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METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S.

DYCHIAO AND TIUOH


YAN, SPOUSES GUILLERMO AND MERCEDES DYCHIAO, AND SPOUSES VICENTE AND August 31, 1995 Trust Receipt No. 95-20205313 ₱313,797.41
FILOMENA DYCHIAO, Petitioners,
vs.
ALLIED BANK CORPORATION, Respondent. November 16, 1995 Trust Receipt No. 96-20243914 ₱13,015,109.87

RESOLUTION
July 3, 1996 Trust Receipt No. 96-20355215 ₱401,608.89
PERLAS-BERNABE, J.:

June 20, 1995 Trust Receipt No. 95-20171016 ₱750,089.25


Assailed in this petition for review on certiorari1 are the Decision2 dated February 12, 2007 and
the Resolution3dated May 10, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 86896
which reversed and set aside the Decision4 dated January 17, 2006 of the Regional Trial Court
of Makati, Branch 57 (RTC) in Civil Case No. 00-1563, thereby ordering petitioners Metro December 13, 1995 Trust Receipt No. 96-37908917 ₱92,919.00
Concast Steel Corporation (Metro Concast), Spouses Jose S. Dychiao and Tiu Oh Yan,
Spouses Guillermo and Mercedes Dychiao, and Spouses Vicente and Filomena Duchiao
(individual petitioners) to solidarily pay respondent Allied Bank Corporation (Allied Bank) the
December 13, 1995 Trust Receipt No. 96/20258118 ₱224,713.58
aggregate amount of ₱51,064,094.28, with applicable interests and penalty charges.

The Facts
The interest rate under Promissory Note No. 96-21301 was pegged at 15.25% per annum (p.a.),
On various dates and for different amounts, Metro Concast, a corporation duly organized and with penalty charge of 3% per month in case of default; while the twelve (12) trust receipts
existing under and by virtue of Philippine laws and engaged in the business of manufacturing uniformly provided for an interest rate of 14% p.a. and 1% penalty charge. By way of security,
steel,5 through its officers, herein individual petitioners, obtained several loans from Allied Bank. the individual petitioners executed several Continuing Guaranty/Comprehensive Surety
These loan transactions were covered by a promissory note and separate letters of credit/trust Agreements19 in favor of Allied Bank. Petitioners failed to settle their obligations under the
receipts, the details of which are as follows: aforementioned promissory note and trust receipts, hence, Allied Bank, through counsel, sent
them demand letters,20 all dated December 10, 1998, seeking payment of the total amount of
₱51,064,093.62, but to no avail. Thus, Allied Bank was prompted to file a complaint for collection
Date Document Amount of sum of money21 (subject complaint) against petitioners before the RTC, docketed as Civil
Case No. 00-1563. In their second22 Amended Answer,23petitioners admitted their indebtedness
to Allied Bank but denied liability for the interests and penalties charged, claiming to have paid
the total sum of ₱65,073,055.73 by way of interest charges for the period covering 1992 to
December 13, 1996 Promissory Note No. 96-213016 ₱2,000,000.00 1997.24

They also alleged that the economic reverses suffered by the Philippine economy in 1998 as
November 7, 1995 Trust Receipt No. 96-2023657 ₱608,603.04 well as the devaluation of the peso against the US dollar contributed greatly to the downfall of
the steel industry, directly affecting the business of Metro Concast and eventually leading to its
cessation. Hence, in order to settle their debts with Allied Bank, petitioners offered the sale of
May 13, 1996 Trust Receipt No. 96-9605228 ₱3,753,777.40 Metro Concast’s remaining assets, consisting of machineries and equipment, to Allied Bank,
which the latter, however, refused. Instead, Allied Bank advised them to sell the equipment and
apply the proceeds of the sale to their outstanding obligations. Accordingly, petitioners offered
the equipment for sale, but since there were no takers, the equipment was reduced into ferro
May 24, 1996 Trust Receipt No. 96-9605249 ₱4,602,648.08 scrap or scrap metal over the years. In 2002, Peakstar Oil Corporation (Peakstar), represented
by one Crisanta Camiling (Camiling), expressed interest in buying the scrap metal. During the
negotiations with Peakstar, petitioners claimed that Atty. Peter Saw (Atty. Saw), a member of
March 21, 1997 Trust Receipt No. 97-20472410 ₱7,289,757.79 Allied Bank’s legal department, acted as the latter’s agent. Eventually, with the alleged
conformity of Allied Bank, through Atty. Saw, a Memorandum of Agreement25 dated November 8,
2002 (MoA) was drawn between Metro Concast, represented by petitioner Jose Dychiao, and
Peakstar, through Camiling, under which Peakstar obligated itself to purchase the scrap metal
June 7, 1996 Trust Receipt No. 96-20328011 ₱17,340,360.73 for a total consideration of ₱34,000,000.00, payable as follows:

