Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 77648 August 7, 1989

CETUS DEVELOPMENT, INC., petitioner,

vs.
COURT OF APPEALS and ONG TENG, respondents.

G.R. No. 77647 August 7, 1989

CETUS DEVELOPMENT, INC., petitioner,

vs.
COURT OF APPEALS and EDERLINA NAVALTA, respondents.

G.R. No. 77649 August 7, 1989

CETUS DEVELOPMENT, INC., petitioner,

vs.
COURT OF APPEALS and JOSE LIWANAG, respondents.

G.R. No. 77650 August 7, 1989

CETUS DEVELOPMENT, INC., petitioner,

vs.
COURT OF APPEALS and LEANDRO CANLAS, respondents.

G.R. No. 77651 August 7, 1989

CETUS DEVELOPMENT, INC., petitioner,

vs.
COURT OF APPEALS and VICTORIA SUDARIO respondents.

G.R. No.77652 August 7, 1989

CETUS DEVELOPMENT, INC., petitioner,

vs.
COURT OF APPEALS and FLORA NAGBUYA respondents.
MEDIALDEA, J.:

This is a petition for review on certiorari of the decision dated January 30, 1987
of the Court of Appeals in CA-GR Nos. SP-07945-50 entitled, "Cetus
Development, Inc., Petitioner vs. Hon. Conrado T. Limcaoco, Presiding Judge,
Regional Trial Court of Manila, Branch Ederlina Navalta, et. al., respondents.

The following facts appear in the records:

The private respondents, Ederlina Navalta, Ong Teng, Jose Liwanag, Leandro
Canlas, Victoria Sudario, and Flora Nagbuya were the lessees of the premises
located at No. 512 Quezon Boulevard, Quiapo, Manila, originally owned by the
Susana Realty. These individual verbal leases were on a month-to month basis at
the following rates: Ederlina Navalta at the rate of P80.50; Ong Teng at the rate
of P96.10; Jose Liwanag at the rate of P40.35; Leandro Canlas at the rate of
P80.55; Victoria Sudario at the rate of P50.45 and Flora Nagbuya at the rate of
P80.55. The payments of the rentals were paid by the lessees to a collector of the
Susana Realty who went to the premises monthly.

Sometime in March, 1984, the Susana Realty sold the leased premises to the
petitioner, Cetus Development, Inc., a corporation duly organized and existing
under the laws of the Philippines. From April to June, 1984, the private
respondents continued to pay their monthly rentals to a collector sent by the
petitioner. In the succeeding months of July, August and September 1984, the
respondents failed to pay their monthly individual rentals as no collector came.

On October 9, 1984, the petitioner sent a letter to each of the private respondents
demanding that they vacate the subject premises and to pay the back rentals for
the months of July, August and September, 1984, within fifteen (15) days from
the receipt thereof. Immediately upon the receipt of the said demand letters on
October 10, 1984, the private respondents paid their respective arrearages in rent
which were accepted by the petitioner subject to the unilateral condition that the
acceptance was without prejudice to the filing of an ejectment suit. Subsequent
monthly rental payments were likewise accepted by the petitioner under the
same condition.

For failure of the private respondents to vacate the premises as demanded in the
letter dated October 9, 1984, the petitioner filed with the Metropolitan Trial
Court of Manila complaints for ejectment against the manner, as follows: (1)
105972-CV, against Ederlina Navalta (2) 105973-CV, against Jose Liwanag; (3)
105974-CV, against Flora Nagbuya; (4) 105975-CV, against Leandro Canlas;
(5) 105976-CV, against Victoria Sudario and (6) 105977-CV, against Ong Teng.

In their respective answers, the six (6) private respondents interposed a common
defense. They claimed that since the occupancy of the premises they paid their
monthly rental regularly through a collector of the lessor; that their non-payment
of the rentals for the months of July, August and September, 1984, was due to
the failure of the petitioner (as the new owner) to send its collector; that they
were at a loss as to where they should pay their rentals; that sometime later, one
of the respondents called the office of the petitioner to inquire as to where they
would make such payments and he was told that a collector would be sent to
receive the same; that no collector was ever sent by the petitioner; and that
instead they received a uniform demand letter dated October 9, 1984.

The private respondents, thru counsel, later filed a motion for consolidation of
the six cases and as a result thereof, the said cases were consolidated in the
Metropolitan Trial Court of Manila, Branch XII, presided over by Judge
Eduardo S. Quintos, Jr. On June 4, 1985, the trial court rendered its decision
dismissing the six cases, a pertinent portion of which reads, as follows:

The records of this case show that at the time of the filing of this
complaint, the rentals had all been paid. Hence, the plaintiff cannot
eject the defendants from the leased premises, because at the time
these cases were instituted, there are no rentals in arrears.

The acceptance of the back rental by the plaintiff before the filing of
the complaint, as in these case, the alleged rental arrearages were
paid immediately after receipt of the demand letter, removes its cause
of action in an unlawful detainer case, even if the acceptance was
without prejudice.

x x x.

Furthermore, the court has observed that the account involved which
constitutes the rentals of the tenants are relatively small to which the
ejectment may not lie on grounds of equity and for humanitarian
reasons.
 Defendants' counterclaim for litigation expenses has no legal and
factual basis for assessing the same against plaintiff.

WHEREFORE, judgment is hereby rendered dismissing these cases,

without pronouncement as to costs.

Defendants' counterclaim is likewise dismissed.

SO ORDERED. (pp. 32-33, Rollo, G.R. No. 77647)

Not satisfied with the decision of the Metropolitan Trial Court, the petitioner
appealed to the Regional Trial Court of Manila and the same was assigned to
Branch IX thereof presided over by Judge Conrado T. Limcaoco (now Associate
Justice of the Court of Appeals).lâwphî1.ñèt In its decision dated November 19,
1985, the Regional Trial Court dismissed the appeal for lack of merit.

In due time, a petition for review of the decision of the Regional Trial Court was
filed by the petitioner with the Court of Appeals. Said petition was dismissed on
January 30, 1987, for lack of merit.

Aggrieved by the decision of the Court of Appeals, petitioner now comes to Us

in this petition, assigning the following errors:

ASSIGNMENT OF ERRORS

RESPONDENT COURT OF APPEALS COMMITTED A GRAVE

ABUSE OF DISCRETION, AMOUNTING TO LACK OF
JURISDICTION, WHEN IT ERRED IN HOLDING THAT THE
CAUSE OF ACTION FOR UNLAWFUL DETAINER IN THESE
CASES DID NOT EXIST WHEN THE COMPLAINTS WERE
FILED BECAUSE PRIVATE RESPONDENTS TENDERED, AND
PETITIONER ACCEPTED, THE PAYMENT OF THE THREE (3)
MONTHS RENTAL IN ARREARS WITHIN THE FIFTEEN (15)
DAY PERIOD FROM PRIVATE RESPONDENTS' RECEIPT OF
PETITIONER'S DEMAND LETTERS TO VACATE THE
SUBJECT PREMISES AND TO PAY THE RENTALS IN
ARREARS.

II
 RESPONDENT COURT OF APPEALS COMMITTED A
GRAVEABUSE OF DISCRETION, AMOUNTING TO LACK OF
JURISDICTION COMMITTED A GRAVE WHEN IT ERRED IN
AFFIRMING THE DISMISSAL OF THE COMPLAINTS IN
THESE CASES NOTWITHSTANDING THE EXISTENCE OF
VALID GROUNDS FOR THE JUDICIAL EJECTMENT OF
PRIVATE RESPONDENT.

III

RESPONDENT COURT OF APPEALS COMMITTED A GRAVE

ABUSE OF DISCRETION, AMOUNTING TO LACK OF
JURISDICTION, WHEN IT ERRED IN HOLDING THAT THESE
CASES ARE CLASSIC EXAMPLES TO CIRCUMVENT THE
RENT CONTROL LAW. (pp. 164-165, Rollo, G.R. No. 77647)

The Court of Appeals defined the basic issue in this case as follows: whether or
not there exists a cause of action when the complaints for unlawful detainer were
filed considering the fact that upon demand by petitioner from private
respondents for payment of their back rentals, the latter immediately tendered
payment which was accepted by petitioner.

In holding that there was no cause of action, the respondent Court relied on
Section 2, Rule 70 of the Rules of Court, which provides:

Sec. 2. Landlord to proceed against tenant only after demand. — No

landlord or his legal representative or assign, shall be such action
against a tenant for failure to pay rent due or to comply with the
conditions of his lease, unless the tenant shall have failed to pay such
rent or comply with such conditions for a period of fifteen (15) days
or five (5) days in case of building, after demand therefor, made upon
qqqm personally, or by serving written notice of such demand upon
the person found on the premises, or by posting such notice on the
premises if no persons be found thereon.

It interpreted the said provision as follows:

.....the right to bring an action of ejectment or unlawful detainer must

be counted from the time the defendants failed to pay rent after the
demand therefor. It is not the failure per se to pay rent as agreed in
 the contract, but the failure to pay the rent after a demand therefor is
made, that entitles the lessor to bring an action for unlawful detainer.
In other words, the demand contemplated by the above-quoted
provision is not a demand to vacate, but a demand made by the
landlord upon his tenant for the latter to pay the rent due if the tenant
fails to comply with the said demand with the period provided, his
possession becomes unlawful and the landlord may then bring the
action for ejectment. (p. 28, , G.R. No. 77647)

We hold that the demand required and contemplated in Section 2, aforequoted, is

a jurisdictional requirement for the purpose of bringing an unlawful detainer suit
for failure to pay rent or comply with the conditions of lease. It partakes of an
extrajudicial remedy that must be pursued before resorting for judicial action so
much so that when there is full compliance with the demand, there arises no
necessity for court action.

As to whether this demand is merely a demand to pay rent or comply with the
conditions of the lease or also a demand to vacate, the answer can be gleaned
from said Section 2. This section presupposes the existence of a cause of action
for unlawful detainer as it speaks of "failure to pay rent due or comply with the
conditions of the lease." The existence of said cause of action gives the lessor
the right under Article 1659 of the New Civil Code to ask for the rescission of
the contract of lease and indemnification for damages, or only the latter,
allowing the contract to remain in force. Accordingly, if the option chosen is for
specific performance, then the demand referred to is obviously to pay rent or to
comply with the conditions of the lease violated. However, if rescission is the
option chosen, the demand must be for the lessee to pay rents or to comply with
the conditions of the lease and to vacate. Accordingly, the rule that has been
followed in our jurisprudence where rescission is clearly the option taken, is that
both demands to pay rent and to vacate are necessary to make a lessee a
deforciant in order that an ejectment suit may be filed (Casilan et al. vs.
Tomassi, L-16574, February 28,1964, 10 SCRA 261; Rickards vs. Gonzales,
109 Phil. 423, Dikit vs. Icasiano, 89 Phil. 44).lâwphî1.ñèt

Thus, for the purpose of bringing an ejectment suit, two requisites must concur,
namely: (1) there must be failure to pay rent or comply with the conditions of
the lease and (2) there must be demand both to pay or to comply and vacate
within the periods specified in Section 2, Rule 70, namely 15 days in case of
lands and 5 days in case of buildings. The first requisite refers to the existence of
the cause of action for unlawful detainer while the second refers to the
jurisdictional requirement of demand in order that said cause of action may be
pursued.

It is very clear that in the case at bar, no cause of action for ejectment has
accrued. There was no failure yet on the part of private respondents to pay rents
for three consecutive months. As the terms of the individual verbal leases which
were on a month-to-month basis were not alleged and proved, the general rule
on necessity of demand applies, to wit: there is default in the fulfillment of an
obligation when the creditor demands payment at the maturity of the obligation
or at anytime thereafter. This is explicit in Article 1169, New Civil Code which
provides that "(t)hose obliged to deliver or to do something incur in delay from
the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation." Petitioner has not shown that its case falls on any
of the following exceptions where demand is not required: (a) when the
obligation or the law so declares; (b) when from the nature and circumstances of
the obligation it can be inferred that time is of the essence of the contract; and
(c) when demand would be useless, as when the obligor has rendered it beyond
his power to perform.

The demand required in Article 1169 of the Civil Code may be in any form,
provided that it can be proved. The proof of this demand lies upon the creditor.
Without such demand, oral or written, the effects of default do not arise. This
demand is different from the demand required under Section 2, Rule 70, which
is merely a jurisdictional requirement before an existing cause of action may be
pursued.

The facts on record fail to show proof that petitioner demanded the payment of
the rentals when the obligation matured. Coupled with the fact that no collector
was sent as previously done in the past, the private respondents cannot be held
guilty of mora solvendi or delay in the payment of rentals. Thus, when petitioner
first demanded the payment of the 3-month arrearages and private respondents
lost no time in making tender and payment, which petitioner accepted, no cause
of action for ejectment accrued. Hence, its demand to vacate was premature as it
was an exercise of a non-existing right to rescind.

In contradistinction, where the right of rescission exists, payment of the

arrearages in rental after the demand to pay and to vacate under Section 2, Rule
70 does not extinguish the cause of action for ejectment as the lessor is not only
entitled to recover the unpaid rents but also to eject the lessee.
Petitioner correctly argues that acceptance of tendered payment does not
constitute a waiver of the cause of action for ejectment especially when accepted
with the written condition that it was "without prejudice to the filing of an
ejectment suit". Indeed, it is illogical or ridiculous not to accept the tender of
payment of rentals merely to preserve the right to file an action for unlawful
detainer. However, this line of argument presupposes that a cause of action for
ejectment has already accrued, which is not true in the instant case.

Petitioner likewise claims that its failure to send a collector to collect the rentals
cannot be considered a valid defense for the reason that sending a collector is not
one of the obligations of the lessor under Article 1654. While it is true that a
lessor is not obligated to send a collector, it has been duly established that it has
been customary for private respondents to pay the rentals through a collector.
Besides Article 1257, New Civil Code provides that where no agreement has
been designated for the payment of the rentals, the place of payment is at the
domicile of the defendants. Hence, it could not be said that they were in default
in the payment of their rentals as the delay in paying the same was not imputable
to them. Rather, it was attributable to petitioner's omission or neglect to collect.

Petitioner also argues that neither is its refused to accept the rentals a defense for
non-payment as Article 1256 provides that "[i]f the creditor to whom the tender
of payment has been made refuses without just cause to accept it, the debtor
shall be released from responsibility by the consignation of the thing due." It
bears emphasis that in this case there was no unjustified refusal on the part of
petitioner or non-acceptance without reason that would constitute mora
accipiendi and warrant consignation. There was simply lack of demand for
payment of the rentals.

In sum, We hold that respondent Court of Appeals did not commit grave abuse
of discretion amounting to lack of jurisdiction in its conclusion affirming the
trial court's decision dismissing petitioner's complaint for lack of cause of action.
We do not agree, however, with the reasons relied upon.

ACCORDINGLY, the petition for review on certiorari is hereby DENIED for

lack of merit and the decision dated January 30, 1987 of respondent Court of
Appeals is hereby AFFIRMED. SO ORDERED.
Narvasa, Cruz, Gancayco and Griñ;o-Aquino JJ., concur.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION
GENERAL MILLING CORPORATION,
Petitioner, - versus - SPS. LIBRADO RAMOS and REMEDIOS RAMOS, Respondents.
DECISION
VELASCO, JR., J.:

The Case
This is a petition for review of the April 15, 2010 Decision of the Court of
Appeals (CA) in CA-G.R. CR-H.C. No. 85400 entitled Spouses Librado Ramos &
Remedios Ramos v. General Milling Corporation, et al., which affirmed the May
31, 2005 Decision of the Regional Trial Court (RTC), Branch 12 in Lipa City, in
Civil Case No. 00-0129 for Annulment and/or Declaration of Nullity of
Extrajudicial Foreclosure Sale with Damages.
The Facts
On August 24, 1989, General Milling Corporation (GMC) entered into a Growers
Contract with spouses Librado and Remedios Ramos (Spouses Ramos). Under
the contract, GMC was to supply broiler chickens for the spouses to raise on
their land in BarangayBanaybanay, Lipa City, Batangas.[1] To guarantee full
compliance, the Growers Contract was accompanied by a Deed of Real Estate
Mortgage over a piece of real property upon which their conjugal home was
built. The spouses further agreed to put up a surety bond at the rate of PhP
20,000 per 1,000 chicks delivered by GMC. The Deed of Real Estate Mortgage
extended to Spouses Ramos a maximum credit line of PhP 215,000 payable
within an indefinite period with an interest of twelve percent (12%) per
annum.[2]
The Deed of Real Estate Mortgage contained the following provision:
WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the
full and faithful compliance of [MORTGAGORS] obligation/s with the
MORTGAGEE by a First Real Estate Mortgage in favor of the MORTGAGEE, over
a 1 parcel of land and the improvements existing thereon, situated in the
Barrio/s of Banaybanay, Municipality of Lipa City, Province of Batangas,
Philippines, his/her/their title/s thereto being evidenced by Transfer
Certificate/s No./s T-9214 of the Registry of Deeds for the Province of Batangas
in the amount of TWO HUNDRED FIFTEEN THOUSAND (P 215,000.00),
Philippine Currency, which the maximum credit line payable within a x x x day
term and to secure the payment of the same plus interest of twelve percent
(12%) per annum.
Spouses Ramos eventually were unable to settle their account with GMC. They
alleged that they suffered business losses because of the negligence of GMC
and its violation of the Growers Contract.[3]
On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMC
would institute foreclosure proceedings on their mortgaged property.[4]
On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage.
On June 10, 1997, the property subject of the foreclosure was subsequently
sold by public auction to GMC after the required posting and publication. [5] It
was foreclosed for PhP 935,882,075, an amount representing the losses on
chicks and feeds exclusive of interest at 12% per annum and attorneys
fees.[6] To complicate matters, on October 27, 1997, GMC informed the spouses
that its Agribusiness Division had closed its business and poultry operations. [7]
On March 3, 2000, Spouses Ramos filed a Complaint for Annulment and/or
Declaration of Nullity of the Extrajudicial Foreclosure Sale with Damages. They
contended that the extrajudicial foreclosure sale on June 10, 1997 was null and
void, since there was no compliance with the requirements of posting and
publication of notices under Act No. 3135, as amended, or An Act to Regulate
the Sale of Property under Special Powers Inserted in or Annexed to Real Estate
Mortgages. They likewise claimed that there was no sheriffs affidavit to prove
compliance with the requirements on posting and publication of notices. It was
further alleged that the Deed of Real Estate Mortgage had no fixed term. A
prayer for moral and exemplary damages and attorneys fees was also included
in the complaint.[8] Librado Ramos alleged that, when the property was
foreclosed, GMC did not notify him at all of the foreclosure.[9]
During the trial, the parties agreed to limit the issues to the following: (1) the
validity of the Deed of Real Estate Mortgage; (2) the validity of the extrajudicial
foreclosure; and (3) the party liable for damages.[10]
In its Answer, GMC argued that it repeatedly reminded Spouses Ramos of their
liabilities under the Growers Contract. It argued that it was compelled to
foreclose the mortgage because of Spouses Ramos failure to pay their
obligation. GMC insisted that it had observed all the requirements of posting
and publication of notices under Act No. 3135.[11]
The Ruling of the Trial Court
Holding in favor of Spouses Ramos, the trial court ruled that the Deed of Real
Estate Mortgage was valid even if its term was not fixed. Since the duration of
the term was made to depend exclusively upon the will of the debtors-spouses,
the trial court cited jurisprudence and said that the obligation is not due and
payable until an action is commenced by the mortgagee against the mortgagor
for the purpose of having the court fix the date on and after which the
instrument is payable and the date of maturity is fixed in pursuance thereto.[12]
The trial court held that the action of GMC in moving for the foreclosure of the
spouses properties was premature, because the latters obligation under their
contract was not yet due.
The trial court awarded attorneys fees because of the premature action taken
by GMC in filing extrajudicial foreclosure proceedings before the obligation of
the spouses became due.
The RTC ruled, thus:
WHEREFORE, premises considered, judgment is rendered as follows:
1. The Extra-Judicial Foreclosure Proceedings under docket no. 0107-97 is
hereby declared null and void;
2. The Deed of Real Estate Mortgage is hereby declared valid and legal for all
intents and puposes;

3. Defendant-corporation General Milling Corporation is ordered to pay

Spouses Librado and Remedios Ramos attorneys fees in the total amount of P
57,000.00 representing acceptance fee of P30,000.00 and P3,000.00
appearance fee for nine (9) trial dates or a total appearance fee of P 27,000.00;

4. The claims for moral and exemplary damages are denied for lack of merit.
IT IS SO ORDERED.[13]
The Ruling of the Appellate Court
On appeal, GMC argued that the trial court erred in: (1) declaring the
extrajudicial foreclosure proceedings null and void; (2) ordering GMC to pay
Spouses Ramos attorneys fees; and (3) not awarding damages in favor of GMC.
The CA sustained the decision of the trial court but anchored its ruling on a
different ground. Contrary to the findings of the trial court, the CA ruled that
the requirements of posting and publication of notices under Act No. 3135
were complied with. The CA, however, still found that GMCs action against
Spouses Ramos was premature, as they were not in default when the action
was filed on May 7, 1997.[14]
The CA ruled:
In this case, a careful scrutiny of the evidence on record shows that defendant-
appellant GMC made no demand to spouses Ramos for the full payment of
their obligation. While it was alleged in the Answer as well as in the Affidavit
constituting the direct testimony of Joseph Dominise, the principal witness of
defendant-appellant GMC, that demands were sent to spouses Ramos, the
documentary evidence proves otherwise. A perusal of the letters presented
and offered as evidence by defendant-appellant GMC did not demand but only
request spouses Ramos to go to the office of GMC to discuss the settlement of
their account.[15]
According to the CA, however, the RTC erroneously awarded attorneys fees to
Spouses Ramos, since the presumption of good faith on the part of GMC was
not overturned.
The CA disposed of the case as follows:
WHEREFORE, and in view of the foregoing considerations, the Decision of
the Regional Trial Court of Lipa City, Branch 12, dated May 21, 2005 is hereby
AFFIRMED with MODIFICATION by deleting the award of attorneys fees to
plaintiffs-appellees spouses Librado Ramos and Remedios Ramos.[16]
Hence, We have this appeal.
The Issues
A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT ALLEGED AND DISCUSSED
IN THE LOWER COURT AND LIKEWISE NOT RAISED BY THE PARTIES ON APPEAL,
THEREFORE HAD DECIDED THE CASE NOT IN ACCORD WITH LAW AND
APPLICABLE DECISIONS OF THE SUPREME COURT.
B. WHETHER [THE CA] ERRED IN RULING THAT PETITIONER GMC MADE NO
DEMAND TO RESPONDENT SPOUSES FOR THE FULL PAYMENT OF THEIR
OBLIGATION CONSIDERING THAT THE LETTER DATED MARCH 31, 1997 OF
PETITIONER GMC TO RESPONDENT SPOUSES IS TANTAMOUNT TO A FINAL
DEMAND TO PAY, THEREFORE IT DEPARTED FROM THE ACCEPTED AND USUAL
COURSE OF JUDICIAL PROCEEDINGS.[17]
The Ruling of this Court
Can the CA consider matters not alleged?
GMC asserts that since the issue on the existence of the demand letter was not
raised in the trial court, the CA, by considering such issue, violated the basic
requirements of fair play, justice, and due process.[18]
In their Comment,[19] respondents-spouses aver that the CA has ample
authority to rule on matters not assigned as errors on appeal if these are
indispensable or necessary to the just resolution of the pleaded issues.
In Diamonon v. Department of Labor and Employment,[20] We explained that an
appellate court has a broad discretionary power in waiving the lack of
assignment of errors in the following instances:
(a) Grounds not assigned as errors but affecting the jurisdiction of the court
over the subject matter;
(b) Matters not assigned as errors on appeal but are evidently plain or clerical
errors within contemplation of law;
(c) Matters not assigned as errors on appeal but consideration of which is
necessary in arriving at a just decision and complete resolution of the case or to
serve the interests of a justice or to avoid dispensing piecemeal justice;
(d) Matters not specifically assigned as errors on appeal but raised in the trial
court and are matters of record having some bearing on the issue submitted
which the parties failed to raise or which the lower court ignored;
(e) Matters not assigned as errors on appeal but closely related to an error
assigned;
(f) Matters not assigned as errors on appeal but upon which the determination
of a question properly assigned, is dependent.
Paragraph (c) above applies to the instant case, for there would be a just and
complete resolution of the appeal if there is a ruling on whether the Spouses
Ramos were actually in default of their obligation to GMC.
Was there sufficient demand?
We now go to the second issue raised by GMC. GMC asserts error on the part
of the CA in finding that no demand was made on Spouses Ramos to pay their
obligation. On the contrary, it claims that its March 31, 1997 letter is akin to a
demand.
We disagree.
There are three requisites necessary for a finding of default. First, the
obligation is demandable and liquidated; second, the debtor delays
performance; and third, the creditor judicially or extrajudicially requires the
debtors performance.[21]
According to the CA, GMC did not make a demand on Spouses Ramos but
merely requested them to go to GMCs office to discuss the settlement of their
account. In spite of the lack of demand made on the spouses, however, GMC
proceeded with the foreclosure proceedings. Neither was there any provision
in the Deed of Real Estate Mortgage allowing GMC to extrajudicially foreclose
the mortgage without need of demand.
Indeed, Article 1169 of the Civil Code on delay requires the following:
Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfilment of their
obligation.
However, the demand by the creditor shall not be necessary in order that delay
may exist:
(1) When the obligation or the law expressly so declares; x x x
As the contract in the instant case carries no such provision on demand not
being necessary for delay to exist, We agree with the appellate court that GMC
should have first made a demand on the spouses before proceeding to
foreclose the real estate mortgage.
Development Bank of the Philippines v. Licuanan finds application to the instant
case:
The issue of whether demand was made before the foreclosure was effected is
essential. If demand was made and duly received by the respondents and the
latter still did not pay, then they were already in default and foreclosure was
proper. However, if demand was not made, then the loans had not yet become
due and demandable. This meant that respondents had not defaulted in their
payments and the foreclosure by petitioner was premature. Foreclosure is
valid only when the debtor is in default in the payment of his obligation.[22]
In turn, whether or not demand was made is a question of fact.[23] This petition
filed under Rule 45 of the Rules of Court shall raise only questions of law. For a
question to be one of law, it must not involve an examination of the probative
value of the evidence presented by the litigants or any of them. The resolution
of the issue must rest solely on what the law provides on the given set of
circumstances. Once it is clear that the issue invites a review of the evidence
presented, the question posed is one of fact.[24] It need not be reiterated that
this Court is not a trier of facts.[25] We will defer to the factual findings of the
trial court, because petitioner GMC has not shown any circumstances making
this case an exception to the rule.
WHEREFORE, the petition is DENIED. The CA Decision in CA-G.R. CR-H.C. No.
85400 is AFFIRMED.
SO ORDERED.
[G.R. No. 32336. December 20, 1930.]

JULIO C. ABELLA, Plaintiff-Appellant, v. GUILLERMO B. FRANCISCO, Defendant-Appellee.

Antonio T. Carrascoso jr., for Appellant.

Camus & Delgado for Mooney.

SYLLABUS
1. CONTRACT OF SALE; PERIOD FOR PAYMENT OF SELLING
PRICE; RESOLUTION OF CONTRACT. — Having agreed that the
selling price (even supposing it was a contract of sale) would be paid not
later than December, 1928, and in view of the fact that the vendor
executed said contract in order to pay off with the proceeds thereof
certain obligations which fell due in the same month of December, it is
held that the time fixed for the payment of the selling price was essential
in the transaction, and, therefore, the vendor, under article 1124 of the
Civil Code, is entitled to resolve the contract for failure to pay the price
within the time specified.
DECISION
AVANCEÑA, C.J. :
Defendant Guillermo B. Francisco purchased from the Government on
installments, lots 937 to 945 of the Tala Estate in Novaliches, Caloocan,
Rizal. He was in arrears for some of these installments. On the 31st of
October, 1928, he signed the following document:jgc:chanrobles.com.ph

"MANILA, October 31, 1928

"Received from Mr. Julio C. Abella the amount of five hundred pesos
(500), payment on account of lots Nos. 937, 938, 939, 940, 941, 942,
943, 944, and 945 of the Tala Estate, barrio of Novaliches, Caloocan,
Rizal, containing an area of about 221 hectares, at the rate of one
hundred pesos (P100) per hectare, the balance being due on or before
the fifteenth day of December, 1928, extendible fifteen days thereafter.
(Sgd.) G. B. FRANCISCO — P500 — Phone 67125."cralaw virtua1aw
library

After having made this agreement, the plaintiff proposed the sale of
these lots at a higher price to George C. Sellner, collecting P10,000 on
account thereof on December 29, 1928.

Besides the P500 which, according to the instrument quoted above, the
plaintiff paid, he made another payment of P415.31 on November 13,
1928, upon demand made by the defendant. On December 27th of the
same year, the defendant, being in the Province of Cebu, wrote to
Roman Mabanta of this City of Manila, attaching a power of attorney
authorizing him to sign in behalf of the defendant all the documents
required by the Bureau of Lands for the transfer of the lots to the plaintiff.
In that letter the defendant instructed Roman Mabanta, in the event that
the plaintiff failed to pay the remainder of the selling price, to inform him
that the option would be considered cancelled, and to return to him the
amount of P915.31 already delivered. On January 3, 1929, Mabanta
notified the plaintiff that he had received the power of attorney to sign the
deed of conveyance of the lots to him, and that he was willing go execute
the proper deed of sale upon payment of the balance due. The plaintiff
asked for a few days’ time, but Mabanta, following the instructions he
had received from the defendant, only gave him until the 5th of that
month. The plaintiff did not pay the rest of the price on the 5th of
January, but on the 9th of the month attempted to do so; Mabanta,
however, refused to accept it, and gave him to understand that he
regarded the contract as rescinded. On the same day, Mabanta returned
by check the sum of P915.31 which the plaintiff had paid.

The plaintiff brought this action to compel the defendant to execute the
deed of sale of the lots in question, upon receipt of the balance of the
price, and asks that he be judicially declared the owner of said lots and
that the defendant be ordered to deliver them to him.

The court below absolved the defendant from the complaint, and the
plaintiff appealed.

In rendering that judgment, the court relied on the fact that the plaintiff
had failed to pay the price of the lots within the stipulated time; and that
since the contract between plaintiff and defendant was an option for the
purchase of the lots, time was an essential element in it.

It is to be noted that in the document signed by the defendant, the 15th of

December was fixed as the date, extendible for fifteen days, for the
payment by the plaintiff of the balance of the selling price. It has been
admitted that the plaintiff did not offer to complete the payment until
January 9, 1929. He contends that Mabanta, as attorney-in-fact for the
defendant in this transaction, granted him an extension of time until the
9th of January. But Mabanta has stated that he only extended the time
until the 5th of that month. Mabanta’s testimony on this point is
corroborated by that of Paz Vicente and by the plaintiff’s own admission
to Narciso Javier that his option to purchase those lots expired on
January 5, 1929.

In holding that the period was an essential element of the transaction

between plaintiff and defendant, the trial court considered that the
contract in question was an option for the purchase that the contract in
question was an option for the purchase of the lots, and that in an
agreement of this nature the period is deemed essential. The opinion of
the court is divided upon the question of whether the agreement was an
option or a sale, but even supposing it was a sale, the court holds that
time was an essential element in the transaction. The defendant wanted
to sell those lots to the plaintiff in order to pay off certain obligation which
fell due in the month of December, 1928. The time fixed for the payment
of the price was therefore essential for the defendant, and this view in
borne out by his letter to his representative Mabanta instructing him to
consider the contract rescinded if the price was not completed in time. In
accordance with article 1124 of the Civil Code, the defendant is entitled
to resolve the contract for failure to pay the price within the time
specified.

The judgment appealed from is affirmed, with costs against the appellant.
So ordered.

Johnson, Street, Malcolm, Villamor, Ostrand, Johns, Romualdez and

Villa-Real, JJ., concur.
[G.R. No. L-10394. December 13, 1958.]

CLAUDINA VDA. DE VILLARUEL, ET AL., Plaintiffs-Appellees, v.

MANILA MOTOR CO., INC. and ARTURO
COLMENARES, Defendants-Appellants.

Hilado & Hilado for Appellees.

Ozaeta, Gibbs & Ozaeta for appellant company.

Jose L. Gamboa and Napoleon Garcia for appellant Arturo

Colmenares.

SYLLABUS

1. INTERNATIONAL LAW; SEQUESTRATION OF PRIVATE

PROPERTY BY BELLIGERENT OCCUPANT RECOGNIZED; LESSOR
OF SEIZED PROPERTY LIABLE FOR DISTURBANCE. — Under the
generally accepted principles of international law, which are made part of
the law of the Philippines, a belligerent occupant (like the Japanese) may
legitimately billet or quarter its troops in privately owned land and
buildings for the duration of its military operations, or as military necessity
should demand. Thus, when the Japanese forces evicted appellant
lessee company from the leased buildings and occupied the same as
quarters for its troops, the Japanese authorities acted pursuant to a right
recognized by international and domestic law. Its act of dispossession,
therefore, did not constitute a mere act of trespass (perturbacion de mero
hecho) but a trespass under color of title (perturbacion de derecho)
chargeable to the lessors of the seized premises, since the belligerent
occupant acted pursuant to a right that the law recognizes.

2. ID.; ID.; ID.; LIABILITY OF LESSEE FOR RENTS DURING

OCCUPATION OF PROPERTY. — Such dispossession, though not due
to the fault of the lessors or lessee nevertheless deprived the lessee of
the enjoyment of the thing leased. Wherefore, the lessee’s corresponding
obligation to pay rentals ceased during such deprivation.

3. ID.; ID.; ID.; IMPORTER REFUSAL TO ACCEPT RENTS PLACES

LESSORS IN DEFAULT; LIABILITY FOR SUPERVENING RISK. —
Since the lessee was exempt from paying the rents for the period of its
ouster, the insistence of the lessors to collect the rentals corresponding
to said period was unwarranted and their refusal to accept the currant
rents tendered by the lessee was unjustified. Such refusal places the
lessors in default (mora) and they must shoulder the subsequent
accidental loss of the premises leased.

4. ID.; ID.; ID.; ID.; ID.; MORA OF LESSORS NOT CURED BY FAILURE
OF LESSEE TO CONSIGN RENTS IN COURT. — The mora of the
lessors was not cured by the failure of the lessee to make the
consignation of the rejected payments, but the lessee remained obligated
to pay the amounts tendered and not consigned by it in court.

5. PLEADING AND PRACTICE; CHANGE IN THE RELIEF PRAYED

DURING THE PENDENCY OF THE ACTION. — A change in the relief
prayed, brought about by circumstances occurring during the pendency
of the action, is not improper. This is justified under Section 2, Rule 17 of
the Rules of Court (on amendments) "to the end that the real matter in
dispute and all matters in the action in dispute between the parties may,
as far as possible be completely determined in a single
proceeding."cralaw virtua1aw library

6. ID.; DISMISSAL WITHOUT PREJUDICE. — The dismissal of plaintiffs’

two causes of action in the case at bar was premised on the existence of
the "Debt Moratorium" which suspended the enforcement of the
obligation up to a certain time. The reference thereto by the court
amounted to a dismissal "without prejudice", since in effect it ruled that
the plaintiffs could not, at the time they sought it, enforce their right of
action against the defendants, but they must wait until the moratorium
was lifted. In this way, the court qualified its dismissal.
DECISION

REYES, J.B.L., J.:

Manila Motor Co., Inc., and Arturo Colmenares interpose this appeal
against the decision of the Court of First Instance of Negros Occidental,
in its Civil Case No. 648, ordering the defendant Manila Motor Co., Inc. to
pay to the plaintiffs Villaruel the sum of (a) P11,900 with legal interest
from May 18, 1953, on which date, the court below declared invalid the
continued operation of the Debt Moratorium, under the first cause of
action; (b) P38,395 with legal interest from the date of filing of the original
complaint on April 26, 1947, on the second cause of action; and against
both the Manila Motor Co., Inc. and its co-defendant, Arturo Colmenares,
the sum of P30,000 to be paid, jointly and severally, with respect to the
third cause of action.

On May 31, 1940, the plaintiffs Villaruel and the defendant Manila Motor
Co., Inc. entered into a contract (Exhibit "A") whereby, the former agreed
to convey by way of lease to the latter the following described premises;

(a) Five hundred (500) square meters of floor space of a building of

strong materials for automobile showroom, offices, and store room for
automobile spare parts;

(b) Another building of strong materials for automobile repair shop; and

(c) A 5-bedroom house of strong materials for residence of the Bacolod

Branch Manager of the defendant company.

The term of the lease was five (5) years, to commence from the time that
the building were delivered and placed at the disposal of the lessee
company, ready for immediate occupancy. The contract was renewable
for an additional period of five (5) years. The Manila Motor Company, in
consideration of the above covenants, agreed to pay to the lessors, or
their duly authorized representative, a monthly rental of Three Hundred
(P300) pesos payable in advance before the fifth day of each month, and
for the residential house of its branch manager, a monthly rental not to
exceed Fifty (P50) pesos "payable separately by the Manager."

The leased premises were placed in the possession of the lessee on the
31st day of October, 1940, from which date, the period of the lease
started to run under their agreement.

This situation, the Manila Motor Co., Inc. and its branch manager
enjoying the premises, and the lessors receiving the corresponding
rentals as stipulated, continued until the invasion of 1941; and shortly
after the Japanese military occupation of the Provincial Capital of
Bacolod the enemy forces held and used the properties leased as part of
their quarters from June 1, 1942 to March 29, 1945, ousting the lessee
therefrom. No payment of rentals were made at any time during the said
period.

Immediately upon the liberation of the said city in 1945, the American
Forces occupied the same buildings that were vacated by the Japanese,
including those leased by the plaintiffs, until October 31, 1945. Monthly
rentals were paid by the said occupants to the owners during the time
that they were in possession, as the same rate that the defendant
company used to pay.

