram was finally delivered to Zenaida 25 days later or on February 15, 1991.4 On inquiry from RCPI why it took that long to deliver it, a messenger of RCPI replied that he had nothing to do with the delivery thereof as it was
another messenger who previously was assigned to deliver the same but the address could not be located, hence, the telegram was resent on February 2, 1991, and the second messenger finally found the address on February 15,
1991.

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

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

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

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

On April 17, 1992, Editha died.

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

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

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

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

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

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

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

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

rendered judgment against RCPI. Accordingly, it disposed:

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

Ordering the defendant to pay the plaintiffs the following amount:

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

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

3. To pay the costs.

SO ORDERED.18

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

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

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

RCPI’s stand fails. It bears noting that its liability is anchored on culpa contractual or breach of contract with regard to Grace, and on tort with regard to her co-plaintiffs-herein-co-respondents.

Article 1170 of the Civil Code provides:

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

Passing on this codal provision, this Court explained:

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

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

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

For the defense of force majeure to prosper,

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

xxxx

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

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

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

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

xxxx

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

(Emphasis and underscoring supplied)

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

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

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

xxxx

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

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

xxxx

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

xxxx

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

(Emphasis and underscoring supplied)

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

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

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

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

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

xxxx

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

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

xxxx

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

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

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

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

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

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

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

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

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

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

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

As for RCPI’s tort-based liability, Article 2219 of the Civil Code provides:

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

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

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

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

xxxx

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

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

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

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

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

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

A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the
contract, while the other party merely affixes his signature or his "adhesion" thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing.38 (Emphasis and underscoring supplied)
While a contract of adhesion is not necessarily void and unenforceable, since it is construed strictly against the party who drafted it or gave rise to any ambiguity therein, it is stricken down as void and unenforceable or subversive of
public policy when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing.39

This Court holds that the Court of Appeals’ finding that the parties’ contract is one of adhesion which is void is, given the facts and circumstances of the case, thus well-taken.
WHEREFORE, the petition is DENIED, and the challenged decision of the Court of Appeals is AFFIRMED.

Costs against petitioner.

SO ORDERED.

G. R. No. 156966 May 7, 2004

PILIPINO TELEPHONE CORPORATION, petitioner,

vs.
DELFINO TECSON, respondent.

DECISION
VITUG, J.:

The facts, by and large, are undisputed.

On various dates in 1996, Delfino C. Tecson applied for six (6) cellular phone subscriptions with petitioner Pilipino Telephone Corporation (PILTEL), a company engaged in the telecommunications business, which applications were
each approved and covered, respectively, by six mobiline service agreements.

On 05 April 2001, respondent filed with the Regional Trial Court of Iligan City, Lanao Del Norte, a complaint against petitioner for a "Sum of Money and Damages." Petitioner moved for the dismissal of the complaint on the ground of
improper venue, citing a common provision in the mobiline service agreements to the effect that -

"Venue of all suits arising from this Agreement or any other suit directly or indirectly arising from the relationship between PILTEL and subscriber shall be in the proper courts of Makati, Metro Manila. Subscriber hereby expressly waives
any other venues."1

In an order, dated 15 August 2001, the Regional Trial Court of Iligan City, Lanao del Norte, denied petitioner’s motion to dismiss and required it to file an answer within 15 days from receipt thereof.

Petitioner PILTEL filed a motion for the reconsideration, through registered mail, of the order of the trial court. In its subsequent order, dated 08 October 2001, the trial court denied the motion for reconsideration.

Petitioner filed a petition for certiorari under Rule 65 of the Revised Rules of Civil Procedure before the Court of Appeals.

The Court of Appeals, in its decision of 30 April 2002, saw no merit in the petition and affirmed the assailed orders of the trial court. Petitioner moved for a reconsideration, but the appellate court, in its order of 21 January 2003, denied
the motion.

There is merit in the instant petition.

Section 4, Rule 4, of the Revised Rules of Civil Procedure2 allows the parties to agree and stipulate in writing, before the filing of an action, on the exclusive venue of any litigation between them. Such an agreement would be valid and
binding provided that the stipulation on the chosen venue is exclusive in nature or in intent, that it is expressed in writing by the parties thereto, and that it is entered into before the filing of the suit. The provision contained in paragraph
22 of the "Mobile Service Agreement," a standard contract made out by petitioner PILTEL to its subscribers, apparently accepted and signed by respondent, states that the venue of all suits arising from the agreement, or any other suit
directly or indirectly arising from the relationship between PILTEL and subscriber, "shall be in the proper courts of Makati, Metro Manila." The added stipulation that the subscriber "expressly waives any other venue"3 should indicate,
clearly enough, the intent of the parties to consider the venue stipulation as being preclusive in character.

The appellate court, however, would appear to anchor its decision on the thesis that the subscription agreement, being a mere contract of adhesion, does not bind respondent on the venue stipulation.

Indeed, the contract herein involved is a contract of adhesion. But such an agreement is not per se inefficacious. The rule instead is that, should there be ambiguities in a contract of adhesion, such ambiguities are to be construed
against the party that prepared it. If, however, the stipulations are not obscure, but are clear and leave no doubt on the intention of the parties, the literal meaning of its stipulations must be held controlling.4

A contract of adhesion is just as binding as ordinary contracts. It is true that this Court has, on occasion, struck down such contracts as being assailable when the weaker party is left with no choice by the dominant bargaining party and
is thus completely deprived of an opportunity to bargain effectively. Nevertheless, contracts of adhesion are not prohibited even as the courts remain careful in scrutinizing the factual circumstances underlying each case to determine
the respective claims of contending parties on their efficacy.

In the case at bar, respondent secured six (6) subscription contracts for cellular phones on various dates. It would be difficult to assume that, during each of those times, respondent had no sufficient opportunity to read and go over the
terms and conditions embodied in the agreements. Respondent continued, in fact, to acquire in the pursuit of his business subsequent subscriptions and remained a subscriber of petitioner for quite sometime.

In Development Bank of the Philippines vs. National Merchandising Corporation,5 the contracting parties, being of age and businessmen of experience, were presumed to have acted with due care and to have signed the assailed
documents with full knowledge of their import. The situation would be no less true than that which obtains in the instant suit. The circumstances in Sweet Lines, Inc. vs. Teves,6 wherein this Court invalidated the venue stipulation
contained in the passage ticket, would appear to be rather peculiar to that case. There, the Court took note of an acute shortage in inter-island vessels that left passengers literally scrambling to secure accommodations and tickets from
crowded and congested counters. Hardly, therefore, were the passengers accorded a real opportunity to examine the fine prints contained in the tickets, let alone reject them.

A contract duly executed is the law between the parties, and they are obliged to comply fully and not selectively with its terms. A contract of adhesion is no exception.7

WHEREFORE, the instant petition is GRANTED, and the questioned decision and resolution of the Court of Appeals in CA-G.R. SP No. 68104 are REVERSED and SET ASIDE. Civil Case No. 5572 pending before the Regional Trial
Court of Iligan City, Branch 4, is DISMISSED without prejudice to the filing of an appropriate complaint by respondent against petitioner with the court of proper venue. No costs.

SO ORDERED.
G.R. No. 174433 February 24, 2014

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
SPOUSES ENRIQUE MANALO & ROSALINDA JACINTO, ARNOLD J. MANALO, ARNEL J. MANALO, and ARMA J. MANALO, Respondents.

DECISION
BERSAMIN, J.:

Although banks are free to determine the rate of interest they could impose on their borrowers, they can do so only reasonably, not arbitrarily. They may not take advantage of the ordinary borrowers' lack of familiarity with banking
procedures and jargon. Hence, any stipulation on interest unilaterally imposed and increased by them shall be struck down as violative of the principle of mutuality of contracts.

Antecedents

Respondent Spouses Enrique Manalo and Rosalinda Jacinto (Spouses Manalo) applied for an All-Purpose Credit Facility in the amount of ₱1,000,000.00 with Philippine National Bank (PNB) to finance the construction of their house.
After PNB granted their application, they executed a Real Estate Mortgage on November 3, 1993 in favor of PNB over their property covered by Transfer Certificate of Title No. S- 23191 as security for the loan.1 The credit facility was
renewed and increased several times over the years. On September 20, 1996, the credit facility was again renewed for ₱7,000,000.00. As a consequence, the parties executed a Supplement to and Amendment of Existing Real Estate
Mortgage whereby the property covered by TCT No. 171859 was added as security for the loan.

The additional security was registered in the names of respondents Arnold, Arnel, Anthony, and Arma, all surnamed Manalo, who were their children.2

It was agreed upon that the Spouses Manalo would make monthly payments on the interest. However, PNB claimed that their last recorded payment was made on December, 1997. Thus, PNB sent a demand letter to them on their
overdue account and required them to settle the account. PNB sent another demand letter because they failed to heed the first demand.3

After the Spouses Manalo still failed to settle their unpaid account despite the two demand letters, PNB foreclose the mortgage. During the foreclosure sale, PNB was the highest bidder for ₱15,127,000.00 of the mortgaged properties
of the Spouses Manalo. The sheriff issued to PNB the Certificate of Sale dated November 13, 2000.4

After more than a year after the Certificate of Sale had been issued to PNB, the Spouses Manalo instituted this action for the nullification of the foreclosure proceedings and damages. They alleged that they had obtained a loan for
₱1,000,000.00 from a certain Benito Tan upon arrangements made by Antoninus Yuvienco, then the General Manager of PNB’s Bangkal Branch where they had transacted; that they had been made to understand and had been
assured that the ₱1,000,000.00 would be used to update their account, and that their loan would be restructured and converted into a long-term loan;5 that they had been surprised to learn, therefore, that had been declared in default
of their obligations, and that the mortgage on their property had been foreclosed and their property had been sold; and that PNB did not comply with Section 3 of Act No. 3135, as amended.6

PNB and Antoninus Yuvienco countered that the ₱1,000,000.00 loan obtained by the Spouses Manalo from Benito Tan had been credited to their account; that they did not make any assurances on the restructuring and conversion of
the Spouses Manalo’s loan into a long-term one;7 that PNB’s right to foreclose the mortgage had been clear especially because the Spouses Manalo had not assailed the validity of the loans and of the mortgage; and that the Spouses
Manalo did not allege having fully paid their indebtedness.8

Ruling ofthe RTC

After trial, the RTC rendered its decision in favor of PNB, holding thusly:

In resolving this present case, one of the most significant matters the court has noted is that while during the pre-trial held on 8 September 2003, plaintiff-spouses Manalo with the assistance counsel had agreed to stipulate that
defendants had the right to foreclose upon the subject properties and that the plaintiffs[‘] main thrust was to prove that the foreclosure proceedings were invalid, in the course of the presentation of their evidence, they modified their
position and claimed [that] the loan document executed were contracts of adhesion which were null and void because they were prepared entirely under the defendant bank’s supervision. They also questioned the interest rates and
penalty charges imposed arguing that these were iniquitous, unconscionable and therefore likewise void.

Not having raised the foregoing matters as issues during the pre-trial, plaintiff-spouses are presumably estopped from allowing these matters to serve as part of their evidence, more so because at the pre-trial they expressly recognized
the defendant bank’s right to foreclose upon the subject property (See Order, pp. 193-195).