(a) ₱4,000,000.00 by way of earnest money – ₱2,000,000.00 to be paid in cash and


July 26, 1995 Trust Receipt No. 95-20194312 ₱670,709.24 the other ₱2,000,000.00 to be paid in two (2) post-dated checks of ₱1,000,000.00
each;26 and
(b) the balance of ₱30,000,000.00 to be paid in ten (10) monthly installments of it made a contrary pronouncement. While Atty. Saw received the earnest money from Peakstar,
₱3,000,000.00, secured by bank guarantees from Bankwise, Inc. (Bankwise) in the the receipt was signed by him on behalf of Jose Dychiao. 35
form of separate post-dated checks.27
It also added that "[i]n the final analysis, the aforesaid checks and receipts were signed by [Atty.]
Unfortunately, Peakstar reneged on all its obligations under the MoA.1âwphi1 In this regard, Saw either as representative of [petitioners] or as partner of the latter’s legal counsel, and not in
petitioners asseverated that: anyway as representative of [Allied Bank]."36

(a) their failure to pay their outstanding loan obligations to Allied Bank must be Consequently, the CA granted the appeal and directed petitioners to solidarily pay Allied Bank
considered as force majeure ; and their corresponding obligations under the aforementioned promissory note and trust receipts,
plus interests, penalty charges and attorney’s fees. Petitioners sought reconsideration37 which
was, however, denied in a Resolution38 dated May 10, 2007. Hence, this petition.
(b) since Allied Bank was the party that accepted the terms and conditions of payment
proposed by Peakstar, petitioners must therefore be deemed to have settled their
obligations to Allied Bank. To bolster their defense, petitioner Jose Dychiao (Jose The Issue Before the Court
Dychiao) testified28 during trial that it was Atty. Saw himself who drafted the MoA and
subsequently received29 the ₱2,000,000.00 cash and the two (2) Bankwise post-dated
At the core of the present controversy is the sole issue of whether or not the loan obligations
checks worth ₱1,000,000.00 each from Camiling. However, Atty. Saw turned over only
incurred by the petitioners under the subject promissory note and various trust receipts have
the two (2) checks and ₱1,500,000.00 in cash to the wife of Jose Dychiao. 30
already been extinguished.

Claiming that the subject complaint was falsely and maliciously filed, petitioners prayed for the
The Court’s Ruling
award of moral damages in the amount of ₱20,000,000.00 in favor of Metro Concast and at least
₱25,000,000.00 for each individual petitioner, ₱25,000,000.00 as exemplary damages,
₱1,000,000.00 as attorney’s fees, ₱500,000.00 for other litigation expenses, including costs of Article 1231 of the Civil Code states that obligations are extinguished either by payment or
suit. performance, the loss of the thing due, the condonation or remission of the debt, the confusion
or merger of the rights of creditor and debtor, compensation or novation.
The RTC Ruling
In the present case, petitioners essentially argue that their loan obligations to Allied Bank had
already been extinguished due to Peakstar’s failure to perform its own obligations to Metro
After trial on the merits, the RTC, in a Decision31 dated January 17, 2006, dismissed the subject
Concast pursuant to the MoA. Petitioners classify Peakstar’s default as a form of force majeure
complaint, holding that the "causes of action sued upon had been paid or otherwise
in the sense that they have, beyond their control, lost the funds they expected to have received
extinguished." It ruled that since Allied Bank was duly represented by its agent, Atty. Saw, in all
from the Peakstar (due to the MoA) which they would, in turn, use to pay their own loan
the negotiations and transactions with Peakstar – considering that Atty. Saw
obligations to Allied Bank. They further state that Allied Bank was equally bound by Metro
Concast’s MoA with Peakstar since its agent, Atty. Saw, actively represented it during the
(a) drafted the MoA, negotiations and execution of the said agreement. Petitioners’ arguments are untenable. At the
outset, the Court must dispel the notion that the MoA would have any relevance to the
performance of petitioners’ obligations to Allied Bank. The MoA is a sale of assets contract,
(b) accepted the bank guarantee issued by Bankwise, and
while petitioners’ obligations to Allied Bank arose from various loan transactions. Absent any
showing that the terms and conditions of the latter transactions have been, in any way, modified
(c) was apprised of developments regarding the sale and disposition of the scrap or novated by the terms and conditions in the MoA, said contracts should be treated separately
metal – then it stands to reason that the MoA between Metro Concast and Peakstar and distinctly from each other, such that the existence, performance or breach of one would not
was binding upon said bank. depend on the existence, performance or breach of the other. In the foregoing respect, the issue
on whether or not Allied Bank expressed its conformity to the assets sale transaction between
Metro Concast and Peakstar (as evidenced by the MoA) is actually irrelevant to the issues
The CA Ruling related to petitioners’ loan obligations to the bank. Besides, as the CA pointed out, the fact of
Allied Bank’s representation has not been proven in this case and hence, cannot be deemed as
Allied Bank appealed to the CA which, in a Decision32 dated February 12, 2007, reversed and a sustainable defense to exculpate petitioners from their loan obligations to Allied Bank. Now,
set aside the ruling of the RTC, ratiocinating that there was "no legal basis in fact and in law to anent petitioners’ reliance on force majeure, suffice it to state that Peakstar’s breach of its
declare that when Bankwise reneged its guarantee under the [MoA], herein [petitioners] should obligations to Metro Concast arising from the MoA cannot be classified as a fortuitous event
be deemed to be discharged from their obligations lawfully incurred in favor of [Allied Bank]." 33 under jurisprudential formulation. As discussed in Sicam v. Jorge:39