Thereafter, when the United States Army finally gave up the occupancy
the premises, the Manila Motor Co., Inc., through their branch manager,
Rafael B. Grey, decided to exercise their option to renew the contract for
the additional period of five (5) years, and the parties agreed that the
seven months occupancy by the U. S. Army would not be counted as
part of the new 5-year term. Simultaneously with such renewal, the
company sublet the same buildings, except that used for the residence of
the branch manager, to the other defendant, Arturo Colmenares.

However, before resuming the collection of rentals, Dr. Alfredo Villaruel,

who was entrusted with the same, consulted Atty. Luis Hilado on whether
they (the lessors) had the right to collect, from the defendant company,
rentals corresponding to the time during which the Japanese military
forces had control over the leased premises. Upon being advised that
they had such a right, Dr. Villaruel demanded payment thereof, but the
defendant company refused to pay. As a result, Dr. Villaruel gave notice
seeking the rescission of the contract of lease and the payment of rentals
from June 1, 1942 to March 31, 1945 totalling P11,900. This was also
rejected by the defendant company in its letter to Villaruel, dated July 27,
1946.

Sometime on that same month of July, Rafael B. Grey offered to pay to

Dr. Villaruel the sum of P350, for which, tenderer requested a receipt that
would state that it was in full payment for the said month. The latter
expressed willingness to accept the tendered amount provided, however,
that his acceptance should be understood to be without prejudice to their
demand for the rescission of the contract, and for increased rentals until
their buildings were returned to them. Later, Dr. Villaruel indicated his
willingness to limit the condition of his acceptance to be that "neither the
lessee nor the lessors admit the contention of the other by the mere fact
of payment." As no accord could still be reached between the parties as
to the context of the receipt, no payment was thereafter tendered until
the end of November, 1946. On December 4, 1946 (the day after the
defendant company notified Dr. Villaruel by telegram, that it cancelled the
power of attorney given to Grey, and that it now authorized Arturo
Colmenares, instead, to pay the rent of P350 each month), the Manila
Motor Co., Inc. remitted to Dr. Villaruel by letter, the sum of P350.90. For
this payment, the latter issued a receipt stating that it was "without
prejudice" to their demand for rents in arrears and for the rescission of
the contract of lease.

After it had become evident that the parties could not settle their case
amicably, the lessors commenced this action on April 26, 1947 with the
Court of First Instance of Negros Occidental against the appellants
herein. During the pendency of the case, a fire originating from the
projection room of the City Theatre, into which Arturo Colmenares, (the
sublessee) had converted the former repair shop of the Manila Motor Co.
Inc., completely razed the building, engulfing also the main building
where Colmenares had opened a soda fountain and refreshment parlor,
and made partitions for store spaces which he rented to other persons.

Because of the aforesaid occurrence, plaintiffs demanded

reimbursement from the defendants, but having been refused, they filed
a supplemental complaint to include as their third cause of action, the
recovery of the value of the burned buildings.

Defendants filed their amended answer and also moved for the dismissal
of the plaintiffs’ first and second causes of action invoking the Debt
Moratorium that was then in force. The dismissal was granted by the trial
court on February 5, 1951, but hearing was set as regards the third
cause of action.

On August 11, 1952, the defendant company filed a motion for summary
judgment dismissing the plaintiffs, third cause of action, to which plaintiffs
registered objection coupled with a petition for reconsideration of the
order of the court dismissing the first and second causes of action.
Pending the resolution of this incident, plaintiffs, on October 2, 1953,
called the court’s attention to the decision in the case of Rutter v.
Esteban (93 Phil., 68; 49 Off. Gaz. [5] 1807) invalidating the continued
effectivity of the Moratorium Law (R. A. 342). On November 25, 1953, the
trial court denied the defendant company’s motion for summary judgment
and set aside its previous order dismissing the first and second causes of
action. The case was accordingly heard and thereafter, judgment was
rendered in plaintiffs’ favor in the terms set in the opening paragraph of
this decision. Thereafter, the defendants regularly appealed to this
Court.

The defendants-appellants raise a number of procedural points. The first

of these relates to their contention that the supplemental complaint which
included a third cause of action, should not have been admitted, as it
brought about a change in the original theory of the case and that it
raised new issues not theretofore considered. This argument cannot be
sustained under the circumstances. This action was inceptionally
instituted for the rescission of the contract of lease and for the recovery
of unpaid rentals before and after liberation. When the leased buildings
were destroyed, the plaintiffs-lessors demanded from the defendants-
lessees, instead, the value of the burned premises, basing their right to
do so on defendants’ alleged default in the payment of post-liberation
rentals (which was also their basis in formerly seeking for rescission).
This cannot be considered as already altering the theory of the case
which is merely a change in the relief prayed for, brought about by
circumstances occurring during the pendency of the action, and is not
improper. (Southern Pacific Co. v. Conway, 115 F. 2d 746; Suburban
Improvement Company v. Scott Lumber Co., 87 A.L.R. 555, 59 F. 2d
711). The filing of the supplemental complaint can well be justified also
under section 2, Rule 17 of the Rules of Court (on amendments) "to the
end that the real matter in dispute and all matters in the action in dispute
between the parties may, as far as possible be completely determined in
a single proceedings." It is to be noted furthermore, that the admission or
rejection of this kind of pleadings is within the sound discretion of the
court that will not be disturbed on appeal in the absence of abuse thereof
(see Sec. 5, Rule 17, Rules of Court), especially so, as in this case,
where no substantial procedural prejudice is caused to the adverse
party.

It is urged that the dismissal of the first and second causes of action on
February 5, 1951 had the effect of a dismissal "with prejudice" as the
court did not make any qualification in its dismissal order. Appellants,
apparently, lost sight of the fact that the dismissal was premised on the
existence of the "Debt Moratorium" which suspended the enforcement of
the obligation up to a certain time. The reference thereto by the lower
court amounted to a dismissal "without prejudice", since in effect it ruled
that the plaintiffs could not, at the time they sought it, enforce their right
of action against the defendants, but plaintiffs must wait until the
moratorium was lifted. In this way, the court qualified its dismissal.

Taking up the case on its merits, it is readily seen that the key to the
entire dispute is the question whether the defendant-appellant Manila
Motor Co., Inc. should be held liable for the rentals of the premises
leased corresponding to the lapse of time that they were occupied as
quarters or barracks by the invading Japanese army, and whether said
appellant was placed in default by its refusal to comply with the demand
to pay such rents. For if the Motor Company was not so liable, then it
never was in default nor was it chargeable for the accidental lose of the
buildings, nor for any damages except the rental at the contract rate from
its reoccupation of the premises leased until the same were accidentally
destroyed by fire on March 2, 1948.

The appellees contended, and the court below has held, that the ouster
of the lessee company by the Japanese occupation forces from 1942
until liberation, while operating to deprive the lessee of the enjoyment of
the thing leased, was, nevertheless, a mere act of trespass
("perturbacion de mero hecho") that, under the Spanish Civil Code of
1889 (in force here until 1950), did not exempt the lessee from the duty
to pay rent. We find that contention and ruling erroneous and untenable.

The pertinent articles of the Civil Code of Spain of 1889

provide:jgc:chanrobles.com.ph

"ART. 1554. It shall be the duty of the lessor;

1. To deliver to the lessee the thing which is the subject matter of the
contract;

2. To make thereon, during the lease, all repairs necessary in order to

keep it in serviceable condition for the purpose for which it was intended;

3. To maintain the lessee in the peaceful enjoyment of the lease during

the entire term of the contract."cralaw virtua1aw library

"ART. 1560. The lessor shall not be liable for any act of mere disturbance
of a third person of the use of the leased property; but the lessee shall
have a direct action against the trespasser.
If the third person, be it the Government or a private individual, has acted
in reliance upon a right, such action shall not be deemed a mere act of
disturbance." (Italics supplied)

Under the first paragraph of article 1560 the lessor does not answer for a
mere act of trespass (perturbacion de mero hecho) as distinguished from
trespass under color of title (perturbacion de derecho). As to what would
constitute a mere act of trespass, this Court in the case of Goldstein v.
Roces (34 Phil. 562), made this pronouncement:jgc:chanrobles.com.ph

"Si el hecho perturbador no va acompañado ni precedido de nada que

revele una intencion propiamente juridica en el que lo realiza, de tal
suerte que el arrendatario solo pueda apreciar el hecho material
desnudo de toda forma o motivacion de derecho, entendemos que se
trata de una perturbacion de mero hecho."cralaw virtua1aw library

Upon the basis of the distinction thus established between the

perturbacion de hecho and the perturbacion de derecho, it is
demonstrable that the ouster of the appellant by the Japanese occupying
forces belongs to the second class of disturbances, de derecho. For
under the generally accepted principles of international law (and it must
be remembered that those principles are made by our Constitution a part
of the law of our nation 1) a belligerent occupant (like the Japanese in
1942-1945) may legitimately billet or quarter its troops in privately owned
land and buildings for the duration of its military operations, or as military
necessity should demand. The well known writer Oppenheim,
discoursing on the laws of war on land, says upon this topic;

"Immovable private enemy property may under no circumstances or

conditions be appropriated by an invading belligerent. Should he
confiscate and sell private land or buildings, the buyer would acquire no
right whatever to the property. Article 46 of the Hague Regulations
expressly enacts that ‘private property may not be confiscated.’ But
confiscation differs from the temporary use of private land and building
for all kinds of purposes demanded by the necessities of war. What has
been said above with regard to utilization of public buildings applies
equally to private buildings. If necessary, they may be converted into
hospitals, barracks, and stables without compensation for the proprietors,
and they may also be converted into fortifications. A humane belligerent
will not drive the wretched inhabitants into the street if he can help it. But
under the pressure of necessity he may be obliged to do this, and he is
certainly not prohibited from doing it. (Italics supplied) (Oppenheim &
Lauterpach, International Law, Vol. II, p. 312, 1944 Ed.)

The view thus expressed is concurred in by other writers. Hyde

(International Law, Vol. 3, p. 1893, 2nd Rev. Ed.) quotes the U. S. War
Department 1940 Rules of Land Warfare (Rule No. 324) to the effect that
—

"The measure of permissible devastation is found in the strict necessities

of war. As an end in itself, as a separate measure of war, devastation is
not sanctioned by the law of war. There must be some reasonably close
connection between the destruction of property and the overcoming of
the enemy’s army. Thus the rule requiring respect for private property is
not violated through damage resulting from operations, movements, or
combats of the army; that is, real estate may be utilized for marches,
camp sites, construction of trenches, etc. Building may be used for
shelter for troops, the sick and wounded, for animals, for reconnaisance,
cover defense, etc. Fences, woods, crops, buildings, etc., may be
demolished, cut down, and removed to clear a field of fire, to construct
bridges, to furnish fuel if imperatively needed for the army." (Emphasis
supplied)

Reference may also be made to Rule 336:jgc:chanrobles.com.ph

"What may be requisitioned. — Practically everything may be

requisitioned under this article (art. LII of the regulations above quoted)
that is necessary for the maintenance of the army and not of direct
military use, such as fuel, food, forage, clothing, tobacco, printing
presses, type, leather, cloth, etc. Billeting of troops for quarters and
subsistence is also authorized." (Emphasis supplied)
And Forest and Tucker state:jgc:chanrobles.com.ph

"The belligerent occupant may destroy or appropriate public property

which may have a hostile purpose, as forts, arms, armories, etc. The
occupying force may enjoy the income from the public sources. Strictly
private property should be inviolable, exce pt so for as the necessity of
war requires contrary action." (Forest and Tucker, International Law, 9th
Ed., p. 277) (Emphasis supplied)

The distinction between confiscation and temporary sequestration of

private property by a belligerent occupant was also passed upon by this
Court in Haw Pia v. China Banking Corporation, 80 Phil. 604, wherein the
right of Japan to sequester or take temporary control over enemy private
property in the interest of its military effort was expressly recognized.

We are thus forced to conclude that in evicting the lessee, Manila Motor
Co., Inc. from the leased buildings and occupying the same as quarters
for troops, the Japanese authorities acted pursuant to a right recognized
by international and domestic law. Its act of dispossession, therefore, did
not constitute perturbacion de hecho but a perturbacion de derecho for
which the lessors Villaruel (and not the appellants lessees) were liable
(Art. 1560, su pra) and for the consequences of which said lessors must
respond, since the result of the disturbance was the deprivation of the
lessee of the peaceful use and enjoyment of the property leased.
Wherefore, the latter’s corresponding obligation to pay rentals ceased
during such deprivation.

The Supreme Court of Spain, in its Sentencia of 6 December 1944,

squarely declared the resolutory effect of the military sequestration of
properties under lease upon the lessee’s obligation to pay rent
(Jurisprudencia Civil, Segunda Serie, Tomo 8, pp. 583,
608):jgc:chanrobles.com.ph

"Considerando que para resolver acerca de la procedencia del presente

recurso es preciso partir de las bases de hecho sentadas en la sentencia
recurrida, y no impugnadas al amparo del número 7. ° del articulo 1.692
de la Ley de Enjuiciamiento civil, es decir, de que hallandose vigente el
contrato de arrendamiento celebrado entre actor y demandada, en fecha
que no se precisa, entre los dias del 18 al 31 de julio de 1936, los locales
objeto de dicho contrato de arrendamiento, y en los que no funcionaba
de tiempo anterior la industria para cuyo ejercicio se arrendaron, fueron
requisados por el Ejercito Nacional, con motivo de la guerra civil, para
que se instalara en los mismos la Junta de Donativos al Ejercito del Sur,
aun cundo en dicha incautacion, que se hizo a la propiedad de la finca,
no se observaron las formalidades legales, a causa de las circunstancias
extraordinarias por que a la sazon atravesaba Sevilla, hecho que no
consta se hiciera saber por los arrendatarios demandados al actor, pero
que fue notorio en aquella capital, donde residia el actor, que de el debio
tener concoimiento. Se estima igualmente por la Sala que el hecho de
que la industria no funcionara en el local no tuvo iufluencia alguna sobre
su incautacion por el Ejercito."cralaw virtua1aw library

"Considerando que sobre tales bases de hecho es de desestimar el

primer motivo del recurso: violacion de los articulos 1.254, 1.278 y 1.091
del Codigo civil, que sancionan, en terminos generales, la eficacia de los
contratos, puesto que en el presente caso de los que se trata en
definitiva es de determinar si por virtud de fuerza mayor, la requisa a que
se hace referencia, ajena, por lo tanto, a culpa, asi del arrendatario como
del arrendador, se vio aqúel privado del posible disfrute de la finca
arrendada, y de si por virtud de esta circunstancia este o no exento de la
obligacion de abonar la renta pactada durante el tiempo que subsistio la
incautacion; y es indudable la afirmativa en cuanto al primer extremo,
puesto que la sentencia recurrida establece que el hecho de que no
funcionase la industria y estuvieran los locales cerrados no actuo como
causa de la requisa de estos por el Ejercito."cralaw virtua1aw library

"Considerando que la sentencia recurrida, en cuanto no da lugar al pago

de las rentas correspondientes al tiempo que duro la incautacion, lejos
de infringir, por aplicacion indebida, el art. 1.568 del Codigo civil, se
ajusta a la orientacion marcada en el mismo, puesto que este precepto
legal dispone que el arrendatario tiene accion contra el tercero
perturbador de mero hecho en la posesion de la finca arrendada, pero
no contra la Administracion o contra los que obran en virtud de un
derecho que les corresponde; y aqui la perturbacion que experimento el
arrendador en su posesion, como consecuencia de la requisa, no puede
calificarse como de mero hecho, conforme al citado articulo, puesto que
la finca fue requisada por la autoridad militar para fines de guerra, de
donde se sigue que el arrendatario tenia que soportar la privacion de su
tenencia material a traves del arrendador, con quien ha de entenderse la
requisa de la cosa arrendada."cralaw virtua1aw library

In addition, the text of Art. 1560, in its first paragraph (jam quot.)
assumes that in case of mere disturbance (perturbacion de mero hecho)
"the lessee shall have a direct action against the trespasser." This
assumption evidently does not contemplate the case of dispossession of
the lessee by a military occupant, as pointed out by Mr. Chief Justice
Paras in his dissenting opinion in Reyes v. Caltex (Phil.) Inc., 84 Phil.
669; for the reason that the lessee could not have a direct action against
the military occupant. It would be most unrealistic to expect that the
occupation courts, placed under the authority of the occupying
belligerent, should entertain at the time a suit for forcible entry against
the Japanese army. The plaintiffs, their lawyers, and in all probability, the
Judge and court personnel, would face "severest penalties" for such
defiance of the invader.

The present case is distinguishable from Lo Ching v. Archbishop of

Manila (81 Phil., 601) in that the act of the Japanese military involved in
the latter case clearly went beyond the limits set by the Hague
Conventions, in seizing the property and delivering it to another private
party; and from Reyes v. Caltex (Phil.) Inc., 84 Phil. 654, in that the rights
of the military occupant under international law were not raised or put in
issue in said case; and moreover, the lessee there, by failing to rescind
the lease upon seizure of the premises by the Japanese military, despite
the stipulated power to do so, resumed business and decided to hold
unto the long term lease for the balance of its 20-year period, starting
from December 23, 1940. In the case before us, the occupation of the
leased property by the Japanese army covered the major portion of the
five-year contractual period, without any option to rescind by the lessee.
The lessor’s position is not improved by regarding the military seizure of
the property under lease as a case of force majeure or fortuitous event.
Ordinarily, a party may not be held responsible therefor, despite the fact
that it prevented compliance of its obligations. But lease being a contract
that calls for prestations that are both reciprocal and repetitive (tractum
successivum), the obligations of either party are not discharged at any
given moment, but must be fulfilled all throughout the term of the
contract. As a result, any substantial failure by one party to fulfill its
commitments at any time during the contract period gives rise to a failure
of consideration (causa) for the obligations of the other party and
excuses the latter from the correlative performance, because the causa
in lease must exist not only at the perfection but throughout the term of
the contract. No lessee would agree to pay rent for premises he could
not enjoy. As expressed by Marcel Planiol (quoted in 4 Castan, Derecho
Civil, 7th Edition, p. 264) —

"Como la obligacion del arrendador es sucesiva y se renueva todos los

dias, la subsistencia del arrendamiento se hace imposible cuando, por
cualquier razon, el arrendador no puede ya procurar al arrendatario el
disfrute de la cosa."cralaw virtua1aw library

This effect of the failure of reciprocity appears whether the failure is due
to fault or to fortuitous event; the only difference being that in case of
fault, the other party is entitled to rescind the contract in toto, and collect
damages, while in casual non-performance it becomes entitled only to a
suspension pro tanto of its own commitments. This rule is recognized in
par. 2 of Art. 1558, authorizing the lessee to demand reduction of the
rent in case of repairs depriving him of the possession of part of the
property; and in Art. 1575, enabling the lessee of rural property to
demand reduction of the rent if more than one-half of the fruits are lost by
extraordinary fortuitous event. Of course, where it becomes immediately
apparent that the loss of possession or enjoyment will be permanent, as
in the case of accidental destruction of a leased building, the lease
contract terminates.
Applying these principles, the Sentencia of December 1944, already
adverted to, ruled as follows:jgc:chanrobles.com.ph

"Considerando que privado el arrendador, por tal hecho, del disfrute de

esta, es menifiesta la imposibilidad en que se vio de cumplir la tercera de
las obligaciones que el impone el articulo 1.554 del Codigo Civil,
obligacion (la de mantener al arrendatario en el disfrute de la cosa
arrendada) que ha de entenderse reciproca de la de pago de renta
pactada, que impone al arrendatario el número primero del art. 1.555 de
dicho Cuerpo legal, y por ello no puede ser exigida."cralaw virtua1aw
library

"Considerando que, aunque no sean estrictamente aplicables al caso los

articulos 1.124, 1.556 y 1.568, que se citan como infringidos por el
recurrente, suponiendo que a ellos ha entendido referirse la Audiencia
(lo que impediria, en todo caso, la estimacion del recurso por este
motivo, ya que dichos articulos no se citan en la sentencia de instancia),
es evidente que ellos proclaman la reciprocidad de las obligaciones
entre arrendatario y arrendador, y en este sentido, tratandose de un
incumplimiento inculpable de contrato, pueden servir, como tambien el
1.558, en cuanto preven la reduccion de rentas o posible restriccion del
contrato cuando el arrendatario se ve privado, por obras realizadas en la
finca arrendada, del disfrute de este, de fundamento, con los demas
preceptos invocados, a una extencion de renta mientras subsiste la
imposibilidad de utilizar la cosa arrendada, sobre todo cuando los
articulos 157 y 158 del Reglamento de Requisas de 13 de enero de 1921
estatuyen claramente que les requisas de edificio se hacen a la
propiedad, y es el propietario el que puede pedir indemnizacion, uno de
cuyos elementos es el precio del alquiler que le sea satisfecho por el
inmueble incautado."cralaw virtua1aw library

We are aware that the rule in the common law is otherwise, due to its
regarding a lease as a conveyance to the lessee of a temporary estate or
title to the leased property so that loss of possession due to war or other
fortuitous event leaves the tenant liable for the rent in the absence of
stipulation. The fundamental difference between the common law and
the civil law concepts has been outlined by the United States in Viterbo v.
Friedlander, 30 L. Ed. (U.S.) pp. 776, 778, in this
wise:jgc:chanrobles.com.ph

"But as to the nature and effect of a lease for years, at a certain rent
which the lessee agrees to pay, and containing no express covenant on
the part of the lessor, the two systems differ materially. The common law
regards such a lease as the grant of an estate for years, which the
lessee takes a title in, end is bound to pay the stipulated rent for,
notwithstanding any injury by flood, fire or external violence, at least
unless the injury is such a destruction of the lend as to amount to an
eviction; end by that law the lessor is under no implied covenant to
repair, or even that the premises shall be fit for the purpose for which
they are leased. Fowler v. Bott, 6 Mass. 63; 3 Kent, Com. 465, 466;
Broom, Legal Maxims, 3d ed. 213, 214; Doupe v. Genin, 45 N. Y. 119;
Kingbury v. Westfall, 61 N. Y. 356. Naumberg v. Young, 15 Vroom, 331;
Bowe v. Hunking, 135 Mass. 380; Manchester Warehouse Co. v. Carr,
L.R. 5 C.P.D. 507.

The civil law, on the other hand, regards a lease for years as a mere
transfer of the use and enjoyment of the property; and holds the landlord
bound, without any express covenant, to keep it in repair and otherwise
fit for use and enjoyment for the purpose for which it is leased, even
when the need of repair or the unfitness is caused by an inevitable
accident, and if he does not do so, the tenant may have the lease
annulled, or the rent abated. Dig. 19, 2, 9, 2; 19, 2, 15, 1, 2; 19, 2, 25, 2;
19, 2, 39; 2 Gomez, Variae Resolutiones c. 3, secs. 1-3, 18, 19: Gregorio
Lopes in 5 Partidas, tit. 8, 11. 8, 22; Domat, Droit Civil, pt. 1, lib. 1, tit. 4,
sec. 1, no. 1; sec. 3 nos. 1, 3, 6, Pothier, Contract de Louage, nos. 3, 6,
11, 22, 53, 103, 106, 139-155.

It is accordingly laid down in the Pandects, on the authority of Julian, ‘If

anyone has let an estate, that, even if anything happens by vis major, he
must make it good, he must stand by his contract,’ si quis fundum
locaverit, ut, etiamsi quid vi majore accidisset, hoc ei praestaretur, pacto
standum esse; Dig. 19, 2, 9, 2; and on the authority of Ulpian, that ‘A
lease does not change the ownership,’ non solet locatio dominium
mutare; Dig. 19, 2, 39; and that the lessee has a right of action, if he
cannot enjoy the thing which he has hired, si re quam conduxit frui non
liceat, whether because his possession, either of the whole or of part of
the field, is not made good, or a house, or stable or sheepfold, is not
repaired; and the landlord ought to warrant the tenant, dominum colono
praestare debere, against every irresistible force, omnim vim cui resisti
non potest, such as floods, flocks of birds, or any like cause, or invasion
of enemies; and if the whole crop should be destroyed by a heavy
rainfall, or the olives should be spoiled by blight, or by extraordinary heat
of the sun, solis fervore non assueto, it would be the loss of the landlord,
damnum domini futurum; and so if the field falls in by an earthquake, for
there must be made good to the tenant a field that he can enjoy, o
portere enim agrum praestari conductori, ut frui possit; but if any loss
arises from defects in the thing itself, si qua tamen vitia ex i psa re
oriantur, as if wine turns sour, or standing corn is spoiled by worms or
weeds, or if nothing extraordinary happens, si vero nihil extra
consuetudinem acciderit, it is the loss of the tenant, damnum coloni asse.
Dig. 19, 2; 15, 1, 2." (Emphasis supplied)

In short, the law applies to leases the rule enunciated by the Canonists
and the Bartolist School of Post glossatorse, that "contractus qui tractum
successivum habent et de pendentiam de futuro, sub conditione rebus
sic stantibus intelliguntur," they are understood entered subject to the
condition that things will remain as they are, without material change.

It is also worthy of note that the lessors, through Dr. Javier Villaruel,
agreed after liberation to a renewal of the contract of lease for another
five years (from June 1, 1946 to May 31 of 1951) without making any
reservation regarding the alleged liability of the lessee company for the
rentals corresponding to the period of occupancy of the premises by the
Japanese army, and without insisting that the non-payment of such rental
was a breach of the contract of lease. This passivity of the lessors
strongly supports the claim of the lessees that the rentals in question
were verbally waived. The proffered explanation is that the lessors could
not refuse to renew the lease, because the privilege of renewal had been
granted to the lessees in the original contract. Such excuse is untenable:
if the lessors deemed that the contract had been breached by the
lessee’s non-payment of the occupation rents how could they admit the
lessee’s right to renew a contract that the lessee itself had violated?

But this is not all. The lessors accepted payment of current rentals from
October 1945 to June 1946. It was only in July 1946 that they insisted
upon collecting also the 1942-1945 rents, and refused to accept further
payments tendered by the lessee unless their right to collect the
occupation rental was recognized or reserved. After refusing the rents
from July to November 1946, unless the lessee recognized their right to
occupation rentals, the appellees (lessors) demanded rescission of the
contract and a rental of P1,740 monthly in lieu of the stipulated P350 per
month. (Exhibit "C").

This attitude of the lessors was doubly wrongful: first, because as already
shown, the dispossession by the Japanese army exempted the lessee
from his obligation to pay rent for the period of its ouster; and second,
because even if the lessee had been liable for that rent, its collection in
1946 was barred by the moratorium order, Executive Order No. 32, that
remained in force until replaced by Rep. Act 342 in 1948. To apply the
current rentals to the occupation obligations would amount to enforcing
them contrary to the moratorium decreed by the government.

Clearly, then, the lessor’ insistence upon collecting the occupation

rentals for 1942-1945 was unwarranted in law. Hence, their refusal to
accept the current rentals without qualification placed them in default
(mora creditoris or acci piendi) with the result that thereafter, they had to
bear all supervening risks of accidental injury or destruction of the leased
premises. While not expressly declared by the Code of 1889, this result
is clearly inferable from the nature and effects of mora, and from Articles
1185, 1452 [par. 3] and 1589).

"ART. 1185. When the obligation to deliver a certain and determinate

thing arises from the commission of a crime or misdemeanor the obligor
shall not be exempted from the payment of its value, whatever the cause
of its loss may have been, unless, having offered the thing to the person
entitled ‘to receive it, the latter should have refused without reason to
accept it."cralaw virtua1aw library

"Art. 1452. . . .

If fungible things should be sold for a price fixed with relation to weight,
number, or measure, they shall not be at the purchaser’s risk until they
have been weighed, counted, or measured, unless the purchaser should
be in default."cralaw virtua1aw library

"ART. 1589. If the person who contracted to do the work bound himself
to furnish the materials, he shall bear the loss in case of the destruction
of the work before it is delivered, unless its acceptance has been delayed
by the default of the other party."cralaw virtua1aw library

While there is a presumption that the loss of the thing leased is due to
the fault of the lessee (Civil Code of 1889, Art. 1563), it is noteworthy that
the lessors have not invoked that presumption either here or in the court
below. On the contrary, the parties and the trial court have all proceeded
and discussed the issues taking for granted that the destruction of the
leased buildings was purely fortuitous. We see no reason for departing
from that assumption and further prolonging this litigation.

That the lessee and sublessee did not consign or deposit in court the
rentals tendered to and improperly rejected by the lessors, did not render
the debtor liable for default (mora solvendi) nor answerable for fortuitous
events because, as explained by the Supreme Court of Spain in its
Sentencia of 5 June 1944 —

"Al exigir el art. 1176 del Codigo Civil la consignacion para liberar al
deudor no quiere decir que necesariamente haya de practicarse, y no
baste el ofrecimiento de pago que de aquella no fuere seguido, a efectos
de exclusion ds las consecuencias de la mora solvendi." (8 Manresa,
Comentarios, 5th Ed., Vol. I, p. 136).
In other words, the only effect of the failure to consign the rentals in court
was that the obligation to pay them subsisted (P.N.B. v. Relativo, 92
Phil., 203) and the lessee remained liable for the amount of the unpaid
contract rent, corresponding to the period from July to November, 1946;
it being undisputed that, from December 1946 up to March 2, 1948, when
the commercial buildings were burned, the defendants-appellants have
paid the contract rentals at the rate of P350 per month. But the failure to
consign did not eradicate the default (mora) of the lessors nor the risk of
loss that lay upon them. (3 Castan, Der. Civ., 8th Ed., p. 145; 4 Puig
Peña, Der. Civ., part. 1, p. 234; Diaz Pairo, Teoria Gen. de las
Obligaciones [3rd Ed. ], Vol. 1, pp. 192-193).

In view of the foregoing, we hold:chanrob1es virtual 1aw library

(a) That the dispossession of the lessee from the premises by the
Japanese army of occupation was not an act of mere trespass
(perturbacion de mero hecho) but one de derecho chargeable to the
lessors;

(b) That such dispossession, though not due to fault of lessors or lessee,
nevertheless resulted in the exemption of the lessee from its obligation to
pay rent during the period that it was deprived of the possession and
enjoyment of the premises leased;

(c) That the insistence of the lessors to collect such rentals was
unwarranted;

(d) That the lessors were not justified in refusing to accept the tender of
current rentals unless the lessee should recognize their right to the rents
corresponding to the period that the lessee was not in possession;

(e) That by their improper refusal to accept the current rents tendered by
the lessee, the lessors incurred in default (mora) and they must shoulder
the subsequent accidental loss of the premises leased;

(f) That the mora of the lessors was not cured by the failure of the lessee
to make the consignation of the rejected payments, but the lessee
remained obligated to pay the amounts tendered and not consigned by it
in court.

Consequently, it was reversible error to sentence the appellants to pay

P2,165 a month as reasonable value of the occupation of the premises
from July 1946, and the value of the destroyed buildings amounting to
P30,000.

Wherefore, the decision appealed from is modified in the sense that the
appellant Manila Motor Company should pay to the appellees Villaruel
only the rents for the leased premises corresponding to the period from
July up to November 1946, at the rate of P350 a month, or a total of
P1,750. Costs against appellees in both instances. So ordered.

Paras, C.J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador,

Concepcion and Endencia, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-45710 October 3, 1985
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR
ANTONIO T. CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL
AND SAVINGS BANK, in his capacity as statutory receiver of Island
Savings Bank, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M.
TOLENTINO, respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null and void the
decision of the Court of Appeals, in C.A.-G.R. No. 52253-R dated
February 11, 1977, modifying the decision dated February 15, 1972 of
the Court of First Instance of Agusan, which dismissed the petition of
respondent Sulpicio M. Tolentino for injunction, specific performance or
rescission, and damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation
of its legal department, approved the loan application for P80,000.00 of
Sulpicio M. Tolentino, who, as a security for the loan, executed on the
same day a real estate mortgage over his 100-hectare land located in
Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and which
mortgage was annotated on the said title the next day. The approved
loan application called for a lump sum P80,000.00 loan, repayable in
semi-annual installments for a period of 3 years, with 12% annual
interest. It was required that Sulpicio M. Tolentino shall use the loan
proceeds solely as an additional capital to develop his other property into
a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00
loan was made by the Bank; and Sulpicio M. Tolentino and his wife Edita
Tolentino signed a promissory note for P17,000.00 at 12% annual
interest, payable within 3 years from the date of execution of the contract
at semi-annual installments of P3,459.00 (p. 64, rec.). An advance
interest for the P80,000.00 loan covering a 6-month period amounting to
P4,800.00 was deducted from the partial release of P17,000.00. But this
pre-deducted interest was refunded to Sulpicio M. Tolentino on July 23,
1965, after being informed by the Bank that there was no fund yet
available for the release of the P63,000.00 balance (p. 47, rec.). The
Bank, thru its vice-president and treasurer, promised repeatedly the
release of the P63,000.00 balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after
finding Island Savings Bank was suffering liquidity problems, issued
Resolution No. 1049, which provides:
In view of the chronic reserve deficiencies of the Island Savings Bank
against its deposit liabilities, the Board, by unanimous vote, decided as
follows:
1) To prohibit the bank from making new loans and investments [except
investments in government securities] excluding extensions or renewals
of already approved loans, provided that such extensions or renewals
shall be subject to review by the Superintendent of Banks, who may
impose such limitations as may be necessary to insure correction of the
bank's deficiency as soon as possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding thatIsland Savings
Bank failed to put up the required capital to restore its solvency, issued
Resolution No. 967 which prohibited Island Savings Bank from doing
business in the Philippines and instructed the Acting Superintendent of
Banks to take charge of the assets of Island Savings Bank (pp. 48-49,
rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of the
P17,000.00 covered by the promissory note, filed an application for the
extra-judicial foreclosure of the real estate mortgage covering the 100-
hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the
auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court
of First Instance of Agusan for injunction, specific performance or
rescission and damages with preliminary injunction, alleging that since
Island Savings Bank failed to deliver the P63,000.00 balance of the
P80,000.00 loan, he is entitled to specific performance by ordering Island
Savings Bank to deliver the P63,000.00 with interest of 12% per annum
from April 28, 1965, and if said balance cannot be delivered, to rescind
the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety
bond, issued a temporary restraining order enjoining the Island Savings
Bank from continuing with the foreclosure of the mortgage (pp. 86-87,
rec.).
On January 29, 1969, the trial court admitted the answer in intervention
praying for the dismissal of the petition of Sulpicio M. Tolentino and the
setting aside of the restraining order, filed by the Central Bank and by the
Acting Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits rendered its
decision, finding unmeritorious the petition of Sulpicio M. Tolentino,
ordering him to pay Island Savings Bank the amount of PI 7 000.00 plus
legal interest and legal charges due thereon, and lifting the restraining
order so that the sheriff may proceed with the foreclosure (pp. 135-136.
rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M.
Tolentino, modified the Court of First Instance decision by affirming the
dismissal of Sulpicio M. Tolentino's petition for specific performance, but
it ruled that Island Savings Bank can neither foreclose the real estate
mortgage nor collect the P17,000.00 loan pp. 30-:31. rec.).
Hence, this instant petition by the central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance
prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by
the promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can
his real estate mortgage be foreclosed to satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an
P80,000.00 loan agreement on April 28, 1965, they undertook reciprocal
obligations. In reciprocal obligations, the obligation or promise of each
party is the consideration for that of the other (Penaco vs. Ruaya, 110
SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1 [1969]); and
when one party has performed or is ready and willing to perform his part
of the contract, the other party who has not performed or is not ready and
willing to perform incurs in delay (Art. 1169 of the Civil Code). The
promise of Sulpicio M. Tolentino to pay was the consideration for the
obligation of Island Savings Bank to furnish the P80,000.00 loan. When
Sulpicio M. Tolentino executed a real estate mortgage on April 28, 1965,
he signified his willingness to pay the P80,000.00 loan. From such date,
the obligation of Island Savings Bank to furnish the P80,000.00 loan
accrued. Thus, the Bank's delay in furnishing the entire loan started on
April 28, 1965, and lasted for a period of 3 years or when the Monetary
Board of the Central Bank issued Resolution No. 967 on June 14, 1968,
which prohibited Island Savings Bank from doing further business. Such
prohibition made it legally impossible for Island Savings Bank to furnish
the P63,000.00 balance of the P80,000.00 loan. The power of the
Monetary Board to take over insolvent banks for the protection of the
public is recognized by Section 29 of R.A. No. 265, which took effect on
June 15, 1948, the validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot
interrupt the default of Island Savings Bank in complying with its
obligation of releasing the P63,000.00 balance because said resolution
merely prohibited the Bank from making new loans and investments, and
nowhere did it prohibit island Savings Bank from releasing the balance of
loan agreements previously contracted. Besides, the mere pecuniary
inability to fulfill an engagement does not discharge the obligation of the
contract, nor does it constitute any defense to a decree of specific
performance (Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190
[1918]). And, the mere fact of insolvency of a debtor is never an excuse
for the non-fulfillment of an obligation but 'instead it is taken as a breach
of the contract by him (vol. 17A, 1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the refund of
the pre-deducted interest amounting to P4,800.00 for the supposed
P80,000.00 loan covering a 6-month period cannot be taken as a waiver
of his right to collect the P63,000.00 balance. The act of Island Savings
Bank, in asking the advance interest for 6 months on the supposed
P80,000.00 loan, was improper considering that only P17,000.00 out of
the P80,000.00 loan was released. A person cannot be legally charged
interest for a non-existing debt. Thus, the receipt by Sulpicio M.
'Tolentino of the pre-deducted interest was an exercise of his right to it,
which right exist independently of his right to demand the completion of
the P80,000.00 loan. The exercise of one right does not affect, much less
neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of
the loan collateral cannot exempt it from complying with its reciprocal
obligation to furnish the entire P80,000.00 loan. 'This Court previously
ruled that bank officials and employees are expected to exercise caution
and prudence in the discharge of their functions (Rural Bank of
Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the
bank's officials and employees that before they approve the loan
application of their customers, they must investigate the existence and
evaluation of the properties being offered as a loan security. The recent
rush of events where collaterals for bank loans turn out to be non-
existent or grossly over-valued underscore the importance of this
responsibility. The mere reliance by bank officials and employees on
their customer's representation regarding the loan collateral being offered
as loan security is a patent non-performance of this responsibility. If ever
bank officials and employees totally reIy on the representation of their
customers as to the valuation of the loan collateral, the bank shall bear
the risk in case the collateral turn out to be over-valued. The
representation made by the customer is immaterial to the bank's
responsibility to conduct its own investigation. Furthermore, the lower
court, on objections of' Sulpicio M. Tolentino, had enjoined petitioners
from presenting proof on the alleged over-valuation because of their
failure to raise the same in their pleadings (pp. 198-199, t.s.n. Sept. 15.
1971). The lower court's action is sanctioned by the Rules of Court,
Section 2, Rule 9, which states that "defenses and objections not
pleaded either in a motion to dismiss or in the answer are deemed
waived." Petitioners, thus, cannot raise the same issue before the
Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal
obligation under their loan agreement, Sulpicio M. Tolentino, under
Article 1191 of the Civil Code, may choose between specific performance
or rescission with damages in either case. But since Island Savings Bank
is now prohibited from doing further business by Monetary Board
Resolution No. 967, WE cannot grant specific performance in favor of
Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that
rescission is only for the P63,000.00 balance of the P80,000.00 loan,
because the bank is in default only insofar as such amount is concerned,
as there is no doubt that the bank failed to give the P63,000.00. As far as
the partial release of P17,000.00, which Sulpicio M. Tolentino accepted
and executed a promissory note to cover it, the bank was deemed to
have complied with its reciprocal obligation to furnish a P17,000.00 loan.
The promissory note gave rise to Sulpicio M. Tolentino's reciprocal
obligation to pay the P17,000.00 loan when it falls due. His failure to pay
the overdue amortizations under the promissory note made him a party
in default, hence not entitled to rescission (Article 1191 of the Civil
Code). If there is a right to rescind the promissory note, it shall belong to
the aggrieved party, that is, Island Savings Bank. If Tolentino had not
signed a promissory note setting the date for payment of P17,000.00
within 3 years, he would be entitled to ask for rescission of the entire loan
because he cannot possibly be in default as there was no date for him to
perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective
reciprocal obligations, that is, Island Savings Bank failed to comply with
its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to
comply with his obligation to pay his P17,000.00 debt within 3 years as
stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have
committed a breach of their reciprocal obligations, the liability of the first
infractor shall be equitably tempered by the courts. WE rule that the
liability of Island Savings Bank for damages in not furnishing the entire
loan is offset by the liability of Sulpicio M. Tolentino for damages, in the
form of penalties and surcharges, for not paying his overdue P17,000.00
debt. The liability of Sulpicio M. Tolentino for interest on his PI 7,000.00
debt shall not be included in offsetting the liabilities of both parties. Since
Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00,
it is just that he should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino
cannot be entirely foreclosed to satisfy his P 17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is
the same as that of the principal contract (Banco de Oro vs. Bayuga, 93
SCRA 443 [1979]). For the debtor, the consideration of his obligation to
pay is the existence of a debt. Thus, in the accessory contract of real
estate mortgage, the consideration of the debtor in furnishing the
mortgage is the existence of a valid, voidable, or unenforceable debt (Art.
2086, in relation to Art, 2052, of the Civil Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate
mortgage, no consideration was then in existence, as there was no debt
yet because Island Savings Bank had not made any release on the loan,
does not make the real estate mortgage void for lack of consideration. It
is not necessary that any consideration should pass at the time of the
execution of the contract of real mortgage (Bonnevie vs. C.A., 125 SCRA
122 [1983]). lt may either be a prior or subsequent matter. But when the
consideration is subsequent to the mortgage, the mortgage can take
effect only when the debt secured by it is created as a binding contract to
pay (Parks vs, Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones
on Mortgage, Vol. 2, pp. 5-6). And, when there is partial failure of
consideration, the mortgage becomes unenforceable to the extent of
such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59,
1974 ed. CJS, p. 138). Where the indebtedness actually owing to the
holder of the mortgage is less than the sum named in the mortgage, the
mortgage cannot be enforced for more than the actual sum due
(Metropolitan Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th
ed., Wiltsie on Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance of
the P8O,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino
became unenforceable to such extent. P63,000.00 is 78.75% of
P80,000.00, hence the real estate mortgage covering 100 hectares is
unenforceable to the extent of 78.75 hectares. The mortgage covering
the remainder of 21.25 hectares subsists as a security for the
P17,000.00 debt. 21.25 hectares is more than sufficient to secure a
P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article
2089 of the Civil Code is inapplicable to the facts of this case.
Article 2089 provides:
A pledge or mortgage is indivisible even though the debt may be divided
among the successors in interest of the debtor or creditor.
Therefore, the debtor's heirs who has paid a part of the debt can not ask
for the proportionate extinguishment of the pledge or mortgage as long
as the debt is not completely satisfied.
Neither can the creditor's heir who have received his share of the debt
return the pledge or cancel the mortgage, to the prejudice of other heirs
who have not been paid.
The rule of indivisibility of the mortgage as outlined by Article 2089
above-quoted presupposes several heirs of the debtor or creditor which
does not obtain in this case. Hence, the rule of indivisibility of a mortgage
cannot apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED
FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN
FAVOR OF HEREIN PETITIONERS THE SUM OF P17.000.00, PLUS
P41,210.00 REPRESENTING 12% INTEREST PER ANNUM
COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22, 1985,
AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM
AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL
ESTATE MORTGAGE COVERING 21.25 HECTARES SHALL BE
FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS
HEREBY DECLARED UNEN FORCEABLE AND IS HEREBY
ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.
NO COSTS. SO ORDERED.
Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur.
Aquino (Chairman) and Abad Santos, JJ., took no part.
SPOUSES LUIGI M. GUANIO and ANNA HERNANDEZ
GUANIO, Petitioners, versus
MAKATI SHANGRI-LA HOTEL
and RESORT, INC., also doing
business under the name of
SHANGRI-LA HOTEL MANILA,
Respondent.
DECISION