However, considering that the defendant bank did not interpose any objection to these matters being made part of plaintiff’s evidence so much so that their memorandum contained discussions rebutting plaintiff spouses arguments on
these issues, the court must necessarily include these matters in the resolution of the present case.9

The RTC held, however, that the Spouses Manalo’s "contract of adhesion" argument was unfounded because they had still accepted the terms and conditions of their credit agreement with PNB and had exerted efforts to pay their
obligation;10 that the Spouses Manalo were now estopped from questioning the interest rates unilaterally imposed by PNB because they had paid at those rates for three years without protest;11 and that their allegation about PNB
violating the notice and publication requirements during the foreclosure proceedings was untenable because personal notice to the mortgagee was not required under Act No. 3135.12

The Spouses Manalo appealed to the CA by assigning a singular error, as follows:

THE COURT A QUO SERIOUSLY ERRED IN DISMISSING PLAINTIFF-APPELLANTS’ COMPLAINT FOR BEING (sic) LACK OF MERIT NOTWITHSTANDING THE FACT THAT IT WAS CLEARLY SHOWN THAT THE
FORECLOSURE PROCEEDINGS WAS INVALID AND ILLEGAL.13

The Spouses Manalo reiterated their arguments, insisting that: (1) the credit agreements they entered into with PNB were contracts of adhesion;14 (2) no interest was due from them because their credit agreements with PNB did not
specify the interest rate, and PNB could not unilaterally increase the interest rate without first informing them;15 and (3) PNB did not comply with the notice and publication requirements under Section 3 of Act 3135.16 On the other hand,
PNB and Yuvienco did not file their briefs despite notice.17

Ruling ofthe CA

In its decision promulgated on March 28, 2006,18 the CA affirmed the decision of the RTC insofar as it upheld the validity of the foreclosure proceedings initiated by PNB, but modified the Spouses Manalo’s liability for interest. It directed
the RTC to see to the recomputation of their indebtedness, and ordered that should the recomputed amount be less than the winning bid in the foreclosure sale, the difference should be immediately returned to the Spouses Manalo.

The CA found it necessary to pass upon the issues of PNB’s failure to specify the applicable interest and the lack of mutuality in the execution of the credit agreements considering the earlier cited observation made by the trial court in
its decision. Applying Article 1956 of the Civil Code, the CA held that PNB’s failure to indicate the rate of interest in the credit agreements would not excuse the Spouses Manalo from their contractual obligation to pay interest to PNB
because of the express agreement to pay interest in the credit agreements. Nevertheless, the CA ruled that PNB’s inadvertence to specify the interest rate should be construed against it because the credit agreements were clearly
contracts of adhesion due to their having been prepared solely by PNB.

The CA further held that PNB could not unilaterally increase the rate of interest considering that the credit agreements specifically provided that prior notice was required before an increase in interest rate could be effected. It found that
PNB did not adduce proof showing that the Spouses Manalo had been notified before the increased interest rates were imposed; and that PNB’s unilateral imposition of the increased interest rate was null and void for being violative of
the principle of mutuality of contracts enshrined in Article 1308 of the Civil Code. Reinforcing its "contract of adhesion" conclusion, it added that the Spouses Manalo’s being in dire need of money rendered them to be not on an equal
footing with PNB. Consequently, the CA, relying on Eastern Shipping Lines, v. Court of Appeals, 19 fixed the interest rate to be paid by the Spouses Manalo at 12% per annum, computed from their default.

The CA deemed to be untenable the Spouses Manalo’s allegation that PNB had failed to comply with the requirements for notice and posting under Section 3 of Act 3135. The CA stated that Sheriff Norberto Magsajo’s testimony was
sufficient proof of his posting of the required Notice of Sheriff’s Sale in three public places; that the notarized Affidavit of Publication presented by Sheriff Magsajo was prima facie proof of the publication of the notice; and that the
Affidavit of Publication enjoyed the presumption of regularity, such that the Spouses Manalo’s bare allegation of non-publication without other proof did not overcome the presumption.

On August 29, 2006, the CA denied the Spouses Manalo’s Motion for Reconsideration and PNB’s Partial Motion for Reconsideration.20

Issues

In its Memorandum,21 PNB raises the following issues:

WHETHER OR NOT THE COURT OF APPEALS WAS CORRECT IN NULLIFYING THE INTEREST RATES IMPOSED ON RESPONDENT SPOUSES’ LOAN AND IN FIXING THE SAME AT TWELVE PERCENT (12%) FROM
DEFAULT, DESPITE THE FACT THAT (i) THE SAME WAS RAISED BY THE RESPONDENTS ONLY FOR THE FIRST TIME ON APPEAL (ii) IT WAS NEVER PART OF THEIR COMPLAINT (iii) WAS EXLUDED AS AN ISSUE
DURING PRE-TRIAL, AND WORSE, (iv) THERE WAS NO FORMALLY OFFERED PERTAINING TO THE SAME DURING TRIAL.

II

WHETHER OR NOT THE COURT OF APPEALS CORRECTLY RULED THAT THERE WAS NO MUTUALITY OF CONSENT IN THE IMPOSITION OF INTEREST RATES ON THE RESPONDENT SPOUSES’ LOAN DESPITE THE
EXISTENCE OF FACTS AND CIRCUMSTANCES CLEARLY SHOWING RESPONDENTS’ ASSENT TO THE RATES OF INTEREST SO IMPOSED BY PNB ON THE LOAN.

Anent the first issue, PNB argues that by passing upon the issue of the validity of the interest rates, and in nullifying the rates imposed on the Spouses Manalo, the CA decided the case in a manner not in accord with Section 15, Rule
44 of the Rules of Court, which states that only questions of law or fact raised in the trial court could be assigned as errors on appeal; that to allow the Spouses Manalo to raise an issue for the first time on appeal would "offend the
basic rules of fair play, justice and due process;"22 that the resolution of the CA was limited to the issues agreed upon by the parties during pre-trial;23 that the CA erred in passing upon the validity of the interest rates inasmuch as the
Spouses Manalo did not present evidence thereon; and that the Judicial Affidavit of Enrique Manalo, on which the CA relied for its finding, was not offered to prove the invalidity of the interest rates and was, therefore, inadmissible for
that purpose.24

As to the substantive issues, PNB claims that the Spouses Manalo’s continuous payment of interest without protest indicated their assent to the interest rates imposed, as well as to the subsequent increases of the rates; and that the
CA erred in declaring that the interest rates and subsequent increases were invalid for lack of mutuality between the contracting parties.

Ruling

The appeal lacks merit.

1.
Procedural Issue

Contrary to PNB’s argument, the validity of the interest rates and of the increases, and on the lack of mutuality between the parties were not raised by the Spouses Manalo’s for the first time on appeal. Rather, the issues were impliedly
raised during the trial itself, and PNB’s lack of vigilance in voicing out a timely objection made that possible.

It appears that Enrique Manalo’s Judicial Affidavit introduced the issues of the validity of the interest rates and the increases, and the lack of mutuality between the parties in the following manner, to wit:

5. True to his words, defendant Yuvienco, after several days, sent us a document through a personnel of defendant PNB, Bangkal, Makati City Branch, who required me and my wife to affix our signature on the said document;

6. When the document was handed over me, I was able to know that it was a Promissory Note which was in ready made form and prepared solely by the defendant PNB;

xxxx

21. As above-noted, the rates of interest imposed by the defendant bank were never the subject of any stipulation between us mortgagors and the defendant PNB as mortgagee;

22. The truth of the matter is that defendant bank imposed rate of interest which ranges from 19% to as high as 28% and which changes from time to time;

23. The irregularity, much less the invalidity of the imposition of iniquitous rates of interest was aggravated by the fact that we were not informed, notified, nor the same had our prior consent and acquiescence therefor. x x x25

PNB cross-examined Enrique Manalo upon his Judicial Affidavit. There is no showing that PNB raised any objection in the course of the cross examination.26 Consequently, the RTC rightly passed upon such issues in deciding the
case, and its having done so was in total accord with Section 5, Rule 10 of the Rules of Court, which states:

Section 5. Amendment to conform to or authorize presentation of evidence. – When issues not raised by the pleadings are tried with the express or implied consent of the parties, they shall be treated in all respects as if they had been
raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure
to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so
with liberality if the presentation of the merits of the action and the ends of substantial justice will be subserved thereby. The court may grant a continuance to enable the amendment to be made.

In Bernardo Sr. v. Court of Appeals,27 we held that:

It is settled that even if the complaint be defective, but the parties go to trial thereon, and the plaintiff, without objection, introduces sufficient evidence to constitute the particular cause of action which it intended to allege in the original
complaint, and the defendant voluntarily produces witnesses to meet the cause of action thus established, an issue is joined as fully and as effectively as if it had been previously joined by the most perfect pleadings. Likewise, when
issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings.

The RTC did not need to direct the amendment of the complaint by the Spouses Manalo. Section 5, Rule 10 of the Rules of Court specifically declares that the "failure to amend does not affect the result of the trial of these issues."
According to Talisay-Silay Milling Co., Inc. v. Asociacion de Agricultores de Talisay-Silay, Inc.:28

The failure of a party to amend a pleading to conform to the evidence adduced during trial does not preclude an adjudication by the court on the basis of such evidence which may embody new issues not raised in the pleadings, or
serve as a basis for a higher award of damages. Although the pleading may not have been amended to conform to the evidence submitted during trial, judgment may nonetheless be rendered, not simply on the basis of the issues
alleged but also on the basis of issues discussed and the assertions of fact proved in the course of trial.1âwphi1 The court may treat the pleading as if it had been amended to conform to the evidence, although it had not been actually
so amended. Former Chief Justice Moran put the matter in this way:

When evidence is presented by one party, with the expressed or implied consent of the adverse party, as to issues not alleged in the pleadings, judgment may be rendered validly as regards those issues, which shall be considered as
if they have been raised in the pleadings. There is implied, consent to the evidence thus presented when the adverse party fails to object thereto." (Emphasis supplied)

Clearly, a court may rule and render judgment on the basis of the evidence before it even though the relevant pleading had not been previously amended, so long as no surprise or prejudice is thereby caused to the adverse party. Put
a little differently, so long as the basic requirements of fair play had been met, as where litigants were given full opportunity to support their respective contentions and to object to or refute each other's evidence, the court may validly
treat the pleadings as if they had been amended to conform to the evidence and proceed to adjudicate on the basis of all the evidence before it.

There is also no merit in PNB’s contention that the CA should not have considered and ruled on the issue of the validity of the interest rates because the Judicial Affidavit of Enrique Manalo had not been offered to prove the same but
only "for the purpose of identifying his affidavit."29 As such, the affidavit was inadmissible to prove the nullity of the interest rates.

We do not agree.

Section 5, Rule 10 of the Rules of Court is applicable in two situations.1âwphi1 The first is when evidence is introduced on an issue not alleged in the pleadings and no objection is interposed by the adverse party. The second is when
evidence is offered on an issue not alleged in the pleadings but an objection is raised against the offer. 30 This case comes under the first situation. Enrique Manalo’s Judicial Affidavit would introduce the very issues that PNB is now
assailing. The question of whether the evidence on such issues was admissible to prove the nullity of the interest rates is an entirely different matter. The RTC accorded credence to PNB’s evidence showing that the Spouses Manalo
had been paying the interest imposed upon them without protest. On the other hand, the CA’s nullification of the interest rates was based on the credit agreements that the Spouses Manalo and PNB had themselves submitted.

Based on the foregoing, the validity of the interest rates and their increases, and the lack of mutuality between the parties were issues validly raised in the RTC, giving the Spouses Manalo every right to raise them in their appeal to the
CA. PNB’s contention was based on its wrong appreciation of what transpired during the trial. It is also interesting to note that PNB did not itself assail the RTC’s ruling on the issues obviously because the RTC had decided in its favor.
In fact, PNB did not even submit its appellee’s brief despite notice from the CA.