The CA examined the MoA executed between Metro Concast, as seller of the ferro scrap, and Fortuitous events by definition are extraordinary events not foreseeable or avoidable.1âwphi1 It
Peakstar, as the buyer thereof, and found that the same did not indicate that Allied Bank is therefore, not enough that the event should not have been foreseen or anticipated, as is
intervened or was a party thereto. It also pointed out the fact that the post-dated checks commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to
pursuant to the MoA were issued in favor of Jose Dychiao. Likewise, the CA found no sufficient foresee the happening is not impossibility to foresee the same. To constitute a fortuitous event,
evidence on record showing that Atty. Saw was duly and legally authorized to act for and on the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence
behalf of Allied Bank, opining that the RTC was "indulging in hypothesis and speculation" 34 when or of the failure of the debtor to comply with obligations must be independent of human will;
(b) it must be impossible to foresee the event that 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 obligations in a normal manner; and (d) the obligor must
be free from any participation in the aggravation of the injury or loss.40(Emphases supplied)

While it may be argued that Peakstar’s breach of the MoA was unforseen by petitioners, the
same us clearly not "impossible"to foresee or even an event which is independent of human
will." Neither has it been shown that said occurrence rendered it impossible for petitioners to pay
their loan obligations to Allied Bank and thus, negates the former’s force majeure theory
altogether. In any case, as earlier stated, the performance or breach of the MoA bears no
relation to the performance or breach of the subject loan transactions, they being separate and
distinct sources of obligations. The fact of the matter is that petitioners’ loan obligations to Allied
Bank remain subsisting for the basic reason that the former has not been able to prove that the
same had already been paid41 or, in any way, extinguished. In this regard, petitioners’ liability, as
adjudged by the CA, must perforce stand. Considering, however, that Allied Bank’s extra-judicial
demand on petitioners appears to have been made only on December 10, 1998, the
computation of the applicable interests and penalty charges should be reckoned only from such
date.

WHEREFORE, the petition is DENIED. The Decision dated February 12, 2007 and Resolution
dated May 10, 2007 of the Court of Appeals in CA-G.R. CV No. 86896 are hereby AFFIRMED
with MODIFICATION reckoning the applicable interests and penalty charges from the date of the
extrajudicial demand or on December 10, 1998. The rest of the appellate court’s dispositions
stand.

SO ORDERED.
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS, Sps. Petitioner then informed private respondents that the prestation to execute and deliver a
NORMY D. CARPIO and CARMEN ORQUISA; Sps. ROLANDO D. CARPIO and deed of conveyance in their favor had become legally impossible in view of Sec. 6 of Rep. Act
RAFAELA VILLANUEVA; Sps. ELISEO D. CARPIO and ANUNCIACION del 6657 (the Comprehensive Agrarian Reform Law or CARL) approved 10 June 1988, and Sec. 1
ROSARIO; LUZ C. REYES, MARIO C. REYES, JULIET REYES- of E.O. 407 issued 10 June 1990.
RUBIN, respondents.
Aggrieved, private respondents filed a complaint for specific performance with damages
against petitioner before the RegionalTrial Court of Ozamis City, Branch XV. During the pre-trial,
DECISION the trial court narrowed down the issue to whether or not Sec. 6 of the CARL (Rep. Act 6657)
had rendered legally impossible compliance by petitioner with its obligation to execute a deed of
PADILLA, J.:
conveyance of the subject land in favor of private respondents. The trial court ordered both
parties to file their separate memorandum and deemed the case submitted for decision
This is a petition for review on certiorari under Rule 45 of the Rules of Court which seeks thereafter.
to set aside the decision[1] of the Court of Appeals (CA) dated 28 February 1994 in C.A.-G.R. CV
No. 37158, as well as the resolution dated 11 August 1994denying petitioner's motion for On 30 January 1992, the trial court rendered judgment, the dispositive part of which reads:
reconsideration.
"WHEREFORE, judgment is rendered ordering defendant to execute and deliver unto plaintiffs a
The facts are undisputed: deed of final sale of the land subject of their deed of conditional sale - Lot 5259-A, to pay
Private respondents were the original owners of a parcel of agricultural land covered by plaintiffs P10,000.00 as nominal damages, P5,000.00 as attorney's fees, P3,000.00 as litis
TCT No. T-1432, situated in Barrio Capucao, Ozamis City, with an area of 113,695 square expenses and costs."[3]
meters, more or less.
The trial court held that petitioner interpreted the fourth paragraph of Sec. 6, Rep. Act
On 30 May 1977, private respondents mortgaged said land to petitioner. When private 6657 literally in conjunction with Sec. 1 of E.O. 407.
respondents defaulted on their obligation, petitioner foreclosed the mortgage on the land and
emerged as sole bidder in the ensuing auction sale. Consequently, Transfer Certificate of Title The fourth paragraph of Sec. 6, Rep. Act 6657 states that:
No. T-10913 was eventually issued in petitioner's name.