CARPIO MORALES, J.

For their wedding reception on July 28, 2001, spouses Luigi M. Guanio
and Anna Hernandez-Guanio (petitioners) booked at the Shangri-la Hotel
Makati (the hotel).

Prior to the event, Makati Shangri-La Hotel & Resort, Inc. (respondent)
scheduled an initial food tasting. Petitioners claim that they requested the hotel
to prepare for seven persons ─ the two of them, their respective parents, and the
wedding coordinator. At the scheduled food tasting, however, respondent
prepared for only six.

Petitioners initially chose a set menu which included black cod, king prawns and
angel hair pasta with wild mushroom sauce for the main course which
cost P1,000.00 per person. They were, however, given an option in which
salmon, instead of king prawns, would be in the menu at P950.00 per person.
They in fact partook of the salmon.

Three days before the event, a final food tasting took place. Petitioners aver that
the salmon served was half the size of what they were served during the initial
food tasting; and when queried about it, the hotel quoted a much higher price
(P1,200.00) for the size that was initially served to them. The parties eventually
agreed on a final price ─ P1,150 per person.

A day before the event or on July 27, 2001, the parties finalized and forged their
contract.[1]
 Petitioners claim that during the reception, respondents representatives,
Catering Director Bea Marquez and Sales Manager Tessa Alvarez, did not show
up despite their assurance that they would; their guests complained of the delay
in the service of the dinner; certain items listed in the published menu were
unavailable; the hotels waiters were rude and unapologetic when confronted
about the delay; and despite Alvarezs promise that there would be no charge for
the extension of the reception beyond 12:00 midnight, they were billed and
paid P8,000 per hour for the three-hour extension of the event up to 4:00 A.M.
the next day.

Petitioners further claim that they brought wine and liquor in accordance with
their open bar arrangement, but these were not served to the guests who were
forced to pay for their drinks.

Petitioners thus sent a letter-complaint to the Makati Shangri-la Hotel and

Resort, Inc. (respondent) and received an apologetic reply from Krister
Svensson, the hotels Executive Assistant Manager in charge of Food and
Beverage. They nevertheless filed a complaint for breach of contract and
damages before the Regional Trial Court (RTC) of Makati City.

In its Answer, respondent claimed that petitioners requested a combination

of king prawns and salmon, hence, the price was increased to P1,200.00 per
person, but discounted at P1,150.00; that contrary to petitioners claim, Marquez
and Alvarez were present during the event, albeit they were not permanently
stationed thereat as there were three other hotel functions; that while there was a
delay in the service of the meals, the same was occasioned by the sudden
increase of guests to 470 from the guaranteed expected minimum number of
guests of 350 to a maximum of 380, as stated in the Banquet Event Order
(BEO);[2] and that Isaac Albacea, Banquet Service Director, in fact relayed the
delay in the service of the meals to petitioner Luigis father, Gil Guanio.

Respecting the belated service of meals to some guests, respondent attributed it

to the insistence of petitioners wedding coordinator that certain guests be served
first.

On Svenssons letter, respondent, denying it as an admission of liability, claimed

that it was meant to maintain goodwill to its customers.
By Decision of August 17, 2006, Branch 148 of the Makati RTC rendered
judgment in favor of petitioners, disposing as follows:

WHEREFORE, premises considered, judgment is hereby rendered in

favor of the plaintiffs and against the defendant ordering the
defendants to pay the plaintiff the following:

1) The amount of P350,000.00 by way of actual damages;

2) The amount of P250,000.00 for and as moral damages;
3) The amount of P100,000.00 as exemplary damages;
4) The amount of P100,000.00 for and as attorneys fees.

With costs against the defendant.

SO ORDERED.[3]

In finding for petitioners, the trial court relied heavily on the letter of Svensson
which is partly quoted below:

Upon receiving your comments on our service rendered during your

reception here with us, we are in fact, very distressed. Right from
minor issues pappadums served in the soup instead of the creutons,
lack of valet parkers, hard rolls being too hard till a major one slow
service, rude and arrogant waiters, we have disappointed you in all
means.

Indeed, we feel as strongly as you do that the services you received

were unacceptable and definitely not up to our standards. We
understand that it is our job to provide excellent service and in this
instance, we have fallen short of your expectations. We ask you
please to accept our profound apologies for causing such discomfort
and annoyance. [4] (underscoring supplied)

The trial court observed that from the tenor of the letter . . . the defendant[-
herein respondent] admits that the services the plaintiff[-herein petitioners]
received were unacceptable and definitely not up to their standards.[5]
On appeal, the Court of Appeals, by Decision of July 27, 2009,[6] reversed the
trial courts decision, it holding that the proximate cause of petitioners injury was
an unexpected increase in their guests:

x x x Hence, the alleged damage or injury brought about by the

confusion, inconvenience and disarray during the wedding reception
may not be attributed to defendant-appellant Shangri-la.

We find that the said proximate cause, which is entirely attributable

to plaintiffs-appellants, set the chain of events which resulted in the
alleged inconveniences, to the plaintiffs-appellants. Given the
circumstances that obtained, only the Sps. Guanio may bear whatever
consequential damages that they may have allegedly
suffered.[7] (underscoring supplied)

Petitioners motion for reconsideration having been denied by Resolution of

November 18, 2009, the present petition for review was filed.

The Court finds that since petitioners complaint arose from a contract, the
doctrine of proximate cause finds no application to it:
The doctrine of proximate cause is applicable only in actions
for quasi-delicts, not in actions involving breach of contract. x x x
The doctrine is a device for imputing liability to a person where there
is no relation between him and another party. In such a case, the
obligation is created by law itself. But, where there is a pre-existing
contractual relation between the parties, it is the parties themselves
who create the obligation, and the function of the law is merely to
regulate the relation thus created.[8] (emphasis and underscoring
supplied)

What applies in the present case is Article 1170 of the Civil Code which
reads:

Art. 1170. 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.
 RCPI v. Verchez, et al. [9] enlightens:

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. (emphasis
and underscoring in the original; capitalization supplied)

The pertinent provisions of the Banquet and Meeting Services

Contract between the parties read:

4.3 The ENGAGER shall be billed in accordance with the

prescribed rate for the minimum guaranteed number of persons
contracted for, regardless of under attendance or non-appearance of
the expected number of guests, except where the ENGAGER cancels
the Function in accordance with its Letter of Confirmation with the
HOTEL. Should the attendance exceed the minimum guaranteed
 attendance, the ENGAGER shall also be billed at the actual rate per
cover in excess of the minimum guaranteed attendance.

xxxx

4.5. The ENGAGER must inform the HOTEL at least forty

eight (48) hours before the scheduled date and time of the Function
of any change in the minimum guaranteed covers. In the absence of
such notice, paragraph 4.3 shall apply in the event of under
attendance. In case the actual number of attendees exceed the
minimum guaranteed number

by ten percent (10%), the HOTEL shall not in any way be held
liable for any damage or inconvenience which may be caused
thereby. The ENGAGER shall also undertake to advise the
guests of the situation and take positive steps to remedy the
same.[10] (emphasis, italics and underscoring supplied)

Breach of contract is defined as the failure without legal reason to comply

with the terms of a contract. It is also defined as the [f]ailure, without legal
excuse, to perform any promise which forms the whole or part of the contract.[11]

The appellate court, and even the trial court, observed that petitioners were
remiss in their obligation to inform respondent of the change in the expected
number of guests. The observation is reflected in the records of the
case. Petitioners failure to discharge such obligation thus excused, as the above-
quoted paragraph 4.5 of the parties contract provide, respondent from liability
for any damage or inconvenience occasioned thereby.

As for petitioners claim that respondent departed from its verbal agreement
with petitioners, the same fails, given that the written contract which the parties
entered into the day before the event, being the law between them.

Respecting the letter of Svensson on which the trial court heavily relied as
admission of respondents liability but which the appellate court brushed aside,
the Court finds the appellate courts stance in order. It is not uncommon in the
hotel industry to receive comments, criticisms or feedback on the service it
delivers. It is also customary for hotel management to try to smooth ruffled
feathers to preserve goodwill among its clientele.

Kalalo v. Luz holds:[12]

Statements which are not estoppels nor judicial admissions have no

quality of conclusiveness, and an opponent whose admissions have
been offered against him may offer any evidence which serves as an
explanation for his former assertion of what he now denies as a fact.

Respondents Catering Director, Bea Marquez, explained the hotels

procedure on receiving and processing complaints, viz:

ATTY. CALMA:
Q You mentioned that the letter indicates an acknowledgement of the
concern and that there was-the first letter there was an
acknowledgment of the concern and an apology, not necessarily
indicating that such or admitting fault?
A Yes.
Q Is this the letter that you are referring to?
If I may, Your Honor, that was the letter dated August 4, 2001,
previously marked as plaintiffs exhibits, Your Honor. What is
the procedure of the hotel with respect to customer concern?
A Upon receipt of the concern from the guest or client, we
acknowledge receipt of such concern, and as part of procedure
in service industry particularly Makati Shangri-la we apologize
for whatever inconvenience but at the same time saying, that of
course, we would go through certain investigation and get back
to them for the feedback with whatever concern they may have.
Q Your Honor, I just like at this point mark the exhibits, Your Honor,
the letter dated August 4, 2001 identified by the witness, Your
Honor, to be marked as Exhibit 14 and the signature of Mr.
Krister Svensson be marked as Exhibit 14-A.[13]
xxxx
 Q In your opinion, you just mentioned that there is a procedure that
the hotel follows with respect to the complaint, in your opinion
was this procedure followed in this particular concern?
A Yes, maam.
Q What makes you say that this procedure was followed?
A As I mentioned earlier, we proved that we did acknowledge the
concern of the client in this case and we did emphatize from the
client and apologized, and at the same time got back to them in
whatever investigation we have.
Q You said that you apologized, what did you apologize for?
A Well, first of all it is a standard that we apologize, right? Being in
the service industry, it is a practice that we apologize if there is
any inconvenience, so the purpose for apologizing is mainly to
show empathy and to ensure the client that we are hearing them
out and that we will do a better investigation and it is not in any
way that we are admitting any fault.[14] (underscoring supplied)

To the Court, the foregoing explanation of the hotels Banquet Director

overcomes any presumption of admission of breach which Svenssons letter
might have conveyed.

The exculpatory clause notwithstanding, the Court notes that respondent

could have managed the situation better, it being held in high esteem in the hotel
and service industry. Given respondents vast experience, it is safe to presume
that this is not its first encounter with booked events exceeding the guaranteed
cover. It is not audacious to expect that certain measures have been placed in
case this predicament crops up. That regardless of these measures, respondent
still received complaints as in the present case, does not amuse.

Respondent admitted that three hotel functions coincided with petitioners

reception. To the Court, the delay in service might have been avoided or
minimized if respondent exercised prescience in scheduling events. No less than
quality service should be delivered especially in events which possibility of
repetition is close to nil. Petitioners are not expected to get married twice in their
lifetimes.
 In the present petition, under considerations of equity, the Court deems it
just to award the amount of P50,000.00 by way of nominal damages to
petitioners, for the discomfiture that they were subjected to during to the
event.[15] The Court recognizes that every person is entitled to respect of his
dignity, personality, privacy and peace of mind.[16] Respondents lack of
prudence is an affront to this right.

WHEREFORE, the Court of Appeals Decision dated July 27, 2009

is PARTIALLY REVERSED. Respondent is, in light of the foregoing
discussion, ORDERED to pay the amount of P50,000.00 to petitioners by way
of nominal damages.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 23769 September 16, 1925
SONG FO & COMPANY, plaintiff-appellee,
vs.
HAWAIIAN PHILIPPINE CO., defendant-appellant.
Hilado and Hilado, Ross, Lawrence and Selph and Antonio T. Carrascoso,
Jr., for appellant.
Arroyo, Gurrea and Muller for appellee.
MALCOLM, J.:
In the court of First Instance of Iloilo, Song Fo & Company, plaintiff,
presented a complaint with two causes of action for breach of contract against
the Hawaiian-Philippine Co., defendant, in which judgment was asked for
P70,369.50, with legal interest, and costs. In an amended answer and cross-
complaint, the defendant set up the special defense that since the plaintiff had
defaulted in the payment for the molasses delivered to it by the defendant under
the contract between the parties, the latter was compelled to cancel and rescind
the said contract. The case was submitted for decision on a stipulation of facts
and the exhibits therein mentioned. The judgment of the trial court condemned
the defendant to pay to the plaintiff a total of P35,317.93, with legal interest
from the date of the presentation of the complaint, and with costs.
From the judgment of the Court of First Instance the defendant only has
appealed. In this court it has made the following assignment of errors: "I. The
lower court erred in finding that appellant had agreed to sell to the appellee
400,000, and not only 300,000, gallons of molasses. II. The lower court erred in
finding that the appellant rescinded without sufficient cause the contract for the
sale of molasses executed by it and the appellee. III. The lower court erred in
rendering judgment in favor of the appellee and not in favor of the appellant in
accordance with the prayer of its answer and cross-complaint. IV. The lower
court erred in denying appellant's motion for a new trial." The specified errors
raise three questions which we will consider in the order suggested by the
appellant.
1. Did the defendant agree to sell to the plaintiff 400,000 gallons of
molasses or 300,000 gallons of molasses? The trial court found the former
amount to be correct. The appellant contends that the smaller amount was the
basis of the agreement.
The contract of the parties is in writing. It is found principally in the
documents, Exhibits F and G. The First mentioned exhibit is a letter addressed
by the administrator of the Hawaiian-Philippine Co. to Song Fo & Company on
December 13, 1922. It reads:
SILAY, OCC. NEGROS,
P.I.
December 13, 1922
Messrs. SONG FO AND CO.
Iloilo, Iloilo.
DEAR SIRS: Confirming our conversation we had today with your Mr.
Song Fo, who visited this Central, we wish to state as follows:
He agreed to the delivery of 300,000 gallons of molasses at the same price
as last year under the same condition, and the same to start after the completion
of our grinding season. He requested if possible to let you have molasses during
January, February and March or in other words, while we are grinding, and we
agreed with him that we would to the best of our ability, altho we are somewhat
handicapped. But we believe we can let you have 25,000 gallons during each of
the milling months, altho it interfere with the shipping of our own and planters
sugars to Iloilo. Mr. Song Fo also asked if we could supply him with another
100,000 gallons of molasses, and we stated we believe that this is possible and
will do our best to let you have these extra 100,000 gallons during the next year
the same to be taken by you before November 1st, 1923, along with the 300,000,
making 400,000 gallons in all.
Regarding the payment for our molasses, Mr. Song Fo gave us to
understand that you would pay us at the end of each month for molasses
delivered to you.
Hoping that this is satisfactory and awaiting your answer regarding this
matter, we remain.
Yours very truly,
HAWAIIAN-PHILIPPINE
COMPANY
BY R. C. PITCAIRN
Administrator.
Exhibit G is the answer of the manager of Song Fo & Company to the
Hawaiian-Philippine Co. on December 16, 1922. This letter reads:
December 16th, 1922.
Messrs. HAWAIIAN-PHILIPPINE CO.,
Silay, Neg. Occ., P.I.
DEAR SIRS: We are in receipt of your favours dated the 9th and the 13th
inst. and understood all their contents.
In connection to yours of the 13th inst. we regret to hear that you
mentioned Mr. Song Fo the one who visited your Central, but it was not for he
was Mr. Song Heng, the representative and the manager of Messrs. Song Fo &
Co.
With reference to the contents of your letter dated the 13th inst. we
confirm all the arrangements you have stated and in order to make the contract
clear, we hereby quote below our old contract as amended, as per our new
arrangements.
(a) Price, at 2 cents per gallon delivered at the central.
 (b) All handling charges and expenses at the central and at the dock at
Mambaguid for our account.
(c) For services of one locomotive and flat cars necessary for our six tanks
at the rate of P48 for the round trip dock to central and central to dock. This
service to be restricted to one trip for the six tanks.
Yours very truly,
SONG FO &
COMPANY
By
__________________________
Manager.
We agree with appellant that the above quoted correspondence is
susceptible of but one interpretation. The Hawaiian-Philippine Co. agreed to
deliver to Song Fo & Company 300,000 gallons of molasses. The Hawaiian-
Philippine Co. also believed it possible to accommodate Song Fo & Company
by supplying the latter company with an extra 100,000 gallons. But the language
used with reference to the additional 100,000 gallons was not a definite promise.
Still less did it constitute an obligation.
If Exhibit T relied upon by the trial court shows anything, it is simply that
the defendant did not consider itself obliged to deliver to the plaintiff molasses
in any amount. On the other hand, Exhibit A, a letter written by the manager of
Song Fo & Company on October 17, 1922, expressly mentions an understanding
between the parties of a contract for P300,000 gallons of molasses.
We sustain appellant's point of view on the first question and rule that the
contract between the parties provided for the delivery by the Hawaiian-
Philippine Co. to song Fo & Company of 300,000 gallons of molasses.
2. Had the Hawaiian-Philippine Co. the right to rescind the contract of sale
made with Song Fo & Company? The trial judge answers No, the appellant Yes.
 Turning to Exhibit F, we note this sentence: "Regarding the payment for
our molasses, Mr. Song Fo (Mr. Song Heng) gave us to understand that you
would pay us at the end of each month for molasses delivered to you." In Exhibit
G, we find Song Fo & Company stating that they understand the contents of
Exhibit F, and that they confirm all the arrangements you have stated, and in
order to make the contract clear, we hereby quote below our old contract as
amended, as per our new arrangements. (a) Price, at 2 cents per gallon delivered
at the central." In connection with the portion of the contract having reference to
the payment for the molasses, the parties have agree on a table showing the date
of delivery of the molasses, the amount and date thereof, the date of receipt of
account by plaintiff, and date of payment. The table mentioned is as follows:
Date of
receipt of
Account and date
Date of delivery account Date of payment
thereof
by
plaintiff