2.
Substantive Issue

The credit agreement executed succinctly stipulated that the loan would be subjected to interest at a rate "determined by the Bank to be its prime rate plus applicable spread, prevailing at the current month."31 This stipulation was carried
over to or adopted by the subsequent renewals of the credit agreement. PNB thereby arrogated unto itself the sole prerogative to determine and increase the interest rates imposed on the Spouses Manalo. Such a unilateral determination
of the interest rates contravened the principle of mutuality of contracts embodied in Article 1308 of the Civil Code.32

The Court has declared that a contract where there is no mutuality between the parties partakes of the nature of a contract of adhesion,33 and any obscurity will be construed against the party who prepared the contract, the latter being
presumed the stronger party to the agreement, and who caused the obscurity.34 PNB should then suffer the consequences of its failure to specifically indicate the rates of interest in the credit agreement. We spoke clearly on this in
Philippine Savings Bank v. Castillo,35 to wit:

The unilateral determination and imposition of the increased rates is violative of the principle of mutuality of contracts under Article 1308 of the Civil Code, which provides that ‘[t]he contract must bind both contracting parties; its validity
or compliance cannot be left to the will of one of them.’ A perusal of the Promissory Note will readily show that the increase or decrease of interest rates hinges solely on the discretion of petitioner. It does not require the conformity of
the maker before a new interest rate could be enforced. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result, thus partaking of the nature of a contract of adhesion,
is void. Any stipulation regarding the validity or compliance of the contract left solely to the will of one of the parties is likewise invalid. (Emphasis supplied)

PNB could not also justify the increases it had effected on the interest rates by citing the fact that the Spouses Manalo had paid the interests without protest, and had renewed the loan several times. We rule that the CA, citing Philippine
National Bank v. Court of Appeals,36 rightly concluded that "a borrower is not estopped from assailing the unilateral increase in the interest made by the lender since no one who receives a proposal to change a contract, to which he is
a party, is obliged to answer the same and said party’s silence cannot be construed as an acceptance thereof."37

Lastly, the CA observed, and properly so, that the credit agreements had explicitly provided that prior notice would be necessary before PNB could increase the interest rates. In failing to notify the Spouses Manalo before imposing the
increased rates of interest, therefore, PNB violated the stipulations of the very contract that it had prepared. Hence, the varying interest rates imposed by PNB have to be vacated and declared null and void, and in their place an interest
rate of 12% per annum computed from their default is fixed pursuant to the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.38

The CA’s directive to PNB (a) to recompute the Spouses Manalo’s indebtedness under the oversight of the RTC; and (b) to refund to them any excess of the winning bid submitted during the foreclosure sale over their recomputed
indebtedness was warranted and equitable. Equally warranted and equitable was to make the amount to be refunded, if any, bear legal interest, to be reckoned from the promulgation of the CA’s decision on March 28, 2006.39Indeed,
the Court said in Eastern Shipping Lines, Inc. v. Court of Appeals 40 that interest should be computed from the time of the judicial or extrajudicial demand. However, this case presents a peculiar situation, the peculiarity being that the
Spouses Manalo did not demand interest either judicially or extrajudicially. In the RTC, they specifically sought as the main reliefs the nullification of the foreclosure proceedings brought by PNB, accounting of the payments they had
made to PNB, and the conversion of their loan into a long term one.41 In its judgment, the RTC even upheld the validity of the interest rates imposed by PNB. 42 In their appellant’s brief, the Spouses Manalo again sought the nullification
of the foreclosure proceedings as the main relief.43 It is evident, therefore, that the Spouses Manalo made no judicial or extrajudicial demand from which to reckon the interest on any amount to be refunded to them. Such demand could
only be reckoned from the promulgation of the CA’s decision because it was there that the right to the refund was first judicially recognized. Nevertheless, pursuant to Eastern Shipping Lines, Inc. v. Court of Appeals,44 the amount to be
refunded and the interest thereon should earn interest to be computed from the finality of the judgment until the full refund has been made.

Anent the correct rates of interest to be applied on the amount to be refunded by PNB, the Court, in Nacar v. Gallery Frames45 and S.C. Megaworld Construction v. Parada,46 already applied Monetary Board Circular No. 799 by reducing
the interest rates allowed in judgments from 12% per annum to 6% per annum.47 According to Nacar v. Gallery Frames, MB Circular No. 799 is applied prospectively, and judgments that became final and executory prior to its effectivity
on July 1, 2013 are not to be disturbed but continue to be implemented applying the old legal rate of 12% per annum. Hence, the old legal rate of 12% per annum applied to judgments becoming final and executory prior to July 1, 2013,
but the new rate of 6% per annum applies to judgments becoming final and executory after said dater.
Conformably with Nacar v. Gallery Frames and S.C. Megaworld Construction v. Parada, therefore, the proper interest rates to be imposed in the present case are as follows:

1. Any amount to be refunded to the Spouses Manalo shall bear interest of 12% per annum computed from March 28, 2006, the date of the promulgation of the CA decision, until June 30, 2013; and 6% per annum computed from July
1, 2013 until finality of this decision; and

2. The amount to be refunded and its accrued interest shall earn interest of 6% per annum until full refund.

WHEREFORE, the Court AFFIRMS the decision promulgated by the Court of Appeals on March 28, 2006 in CA-G.R. CV No. 84396, subject to the MODIFICATION that any amount to be refunded to the respondents shall bear interest
of 12% per annum computed from March 28, 2006 until June 30, 2013, and 6% per annum computed from July 1, 2013 until finality hereof; that the amount to be refunded and its accrued interest shall earn interest at 6o/o per annum
until full refund; and DIRECTS the petitioner to pay the costs of suit.

SO ORDERED.

G.R. No. 115117 June 8, 2000

INTEGRATED PACKAGING CORP., petitioner,

vs.
COURT OF APPEALS and FIL-ANCHOR PAPER CO., INC., respondents.

QUISUMBING, J.:

This is a petition to review the decision of the Court of Appeals rendered on April 20, 1994 reversing the judgment of the Regional Trial Court of Caloocan City in an action for recovery of sum of money filed by private respondent against
petitioner. In said decision, the appellate court decreed:

WHEREFORE, in view of all the foregoing, the appealed judgment is hereby REVERSED and SET ASIDE. Appellee [petitioner herein] is hereby ordered to pay appellant [private respondent herein] the sum of P763,101.70, with legal
interest thereon, from the date of the filing of the Complaint, until fully paid.

SO ORDERED.1

The RTC judgment reversed by the Court of Appeals had disposed of the complain as follows:

WHEREFORE, judgment is hereby rendered:

Ordering plaintiff [herein private respondent] to pay defendant [herein petitioner] the sum of P27,222.60 as compensatory and actual damages after deducting P763,101.70 (value of materials received by defendant) from P790,324.30
representing compensatory damages as defendant's unrealized profits;

Ordering plaintiff to pay defendant the sum of P100,000.00 as moral damages;

Ordering plaintiff to pay the sum of P30,000.00 for attorney's fees; and to pay the costs of suit.

SO ORDERED.2

The facts, as culled from the records, are as follows:

Petitioner and private respondent executed on May 5, 1978, an order agreement whereby private respondent bound itself to deliver to petitioner 3,450 reams of printing paper, coated, 2 sides basis, 80 lbs., 38" x 23", short grain, worth
P1,040,060.00 under the following schedule: May and June 1978 — 450 reams at P290.00/ream; August and September 1978 — 700 reams at P290/ream; January 1979 — 575 reams at P307.20/ream; March 1979 — 575 reams at
P307.20/ream; July 1979 — 575 reams at 307.20/ream; and October 1979 — 575 reams at P307.20/ream. In accordance with the standard operating practice of the parties, the materials were to be paid within a minimum of thirty days
and maximum of ninety days from delivery.

Later, on June 7, 1978, petitioner entered into a contract with Philippine Appliance Corporation (Philacor) to print three volumes of "Philacor Cultural Books" for delivery on the following dates: Book VI, on or before November 1978;
Book VII, on or before November 1979 and; Book VIII, on or before November 1980, with a minimum of 300,000 copies at a price of P10.00 per copy or a total cost of P3,000,000.00.

As of July 30, 1979, private respondent had delivered to petitioner 1,097 reams of printing paper out of the total 3,450 reams stated in the agreement. Petitioner alleged it wrote private respondent to immediately deliver the balance
because further delay would greatly prejudice petitioner. From June 5, 1980 and until July 23, 1981, private respondent delivered again to petitioner various quantities of printing paper amounting to P766,101.70. However, petitioner
encountered difficulties paying private respondent said amount. Accordingly, private respondent made a formal demand upon petitioner to settle the outstanding account. On July 23 and 31, 1981 and August 27, 1981, petitioner made
partial payments totalling P97,200.00 which was applied to its back accounts covered by delivery invoices dated September 29-30, 1980 and October 1-2, 1980.3

Meanwhile, petitioner entered into an additional printing contract with Philacor. Unfortunately, petitioner failed to fully comply with its contract with Philacor for the printing of books VIII, IX, X and XI. Thus, Philacor demanded compensation
from petitioner for the delay and damage it suffered on account of petitioner's failure.

On August 14, 1981, private respondent filed with the Regional Trial Court of Caloocan City a collection suit against petitioner for the sum of P766,101.70, representing the unpaid purchase price of printing paper bought by petitioner
on credit.

In its answer, petitioner denied the material allegations of the complaint. By way of counterclaim, petitioner alleged that private respondent was able to deliver only 1,097 reams of printing paper which was short of 2,875 reams, in total
disregard of their agreement; that private respondent failed to deliver the balance of the printing paper despite demand therefor, hence, petitioner suffered actual damages and failed to realize expected profits; and that petitioner's
complaint was prematurely filed.

After filing its reply and answer to the counterclaim, private respondent moved for admission of its supplemental complaint, which was granted. In said supplemental complaint, private respondent alleged that subsequent to the
enumerated purchase invoices in the original complaint, petitioner made additional purchases of printing paper on credit amounting to P94,200.00. Private respondent also averred that petitioner failed and refused to pay its outstanding
obligation although it made partial payments in the amount of P97,200.00 which was applied to back accounts, thus, reducing petitioner's indebtedness to P763,101.70.

On July 5, 1990, the trial court rendered judgment declaring that petitioner should pay private respondent the sum of P763,101.70 representing the value of printing paper delivered by private respondent from June 5, 1980 to July 23,
1981. However, the lower court also found petitioner's counterclaim meritorious. It ruled that were it not for the failure or delay of private respondent to deliver printing paper, petitioner could have sold books to Philacor and realized
profit of P790,324.30 from the sale. It further ruled that petitioner suffered a dislocation of business on account of loss of contracts and goodwill as a result of private respondent's violation of its obligation, for which the award of moral
damages was justified.

On appeal, the respondent Court of Appeals reversed and set aside the judgment of the trial court. The appellate court ordered petitioner to pay private respondent the sum of P763,101.70 representing the amount of unpaid printing
paper delivered by private respondent to petitioner, with legal interest thereon from the date of the filing of the complaint until fully paid.4 However, the appellate court deleted the award of P790,324.30 as compensatory damages as
well as the award of moral damages and attorney's fees, for lack of factual and legal basis.

Expectedly, petitioner filed this instant petition contending that the appellate court's judgment is based on erroneous conclusions of facts and law. In this recourse, petitioner assigns the following errors:

[I]

THE COURT OF APPEALS ERRED IN CONCLUDING THAT PRIVATE RESPONDENT DID NOT VIOLATE THE ORDER AGREEMENT.

[II]

THE COURT OF APPEALS ERRED IN CONCLUDING THAT RESPONDENT IS NOT LIABLE FOR PETITIONER'S BREACH OF CONTRACT WITH PHILACOR.

[III]
5
THE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER IS NOT ENTITLED TO DAMAGES AGAINST PRIVATE RESPONDENT.

In our view, the crucial issues for resolution in this case are as follows:

(1) Whether or not private respondent violated the order agreement, and;

(2) Whether or not private respondent is liable for petitioner's breach of contract with Philacor.

Petitioner's contention lacks factual and legal basis, hence, bereft of merit.

Petitioner contends, firstly, that private respondent violated the order agreement when the latter failed to deliver the balance of the printing paper on the dates agreed upon.