On 6 April 1984, petitioner and private respondents entered into a Deed of Conditional "Upon the effectivity of this Act, any sale disposition, lease, management contract or transfer of
Sale wherein petitioner agreed to reconvey the foreclosed property to private respondents. possession of private lands executed by the original landowner in violation of this act shall be
null and void; Provided, however, that those executed prior to this act shall be valid only when
The pertinent stipulations of the Deed provided that: registered with the Register of Deeds after the effectivity of this Act. Thereafter, all Register of
Deeds shall inform the DAR within 320 days of any transaction involving agricultural lands in
excess of five hectares."
"WHEREAS, the VENDOR acquired a parcel of land in an auction sale by the City Sheriff of
Ozamiz City, pursuant to Act 3135, as amended, and subject to the redemption period pursuant
to CA 141, described as follows: while Sec. 1 of E.O. 407 states that:

xxx xxx xxx "Sec. 1. All government instrumentalities but not limited to x x x financial institutions such as the
DBP x x x shall immediately execute deeds of transfer in favor of the Republic of the Philippines
WHEREAS, the VENDEES offered to repurchase and the VENDOR agreed to sell the above- as represented by the Department of Agrarian Reform and surrender to the department all
landholdings suitable for agriculture."
described property, subject to the terms and stipulations as hereinafter stipulated, for the sum of
SEVENTY THREE THOUSAND SEVEN HUNDRED ONLY (P73,700.00), with a down payment
of P8,900.00 and the balance of P64,800 shall be payable in six (6) years on equal quarterly The court a quo noted that Sec. 6 of Rep. Act 6657, taken in its entirety, is a provision
amortization plan at 18% interest per annum. The first quarterly amortization of P4,470.36 shall dealing primarily with retention limits in agricultural land allowed the landowner and his family
be payable three months from the date of the execution of the documents and all subsequent and that the fourth paragraph, which nullifies any sale x x x by the originallandowner in violation
amortization shall be due and payable every quarter thereafter. of the Act, does not cover the sale by petitioner (not the original land owner) to private
respondents.
xxx xxx xxx On the other hand, according to the trial court, E.O. 407 took effect on 10 June 1990. But
private respondents completed payment of the price for the property, object of the conditional
That, upon completion of the payment herein stipulated and agreed, the Vendor agrees to sale, as early as 6 April 1990. Hence, with the fulfillment of the condition for the sale, the land
deliver to the Vendee/s(,) his heirs, administrators and assigns(,) a good and sufficient deed of covered thereby, was detached from the mass of foreclosed properties held by DBP, and,
conveyance covering the property, subject matter of this deed of conditional sale, in accordance therefore, fell beyond the ambit or reach of E.O. 407.
with the provisions of law." (Exh. "A", p. 5, Records)[2]
Dissatisfied, petitioner appealed to the Court of Appeals (CA), still insisting that its
obligation to execute a Deed of Sale in favor of private respondents had become a legal
On 6 April 1990, upon completing the payment of the full repurchase price, private impossibility and that the non-impairment clause of the Constitution must yield to the demands of
respondents demanded from petitioner the execution of a Deed of Conveyance in their favor. police power.
On 28 February 1994, the CA rendered judgment dismissing petitioner's appeal on the More specifically, petitioner cannot invoke the last paragraph of Sec. 6 of Rep. Act 6657 to
basis of the following disquisitions: set aside its obligations already existing prior to its enactment. In the first place, said last
paragraph clearly deals with "any sale, lease, management contract or transfer or possession of
private lands executed by the original land owner." The original owner in this case is not the
"It is a rule that if the obligation depends upon a suspensive condition, the demandability as well
petitioner but the private respondents. Petitioner acquired the land through foreclosure
as the acquisition or effectivity of the rights arising from the obligation is suspended pending the
proceedings but agreed thereafter to reconvey it to private respondents, albeit conditionally.
happening or fulfillment of the fact or event which constitutes the condition. Once the event
which constitutes the condition is fulfilled resulting in the effectivity of the obligation, its effects As earlier stated, Sec. 6 of Rep. Act 6657 in its entirety deals with retention limits allowed
retroact to the moment when the essential elements which gave birth to the obligation have by law to small landowners. Since the property here involved is more or less ten (10) hectares, it
taken place (8 Manresa, 5th Ed. Bk. 1, pa. 33). Applying this precept to the case, the full is then within the jurisdiction of the Department of Agrarian Reform (DAR) to determine whether
payment by the appellee on April 6, 1990 retroacts to the time the contract of conditional sale or not the property can be subjected to agrarian reform. But this necessitates an entirely different
was executed on April 6, 1984. From that time, all elements of the contract of sale were proceeding.
present. Consequently, the contract of sale was perfected. As such, the said sale does not come
under the coverage of R.A. 6657. The CARL (Rep. Act 6657) was not intended to take away property without due process of
law. Nor is it intended to impair the obligation of contracts. In the same manner must E.O. 407
be regarded. It was enacted two (2) months after private respondents had legally fulfilled the
It is likewise interesting to note that despite the mandate of Sec. 1, R.A. 6657, appellant
condition in the contract of conditional sale by the payment of all installments on their due
continued to accept the payments made by the appellee until it was fully paid on April 6,
dates. These laws cannot have retroactive effect unless there is an express provision in them to
1990. All that the appellant has to do now is to execute the final deed of sale in favor of the
that effect.[8]
appellee. To follow the line of argument of the appellant would only result in an unconscionable
injury to the appellee. Obligations arising from contracts have the force of law between the As to petitioner's contention, however, that the CA erred in affirming the trial court's
contracting parties and should be complied with in good faith (Flavio Macasaet & Associates, decision awarding nominal damages, and attorney's fees to private respondents, we rule in favor
Inc. vs. Commission on Audit, 173 SCRA 352). of petitioner.