1922 1923 1923

Dec. 18 P206.16 Dec.26/22 Jan. 5 Feb. 20

Dec. 29 206.16 Jan. 3/23 do Do

1923

Jan. 5 206.16 Jan. 9/23 Mar.7or 8 Mar. 31

Feb. 12 206.16 Mar.12/23 do Do

Feb. 27 206.16 do do Do

Mar. 5 206.16 do do Do

Mar. 16 206.16 Mar.20/23 Apr. 2/23 Apr. 19

 Mar. 24 206.16 Mar.31/23 do Do

Mar. 29 206.16 do do Do
Some doubt has risen as to when Song Fo & Company was expected to
make payments for the molasses delivered. Exhibit F speaks of payments "at the
end of each month." Exhibit G is silent on the point. Exhibit M, a letter of March
28, 1923, from Warner, Barnes & Co., Ltd., the agent of the Hawaiian-
Philippine Co. to Song Fo & Company, mentions "payment on presentation of
bills for each delivery." Exhibit O, another letter from Warner, Barnes & Co.,
Ltd. to Song Fo & Company dated April 2, 1923, is of a similar tenor. Exhibit P,
a communication sent direct by the Hawaiian-Philippine Co. to Song Fo &
Company on April 2, 1923, by which the Hawaiian-Philippine Co. gave notice
of the termination of the contract, gave as the reason for the rescission, the
breach by Song Fo & Company of this condition: "You will recall that under the
arrangements made for taking our molasses, you were to meet our accounts upon
presentation and at each delivery." Not far removed from this statement, is the
allegation of plaintiff in its complaint that "plaintiff agreed to pay defendant, at
the end of each month upon presentation accounts."
Resolving such ambiguity as exists and having in mind ordinary business
practice, a reasonable deduction is that Song Fo & Company was to pay the
Hawaiian-Philippine Co. upon presentation of accounts at the end of each
month. Under this hypothesis, Song Fo & Company should have paid for the
molasses delivered in December, 1922, and for which accounts were received by
it on January 5, 1923, not later than January 31 of that year. Instead, payment
was not made until February 20, 1923. All the rest of the molasses was paid for
either on time or ahead of time.
The terms of payment fixed by the parties are controlling. The time of
payment stipulated for in the contract should be treated as of the essence of the
contract. Theoretically, agreeable to certain conditions which could easily be
imagined, the Hawaiian-Philippine Co. would have had the right to rescind the
contract because of the breach of Song Fo & Company. But actually, there is
here present no outstanding fact which would legally sanction the rescission of
the contract by the Hawaiian-Philippine Co.
The general rule is that rescission will not be permitted for a slight or
casual breach of the contract, but only for such breaches as are so substantial and
fundamental as to defeat the object of the parties in making the agreement. A
delay in payment for a small quantity of molasses for some twenty days is not
such a violation of an essential condition of the contract was warrants rescission
for non-performance. Not only this, but the Hawaiian-Philippine Co. waived this
condition when it arose by accepting payment of the overdue accounts and
continuing with the contract. Thereafter, Song Fo & Company was not in default
in payment so that the Hawaiian-Philippine co. had in reality no excuse for
writing its letter of April 2, 1923, cancelling the contract. (Warner, Barnes &
Co. vs. Inza [1922], 43 Phil., 505.)
We rule that the appellant had no legal right to rescind the contract of sale
because of the failure of Song Fo & Company to pay for the molasses within the
time agreed upon by the parties. We sustain the finding of the trial judge in this
respect.
3. On the basis first, of a contract for 300,000 gallons of molasses, and
second, of a contract imprudently breached by the Hawaiian-Philippine Co.,
what is the measure of damages? We again turn to the facts as agreed upon by
the parties.
The first cause of action of the plaintiff is based on the greater expense to
which it was put in being compelled to secure molasses from other sources.
Three hundred thousand gallons of molasses was the total of the agreement, as
we have seen. As conceded by the plaintiff, 55,006 gallons of molasses were
delivered by the defendant to the plaintiff before the breach. This leaves 244,994
gallons of molasses undelivered which the plaintiff had to purchase in the open
market. As expressly conceded by the plaintiff at page 25 of its brief, 100,000
gallons of molasses were secured from the Central North Negros Sugar Co., Inc.,
at two centavos a gallon. As this is the same price specified in the contract
between the plaintiff and the defendant, the plaintiff accordingly suffered no
material loss in having to make this purchase. So 244,994 gallons minus the
100,000 gallons just mentioned leaves as a result 144,994 gallons. As to this
amount, the plaintiff admits that it could have secured it and more from the
Central Victorias Milling Company, at three and one-half centavos per gallon. In
other words, the plaintiff had to pay the Central Victorias Milling company one
and one-half centavos a gallon more for the molasses than it would have had to
pay the Hawaiian-Philippine Co. Translated into pesos and centavos, this meant
a loss to the plaintiff of approximately P2,174.91. As the conditions existing at
the central of the Hawaiian-Philippine Co. may have been different than those
found at the Central North Negros Sugar Co., Inc., and the Central Victorias
Milling Company, and as not alone through the delay but through expenses of
transportation and incidental expenses, the plaintiff may have been put to greater
cost in making the purchase of the molasses in the open market, we would
concede under the first cause of action in round figures P3,000.
The second cause of action relates to lost profits on account of the breach
of the contract. The only evidence in the record on this question is the stipulation
of counsel to the effect that had Mr. Song Heng, the manager of Song Fo &
Company, been called as a witness, he would have testified that the plaintiff
would have realized a profit of P14,948.43, if the contract of December 13,
1922, had been fulfilled by the defendant. Indisputably, this statement falls far
short of presenting proof on which to make a finding as to damages.
In the first place, the testimony which Mr. Song Heng would have given
undoubtedly would follow the same line of thought as found in the decision of
the trial court, which we have found to be unsustainable. In the second place,
had Mr. Song Heng taken the witness-stand and made the statement attributed to
him, it would have been insufficient proof of the allegations of the complaint,
and the fact that it is a part of the stipulation by counsel does not change this
result. And lastly, the testimony of the witness Song Heng, it we may dignify it
as such, is a mere conclusion, not a proven fact. As to what items up the more
than P14,000 of alleged lost profits, whether loss of sales or loss of customers,
or what not, we have no means of knowing.
We rule that the plaintiff is entitled to recover damages from the defendant
for breach of contract on the first cause of action in the amount of P3,000 and on
the second cause of action in no amount. Appellant's assignments of error are
accordingly found to be well taken in part and not well taken in part.
Agreeable to the foregoing, the judgment appealed from shall be modified
and the plaintiff shall have and recover from the defendant the sum of P3,000,
with legal interest form October 2, 1923, until payment. Without special finding
as to costs in either instance, it is so ordered.
Avanceña, C.J., Johnson, Street, Villamor, Ostrand, Johns, Romualdez and
Villa-Real, JJ., concur.
 G.R. No. 108346 July 11, 2001
Spouses MARIANO Z. VELARDE and AVELINA D.
VELARDE, petitioners,
vs.
COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE
RAYMUNDO, respondents.
PANGANIBAN, J.:
A substantial breach of a reciprocal obligation, like failure to pay the price
in the manner prescribed by the contract, entitled the injured party to rescind the
obligation. Rescission abrogates the contract from its inception and requires a
mutual restitution of benefits received.
The Case
Before us is a Petition for Review on Certiorari1 questioning the
Decision2 of the Court of Appeals (CA) in CA-GR CV No. 32991 dated October
9, 1992, as well as its Resolution3 dated December 29, 1992 denying petitioner's
motion for reconsideration.4
The dispositive portion of the assailed Decision reads:
"WHEREFORES the Order dated May 15, 1991 is hereby ANNULLED
and SET ASIDE and the Decision dated November 14, 1990 dismissing the
[C]omplaint is RESINSTATED. The bonds posted by plaintiffs-appellees and
defendants-appellants are hereby RELEASED."5
The Facts
The factual antecedents of the case, as found by the CA, are as follows:
"x x x. David Raymundo [herein private respondent] is the absolute and
registered owner of a parcel of land, together with the house and other
improvements thereon, located at 1918 Kamias St., Dasmariñas Village, Makati
and covered by TCT No. 142177. Defendant George Raymundo [herein private
petitioners] is David's father who negotiated with plaintiffs Avelina and Mariano
Velarde [herein petitioners] for the sale of said property, which was, however,
under lease (Exh. '6', p. 232, Record of Civil Case No. 15952).
 "On August 8, 1986, a Deed of Sale with Assumption of Mortgage (Exh.
'A'; Exh. '1', pp. 11-12, Record) was executed by defendant David Raymundo, as
vendor, in favor of plaintiff Avelina Velarde, as vendee, with the following
terms and conditions:
'x x x xxx xxx
'That for and in consideration of the amount of EIGHT HUNDRED
THOUSAND PESOS (P800,000.00), Philippine currency, receipt of which in
full is hereby acknowledged by the VENDOR from the VENDEE, to his entire
and complete satisfaction, by these presents the VENDOR hereby SELLS,
CEDES, TRANSFERS, CONVEYS AND DELIVERS, freely and voluntarily,
with full warranty of a legal and valid title as provided by law, unto the
VENDEE, her heirs, successors and assigns, the parcel of land mentioned and
described above, together with the house and other improvements thereon.
'That the aforesaid parcel of land, together with the house and other
improvements thereon, were mortgaged by the VENDOR to the BANK OF THE
PHILIPPINE ISLANDS, Makati, Metro Manila to secure the payment of a loan
of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00),
Philippine currency, as evidenced by a Real Estate Mortgage signed and
executed by the VENDOR in favor of the said Bank of the Philippine Islands, on
_____ and which Real Estate Mortgage was ratified before Notary Public for
Makati, _____, as Doc. No. ______, Page No. _____, Book No. ___, Series of
1986 of his Notarial Register.
'That as part of the consideration of this sale, the VENDEE hereby assumes
to pay the mortgage obligations on the property herein sold in the amount of
ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00),
Philippine currency, in favor of Bank of Philippine Islands, in the name of the
VENDOR, and further agrees to strictly and faithfully comply with all the terms
and conditions appearing in the Real Estate Mortgage signed and executed by
the VENDOR in favor of BPI, including interests and other charges for late
payment levied by the Bank, as if the same were originally signed and executed
by the VENDEE.
'It is further agreed and understood by the parties herein that the capital
gains tax and documentary stamps on the sale shall be for the account of the
VENDOR; whereas, the registration fees and transfer tax thereon shall be the
account of the VENDEE.' (Exh. 'A', pp. 11-12, Record).'
"On the same date, and as part of the above-document, plaintiff Avelina
Velarde, with the consent of her husband, Mariano, executed an Undertaking
(Exh. 'C', pp. 13-14, Record).'
'x x x xxx xxx
'Whereas, as per deed of Sale with Assumption of Mortgage, I paid Mr.
David A. Raymundo the sum of EIGHT HUNDRED THOUSAND PESOS
(P800,000.00), Philippine currency, and assume the mortgage obligations on the
property with the Bank of the Philippine Islands in the amount of ONE
MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00),
Philippine currency, in accordance with the terms and conditions of the Deed of
Real Estate Mortgage dated _____, signed and executed by Mr. David A.
Raymundo with the said Bank, acknowledged before Notary Public for Makati,
_____, as Doc. No. _____, Page No. _____, Book No. _____, Series of 1986 of
his Notarial Register.
'WHEREAS, while my application for the assumption of the mortgage
obligations on the property is not yet approved by the mortgagee Bank, I have
agreed to pay the mortgage obligations on the property with the Bank in the
name of Mr. David A. Raymundo, in accordance with the terms and conditions
of the said Deed of Real Estate Mortgage, including all interests and other
charges for late payment.
'WHEREAS, this undertaking is being executed in favor of Mr. David A.
Raymundo, for purposes of attesting and confirming our private understanding
concerning the said mortgage obligations to be assumed.
 'NOW, THEREFORE, for and in consideration of the foregoing premises,
and the assumption of the mortgage obligations of ONE MILLION EIGHT
HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, with
the bank of the Philippine Islands, I, Mrs, Avelina D, Velarde with the consent
of my husband, Mariano Z. Velardo, do hereby bind and obligate myself, my
heirs, successors and assigns, to strictly and faithfully comply with the following
terms and conditions:
'1. That until such time as my assumption of the mortgage obligations on
the property purchased is approved by the mortgagee bank, the Bank of the
Philippine Islands, I shall continue to pay the said loan in accordance with the
terms and conditions of the Deed of Real Estate Mortgage in the name of Mr.
David A. Raymundo, the original Mortgagor.
'2. That, in the event I violate any of the terms and conditions of the said
Deed of Real Estate Mortgage, I hereby agree that my downpayment of
P800,000.00, plus all payments made with the Bank of the Philippine Islands on
the mortgage loan, shall be forfeited in favor of Mr. David A. Raymundo, as and
by way of liquidated damages, without necessity of notice or any judicial
declaration to that effect, and Mr. David A. Raymundo shall resume total and
complete ownership and possession of the property sold by way of Deed of Sale
with Assumption of Mortgage, and the same shall be deemed automatically
cancelled and be of no further force or effect, in the same manner as it (the)
same had never been executed or entered into.
'3. That I am executing the Undertaking for purposes of binding myself,
my heirs, successors and assigns, to strictly and faithfully comply with the terms
and conditions of the mortgage obligations with the Bank of the Philippine
Islands, and the covenants, stipulations and provisions of this Undertaking.
'That, David A. Raymundo, the vendor of the property mentioned and
identified above, [does] hereby confirm and agree to the undertakings of the
Vendee pertinent to the assumption of the mortgage obligations by the Vendee
with the Bank of the Philippine Islands. (Exh. 'C', pp. 13-14, Record).'
 "This undertaking was signed by Avelina and Mariano Velarde and David
Raymundo.
"It appears that the negotiated terms for the payment of the balance of P1.8
million was from the proceeds of a loan that plaintiffs were to secure from a
bank with defendant's help. Defendants had a standing approved credit line with
the Bank of the Philippine Islands (BPI). The parties agreed to avail of this,
subject to BPI's approval of an application for assumption of mortgage by
plaintiffs. Pending BPI's approval o[f] the application, plaintiffs were to continue
paying the monthly interests of the loan secured by a real estate mortgage.
"Pursuant to said agreements, plaintiffs paid BPI the monthly interest on
the loan secured by the aforementioned mortgage for three (3) months as
follows: September 19, 1986 at P27,225.00; October 20, 1986 at P23,000.00;
and November 19, 1986 at P23,925.00 (Exh. 'E', 'H' & 'J', pp. 15, 17and 18,
Record).
"On December 15, 1986, plaintiffs were advised that the Application for
Assumption of Mortgage with BPI, was not approved (Exh. 'J', p. 133, Record).
This prompted plaintiffs not to make any further payment.
"On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing
the latter that their non-payment to the mortgage bank constitute[d] non-
performance of their obligation (Exh. '3', p. 220, Record).
"In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as
follows:
'This is to advise you, therefore, that our client is willing to pay the balance
in cash not later than January 21, 1987 provided: (a) you deliver actual
possession of the property to her not later than January 15, 1987 for her
immediate occupancy; (b) you cause the re- lease of title and mortgage from the
Bank of P.I. and make the title available and free from any liens and
encumbrances; and (c) you execute an absolute deed of sale in her favor free
from any liens or encumbrances not later than January 21, 1987.' (Exhs. 'k', '4', p.
223, Record).
 "On January 8, 1987 defendants sent plaintiffs a notarial notice of
cancellation/rescission of the intended saleof the subject property allegedly due
to the latter's failure to comply with the terms and conditions of the Deed of Sale
with Assumption of Mortgage and the Undertaking (Exh. '5', pp. 225-226,
Record)."6
Consequently, petitioners filed on February 9, 1987 a Complaint against
private respondents for specific performance, nullity of cancellation, writ of
possession and damages. This was docketed as Civil Case No. 15952 at the
Regional Trial Court of Makati, Branch 149. The case was tried and heard by
then Judge Consuelo Ynares-Santiago (now an associate justice of this Court),
who dismissed the Complaint in a Decision dated November 14,
1990.7 Thereafter, petitioners filed a Motion for Reconsideration.8
Meanwhile, then Judge Ynares-Santiago was promoted to the Court of
Appeals and Judge Salvador S. A. Abad Santos was assigned to the sala she
vacated. In an Order dated May 15, 1991,9 Judge Abad Santos granted
petitioner's Motion for Reconsideration and directed the parties to proceed with
the sale. He instructed petitioners to pay the balance of P1.8 million to private
respondents who, in turn, were ordered to execute a deed of absolute sale and to
surrender possession of the disputed property to petitioners.
Private respondents appealed to the CA.
Ruling of the Court of Appeal
The CA set aside the Order of Judge Abad Santos and reinstated then
Judge Ynares-Santiago's earlier Decision dismissing petitioners' Complaint.
Upholding the validity of the rescission made by private respondents, the CA
explained its ruling in this wise:
"In the Deed of Sale with Assumption of Mortgage, it was stipulated that
'as part of the consideration of this sale, the VENDEE (Velarde)' would assume
to pay the mortgage obligation on the subject property in the amount of P 1.8
million in favor of BPI in the name of the Vendor (Raymundo). Since the price
to be paid by the Vendee Velarde includes the downpayment of P800,000.00 and
the balance of Pl.8 million, and the balance of Pl.8 million cannot be paid in
cash, Vendee Velarde, as part of the consideration of the sale, had to assume the
mortgage obligation on the subject property. In other words, the assumption of
the mortgage obligation is part of the obligation of Velarde, as vendee, under the
contract. Velarde further agreed 'to strictly and faithfully comply with all the
terms and conditions appearing in the Real Estate Mortgage signed and executed
by the VENDOR in favor of BPI x x x as if the same were originally signed and
executed by the Vendee. (p. 2, thereof, p. 12, Record). This was reiterated by
Velarde in the document entitled 'Undertaking' wherein the latter agreed to
continue paying said loan in accordance with the terms and conditions of the
Deed of Real Estate Mortgage in the name of Raymundo. Moreover, it was
stipulated that in the event of violation by Velarde of any terms and conditions
of said deed of real estate mortgage, the downpayment of P800,000.00 plus all
payments made with BPI or the mortgage loan would be forfeited and the
[D]eed of [S]ale with [A]ssumption of [M]ortgage would thereby be Cancelled
automatically and of no force and effect (pars. 2 & 3, thereof, pp 13-14, Record).
"From these 2 documents, it is therefore clear that part of the consideration
of the sale was the assumption by Velarde of the mortgage obligation of
Raymundo in the amount of Pl.8 million. This would mean that Velarde had to
make payments to BPI under the [D]eed of [R]eal [E]state [M]ortgage the name
of Raymundo. The application with BPI for the approval of the assumption of
mortgage would mean that, in case of approval, payment of the mortgage
obligation will now be in the name of Velarde. And in the event said application
is disapproved, Velarde had to pay in full. This is alleged and admitted in
Paragraph 5 of the Complaint. Mariano Velarde likewise admitted this fact
during the hearing on September 15, 1997 (p. 47, t.s.n., September 15, 1987; see
also pp. 16-26, t.s.n., October 8, 1989). This being the case, the non-payment of
the mortgage obligation would result in a violation of the contract. And, upon
Velarde's failure to pay the agreed price, the[n] Raymundo may choose either of
two (2) actions - (1) demand fulfillment of the contract, or (2) demand its
rescission (Article 1191, Civil Code).
"The disapproval by BPI of the application for assumption of mortgage
cannot be used as an excuse for Velarde's non-payment of the balance of the
purchase price. As borne out by the evidence, Velarde had to pay in full in case
of BPI's disapproval of the application for assumption of mortgage. What
Velarde should have done was to pay the balance of P1.8 million. Instead,
Velarde sent Raymundo a letter dated January 7, 1987 (Exh. 'K', '4') which was
strongly given weight by the lower court in reversing the decision rendered by
then Judge Ynares-Santiago. In said letter, Velarde registered their willingness
to pay the balance in cash but enumerated 3 new conditions which, to the mind
of this Court, would constitute a new undertaking or new agreement which is
subject to the consent or approval of Raymundo. These 3 conditions were not
among those previously agreed upon by Velarde and Raymundo. These are mere
offers or, at most, an attempt to novate. But then again, there can be no novation
because there was no agreement of all the parties to the new contract (Garcia, Jr.
vs. Court of Appeals, 191 SCRA 493).
"It was likewise agreed that in case of violation of the mortgage obligation,
the Deed of Sale with Assumption of Mortgage would be deemed 'automatically
cancelled and of no further force and effect, as if the same had never been
executed or entered into.' While it is true that even if the contract expressly
provided for automatic rescission upon failure to pay the price, the vendee may
still pay, he may do so only for as long as no demand for rescission of the
contract has been made upon him either judicially or by a notarial act (Article
1592, Civil Code). In the case at bar, Raymundo sent Velarde notarial notice
dated January 8, 1987 of cancellation/rescission of the contract due to the latter's
failure to comply with their obligation. The rescission was justified in view of
Velarde's failure to pay the price (balance) which is substantial and fundamental
as to defeat the object of the parties in making the agreement. As adverted to
above, the agreement of the parties involved a reciprocal obligation wherein the
obligation of one is a resolutory condition of the obligation of the other, the non-
fulfillment of which entitles the other party to rescind the contract (Songcuan vs.
IAC, 191 SCRA 28). Thus, the non-payment of the mortgage obligation by
appellees Velarde would create a right to demand payment or to rescind the
contract, or to criminal prosecution (Edca Publishing & Distribution Corporation
vs. Santos, 184 SCRA 614). Upon appellee's failure, therefore, to pay the
balance, the contract was properly rescinded (Ruiz vs. IAC, 184 SCRA 720).
Consequently, appellees Velarde having violated the contract, they have lost
their right to its enforcement and hence, cannot avail of the action for specific
performance (Voysaw vs. Interphil Promotions, Inc., 148 SCRA 635)."10
Hence, this appeal. 11
The Issues
Petitioners, in their Memorandum,12 interpose the following assignment of
errors:
"I.
The Court of Appeals erred in holding that the non-payment of the
mortgage obligation resulted in a breach of the contract.
"II
The Court of Appeals erred in holding that the rescission (resolution) of
the contract by private respondents was justified.
"III
The Court of Appeals erred in holding that petitioners' January 7, 1987
letter gave three 'new conditions' constituting mere offers or an attempt to novate
necessitating a new agreement between the parties."
The Court's Ruling
The Petition is partially meritorious.
First Issue:
Breach of Contract
Petitioner aver that their nonpayment of private respondents' mortgage
obligation did not constitute a breach of contract, considering that their request
to assume the obligation had been disapproved by the mortgagee bank.
Accordingly, payment of the monthly amortizations ceased to be their obligation
and, instead, it devolved upon private respondents again.
However, petitioners did not merely stop paying the mortgage obligations;
they also failed to pay the balance of the purchase price. As admitted by both
parties, their agreement mandated that petitioners should pay the purchase price
balance of P1.8 million to private respondents in case the request to assume the
mortgage would be disapproved. Thus, on December 15, 1986, when petitioners
received notice of the bank's disapproval of their application to assume
respondents' mortgage, they should have paid the balance of the P1.8 million
loan.
Instead of doing so, petitioners sent a letter to private respondents offering
to make such payment only upon the fulfillment of certain conditions not
originally agreed upon in the contract of sale. Such conditional offer to pay
cannot take the place of actual payment as would discharge the obligation of a
buyer under a contract of sale.
In a contract of sale, the seller obligates itself to transfer the ownership of
and deliver a determinate things, and the buyer to pay therefor a price certain in
money or its equivalent.13
Private respondents had already performed their obligation through the
execution of the Deed of Sale, which effectively transferred ownership of the
property to petitioner through constructive delivery. Prior physical delivery or
possession is not legally required, and the execution of the Deed of Sale is
deemed equivalent to delivery.14
Petitioners, on the other hand, did not perform their correlative obligation
of paying the contract price in the manner agreed upon. Worse, they wanted
private respondents to perform obligations beyond those stipulated in the
contract before fulfilling their own obligation to pay the full purchase price.
Second Issue
Validity of the Rescission
 Petitioners likewise claim that the rescission of the contract by private
respondents was not justified, inasmuch as the former had signified their
willingness to pay the balance of the purchase price only a little over a month
from the time they were notified of the disapproval of their application for
assumption of mortgage. Petitioners also aver that the breach of the contract was
not substantial as would warrant a rescission. They cite several cases 15 in which
this Court declared that rescission of a contract would not be permitted for a
slight or casual breach. Finally, they argue that they have substantially
performed their obligation in good faith, considering that they have already
made the initial payment of P800,000 and three (3) monthly mortgage payments.
As pointed out earlier, the breach committed by petitioners was not so
much their nonpayment of the mortgage obligations, as their nonperformance of
their reciprocal obligation to pay the purchase price under the contract of sale.
Private respondents' right to rescind the contract finds basis in Article 1191 of
the Civil Code, which explicitly provides as follows:
"Art. 1191. -- The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission even after he has chosen fulfillment, if the latter should become
impossible."
The right of rescission of a party to an obligation under Article 1191 of the
Civil Code is predicated on a breach of faith by the other party who violates the
reciprocity between them.16 The breach contemplated in the said provision is the
obligor's failure to comply with an existing obligation. 17 When the obligor
cannot comply with what is incumbent upon it, the obligee may seek rescission
and, in the absence of any just cause for the court to determine the period of
compliance, the court shall decree the rescission.18
 In the present case, private respondents validly exercised their right to
rescind the contract, because of the failure of petitioners to comply with their
obligation to pay the balance of the purchase price. Indubitably, the latter
violated the very essence of reciprocity in the contract of sale, a violation that
consequently gave rise to private respondent's right to rescind the same in
accordance with law.
True, petitioners expressed their willingness to pay the balance of the
purchase price one month after it became due; however, this was not equivalent
to actual payment as would constitute a faithful compliance of their reciprocal
obligation. Moreover, the offer to pay was conditioned on the performance by
private respondents of additional burdens that had not been agreed upon in the
original contract. Thus, it cannot be said that the breach committed by
petitioners was merely slight or casual as would preclude the exercise of the
right to rescind.
Misplaced is petitioners' reliance on the cases19 they cited, because the
factual circumstances in those cases are not analogous to those in the present
one. In Song Fo there was, on the part of the buyer, only a delay of twenty (20)
days to pay for the goods delivered. Moreover, the buyer's offer to pay was
unconditional and was accepted by the seller.
In Zepeda, the breach involved a mere one-week delay in paying the
balance of 1,000 which was actually paid.
In Tan, the alleged breach was private respondent's delay of only a few
days, which was for the purpose of clearing the title to the property; there was no
reference whatsoever to the nonpayment of the contract price.
In the instant case, the breach committed did not merely consist of a slight
delay in payment or an irregularity; such breach would not normally defeat the
intention of the parties to the contract. Here, petitioners not only failed to pay the
P1.8 million balance, but they also imposed upon private respondents new
obligations as preconditions to the performance of their own obligation. In
effect, the qualified offer to pay was a repudiation of an existing obligation,
which was legally due and demandable under the contract of sale. Hence, private
respondents were left with the legal option of seeking rescission to protect their
own interest.
Mutual Restitution
Required in Rescission
As discussed earlier, the breach committed by petitioners was the
nonperformance of a reciprocal obligation, not a violation of the terms and
conditions of the mortgage contract. Therefore, the automatic rescission and
forfeiture of payment clauses stipulated in the contract does not apply. Instead,
Civil Code provisions shall govern and regulate the resolution of this
controversy.
Considering that the rescission of the contract is based on Article 1191 of
the Civil Code, mutual restitution is required to bring back the parties to their
original situation prior to the inception of the contract. Accordingly, the initial
payment of P800,000 and the corresponding mortgage payments in the amounts
of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by
petitioners should be returned by private respondents, lest the latter unjustly
enrich themselves at the expense of the former.
Rescission creates the obligation to return the object of the contract. It can
be carried out only when the one who demands rescission can return whatever
he may be obliged to restore.20 To rescind is to declare a contract void at its
inception and to put an end to it as though it never was. It is not merely to
terminate it and release the parties from further obligations to each other, but to
abrogate it from the beginning and restore the parties to their relative positions
as if no contract has been made.21

Third Issue
Attempt to Novate
 In view of the foregoing discussion, the Court finds it no longer necessary
to discuss the third issue raised by petitioners. Suffice it to say that the three
conditions appearing on the January 7, 1987 letter of petitioners to private
respondents were not part of the original contract. By that time, it was already
incumbent upon the former to pay the balance of the sale price. They had no
right to demand preconditions to the fulfillment of their obligation, which had
become due.
WHEREFORE, the assailed Decision is hereby AFFIRMED with
the MODIFICATION that private respondents are ordered to return to
petitioners the amount of P874,150, which the latter paid as a consequence of
the rescinded contract, with legal interest thereon from January 8, 1987, the date
of rescission. No pronouncement as to costs.
SO ORDERED.
 G.R. No. L-4811 July 31, 1953
CHARLES F. WOODHOUSE, plaintiff-appellant,
vs.
FORTUNATO F. HALILI, defendant-appellant.
Tañada, Pelaez & Teehankee for defendant and appellant.
Gibbs, Gibbs, Chuidian & Quasha for plaintiff and appellant.
LABRADOR, J.:
On November 29, 1947, the plaintiff entered on a written agreement,
Exhibit A, with the defendant, the most important provisions of which are (1)
that they shall organize a partnership for the bottling and distribution of Mision
soft drinks, plaintiff to act as industrial partner or manager, and the defendant as
a capitalist, furnishing the capital necessary therefor; (2) that the defendant was
to decide matters of general policy regarding the business, while the plaintiff
was to attend to the operation and development of the bottling plant; (3) that the
plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of the
proposed partnership; and (4) that the plaintiff was to receive 30 per cent of the
net profits of the business. The above agreement was arrived at after various
conferences and consultations by and between them, with the assistance of their
respective attorneys. Prior to entering into this agreement, plaintiff had informed
the Mission Dry Corporation of Los Angeles, California, U.S.A., manufacturers
of the bases and ingridients of the beverages bearing its name, that he had
interested a prominent financier (defendant herein) in the business, who was
willing to invest half a million dollars in the bottling and distribution of the said
beverages, and requested, in order that he may close the deal with him, that the
right to bottle and distribute be granted him for a limited time under the
condition that it will finally be transferred to the corporation (Exhibit H).
Pursuant for this request, plaintiff was given "a thirty-days" option on exclusive
bottling and distribution rights for the Philippines" (Exhibit J). Formal
negotiations between plaintiff and defendant began at a meeting on November
27, 1947, at the Manila Hotel, with their lawyers attending. Before this meeting
plaintiff's lawyer had prepared the draft of the agreement, Exhibit II or OO, but
this was not satisfactory because a partnership, instead of a corporation, was
desired. Defendant's lawyer prepared after the meeting his own draft, Exhibit
HH. This last draft appears to be the main basis of the agreement, Exhibit A.
The contract was finally signed by plaintiff on December 3, 1947. Plaintiff
did not like to go to the United States without the agreement being not first
signed. On that day plaintiff and defendant went to the United States, and on
December 10, 1947, a franchise agreement (Exhibit V) was entered into the
Mission Dry Corporation and Fortunato F. Halili and/or Charles F. Woodhouse,
granted defendant the exclusive right, license, and authority to produce, bottle,
distribute, and sell Mision beverages in the Philippines. The plaintiff and the
defendant thereafter returned to the Philippines. Plaintiff reported for duty in
January, 1948, but operations were not begun until the first week of February,
1948. In January plaintiff was given as advance, on account of profits, the sum
of P2,000, besides the use of a car; in February, 1948, also P2,000, and in March
only P1,000. The car was withdrawn from plaintiff on March 9, 1948.
When the bottling plant was already on operation, plaintiff demanded of
defendant that the partnership papers be executed. At first defendant executed
himself, saying there was no hurry. Then he promised to do so after the sales of
the product had been increased to P50,000. As nothing definite was forthcoming,
after this condition was attained, and as defendant refused to give further
allowances to plaintiff, the latter caused his attorneys to take up the matter with
the defendant with a view to a possible settlement. as none could be arrived at,
the present action was instituted.
In his complaint plaintiff asks for the execution of the contract of
partnership, an accounting of the profits, and a share thereof of 30 per cent, as
well as damages in the amount of P200,000. In his answer defendant alleges by
way of defense (1) that defendant's consent to the agreement, Exhibit A, was
secured by the representation of plaintiff that he was the owner, or was about to
become owner of an exclusive bottling franchise, which representation was
false, and plaintiff did not secure the franchise, but was given to defendant
himself; (2) that defendant did not fail to carry out his undertakings, but that it
was plaintiff who failed; (3) that plaintiff agreed to contribute the exclusive
franchise to the partnership, but plaintiff failed to do so. He also presented a
counter-claim for P200,000 as damages. On these issues the parties went to trial,
and thereafter the Court of First Instance rendered judgment ordering defendant
to render an accounting of the profits of the bottling and distribution business,
subject of the action, and to pay plaintiff 15 percent thereof. it held that the
execution of the contract of partnership could not be enforced upon the parties,
but it also held that the defense of fraud was not proved. Against this judgment
both parties have appealed.
The most important question of fact to be determined is whether defendant
had falsely represented that he had an exclusive franchise to bottle Mission
beverages, and whether this false representation or fraud, if it existed, annuls the
agreement to form the partnership. The trial court found that it is improbable that
defendant was never shown the letter, Exhibit J, granting plaintiff had; that the
drafts of the contract prior to the final one can not be considered for the purpose
of determining the issue, as they are presumed to have been already integrated
into the final agreement; that fraud is never presumed and must be proved; that
the parties were represented by attorneys, and that if any party thereto got the
worse part of the bargain, this fact alone would not invalidate the agreement. On
this appeal the defendant, as appellant, insists that plaintiff did represent to the
defendant that he had an exclusive franchise, when as a matter of fact, at the
time of its execution, he no longer had it as the same had expired, and that,
therefore, the consent of the defendant to the contract was vitiated by fraud and
it is, consequently, null and void.
Our study of the record and a consideration of all the surrounding
circumstances lead us to believe that defendant's contention is not without merit.
Plaintiff's attorney, Mr. Laurea, testified that Woodhouse presented himself as
being the exclusive grantee of a franchise, thus:
 A. I don't recall any discussion about that matter. I took along with me the
file of the office with regards to this matter. I notice from the first draft of the
document which I prepared which calls for the organization of a corporation,
that the manager, that is, Mr. Woodhouse, is represented as being the exclusive
grantee of a franchise from the Mission Dry Corporation. . . . (t.s.n., p.518)
As a matter of fact, the first draft that Mr. Laurea prepared, which was
made before the Manila Hotel conference on November 27th, expressly states
that plaintiff had the exclusive franchise. Thus, the first paragraph states:
Whereas, the manager is the exclusive grantee of a franchise from the
Mission Dry Corporation San Francisco, California, for the bottling of Mission
products and their sale to the public throughout the Philippines; . . . .
3. The manager, upon the organization of the said corporation, shall
forthwith transfer to the said corporation his exclusive right to bottle Mission
products and to sell them throughout the Philippines. . . . .
(Exhibit II; emphasis ours)
The trial court did not consider this draft on the principle of integration of
jural acts. We find that the principle invoked is inapplicable, since the purpose
of considering the prior draft is not to vary, alter, or modify the agreement, but
to discover the intent of the parties thereto and the circumstances surrounding
the execution of the contract. The issue of fact is: Did plaintiff represent to
defendant that he had an exclusive franchise? Certainly, his acts or statements
prior to the agreement are essential and relevant to the determination of said
issue. The act or statement of the plaintiff was not sought to be introduced to
change or alter the terms of the agreement, but to prove how he induced the
defendant to enter into it — to prove the representations or inducements, or
fraud, with which or by which he secured the other party's consent thereto.
These are expressly excluded from the parol evidence rule. (Bough and Bough
vs. Cantiveros and Hanopol, 40 Phil., 209; port Banga Lumber Co. vs. Export &
Import Lumber Co., 26 Phil., 602; III Moran 221,1952 rev. ed.) Fraud and false
representation are an incident to the creation of a jural act, not to its integration,
and are not governed by the rules on integration. Were parties prohibited from
proving said representations or inducements, on the ground that the agreement
had already been entered into, it would be impossible to prove misrepresentation
or fraud. Furthermore, the parol evidence rule expressly allows the evidence to
be introduced when the validity of an instrument is put in issue by the pleadings
(section 22, par. (a), Rule 123, Rules of Court),as in this case.
That plaintiff did make the representation can also be easily gleaned from
his own letters and his own testimony. In his letter to Mission Dry Corporation,
Exhibit H, he said:.
. . . He told me to come back to him when I was able to speak with
authority so that we could come to terms as far as he and I were concerned. That
is the reason why the cable was sent. Without this authority, I am in a poor
bargaining position. . .
I would propose that you grant me the exclusive bottling and distributing
rights for a limited period of time, during which I may consummate my plants. .
..
By virtue of this letter the option on exclusive bottling was given to the
plaintiff on October 14, 1947. (See Exhibit J.) If this option for an exclusive
franchise was intended by plaintiff as an instrument with which to bargain with
defendant and close the deal with him, he must have used his said option for the
above-indicated purpose, especially as it appears that he was able to secure,
through its use, what he wanted.
Plaintiff's own version of the preliminary conversation he had with
defendant is to the effect that when plaintiff called on the latter, the latter
answered, "Well, come back to me when you have the authority to operate. I am
definitely interested in the bottling business." (t. s. n., pp. 60-61.) When after the
elections of 1949 plaintiff went to see the defendant (and at that time he had
already the option), he must have exultantly told defendant that he had the
authority already. It is improbable and incredible for him to have disclosed the
fact that he had only an option to the exclusive franchise, which was to last thirty
days only, and still more improbable for him to have disclosed that, at the time
of the signing of the formal agreement, his option had already expired. Had he
done so, he would have destroyed all his bargaining power and authority, and in
all probability lost the deal itself.
The trial court reasoned, and the plaintiff on this appeal argues, that
plaintiff only undertook in the agreement "to secure the Mission Dry franchise
for and in behalf of the proposed partnership." The existence of this provision in
the final agreement does not militate against plaintiff having represented that he
had the exclusive franchise; it rather strengthens belief that he did actually make
the representation. How could plaintiff assure defendant that he would get the
franchise for the latter if he had not actually obtained it for himself? Defendant
would not have gone into the business unless the franchise was raised in his
name, or at least in the name of the partnership. Plaintiff assured defendant he
could get the franchise. Thus, in the draft prepared by defendant's attorney,
Exhibit HH, the above provision is inserted, with the difference that instead of
securing the franchise for the defendant, plaintiff was to secure it for the
partnership. To show that the insertion of the above provision does not eliminate
the probability of plaintiff representing himself as the exclusive grantee of the
franchise, the final agreement contains in its third paragraph the following:
. . . and the manager is ready and willing to allow the capitalists to use the
exclusive franchise . . .
and in paragraph 11 it also expressly states:
1. In the event of the dissolution or termination of the partnership, . . . the
franchise from Mission Dry Corporation shall be reassigned to the manager.
These statements confirm the conclusion that defendant believed, or was
made to believe, that plaintiff was the grantee of an exclusive franchise. Thus it
is that it was also agreed upon that the franchise was to be transferred to the
name of the partnership, and that, upon its dissolution or termination, the same
shall be reassigned to the plaintiff.
 Again, the immediate reaction of defendant, when in California he learned
that plaintiff did not have the exclusive franchise, was to reduce, as he himself
testified, plaintiff's participation in the net profits to one half of that agreed upon.
He could not have had such a feeling had not plaintiff actually made him believe
that he (plaintiff) was the exclusive grantee of the franchise.
The learned trial judge reasons in his decision that the assistance of
counsel in the making of the contract made fraud improbable. Not necessarily,
because the alleged representation took place before the conferences were had,
in other words, plaintiff had already represented to defendant, and the latter had
already believed in, the existence of plaintiff's exclusive franchise before the
formal negotiations, and they were assisted by their lawyers only when said
formal negotiations actually took place. Furthermore, plaintiff's attorney testified
that plaintiff had said that he had the exclusive franchise; and defendant's lawyer
testified that plaintiff explained to him, upon being asked for the franchise, that
he had left the papers evidencing it.(t.s.n., p. 266.)
We conclude from all the foregoing that plaintiff did actually represent to
defendant that he was the holder of the exclusive franchise. The defendant was
made to believe, and he actually believed, that plaintiff had the exclusive
franchise. Defendant would not perhaps have gone to California and incurred
expenses for the trip, unless he believed that plaintiff did have that exclusive
privilege, and that the latter would be able to get the same from the Mission Dry
Corporation itself. Plaintiff knew what defendant believed about his (plaintiff's)
exclusive franchise, as he induced him to that belief, and he may not be allowed
to deny that defendant was induced by that belief. (IX Wigmore, sec. 2423; Sec.
65, Rule 123, Rules of Court.)
We now come to the legal aspect of the false representation. Does it
amount to a fraud that would vitiate the contract? It must be noted that fraud is
manifested in illimitable number of degrees or gradations, from the innocent
praises of a salesman about the excellence of his wares to those malicious
machinations and representations that the law punishes as a crime. In
consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of
(civil) fraud, the causal fraud, which may be a ground for the annulment of a
contract, and the incidental deceit, which only renders the party who employs it
liable for damages. This Court had held that in order that fraud may vitiate
consent, it must be the causal (dolo causante), not merely the incidental (dolo
causante), inducement to the making of the contract. (Article 1270, Spanish
Civil Code; Hill vs. Veloso, 31 Phil. 160.) The record abounds with
circumstances indicative that the fact that the principal consideration, the main
cause that induced defendant to enter into the partnership agreement with
plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle and
distribute for the defendant or for the partnership. The original draft prepared by
defendant's counsel was to the effect that plaintiff obligated himself to secure a
franchise for the defendant. Correction appears in this same original draft, but
the change is made not as to the said obligation but as to the grantee. In the
corrected draft the word "capitalist"(grantee) is changed to "partnership." The
contract in its final form retains the substituted term "partnership." The
defendant was, therefore, led to the belief that plaintiff had the exclusive
franchise, but that the same was to be secured for or transferred to the
partnership. The plaintiff no longer had the exclusive franchise, or the option
thereto, at the time the contract was perfected. But while he had already lost his
option thereto (when the contract was entered into), the principal obligation that
he assumed or undertook was to secure said franchise for the partnership, as the
bottler and distributor for the Mission Dry Corporation. We declare, therefore,
that if he was guilty of a false representation, this was not the causal
consideration, or the principal inducement, that led plaintiff to enter into the
partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise
was actually the consideration or price plaintiff gave in exchange for the share of
30 percent granted him in the net profits of the partnership business. Defendant
agreed to give plaintiff 30 per cent share in the net profits because he was
transferring his exclusive franchise to the partnership. Thus, in the draft prepared
by plaintiff's lawyer, Exhibit II, the following provision exists:
3. That the MANAGER, upon the organization of the said corporation,
shall forthwith transfer to the said corporation his exclusive right to bottle
Mission products and to sell them throughout the Philippines. As a consideration
for such transfer, the CAPITALIST shall transfer to the Manager fully paid non
assessable shares of the said corporation . . . twenty-five per centum of the
capital stock of the said corporation. (Par. 3, Exhibit II; emphasis ours.)
Plaintiff had never been a bottler or a chemist; he never had experience in
the production or distribution of beverages. As a matter of fact, when the
bottling plant being built, all that he suggested was about the toilet facilities for
the laborers.
We conclude from the above that while the representation that plaintiff had
the exclusive franchise did not vitiate defendant's consent to the contract, it was
used by plaintiff to get from defendant a share of 30 per cent of the net profits;
in other words, by pretending that he had the exclusive franchise and promising
to transfer it to defendant, he obtained the consent of the latter to give him
(plaintiff) a big slice in the net profits. This is the dolo incidente defined in
article 1270 of the Spanish Civil Code, because it was used to get the other
party's consent to a big share in the profits, an incidental matter in the
agreement.
El dolo incidental no es el que puede producirse en el cumplimiento del
contrato sino que significa aqui, el que concurriendoen el consentimiento, o
precediendolo, no influyo para arrancar porsi solo el consentimiento ni en la
totalidad de la obligacion, sinoen algun extremo o accidente de esta, dando lugar
tan solo a una accion para reclamar indemnizacion de perjuicios. (8 Manresa
602.)
Having arrived at the conclusion that the agreement may not be declared
null and void, the question that next comes before us is, May the agreement be
carried out or executed? We find no merit in the claim of plaintiff that the
partnership was already a fait accompli from the time of the operation of the
plant, as it is evident from the very language of the agreement that the parties
intended that the execution of the agreement to form a partnership was to be
carried out at a later date. They expressly agreed that they shall form a
partnership. (Par. No. 1, Exhibit A.) As a matter of fact, from the time that the
franchise from the Mission Dry Corporation was obtained in California, plaintiff
himself had been demanding that defendant comply with the agreement. And
plaintiff's present action seeks the enforcement of this agreement. Plaintiff's
claim, therefore, is both inconsistent with their intention and incompatible with
his own conduct and suit.
As the trial court correctly concluded, the defendant may not be compelled
against his will to carry out the agreement nor execute the partnership papers.
Under the Spanish Civil Code, the defendant has an obligation to do, not to give.
The law recognizes the individual's freedom or liberty to do an act he has
promised to do, or not to do it, as he pleases. It falls within what Spanish
commentators call a very personal act (acto personalismo), of which courts may
not compel compliance, as it is considered an act of violence to do so.
Efectos de las obligaciones consistentes en hechos personalismo.—
Tratamos de la ejecucion de las obligaciones de hacer en el solocaso de su
incumplimiento por parte del deudor, ya sean los hechos personalisimos, ya se
hallen en la facultad de un tercero; porque el complimiento espontaneo de las
mismas esta regido por los preceptos relativos al pago, y en nada les afectan las
disposiciones del art. 1.098.
Esto supuesto, la primera dificultad del asunto consiste en resolver si el
deudor puede ser precisado a realizar el hecho y porque medios.
Se tiene por corriente entre los autores, y se traslada generalmente sin
observacion el principio romano nemo potest precise cogi ad factum. Nadie
puede ser obligado violentamente a haceruna cosa. Los que perciben la
posibilidad de la destruccion deeste principio, añaden que, aun cuando se
pudiera obligar al deudor, no deberia hacerse, porque esto constituiria una
violencia, y noes la violenciamodo propio de cumplir las obligaciones (Bigot,
Rolland, etc.). El maestro Antonio Gomez opinaba lo mismo cuandodecia que
obligar por la violencia seria infrigir la libertad eimponer una especie de
esclavitud.
xxx xxx xxx
En efecto; las obligaciones contractuales no se acomodan biencon el
empleo de la fuerza fisica, no ya precisamente porque seconstituya de este modo
una especie de esclavitud, segun el dichode Antonio Gomez, sino porque se
supone que el acreedor tuvo encuenta el caracter personalisimo del hecho
ofrecido, y calculo sobre laposibilidad de que por alguna razon no se realizase.
Repugna,ademas, a la conciencia social el empleo de la fuerza publica, mediante
coaccion sobre las personas, en las relaciones puramente particulares; porque la
evolucion de las ideas ha ido poniendo masde relieve cada dia el respeto a la
personalidad humana, y nose admite bien la violencia sobre el individuo la cual
tiene caracter visiblemente penal, sino por motivos que interesen a la
colectividad de ciudadanos. Es, pues, posible y licita esta violencia cuando
setrata de las obligaciones que hemos llamado ex lege, que afectanal orden
social y a la entidad de Estado, y aparecen impuestas sinconsideracion a las
conveniencias particulares, y sin que por estemotivo puedan tampoco ser
modificadas; pero no debe serlo cuandola obligacion reviste un interes
puramente particular, como sucedeen las contractuales, y cuando, por
consecuencia, paraceria salirseel Estado de su esfera propia, entrado a dirimir,
con apoyo dela fuerza colectiva, las diferencias producidas entre los ciudadanos.
(19 Scaevola 428, 431-432.)
The last question for us to decide is that of damages,damages that plaintiff
is entitled to receive because of defendant's refusal to form the partnership, and
damages that defendant is also entitled to collect because of the falsity of
plaintiff's representation. (Article 1101, Spanish Civil Code.) Under article 1106
of the Spanish Civil Code the measure of damages is the actual loss suffered and
the profits reasonably expected to be received, embraced in the terms daño
emergente and lucro cesante. Plaintiff is entitled under the terms of the
agreement to 30 per cent of the net profits of the business. Against this amount
of damages, we must set off the damage defendant suffered by plaintiff's
misrepresentation that he had obtained a very high percentage of share in the
profits. We can do no better than follow the appraisal that the parties themselves
had adopted.
When defendant learned in Los Angeles that plaintiff did not have the
exclusive franchise which he pretended he had and which he had agreed to
transfer to the partnership, his spontaneous reaction was to reduce plaintiff's
share form 30 per cent to 15 per cent only, to which reduction defendant appears
to have readily given his assent. It was under this understanding, which amounts
to a virtual modification of the contract, that the bottling plant was established
and plaintiff worked as Manager for the first three months. If the contract may
not be considered modified as to plaintiff's share in the profits, by the decision of
defendant to reduce the same to one-half and the assent thereto of plaintiff, then
we may consider the said amount as a fair estimate of the damages plaintiff is
entitled to under the principle enunciated in the case of Varadero de Manila vs.
Insular Lumber Co., 46 Phil. 176. Defendant's decision to reduce plaintiff's share
and plaintiff's consent thereto amount to an admission on the part of each of the
reasonableness of this amount as plaintiff's share. This same amount was fixed
by the trial court. The agreement contains the stipulation that upon the
termination of the partnership, defendant was to convey the franchise back to
plaintiff (Par. 11, Exhibit A). The judgment of the trial court does not fix the
period within which these damages shall be paid to plaintiff. In view of
paragraph 11 of Exhibit A, we declare that plaintiff's share of 15 per cent of the
net profits shall continue to be paid while defendant uses the franchise from the
Mission Dry Corporation.
With the modification above indicated, the judgment appealed from is
hereby affirmed. Without costs.
 [G.R. No. L-27454. April 30, 1970.]

ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO

GONZALES, Defendant-Appellee.

Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.

Sulpicio E. Platon, for Defendant-Appellee.

SYLLABUS

1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-

PERFORMANCE; FIXING OF PERIOD BEFORE FILING OF COMPLAINT
FOR NON-PERFORMANCE, ACADEMIC.— Where the time for compliance
had expired and there was breach of contract by non-performance, it was
academic for the plaintiff to have first petitioned the court to fix a period for the
performance of the contract before filing his complaint.

2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE

CIVIL CODE OF THE PHILIPPINES.— Where the defendant virtually
admitted non-performance of the contract by returning the typewriter that he was
obliged to repair in a non-working condition, with essential parts missing,
Article 1197 of the Civil Code of the Philippines cannot be invoked. The fixing
of a period would thus be a mere formality and would serve no purpose than to
delay.

3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR.— Where the

defendant-appellee contravened the tenor of his obligation because he not only
did not repair the typewriter but returned it "in shambles,’’ he is liable for the
cost of the labor or service expended in the repair of the typewriter, which is in
the amount of P58.75, because the obligation or contract was to repair it. In
addition, he is likewise liable under Art. 1170 of the Code, for the cost of the
missing parts, in the amount of P31.10, for in his obligation to repair the
typewriter he was bound, but failed or neglected, to return it in the same
condition it was when he received it.

4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEY’S FEES NOT

RECOVERABLE; NOT ALLEGED OR PROVED IN INSTANT CASE.—
Claims for damages and attorney’s fees must be pleaded, and the existence of
the actual basis thereof must be proved. As no findings of fact were made on the
claims for damages and attorney’s fees, there is no factual basis upon which to
make an award therefor.