The transaction between the parties is a contract of sale whereby private respondent (seller) obligates itself to deliver printing paper to petitioner (buyer) which, in turn, binds itself to pay therefor a sum of money or its equivalent
(price).6 Both parties concede that the order agreement gives rise to a reciprocal obligations 7 such that the obligation of one is dependent upon the obligation of the other. Reciprocal obligations are to be performed simultaneously, so
that the performance of one is conditioned upon the simultaneous fulfillment of the other.8 Thus, private respondent undertakes to deliver printing paper of various quantities subject to petitioner's corresponding obligation to pay, on a
maximum 90-day credit, for these materials. Note that in the contract, petitioner is not even required to make any deposit, down payment or advance payment, hence, the undertaking of private respondent to deliver the materials is
conditional upon payment by petitioner within the prescribed period. Clearly, petitioner did not fulfill its side of the contract as its last payment in August 1981 could cover only materials covered by delivery invoices dated September
and October 1980.

There is no dispute that the agreement provides for the delivery of printing paper on different dates and a separate price has been agreed upon for each delivery. It is also admitted that it is the standard practice of the parties that the
materials be paid within a minimum period of thirty (30) days and a maximum of ninety (90) days from each delivery. 9 Accordingly, the private respondent's suspension of its deliveries to petitioner whenever the latter failed to pay on
time, as in this case, is legally justified under the second paragraph of Article 1583 of the Civil Code which provides that:

When there is a contract of sale of goods to be delivered by stated installments, which are to be separately paid for, and the seller makes defective deliveries in respect of one or more installments, or the buyer neglects or refuses
without just cause to take delivery of or pay for one or more installments, it depends in each case on the terms of the contract and the circumstances of the case, whether the breach of contract is so material as to justify the injured
party in refusing to proceed further and suing for damages for breach of the entire contract, or whether the breach is severable, giving rise to a claim for compensation but not to a right to treat the whole contract as broken. (Emphasis
supplied)

In this case, as found a quo petitioner's evidence failed to establish that it had paid for the printing paper covered by the delivery invoices on time. Consequently, private respondent has the right to cease making further delivery, hence
the private respondent did not violate the order agreement. On the contrary, it was petitioner which breached the agreement as it failed to pay on time the materials delivered by private respondent. Respondent appellate court correctly
ruled that private respondent did not violate the order agreement.

On the second assigned error, petitioner contends that private respondent should be held liable for petitioner's breach of contract with Philacor. This claim is manifestly devoid of merit.

As correctly held by the appellate court, private respondent cannot be held liable under the contracts entered into by petitioner with Philacor. Private respondent is not a party to said agreements. It is also not a contract pour autrui.
Aforesaid contracts could not affect third persons like private respondent because of the basic civil law principle of relativity of contracts which provides that contracts can only bind the parties who entered into it, and it cannot favor or
prejudice a third person, 10 even if he is aware of such contract and has acted with knowledge thereof. 11

Indeed, the order agreement entered into by petitioner and private respondent has not been shown as having a direct bearing on the contracts of petitioner with Philacor. As pointed out by private respondent and not refuted by petitioner,
the paper specified in the order agreement between petitioner and private respondent are markedly different from the paper involved in the contracts of petitioner with Philacor. 12 Furthermore, the demand made by Philacor upon
petitioner for the latter to comply with its printing contract is dated February 15, 1984, which is clearly made long after private respondent had filed its complaint on August 14, 1981. This demand relates to contracts with Philacor dated
April 12, 1983 and May 13, 1983, which were entered into by petitioner after private respondent filed the instant case.lawphi1

To recapitulate, private respondent did not violate the order agreement it had with petitioner. Likewise, private respondent could not be held liable for petitioner's breach of contract with Philacor. It follows that there is no basis to hold
private respondent liable for damages. Accordingly, the appellate court did not err in deleting the damages awarded by the trial court to petitioner.

The rule on compensatory damages is well established. True, indemnification for damages comprehends not only the loss suffered, that is to say actual damages (damnum emergens), but also profits which the obligee failed to obtain,
referred to as compensatory damages (lucrum cessans). However, to justify a grant of actual or compensatory damages, it is necessary to prove with a reasonable degree of certainty, premised upon competent proof and on the best
evidence obtainable by the injured party, the actual amount of loss. 13 In the case at bar, the trial court erroneously concluded that petitioner could have sold books to Philacor at the quoted selling price of P1,850,750.55 and by deducting
the production cost of P1,060,426.20, petitioner could have earned profit of P790,324.30. Admittedly, the evidence relied upon by the trial court in arriving at the amount are mere estimates prepared by petitioner. 14 Said evidence is
highly speculative and manifestly hypothetical. It could not provide sufficient legal and factual basis for the award of P790,324.30 as compensatory damages representing petitioner's self-serving claim of unrealized profit.
Further, the deletion of the award of moral damages is proper, since private respondent could not be held liable for breach of contract. Moral damages may be awarded when in a breach of contract the defendant acted in bad faith, or
was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligation. 15Finally, since the award of moral damages is eliminated, so must the award for attorney's fees be also deleted. 16

WHEREFORE, the instant petition is DENIED. The decision of the Court of Appeals is AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 179382 January 14, 2013

SPOUSES BENJAMIN C. MAMARIL AND SONIA P. MAMARIL, Petitioners,

vs.
THE BOY SCOUT OF THE PHILIPPINES, AIB SECURITY AGENCY, INC., CESARIO PEÑA,* AND VICENTE GADDI, Respondents.

DECISION
PERLAS-BERNABE, J.:

This is a Petition for Review on Certiorari assailing the May 31, 2007 Decision 1 and August 16, 2007 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 75978. The dispositive portion of the said Decision reads:

WHEREFORE, the Decision dated November 28, 2001 and the Order dated June 11, 2002 rendered by the Regional Trial Court of Manila, Branch 39 is hereby MODIFIED to the effect that only defendants AIB Security Agency, Inc.,
Cesario Peña and Vicente Gaddi are held jointly and severally liable to pay plaintiffs-appellees Spouses Benjamin C. Mamaril and Sonia P. Mamaril the amount of Two Hundred Thousand Pesos (₱200,000.00) representing the cost of
the lost vehicle, and to pay the cost of suit. The other monetary awards are DELETED for lack of merit and/or basis.

Defendant-Appellant Boy Scout of the Philippines is absolved from any liability.

SO ORDERED.3

The Antecedent Facts

Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps. Mamaril) are jeepney operators since 1971. They would park their six (6) passenger jeepneys every night at the Boy Scout of the Philippines' (BSP) compound located at 181
Concepcion Street, Malate, Manila for a fee of ₱300.00 per month for each unit. On May 26, 1995 at 8 o'clock in the evening, all these vehicles were parked inside the BSP compound. The following morning, however, one of the
vehicles with Plate No. DCG 392 was missing and was never recovered.4 According to the security guards Cesario Peña (Peña) and Vicente Gaddi (Gaddi) of AIB Security Agency, Inc. (AIB) with whom BSP had contracted5 for its
security and protection, a male person who looked familiar to them took the subject vehicle out of the compound.

On November 20, 1996, Sps. Mamaril filed a complaint6 for damages before the Regional Trial Court (RTC) of Manila, Branch 39, against BSP, AIB, Peña and Gaddi. In support thereof, Sps. Mamaril averred that the loss of the subject
vehicle was due to the gross negligence of the above-named security guards on-duty who allowed the subject vehicle to be driven out by a stranger despite their agreement that only authorized drivers duly endorsed by the owners
could do so. Peña and Gaddi even admitted their negligence during the ensuing investigation. Notwithstanding, BSP and AIB did not heed Sps. Mamaril's demands for a conference to settle the matter. They therefore prayed that Peña
and Gaddi, together with AIB and BSP, be held liable for: (a) the value of the subject vehicle and its accessories in the aggregate amount of ₱300,000.00; (b) ₱275.00 representing daily loss of income/boundary reckoned from the day
the vehicle was lost; (c) exemplary damages; (d) moral damages; (e) attorney's fees; and (f) cost of suit.

In its Answer,7 BSP denied any liability contending that not only did Sps. Mamaril directly deal with AIB with respect to the manner by which the parked vehicles would be handled, but the parking ticket8 itself expressly stated that the
"Management shall not be responsible for loss of vehicle or any of its accessories or article left therein." It also claimed that Sps. Mamaril erroneously relied on the Guard Service Contract. Apart from not being parties thereto, its
provisions cover only the protection of BSP's properties, its officers, and employees.

In addition to the foregoing defenses, AIB alleged that it has observed due diligence in the selection, training and supervision of its security guards while Peña and Gaddi claimed that the person who drove out the lost vehicle from the
BSP compound represented himself as the owners' authorized driver and had with him a key to the subject vehicle. Thus, they contended that Sps. Mamaril have no cause of action against them.

The RTC Ruling

After due proceedings, the RTC rendered a Decision9 dated November 28, 2001 in favor of Sps. Mamaril. The dispositive portion of the RTC decision reads:

WHEREFORE, judgment is hereby rendered ordering the defendants Boy Scout of the Philippines and AIB Security Agency, with security guards Cesario Pena and Vicente Gaddi: -

1. To pay the plaintiffs jointly and severally the cost of the vehicle which is ₱250,000.00 plus accessories of ₱50,000.00;

2. To pay jointly and severally to the plaintiffs the daily loss of the income/boundary of the said jeepney to be reckoned fromits loss up to the final adjudication of the case, which is ₱275.00 a day;

3. To pay jointly and severally to the plaintiffs moral damages in the amount of ₱50,000.00;

4. To pay jointly and severally to the plaintiffs exemplary damages in the amount of ₱50,000.00;

5. To pay jointly and severally the attorney's fees of ₱50,000.00 and appearances in court the amount of ₱1,500.00 per appearance; and

6. To pay cost.

SO ORDERED.10

The RTC found that the act of Peña and Gaddi in allowing the entry of an unidentified person and letting him drive out the subject vehicle in violation of their internal agreement with Sps. Mamaril constituted gross negligence, rendering
AIB and its security guards liable for the former's loss. BSP was also adjudged liable because the Guard Service Contract it entered into with AIB offered protection to all properties inside the BSP premises, which necessarily included
Sps. Mamaril's vehicles. Moreover, the said contract stipulated AIB's obligation to indemnify BSP for all losses or damages that may be caused by any act or negligence of its security guards. Accordingly, the BSP, AIB, and security
guards Peña and Gaddi were held jointly and severally liable for the loss suffered by Sps. Mamaril.

On June 11, 2002, the RTC modified its decision reducing the cost of the stolen vehicle from ₱250,000.00 to ₱200,000.00. 11
Only BSP appealed the foregoing disquisition before the CA.

The CA Ruling

In its assailed Decision,12 the CA affirmed the finding of negligence on the part of security guards Peña and Gaddi. However, it absolved BSP from any liability, holding that the Guard Service Contract is purely between BSP and AIB
and that there was nothing therein that would indicate any obligation and/or liability on the part of BSP in favor of third persons, such as Sps. Mamaril. Nor was there evidence sufficient to establish that BSP was negligent.

It further ruled that the agreement between Sps. Mamaril and BSP was substantially a contract of lease whereby the former paid parking fees to the latter for the lease of parking slots. As such, the lessor, BSP, was not an insurer nor
bound to take care and/or protect the lessees' vehicles.

On the matter of damages, the CA deleted the award of ₱50,000.00 representing the value of the accessories inside the lost vehicle and the ₱275.00 a day for loss of income in the absence of proof to support them. It also deleted the
award of moral and exemplary damages and attorney's fees for lack of factual and legal bases.

Sps. Mamaril's motion for reconsideration thereof was denied in the August 16, 2007 Resolution.13

Issues Before the Court

Hence, the instant petition based on the following assignment of errors, to wit:

I.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN ABSOLVING RESPONDENT BOY SCOUT OF THE PHILIPPINES FROM ANY LIABILITY.

II.

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS MISTAKE WHEN IT RULED THAT THE GUARD SERVICE CONTRACT IS PURELY BETWEEN BOY SCOUT OF THE

PHILIPPINES AND AIB SECURITY AGENCY, INC., AND IN HOLDING THAT THERE IS ABSOLUTELY NOTHING IN THE SAID CONTRACT THAT WOULD INDICATE ANY OBLIGATION AND/OR LIABILITY ON THE PART OF THE
PARTIES THEREIN IN FAVOR OF THIRD PERSONS, SUCH AS PETITIONERS HEREIN.