It appears that the core issue in this case, being a pure question of law, did not reach the
Going now to E.O. 407, We hold that the same can neither affect appellant's obligation under the
deed of conditional sale. Under the said law, appellant is required to transfer to the Republic of trial stage as the case was submitted for decision after pre-trial.
the Philippines 'all lands foreclosed' effective June 10, 1990. Under the facts obtaining, the The award of attorney's fees under Article 2208 of the Civil Code is more of an exception
subject property has ceased to belong to the mass of foreclosed property falling within the reach to the general rule that it is not sound policy to place a penalty on the right to litigate. While
of said law. As earlier explained, the property has already been sold to herein appellees even judicial discretion in the award of attorney's fees is not entirely left out, the same, as a rule, must
before the said E.O. has been enacted. On this same reason, We therefore need not delve on have a factual, legal or equitable justification. The matter cannot and should not be left to
the applicability of DBP Circular No. 11."[4] speculation and conjecture.[9]

In the present petition for review on certiorari, petitioner still insists on its position that Rep. As aptly stated in the Mirasol case:
Act 6657, E.O. 407 and DBP Circular No. 11 rendered its obligation to execute a Deed of Sale to
private respondents "a legal impossibility."[5] Petitioner also questions the award of attorney's "x x x The matter of attorney's fees cannot be touched once and only in the dispositive portion of
fees, nominal damages, and costs in favor of private respondents, as not in accord with law and the decision. The text itself must expressly state the reason why attorney's fees are being
the evidence.[6] awarded. The court, after reading through the text of the appealed decision, finds the same
bereft of any findings of fact and law to justify the award of attorney's fees. The matter of such
We rule in favor of private respondents. fees was touched but once and appears only in the dispositive portion of the decision. Simply
put, the text of the decision did not state the reason why attorney's fees are being awarded, and
In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happening of the event which constitutes the for this reason, the Court finds it necessary to disallow the same for being conjectural."[10]
condition.[7]
While DBP committed egregious error in interpreting Sec. 6 of RA 6657, the same is not
The deed of conditional sale between petitioner and private respondents was executed equivalent to gross and evident bad faith when it refused to execute the deed of sale in favor of
on 6 April 1984. Private respondents had religiously paid the agreed installments on the property private respondents.
until they completed payment on 6 April 1990. Petitioner, in fact, allowed private respondents to
fulfill the condition of effecting full payment, and invoked Section 6 of Rep. Act 6657 For the same reasons stated above, the award of nominal damages in the amount
only afterprivate respondents, having fully paid the repurchase price, demanded the execution of of P10,000.00 should also be deleted.
a Deed of Sale in their favor.
The amount of P3,000.00 as litigation expenses and costs against petitioner must remain.
It will be noted that Rep. Act 6657 was enacted on 10 June 1988. Following petitioner's
argument in this case, its prestation to execute the deed of sale was rendered legally impossible WHEREFORE, premises considered, the petition is hereby DENIED, and the decision of
by Section 6 of said law. In other words, the deed of conditional sale was extinguished by a the CA is hereby AFFIRMED, for lack of any reversible error, with the MODIFICATION that
supervening event, giving rise to an impossibility of performance. attorney's fees and nominal damages awarded to private respondents are hereby DELETED.

We reject petitioner's contention as we rule - as the trial court and CA have correctly ruled SO ORDERED.
- that neither Sec. 6 of Rep. Act 6657 nor Sec. 1 of E.O. 407 was intended to impair the
obligation of contract petitioner had much earlier concluded with private respondents.
G.R. No. 112127 July 17, 1995 Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled that the annotations at
the back of petitioner's certificate of title were resolutory conditions breach of which should
terminate the rights of the donee thus making the donation revocable.
CENTRAL PHILIPPINE UNIVERSITY, petitioner,
vs.
COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ, CECILIA P. VDA. DE The appellate court also found that while the first condition mandated petitioner to utilize the
LOPEZ, REDAN LOPEZ AND REMARENE LOPEZ, respondents. donated property for the establishment of a medical school, the donor did not fix a period within
which the condition must be fulfilled, hence, until a period was fixed for the fulfillment of the
condition, petitioner could not be considered as having failed to comply with its part of the
bargain. Thus, the appellate court rendered its decision reversing the appealed decision and
remanding the case to the court of origin for the determination of the time within which petitioner
BELLOSILLO, J.: should comply with the first condition annotated in the certificate of title.

CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the decision of Petitioner now alleges that the Court of Appeals erred: (a) in holding that the quoted annotations
the Court of Appeals which reversed that of the Regional Trial Court of Iloilo City directing in the certificate of title of petitioner are onerous obligations and resolutory conditions of the
petitioner to reconvey to private respondents the property donated to it by their predecessor-in- donation which must be fulfilled non-compliance of which would render the donation revocable;
interest. (b) in holding that the issue of prescription does not deserve "disquisition;" and, (c) in remanding
the case to the trial court for the fixing of the period within which petitioner would establish a
medical college.2
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of
Trustees of the Central Philippine College (now Central Philippine University [CPU]), executed a
deed of donation in favor of the latter of a parcel of land identified as Lot No. 3174-B-1 of the We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of
subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for which Transfer Certificate of donation executed by Don Ramon Lopez, Sr., gives us no alternative but to conclude that his
Title No. T-3910-A was issued in the name of the donee CPU with the following annotations donation was onerous, one executed for a valuable consideration which is considered the
copied from the deed of donation — equivalent of the donation itself, e.g., when a donation imposes a burden equivalent to the value
of the donation. A gift of land to the City of Manila requiring the latter to erect schools, construct
a children's playground and open streets on the land was considered an onerous
1. The land described shall be utilized by the CPU exclusively for the donation.3 Similarly, where Don Ramon Lopez donated the subject parcel of land to petitioner
establishment and use of a medical college with all its buildings as part of but imposed an obligation upon the latter to establish a medical college thereon, the donation
the curriculum; must be for an onerous consideration.

2. The said college shall not sell, transfer or convey to any third party nor in Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well as
any way encumber said land; the extinguishment or loss of those already acquired, shall depend upon the happening of the
event which constitutes the condition. Thus, when a person donates land to another on the
3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said condition that the latter would build upon the land a school, the condition imposed was not a
college shall be under obligation to erect a cornerstone bearing that name. condition precedent or a suspensive condition but a resolutory one. 4 It is not correct to say that
Any net income from the land or any of its parks shall be put in a fund to be the schoolhouse had to be constructed before the donation became effective, that is, before the
known as the "RAMON LOPEZ CAMPUS FUND" to be used for donee could become the owner of the land, otherwise, it would be invading the property rights of
improvements of said campus and erection of a building thereon.1 the donor. The donation had to be valid before the fulfillment of the condition.5 If there was no
fulfillment or compliance with the condition, such as what obtains in the instant case, the
donation may now be revoked and all rights which the donee may have acquired under it shall
On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an be deemed lost and extinguished.
action for annulment of donation, reconveyance and damages against CPU alleging that since
1939 up to the time the action was filed the latter had not complied with the conditions of the
donation. Private respondents also argued that petitioner had in fact negotiated with the National The claim of petitioner that prescription bars the instant action of private respondents is
Housing Authority (NHA) to exchange the donated property with another land owned by the unavailing.
latter.
The condition imposed by the donor, i.e., the building of a medical school upon the
In its answer petitioner alleged that the right of private respondents to file the action had land donated, depended upon the exclusive will of the donee as to when this condition
prescribed; that it did not violate any of the conditions in the deed of donation because it never shall be fulfilled. When petitioner accepted the donation, it bound itself to comply with
used the donated property for any other purpose than that for which it was intended; and, that it the condition thereof. Since the time within which the condition should be fulfilled
did not sell, transfer or convey it to any third party. depended upon the exclusive will of the petitioner, it has been held that its absolute
acceptance and the acknowledgment of its obligation provided in the deed of donation
were sufficient to prevent the statute of limitations from barring the action of private
On 31 May 1991, the trial court held that petitioner failed to comply with the conditions of the respondents upon the original contract which was the deed of donation. 6
donation and declared it null and void. The court a quo further directed petitioner to execute a
deed of the reconveyance of the property in favor of the heirs of the donor, namely, private
respondents herein. Moreover, the time from which the cause of action accrued for the revocation of the donation
and recovery of the property donated cannot be specifically determined in the instant case. A
cause of action arises when that which should have been done is not done, or that which should
not have been done is done.7 In cases where there is no special provision for such computation,
recourse must be had to the rule that the period must be counted from the day on which the
corresponding action could have been instituted. It is the legal possibility of bringing the action
which determines the starting point for the computation of the period. In this case, the starting
point begins with the expiration of a reasonable period and opportunity for petitioner to fulfill what
has been charged upon it by the donor.

The period of time for the establishment of a medical college and the necessary buildings and
improvements on the property cannot be quantified in a specific number of years because of the
presence of several factors and circumstances involved in the erection of an educational
institution, such as government laws and regulations pertaining to education, building
requirements and property restrictions which are beyond the control of the donee.