5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST

INSTANCE TO SUPREME COURT; ONLY QUESTIONS OF LAW
REVIEWABLE.— Where the appellant directly appeals from the decision of the
trial court to the Supreme Court on questions of law, he is bound by the
judgment of the court a quo on its findings of fact.

DECISION

REYES, J.B.L., J.:

This is a direct appeal by the party who prevailed in a suit for breach of
oral contract and recovery of damages but was unsatisfied with the decision
rendered by the Court of First Instance of Manila, in its Civil Case No. 65138,
because it awarded him only P31.10 out of his total claim of P690 00 for actual,
temperate and moral damages and attorney’s fees.

The appealed judgment, which is brief, is hereunder quoted in "In the early part
of July, 1963, the plaintiff delivered to the defendant, who is a typewriter
repairer, a portable typewriter for routine cleaning and servicing. The defendant
was not able to finish the job after some time despite repeated reminders made
by the plaintiff. The defendant merely gave assurances, but failed to comply
with the same. In October, 1963, the defendant asked from the plaintiff the sum
of P6.00 for the purchase of spare parts, which amount the plaintiff gave to the
defendant. On October 26, 1963, after getting exasperated with the delay of the
repair of the typewriter, the plaintiff went to the house of the defendant and
asked for the return of the typewriter. The defendant delivered the typewriter in
a wrapped package. On reaching home, the plaintiff examined the typewriter
returned to him by the defendant and found out that the same was in shambles,
with the interior cover and some parts and screws missing. On October 29, 1963.
the plaintiff sent a letter to the defendant formally demanding the return of the
missing parts, the interior cover and the sum of P6.00 (Exhibit D). The following
day, the defendant returned to the plaintiff some of the missing parts, the interior
cover and the P6.00.

"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas
Business Machines, and the repair job cost him a total of P89.85, including labor
and materials (Exhibit C).

"On August 23, 1965, the plaintiff commenced this action before the City Court
of Manila, demanding from the defendant the payment of P90.00 as actual and
compensatory damages, P100.00 for temperate damages, P500.00 for moral
damages, and P500.00 as attorney’s fees.

"In his answer as well as in his testimony given before this court, the defendant
made no denials of the facts narrated above, except the claim of the plaintiff that
the typewriter was delivered to the defendant through a certain Julio Bocalin,
which the defendant denied allegedly because the typewriter was delivered to
him personally by the plaintiff.

"The repair done on the typewriter by Freixas Business Machines with the total
cost of P89.85 should not, however, be fully chargeable against the defendant.
The repair invoice, Exhibit C, shows that the missing parts had a total value of
only P31.10.

"WHEREFORE, judgment is hereby rendered ordering the defendant to pay the

plaintiff the sum of P31.10, and the costs of suit.

"SO ORDERED."cralaw virtua1aw library

The error of the court a quo, according to the plaintiff-appellant, Rosendo O.

Chaves, is that it awarded only the value of the missing parts of the typewriter,
instead of the whole cost of labor and materials that went into the repair of the
machine, as provided for in Article 1167 of the Civil Code, reading as

"ART. 1167. If a person obliged to do something fails to do it, the same shall be
executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the
obligation. Furthermore it may be decreed that what has been poorly done he
undone."cralaw virtua1aw library

On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is

that he is not liable at all, not even for the sum of P31.10, because his contract
with plaintiff-appellant did not contain a period, so that plaintiff-appellant
should have first filed a petition for the court to fix the period, under Article
1197 of the Civil Code, within which the defendant appellee was to comply with
the contract before said defendant-appellee could be held liable for breach of
contract.

Because the plaintiff appealed directly to the Supreme Court and the appellee
did not interpose any appeal, the facts, as found by the trial court, are now
conclusive and non-reviewable. 1

The appealed judgment states that the "plaintiff delivered to the defendant . . . a
portable typewriter for routine cleaning and servicing" ; that the defendant was
not able to finish the job after some time despite repeated reminders made by the
plaintiff" ; that the "defendant merely gave assurances, but failed to comply with
the same" ; and that "after getting exasperated with the delay of the repair of the
typewriter", the plaintiff went to the house of the defendant and asked for its
return, which was done. The inferences derivable from these findings of fact are
that the appellant and the appellee had a perfected contract for cleaning and
servicing a typewriter; that they intended that the defendant was to finish it at
some future time although such time was not specified; and that such time had
passed without the work having been accomplished, far the defendant returned
the typewriter cannibalized and unrepaired, which in itself is a breach of his
obligation, without demanding that he should be given more time to finish the
job, or compensation for the work he had already done. The time for compliance
having evidently expired, and there being a breach of contract by non-
performance, it was academic for the plaintiff to have first petitioned the court to
fix a period for the performance of the contract before filing his complaint in this
case. Defendant cannot invoke Article 1197 of the Civil Code for he virtually
admitted non-performance by returning the typewriter that he was obliged to
repair in a non-working condition, with essential parts missing. The fixing of a
period would thus be a mere formality and would serve no purpose than to delay
(cf. Tiglao. Et. Al. V. Manila Railroad Co. 98 Phil. 18l).

It is clear that the defendant-appellee contravened the tenor of his obligation

because he not only did not repair the typewriter but returned it "in shambles",
according to the appealed decision. For such contravention, as appellant
contends, he is liable under Article 1167 of the Civil Code. jam quot, for the cost
of executing the obligation in a proper manner. The cost of the execution of the
obligation in this case should be the cost of the labor or service expended in the
repair of the typewriter, which is in the amount of P58.75. because the obligation
or contract was to repair it.

In addition, the defendant-appellee is likewise liable, under Article 1170 of the

Code, for the cost of the missing parts, in the amount of P31.10, for in his
obligation to repair the typewriter he was bound, but failed or neglected, to
return it in the same condition it was when he received it.

Appellant’s claims for moral and temperate damages and attorney’s fees were,
however, correctly rejected by the trial court, for these were not alleged in his
complaint (Record on Appeal, pages 1-5). Claims for damages and attorney’s
fees must be pleaded, and the existence of the actual basis thereof must be
proved. 2 The appealed judgment thus made no findings on these claims, nor on
the fraud or malice charged to the appellee. As no findings of fact were made on
the claims for damages and attorney’s fees, there is no factual basis upon which
to make an award therefor. Appellant is bound by such judgment of the court, a
quo, by reason of his having resorted directly to the Supreme Court on questions
of law.

IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby

modified, by ordering the defendant-appellee to pay, as he is hereby ordered to
pay, the plaintiff-appellant the sum of P89.85, with interest at the legal rate from
the filing of the complaint. Costs in all instances against appellee Fructuoso
Gonzales.
G.R. No. 73867 February 29, 1988
TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS,
INC., petitioner,
vs.
IGNACIO CASTRO, SR., SOFIA C. CROUCH, IGNACIO CASTRO JR.,
AURORA CASTRO, SALVADOR CASTRO, MARIO CASTRO,
CONRADO CASTRO, ESMERALDA C. FLORO, AGERICO CASTRO,
ROLANDO CASTRO, VIRGILIO CASTRO AND GLORIA CASTRO,
and HONORABLE INTERMEDIATE APPELLATE COURT, respondents.

PADILLA, J.:
Petition for review on certiorari of the decision * of the Intermediate
Appellate Court, dated 11 February 1986, in AC-G.R. No. CV-70245, entitled
"Ignacio Castro, Sr., et al., Plaintiffs-Appellees, versus Telefast
Communication/Philippine Wireless, Inc., Defendant-Appellant."
The facts of the case are as follows:
On 2 November 1956, Consolacion Bravo-Castro wife of plaintiff Ignacio
Castro, Sr. and mother of the other plaintiffs, passed away in Lingayen,
Pangasinan. On the same day, her daughter Sofia C. Crouch, who was then
vacationing in the Philippines, addressed a telegram to plaintiff Ignacio Castro,
Sr. at 685 Wanda, Scottsburg, Indiana, U.S.A., 47170 announcing Consolacion's
death. The telegram was accepted by the defendant in its Dagupan office, for
transmission, after payment of the required fees or charges.
The telegram never reached its addressee. Consolacion was interred with
only her daughter Sofia in attendance. Neither the husband nor any of the other
children of the deceased, then all residing in the United States, returned for the
burial.
When Sofia returned to the United States, she discovered that the wire she
had caused the defendant to send, had not been received. She and the other
plaintiffs thereupon brought action for damages arising from defendant's breach
of contract. The case was filed in the Court of First Instance of Pangasinan and
docketed therein as Civil Case No. 15356. The only defense of the defendant
was that it was unable to transmit the telegram because of "technical and
atmospheric factors beyond its control." 1 No evidence appears on record that
defendant ever made any attempt to advise the plaintiff Sofia C. Crouch as to
why it could not transmit the telegram.
The Court of First Instance of Pangasinan, after trial, ordered the defendant
(now petitioner) to pay the plaintiffs (now private respondents) damages, as
follows, with interest at 6% per annum:
1. Sofia C. Crouch, P31.92 and P16,000.00 as compensatory damages and
P20,000.00 as moral damages.
2. Ignacio Castro Sr., P20,000.00 as moral damages.
3. Ignacio Castro Jr., P20,000.00 as moral damages.
4. Aurora Castro, P10,000.00 moral damages.
5. Salvador Castro, P10,000.00 moral damages.
6. Mario Castro, P10,000.00 moral damages.
7. Conrado Castro, P10,000 moral damages.
8. Esmeralda C. Floro, P20,000.00 moral damages.
9. Agerico Castro, P10,000.00 moral damages.
10. Rolando Castro, P10,000.00 moral damages.
11. Virgilio Castro, P10,000.00 moral damages.
12. Gloria Castro, P10,000.00 moral damages.
Defendant is also ordered to pay P5,000.00 attorney's fees, exemplary
damages in the amount of P1,000.00 to each of the plaintiffs and costs. 2
On appeal by petitioner, the Intermediate Appellate Court affirmed the trial
court's decision but eliminated the award of P16,000.00 as compensatory
damages to Sofia C. Crouch and the award of P1,000.00 to each of the private
respondents as exemplary damages. The award of P20,000.00 as moral damages
to each of Sofia C. Crouch, Ignacio Castro, Jr. and Esmeralda C. Floro was also
reduced to P120,000. 00 for each. 3
 Petitioner appeals from the judgment of the appellate court, contending
that the award of moral damages should be eliminated as defendant's negligent
act was not motivated by "fraud, malice or recklessness."
In other words, under petitioner's theory, it can only be held liable for P
31.92, the fee or charges paid by Sofia C. Crouch for the telegram that was never
sent to the addressee thereof.
Petitioner's contention is without merit.
Art. 1170 of the Civil Code provides that "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." Art. 2176 also
provides that "whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done."
In the case at bar, petitioner and private respondent Sofia C. Crouch
entered into a contract whereby, for a fee, petitioner undertook to send said
private respondent's message overseas by telegram. This, petitioner did not do,
despite performance by said private respondent of her obligation by paying the
required charges. Petitioner was therefore guilty of contravening its obligation to
said private respondent and is thus liable for damages.
This liability is not limited to actual or quantified damages. To sustain
petitioner's contrary position in this regard would result in an inequitous
situation where petitioner will only be held liable for the actual cost of a
telegram fixed thirty (30) years ago.
We find Art. 2217 of the Civil Code applicable to the case at bar. It states:
"Moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Though incapable of pecuniary computation,
moral damages may be recovered if they are the proximate results of the
defendant's wrongful act or omission." (Emphasis supplied).
Here, petitioner's act or omission, which amounted to gross negligence,
was precisely the cause of the suffering private respondents had to undergo.
 As the appellate court properly observed:
[Who] can seriously dispute the shock, the mental anguish and the sorrow
that the overseas children must have suffered upon learning of the death of their
mother after she had already been interred, without being given the opportunity
to even make a choice on whether they wanted to pay her their last respects?
There is no doubt that these emotional sufferings were proximately caused by
appellant's omission and substantive law provides for the justification for the
award of moral damages. 4
We also sustain the trial court's award of P16,000.00 as compensatory
damages to Sofia C. Crouch representing the expenses she incurred when she
came to the Philippines from the United States to testify before the trial court.
Had petitioner not been remiss in performing its obligation, there would have
been no need for this suit or for Mrs. Crouch's testimony.
The award of exemplary damages by the trial court is likewise justified
and, therefore, sustained in the amount of P1,000.00 for each of the private
respondents, as a warning to all telegram companies to observe due diligence in
transmitting the messages of their customers.
WHEREFORE, the petition is DENIED. The decision appealed from is
modified so that petitioner is held liable to private respondents in the following
amounts:
(1) P10,000.00 as moral damages, to each of private respondents;
(2) P1,000.00 as exemplary damages, to each of private respondents;
(3) P16,000.00 as compensatory damages, to private respondent Sofia C.
Crouch;
(4) P5,000.00 as attorney's fees; and
(5) Costs of suit.
SO ORDERED.
 G.R. No. L-15645 January 31, 1964
PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffs-appellees,
vs.
NATIONAL RICE AND CORN CORPORATION, defendant-appellant,
MANILA UNDERWRITERS INSURANCE CO., INC., defendant-appellee.
Teehankee and Carreon for plaintiffs-appellees.
The Government Corporate Counsel for defendant-appellant.
Isidro A. Vera for defendant-appellee.
REGALA, J.:
This is an appeal of the defendant-appellant NARIC from the decision of
the trial court dated February 20, 1958, awarding to the plaintiffs-appellees the
amount of $286,000.00 as damages for breach of contract and dismissing the
counterclaim and third party complaint of the defendant-appellant NARIC.
In accordance with Section 13 of Republic Act No. 3452, "the National
Rice and Corn Administration (NARIC) is hereby abolished and all its assets,
liabilities, functions, powers which are not inconsistent with the provisions of
this Act, and all personnel are transferred "to the Rice and Corn Administration
(RCA).
All references, therefore, to the NARIC in this decision must accordingly
be adjusted and read as RCA pursuant to the aforementioned law.
On May 19, 1952, plaintiff-appellee participated in the public bidding
called by the NARIC for the supply of 20,000 metric tons of Burmese rice. As
her bid of $203.00 per metric ton was the lowest, she was awarded the contract
for the same. Accordingly, on July 1, 1952, plaintiff-appellee Paz P. Arrieta and
the appellant corporation entered into a Contract of Sale of Rice, under the terms
of which the former obligated herself to deliver to the latter 20,000 metric tons
of Burmess Rice at $203.00 per metric ton, CIF Manila. In turn, the defendant
corporation committed itself to pay for the imported rice "by means of an
irrevocable, confirmed and assignable letter of credit in U.S. currency in favor of
the plaintiff-appellee and/or supplier in Burma, immediately." Despite the
commitment to pay immediately "by means of an irrevocable, confirmed and
assignable Letter of Credit," however, it was only on July 30, 1952, or a full
month from the execution of the contract, that the defendant corporation, thru its
general manager, took the first to open a letter of credit by forwarding to the
Philippine National Bank its Application for Commercial Letter Credit. The
application was accompanied by a transmittal letter, the relevant paragraphs of
which read:
In view of the fact that we do not have sufficient deposit with your
institution with which to cover the amount required to be deposited as a
condition for the opening of letters of credit, we will appreciate it if this
application could be considered special case.
We understand that our supplier, Mrs. Paz P. Arrieta, has a deadline to
meet which is August 4, 1952, and in order to comply therewith, it is imperative
that the L/C be opened prior to that date. We would therefore request your full
cooperation on this matter.
On the same day, July 30, 1952, Mrs. Paz P. Arrieta thru counsel, advised
the appellant corporation of the extreme necessity for the immediate opening of
the letter credit since she had by then made a tender to her supplier in Rangoon,
Burma, "equivalent to 5% of the F.O.B. price of 20,000 tons at $180.70 and in
compliance with the regulations in Rangoon this 5% will be confiscated if the
required letter of credit is not received by them before August 4, 1952."
On August 4, 1952, the Philippine National Bank informed the appellant
corporation that its application, "for a letter of credit for $3,614,000.00 in favor
of Thiri Setkya has been approved by the Board of Directors with the condition
that marginal cash deposit be paid and that drafts are to be paid upon
presentment." (Exh. J-pl.; Exh. 10-def., p. 19, Folder of Exhibits). Furthermore,
the Bank represented that it "will hold your application in abeyance pending
compliance with the above stated requirement."
As it turned out, however, the appellant corporation not in any financial
position to meet the condition. As matter of fact, in a letter dated August 2,
1952, the NARIC bluntly confessed to the appellee its dilemma: "In this
connection, please be advised that our application for opening of the letter of
credit has been presented to the bank since July 30th but the latter requires that
we first deposit 50% of the value of the letter amounting to aproximately
$3,614,000.00 which we are not in a position to meet." (Emphasis supplied. Exh.
9-Def.; Exh. 1-Pe., p. 18, Folder of Exhibits)
Consequently, the credit instrument applied for was opened only on
September 8, 1952 "in favor of Thiri Setkya, Rangoon, Burma, and/or assignee
for $3,614,000.00," (which is more than two months from the execution of the
contract) the party named by the appellee as beneficiary of the letter of
credit.1äwphï1.ñët
As a result of the delay, the allocation of appellee's supplier in Rangoon
was cancelled and the 5% deposit, amounting to 524,000 kyats or approximately
P200,000.00 was forfeited. In this connection, it must be made of record that
although the Burmese authorities had set August 4, 1952, as the deadline for the
remittance of the required letter of credit, the cancellation of the allocation and
the confiscation of the 5% deposit were not effected until August 20, 1952, or, a
full half month after the expiration of the deadline. And yet, even with the 15-
day grace, appellant corporation was unable to make good its commitment to
open the disputed letter of credit.
The appellee endeavored, but failed, to restore the cancelled Burmese rice
allocation. When the futility of reinstating the same became apparent, she
offered to substitute Thailand rice instead to the defendant NARIC,
communicating at the same time that the offer was "a solution which should be
beneficial to the NARIC and to us at the same time." (Exh. X-Pe., Exh. 25—
Def., p. 38, Folder of Exhibits). This offer for substitution, however, was
rejected by the appellant in a resolution dated November 15, 1952.
On the foregoing, the appellee sent a letter to the appellant, demanding
compensation for the damages caused her in the sum of $286,000.00, U.S.
currency, representing unrealized profit. The demand having been rejected she
instituted this case now on appeal.
At the instance of the NARIC, a counterclaim was filed and the Manila
Underwriters Insurance Company was brought to the suit as a third party
defendant to hold it liable on the performance bond it executed in favor of the
plaintiff-appellee.
We find for the appellee.
It is clear upon the records that the sole and principal reason for the
cancellation of the allocation contracted by the appellee herein in Rangoon,
Burma, was the failure of the letter of credit to be opened with the contemplated
period. This failure must, therefore, be taken as the immediate cause for the
consequent damage which resulted. As it is then, the disposition of this case
depends on a determination of who was responsible for such failure. Stated
differently, the issue is whether appellant's failure to open immediately the letter
of credit in dispute amounted to a breach of the contract of July 1, 1952 for
which it may be held liable in damages.
Appellant corporation disclaims responsibility for the delay in the opening
of the letter of credit. On the contrary, it insists that the fault lies with the
appellee. Appellant contends that the disputed negotiable instrument was not
promptly secured because the appellee , failed to seasonably furnish data
necessary and required for opening the same, namely, "(1) the amount of the
letter of credit, (2) the person, company or corporation in whose favor it is to be
opened, and (3) the place and bank where it may be negotiated." Appellant
would have this Court believe, therefore, that had these informations been
forthwith furnished it, there would have been no delay in securing the
instrument.
Appellant's explanation has neither force nor merit. In the first place, the
explanation reaches into an area of the proceedings into which We are not at
liberty to encroach. The explanation refers to a question of fact. Nothing in the
record suggests any arbitrary or abusive conduct on the part of the trial judge in
the formulation of the ruling. His conclusion on the matter is sufficiently borne
out by the evidence presented. We are denied, therefore, the prerogative to
disturb that finding, consonant to the time-honored tradition of this Tribunal to
hold trial judges better situated to make conclusions on questions of fact. For the
record, We quote hereunder the lower court's ruling on the point:
The defense that the delay, if any in opening the letter of credit was due to
the failure of plaintiff to name the supplier, the amount and the bank is not
tenable. Plaintiff stated in Court that these facts were known to defendant even
before the contract was executed because these facts were necessarily revealed
to the defendant before she could qualify as a bidder. She stated too that she had
given the necessary data immediately after the execution of Exh. "A" (the
contract of July 1, 1952) to Mr. GABRIEL BELMONTE, General Manager of
the NARIC, both orally and in writing and that she also pressed for the opening
of the letter of credit on these occasions. These statements have not been
controverted and defendant NARIC, notwithstanding its previous intention to do
so, failed to present Mr. Belmonte to testify or refute this. ...
Secondly, from the correspondence and communications which form part
of the record of this case, it is clear that what singularly delayed the opening of
the stipulated letter of credit and which, in turn, caused the cancellation of the
allocation in Burma, was the inability of the appellant corporation to meet the
condition importation by the Bank for granting the same. We do not think the
appellant corporation can refute the fact that had it been able to put up the 50%
marginal cash deposit demanded by the bank, then the letter of credit would
have been approved, opened and released as early as August 4, 1952. The letter
of the Philippine National Bank to the NARIC was plain and explicit that as of
the said date, appellant's "application for a letter of credit ... has been
approved by the Board of Directors with the condition that 50% marginal cash
deposit be paid and that drafts are to be paid upon presentment." (Emphasis
supplied)
 The liability of the appellant, however, stems not alone from this failure or
inability to satisfy the requirements of the bank. Its culpability arises from its
willful and deliberate assumption of contractual obligations even as it was well
aware of its financial incapacity to undertake the prestation. We base this
judgment upon the letter which accompanied the application filed by the
appellant with the bank, a part of which letter was quoted earlier in this decision.
In the said accompanying correspondence, appellant admitted and owned that it
did "not have sufficient deposit with your institution (the PNB) with which to
cover the amount required to be deposited as a condition for the opening of
letters of credit. ... .
A number of logical inferences may be drawn from the aforementioned
admission. First, that the appellant knew the bank requirements for opening
letters of credit; second, that appellant also knew it could not meet those
requirement. When, therefore, despite this awareness that was financially
incompetent to open a letter of credit immediately, appellant agreed in paragraph
8 of the contract to pay immediately "by means of an irrevocable, confirm and
assignable letter of credit," it must be similarly held to have bound itself to
answer for all and every consequences that would result from the representation.
aptly observed by the trial court:
... Having called for bids for the importation of rice involving millions,
$4,260,000.00 to be exact, it should have a certained its ability and capacity to
comply with the inevitably requirements in cash to pay for such importation.
Having announced the bid, it must be deemed to have impliedly assured
suppliers of its capacity and facility to finance the importation within the
required period, especially since it had imposed the supplier the 90-day period
within which the shipment of the rice must be brought into the Philippines.
Having entered in the contract, it should have taken steps immediately to arrange
for the letter of credit for the large amount involved and inquired into the
possibility of its issuance.
 In relation to the aforequoted observation of the trial court, We would like
to make reference also to Article 11 of the Civil Code which provides:
Those who in the performance of their obligation are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof,
are liable in damages.
Under this provision, not only debtors guilty of fraud, negligence or default
in the performance of obligations a decreed liable; in general, every debtor who
fails in performance of his obligations is bound to indemnify for the losses and
damages caused thereby (De la Cruz Seminary of Manila, 18 Phil. 330;
Municipality of Moncada v. Cajuigan, 21 Phil. 184; De la Cavada v. Diaz, 37
Phil. 982; Maluenda & Co. v. Enriquez, 46 Phil. 916; Pasumil v. Chong, 49 Phil.
1003; Pando v. Gimenez, 54 Phil. 459; Acme Films v. Theaters Supply, 63 Phil.
657). The phrase "any manner contravene the tenor" of the obligation includes
any illicit act which impairs the strict and faithful fulfillment of the obligation or
every kind or defective performance. (IV Tolentino, Civil Code of the
Philippines, citing authorities, p. 103.)
The NARIC would also have this Court hold that the subsequent offer to
substitute Thailand rice for the originally contracted Burmese rice amounted to a
waiver by the appellee of whatever rights she might have derived from the
breach of the contract. We disagree. Waivers are not presumed, but must be
clearly and convincingly shown, either by express stipulation or acts admitting
no other reasonable explanation. (Ramirez v. Court of Appeals, 52 O.G. 779.) In
the case at bar, no such intent to waive has been established.
We have carefully examined and studied the oral and documentary
evidence presented in this case and upon which the lower court based its award.
Under the contract, the NARIC bound itself to buy 20,000 metric tons of
Burmese rice at "$203.00 U.S. Dollars per metric ton, all net shipped weight,
and all in U.S. currency, C.I.F. Manila ..." On the other hand, documentary and
other evidence establish with equal certainty that the plaintiff-appellee was able
to secure the contracted commodity at the cost price of $180.70 per metric ton
from her supplier in Burma. Considering freights, insurance and charges incident
to its shipment here and the forfeiture of the 5% deposit, the award granted by
the lower court is fair and equitable. For a clearer view of the equity of the
damages awarded, We reproduce below the testimony of the appellee,
adequately supported by the evidence and record:
Q. Will you please tell the court, how much is the damage you suffered?
A. Because the selling price of my rice is $203.00 per metric ton, and the
cost price of my rice is $180.00 We had to pay also $6.25 for shipping and about
$164 for insurance. So adding the cost of the rice, the freight, the insurance, the
total would be about $187.99 that would be $15.01 gross profit per metric ton,
multiply by 20,000 equals $300,200, that is my supposed profit if I went through
the contract.
The above testimony of the plaintiff was a general approximation of the
actual figures involved in the transaction. A precise and more exact
demonstration of the equity of the award herein is provided by Exhibit HH of the
plaintiff and Exhibit 34 of the defendant, hereunder quoted so far as germane.
It is equally of record now that as shown in her request dated July 29,
1959, and other communications subsequent thereto for the opening by your
corporation of the required letter of credit, Mrs. Arrieta was supposed to pay her
supplier in Burma at the rate of One Hundred Eighty Dollars and Seventy Cents
($180.70) in U.S. Currency, per ton plus Eight Dollars ($8.00) in the same
currency per ton for shipping and other handling expenses, so that she is already
assured of a net profit of Fourteen Dollars and Thirty Cents ($14.30), U.S.,
Currency, per ton or a total of Two Hundred and Eighty Six Thousand Dollars
($286,000.00), U.S. Currency, in the aforesaid transaction. ...
Lastly, herein appellant filed a counterclaim asserting that it has suffered,
likewise by way of unrealized profit damages in the total sum of $406,000.00
from the failure of the projected contract to materialize. This counterclaim was
supported by a cost study made and submitted by the appellant itself and
wherein it was illustrated how indeed had the importation pushed thru, NARIC
would have realized in profit the amount asserted in the counterclaim. And yet,
the said amount of P406,000.00 was realizable by appellant despite a number of
expenses which the appellee under the contract, did not have to incur. Thus,
under the cost study submitted by the appellant, banking and unloading charges
were to be shouldered by it, including an Import License Fee of 2% and
superintendence fee of $0.25 per metric ton. If the NARIC stood to profit over
P400 000.00 from the disputed transaction inspite of the extra expenditures from
which the herein appellee was exempt, we are convicted of the fairness of the
judgment presently under appeal.
In the premises, however, a minor modification must be effected in the
dispositive portion of the decision appeal from insofar as it expresses the amount
of damages in U.S. currency and not in Philippine Peso. Republic Act 529
specifically requires the discharge of obligations only "in any coin or currency
which at the time of payment is legal tender for public and private debts." In
view of that law, therefore, the award should be converted into and expressed in
Philippine Peso.
This brings us to a consideration of what rate of exchange should apply in
the conversion here decreed. Should it be at the time of the breach, at the time
the obligation was incurred or at the rate of exchange prevailing on the
promulgation of this decision.
In the case of Engel v. Velasco & Co., 47 Phil. 115, We ruled that in an
action for recovery of damages for breach of contract, even if the obligation
assumed by the defendant was to pay the plaintiff a sum of money expressed in
American currency, the indemnity to be allowed should be expressed in
Philippine currency at the rate of exchange at the time of the judgment rather
than at the rate of exchange prevailing on the date of defendant's breach. This
ruling, however, can neither be applied nor extended to the case at bar for the
same was laid down when there was no law against stipulating foreign
currencies in Philippine contracts. But now we have Republic Act No. 529
which expressly declares such stipulations as contrary to public policy, void and
of no effect. And, as We already pronounced in the case of Eastboard
Navigation, Ltd. v. Juan Ysmael & Co., Inc., G.R. No. L-9090, September 10,
1957, if there is any agreement to pay an obligation in a currency other than
Philippine legal tender, the same is null and void as contrary to public policy
(Republic Act 529), and the most that could be demanded is to pay said
obligation in Philippine currency "to be measured in the prevailing rate of
exchange at the time the obligation was incurred (Sec. 1, idem)."
UPON ALL THE FOREGOING, the decision appealed from is hereby
affirmed, with the sole modification that the award should be converted into the
Philippine peso at the rate of exchange prevailing at the time the obligation was
incurred or on July 1, 1952 when the contract was executed. The appellee
insurance company, in the light of this judgment, is relieved of any liability
under this suit. No pronouncement as to costs.
 [G.R. No. 117190. January 2, 1997]

JACINTO TANGUILIG doing business under the name and style J.M.T.
ENGINEERING AND GENERAL MERCHANDISING, petitioner, vs. COURT
OF APPEALS and VICENTE HERCE JR., respondents.

DECISION

BELLOSILLO, J.:

This case involves the proper interpretation of the contract entered into
between the parties.

Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business

under the name and style J. M. T. Engineering and General Merchandising
proposed to respondent Vicente Herce Jr. to construct a windmill system for
him. After some negotiations they agreed on the construction of the windmill for
a consideration of P60,000.00 with a one-year guaranty from the date of
completion and acceptance by respondent Herce Jr. of the project. Pursuant to
the agreement respondent paid petitioner a down payment of P30,000.00 and an
installment payment of P15,000.00, leaving a balance of P15,000.00.

On 14 March 1988, due to the refusal and failure of respondent to pay the
balance, petitioner filed a complaint to collect the amount. In his Answer before
the trial court respondent denied the claim saying that he had already paid this
amount to the San Pedro General Merchandising Inc. (SPGMI) which
constructed the deep well to which the windmill system was to be connected.
According to respondent, since the deep well formed part of the system the
payment he tendered to SPGMI should be credited to his account by petitioner.
Moreover, assuming that he owed petitioner a balance of P15,000.00, this should
be offset by the defects in the windmill system which caused the structure to
collapse after a strong wind hit their place.[1]

Petitioner denied that the construction of a deep well was included in the
agreement to build the windmill system, for the contract price of P60,000.00 was
solely for the windmill assembly and its installation, exclusive of other
incidental materials needed for the project. He also disowned any obligation to
repair or reconstruct the system and insisted that he delivered it in good and
working condition to respondent who accepted the same without protest.
Besides, its collapse was attributable to a typhoon, a force majeure, which
relieved him of any liability.

In finding for plaintiff, the trial court held that the construction of the deep
well was not part of the windmill project as evidenced clearly by the letter
proposals submitted by petitioner to respondent.[2] It noted that "[i]f the
intention of the parties is to include the construction of the deep well in the
project, the same should be stated in the proposals. In the absence of such an
agreement, it could be safely concluded that the construction of the deep well is
not a part of the project undertaken by the plaintiff."[3] With respect to the
repair of the windmill, the trial court found that "there is no clear and convincing
proof that the windmill system fell down due to the defect of the
construction."[4]

The Court of Appeals reversed the trial court. It ruled that the construction
of the deep well was included in the agreement of the parties because the term
"deep well" was mentioned in both proposals. It also gave credence to the
testimony of respondent's witness Guillermo Pili, the proprietor of SPGMI
which installed the deep well, that petitioner Tanguilig told him that the cost of
constructing the deep well would be deducted from the contract price of
P60,000.00. Upon these premises the appellate court concluded that respondent's
payment of P15,000.00 to SPGMI should be applied to his remaining balance
with petitioner thus effectively extinguishing his contractual obligation.
However, it rejected petitioner's claim of force majeure and ordered the latter to
reconstruct the windmill in accordance with the stipulated one-year guaranty.

His motion for reconsideration having been denied by the Court of

Appeals, petitioner now seeks relief from this Court. He raises two issues:
firstly, whether the agreement to construct the windmill system included the
installation of a deep well and, secondly, whether petitioner is under obligation
to reconstruct the windmill after it collapsed.

We reverse the appellate court on the first issue but sustain it on the
second.

The preponderance of evidence supports the finding of the trial court that
the installation of a deep well was not included in the proposals of petitioner to
construct a windmill system for respondent. There were in fact two (2)
proposals: one dated 19 May 1987 which pegged the contract price at
P87,000.00 (Exh. "1"). This was rejected by respondent. The other was
submitted three days later, i.e., on 22 May 1987 which contained more
specifications but proposed a lower contract price of P60,000.00 (Exh. "A"). The
latter proposal was accepted by respondent and the construction immediately
followed. The pertinent portions of the first letter-proposal (Exh. "1") are
reproduced hereunder -

In connection with your Windmill System and Installation, we would like

to quote to you as follows:

One (1) Set - Windmill suitable for 2 inches diameter deepwell, 2 HP,
capacity, 14 feet in diameter, with 20 pieces blade, Tower 40 feet high,
including mechanism which is not advisable to operate during extra-intensity
wind. Excluding cylinder pump.

UNIT CONTRACT PRICE P87,000.00

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

In connection with your Windmill system Supply of Labor Materials and

Installation, operated water pump, we would like to quote to you as follows -

One (1) set - Windmill assembly for 2 inches or 3 inches deep-well pump,
6 Stroke, 14 feet diameter, 1-lot blade materials, 40 feet Tower complete with
standard appurtenances up to Cylinder pump, shafting U.S. adjustable
International Metal.

One (1) lot - Angle bar, G. I. pipe, Reducer Coupling, Elbow Gate valve,
cross Tee coupling.

One (1) lot - Float valve.

One (1) lot - Concreting materials foundation.

F. O. B. Laguna

Contract Price P60,000.00

Notably, nowhere in either proposal is the installation of a deep well

mentioned, even remotely. Neither is there an itemization or description of the
materials to be used in constructing the deep well. There is absolutely no
mention in the two (2) documents that a deep well pump is a component of the
proposed windmill system. The contract prices fixed in both proposals cover
only the features specifically described therein and no other. While the words
"deep well" and "deep well pump" are mentioned in both, these do not indicate
that a deep well is part of the windmill system. They merely describe the type of
deep well pump for which the proposed windmill would be suitable. As
correctly pointed out by petitioner, the words "deep well" preceded by the
prepositions "for" and "suitable for" were meant only to convey the idea that the
proposed windmill would be appropriate for a deep well pump with a diameter
of 2 to 3 inches. For if the real intent of petitioner was to include a deep well in
the agreement to construct a windmill, he would have used instead the
conjunctions "and" or "with." Since the terms of the instruments are clear and
leave no doubt as to their meaning they should not be disturbed.

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

intention of the parties shall be accorded primordial consideration[5] and, in case
of doubt, their contemporaneous and subsequent acts shall be principally
considered.[6] An examination of such contemporaneous and subsequent acts of
respondent as well as the attendant circumstances does not persuade us to uphold
him.

Respondent insists that petitioner verbally agreed that the contract price of
P60,000.00 covered the installation of a deep well pump. He contends that since
petitioner did not have the capacity to install the pump the latter agreed to have a
third party do the work the cost of which was to be deducted from the contract
price. To prove his point, he presented Guillermo Pili of SPGMI who declared
that petitioner Tanguilig approached him with a letter from respondent Herce Jr.
asking him to build a deep well pump as "part of the price/contract which
Engineer (Herce) had with Mr. Tanguilig."[7]
 We are disinclined to accept the version of respondent. The claim of Pili
that Herce Jr. wrote him a letter is unsubstantiated. The alleged letter was never
presented in court by private respondent for reasons known only to him. But
granting that this written communication existed, it could not have simply
contained a request for Pili to install a deep well; it would have also mentioned
the party who would pay for the undertaking. It strains credulity that respondent
would keep silent on this matter and leave it all to petitioner Tanguilig to
verbally convey to Pili that the deep well was part of the windmill construction
and that its payment would come from the contract price of P60,000.00.