III.

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR IN THE INTERPRETATION OF LAW WHEN IT CONSIDERED THE AGREEMENT BETWEEN BOY SCOUT OF THE PHILIPPINES AND PETITIONERS A
CONTRACT OF LEASE, WHEREBY THE BOY SCOUT IS NOT DUTY BOUND TO PROTECT OR TAKE CARE OF PETITIONERS' VEHICLES.

IV.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT RULED THAT PETITIONERS ARE NOT ENTITLED TO DAMAGES AND ATTORNEY'S FEES.14

In fine, Sps. Mamaril maintain that: (1) BSP should be held liable for the loss of their vehicle based on the Guard Service Contract and the parking ticket it issued; and (2) the CA erred in deleting the RTC awards of damages and
attorney's fees.

The Court's Ruling

The petition lacks merit.

Article 20 of the Civil Code provides that every person, who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same. Similarly, Article 2176 of the Civil Code states:

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

In this case, it is undisputed that the proximate cause of the loss of Sps. Mamaril's vehicle was the negligent act of security guards Peña and Gaddi in allowing an unidentified person to drive out the subject vehicle. Proximate cause
has been defined as that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury or loss, and without which the result would not have occurred.15

Moreover, Peña and Gaddi failed to refute Sps. Mamaril's contention16 that they readily admitted being at fault during the investigation that ensued.

On the other hand, the records are bereft of any finding of negligence on the part of BSP. Hence, no reversible error was committed by the CA in absolving it from any liability for the loss of the subject vehicle based on fault or negligence.

Neither will the vicarious liability of an employer under Article 218017 of the Civil Code apply in this case. It is uncontested that Peña and Gaddi were assigned as security guards by AIB to BSP pursuant to the Guard Service Contract.
Clearly, therefore, no employer-employee relationship existed between BSP and the security guards assigned in its premises. Consequently, the latter's negligence cannot be imputed against BSP but should be attributed to AIB, the
true employer of Peña and Gaddi.18

In the case of Soliman, Jr. v. Tuazon,19 the Court enunciated thus:

It is settled that where the security agency, as here, recruits, hires and assigns the work of its watchmen or security guards, the agency is the employer of such guards and watchmen. Liability for illegal or harmful acts committed by the
security guards attaches to the employer agency, and not to the clients or customers of such agency. As a general rule, a client or customer of a security agency has no hand in selecting who among the pool of security guards or
watchmen employed by the agency shall be assigned to it; the duty to observe the diligence of a good father of a family in the selection of the guards cannot, in the ordinary course of events, be demanded from the client whose premises
or property are protected by the security guards. The fact that a client company may give instructions or directions to the security guards assigned to it, does not, by itself, render the client responsible as an employer of the security
guards concerned and liable for their wrongful acts or omissions. Those instructions or directions are ordinarily no more than requests commonly envisaged in the contract for services entered into with the security agency.20

Nor can it be said that a principal-agent relationship existed between BSP and the security guards Peña and Gaddi as to make the former liable for the latter's complained act. Article 1868 of the Civil Code states that "by the contract
of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter." The basis for agency therefore is representation,21 which element is
absent in the instant case. Records show that BSP merely hired the services of AIB, which, in turn, assigned security guards, solely for the protection of its properties and premises. Nowhere can it be inferred in the Guard Service
Contract that AIB was appointed as an agent of BSP. Instead, what the parties intended was a pure principal-client relationship whereby for a consideration, AIB rendered its security services to BSP.
Notwithstanding, however, Sps. Mamaril insist that BSP should be held liable for their loss on the basis of the Guard Service Contract that the latter entered into with AIB and their parking agreement with BSP.

Such contention cannot be sustained.

Article 1311 of the Civil Code states:

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The
heir is not liable beyond the value of the property he received from the decedent.

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person.

Thus, in order that a third person benefited by the second paragraph of Article 1311, referred to as a stipulation pour autrui, may demand its fulfillment, the following requisites must concur: (1) There is a stipulation in favor of a third
person; (2) The stipulation is a part, not the whole, of the contract; (3) The contracting parties clearly and deliberately conferred a favor to the third person - the favor is not merely incidental; (4) The favor is unconditional and
uncompensated; (5) The third person communicated his or her acceptance of the favor before its revocation; and (6) The contracting parties do not represent, or are not authorized, by the third party.22 However, none of the foregoing
elements obtains in this case.

It is undisputed that Sps. Mamaril are not parties to the Guard Service Contract.1âwphi1 Neither did the subject agreement contain any stipulation pour autrui. And even if there was, Sps. Mamaril did not convey any acceptance thereof.
Thus, under the principle of relativity of contracts, they cannot validly claim any rights or favor under the said agreement.23 As correctly found by the CA:

First, the Guard Service Contract between defendant-appellant BSP and defendant AIB Security Agency is purely between the parties therein. It may be observed that although the whereas clause of the said agreement provides that
defendant-appellant desires security and protection for its compound and all properties therein, as well as for its officers and employees, while inside the premises, the same should be correlated with paragraph 3(a) thereof which
provides that the security agency shall indemnify defendant-appellant for all losses and damages suffered by it attributable to any act or negligence of the former's guards.

Otherwise stated, defendant-appellant sought the services of defendant AIB Security Agency for the purpose of the security and protection of its properties, as well as that of its officers and employees, so much so that in case of loss
of [sic] damage suffered by it as a result of any act or negligence of the guards, the security agency would then be held responsible therefor. There is absolutely nothing in the said contract that would indicate any obligation and/or
liability on the part of the parties therein in favor of third persons such as herein plaintiffs-appellees.24

Moreover, the Court concurs with the finding of the CA that the contract between the parties herein was one of lease25 as defined under Article 164326 of the Civil Code. It has been held that the act of parking a vehicle in a garage, upon
payment of a fixed amount, is a lease.27 Even in a majority of American cases, it has been ruled that where a customer simply pays a fee, parks his car in any available space in the lot, locks the car and takes the key with him, the
possession and control of the car, necessary elements in bailment, do not pass to the parking lot operator, hence, the contractual relationship between the parties is one of lease. 28

In the instant case, the owners parked their six (6) passenger jeepneys inside the BSP compound for a monthly fee of ₱300.00 for each unit and took the keys home with them. Hence, a lessor-lessee relationship indubitably existed
between them and BSP. On this score, Article 1654 of the Civil Code provides that "the lessor (BSP) is obliged: (1) to deliver the thing which is the object of the contract in such a condition as to render it fit for the use intended; (2) to
make on the same during the lease all the necessary repairs in order to keep it suitable for the use to which it has been devoted, unless there is a stipulation to the contrary; and (3) to maintain the lessee in the peaceful and adequate
enjoyment of the lease for the entire duration of the contract." In relation thereto, Article 1664 of the same Code states that "the lessor is not obliged to answer for a mere act of trespass which a third person may cause on the use of
the thing leased; but the lessee shall have a direct action against the intruder." Here, BSP was not remiss in its obligation to provide Sps. Mamaril a suitable parking space for their jeepneys as it even hired security guards to secure the
premises; hence, it should not be held liable for the loss suffered by Sps. Mamaril.

It bears to reiterate that the subject loss was caused by the negligence of the security guards in allowing a stranger to drive out plaintiffs-appellants' vehicle despite the latter's instructions that only their authorized drivers may do so.
Moreover, the agreement with respect to the ingress and egress of Sps. Mamaril's vehicles were coordinated only with AIB and its security guards, 29 without the knowledge and consent of BSP. Accordingly, the mishandling of the
parked vehicles that resulted in herein complained loss should be recovered only from the tort feasors (Peña and Gaddi) and their employer, AIB; and not against the lessor, BSP.30

Anent Sps. Mamaril's claim that the exculpatory clause: "Management shall not be responsible for loss of vehicle or any of its accessories or article left therein"31 contained in the BSP issued parking ticket was void for being a contract
of adhesion and against public policy, suffice it to state that contracts of adhesion are not void per se. It is binding as any other ordinary contract and a party who enters into it is free to reject the stipulations in its entirety. If the terms
thereof are accepted without objection, as in this case, where plaintiffs-appellants have been leasing BSP's parking space for more or less 20 years, 32 then the contract serves as the law between them.33 Besides, the parking fee of
₱300.00 per month or ₱10.00 a day for each unit is too minimal an amount to even create an inference that BSP undertook to be an insurer of the safety of plaintiffs-appellants' vehicles.

On the matter of damages, the Court noted that while Sonia P. Mamaril testified that the subject vehicle had accessories worth around !J50,000.00, she failed to present any receipt to substantiate her claim.34 Neither did she submit
any record or journal that would have established the purported ₱275.0035 daily earnings of their jeepney. It is axiomatic that actual damages must be proved with reasonable degree of certainty and a party is entitled only to such
compensation for the pecuniary loss that was duly proven. Thus, absent any competent proof of the amount of damages sustained, the CA properly deleted the said awards.36

Similarly, the awards of moral and exemplary damages and attorney's fees were properly disallowed by the CA for lack of factual and legal bases. While the RTC granted these awards in the dispositive portion of its November 28, 2001
decision, it failed to provide sufficient justification therefor.37

WHEREFORE premises considered, the instant petition is DENIED. The May 31, 2007 Decision and August 16, 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 75978 are AFFIRMFED.

SO ORDERED.

G.R. No. 179469 February 15, 2012

C.F. SHARP & CO. INC. and JOHN J. ROCHA, Petitioners,

vs.
PIONEER INSURANCE & SURETY CORPORATION, WILFREDO C. AGUSTIN and HERNANDO G. MINIMO,Respondents.

DECISION

PEREZ, J.:

Whether a local private employment agency may be held liable for breach of contract for failure to deploy a seafarer, is the bone of contention in this case.
Assailed in this petition for review are the Decision1 dated 30 October 2003 and the 29 August 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 53336 finding petitioners C.F. Sharp Co. Inc. (C.F. Sharp) and John J. Rocha
(Rocha) liable for damages.

Responding to a newspaper advertisement of a job opening for sandblasters and painters in Libya, respondents Wilfredo C. Agustin and Hernando G. Minimo applied with C.F. Sharp sometime in August 1990. After passing the
interview, they were required to submit their passports, seaman’s book, National Bureau of Investigation clearance, employment certificates, certificates of seminars attended, and results of medical examination. Upon submission of
the requirements, a Contract of Employment was executed between respondents and C.F. Sharp. Thereafter, respondents were required to attend various seminars, open a bank account with the corresponding allotment slips, and
attend a pre-departure orientation. They were then advised to prepare for immediate deployment and to report to C.F. Sharp to ascertain the schedule of their deployment.

After a month, respondents were yet to be deployed prompting them to request for the release of the documents they had submitted to C.F. Sharp. C.F. Sharp allegedly refused to surrender the documents which led to the filing of a
complaint by respondents before the Philippine Overseas Employment Administration (POEA) on 21 January 1991.

On 30 October 1991, POEA issued an Order finding C.F. Sharp guilty of violation of Article 34(k) of the Labor Code, which makes it unlawful for any entity "to withhold or deny travel documents from applicant workers before departure
for monetary or financial considerations other than those authorized under this Code and its implementing rules and regulations." Consequently, C.F. Sharp’s license was suspended until the return of the disputed documents to
respondents. POEA likewise declared that it has no jurisdiction to adjudicate the monetary claims of respondents.