Thus, when the obligation does not fix a period but from its nature and circumstances it can be
inferred that a period was intended, the general rule provided in Art. 1197 of the Civil Code
applies, which provides that the courts may fix the duration thereof because the fulfillment of the
obligation itself cannot be demanded until after the court has fixed the period for compliance
therewith and such period has arrived.8

This general rule however cannot be applied considering the different set of circumstances
existing in the instant case. More than a reasonable period of fifty (50) years has already been
allowed petitioner to avail of the opportunity to comply with the condition even if it be
burdensome, to make the donation in its favor forever valid. But, unfortunately, it failed to do so.
Hence, there is no more need to fix the duration of a term of the obligation when such procedure
would be a mere technicality and formality and would serve no purpose than to delay or lead to
an unnecessary and expensive multiplication of suits. 9 Moreover, under Art. 1191 of the Civil
Code, when one of the obligors cannot comply with what is incumbent upon him, the obligee
may seek rescission and the court shall decree the same unless there is just cause authorizing
the fixing of a period. In the absence of any just cause for the court to determine the period of
the compliance, there is no more obstacle for the court to decree the rescission claimed.

Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts
referring to incidental circumstances of a gratuitous contract should be resolved in favor of the
least transmission of rights and interests. 10Records are clear and facts are undisputed that since
the execution of the deed of donation up to the time of filing of the instant action, petitioner has
failed to comply with its obligation as donee. Petitioner has slept on its obligation for an
unreasonable length of time. Hence, it is only just and equitable now to declare the subject
donation already ineffective and, for all purposes, revoked so that petitioner as donee should
now return the donated property to the heirs of the donor, private respondents herein, by means
of reconveyance.

WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991 is
REINSTATED and AFFIRMED, and the decision of the Court of Appeals of 18 June 1993 is
accordingly MODIFIED. Consequently, petitioner is directed to reconvey to private respondents
Lot No. 3174-B-1 of the subdivision plan Psd-1144 covered by Transfer Certificate of Title No. T-
3910-A within thirty (30) days from the finality of this judgment.

Costs against petitioner.

SO ORDERED.
G.R. No. 169694, December 09, 2015 because of the parties' manifestation that they would settle the case amicably. It appears that
the parties negotiated with each other on how to implement the JVA and the addendum.
MEGAWORLD PROPERTIES AND HOLDINGS, INC., EMPIRE EAST LAND HOLDINGS,
On September 16, 2002, the owner filed in the RTC a manifestation and motion,12 praying
INC., AND ANDREW L. TAN, Petitioners, v. MAJESTIC FINANCE AND INVESTMENT CO.,
therein that the petitioners be directed to provide round-the-clock security for the joint venture
INC., RHODORA LOPEZ-LIM, AND PAULINA CRUZ, Respondents.
property in order to defend and protect it from the invasion of unauthorized persons. The
petitioners opposed the manifestation and motion,13 pointing out that: (1) the move to have them
DECISION provide security in the properties was premature; and (2) under the principle of reciprocal
obligations, the owner could not compel them to perform their obligations under the JVA if the
owner itself refused to honor its obligations under the JVA and the addendum.
BERSAMIN, J.:
On November 5, 2002, the RTC issued its first assailed order,14 directing the developer to
This case arises from a dispute on whether either party of a joint venture agreement to develop provide sufficient round-the-clock security for the protection of the joint venture property, as
property into a residential subdivision has already performed its obligation as to entitle it to follows:
demand the performance of the other's reciprocal obligation.chanRoblesvirtualLawlibrary
For consideration is a "Manifestation and Motion" filed by plaintiff, through counsel, defendants
The Case having filed their Opposition thereto, the incident is now ripe for resolution.