We find it also unusual that Pili would readily consent to build a deep well
the payment for which would come supposedly from the windmill contract price
on the mere representation of petitioner, whom he had never met before, without
a written commitment at least from the former. For if indeed the deep well were
part of the windmill project, the contract for its installation would have been
strictly a matter between petitioner and Pili himself with the former assuming
the obligation to pay the price. That it was respondent Herce Jr. himself who
paid for the deep well by handing over to Pili the amount of P15,000.00 clearly
indicates that the contract for the deep well was not part of the windmill project
but a separate agreement between respondent and Pili. Besides, if the price of
P60,000.00 included the deep well, the obligation of respondent was to pay the
entire amount to petitioner without prejudice to any action that Guillermo Pili or
SPGMI may take, if any, against the latter. Significantly, when asked why he
tendered payment directly to Pili and not to petitioner, respondent explained,
rather lamely, that he did it "because he has (sic) the money, so (he) just paid the
money in his possession."[8]

Can respondent claim that Pili accepted his payment on behalf of

petitioner? No. While the law is clear that "payment shall be made to the person
in whose favor the obligation has been constituted, or his successor in interest,
or any person authorized to receive it,".[9] It does not appear from the record
that Pili and/or SPGMI was so authorized.
Respondent cannot claim the benefit of the law concerning "payments
made by a third person."[10] The Civil Code provisions do not apply in the
instant case because no creditor-debtor relationship between petitioner and
Guillermo Pili and/or SPGMI has been established regarding the construction of
the deep well. Specifically, witness Pili did not testify that he entered into a
contract with petitioner for the construction of respondent's deep well. If SPGMI
was really commissioned by petitioner to construct the deep well, an agreement
particularly to this effect should have been entered into.
The contemporaneous and subsequent acts of the parties concerned
effectively belie respondent's assertions. These circumstances only show that the
construction of the well by SPGMI was for the sole account of respondent and
that petitioner merely supervised the installation of the well because the
windmill was to be connected to it. There is no legal nor factual basis by which
this Court can impose upon petitioner an obligation he did not expressly assume
nor ratify.
The second issue is not a novel one. In a long line of cases[11] this Court
has consistently held that in order for a party to claim exemption from liability
by reason of fortuitous event under Art. 1174 of the Civil Code the event should
be the sole and proximate cause of the loss or destruction of the object of the
contract. In Nakpil vs. Court of Appeals,[12] four (4) requisites must concur: (a)
the cause of the breach of the obligation must be independent of the will of the
debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event
must be such as to render it impossible for the debtor to fulfill his obligation in a
normal manner; and, (d) the debtor must be free from any participation in or
aggravation of the injury to the creditor.
Petitioner failed to show that the collapse of the windmill was due solely to
a fortuitous event. Interestingly, the evidence does not disclose that there was
actually a typhoon on the day the windmill collapsed. Petitioner merely stated
that there was a "strong wind." But a strong wind in this case cannot be
fortuitous - unforeseeable nor unavoidable. On the contrary, a strong wind
should be present in places where windmills are constructed, otherwise the
windmills will not turn.
The appellate court correctly observed that "given the newly-constructed
windmill system, the same would not have collapsed had there been no inherent
defect in it which could only be attributable to the appellee."[13] It emphasized
that respondent had in his favor the presumption that "things have happened
according to the ordinary course of nature and the ordinary habits of life."[14]
This presumption has not been rebutted by petitioner.
Finally, petitioner's argument that private respondent was already in
default in the payment of his outstanding balance of P15,000.00 and hence
should bear his own loss, is untenable. In reciprocal obligations, neither party
incurs in delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him.[15] When the windmill failed to
function properly it became incumbent upon petitioner to institute the proper
repairs in accordance with the guaranty stated in the contract. Thus, respondent
cannot be said to have incurred in delay; instead, it is petitioner who should bear
the expenses for the reconstruction of the windmill. Article 1167 of the Civil
Code is explicit on this point that if a person obliged to do something fails to do
it, the same shall be executed at his cost.

WHEREFORE, the appealed decision is MODIFIED. Respondent

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

SO ORDERED.
G.R. No. 176008 August 10, 2011
METROPOLITAN BANK and TRUST COMPANY, substituted by
MERIDIAN (SPV-AMCI) CORPORATION,Petitioner,
vs.
INTERNATIONAL EXCHANGE BANK, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 176131
CHUAYUCO STEEL MANUFACTURING, Petitioner,
vs.
INTERNATIONAL EXCHANGE BANK (now UNION BANK OF THE
PHILIPPINES), Respondent.
DECISION
PERALTA, J.:
Before the Court are two consolidated petitions for review
on certiorari under Rule 45 of the Rules of Court, both of which are seeking the
reversal and setting aside of the Decision1 and Resolution2 of the Court of
Appeals (CA) dated May 5, 2006 and December 22, 2006, respectively, in CA-
G.R. SP No. 00549-MIN which annulled and set aside the Orders dated
September 6, 2004 and February 14, 2005, the Resolution dated March 15, 2005
and the Joint Resolution dated June 8, 2005 of the Regional Trial Court (RTC)
of Misamis Oriental, Branch 17 in Civil Case Nos. 2004-197 and 2004-200.
The pertinent factual and procedural antecedents of the case are as follows:
Sacramento Steel Corporation (SSC) is a business entity engaged in
manufacturing and producing steel and steel products, such as cold rolled coils
and galvanized sheets, in its own steel manufacturing plant located at Tagoloan,
Misamis Oriental.
For the purpose of increasing its capital, SSC entered into a Credit
Agreement with herein respondent International Exchange Bank (IEB) on
September 10, 2001 wherein the latter granted the former an omnibus credit line
in the amount of ₱60,000,000.00, a loan of ₱20,000,000.00 and a subsequent
credit line with a limit of ₱100,000,000.00.
As security for its loan obligations, SSC executed five separate deeds of
chattel mortgage constituted over various equipment found in its steel
manufacturing plant. The deeds of mortgage were dated September 17, 2001,
February 26, 2003, April 16, 2003, May 25, 2004 and June 7, 2004.
Subsequently, SSC defaulted in the payment of its obligations. IEB's
demand for payment went unheeded. On July 7, 2004, the IEB filed with the
RTC of Misamis Oriental an action for injunction for the purpose of enjoining
SSC from taking out the mortgaged equipment from its premises. The case was
docketed as Civil Case No. 2004-197. Thereafter, IEB filed a Supplemental
Complaint praying for the issuance of a writ of replevin or, in the alternative, for
the payment of SSC's outstanding obligations and attorney's fees.3
On the other hand, on July 18, 2004, SSC filed with the same RTC of
Misamis Oriental a Complaint for annulment of mortgage and specific
performance for the purpose of compelling the IEB to restructure SSC's
outstanding obligations. SSC also prayed for the issuance of a Temporary
Restraining Order (TRO) and writ of preliminary injunction to prevent IEB from
taking any steps to dispossess SSC of any equipment in its steel manufacturing
plant as well as to restrain it from foreclosing the mortgage on the said
equipment.4 The RTC issued a TRO. The case was docketed as Civil Case No.
2004-200 and was subsequently consolidated with Civil Case No. 2004-197.
On July 23, 2004, the RTC issued an Order5 granting IEB's application for
the issuance of a writ of replevin. However, upon agreement of the parties, the
implementation of the said writ was held in abeyance pending the trial court's
resolution of the other incidents in the said case.6 The RTC also directed that
there shall be "no commercial operation without court approval.7
On August 26, 2004, the IEB filed a petition for extrajudicial foreclosure
of chattel mortgage.
 SSC opposed IEB's petition and prayed for the issuance of a writ of
preliminary injunction.
On September 6, 2004, the RTC issued an Order disposing as follows:
WHEREFORE, let a Writ of preliminary injunction be issued restraining
defendant iBank [IEB], the Sheriff, his agents and other person/s acting in their
behalf as agents – privies or representative[s] in whatever capacity, from
conducting foreclosure, whether judicial or extrajudicial, of any properties
subject of the controversy and are further directed not to take any steps that will,
in effect, dispossess plaintiff [SSC] of any of its machineries and equipment in
its steel manufacturing plant pending determination of the case. Let a bond (cash
or surety) of Five Hundred Thousand (P500,000.00) Pesos be posted by the
plaintiff Sacramento Steel Corporation as required by law.
SO ORDERED.8
Meanwhile, on August 30, 2004, SSC entered into a Capacity Lease
Agreement with herein petitioner Chuayuco Steel Manufacturing Corporation
(CSMC) which allowed the latter to lease and operate the former's cold rolling
mill and galvanizing plant for a period of five years.
On October 21, 2004, herein petitioner Metropolitan Bank and Trust
Company (Metrobank) filed a motion for intervention contending that it has
legal interest in the properties subject of the litigation between IEB and SSC
because it is a creditor of SSC and that the mortgage contracts between IEB and
SSC were entered into to defraud the latter's creditors.9 Metrobank prayed for
the rescission of the chattel mortgages executed by SSC in favor of IEB.
On January 21, 2005, CSMC filed an Omnibus Motion for intervention and
for allowance to immediately operate the cold rolling mill and galvanizing plant
of SSC contending that its purpose in intervening is to seek the approval of the
court to operate the said plant pursuant to the Capacity Lease Agreement it
entered into with SSC.10 IEB filed its Opposition to the said Motion.11
On February 14, 2005, the RTC issued an Order12 admitting the motions
for intervention filed by CSMC and Metrobank.
 On March 15, 2005, the RTC issued a Resolution, the dispositive portion
of which reads, thus:
WHEREFORE, premises considered, the motion to operate the
machineries pendente lite is hereby GRANTED based on law and equity as soon
as practicable. This is without prejudice on the part of the I-bank [IEB] to assert
the enforcement of the proposed schedule of payment submitted by SSC to the
Court (Exh. "A" – Motion for Early Resolution, 2/16/2005 hearing) and to
continually post their security guards unless withdrawn.
SO ORDERED.13
On June 8, 2005, the RTC issued a Joint Resolution14 reiterating its
admission of CSMC's motion for intervention and directing the latter to file its
complaint-in-intervention.
On August 25, 2005, IEB filed a petition for certiorari, prohibition and
mandamus with the CA assailing the RTC Orders dated September 6, 2004 and
February 14, 2005, Resolution dated March 15, 2005 and Joint Resolution dated
June 8, 2005.15
On May 5, 2006, the CA rendered its presently assailed Decision which
disposed of the case as follows:
WHEREFORE, the petition is hereby GRANTED. The questioned Orders
dated September 6, 2004, February 14, 2005, March 15, 2005 and June 8, 2005
issued by public respondent RTC, Branch 17, Misamis Oriental, presided by
Hon. Florencia D. Sealana-Abbu in Civil Case Nos. 2004-197 and 2004-200 are
hereby ANNULLED and SET ASIDE. Public respondent is hereby DIRECTED
to turn-over the mortgaged properties covered by the writ of replevin to
petitioner I-Bank for the eventual foreclosure thereof.
SO ORDERED.16
Metrobank, CSMC and SSC filed their respective motions for
reconsideration, but these were all denied by the CA in its Resolution dated
December 22, 2006.
Hence, the instant petitions for review on certiorari.
 In G.R. No. 176008, petitioner Metrobank submits the following issues:
(A) WHETHER OR NOT THE HONORABLE COURT OF APPEALS
ERRED WHEN IT RULED THAT PETITIONER'S COMPLAINT-IN-
INTERVENTION IS AN ACCION PAULIANA, A SUBSIDIARY ACTION,
WHICH PRESUPPOSES AN UNSATISFIED JUDGMENT, WHICH
UNSATISFIED JUDGMENT IS ABSENT IN THE CASE AT BAR.
(B) WHETHER OR NOT THE HONORABLE COURT OF APPEALS
ERRED WHEN IT RULED THAT THE TRIAL COURT COMMITTED
GRAVE ABUSE OF DISCRETION IN ALLOWING PETITIONER'S
COMPLAINT-IN-INTERVENTION.17
In G.R. No. 176131, petitioner CSMC raises the following grounds:
I. THE HONORABLE COURT ERRED IN NOT PASSING UPON THE
ISSUE THAT HEREIN RESPONDENT IBANK IS GUILTY OF FORUM-
SHOPPING.
II. THE HONORABLE COURT ERRED IN NOT RULING THAT
HEREIN RESPONDENT IBANK'S FAILURE TO FILE A MOTION FOR
RECONSIDERATION TO THE ORDER DATED 08 JUNE 2005 IS FATAL
TO ITS PETITION.
III. THE HONORABLE COURT ERRED IN RULING THAT THE
ORDER OF JUDGE SEALANA-ABBU ADMITTING THE INTERVENTION
OF HEREIN PETITIONER CSMC IS WITHOUT LEGAL BASIS.18
In a Manifestation and Motion dated September 26, 2007, petitioner
Metrobank manifested that it no longer has any interest in pursuing the instant
case as the loan obligation owed by SSC to it has been sold by the latter to a
corporation known as Meridian (SPV-AMC) Corporation (Meridian).
Accordingly, Metrobank prayed that it be substituted by Meridian as petitioner
in the instant case.19
In a Resolution20 dated November 12, 2007, this Court granted
Metrobank's Motion.
 At the outset, the Court takes note that no arguments or questions were
raised by petitioners with respect to the September 6, 2004 Order and March 15,
2005 Resolution of the RTC which were annulled by the CA. Hence, the only
issues left for resolution in the instant petition are whether or not petitioners
Metrobank and CSMC may be allowed to intervene in Civil Case Nos. 2004-197
and 2004-200.
The Court will dwell first on the issues raised by Metrobank in G.R. No.
176008.
In its first assigned error, Metrobank contends that the CA erred in ruling
that its Complaint-in-Intervention is in the nature of an accion pauliana.
The Court does not agree.
A perusal of Metrobank's Complaint-in-Intervention would show that its
main objective is to have the chattel mortgages executed by SSC in favor of IEB
rescinded. This is clearly evident in its prayer, which reads as follows:
WHEREFORE, premises considered, it is respectfully prayed unto the
Honorable Court that judgment be rendered:
(1) RESCINDING the chattel mortgages executed by Defendants
Sacramento and Delmo in favor of Defendant Ibank dated May 25, 2004
and June 7, 2004, respectively;
(2) Ordering defendants Sacramento, Delmo and Ibank to pay, jointly and
severally, Plaintiff-Intervenor the amounts of:
(A) ₱500,000.00, as and by way of exemplary damages;
(B) ₱500,000.00, as and by way of attorney's fees; and
(C) Costs of suit.
Other reliefs as may be just and equitable under the premises are likewise
prayed for.
x x x x21
Under Article 1381 of the Civil Code, an accion pauliana is an action to
rescind contracts in fraud of creditors.22
 However, jurisprudence is clear that the following successive measures
must be taken by a creditor before he may bring an action for rescission of an
allegedly fraudulent contract: (1) exhaust the properties of the debtor through
levying by attachment and execution upon all the property of the debtor, except
such as are exempt by law from execution; (2) exercise all the rights and actions
of the debtor, save those personal to him (accion subrogatoria); and (3) seek
rescission of the contracts executed by the debtor in fraud of their rights (accion
pauliana).23 It is thus apparent that an action to rescind, or an accion
pauliana, must be of last resort, availed of only after the creditor has exhausted
all the properties of the debtor not exempt from execution or after all other legal
remedies have been exhausted and have been proven futile.24
It does not appear that Metrobank sought other properties of SSC other
than the subject lots alleged to have been transferred in fraud of creditors.
Neither is there any showing that Metrobank subrogated itself in SSC's
transmissible rights and actions. Without availing of the first and second
remedies, Metrobank simply undertook the third measure and filed an action for
annulment of the chattel mortgages. This cannot be done. Article 1383 of the
New Civil Code is very explicit that the right or remedy of the creditor to
impugn the acts which the debtor may have done to defraud them is subsidiary
in nature.25 It can only be availed of in the absence of any other legal remedy to
obtain reparation for the injury.26 This fact is not present in this case. No
evidence was presented nor even an allegation was offered to show that
Metrobank had availed of the abovementioned remedies before it tried to
question the validity of the contracts of chattel mortgage between IEB and SSC.
Metrobank also contends that in order to apply the concept of, and the
rules pertaining to, accion pauliana, the subject matter must be a conveyance,
otherwise valid, which is undertaken in fraud of creditors. Metrobank claims that
since there is no conveyance involved in the contract of chattel mortgage
between SSC and IEB, which Metrobank seeks to rescind, the CA erred in ruling
that the latter's Complaint-in-Intervention is an accion pauliana.
 The Court is not persuaded.
In the instant case, the contract of chattel mortgage entered into by and
between SSC and IEB involves a conveyance of patrimonial benefit in favor of
the latter as the properties subject of the chattel mortgage stand as security for
the credit it extended to SSC. In a very recent case involving an action for the
rescission of a real estate mortgage,27 while this Court found that some of the
elements of accion pauliana were not present, it found that a mortgage contract
involves the conveyance of a patrimonial benefit.
In sum, Metrobank may not be allowed to intervene and pray for the
rescission of the chattel mortgages executed by SSC in favor of IEB. The
remedy being sought by Metrobank is in the nature of an accion pauliana which,
under the factual circumstances obtaining in the present case, may not be
allowed. Based on the foregoing, the Court finds no error in the ruling of the CA
that the RTC committed grave abuse of discretion in allowing Metrobank's
intervention.
The Court will now proceed to resolve the issues raised by petitioner
CSMC in G.R. No. 176131.
Firstly, CSMC contends that IEB was forum shopping when it filed a
petition for certiorari with the CA seeking, among others, the enjoinment of the
commercial operation of the subject machineries and equipment when its
Opposition28 to the implementation of the Capacity Lease Agreement between
SSC and CSMC is still pending determination by the RTC.
The Court does not agree.
Forum shopping has been defined as an act of a party, against whom an
adverse judgment has been rendered in one forum, of seeking and possibly
getting a favorable opinion in another forum, other than by appeal or a special
civil action for certiorari, or the institution of two or more actions or
proceedings grounded on the same cause on the supposition that one or the other
court would make a favorable disposition.29
 Forum shopping exists when two or more actions involve the same
transactions, essential facts and circumstances, and raise identical causes of
action, subject matter, and issues.30 Still another test of forum shopping is when
the elements of litis pendencia are present or where a final judgment in one case
will amount to res judicata in another – whether in the two or more pending
cases, there is an identity of (a) parties (or at least such parties as represent the
same interests in both actions); (b) rights or causes of action, and (c) reliefs
sought.31
In the instant case on the one hand, IEB's Opposition questions the legality
and seeks to prevent the implementation of the Capacity Lease Agreement
between CSMC and SSC which, in essence, authorizes CSMC to operate the
subject machineries pendente lite. On the other hand, the petition
for certiorari filed by IEB assails and seeks to nullify, among others, the March
15, 2005 and June 8, 2005 Orders of the RTC allowing SSC to operate the
subject machineries pendente lite. It is, thus, clear that there is no identity of
subject matter, cause of action and reliefs sought in IEB's Opposition filed with
the RTC and in its petition for certiorari filed with the CA. Hence, IEB is not
guilty of forum shopping.
Secondly, CSMC argues that IEB's failure to file a motion for
reconsideration of the RTC Order dated June 8, 2005 is fatal to its petition
for certiorari filed with the CA.
The Court is not persuaded.
While the general rule is that before certiorari may be availed of,
petitioner must have filed a motion for reconsideration of the act or order
complained of, the Court has dispensed with this requirement in several
instances.32 Thus, a previous motion for reconsideration before the filing of a
petition for certiorari is necessary unless: (i) the issue raised is one purely of
law; (ii) public interest is involved; (iii) there is urgency; (iv) a question of
jurisdiction is squarely raised before and decided by the lower court; and (v) the
order is a patent nullity.33 In the instant case, the Court agrees with the CA that
there is no need for such motion because the issue regarding the applicability of
the rule on intervention raised by IEB in its petition for certiorari filed with the
CA, insofar as the June 8, 2005 Order of the RTC is concerned, is one purely of
law.
The foregoing notwithstanding, the Court finds that the CA erred in ruling
that the allowance of CSMC's motion for intervention is improper. CSMC's
intervention should be allowed.
The purpose of intervention is to enable a stranger to an action to become a
party in order for him to protect his interest and for the court to settle all
conflicting claims.34 Intervention is allowed to avoid multiplicity of suits more
than on due process considerations.35 To warrant intervention under Rule 19 of
the Rules of Court, two requisites must concur: (1) the movant has a legal
interest on the matter in litigation; and (2) intervention must not unduly delay or
prejudice the adjudication of the rights of the parties, nor should the claim of the
intervenor be capable of being properly decided in a separate proceeding.36
In the present case, CSMC, being a lessee of the subject properties, has a
legal interest therein.1awphil The RTC correctly held, thus:
Under the Rules of Court, intervention is permissive and maybe permitted
by the Court when the applicant shows facts which satisfy the requirements of
the law authorizing intervention. (Firestone Ceramics Inc. vs. CA 313 SCRA
522) Records of the case showed that on August 30, 2004, an agreement was
finalized and entered into by applicant Chuayuco and defendant/plaintiff
Sacramento Steel Corporation whereby the former shall lease and make use of
the machineries of Sacramento Steel under the Capacity Lease Agreement
(CLA). One of the terms and condition[s] under [the] CLA was for the monthly
lease payments to take effect upon signing of the contract. A person seeking to
intervene in a suit must show that he has legal interest which must be actual and
material, direct and immediate. He must show that he will either gain or lose by
direct legal operation and effect of a judgment. (Hrs. of Nicolas Orosa vs.
Migrino 218 SCRA 311) The Court finds that Chuayuco had a constituted and
sufficient legal interest in the machineries subject of the litigation which is
actual and material. Any disposition of the case will adversely affect the
standing of the intervenor.37
Moreover, considering that CSMC's interest is limited only to the operation
of the subject machineries pursuant to its lease contract with SSC, its
intervention would not unduly delay or prejudice the adjudication of the rights of
SSC and IEB. CSMC's intervention should be treated as one pro interesse
suo which is a mode of intervention in equity wherein a stranger desires to
intervene for the purpose of asserting a property right in the res, or thing, which
is the subject matter of the litigation, without becoming a formal plaintiff or
defendant, and without acquiring control over the course of a litigation, which is
conceded to the main actors therein.38
Lastly, the Court does not agree with the CA when it ruled that the
applicable provision is Rule 3, Section 19 (erroneously cited as Section 20) of
the Rules of Court on transfer of interest and substitution of parties. Being a
mere lessee of the subject properties, CSMC is a stranger insofar as the dispute
between SSC and IEB is concerned. The action filed by IEB against SSC is an
action for the payment or satisfaction of the loans incurred by the latter, which
includes a possible foreclosure of the subject properties given as security for the
said loans. CSMC may not be considered a successor, and may not be
substituted in place of SSC, insofar as these loans are concerned. If any, what
has been transferred to CSMC is only the right of SSC to operate the subject
equipment and machineries which it owns. As such, SSC may not be removed as
defendant because its interest in the subject properties remains, being the owner
thereof.
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 00549-

MIN are AFFIRMED with MODIFICATION. The February 14, 2005 Order of the Regional Trial Court of

Misamis Oriental, Branch 17, is MODIFIED by denying Metrobank's Motion for Intervention, while the Joint

Resolution of the same trial court, dated June 8, 2005, reiterating its admission of CSMC's Motion for Intervention

and directing the latter to file its complaint-in-intervention, is REINSTATED. SO ORDERED.

G.R. No. 144169 March 28, 200
KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY
STEVEN KHE, petitioners,
vs.
COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI
CITY and PHILAM INSURANCE CO., INC., respondents.
KAPUNAN, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45,
seeking to set aside the decision of the Court of Appeals dated April 10, 2000
and its resolution dated July 11, 2000 denying the motion for reconsideration of
the aforesaid decision. The original complaint that is the subject matter of this
case is an accion pauliana -- an action filed by Philam Insurance Company, Inc.
(respondent Philam) to rescind or annul the donations made by petitioner Khe
Hong Cheng allegedly in fraud of creditors. The main issue for resolution is
whether or not the action to rescind the donations has already prescribed. While
the first paragraph of Article 1389 of the Civil Code states: "The action to claim
rescission must be commenced within four years..." the question is, from which
point or event does this prescriptive period commence to run?
The facts are as follows:
Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan
Shipping Lines. It appears that on or about October 4, 1985, the Philippine
Agricultural Trading Corporation shipped on board the vessel M/V PRINCE
ERIC, owned by petitioner Khe Hong Cheng, 3,400 bags of copra at Masbate,
Masbate, for delivery to Dipolog City, Zamboanga del Norte. The said shipment
of copra was covered by a marine insurance policy issued by American Home
Insurance Company (respondent Philam's assured). M/V PRINCE ERlC,
however, sank somewhere between Negros Island and Northeastern Mindanao,
resulting in the total loss of the shipment. Because of the loss, the insurer,
American Home, paid the amount of P354,000.00 (the value of the copra) to the
consignee.1âwphi1.nêt
 Having been subrogated into the rights of the consignee, American Home
instituted Civil Case No. 13357 in the Regional Trial Court (RTC) of Makati ,
Branch 147 to recover the money paid to the consignee, based on breach of
contract of carriage. While the case was still pending, or on December 20, 1989,
petitioner Khe Hong Cheng executed deeds of donations of parcels of land in
favor of his children, herein co-petitioners Sandra Joy and Ray Steven. The
parcel of land with an area of 1,000 square meters covered by Transfer
Certificate of Title (TCT) No. T-3816 was donated to Ray Steven. Petitioner
Khe Hong Cheng likewise donated in favor of Sandra Joy two (2) parcels of land
located in Butuan City, covered by TCT No. RT-12838. On the basis of said
deeds, TCT No. T-3816 was cancelled and in lieu thereof, TCT No. T-5072 was
issued in favor of Ray Steven and TCT No. RT-12838 was cancelled and in lieu
thereof, TCT No. RT-21054 was issued in the name of Sandra Joy.
The trial court rendered judgment against petitioner Khe Hong Cheng in
Civil Case No.13357 on December 29, 1993, four years after the donations were
made and the TCTs were registered in the donees' names. The decretal portion of
the aforesaid decision reads:
"Wherefore, in view of the foregoing, the Court hereby renders judgment
in favor of the plaintiff and against the defendant, ordering the latter to pay the
former:
1) the sum of P354,000.00 representing the amount paid by the plaintiff to
the Philippine Agricultural Trading Corporation with legal interest at 12% from
the time of the filing of the complaint in this case;
2) the sum of P50,000.00 as attorney's fees;
3) the costs.1
After the said decision became final and executory, a writ of execution was
forthwith' issued on September 14, 1995. Said writ of execution however, was
not served. An alias writ of execution was, thereafter, applied for and granted in
October 1996. Despite earnest efforts, the sheriff found no property under the
name of Butuan Shipping Lines and/or petitioner Khe Hong Cheng to levy or
garnish for the satisfaction of the trial court's decision. When the sheriff,
accompanied by counsel of respondent Philam, went to Butuan City on January
17, 1997, to enforce the alias writ of execution, they discovered that petitioner
Khe Hong Cheng no longer had any property and that he had conveyed the
subject properties to his children.
On February 25, 1997, respondent Philam filed a complaint with the
Regional Trial Court of Makati City, Branch 147, for the rescission of the deeds
of donation executed by petitioner Khe Hong Cheng in favor of his children and
for the nullification of their titles (Civil Case No.97-415). Respondent Philam
alleged, inter alia, that petitioner Khe Hong Cheng executed the aforesaid deeds
in fraud of his creditors, including respondent Philam.2
Petitioners subsequently filed their answer to the complaint a quo. They
moved for its dismissal on the ground that the action had already prescribed.
They posited that the registration of the deeds of donation on December 27,
1989 constituted constructive notice and since the complaint a quo was filed
only on February 25, 1997, or more than four (4) years after said registration, the
action was already barred by prescription.3
Acting thereon, the trial court denied the motion to dismiss. It held that
respondent Philam's complaint had not yet prescribed. According to the trial
court, the prescriptive period began to run only from December 29, 1993, the
date of the decision of the trial court in Civil Case No. 13357.4
On appeal by petitioners, the CA affirmed the trial court's decision in favor
of respondent Philam. The CA declared that the action to rescind the donations
had not yet prescribed. Citing Articles 1381 and 1383 of the Civil Code, the CA
basically ruled that the four year period to institute the action for rescission
began to run only in January 1997, and not when the decision in the civil case
became final and executory on December 29, 1993. The CA reckoned the
accrual of respondent Philam's cause of action on January 1997, the time when it
first learned that the judgment award could not be satisfied because the judgment
creditor, petitioner Khe Hong Cheng, had no more properties in his name. Prior
thereto, respondent Philam had not yet exhausted all legal means for the
satisfaction of the decision in its favor, as prescribed under Article 1383 of the
Civil Code.5
The Court of Appeals thus denied the petition for certiorari filed before it,
and held that the trial court did not commit any error in denying petitioners'
motion to dismiss. Their motion for reconsideration was likewise dismissed in
the appellate court's resolution dated July 11, 2000.
Petitioners now assail the aforesaid decision and resolution of the CA
alleging that:
I
PUBLIC RESPONDENT GRAVELY ERRED AND ACTED IN GRAVE
ABUSE OF DISCRETION WHEN IT DENIED THE PETITION TO DISMISS
THE CASE BASED ON THE GROUND OF PRESCRIPTION.
II
PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
HOLDING THAT PRESCRIPTION BEGINS TO RUN WHEN IN JANUARY
1997 THE SHERIFF WENT TO BUTUAN CITY IN SEARCH OF
PROPERTIES OF PETITIONER FELIX KHE CHENG TO SATISFY THE
JUDGMENT IN CIVIL CASE NO.13357 AND FOUND OUT THAT AS
EARLY AS DEC. 20, 1989, PETITIONERS KHE CHENG EXECUTED THE
DEEDS OF DONATIONS IN FAVOR OF HIS CO-PETITIONERS THAT
THE ACTION FOR RESCISSION ACCRUED BECAUSE PRESCRIPTION
BEGAN TO RUN WHEN THESE DONATIONS WERE REGISTERED WITH
THE REGISTER OF DEEDS IN DECEMBER 1989, AND WHEN THE
COMPLAINT WAS FILED ONLY IN FEBRUARY 1997, MORE THAN
FOUR YEARS HAVE ALREADY LAPSED AND THEREFORE, IT HAS
ALREADY PRESCRIBED.6
Essentially, the issue for resolution posed by petitioners is this: When did
the four (4) year prescriptive period as provided for in Article 1389 of the Civil
Code for respondent Philam to file its action for rescission of the subject deeds
of donation commence to run?
The petition is without merit.
Article 1389 of the Civil Code simply provides that, "The action to claim
rescission must be commenced within four years." Since this provision of law is
silent as to when the prescriptive period would commence, the general rule, i.e.,
from the moment the cause of action accrues, therefore, applies. Article 1150 of
the Civil Code is particularly instructive:
Art. 1150. The time for prescription for all kinds of actions, when there is
no special provision which ordains otherwise, shall be counted from the day they
may be brought.
Indeed, this Court enunciated the principle that it is the legal possibility of
bringing the action which determines the starting point for the computation of
the prescriptive period for the action.7 Article 1383 of the Civil Code provides as
follows:
Art. 1383. An action for rescission is subsidiary; it cannot be instituted
except when the party suffering damage has no other legal means to obtain
reparation for the same.
It is thus apparent that an action to rescind or an accion pauliana must be
of last resort, availed of only after all other legal remedies have been exhausted
and have been proven futile. For an accion pauliana to accrue, the following
requisites must concur:
1) That the plaintiff asking for rescission has a credit prior to, the
alienation, although demandable later; 2) That the debtor has made a subsequent
contract conveying a patrimonial benefit to a third person; 3) That the creditor
has no other legal remedy to satisfy his claim, but would benefit by rescission of
the conveyance to the third person; 4) That the act being impugned is fraudulent;
5) That the third person who received the property conveyed, if by onerous title,
has been an accomplice in the fraud.8 (Emphasis ours)
We quote with approval the following disquisition of the CA on the matter:
 An accion pauliana accrues only when the creditor discovers that he has
no other legal remedy for the satisfaction of his claim against the debtor other
than an accion pauliana. The accion pauliana is an action of a last resort. For as
long as the creditor still has a remedy at law for the enforcement of his claim
against the debtor, the creditor will not have any cause of action against the
creditor for rescission of the contracts entered into by and between the debtor
and another person or persons. Indeed, an accion pauliana presupposes a
judgment and the issuance by the trial court of a writ of execution for the
satisfaction of the judgment and the failure of the Sheriff to enforce and satisfy
the judgment of the court. It presupposes that the creditor has exhausted the
property of the debtor. The date of the decision of the trial court against the
debtor is immaterial. What is important is that the credit of the plaintiff antedates
that of the fraudulent alienation by the debtor of his property. After all, the
decision of the trial court against the debtor will retroact to the time when the
debtor became indebted to the creditor.9
Petitioners, however, maintain that the cause of action of respondent
Philam against them for the rescission of the deeds of donation accrued as early
as December 27, 1989, when petitioner Khe Hong Cheng registered the subject
conveyances with the Register of Deeds. Respondent Philam allegedly had
constructive knowledge of the execution of said deeds under Section 52 of
Presidential Decree No. 1529, quoted infra, as follows:
Section 52. Constructive knowledge upon registration. - Every
conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or
entry affecting registered land shall, if registered, filed or entered in the Office
of the Register of Deeds for the province or city where the land to which it
relates lies, be constructive notice to all persons from the time of such
registering, filing, or entering.
Petitioners argument that the Civil Code must yield to the Mortgage and
Registration Laws is misplaced, for in no way does this imply that the specific
provisions of the former may be all together ignored. To count the four year
prescriptive period to rescind an allegedly fraudulent contract from the date of
registration of the conveyance with the Register of Deeds, as alleged by the
petitioners, would run counter to Article 1383 of the Civil Code as well as
settled jurisprudence. It would likewise violate the third requisite to file an
action for rescission of an allegedly fraudulent conveyance of property, i.e., the
creditor has no other legal remedy to satisfy his claim.
An accion pauliana thus presupposes the following: 1) A judgment; 2) the
issuance by the trial court of a writ of execution for the satisfaction of the
judgment, and 3) the failure of the sheriff to enforce and satisfy the judgment of
the court. It requires that the creditor has exhausted the property of the debtor:
The date of the decision of the trial court is immaterial. What is important is that
the credit of the plaintiff antedates that of the fraudulent alienation by the debtor
of his property. After all, the decision of the trial court against the debtor will
retroact to the time when the debtor became indebted to the creditor.
Tolentino, a noted civilist, explained:
"xxx[T]herefore, credits with suspensive term or condition are excluded,
because the accion pauliana presupposes a judgment and unsatisfied execution,
which cannot exist when the debt is not yet demandable at the time the
rescissory action is brought. Rescission is a subsidiary action, which
presupposes that the creditor has exhausted the property of the debtor which is
impossible in credits which cannot be enforced because of a suspensive term or
condition.
While it is necessary that the credit of the plaintiff in the accion
pauliana must be prior to the fraudulent alienation, the date of the judgment
enforcing it is immaterial. Even if the judgment be subsequent to the alienation,
it is merely declaratory with retroactive effect to the date when the credit was
constituted."10
These principles were reiterated by the Court when it explained the
requisites of an accion pauliana in greater detail, to wit:
 "The following successive measures must be taken by a creditor before he
may bring an action for rescission of an allegedly fraudulent sale: (1) exhaust the
properties of the debtor through levying by attachment and execution upon all
the property of the debtor, except such as are exempt from execution; (2)
exercise all the rights and actions of the debtor, save those personal to him
(accion subrogatoria); and (3) seek rescission of the contracts executed by the
debtor in fraud of their rights (accion pauliana). Without availing of the first and
second remedies, i.e.. exhausting the properties of the debtor or subrogating
themselves in Francisco Bareg's transmissible rights and actions. petitioners
simply: undertook the third measure and filed an action for annulment of sale.
This cannot be done."11 (Emphasis ours)
In the same case, the Court also quoted the rationale of the CA when it
upheld the dismissal of the accion pauliana on the basis of lack of cause of
action:
"In this case, plaintiffs appellants had not even commenced an action
against defendants-appellees Bareng for the collection of the alleged
indebtedness, Plaintiffs-appellants had not even tried to exhaust the property of
defendants-appellees Bareng, Plaintiffs-appellants, in seeking the rescission of
the contracts of sale entered into between defendants-appellees, failed to show
and prove that defendants-appellees Bareng had no other property, either at the
time of the sale or at the time this action was filed, out of which they could have
collected this (sic) debts." (Emphasis ours)
Even if respondent Philam was aware, as of December 27, 1989, that
petitioner Khe Hong Cheng had executed the deeds of donation in favor of his
children, the complaint against Butuan Shipping Lines and/or petitioner Khe
Hong Cheng was still pending before the trial court. Respondent Philam had no
inkling, at the time, that the trial court’s judgment would be in its favor and
further, that such judgment would not be satisfied due to the deeds of donation
executed by petitioner Khe Hong Cheng during the pendency of the case. Had
respondent Philam filed his complaint on December 27, 1989, such complaint
would have been dismissed for being premature. Not only were all other legal
remedies for the enforcement of respondent Philam's claims not yet exhausted at
the time the needs of donation were executed and registered. Respondent Philam
would also not have been able to prove then that petitioner Khe Hong Cheng had
no more property other than those covered by the subject deeds to satisfy a
favorable judgment by the trial court.
It bears stressing that petitioner Khe Hong Cheng even expressly declared
and represented that he had reserved to himself property sufficient to answer for
his debts contracted prior to this date:
"That the DONOR further states, for the same purpose as expressed in the
next preceding paragraph, that this donation is not made with the object of
defrauding his creditors having reserved to himself property sufficient to answer
his debts contracted prior to this date".12
As mentioned earlier, respondent Philam only learned about the unlawful
conveyances made by petitioner Khe Hong Cheng in January 1997 when its
counsel accompanied the sheriff to Butuan City to attach the properties of
petitioner Khe Hong Cheng. There they found that he no longer had any
properties in his name. It was only then that respondent Philam's action for
rescission of the deeds of donation accrued because then it could be said that
respondent Philam had exhausted all legal means to satisfy the trial court's
judgment in its favor. Since respondent Philam filed its complaint for accion
pauliana against petitioners on February 25, 1997, barely a month from its
discovery that petitioner Khe Hong Cheng had no other property to satisfy the
judgment award against him, its action for rescission of the subject deeds clearly
had not yet prescribed.1âwphi1.nêt
A final point. Petitioners now belatedly raise on appeal the defense of
improper venue claiming that respondent Philam's complaint is a real action and
should have been filed with the RTC of Butuan City since the property subject
matter or the donations are located therein. Suffice it to say that petitioners are
already deemed to have waived their right to question the venue of the instant
case. Improper venue should be objected to as follows 1) in a motion to dismiss
filed within the time but before the filing of the answer;13 or 2) in the answer as
an affirmative defense over which, in the discretion of the court, a preliminary
hearing may be held as if a motion to dismiss had been filed.14 Having failed to
either file a motion to dismiss on the ground of improper of venue or include the
same as an affirmative defense in their answer, petitioners are deemed to have
their right to object to improper venue.
WHEREFORE, premises considered, the petition is hereby DENIED for
lack of merit.
SO ORDERED.
G.R. No. L-47851 October 3, 1986

JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners,

vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC., JUAN J. CARLOS, and the
PHILIPPINE BAR ASSOCIATION, respondents.