On 10 March 1995, respondents filed a Complaint for breach of contract and damages against C.F. Sharp and its surety, Pioneer Insurance and Surety Corporation (Pioneer Insurance), before the Regional Trial Court (RTC) of Pasay
City. Respondents claimed that C.F. Sharp falsely assured them of deployment and that its refusal to release the disputed documents on the ground that they were already bound by reason of the Contract of Employment, denied
respondents of employment opportunities abroad and a guaranteed income. Respondents also prayed for damages. Pioneer Insurance filed a cross claim against C.F. Sharp and John J. Rocha, the executive vice-president of C.F.
Sharp, based on an Indemnity Agreement which substantially provides that the duo shall jointly and severally indemnify Pioneer Insurance for damages, losses, and costs which the latter may incur as surety. The RTC rendered judgment
on 27 June 1996 favoring respondents, to wit:

WHEREFORE, plaintiffs’ causes of action having been proved with a preponderance of evidence, judgment is hereby ordered as follows:

a. Declaring the non-deployment of plaintiffs and the refusal to release documents as breach of contract;

b. By way of compensatory damages, awarding $450 per month and $439 overtime per month, which should have been received by plaintiffs from other employers, making a joint and solidary obligation on the part of the two defendants
– C.F. Sharp and Pioneer for the period covered by the employment contracts;

c. Ordering each defendant to pay each plaintiff ₱50,000.00 as moral damages and another ₱50,000.00 each as exemplary damages;

d. Ordering defendants to share in the payment to plaintiffs of ₱50,000.00 attorney’s fees;

e. Defendants to pay litigation expenses and costs of suit.2

The trial court ruled that there was a violation of the contract when C.F. Sharp failed to deploy and release the papers and documents of respondents, hence, they are entitled to damages. The trial court likewise upheld the cause of
action of respondents against Pioneer Insurance, the former being the actual beneficiaries of the surety bond.

On appeal, C.F. Sharp and Rocha raise a jurisdictional issue — that the RTC has no jurisdiction over the instant case pursuant to Section 4(a) of Executive Order No. 797 which vests upon the POEA the jurisdiction over all cases,
including money claims, arising out of or by virtue of any contract involving workers for overseas employment. C.F. Sharp and Rocha refuted the findings of the trial court and maintained that the perfection and effectivity of the Contract
of Employment depend upon the actual deployment of respondents.

The Court of Appeals upheld the jurisdiction of the trial court by ruling that petitioners are now estopped from raising such question because they have actively participated in the proceedings before the trial court. The Court of Appeals
further held that since there is no perfected employment contract between the parties, it is the RTC and not the POEA, whose jurisdiction pertains only to claims arising from contracts involving Filipino seamen, which has jurisdiction
over the instant case.

Despite the finding that no contract was perfected between the parties, the Court of Appeals adjudged C.F. Sharp and Rocha liable for damages, to wit:

WHEREFORE, the Appeal of C.F. Sharp Co Inc. and John J. Rocha is PARTIALLY GRANTED only insofar as We declare that there is no breach of contract because no contract of employment was perfected. However, We find
appellants C.F. Sharp Co. Inc. and John J. Rocha liable to plaintiff-appellees for damages pursuant to Article 21 of the Civil Code and award each plaintiff-appellees temperate damages amounting to ₱100,000.00, and moral damages
in the increased amount of ₱100,000.00. The award of exemplary damages and attorney’s fees amounting to ₱50,000.00, respectively, is hereby affirmed.3

The Court of Appeals limited the liability of Pioneer Insurance to the amount of ₱150,000.00 pursuant to the Contract of Suretyship between C.F. Sharp and Pioneer Insurance.

Rocha filed the instant petition on the submission that there is no basis to hold him liable for damages under Article 21 of the Civil Code because C.F. Sharp has signified its intention to return the documents and had in fact informed
respondents that they may, at any time of the business day, withdraw their documents. Further, respondents failed to establish the basis for which they are entitled to moral damages. Rocha refuted the award of exemplary damages
because the act of requiring respondents to sign a quitclaim prior to the release of their documents could not be considered bad faith. Rocha also questions the award of temperate damages on the ground that the act of withholding
respondents’ documents could not be considered "chronic and continuing."4

Right off, insofar as Pioneer Insurance is concerned, the petition should be dismissed against it because the ruling of the Court of Appeals limited its liability to ₱150,000.00 was not assailed by Rocha, hence the same has now attained
finality.

Before us, respondents maintain that they are entitled to damages under Article 21 of the Civil Code for C.F. Sharp’s unjustified refusal to release the documents to them and for requiring them to sign a quitclaim which would effectively
bar them from seeking redress against petitioners. Respondents justify the award of other damages as they suffered pecuniary losses attributable to petitioner’s malice and bad faith.

In his Reply, Rocha introduced a new argument, i.e., that he should not be held jointly liable with C.F. Sharp considering that the company has a separate personality. Rocha argues that there is no showing in the Complaint that he had
participated in the malicious act complained. He adds that his liability only stems from the Indemnity Agreement with Pioneer Insurance and does not extend to respondents.

Records disclose that Rocha was first impleaded in the case by Pioneer Insurance. Pioneer Insurance, as surety, was sued by respondents together with C.F. Sharp. Pioneer Insurance in turn filed a third party complaint against Rocha
on the basis of an Indemnity Agreement whereby he bound himself to indemnify and hold harmless Pioneer Insurance from and against any and all damages which the latter may incur in consequence of having become a surety. 5 The
third party complaint partakes the nature of a cross-claim.
C.F. Sharp, as defendant-appellant and Rocha, as third-party defendant-appellant, filed only one brief before the Court of Appeals essentially questioning the declaration of the trial court that non-deployment is tantamount to breach of
contract and the award of damages. The Court of Appeals found them both liable for damages. Both C.F. Sharp and Rocha sought recourse before this Court via a Motion for Extension of Time (To File a Petition for Review) on 19
September 2007.6 In the Petition for Review, however, C.F. Sharp was noticeably dropped as petitioner. Rocha maintains essentially the same argument that he and C.F. Sharp were wrongfully adjudged liable for damages.

It was only in its Reply dated 25 March 2008 that Rocha, through a new representation, suddenly forwarded the argument that he should not be held liable as an officer of C.F. Sharp. It is too late in the day for Rocha to change his
theory. It is doctrinal that defenses not pleaded in the answer may not be raised for the first time on appeal. A party cannot, on appeal, change fundamentally the nature of the issue in the case. When a party deliberately adopts a certain
theory and the case is decided upon that theory in the court below, he will not be permitted to change the same on appeal, because to permit him to do so would be unfair to the adverse party. 7 More so in this case, where Rocha
introduced a new theory at the Reply stage. Disingenuousness may even be indicated by the sudden exclusion of the name of C.F. Sharp from the main petition even as Rocha posited arguments not just for himself and also in behalf
of C.F. Sharp.

The core issue pertains to damages.

The bases of the lower courts’ award of damages differ. In upholding the perfection of contract between respondents and C.F. Sharp, the trial court stated that the unjustified failure to deploy and subsequently release the documents of
respondents entitled them to compensatory damages, among others. Differently, the appellate court found that no contract was perfected between the parties that will give rise to a breach of contract. Thus, the appellate court deleted
the award of actual damages. However, it adjudged other damages against C.F. Sharp for its unlawful withholding of documents from respondents.

We sustain the trial court’s ruling.

On the issue of whether respondents are entitled to relief for failure to deploy them, the RTC ruled in this wise:

The contract of employment entered into by the plaintiffs and the defendant C.F. Sharp is an actionable document, the same contract having the essential requisites for its validity. It is worthy to note that there are three stages of a
contract: (1) preparation, conception, or generation which is the period of negotiation and bargaining ending at the moment of agreement of the parties. (2) Perfection or birth of the contract, which is the moment when the parties come
to agree on the terms of the contract. (3) Consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract.

Hence, it is imperative to know the stage reached by the contract entered into by the plaintiffs and C.F. sharp. Based on the testimonies of the witnesses presented in this Court, there was already a perfected contract between plaintiffs
and defendant C.F. Sharp. Under Article 1315 of the New Civil Code of the Philippines, it states that:

xxxx

Thus, when plaintiffs signed the contract of employment with C.F. Sharp (as agent of the principal WB Slough) consequently, the latter is under obligation to deploy the plaintiffs, which is the natural effect and consequence of the
contract agreed by them.8

We agree.

As correctly ruled at the trial, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract
and ends at the moment of agreement of the parties. Perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. Consummation occurs when the parties fulfill or perform the terms
agreed upon in the contract, culminating in the extinguishment thereof.9

Under Article 1315 of the Civil Code, a contract is perfected by mere consent and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according
to their nature, may be in keeping with good faith, usage and law.10

An employment contract, like any other contract, is perfected at the moment (1) the parties come to agree upon its terms; and (2) concur in the essential elements thereof: (a) consent of the contracting parties, (b) object certain which
is the subject matter of the contract and (c) cause of the obligation.11

We have scoured through the Contract of Employment and we hold that it is a perfected contract of employment. We reproduce below the terms of the Contract of Employment for easy reference:

WITNESSETH

That the Seafarer shall be employed on board under the following terms and conditions:

1.1 Duration of Contract: 3 month/s

1.2 Position: SANDBLASTER/PAINTER

1.3 Basic Monthly Salary: $450.00 per month

1.4 Living Allowances: $0.00 per month

1.5 Hours of Work: 48 per week

1.6 Overtime Rate: $439.00 per month

1.7 Vacation Leave with Pay: 30.00 day/s per month on board

The terms and conditions of the Revised Employment Contract for seafarers governing the employment of all Filipino seafarers approved by the POEA/DOLE on July 14, 1989 under Memorandum Circular No. 41 series of 1989 and
amending circulars relative thereto shall be strictly and faithfully observed.

Any alterations or changes, in any part of this Contract shall be evaluated, verified, processed and approved by the Philippine Overseas Employment Administration (POEA). Upon approval, the same shall be deemed an integral part
of the Standard Employment Contract (SEC) for seafarers.

All claims, complaints or controversies relative to the implementation and interpretation of this overseas employment contract shall be exclusively resolved through the established Grievance Machinery in the Revised Employment
Contract for seafarers, the adjudication procedures of the Philippine Overseas Employment Administration and the Philippine Courts of Justice, in that order.
Violations of the terms and conditions of this Contract with its approved addendum shall warrant the imposition of appropriate disciplinary or administrative sanctions against the erring party.

The Employee hereby certifies that he had received, read or has had explained to him and fully understood this contract as well as the POEA revised Employment Contract of 1989 and the Collective Bargaining Agreement (CBA) and/or
company terms and conditions of employment covering this vessel and that he is fully aware of and has head or has had explained to him the terms and conditions including those in the POEA Employment Contract, the CBA and this
contract which constitute his entire agreement with the employer.

The Employee also confirms that no verbal or other written promises other than the terms and conditions of this Contract as well as the POEA Revised Employment Contract, the CBA and/or company terms and conditions had been
given to the Employee. Therefore, the Employee cannot claim any additional benefits or wages of any kind except those which have been provided in this Contract Agreement.12

By the contract, C.F. Sharp, on behalf of its principal, International Shipping Management, Inc., hired respondents as Sandblaster/Painter for a 3-month contract, with a basic monthly salary of US$450.00. Thus, the object of the contract
is the service to be rendered by respondents on board the vessel while the cause of the contract is the monthly compensation they expect to receive. These terms were embodied in the Contract of Employment which was executed by
the parties. The agreement upon the terms of the contract was manifested by the consent freely given by both parties through their signatures in the contract. Neither parties disavow the consent they both voluntarily gave. Thus, there
is a perfected contract of employment.

The Court of Appeals agreed with the submission of C.F. Sharp that the perfection and effectivity of the Contract of Employment depend upon the actual deployment of respondents. It based its conclusion that there was no perfected
contract based on the following rationale:

The commencement of the employer-employee relationship between plaintiffs-appellees and the foreign employer, as correctly represented by C.F. Sharp requires that conditions under Sec. D be met. The Contract of Employment was
duly "Verified and approved by the POEA." Regrettably, We have painfully scrutinized the Records and find no evidence that plaintiffs-appellees were cleared for travel and departure to their port of embarkation overseas by government
authorities. Consequently, non-fulfillment of this condition negates the commencement and existence of employer-employee relationship between the plaintiffs-appellees and C.F. Sharp. Accordingly, no contract between them was
perfected that will give rise to plaintiffs-appellees’ right of action. There can be no breach of contract when in the first place, there is no effective contract to speak of. For the same reason, and finding that the award of actual damages
has no basis, the same is hereby deleted.13

The Court of Appeals erred.