G.R. No. L-47863 October 3, 1986

THE UNITED CONSTRUCTION CO., INC., petitioner,

vs.
COURT OF APPEALS, ET AL., respondents.

G.R. No. L-47896 October 3, 1986

PHILIPPINE BAR ASSOCIATION, ET AL., petitioners,

vs.
COURT OF APPEALS, ET AL., respondents.

PARAS, J.:

These are petitions for review on certiorari of the November 28, 1977 decision of the Court of Appeals in
CA-G.R. No. 51771-R modifying the decision of the Court of First Instance of Manila, Branch V, in Civil
Case No. 74958 dated September 21, 1971 as modified by the Order of the lower court dated December 8,
1971. The Court of Appeals in modifying the decision of the lower court included an award of an additional
amount of P200,000.00 to the Philippine Bar Association to be paid jointly and severally by the defendant
United Construction Co. and by the third-party defendants Juan F. Nakpil and Sons and Juan F. Nakpil.

The dispositive portion of the modified decision of the lower court reads:

WHEREFORE, judgment is hereby rendered:

(a) Ordering defendant United Construction Co., Inc. and third-party defendants (except
Roman Ozaeta) to pay the plaintiff, jointly and severally, the sum of P989,335.68 with
interest at the legal rate from November 29, 1968, the date of the filing of the complaint until
full payment;

(b) Dismissing the complaint with respect to defendant Juan J. Carlos;

(c) Dismissing the third-party complaint;

(d) Dismissing the defendant's and third-party defendants' counterclaims for lack of merit;

(e) Ordering defendant United Construction Co., Inc. and third-party defendants (except
Roman Ozaeta) to pay the costs in equal shares.

SO ORDERED. (Record on Appeal p. 521; Rollo, L- 47851, p. 169).

The dispositive portion of the decision of the Court of Appeals reads:

 WHEREFORE, the judgment appealed from is modified to include an award of P200,000.00
in favor of plaintiff-appellant Philippine Bar Association, with interest at the legal rate from
November 29, 1968 until full payment to be paid jointly and severally by defendant United
Construction Co., Inc. and third party defendants (except Roman Ozaeta). In all other
respects, the judgment dated September 21, 1971 as modified in the December 8, 1971
Order of the lower court is hereby affirmed with COSTS to be paid by the defendant and
third party defendant (except Roman Ozaeta) in equal shares.

SO ORDERED.

Petitioners Juan F. Nakpil & Sons in L-47851 and United Construction Co., Inc. and Juan J. Carlos in L-
47863 seek the reversal of the decision of the Court of Appeals, among other things, for exoneration from
liability while petitioner Philippine Bar Association in L-47896 seeks the modification of aforesaid decision
to obtain an award of P1,830,000.00 for the loss of the PBA building plus four (4) times such amount as
damages resulting in increased cost of the building, P100,000.00 as exemplary damages; and P100,000.00
as attorney's fees.

These petitions arising from the same case filed in the Court of First Instance of Manila were consolidated
by this Court in the resolution of May 10, 1978 requiring the respective respondents to comment. (Rollo, L-
47851, p. 172).

The facts as found by the lower court (Decision, C.C. No. 74958; Record on Appeal, pp. 269-348; pp. 520-
521; Rollo, L-47851, p. 169) and affirmed by the Court of Appeals are as follows:

The plaintiff, Philippine Bar Association, a civic-non-profit association, incorporated under the Corporation
Law, decided to construct an office building on its 840 square meters lot located at the comer of Aduana
and Arzobispo Streets, Intramuros, Manila. The construction was undertaken by the United Construction,
Inc. on an "administration" basis, on the suggestion of Juan J. Carlos, the president and general manager of
said corporation. The proposal was approved by plaintiff's board of directors and signed by its president
Roman Ozaeta, a third-party defendant in this case. The plans and specifications for the building were
prepared by the other third-party defendants Juan F. Nakpil & Sons. The building was completed in June,
1966.

In the early morning of August 2, 1968 an unusually strong earthquake hit Manila and its environs and the
building in question sustained major damage. The front columns of the building buckled, causing the
building to tilt forward dangerously. The tenants vacated the building in view of its precarious condition.
As a temporary remedial measure, the building was shored up by United Construction, Inc. at the cost of
P13,661.28.

On November 29, 1968, the plaintiff commenced this action for the recovery of damages arising from the
partial collapse of the building against United Construction, Inc. and its President and General Manager
Juan J. Carlos as defendants. Plaintiff alleges that the collapse of the building was accused by defects in the
construction, the failure of the contractors to follow plans and specifications and violations by the
defendants of the terms of the contract.

Defendants in turn filed a third-party complaint against the architects who prepared the plans and
specifications, alleging in essence that the collapse of the building was due to the defects in the said plans
and specifications. Roman Ozaeta, the then president of the plaintiff Bar Association was included as a
third-party defendant for damages for having included Juan J. Carlos, President of the United Construction
Co., Inc. as party defendant.
On March 3, 1969, the plaintiff and third-party defendants Juan F. Nakpil & Sons and Juan F. Nakpil
presented a written stipulation which reads:

1. That in relation to defendants' answer with counterclaims and third- party complaints and
the third-party defendants Nakpil & Sons' answer thereto, the plaintiff need not amend its
complaint by including the said Juan F. Nakpil & Sons and Juan F. Nakpil personally as
parties defendant.

2. That in the event (unexpected by the undersigned) that the Court should find after the trial
that the above-named defendants Juan J. Carlos and United Construction Co., Inc. are free
from any blame and liability for the collapse of the PBA Building, and should further find
that the collapse of said building was due to defects and/or inadequacy of the plans, designs,
and specifications p by the third-party defendants, or in the event that the Court may find
Juan F. Nakpil and Sons and/or Juan F. Nakpil contributorily negligent or in any way jointly
and solidarily liable with the defendants, judgment may be rendered in whole or in part. as
the case may be, against Juan F. Nakpil & Sons and/or Juan F. Nakpil in favor of the
plaintiff to all intents and purposes as if plaintiff's complaint has been duly amended by
including the said Juan F. Nakpil & Sons and Juan F. Nakpil as parties defendant and by
alleging causes of action against them including, among others, the defects or inadequacy of
the plans, designs, and specifications prepared by them and/or failure in the performance of
their contract with plaintiff.

3. Both parties hereby jointly petition this Honorable Court to approve this stipulation.
(Record on Appeal, pp. 274-275; Rollo, L-47851,p.169).

Upon the issues being joined, a pre-trial was conducted on March 7, 1969, during which among others, the
parties agreed to refer the technical issues involved in the case to a Commissioner. Mr. Andres O. Hizon,
who was ultimately appointed by the trial court, assumed his office as Commissioner, charged with the duty
to try the following issues:

1. Whether the damage sustained by the PBA building during the August 2, 1968 earthquake
had been caused, directly or indirectly, by:

(a) The inadequacies or defects in the plans and specifications prepared by third-party
defendants;

(b) The deviations, if any, made by the defendants from said plans and specifications and
how said deviations contributed to the damage sustained;

(c) The alleged failure of defendants to observe the requisite quality of materials and
workmanship in the construction of the building;

(d) The alleged failure to exercise the requisite degree of supervision expected of the
architect, the contractor and/or the owner of the building;

(e) An act of God or a fortuitous event; and

(f) Any other cause not herein above specified.

2. If the cause of the damage suffered by the building arose from a combination of the
above-enumerated factors, the degree or proportion in which each individual factor
contributed to the damage sustained;
 3. Whether the building is now a total loss and should be completely demolished or whether
it may still be repaired and restored to a tenantable condition. In the latter case, the
determination of the cost of such restoration or repair, and the value of any remaining
construction, such as the foundation, which may still be utilized or availed of (Record on
Appeal, pp. 275-276; Rollo, L-47851, p. 169).

Thus, the issues of this case were divided into technical issues and non-technical issues. As aforestated the
technical issues were referred to the Commissioner. The non-technical issues were tried by the Court.

Meanwhile, plaintiff moved twice for the demolition of the building on the ground that it may topple down
in case of a strong earthquake. The motions were opposed by the defendants and the matter was referred to
the Commissioner. Finally, on April 30, 1979 the building was authorized to be demolished at the expense
of the plaintiff, but not another earthquake of high intensity on April 7, 1970 followed by other strong
earthquakes on April 9, and 12, 1970, caused further damage to the property. The actual demolition was
undertaken by the buyer of the damaged building. (Record on Appeal, pp. 278-280; Ibid.)

After the protracted hearings, the Commissioner eventually submitted his report on September 25, 1970
with the findings that while the damage sustained by the PBA building was caused directly by the August 2,
1968 earthquake whose magnitude was estimated at 7.3 they were also caused by the defects in the plans
and specifications prepared by the third-party defendants' architects, deviations from said plans and
specifications by the defendant contractors and failure of the latter to observe the requisite workmanship in
the construction of the building and of the contractors, architects and even the owners to exercise the
requisite degree of supervision in the construction of subject building.

All the parties registered their objections to aforesaid findings which in turn were answered by the
Commissioner.

The trial court agreed with the findings of the Commissioner except as to the holding that the owner is
charged with full nine supervision of the construction. The Court sees no legal or contractual basis for such
conclusion. (Record on Appeal, pp. 309-328; Ibid).

Thus, on September 21, 1971, the lower court rendered the assailed decision which was modified by the
Intermediate Appellate Court on November 28, 1977.

All the parties herein appealed from the decision of the Intermediate Appellate Court. Hence, these
petitions.

On May 11, 1978, the United Architects of the Philippines, the Association of Civil Engineers, and the
Philippine Institute of Architects filed with the Court a motion to intervene as amicus curiae. They
proposed to present a position paper on the liability of architects when a building collapses and to submit
likewise a critical analysis with computations on the divergent views on the design and plans as submitted
by the experts procured by the parties. The motion having been granted, the amicus curiae were granted a
period of 60 days within which to submit their position.

After the parties had all filed their comments, We gave due course to the petitions in Our Resolution of July
21, 1978.

The position papers of the amicus curiae (submitted on November 24, 1978) were duly noted.

The amicus curiae gave the opinion that the plans and specifications of the Nakpils were not defective. But
the Commissioner, when asked by Us to comment, reiterated his conclusion that the defects in the plans and
specifications indeed existed.
Using the same authorities availed of by the amicus curiae such as the Manila Code (Ord. No. 4131) and
the 1966 Asep Code, the Commissioner added that even if it can be proved that the defects in
the constructionalone (and not in the plans and design) caused the damage to the building, still the
deficiency in the original design and jack of specific provisions against torsion in the original plans and the
overload on the ground floor columns (found by an the experts including the original designer) certainly
contributed to the damage which occurred. (Ibid, p. 174).

In their respective briefs petitioners, among others, raised the following assignments of errors: Philippine
Bar Association claimed that the measure of damages should not be limited to P1,100,000.00 as estimated
cost of repairs or to the period of six (6) months for loss of rentals while United Construction Co., Inc. and
the Nakpils claimed that it was an act of God that caused the failure of the building which should exempt
them from responsibility and not the defective construction, poor workmanship, deviations from plans and
specifications and other imperfections in the case of United Construction Co., Inc. or the deficiencies in the
design, plans and specifications prepared by petitioners in the case of the Nakpils. Both UCCI and the
Nakpils object to the payment of the additional amount of P200,000.00 imposed by the Court of Appeals.
UCCI also claimed that it should be reimbursed the expenses of shoring the building in the amount of
P13,661.28 while the Nakpils opposed the payment of damages jointly and solidarity with UCCI.

The pivotal issue in this case is whether or not an act of God-an unusually strong earthquake-which caused
the failure of the building, exempts from liability, parties who are otherwise liable because of their
negligence.

The applicable law governing the rights and liabilities of the parties herein is Article 1723 of the New Civil
Code, which provides:

Art. 1723. The engineer or architect who drew up the plans and specifications for a building
is liable for damages if within fifteen years from the completion of the structure the same
should collapse by reason of a defect in those plans and specifications, or due to the defects
in the ground. The contractor is likewise responsible for the damage if the edifice fags within
the same period on account of defects in the construction or the use of materials of inferior
quality furnished by him, or due to any violation of the terms of the contract. If the engineer
or architect supervises the construction, he shall be solidarily liable with the contractor.

Acceptance of the building, after completion, does not imply waiver of any of the causes of
action by reason of any defect mentioned in the preceding paragraph.

The action must be brought within ten years following the collapse of the building.

On the other hand, the general rule is that no person shall be responsible for events which could not be
foreseen or which though foreseen, were inevitable (Article 1174, New Civil Code).

An act of God has been defined as an accident, due directly and exclusively to natural causes without
human intervention, which by no amount of foresight, pains or care, reasonably to have been expected,
could have been prevented. (1 Corpus Juris 1174).

There is no dispute that the earthquake of August 2, 1968 is a fortuitous event or an act of God.

To exempt the obligor from liability under Article 1174 of the Civil Code, for a breach of an obligation due
to an "act of God," the following must concur: (a) the cause of the breach of the obligation must be
independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event
must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d)
the debtor must be free from any participation in, or aggravation of the injury to the creditor. (Vasquez v.
Court of Appeals, 138 SCRA 553; Estrada v. Consolacion, 71 SCRA 423; Austria v. Court of Appeals, 39
SCRA 527; Republic of the Phil. v. Luzon Stevedoring Corp., 21 SCRA 279; Lasam v. Smith, 45 Phil.
657).

Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding fraud,
negligence, delay or violation or contravention in any manner of the tenor of the obligation as provided for
in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot escape liability.

The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned
exclusively by the violence of nature and all human agencies are to be excluded from creating or entering
into the cause of the mischief. When the effect, the cause of which is to be considered, is found to be in part
the result of the participation of man, whether it be from active intervention or neglect, or failure to act, the
whole occurrence is thereby humanized, as it were, and removed from the rules applicable to the acts of
God. (1 Corpus Juris, pp. 1174-1175).

Thus it has been held that when the negligence of a person concurs with an act of God in producing a loss,
such person is not exempt from liability by showing that the immediate cause of the damage was the act of
God. To be exempt from liability for loss because of an act of God, he must be free from any previous
negligence or misconduct by which that loss or damage may have been occasioned. (Fish & Elective Co. v.
Phil. Motors, 55 Phil. 129; Tucker v. Milan, 49 O.G. 4379; Limpangco & Sons v. Yangco Steamship Co.,
34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).

The negligence of the defendant and the third-party defendants petitioners was established beyond dispute
both in the lower court and in the Intermediate Appellate Court. Defendant United Construction Co., Inc.
was found to have made substantial deviations from the plans and specifications. and to have failed to
observe the requisite workmanship in the construction as well as to exercise the requisite degree of
supervision; while the third-party defendants were found to have inadequacies or defects in the plans and
specifications prepared by them. As correctly assessed by both courts, the defects in the construction and in
the plans and specifications were the proximate causes that rendered the PBA building unable to withstand
the earthquake of August 2, 1968. For this reason the defendant and third-party defendants cannot claim
exemption from liability. (Decision, Court of Appeals, pp. 30-31).

It is well settled that the findings of facts of the Court of Appeals are conclusive on the parties and on this
court (cases cited in Tolentino vs. de Jesus, 56 SCRA 67; Cesar vs. Sandiganbayan, January 17, 1985, 134
SCRA 105, 121), unless (1) the conclusion is a finding grounded entirely on speculation, surmise and
conjectures; (2) the inference made is manifestly mistaken; (3) there is grave abuse of discretion; (4) the
judgment is based on misapprehension of facts; (5) the findings of fact are conflicting , (6) the Court of
Appeals went beyond the issues of the case and its findings are contrary to the admissions of both appellant
and appellees (Ramos vs. Pepsi-Cola Bottling Co., February 8, 1967, 19 SCRA 289, 291-292; Roque vs.
Buan, Oct. 31, 1967, 21 SCRA 648, 651); (7) the findings of facts of the Court of Appeals are contrary to
those of the trial court; (8) said findings of facts are conclusions without citation of specific evidence on
which they are based; (9) the facts set forth in the petition as well as in the petitioner's main and reply briefs
are not disputed by the respondents (Garcia vs. CA, June 30, 1970, 33 SCRA 622; Alsua-Bett vs. Court of
Appeals, July 30, 1979, 92 SCRA 322, 366); (10) the finding of fact of the Court of Appeals is premised on
the supposed absence of evidence and is contradicted by evidence on record (Salazar vs. Gutierrez, May 29,
1970, 33 SCRA 243, 247; Cited in G.R. No. 66497-98, Sacay v. Sandiganbayan, July 10, 1986).

It is evident that the case at bar does not fall under any of the exceptions above-mentioned. On the contrary,
the records show that the lower court spared no effort in arriving at the correct appreciation of facts by the
referral of technical issues to a Commissioner chosen by the parties whose findings and conclusions
remained convincingly unrebutted by the intervenors/amicus curiae who were allowed to intervene in the
Supreme Court.
In any event, the relevant and logical observations of the trial court as affirmed by the Court of Appeals that
"while it is not possible to state with certainty that the building would not have collapsed were those defects
not present, the fact remains that several buildings in the same area withstood the earthquake to which the
building of the plaintiff was similarly subjected," cannot be ignored.

The next issue to be resolved is the amount of damages to be awarded to the PBA for the partial collapse
(and eventual complete collapse) of its building.

The Court of Appeals affirmed the finding of the trial court based on the report of the Commissioner that
the total amount required to repair the PBA building and to restore it to tenantable condition was
P900,000.00 inasmuch as it was not initially a total loss. However, while the trial court awarded the PBA
said amount as damages, plus unrealized rental income for one-half year, the Court of Appeals modified the
amount by awarding in favor of PBA an additional sum of P200,000.00 representing the damage suffered
by the PBA building as a result of another earthquake that occurred on April 7, 1970 (L-47896, Vol. I, p.
92).

The PBA in its brief insists that the proper award should be P1,830,000.00 representing the total value of
the building (L-47896, PBA's No. 1 Assignment of Error, p. 19), while both the NAKPILS and UNITED
question the additional award of P200,000.00 in favor of the PBA (L- 47851, NAKPIL's Brief as Petitioner,
p. 6, UNITED's Brief as Petitioner, p. 25). The PBA further urges that the unrealized rental income
awarded to it should not be limited to a period of one-half year but should be computed on a continuing
basis at the rate of P178,671.76 a year until the judgment for the principal amount shall have been satisfied
L- 47896, PBA's No. 11 Assignment of Errors, p. 19).

The collapse of the PBA building as a result of the August 2, 1968 earthquake was only partial and it is
undisputed that the building could then still be repaired and restored to its tenantable condition. The PBA,
however, in view of its lack of needed funding, was unable, thru no fault of its own, to have the building
repaired. UNITED, on the other hand, spent P13,661.28 to shore up the building after the August 2, 1968
earthquake (L-47896, CA Decision, p. 46). Because of the earthquake on April 7, 1970, the trial court after
the needed consultations, authorized the total demolition of the building (L-47896, Vol. 1, pp. 53-54).

There should be no question that the NAKPILS and UNITED are liable for the damage resulting from the
partial and eventual collapse of the PBA building as a result of the earthquakes.

We quote with approval the following from the erudite decision penned by Justice Hugo E. Gutierrez (now
an Associate Justice of the Supreme Court) while still an Associate Justice of the Court of Appeals:

There is no question that an earthquake and other forces of nature such as cyclones, drought,
floods, lightning, and perils of the sea are acts of God. It does not necessarily follow,
however, that specific losses and suffering resulting from the occurrence of these natural
force are also acts of God. We are not convinced on the basis of the evidence on record that
from the thousands of structures in Manila, God singled out the blameless PBA building in
Intramuros and around six or seven other buildings in various parts of the city for collapse or
severe damage and that God alone was responsible for the damages and losses thus suffered.

The record is replete with evidence of defects and deficiencies in the designs and plans,
defective construction, poor workmanship, deviation from plans and specifications and other
imperfections. These deficiencies are attributable to negligent men and not to a perfect God.

The act-of-God arguments of the defendants- appellants and third party defendants-
appellants presented in their briefs are premised on legal generalizations or speculations and
on theological fatalism both of which ignore the plain facts. The lengthy discussion of
United on ordinary earthquakes and unusually strong earthquakes and on ordinary fortuitous
events and extraordinary fortuitous events leads to its argument that the August 2, 1968
earthquake was of such an overwhelming and destructive character that by its own force and
independent of the particular negligence alleged, the injury would have been produced. If we
follow this line of speculative reasoning, we will be forced to conclude that under such a
situation scores of buildings in the vicinity and in other parts of Manila would have toppled
down. Following the same line of reasoning, Nakpil and Sons alleges that the designs were
adequate in accordance with pre-August 2, 1968 knowledge and appear inadequate only in
the light of engineering information acquired after the earthquake. If this were so, hundreds
of ancient buildings which survived the earthquake better than the two-year old PBA
building must have been designed and constructed by architects and contractors whose
knowledge and foresight were unexplainably auspicious and prophetic. Fortunately, the facts
on record allow a more down to earth explanation of the collapse. The failure of the PBA
building, as a unique and distinct construction with no reference or comparison to other
buildings, to weather the severe earthquake forces was traced to design deficiencies and
defective construction, factors which are neither mysterious nor esoteric. The theological
allusion of appellant United that God acts in mysterious ways His wonders to perform
impresses us to be inappropriate. The evidence reveals defects and deficiencies in design and
construction. There is no mystery about these acts of negligence. The collapse of the PBA
building was no wonder performed by God. It was a result of the imperfections in the work
of the architects and the people in the construction company. More relevant to our mind is
the lesson from the parable of the wise man in the Sermon on the Mount "which built his
house upon a rock; and the rain descended and the floods came and the winds blew and beat
upon that house; and it fen not; for it was founded upon a rock" and of the "foolish upon the
sand. And the rain descended and man which built his house the floods came, and the winds
blew, and beat upon that house; and it fell and great was the fall of it. (St. Matthew 7: 24-
27)." The requirement that a building should withstand rains, floods, winds, earthquakes, and
natural forces is precisely the reason why we have professional experts like architects, and
engineers. Designs and constructions vary under varying circumstances and conditions but
the requirement to design and build well does not change.

The findings of the lower Court on the cause of the collapse are more rational and accurate.
Instead of laying the blame solely on the motions and forces generated by the earthquake, it
also examined the ability of the PBA building, as designed and constructed, to withstand and
successfully weather those forces.

The evidence sufficiently supports a conclusion that the negligence and fault of both United
and Nakpil and Sons, not a mysterious act of an inscrutable God, were responsible for the
damages. The Report of the Commissioner, Plaintiff's Objections to the Report, Third Party
Defendants' Objections to the Report, Defendants' Objections to the Report, Commissioner's
Answer to the various Objections, Plaintiffs' Reply to the Commissioner's Answer,
Defendants' Reply to the Commissioner's Answer, Counter-Reply to Defendants' Reply, and
Third-Party Defendants' Reply to the Commissioner's Report not to mention the exhibits and
the testimonies show that the main arguments raised on appeal were already raised during
the trial and fully considered by the lower Court. A reiteration of these same arguments on
appeal fails to convince us that we should reverse or disturb the lower Court's factual
findings and its conclusions drawn from the facts, among them:

The Commissioner also found merit in the allegations of the defendants as to the physical
evidence before and after the earthquake showing the inadequacy of design, to wit:

Physical evidence before the earthquake providing (sic) inadequacy of design;

1. inadequate design was the cause of the failure of the building.

2. Sun-baffles on the two sides and in front of the building;

a. Increase the inertia forces that move the building laterally toward the Manila Fire
Department.

b. Create another stiffness imbalance.

3. The embedded 4" diameter cast iron down spout on all exterior columns reduces the
cross-sectional area of each of the columns and the strength thereof.

4. Two front corners, A7 and D7 columns were very much less reinforced.

Physical Evidence After the Earthquake, Proving Inadequacy of design;

1. Column A7 suffered the severest fracture and maximum sagging. Also D7.

2. There are more damages in the front part of the building than towards the rear, not only in
columns but also in slabs.

3. Building leaned and sagged more on the front part of the building.

4. Floors showed maximum sagging on the sides and toward the front corner parts of the
building.

5. There was a lateral displacement of the building of about 8", Maximum sagging occurs at
the column A7 where the floor is lower by 80 cm. than the highest slab level.

6. Slab at the corner column D7 sagged by 38 cm.

The Commissioner concluded that there were deficiencies or defects in the design, plans and
specifications of the PBA building which involved appreciable risks with respect to the
accidental forces which may result from earthquake shocks. He conceded, however, that the
fact that those deficiencies or defects may have arisen from an obsolete or not too
conservative code or even a code that does not require a design for earthquake forces
mitigates in a large measure the responsibility or liability of the architect and engineer
designer.

The Third-party defendants, who are the most concerned with this portion of the
Commissioner's report, voiced opposition to the same on the grounds that (a) the finding is
based on a basic erroneous conception as to the design concept of the building, to wit, that
the design is essentially that of a heavy rectangular box on stilts with shear wan at one end;
(b) the finding that there were defects and a deficiency in the design of the building would at
best be based on an approximation and, therefore, rightly belonged to the realm of
speculation, rather than of certainty and could very possibly be outright error; (c) the
Commissioner has failed to back up or support his finding with extensive, complex and
highly specialized computations and analyzes which he himself emphasizes are necessary in
the determination of such a highly technical question; and (d) the Commissioner has
analyzed the design of the PBA building not in the light of existing and available earthquake
engineering knowledge at the time of the preparation of the design, but in the light of recent
and current standards.

The Commissioner answered the said objections alleging that third-party defendants'
objections were based on estimates or exhibits not presented during the hearing that the
resort to engineering references posterior to the date of the preparation of the plans was
induced by the third-party defendants themselves who submitted computations of the third-
party defendants are erroneous.

The issue presently considered is admittedly a technical one of the highest degree. It
involves questions not within the ordinary competence of the bench and the bar to resolve by
themselves. Counsel for the third-party defendants has aptly remarked that "engineering,
although dealing in mathematics, is not an exact science and that the present knowledge as to
the nature of earthquakes and the behaviour of forces generated by them still leaves much to
be desired; so much so "that the experts of the different parties, who are all engineers, cannot
agree on what equation to use, as to what earthquake co-efficients are, on the codes to be
used and even as to the type of structure that the PBA building (is) was (p. 29, Memo, of
third- party defendants before the Commissioner).

The difficulty expected by the Court if tills technical matter were to be tried and inquired
into by the Court itself, coupled with the intrinsic nature of the questions involved therein,
constituted the reason for the reference of the said issues to a Commissioner whose
qualifications and experience have eminently qualified him for the task, and whose
competence had not been questioned by the parties until he submitted his report. Within the
pardonable limit of the Court's ability to comprehend the meaning of the Commissioner's
report on this issue, and the objections voiced to the same, the Court sees no compelling
reasons to disturb the findings of the Commissioner that there were defects and deficiencies
in the design, plans and specifications prepared by third-party defendants, and that said
defects and deficiencies involved appreciable risks with respect to the accidental forces
which may result from earthquake shocks.

(2) (a) The deviations, if any, made by the defendants from the plans and specifications, and
how said deviations contributed to the damage sustained by the building.

(b) The alleged failure of defendants to observe the requisite quality of materials and
workmanship in the construction of the building.

These two issues, being interrelated with each other, will be discussed together.

The findings of the Commissioner on these issues were as follows:

We now turn to the construction of the PBA Building and the alleged deficiencies or defects
in the construction and violations or deviations from the plans and specifications. All these
may be summarized as follows:

a. Summary of alleged defects as reported by Engineer Mario M. Bundalian.

(1) Wrongful and defective placing of reinforcing bars.

(2) Absence of effective and desirable integration of the 3 bars in the cluster.
(3) Oversize coarse aggregates: 1-1/4 to 2" were used. Specification requires no larger than 1
inch.

(4) Reinforcement assembly is not concentric with the column, eccentricity being 3" off
when on one face the main bars are only 1 1/2' from the surface.

(5) Prevalence of honeycombs,

(6) Contraband construction joints,

(7) Absence, or omission, or over spacing of spiral hoops,

(8) Deliberate severance of spirals into semi-circles in noted on Col. A-5, ground floor,

(9) Defective construction joints in Columns A-3, C-7, D-7 and D-4, ground floor,

(10) Undergraduate concrete is evident,

(11) Big cavity in core of Column 2A-4, second floor,

(12) Columns buckled at different planes. Columns buckled worst where there are no spirals
or where spirals are cut. Columns suffered worst displacement where the eccentricity of the
columnar reinforcement assembly is more acute.

b. Summary of alleged defects as reported by Engr. Antonio Avecilla.

Columns are first (or ground) floor, unless otherwise stated.

(1) Column D4 — Spacing of spiral is changed from 2" to 5" on centers,

(2) Column D5 — No spiral up to a height of 22" from the ground floor,

(3) Column D6 — Spacing of spiral over 4 l/2,

(4) Column D7 — Lack of lateral ties,

(5) Column C7 — Absence of spiral to a height of 20" from the ground level, Spirals are at
2" from the exterior column face and 6" from the inner column face,

(6) Column B6 — Lack of spiral on 2 feet below the floor beams,

(7) Column B5 — Lack of spirals at a distance of 26' below the beam,

(8) Column B7 — Spirals not tied to vertical reinforcing bars, Spirals are uneven 2" to 4",

(9) Column A3 — Lack of lateral ties,

(10) Column A4 — Spirals cut off and welded to two separate clustered vertical bars,

(11) Column A4 — (second floor Column is completely hollow to a height of 30"

(12) Column A5 — Spirals were cut from the floor level to the bottom of the spandrel beam
to a height of 6 feet,

(13) Column A6 — No spirals up to a height of 30' above the ground floor level,

(14) Column A7— Lack of lateralties or spirals,

c. Summary of alleged defects as reported by the experts of the Third-Party defendants.

Ground floor columns.

(1) Column A4 — Spirals are cut,

(2) Column A5 — Spirals are cut,

(3) Column A6 — At lower 18" spirals are absent,

(4) Column A7 — Ties are too far apart,

(5) Column B5 — At upper fourth of column spirals are either absent or improperly spliced,

(6) Column B6 — At upper 2 feet spirals are absent,

(7) Column B7 — At upper fourth of column spirals missing or improperly spliced.

(8) Column C7— Spirals are absent at lowest 18"

(9) Column D5 — At lowest 2 feet spirals are absent,

(10) Column D6 — Spirals are too far apart and apparently improperly spliced,

(11) Column D7 — Lateral ties are too far apart, spaced 16" on centers.

There is merit in many of these allegations. The explanations given by the engineering
experts for the defendants are either contrary to general principles of engineering design for
reinforced concrete or not applicable to the requirements for ductility and strength of
reinforced concrete in earthquake-resistant design and construction.

We shall first classify and consider defects which may have appreciable bearing or relation
to' the earthquake-resistant property of the building.

As heretofore mentioned, details which insure ductility at or near the connections between
columns and girders are desirable in earthquake resistant design and construction. The
omission of spirals and ties or hoops at the bottom and/or tops of columns contributed
greatly to the loss of earthquake-resistant strength. The plans and specifications required that
these spirals and ties be carried from the floor level to the bottom reinforcement of the
deeper beam (p. 1, Specifications, p. 970, Reference 11). There were several clear evidences
where this was not done especially in some of the ground floor columns which failed.

There were also unmistakable evidences that the spacings of the spirals and ties in the
columns were in many cases greater than those called for in the plans and specifications
resulting again in loss of earthquake-resistant strength. The assertion of the engineering
experts for the defendants that the improper spacings and the cutting of the spirals did not
result in loss of strength in the column cannot be maintained and is certainly contrary to the
general principles of column design and construction. And even granting that there be no
loss in strength at the yield point (an assumption which is very doubtful) the cutting or
improper spacings of spirals will certainly result in the loss of the plastic range or ductility in
the column and it is precisely this plastic range or ductility which is desirable and needed for
earthquake-resistant strength.

There is no excuse for the cavity or hollow portion in the column A4, second floor, and
although this column did not fail, this is certainly an evidence on the part of the contractor of
poor construction.

The effect of eccentricities in the columns which were measured at about 2 1/2 inches
maximum may be approximated in relation to column loads and column and beam moments.
The main effect of eccentricity is to change the beam or girder span. The effect on the
measured eccentricity of 2 inches, therefore, is to increase or diminish the column load by a
maximum of about 1% and to increase or diminish the column or beam movements by about
a maximum of 2%. While these can certainly be absorbed within the factor of safety, they
nevertheless diminish said factor of safety.

The cutting of the spirals in column A5, ground floor is the subject of great contention
between the parties and deserves special consideration.

The proper placing of the main reinforcements and spirals in column A5, ground floor, is the
responsibility of the general contractor which is the UCCI. The burden of proof, therefore,
that this cutting was done by others is upon the defendants. Other than a strong allegation
and assertion that it is the plumber or his men who may have done the cutting (and this was
flatly denied by the plumber) no conclusive proof was presented. The engineering experts
for the defendants asserted that they could have no motivation for cutting the bar because
they can simply replace the spirals by wrapping around a new set of spirals. This is not quite
correct. There is evidence to show that the pouring of concrete for columns was sometimes
done through the beam and girder reinforcements which were already in place as in the case
of column A4 second floor. If the reinforcement for the girder and column is to subsequently
wrap around the spirals, this would not do for the elasticity of steel would prevent the
making of tight column spirals and loose or improper spirals would result. The proper way is
to produce correct spirals down from the top of the main column bars, a procedure which
can not be done if either the beam or girder reinforcement is already in place. The
engineering experts for the defendants strongly assert and apparently believe that the cutting
of the spirals did not materially diminish the strength of the column. This belief together
with the difficulty of slipping the spirals on the top of the column once the beam
reinforcement is in place may be a sufficient motivation for the cutting of the spirals
themselves. The defendants, therefore, should be held responsible for the consequences
arising from the loss of strength or ductility in column A5 which may have contributed to the
damages sustained by the building.

The lack of proper length of splicing of spirals was also proven in the visible spirals of the
columns where spalling of the concrete cover had taken place. This lack of proper splicing
contributed in a small measure to the loss of strength.

The effects of all the other proven and visible defects although nor can certainly be
accumulated so that they can contribute to an appreciable loss in earthquake-resistant
 strength. The engineering experts for the defendants submitted an estimate on some of these
defects in the amount of a few percent. If accumulated, therefore, including the effect of
eccentricity in the column the loss in strength due to these minor defects may run to as much
as ten percent.

To recapitulate: the omission or lack of spirals and ties at the bottom and/or at the top of
some of the ground floor columns contributed greatly to the collapse of the PBA building
since it is at these points where the greater part of the failure occurred. The liability for the
cutting of the spirals in column A5, ground floor, in the considered opinion of the
Commissioner rests on the shoulders of the defendants and the loss of strength in this
column contributed to the damage which occurred.

It is reasonable to conclude, therefore, that the proven defects, deficiencies and violations of
the plans and specifications of the PBA building contributed to the damages which resulted
during the earthquake of August 2, 1968 and the vice of these defects and deficiencies is that
they not only increase but also aggravate the weakness mentioned in the design of the
structure. In other words, these defects and deficiencies not only tend to add but also to
multiply the effects of the shortcomings in the design of the building. We may say, therefore,
that the defects and deficiencies in the construction contributed greatly to the damage which
occurred.

Since the execution and supervision of the construction work in the hands of the contractor
is direct and positive, the presence of existence of all the major defects and deficiencies
noted and proven manifests an element of negligence which may amount to imprudence in
the construction work. (pp. 42-49, Commissioners Report).

As the parties most directly concerned with this portion of the Commissioner's report, the defendants
voiced their objections to the same on the grounds that the Commissioner should have specified the defects
found by him to be "meritorious"; that the Commissioner failed to indicate the number of cases where the
spirals and ties were not carried from the floor level to the bottom reinforcement of the deeper beam, or
where the spacing of the spirals and ties in the columns were greater than that called for in the
specifications; that the hollow in column A4, second floor, the eccentricities in the columns, the lack of
proper length of splicing of spirals, and the cut in the spirals in column A5, ground floor, did not aggravate
or contribute to the damage suffered by the building; that the defects in the construction were within the
tolerable margin of safety; and that the cutting of the spirals in column A5, ground floor, was done by the
plumber or his men, and not by the defendants.

Answering the said objections, the Commissioner stated that, since many of the defects were minor only the
totality of the defects was considered. As regards the objection as to failure to state the number of cases
where the spirals and ties were not carried from the floor level to the bottom reinforcement, the
Commissioner specified groundfloor columns B-6 and C-5 the first one without spirals for 03 inches at the
top, and in the latter, there were no spirals for 10 inches at the bottom. The Commissioner likewise
specified the first storey columns where the spacings were greater than that called for in the specifications
to be columns B-5, B-6, C-7, C-6, C-5, D-5 and B-7. The objection to the failure of the Commissioner to
specify the number of columns where there was lack of proper length of splicing of spirals, the
Commissioner mentioned groundfloor columns B-6 and B-5 where all the splices were less than 1-1/2 turns
and were not welded, resulting in some loss of strength which could be critical near the ends of the
columns. He answered the supposition of the defendants that the spirals and the ties must have been looted,
by calling attention to the fact that the missing spirals and ties were only in two out of the 25 columns,
which rendered said supposition to be improbable.
The Commissioner conceded that the hollow in column A-4, second floor, did not aggravate or contribute
to the damage, but averred that it is "evidence of poor construction." On the claim that the eccentricity
could be absorbed within the factor of safety, the Commissioner answered that, while the same may be true,
it also contributed to or aggravated the damage suffered by the building.

The objection regarding the cutting of the spirals in Column A-5, groundfloor, was answered by the
Commissioner by reiterating the observation in his report that irrespective of who did the cutting of the
spirals, the defendants should be held liable for the same as the general contractor of the building. The
Commissioner further stated that the loss of strength of the cut spirals and inelastic deflections of the
supposed lattice work defeated the purpose of the spiral containment in the column and resulted in the loss
of strength, as evidenced by the actual failure of this column.