The commencement of an employer-employee relationship must be treated separately from the perfection of an employment contract. Santiago v. CF Sharp Crew Management, Inc.,14 which was promulgated on 10 July 2007, is an
instructive precedent on this point. In said case, petitioner was hired by respondent on board "MSV Seaspread" for US$515.00 per month for nine (9) months, plus overtime pay. Respondent failed to deploy petitioner from the port of
Manila to Canada. We made a distinction between the perfection of the employment contract and the commencement of the employer-employee relationship, thus:

The perfection of the contract, which in this case coincided with the date of execution thereof, occurred when petitioner and respondent agreed on the object and the cause, as well as the rest of the terms and conditions therein. The
commencement of the employer-employee relationship, as earlier discussed, would have taken place had petitioner been actually deployed from the point of hire. Thus, even before the start of any employer-employee relationship,
contemporaneous with the perfection of the employment contract was the birth of certain rights and obligations, the breach of which may give rise to a cause of action against the erring party.15

Despite the fact that the employer-employee relationship has not commenced due to the failure to deploy respondents in this case, respondents are entitled to rights arising from the perfected Contract of Employment, such as the right
to demand performance by C.F. Sharp of its obligation under the contract.

The right to demand performance was a categorical pronouncement in Santiago which ruled that failure to deploy constitutes breach of contract, thereby entitling the seafarer to damages:

Respondent’s act of preventing petitioner from departing the port of Manila and boarding "MSV Seaspread" constitutes a breach of contract, giving rise to petitioner’s cause of action. Respondent unilaterally and unreasonably reneged
on its obligation to deploy petitioner and must therefore answer for the actual damages he suffered.

We take exception to the Court of Appeals’ conclusion that damages are not recoverable by a worker who was not deployed by his agency. The fact that the POEA Rules are silent as to the payment of damages to the affected seafarer
does not mean that the seafarer is precluded from claiming the same. The sanctions provided for non-deployment do not end with the suspension or cancellation of license or fine and the return of all documents at no cost to the worker.
They do not forfend a seafarer from instituting an action for damages against the employer or agency which has failed to deploy him.16

The appellate court could not be faulted for its failure to adhere to Santiago considering that the Court of Appeals Decision was promulgated way back in 2003 while Santiago was decided in 2007. We now reiterate Santiago and,
accordingly, decide the case at hand.

We respect the lower courts’ findings that C.F. Sharp unjustifiably refused to return the documents submitted by respondent. The finding was that C.F. Sharp would only release the documents if respondent would sign a quitclaim. On
this point, the trial court was affirmed by the Court of Appeals. As a consequence, the award by the trial court of moral damages must likewise be affirmed.

Moral damages may be recovered under Article 2219 of the Civil Code in relation to Article 21.1âwphi1 The pertinent provisions read:

Art. 2219. Moral damages may be recovered in the following and analogous cases:

xxxx

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

xxxx

Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.

We agree with the appellate court that C.F. Sharp committed an actionable wrong when it unreasonably withheld documents, thus preventing respondents from seeking lucrative employment elsewhere. That C.F. Sharp arbitrarily
imposed a condition that the documents would only be released upon signing of a quitclaim is tantamount to bad faith because it effectively deprived respondents of resort to legal remedies.

Furthermore, we affirm the award of exemplary damages and attorney’s fees. Exemplary damages may be awarded when a wrongful act is accompanied by bad faith or when the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner which would justify an award of exemplary damages under Article 2232 of the Civil Code. Since the award of exemplary damages is proper in this case, attorney’s fees and cost of the suit may also
be recovered as provided under Article 2208 of the Civil Code.17

WHEREFORE, the petition is DENIED. The Decision dated 27 June 1996 of the Regional Trial Court of Pasay City is REINSTATED. Accordingly, the Decision dated 30 October 2003 of the Court of Appeals is MODIFIED.

SO ORDERED.
G.R. No. 177783 January 23, 2013

HEIRS OF FAUSTO C. IGNACIO, namely MARFEL D. IGNACIO-MANALO, MILFA D. IGNACIO-MANALO AND FAUSTINO D. IGNACIO, Petitioners,
vs.
HOME BANKERS SAVINGS AND TRUST COMPANY, SPOUSES PHILLIP AND THELMA RODRIGUEZ, CATHERINE, REYNOLD & JEANETTE, all surnamed ZUNIGA, Respondents.

DECISION
VILLARAMA, JR., J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 assailing the Decision 1 dated July 18, 2006 and Resolution2 dated May 2, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 73551. The CA reversed the
Decision3 dated June 15, 1999 of the Regional Trial Court (RTC) of Pasig City, Branch 151 in Civil Case No. 58980.

The factual antecedents:

In August 1981, petitioner Fausto C. Ignacio mortgaged two parcels of land to Home Savings Bank and Trust Company, the predecessor of respondent Home Bankers Savings and Trust Company, as security for the ₱500,000.00 loan
extended to him by said bank. These properties which are located in Cabuyao, Laguna are covered by Transfer Certificate of Title Nos. (T-40380) T-8595 and (T-45804) T-8350 containing an area of 83,303 square meters and 120,110
square meters, respectively.4

When petitioner defaulted in the payment of his loan obligation, respondent bank proceeded to foreclose the real estate mortgage. At the foreclosure sale held on January 26, 1983, respondent bank was the highest bidder for the sum
of ₱764,984.67. On February 8, 1983, the Certificate of Sale issued to respondent bank was registered with the Registry of Deeds of Calamba, Laguna. With the failure of petitioner to redeem the foreclosed properties within one year
from such registration, title to the properties were consolidated in favor of respondent bank. Consequently, TCT Nos. T-8595 and T-8350 were cancelled and TCT Nos. 111058 and 111059 were issued in the name of respondent bank.5

Despite the lapse of the redemption period and consolidation of title in respondent bank, petitioner offered to repurchase the properties. While the respondent bank considered petitioner's offer to repurchase, there was no repurchase
contract executed. The present controversy was fuelled by petitioner's stance that a verbal repurchase/compromise agreement was actually reached and implemented by the parties.

In the meantime, respondent bank made the following dispositions of the foreclosed properties already titled in its name:

TCT No. 111059 (Subdivided into six lots with individual titles - TCT Nos. 117771, 117772, 117773, 117774, 117775 and 117776)

A. TCT No. 117771 (16,350 sq.ms.) - Sold to Fermin Salvador and Bella Salvador under Deed of Absolute Sale dated May 23, 1984 for the price of ₱150,000.00

B. TCT No. 11772 (82,569 sq.ms. subdivided into 2 portions

1) Lot 3-B-1 (35,447 sq.ms.) - Sold to Dr. Oscar Remulla and Natividad Pagtakhan, Dr. Edilberto Torres and Dra. Rebecca Amores under Deed of Absolute Sale dated April 17, 1985 for the price of ₱150,000.00

2) Lot 3-B-2 covered by separate title TCT No. 124660 (Subdivided into 3 portions -

Lot 3-B-2-A (15,000 sq.ms.) - Sold to Dr. Myrna del Carmen Reyes under Deed of Absolute Sale dated March 23, 1987 for the price of ₱150,000.00

Lot 3-B-2-B (15,000 sq.ms.) - Sold to Dr. Rodito Boquiren under Deed of Absolute Sale dated March 23, 1987 for the price of ₱150,000.00

Lot 3-B-2-C (17,122 sq.ms.) covered by TCT No. T-154568 -

C. TCT No.117773 (17,232 sq.ms.) - Sold to Rizalina Pedrosa under Deed of Absolute Sale dated June 4, 1984 for the price of ₱150,000.00

The expenses for the subdivision of lots covered by TCT No. 111059 and TCT No. 117772 were shouldered by petitioner who likewise negotiated the above-mentioned sale transactions. The properties covered by TCT Nos. T-117774
to 117776 are still registered in the name of respondent bank.6

In a letter addressed to respondent bank dated July 25, 1989, petitioner expressed his willingness to pay the amount of ₱600,000.00 in full, as balance of the repurchase price, and requested respondent bank to release to him the
remaining parcels of land covered by TCT Nos. 111058 and T-154658 ("subject properties").7 Respondent bank however, turned down his request. This prompted petitioner to cause the annotation of an adverse claim on the said titles
on September 18, 1989.8

Prior to the annotation of the adverse claim, on August 24, 1989, the property covered by TCT No. 154658 was sold by respondent bank to respondent spouses Phillip and Thelma Rodriguez, without informing the petitioner. On October
6, 1989, again without petitioner's knowledge, respondent bank sold the property covered by TCT No T-111058 to respondents Phillip and Thelma Rodriguez, Catherine M. Zuñiga, Reynold M. Zuñiga and Jeannette M. Zuñiga. 9

On December 27, 1989, petitioner filed an action for specific performance and damages in the RTC against the respondent bank. As principal relief, petitioner sought in his original complaint the reconveyance of the subject properties
after his payment of ₱600,000.00.10 Respondent bank filed its Answer denying the allegations of petitioner and asserting that it was merely exercising its right as owner of the subject properties when the same were sold to third parties.

For failure of respondent bank to appear during the pre-trial conference, it was declared as in default and petitioner was allowed to present his evidence ex parte on the same date (September 3, 1990). Petitioner simultaneously filed
an "Ex-Parte Consignation" tendering the amount of ₱235,000.00 as balance of the repurchase price.11 On September 7, 1990, the trial court rendered judgment in favor of petitioner. Said decision, as well as the order of default, were
subsequently set aside by the trial court upon the filing of a motion for reconsideration by the respondent bank. 12

In its Order dated November 19, 1990, the trial court granted the motion for intervention filed by respondents Phillip and Thelma Rodriguez, Catherine Zuñiga, Reynold Zuñiga and Jeannette Zuñiga. Said intervenors asserted their
status as innocent purchasers for value who had no notice or knowledge of the claim or interest of petitioner when they bought the properties already registered in the name of respondent bank. Aside from a counterclaim for damages
against the petitioner, intervenors also prayed that in the event respondent bank is ordered to reconvey the properties, respondent bank should be adjudged liable to the intervenors and return all amounts paid to it.13

On July 8, 1991, petitioner amended his complaint to include as alternative relief under the prayer for reconveyance the payment by respondent bank of the prevailing market value of the subject properties "less whatever remaining
obligation due the bank by reason of the mortgage under the terms of the compromise agreement.14

On June 15, 1999, the trial court rendered its Decision, the dispositive portion of which reads:

WHEREFORE, findings [sic] the facts aver[r]ed in the complaint supported by preponderance of evidences adduced, judgment is hereby rendered in favor of the plaintiff and against the defendant and intervenors by:
1. Declaring the two Deeds of Sale executed by the defendant in favor of the intervenors as null and void and the Register of Deeds in Calamba, Laguna is ordered to cancel and/or annul the two Transfer Certificate of Titles No. T-
154658 and TCT No. T-111058 issued to the intervenors.

2. Ordering the defendant to refund the amount of ₱1,004,250.00 to the intervenors as the consideration of the sale of the two properties.

3. Ordering the defendant to execute the appropriate Deed of Reconveyance of the two (2) properties in favor of the plaintiff after the plaintiff pays in full the amount of ₱600,000.00 as balance of the repurchase price.

4. Ordering the defendant bank to pay plaintiff the sum of ₱50,000.00 as attorney's fees.

5. Dismissing the counterclaim of the defendant and intervenors against the plaintiff.

Costs against the defendant.