Again, the Court concurs in the findings of the Commissioner on these issues and fails to find any sufficient
cause to disregard or modify the same. As found by the Commissioner, the "deviations made by the
defendants from the plans and specifications caused indirectly the damage sustained and that those
deviations not only added but also aggravated the damage caused by the defects in the plans and
specifications prepared by third-party defendants. (Rollo, Vol. I, pp. 128-142)

The afore-mentioned facts clearly indicate the wanton negligence of both the defendant and the third-party
defendants in effecting the plans, designs, specifications, and construction of the PBA building and We
hold such negligence as equivalent to bad faith in the performance of their respective tasks.

Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49 O.G. 4379, 4380) which may be in
point in this case reads:

One who negligently creates a dangerous condition cannot escape liability for the natural and probable
consequences thereof, although the act of a third person, or an act of God for which he is not responsible,
intervenes to precipitate the loss.

As already discussed, the destruction was not purely an act of God. Truth to tell hundreds of ancient
buildings in the vicinity were hardly affected by the earthquake. Only one thing spells out the fatal
difference; gross negligence and evident bad faith, without which the damage would not have occurred.

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and
environmental circumstances of this case, We deem it reasonable to render a decision imposing, as We do
hereby impose, upon the defendant and the third-party defendants (with the exception of Roman Ozaeta)
a solidary (Art. 1723, Civil Code, Supra, p. 10) indemnity in favor of the Philippine Bar Association of
FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the exception of attorney's fees)
occasioned by the loss of the building (including interest charges and lost rentals) and an additional ONE
HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon
the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum
shall be imposed upon afore-mentioned amounts from finality until paid. Solidary costs against the
defendant and third-party defendants (except Roman Ozaeta).

SO ORDERED.
G.R. No. L-21749 September 29, 1967

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
LUZON STEVEDORING CORPORATION, defendant-appellant.

Office of the Solicitor General for plaintiff-appellee.

H. San Luis and L.V. Simbulan for defendant-appellant.

REYES, J.B.L., J.:

The present case comes by direct appeal from a decision of the Court of First Instance of Manila (Case No.
44572) adjudging the defendant-appellant, Luzon Stevedoring Corporation, liable in damages to the
plaintiff-appellee Republic of the Philippines.

In the early afternoon of August 17, 1960, barge L-1892, owned by the Luzon Stevedoring Corporation was
being towed down the Pasig river by tugboats "Bangus" and "Barbero"1 also belonging to the same
corporation, when the barge rammed against one of the wooden piles of the Nagtahan bailey bridge,
smashing the posts and causing the bridge to list. The river, at the time, was swollen and the current swift,
on account of the heavy downpour of Manila and the surrounding provinces on August 15 and 16, 1960.

Sued by the Republic of the Philippines for actual and consequential damage caused by its employees,
amounting to P200,000 (Civil Case No. 44562, CFI of Manila), defendant Luzon Stevedoring Corporation
disclaimed liability therefor, on the grounds that it had exercised due diligence in the selection and
supervision of its employees; that the damages to the bridge were caused by force majeure; that plaintiff
has no capacity to sue; and that the Nagtahan bailey bridge is an obstruction to navigation.

After due trial, the court rendered judgment on June 11, 1963, holding the defendant liable for the damage
caused by its employees and ordering it to pay to plaintiff the actual cost of the repair of the Nagtahan
bailey bridge which amounted to P192,561.72, with legal interest thereon from the date of the filing of the
complaint.

Defendant appealed directly to this Court assigning the following errors allegedly committed by the court a
quo, to wit:

I — The lower court erred in not holding that the herein defendant-appellant had exercised the
diligence required of it in the selection and supervision of its personnel to prevent damage or injury
to others.1awphîl.nèt

II — The lower court erred in not holding that the ramming of the Nagtahan bailey bridge by barge
L-1892 was caused by force majeure.

III — The lower court erred in not holding that the Nagtahan bailey bridge is an obstruction, if not a
menace, to navigation in the Pasig river.

IV — The lower court erred in not blaming the damage sustained by the Nagtahan bailey bridge to
the improper placement of the dolphins.

V — The lower court erred in granting plaintiff's motion to adduce further evidence in chief after it
has rested its case.
 VI — The lower court erred in finding the plaintiff entitled to the amount of P192,561.72 for
damages which is clearly exorbitant and without any factual basis.

However, it must be recalled that the established rule in this jurisdiction is that when a party appeals
directly to the Supreme Court, and submits his case there for decision, he is deemed to have waived the
right to dispute any finding of fact made by the trial Court. The only questions that may be raised are those
of law (Savellano vs. Diaz, L-17441, July 31, 1963; Aballe vs. Santiago, L-16307, April 30, 1963; G.S.I.S.
vs. Cloribel, L-22236, June 22, 1965). A converso, a party who resorts to the Court of Appeals, and submits
his case for decision there, is barred from contending later that his claim was beyond the jurisdiction of the
aforesaid Court. The reason is that a contrary rule would encourage the undesirable practice of appellants'
submitting their cases for decision to either court in expectation of favorable judgment, but with intent of
attacking its jurisdiction should the decision be unfavorable (Tyson Tan, et al. vs. Filipinas Compañia de
Seguros) et al., L-10096, Res. on Motion to Reconsider, March 23, 1966). Consequently, we are limited in
this appeal to the issues of law raised in the appellant's brief.

Taking the aforesaid rules into account, it can be seen that the only reviewable issues in this appeal are
reduced to two:

1) Whether or not the collision of appellant's barge with the supports or piers of the Nagtahan bridge
was in law caused by fortuitous event or force majeure, and

2) Whether or not it was error for the Court to have permitted the plaintiff-appellee to introduce
additional evidence of damages after said party had rested its case.

As to the first question, considering that the Nagtahan bridge was an immovable and stationary object and
uncontrovertedly provided with adequate openings for the passage of water craft, including barges like of
appellant's, it is undeniable that the unusual event that the barge, exclusively controlled by appellant,
rammed the bridge supports raises a presumption of negligence on the part of appellant or its employees
manning the barge or the tugs that towed it. For in the ordinary course of events, such a thing does not
happen if proper care is used. In Anglo American Jurisprudence, the inference arises by what is known as
the "res ipsa loquitur" rule (Scott vs. London Docks Co., 2 H & C 596; San Juan Light & Transit Co. vs.
Requena, 224 U.S. 89, 56 L. Ed., 680; Whitwell vs. Wolf, 127 Minn. 529, 149 N.W. 299; Bryne vs. Great
Atlantic & Pacific Tea Co., 269 Mass. 130; 168 N.E. 540; Gribsby vs. Smith, 146 S.W. 2d 719).

The appellant strongly stresses the precautions taken by it on the day in question: that it assigned two of its
most powerful tugboats to tow down river its barge L-1892; that it assigned to the task the more competent
and experienced among its patrons, had the towlines, engines and equipment double-checked and
inspected; that it instructed its patrons to take extra precautions; and concludes that it had done all it was
called to do, and that the accident, therefore, should be held due to force majeure or fortuitous event.

These very precautions, however, completely destroy the appellant's defense. For caso fortuito or force
majeure(which in law are identical in so far as they exempt an obligor from liability)2 by definition, are
extraordinary events not foreseeable or avoidable, "events that could not be foreseen, or which, though
foreseen, were inevitable" (Art. 1174, Civ. Code of the Philippines). It is, therefore, not enough that the
event should not have been foreseen or anticipated, as is commonly believed, but it must be one impossible
to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same:
"un hecho no constituye caso fortuito por la sola circunstancia de que su existencia haga mas dificil o mas
onerosa la accion diligente del presento ofensor" (Peirano Facio, Responsibilidad Extra-contractual, p. 465;
Mazeaud Trait de la Responsibilite Civil, Vol. 2, sec. 1569). The very measures adopted by appellant prove
that the possibility of danger was not only foreseeable, but actually foreseen, and was not caso fortuito.
Otherwise stated, the appellant, Luzon Stevedoring Corporation, knowing and appreciating the perils posed
by the swollen stream and its swift current, voluntarily entered into a situation involving obvious danger; it
therefore assured the risk, and can not shed responsibility merely because the precautions it adopted turned
out to be insufficient. Hence, the lower Court committed no error in holding it negligent in not suspending
operations and in holding it liable for the damages caused.

It avails the appellant naught to argue that the dolphins, like the bridge, were improperly located. Even if
true, these circumstances would merely emphasize the need of even higher degree of care on appellant's
part in the situation involved in the present case. The appellant, whose barges and tugs travel up and down
the river everyday, could not safely ignore the danger posed by these allegedly improper constructions that
had been erected, and in place, for years.

On the second point: appellant charges the lower court with having abused its discretion in the admission of
plaintiff's additional evidence after the latter had rested its case. There is an insinuation that the delay was
deliberate to enable the manipulation of evidence to prejudice defendant-appellant.

We find no merit in the contention. Whether or not further evidence will be allowed after a party offering
the evidence has rested his case, lies within the sound discretion of the trial Judge, and this discretion will
not be reviewed except in clear case of abuse.3

In the present case, no abuse of that discretion is shown. What was allowed to be introduced, after plaintiff
had rested its evidence in chief, were vouchers and papers to support an item of P1,558.00 allegedly spent
for the reinforcement of the panel of the bailey bridge, and which item already appeared in Exhibit GG.
Appellant, in fact, has no reason to charge the trial court of being unfair, because it was also able to secure,
upon written motion, a similar order dated November 24, 1962, allowing reception of additional evidence
for the said defendant-appellant.4

WHEREFORE, finding no error in the decision of the lower Court appealed from, the same is hereby
affirmed. Costs against the defendant-appellant.
G.R. No. L-25906 May 28, 1970
PEDRO D. DIOQUINO, plaintiff-appellee,
vs.
FEDERICO LAUREANO, AIDA DE LAUREANO and JUANITO
LAUREANO, defendants-appellants.
Pedro D. Dioquino in his own behalf.
Arturo E. Valdomero, Jose L. Almario and Rolando S. Relova for
defendants-appellants.
FERNANDO, J.:
The present lawsuit had its origin in a relationship, if it could be called
such, the use of a car owned by plaintiff Pedro D. Dioquino by defendant
Federico Laureano, clearly of a character casual and temporary but
unfortunately married by an occurrence resulting in its windshield being
damaged. A stone thrown by a boy who, with his other companions, was
thus engaged in what undoubtedly for them must have been mistakenly
thought to be a none too harmful prank did not miss its mark. Plaintiff
would hold defendant Federico Laureano accountable for the loss thus
sustained, including in the action filed the wife, Aida de Laureano, and
the father, Juanito Laureano. Plaintiff prevail in the lower court, the
judgment however going only against the principal defendant, his spouse
and his father being absolved of any responsibility. Nonetheless, all three
of them appealed directly to us, raising two questions of law, the first
being the failure of the lower court to dismiss such a suit as no liability
could have been incurred as a result of a fortuitous event and the other
being its failure to award damages against plaintiff for the unwarranted
inclusion of the wife and the father in this litigation. We agree that the
lower court ought to have dismissed the suit, but it does not follow that
thereby damages for the inclusion of the above two other parties in the
complaint should have been awarded appellants.
The facts as found by the lower court follow: "Attorney Pedro Dioquino, a
practicing lawyer of Masbate, is the owner of a car. On March 31, 1964,
he went to the office of the MVO, Masbate, to register the same. He met
the defendant Federico Laureano, a patrol officer of said MVO office,
who was waiting for a jeepney to take him to the office of the Provincial
Commander, PC, Masbate. Attorney Dioquino requested the defendant
Federico Laureano to introduce him to one of the clerks in the MVO
Office, who could facilitate the registration of his car and the request was
graciously attended to. Defendant Laureano rode on the car of Atty.
Dioquino on his way to the P.C. Barracks at Masbate. While about to
reach their destination, the car driven by plaintiff's driver and with
defendant Federico Laureano as the sole passenger was stoned by
some 'mischievous boys,' and its windshield was broken. Defendant
Federico Laureano chased the boys and he was able to catch one of
them. The boy was taken to Atty. Dioquino [and] admitted having thrown
the stone that broke the car's windshield. The plaintiff and the defendant
Federico Laureano with the boy returned to the P.C. barracks and the
father of the boy was called, but no satisfactory arrangements [were]
made about the damage to the
windshield."1
It was likewise noted in the decision now on appeal: "The defendant
Federico Laureano refused to file any charges against the boy and his
parents because he thought that the stone-throwing was merely
accidental and that it was due to force majeure. So he did not want to
take any action and after delaying the settlement, after perhaps
consulting a lawyer, the defendant Federico Laureano refused to pay the
windshield himself and challenged that the case be brought to court for
judicial adjudication. There is no question that the plaintiff tried to
convince the defendant Federico Laureano just to pay the value of the
windshield and he even came to the extent of asking the wife to convince
her husband to settle the matter amicably but the defendant Federico
Laureano refused to make any settlement, clinging [to] the belief that he
could not be held liable because a minor child threw a stone accidentally
on the windshield and therefore, the same was due to force majeure."2
1. The law being what it is, such a belief on the part of defendant
Federico Laureano was justified. The express language of Art. 1174 of
the present Civil Code which is a restatement of Art. 1105 of the Old Civil
Code, except for the addition of the nature of an obligation requiring the
assumption of risk, compels such a conclusion. It reads thus: "Except in
cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption
of risk, no person shall be responsible for those events which could not
be, foreseen, or which, though foreseen were inevitable." Even under the
old Civil Code then, as stressed by us in the first decision dating back to
1908, in an opinion by Justice Mapa, the rule was well-settled that in the
absence of a legal provision or an express covenant, "no one should be
held to account for fortuitous cases."3 Its basis, as Justice Moreland
stressed, is the Roman law principle major casus est, cui humana
infirmitas resistere non potest.4Authorities of repute are in agreement,
more specifically concerning an obligation arising from contract "that
some extraordinary circumstance independent of the will of the obligor,
or of his employees, is an essential element of a caso fortuito."5 If it could
be shown that such indeed was the case, liability is ruled out. There is no
requirement of "diligence beyond what human care and foresight can
provide."6
The error committed by the lower court in holding defendant Federico
Laureano liable appears to be thus obvious. Its own findings of fact repel
the motion that he should be made to respond in damages to the plaintiff
for the broken windshield. What happened was clearly unforeseen. It was
a fortuitous event resulting in a loss which must be borne by the owner of
the car. An element of reasonableness in the law would be manifestly
lacking if, on the circumstances as thus disclosed, legal responsibility
could be imputed to an individual in the situation of defendant Laureano.
Art. 1174 of the Civil Code guards against the possibility of its being
visited with such a reproach. Unfortunately, the lower court was of a
different mind and thus failed to heed its command.
It was misled, apparently, by the inclusion of the exemption from the
operation of such a provision of a party assuming the risk, considering
the nature of the obligation undertaken. A more careful analysis would
have led the lower court to a different and correct interpretation. The very
wording of the law dispels any doubt that what is therein contemplated is
the resulting liability even if caused by a fortuitous event where the party
charged may be considered as having assumed the risk incident in the
nature of the obligation to be performed. It would be an affront, not only
to the logic but to the realities of the situation, if in the light of what
transpired, as found by the lower court, defendant Federico Laureano
could be held as bound to assume a risk of this nature. There was no
such obligation on his part.
Reference to the leading case of Republic v. Luzon Stevedoring
Corp.7 will illustrate when the nature of the obligation is such that the risk
could be considered as having been assumed. As noted in the opinion of
Justice J.B.L. Reyes, speaking for the Court: "The appellant strongly
stresses the precautions taken by it on the day in question: that it
assigned two of its most powerful tugboats to tow down river its barge L-
1892; that it assigned to the task the more competent and experienced
among its patrons, had the towlines, engines and equipment double-
checked and inspected; that it instructed its patrons to take extra-
precautions; and concludes that it had done all it was called to do, and
that the accident, therefore, should be held due to force majeure or
fortuitous event." Its next paragraph explained clearly why the defense
of caso fortuito or force majeure does not lie. Thus: "These very
precautions, however, completely destroy the appellant's defense.
For caso fortuito or force majeure (which in law are identical in so far as
they exempt an obligor from liability) by definition, are extraordinary
events not foreseeable or avoidable, 'events that could not be foreseen,
or which, though foreseen, were inevitable' (Art. 1174, Civil Code of the
Philippines). It is, therefore, not enough that the event should not have
been foreseen or participated, as is commonly believed, but it must be
one impossible to foresee or to avoid. The mere difficulty to foresee the
happening is not impossibility to foresee the same: un hecho no
constituye caso fortuito por la sola circunstancia de que su existencia
haga mas dificil o mas onerosa la accion diligente del presente ofensor'
(Peirano Facio, Responsibilidad Extra-contractual, p. 465;
Mazeaud, Traite de la Responsibilite Civile, Vol. 2, sec. 1569). The very
measures adopted by appellant prove that the possibility of danger was
not only foreseeable, but actually foreseen, and was not caso fortuito."
In that case then, the risk was quite evident and the nature of the
obligation such that a party could rightfully be deemed as having
assumed it. It is not so in the case before us. It is anything but that. If the
lower court, therefore, were duly mindful of what this particular legal
provision contemplates, it could not have reached the conclusion that
defendant Federico Laureano could be held liable. To repeat, that was
clear error on its part.
2. Appellants do not stop there. It does not suffice for them that
defendant Federico Laureano would be freed from liability. They would
go farther. They would take plaintiff to task for his complaint having
joined the wife, Aida de Laureano, and the father, Juanita Laureano.
They were far from satisfied with the lower court's absolving these two
from any financial responsibility. Appellants would have plaintiff pay
damages for their inclusion in this litigation. We are not disposed to view
the matter thus.
It is to be admitted, of course, that plaintiff, who is a member of the bar,
ought to have exercised greater care in selecting the parties against
whom he would proceed. It may be said that his view of the law that
would consider defendant Federico Laureano liable on the facts as thus
disclosed, while erroneous, is not bereft of plausibility. Even the lower
court, mistakenly of course, entertained similar view. For plaintiff,
however, to have included the wife and the father would seem to indicate
that his understanding of the law is not all that it ought to have been.
Plaintiff apparently was not entirely unaware that the inclusion in the suit
filed by him was characterized by unorthodoxy. He did attempt to lend
some color of justification by explicitly setting forth that the father was
joined as party defendant in the case as he was the administrator of the
inheritance of an undivided property to which defendant Federico
Laureano could lay claim and that the wife was likewise proceeded
against because the conjugal partnership would be made to respond for
whatever liability would be adjudicated against the husband.
It cannot be said that such an attempt at justification is impressed with a
high persuasive quality. Far from it. Nonetheless, mistaken as plaintiff
apparently was, it cannot be concluded that he was prompted solely by
the desire to inflict needless and unjustified vexation on them.
Considering the equities of the situation, plaintiff having suffered a
pecuniary loss which, while resulting from a fortuitous event, perhaps
would not have occurred at all had not defendant Federico Laureano
borrowed his car, we, feel that he is not to be penalized further by his
mistaken view of the law in including them in his complaint. Well-worth
paraphrasing is the thought expressed in a United States Supreme Court
decision as to the existence of an abiding and fundamental principle that
the expenses and annoyance of litigation form part of the social burden
of living in a society which seeks to attain social control through law.8
WHEREFORE, the decision of the lower court of November 2, 1965
insofar as it orders defendant Federico Laureano to pay plaintiff the
amount of P30,000.00 as damages plus the payment of costs, is hereby
reversed. It is affirmed insofar as it dismissed the case against the other
two defendants, Juanita Laureano and Aida de Laureano, and declared
that no moral damages should be awarded the parties. Without
pronouncement as to costs.
G.R. No. L-29640 June 10, 1971
GUILLERMO AUSTRIA, petitioner,
vs.
THE COURT OF APPEALS (Second Division), PACIFICO ABAD and
MARIA G. ABAD, respondents.
Antonio Enrile Inton for petitioner.
Jose A. Buendia for respondents.
REYES, J.B.L., J.:
Guillermo Austria petitions for the review of the decision rendered by the
Court of Appeal (in CA-G.R. No. 33572-R), on the sole issue of whether
in a contract of agency (consignment of goods for sale) it is necessary
that there be prior conviction for robbery before the loss of the article
shall exempt the consignee from liability for such loss.
In a receipt dated 30 January 1961, Maria G. Abad acknowledged having
received from Guillermo Austria one (1) pendant with diamonds valued at
P4,500.00, to be sold on commission basis or to be returned on demand.
On 1 February 1961, however, while walking home to her residence in
Mandaluyong, Rizal, Abad was said to have been accosted by two men,
one of whom hit her on the face, while the other snatched her purse
containing jewelry and cash, and ran away. Among the pieces of jewelry
allegedly taken by the robbers was the consigned pendant. The incident
became the subject of a criminal case filed in the Court of First Instance
of Rizal against certain persons (Criminal Case No. 10649, People vs.
Rene Garcia, et al.).
As Abad failed to return the jewelry or pay for its value notwithstanding
demands, Austria brought in the Court of First Instance of Manila an
action against her and her husband for recovery of the pendant or of its
value, and damages. Answering the allegations of the complaint,
defendants spouses set up the defense that the alleged robbery had
extinguished their obligation.
After due hearing, the trial court rendered judgment for the plaintiff, and
ordered defendants spouses, jointly and severally, to pay to the former
the sum of P4,500.00, with legal interest thereon, plus the amount of
P450.00 as reasonable attorneys' fees, and the costs. It was held that
defendants failed to prove the fact of robbery, or, if indeed it was
committed, that defendant Maria Abad was guilty of negligence when she
went home without any companion, although it was already getting dark
and she was carrying a large amount of cash and valuables on the day in
question, and such negligence did not free her from liability for damages
for the loss of the jewelry.
Not satisfied with his decision, the defendants went to the Court of
Appeals, and there secured a reversal of the judgment. The appellate
court overruling the finding of the trial court on the lack of credibility of the
two defense witnesses who testified on the occurrence of the robbery,
and holding that the facts of robbery and defendant Maria Abad's
possesion of the pendant on that unfortunate day have been duly
published, declared respondents not responsible for the loss of the
jewelry on account of a fortuitous event, and relieved them from liability
for damages to the owner. Plaintiff thereupon instituted the present
proceeding.
It is now contended by herein petitioner that the Court of Appeals erred in
finding that there was robbery in the case, although nobody has been
found guilty of the supposed crime. It is petitioner's theory that for
robbery to fall under the category of a fortuitous event and relieve the
obligor from his obligation under a contract, pursuant to Article 1174 of
the new Civil Code, there ought to be prior finding on the guilt of the
persons responsible therefor. In short, that the occurrence of the robbery
should be proved by a final judgment of conviction in the criminal case.
To adopt a different view, petitioner argues, would be to encourage
persons accountable for goods or properties received in trust or
consignment to connive with others, who would be willing to be accused
in court for the robbery, in order to be absolved from civil liability for the
loss or disappearance of the entrusted articles.
We find no merit in the contention of petitioner.
It is recognized in this jurisdiction that to constitute a caso fortuito that
would exempt a person from responsibility, it is necessary that (1) the
event must be independent of the human will (or rather, of the debtor's or
obligor's); (2) the occurrence must render it impossible for the debtor to
fulfill the obligation in a normal manner; and that (3) the obligor must be
free of participation in or aggravation of the injury to the creditor.1 A
fortuitous event, therefore, can be produced by nature, e.g., earthquakes,
storms, floods, etc., or by the act of man, such as war, attack by bandits,
robbery,2 etc., provided that the event has all the characteristics
enumerated above.
It is not here disputed that if respondent Maria Abad were indeed the
victim of robbery, and if it were really true that the pendant, which she
was obliged either to sell on commission or to return to petitioner, were
taken during the robbery, then the occurrence of that fortuitous event
would have extinguished her liability. The point at issue in this
proceeding is how the fact of robbery is to be established in order that a
person may avail of the exempting provision of Article 1174 of the new
Civil Code, which reads as follows:
ART. 1174. Except in cases expressly specified by law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which, though foreseen, were
inevitable.
It may be noted the reform that the emphasis of the provision is on the
events, not on the agents or factors responsible for them. To avail of the
exemption granted in the law, it is not necessary that the persons
responsible for the occurrence should be found or punished; it would only
be sufficient to established that the enforceable event, the robbery in this
case did take place without any concurrent fault on the debtor's part, and
this can be done by preponderant evidence. To require in the present
action for recovery the prior conviction of the culprits in the criminal case,
in order to establish the robbery as a fact, would be to demand proof
beyond reasonable doubt to prove a fact in a civil case.
It is undeniable that in order to completely exonerate the debtor for
reason of a fortutious event, such debtor must, in addition to the cams
itself, be free of any concurrent or contributory fault or negligence.3 This
is apparent from Article 1170 of the Civil Code of the Philippines,
providing that:
ART. 1170. 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.
It is clear that under the circumstances prevailing at present in the City of
Manila and its suburbs, with their high incidence of crimes against
persons and property that renders travel after nightfall a matter to be
sedulously avoided without suitable precaution and protection, the
conduct of respondent Maria G. Abad, in returning alone to her house in
the evening, carrying jewelry of considerable value would be negligent
per se and would not exempt her from responsibility in the case of a
robbery. We are not persuaded, however, that the same rule should
obtain ten years previously, in 1961, when the robbery in question did
take place, for at that time criminality had not by far reached the levels
attained in the present day.
There is likewise no merit in petitioner's argument that to allow the fact of
robbery to be recognized in the civil case before conviction is secured in
the criminal action, would prejudice the latter case, or would result in
inconsistency should the accused obtain an acquittal or should the
criminal case be dismissed. It must be realized that a court finding that a
robbery has happened would not necessarily mean that those accused in
the criminal action should be found guilty of the crime; nor would a ruling
that those actually accused did not commit the robbery be inconsistent
with a finding that a robbery did take place. The evidence to establish
these facts would not necessarily be the same.
WHEREFORE, finding no error in the decision of the Court of Appeals
under review, the petition in this case is hereby dismissed with costs
against the petitioner.
G.R. No. 113003 October 17, 1997

ALBERTA YOBIDO and CRESENCIO YOBIDO, petitioners,

vs.
COURT OF APPEALS, LENY TUMBOY, ARDEE TUMBOY and JASMIN TUMBOY, respondents.

ROMERO, J.:

In this petition for review on certiorari of the decision of the Court of Appeals, the issue is whether or not
the explosion of a newly installed tire of a passenger vehicle is a fortuitous event that exempts the carrier
from liability for the death of a passenger.

On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named Ardee and Jasmin,
bearded at Mangagoy, Surigao del Sur, a Yobido Liner bus bound for Davao City. Along Picop Road in
Km. 17, Sta. Maria, Agusan del Sur, the left front tire of the bus exploded. The bus fell into a ravine around
three (3) feet from the road and struck a tree. The incident resulted in the death of 28-year-old Tito Tumboy
and physical injuries to other passengers.

On November 21, 1988, a complaint for breach of contract of carriage, damages and attorney's fees was
filed by Leny and her children against Alberta Yobido, the owner of the bus, and Cresencio Yobido, its
driver, before the Regional Trial Court of Davao City. When the defendants therein filed their answer to the
complaint, they raised the affirmative defense of caso fortuito. They also filed a third-party complaint
against Philippine Phoenix Surety and Insurance, Inc. This third-party defendant filed an answer with
compulsory counterclaim. At the pre-trial conference, the parties agreed to a stipulation of facts.1

Upon a finding that the third party defendant was not liable under the insurance contract, the lower court
dismissed the third party complaint. No amicable settlement having been arrived at by the parties, trial on
the merits ensued.

The plaintiffs asserted that violation of the contract of carriage between them and the defendants was
brought about by the driver's failure to exercise the diligence required of the carrier in transporting
passengers safely to their place of destination. According to Leny Tumboy, the bus left Mangagoy at 3:00
o'clock in the afternoon. The winding road it traversed was not cemented and was wet due to the rain; it was
rough with crushed rocks. The bus which was full of passengers had cargoes on top. Since it was "running
fast," she cautioned the driver to slow down but he merely stared at her through the mirror. At around 3:30
p.m., in Trento, she heard something explode and immediately, the bus fell into a ravine.

For their part, the defendants tried to establish that the accident was due to a fortuitous event. Abundio
Salce, who was the bus conductor when the incident happened, testified that the 42-seater bus was not full
as there were only 32 passengers, such that he himself managed to get a seat. He added that the bus was
running at a speed of "60 to 50" and that it was going slow because of the zigzag road. He affirmed that the
left front tire that exploded was a "brand new tire" that he mounted on the bus on April 21, 1988 or only
five (5) days before the incident. The Yobido Liner secretary, Minerva Fernando, bought the new Goodyear
tire from Davao Toyo Parts on April 20, 1988 and she was present when it was mounted on the bus by
Salce. She stated that all driver applicants in Yobido Liner underwent actual driving tests before they were
employed. Defendant Cresencio Yobido underwent such test and submitted his professional driver's license
and clearances from the barangay, the fiscal and the police.

On August 29, 1991, the lower court rendered a decision2 dismissing the action for lack of merit. On the
issue of whether or not the tire blowout was a caso fortuito, it found that "the falling of the bus to the cliff
was a result of no other outside factor than the tire blow-out." It held that the ruling in the La Mallorca and
Pampanga Bus Co. v. De Jesus3 that a tire blowout is "a mechanical defect of the conveyance or a fault in
its equipment which was easily discoverable if the bus had been subjected to a more thorough or rigid
check-up before it took to the road that morning" is inapplicable to this case. It reasoned out that in said
case, it was found that the blowout was caused by the established fact that the inner tube of the left front tire
"was pressed between the inner circle of the left wheel and the rim which had slipped out of the wheel." In
this case, however, "the cause of the explosion remains a mystery until at present." As such, the court
added, the tire blowout was "a caso fortuito which is completely an extraordinary circumstance independent
of the will" of the defendants who should be relieved of "whatever liability the plaintiffs may have suffered
by reason of the explosion pursuant to Article 11744 of the Civil Code."

Dissatisfied, the plaintiffs appealed to the Court of Appeals. They ascribed to the lower court the following
errors: (a) finding that the tire blowout was a caso fortuito; (b) failing to hold that the defendants did not
exercise utmost and/or extraordinary diligence required of carriers under Article 1755 of the Civil Code,
and (c) deciding the case contrary to the ruling in Juntilla v. Fontanar,5 and Necesito v. Paras.6

On August 23, 1993, the Court of Appeals rendered the Decision7 reversing that of the lower court. It held
that:

To Our mind, the explosion of the tire is not in itself a fortuitous event. The cause of the blow-out, if
due to a factory defect, improper mounting, excessive tire pressure, is not an unavoidable event. On
the other hand, there may have been adverse conditions on the road that were unforeseeable and/or
inevitable, which could make the blow-out a caso fortuito. The fact that the cause of the blow-out
was not known does not relieve the carrier of liability. Owing to the statutory presumption of
negligence against the carrier and its obligation to exercise the utmost diligence of very cautious
persons to carry the passenger safely as far as human care and foresight can provide, it is the burden
of the defendants to prove that the cause of the blow-out was a fortuitous event. It is not incumbent
upon the plaintiff to prove that the cause of the blow-out is not caso-fortuito.

Proving that the tire that exploded is a new Goodyear tire is not sufficient to discharge defendants'
burden. As enunciated in Necesito vs. Paras, the passenger has neither choice nor control over the
carrier in the selection and use of its equipment, and the good repute of the manufacturer will not
necessarily relieve the carrier from liability.

Moreover, there is evidence that the bus was moving fast, and the road was wet and rough. The
driver could have explained that the blow-out that precipitated the accident that caused the death of
Toto Tumboy could not have been prevented even if he had exercised due care to avoid the same,
but he was not presented as witness.

The Court of Appeals thus disposed of the appeal as follows:

WHEREFORE, the judgment of the court a quo is set aside and another one entered ordering
defendants to pay plaintiffs the sum of P50,000.00 for the death of Tito Tumboy, P30,000.00 in
moral damages, and P7,000.00 for funeral and burial expenses.

SO ORDERED.

The defendants filed a motion for reconsideration of said decision which was denied on November 4, 1993
by the Court of Appeals. Hence, the instant petition asserting the position that the tire blowout that caused
the death of Tito Tumboy was a caso fortuito. Petitioners claim further that the Court of Appeals, in ruling
contrary to that of the lower court, misapprehended facts and, therefore, its findings of fact cannot be
considered final which shall bind this Court. Hence, they pray that this Court review the facts of the case.
The Court did re-examine the facts and evidence in this case because of the inapplicability of the
established principle that the factual findings of the Court of Appeals are final and may not be reviewed on
appeal by this Court. This general principle is subject to exceptions such as the one present in this case,
namely, that the lower court and the Court of Appeals arrived at diverse factual findings.8 However, upon
such re-examination, we found no reason to overturn the findings and conclusions of the Court of Appeals.

As a rule, when a passenger boards a common carrier, he takes the risks incidental to the mode of travel he
has taken. After all, a carrier is not an insurer of the safety of its passengers and is not bound absolutely and
at all events to carry them safely and without injury.9 However, when a passenger is injured or dies while
travelling, the law presumes that the common carrier is negligent. Thus, the Civil Code provides:

Art. 1756. In case of death or injuries to passengers, common carriers are presumed to have been at
fault or to have acted negligently, unless they prove that they observed extraordinary diligence as
prescribed in articles 1733 and 1755.

Article 1755 provides that "(a) common carrier is bound to carry the passengers safely as far as human care
and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the
circumstances." Accordingly, in culpa contractual, once a passenger dies or is injured, the carrier is
presumed to have been at fault or to have acted negligently. This disputable presumption may only be
overcome by evidence that the carrier had observed extraordinary diligence as prescribed by Articles
1733,10 1755 and 1756 of the Civil Code or that the death or injury of the passenger was due to a fortuitous
event.11 Consequently, the court need not make an express finding of fault or negligence on the part of the
carrier to hold it responsible for damages sought by the passenger.12

In view of the foregoing, petitioners' contention that they should be exempt from liability because the tire
blowout was no more than a fortuitous event that could not have been foreseen, must fail. A fortuitous
event is possessed of the following characteristics: (a) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtor to comply with his obligations, must be independent of human will;
(b) it must be impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it
must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to
fulfill his obligation in a normal manner; and (d) the obliger must be free from any participation in the
aggravation of the injury resulting to the creditor.13 As Article 1174 provides, no person shall be
responsible for a fortuitous event which could not be foreseen, or which, though foreseen, was inevitable. In
other words, there must be an entire exclusion of human agency from the cause of injury or loss.14

Under the circumstances of this case, the explosion of the new tire may not be considered a fortuitous
event. There are human factors involved in the situation. The fact that the tire was new did not imply that it
was entirely free from manufacturing defects or that it was properly mounted on the vehicle. Neither may
the fact that the tire bought and used in the vehicle is of a brand name noted for quality, resulting in the
conclusion that it could not explode within five days' use. Be that as it may, it is settled that an accident
caused either by defects in the automobile or through the negligence of its driver is not a caso fortuito that
would exempt the carrier from liability for damages.15

Moreover, a common carrier may not be absolved from liability in case of force majeure or fortuitous event
alone. The common carrier must still prove that it was not negligent in causing the death or injury resulting
from an accident.16 This Court has had occasion to state:

While it may be true that the tire that blew-up was still good because the grooves of the tire were
still visible, this fact alone does not make the explosion of the tire a fortuitous event. No evidence
was presented to show that the accident was due to adverse road conditions or that precautions were
taken by the jeepney driver to compensate for any conditions liable to cause accidents. The sudden
 blowing-up, therefore, could have been caused by too much air pressure injected into the tire
coupled by the fact that the jeepney was overloaded and speeding at the time of the accident.17

It is interesting to note that petitioners proved through the bus conductor, Salce, that the bus was running at
"60-50" kilometers per hour only or within the prescribed lawful speed limit. However, they failed to rebut
the testimony of Leny Tumboy that the bus was running so fast that she cautioned the driver to slow down.
These contradictory facts must, therefore, be resolved in favor of liability in view of the presumption of
negligence of the carrier in the law. Coupled with this is the established condition of the road — rough,
winding and wet due to the rain. It was incumbent upon the defense to establish that it took precautionary
measures considering partially dangerous condition of the road. As stated above, proof that the tire was new
and of good quality is not sufficient proof that it was not negligent. Petitioners should have shown that it
undertook extraordinary diligence in the care of its carrier, such as conducting daily routinary check-ups of
the vehicle's parts. As the late Justice J.B.L. Reyes said:

It may be impracticable, as appellee argues, to require of carriers to test the strength of each and
every part of its vehicles before each trip; but we are of the opinion that a due regard for the carrier's
obligations toward the traveling public demands adequate periodical tests to determine the condition
and strength of those vehicle portions the failure of which may endanger the safety of the
passengers.18

Having failed to discharge its duty to overthrow the presumption of negligence with clear and convincing
evidence, petitioners are hereby held liable for damages. Article 176419 in relation to Article 220620 of the
Civil Code prescribes the amount of at least three thousand pesos as damages for the death of a passenger.
Under prevailing jurisprudence, the award of damages under Article 2206 has been increased to fifty
thousand pesos (P50,000.00).21

Moral damages are generally not recoverable in culpa contractual except when bad faith had been proven.
However, the same damages may be recovered when breach of contract of carriage results in the death of a
passenger,22 as in this case. Exemplary damages, awarded by way of example or correction for the public
good when moral damages are awarded,23 may likewise be recovered in contractual obligations if the
defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner.24 Because petitioners
failed to exercise the extraordinary diligence required of a common carrier, which resulted in the death of
Tito Tumboy, it is deemed to have acted recklessly.25 As such, private respondents shall be entitled to
exemplary damages.

WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED subject to the modification that
petitioners shall, in addition to the monetary awards therein, be liable for the award of exemplary damages
in the amount of P20,000.00. Costs against petitioners.

SO ORDERED.