SO ORDERED.15

The trial court found that respondent bank deliberately disregarded petitioner's substantial payments on the total repurchase consideration. Reference was made to the letter dated March 22, 1984 (Exhibit "I")16 as the authority for
petitioner in making the installment payments directly to the Universal Properties, Inc. (UPI), respondent bank's collecting agent. Said court concluded that the compromise agreement amounts to a valid contract of sale between
petitioner, as Buyer, and respondent bank, as Seller. Hence, in entertaining other buyers for the same properties already sold to petitioner with intention to increase its revenues, respondent bank acted in bad faith and is thus liable for
damages to the petitioner. Intervenors were likewise found liable for damages as they failed to exercise due diligence before buying the subject properties.

Respondent bank appealed to the CA which reversed the trial court's ruling, as follows:

WHEREFORE, the foregoing premises considered, the instant appeal is hereby GRANTED. Accordingly, the assailed decision is hereby REVERSED and SET ASIDE.

SO ORDERED.17

The CA held that by modifying the terms of the offer contained in the March 22, 1984 letter of respondent bank, petitioner effectively rejected the original offer with his counter-offer. There was also no written conformity by respondent
bank's officers to the amended conditions for repurchase which were unilaterally inserted by petitioner. Consequently, no contract of repurchase was perfected and respondent bank acted well within its rights when it sold the subject
properties to herein respondents-intervenors.

As to the receipts presented by petitioner allegedly proving the installment payments he had completed, the CA said that these were not payments of the repurchase price but were actually remittances of the payments made by
petitioner's buyers for the purchase of the foreclosed properties already titled in the name of respondent bank. It was noted that two of these receipts (Exhibits "K" and "K-1")18 were issued to Fermin Salvador and Rizalina Pedrosa, the
vendees of two subdivided lots under separate Deeds of Absolute Sale executed in their favor by the respondent bank. In view of the attendant circumstances, the CA concluded that petitioner acted merely as a broker or middleman
in the sales transactions involving the foreclosed properties. Lastly, the respondents-intervenors were found to be purchasers who bought the properties in good faith without notice of petitioner's interest or claim. Nonetheless, since
there was no repurchase contract perfected, the sale of the subject properties to respondents-intervenors remains valid and binding, and the issue of whether the latter were innocent purchasers for value would be of no consequence.

Petitioner's motion for reconsideration was likewise denied by the appellate court.

Hence, this petition alleging that:

A.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE TRIAL COURT THAT THERE WAS A PERFECTED CONTRACT TO REPURCHASE BETWEEN
PETITIONER AND RESPONDENT-BANK.

B.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE TRIAL COURT THAT PETITIONER DID NOT ACT AS BROKER IN THE SALE OF THE
FORECLOSED PROPERTIES AND THUS FAILED TO CONSIDER THE EXISTENCE OF OFFICIAL RECEIPTS ISSUED IN THE NAME OF THE PETITIONER THAT ARE DULY NOTED FOR HIS ACCOUNT.

C.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE TRIAL COURT THAT RESPONDENT-BANK DID NOT HAVE THE RIGHT TO DISPOSE THE
SUBJECT PROPERTIES.

D.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE TRIAL COURT THAT RESPONDENTS-INTERVENORS ARE NOT INNOCENT PURCHASERS
FOR VALUE IN GOOD FAITH.19

It is to be noted that the above issues raised by petitioner alleged grave abuse of discretion committed by the CA, which is proper in a petition for certiorari under Rule 65 of the 1997 Rules of Civil Procedure, as amended, but not in the
present petition for review on certiorari under Rule 45.

The core issue for resolution is whether a contract for the repurchase of the foreclosed properties was perfected between petitioner and respondent bank.

The Court sustains the decision of the CA.

Contracts are perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.20 The requisite acceptance of the offer is expressed in
Article 1319 of the Civil Code which states:

ART. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance
constitutes a counter-offer.

In Palattao v. Court of Appeals,21 this Court held that if the acceptance of the offer was not absolute, such acceptance is insufficient to generate consent that would perfect a contract. Thus:
Contracts that are consensual in nature, like a contract of sale, are perfected upon mere meeting of the minds. Once there is concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of
payment, a contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without
variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently, when something is desired which is not exactly what
is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuls the offer.22

The acceptance must be identical in all respects with that of the offer so as to produce consent or meeting of the minds.23 Where a party sets a different purchase price than the amount of the offer, such acceptance was qualified which
can be at most considered as a counter-offer; a perfected contract would have arisen only if the other party had accepted this counter-offer.24 In Villanueva v. Philippine National Bank 25 this Court further elucidated on the meaning of
unqualified acceptance, as follows:

…While it is impossible to expect the acceptance to echo every nuance of the offer, it is imperative that it assents to those points in the offer which, under the operative facts of each contract, are not only material but motivating as well.
Anything short of that level of mutuality produces not a contract but a mere counter-offer awaiting acceptance. More particularly on the matter of the consideration of the contract, the offer and its acceptance must be unanimous both
on the rate of the payment and on its term. An acceptance of an offer which agrees to the rate but varies the term is ineffective.26 (Emphasis supplied)

Petitioner submitted as evidence of a perfected contract of repurchase the March 22, 1984 letter (Exhibit "I")27 from Rita B. Manuel, then President of UPI, a corporation formed by respondent bank to dispose of its acquired assets, with
notations handwritten by petitioner himself. Said letter reads:

March 22, 1984

Honorable Judge Fausto Ignacio

412 Bagumbayan Street, Pateros
Metro Manila

Dear Judge Ignacio:

Your proposal to repurchase your foreclosed properties located at Cabuyao, Laguna consisting of a total area of 203,413 square meters has been favorably considered subject to the following terms and conditions:

1) Total Selling Price shall be ₱950,000.00

2) Downpayment of ₱150,00000 with the balance

Payable in Three (3) equal installments
as follows:

1st Installment - P 266,667 - on or before May 31, '84

2nd Installment - P 266,667 - on or before Sept. 31, '84

3rd Installment - P 266,666 - on or before Jan. 30, '85

TOTAL - P 800,000.00

3) All expenses pertinent to the subdivision of the parcel of land consisting of 120,110 square meters shall be for your account.

Thank you,

Very truly yours,

RITA B. MANUEL
President

According to petitioner, he wrote the notations in the presence of a certain Mr. Lazaro, the representative of Mrs. Manuel (President), and a certain Mr. Fajardo, which notations supposedly represent their "compromise
agreement."28 These notations indicate that the repurchase price would be ₱900,000.00 which shall be paid as follows: ₱150,000 - end of May '84; ₱150,000 - end of June '84; Balance - "Depending on financial position". Petitioner
further alleged the following conditions of the verbal agreement: (1) respondent bank shall release the equivalent land area for payments made by petitioner who shall shoulder the expenses for subdivision of the land; (2) in case any
portion of the subdivided land is sold by petitioner, a separate document of sale would be executed directly to the buyer; (3) the remaining portion of the properties shall not be subject of respondent bank's transaction without the consent
and authority of petitioner; (4) the petitioner shall continue in possession of the properties and whatever portion still remaining, and attending to the needs of its tenants; and (5) payments shall be made directly to UPI.29

The foregoing clearly shows that petitioner's acceptance of the respondent bank's terms and conditions for the repurchase of the foreclosed properties was not absolute. Petitioner set a different repurchase price and also modified the
terms of payment, which even contained a unilateral condition for payment of the balance (₱600,000), that is, depending on petitioner's "financial position." The CA thus considered the qualified acceptance by petitioner as a counter-
proposal which must be accepted by respondent bank. However, there was no evidence of any document or writing showing the conformity of respondent bank's officers to this counter-proposal.

Petitioner contends that the receipts issued by UPI on his installment payments are concrete proof -- despite denials to the contrary by respondent bank -- that there was an implied acceptance of his counter-proposal and that he did
not merely act as a broker for the sale of the subdivided portions of the foreclosed properties to third parties. Since all these receipts, except for two receipts issued in the name of Fermin Salvador and Rizalina Pedrosa, were issued in
the name of petitioner instead of the buyers themselves, petitioner emphasizes that the payments were made for his account. Moreover, petitioner asserts that the execution of the separate deeds of sale directly to the buyers was in
pursuance of the perfected repurchase agreement with respondent bank, such an arrangement being "an accepted practice to save on taxes and shortcut paper works."

The Court is unconvinced.

In Adelfa Properties, Inc. v. CA,30 the Court ruled that:

x x x The rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may be made
either in a formal or an informal manner, and may be shown by acts, conduct, or words of the accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown
by the acts, conduct, or words of a party recognizing the existence of the contract of sale.31
Even assuming that the bank officer or employee whom petitioner claimed he had talked to regarding the March 22, 1984 letter had acceded to his own modified terms for the repurchase, their supposed verbal exchange did not bind
respondent bank in view of its corporate nature. There was no evidence that said Mr. Lazaro or Mr. Fajardo was authorized by respondent bank's Board of Directors to accept petitioner's counter-proposal to repurchase the foreclosed
properties at the price and terms other than those communicated in the March 22, 1984 letter. As this Court ruled in AF Realty & Development, Inc. v. Dieselman Freight Services, Co.32

Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. Just as a natural person may authorize another to do certain acts in his behalf, so may
the board of directors of a corporation validly

delegate some of its functions to individual officers or agents appointed by it.1âwphi1 Thus, contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board. Absent
such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are
held not binding on the corporation.33

Thus, a corporation can only execute its powers and transact its business through its Board of Directors and through its officers and agents when authorized by a board resolution or its by-laws.34

In the absence of conformity or acceptance by properly authorized bank officers of petitioner's counter-proposal, no perfected repurchase contract was born out of the talks or negotiations between petitioner and Mr. Lazaro and Mr.
Fajardo. Petitioner therefore had no legal right to compel respondent bank to accept the ₱600,000 being tendered by him as payment for the supposed balance of repurchase price.

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely an offer by one party without acceptance of the other, there is no contract.35 When the contract of sale is not perfected,
it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties.36

In sum, we find the ruling of the CA more in accord with the established facts and applicable law and jurisprudence. Petitioner's claim of utmost accommodation by respondent bank of his own terms for the repurchase of his foreclosed
properties are simply contrary to normal business practice. As aptly observed by the appellate court:

The submission of the plaintiff-appellee is unimpressive.

First, if the counter-proposal was mutually agreed upon by both the plaintiff-appellee and defendant-appellant, how come not a single signature of the representative of the defendant-appellant was affixed thereto. Second, it is
inconceivable that an agreement of such great importance, involving two personalities who are both aware and familiar of the practical and legal necessity of reducing agreements into writing, the plaintiff-appellee, being a lawyer and
the defendant-appellant, a banking institution, not to formalize their repurchase agreement. Third, it is quite absurd and unusual that the defendant-appellant could have acceded to the condition that the balance of the payment of the
repurchase price would depend upon the financial position of the plaintiff-appellee. Such open[-]ended and indefinite period for payment is hardly acceptable to a banking institution like the defendant-appellant whose core existence
fundamentally depends upon its financial arrangements and transactions which, most, if not all the times are intended to bear favorable outcome to its business. Last, had there been a repurchase agreement, then, there should have
been titles or deeds of conveyance issued in favor of the plaintiff-appellee. But as it turned out, the plaintiff-appellee never had any land deeded or titled in his name as a result of the alleged repurchase agreement. All these, reinforce
the conclusion that the counter-proposal was unilaterally made and inserted by the plaintiff-appellee in Exhibit "I" and could not have been accepted by the defendant-appellant, and that a different agreement other than a repurchase
agreement was perfected between them.37

Petitioner Fausto C. Ignacio passed away on November 11, 2008 and was substituted by his heirs, namely: Marfel D. Ignacio-Manalo, Milfa D. Ignacio-Manalo and Faustino D. Ignacio.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated July 18, 2006 and Resolution dated May 2, 2007 of the Court of Appeals in CA-G.R. CV No. 73551 are hereby AFFIRMED.

With costs against the petitioners.

SO ORDERED.