Under review is the decision promulgated on April 27, 2005,1 whereby the Court of Appeals (CA) After a careful examination of the records of this case, the Court believes that the defendants
upheld the order issued on November 5, 2002 by the Regional Trial Court, Branch 67, in Pasig should provide security for the 215 hectares land subject of the joint venture agreement to
City (RTC) in Civil Case No. 67813 directing the defendants (petitioners herein) to perform their protect it from unlawful elements as well as to avoid undue damage which may be caused by the
obligation to provide round-the-clock security for the property under development.2 Also settling of squatters. As specified in Article III par. (j) of the joint venture agreement which was
appealed is the resolution promulgated on September 12, 2005 denying the petitioners' motion entered into by plaintiffs and defendants, the latter shall at its exclusive account and sole
for reconsideration.3chanRoblesvirtualLawlibrary expense secure the land in question from the influx of squatters and/or unauthorized settlers,
occupants, tillers, cultivators and the likes from date of execution of this agreement.
Antecedents
WHEREFORE, and as prayed for, the Court hereby directs the defendants to provide sufficient
On September 23, 1994, Megaworld Properties and Holdings, Inc. (developer) entered into a round the clock security for the protection of the 215 hectares land subject of the joint venture
Joint Venture Agreement (JVA)4 with Majestic Finance and Investment Co., Inc. (owner) for the agreement during the pendency of this case.
development of the residential subdivision located in Brgy. Alingaro, General Trias, Cavite.
According to the JVA, the development of the 215 hectares of land belonging to the owner (joint SO ORDERED.
venture property) would be for the sole account of the developer; 5 and that upon completion of
the development of the subdivision, the owner would compensate the developer in the form of The petitioners sought the reconsideration of the November 5, 2002 order, 15 but the RTC denied
saleable residential subdivision lots.6 The JVA further provided that the developer would the motion on May 19, 2003,16 observing that there was no reason to reverse the order in
advance all the costs for the relocation and resettlement of the occupants of the joint venture question considering that the allegations in the motion for reconsideration, being a mere rehash
property, subject to reimbursement by the owner;7 and that the developer would deposit the of those made earlier, had already been passed upon.
initial amount of P10,000,000.00 to defray the expenses for the relocation and settlement, and
the costs for obtaining from the Government the exemptions and conversion permits, and the On August 4, 2003, the petitioners instituted a special civil action for certiorari in the
required clearances.8chanroblesvirtuallawlibrary CA,17 claiming therein that the RTC thereby gravely abused its discretion amounting to lack or
excess of jurisdiction in issuing the order of November 5, 2002, specifying the following grounds,
On September 24, 1994, the developer and owner agreed, through the addendum to the namely:
JVA,9 to increase the initial deposit for the settlement of claims and the relocation of the tenants
from P10,000,000.00 to P60,000,000.00.
THE PUBLIC RESPONDENT GRAVELY ABUSED HIS DISCRETION AMOUNTING TO LACK
OR EXCESS OF JURISDICTION IN DIRECTING PETITIONERS TO PROVIDE ROUND THE
On October 27, 1994, the developer, by deed of assignment,10 transferred, conveyed and
CLOCK SECURITY GUARDS ON THE SUBJECT PROPERTIES.
assigned to Empire East Land Holdings, Inc. (developer/assignee) all its rights and obligations
under the JVA including the addendum.
I. THE PUBLIC RESPONDENT ARBITRARILY AND PREMATURELY DISPOSED OF ONE OF
THE RELIEF[S] PRAYED FOR BY PRIVATE RESPONDENTS IN THEIR COMPLAINT WHEN
On February 29, 2000, the owner filed in the RTC a complaint for specific performance with
TRIAL HAS NOT EVEN STARTED.
damages against the developer, the developer/assignee, and respondent Andrew Tan, who are
now the petitioners herein. The complaint, docketed as Civil Case No. 67813, was mainly based
II. PUBLIC RESPONDENT ARBITRARILY DISREGARDED THE FACT THAT THE PARTIES
on the failure of the petitioners to comply with their obligations under the JVA, 11 including the
ARE DISCUSSING HOW TO PURSUE THE JVA.
obligation to maintain a strong security force to safeguard the entire joint venture property of 215
hectares from illegal entrants and occupants.
III. PUBLIC RESPONDENT ARBITRARILY DISREGARDED THE PRINCIPLE OF
"RECIPROCAL OBLIGATIONS" UNDER THE CIVIL CODE.
Following the joinder of issues by the petitioners' answer with counterclaim, and by the
respondents' reply with answer to the counterclaim, the RTC set the pre-trial of the case. At the
conclusion of the pre-trial conference, the presentation of the owner's evidence was suspended
On April 27, 2005, the CA promulgated its assailed decision dismissing the petitioner's petition All told, we believe that securing and protecting the area from unlawful elements benefits both
for certiorari,18 ruling thusly: the developer and the landowner who are equally keen in safeguarding their interests in the
project. Otherwise stated, incursion by unlawful settlers into an unsecured and unprotected joint
On the merits of the petition, our examination of the records shows nothing whimsical or arbitrary venture property can only cause great loss and damage to both parties. Reasons of practicality
in the respondent judge's order directing the petitioners to provide security over the joint venture within legal parameters, rather than grave abuse of discretion, therefore underlie the respondent
property. Like the respondent judge, we believe that the obligation of the petitioners under the judge's challenged orders.
JVA to provide security in the area, as spelled out under Article II, par. (c) and Article III,
paragraphs (h) and (j), is well established, thus: WHEREFORE, premises considered, we hereby DISMISS the petition for lack of merit.

xxxx SO ORDERED.19 (Emphasis omitted)

These clear and categorical provisions in the JVA -which petitioners themselves do not question On May 26, 2005, the petitioners filed a motion for reconsideration,20 but the CA denied the
-obviously belie their contention that the respondent judge's order to provide security for the motion on September 12, 2005.21chanroblesvirtuallawlibrary
property is premature at this stage. The petitioner's obligation to secure the property under the
JVA arose upon the execution of the Agreement, or as soon as the petitioners acquired Hence, this appeal by petition for review on certiorari.chanRoblesvirtualLawlibrary
possession of the joint venture property in 1994, and is therefore already demandable. The
settled rule is that "contracts are the laws between the contracting parties, and if their terms are
Issues
clear and leave no room for doubt as to their intentions, the contracts are obligatory no matter
what their forms may be, whenever the essential requisites for their validity are present." Thus,
unless the existence of this particular obligation - i.e., to secure the joint venture property - is
The petitioner submits the following issues:
challenged, petitioners are bound to respect the terms of the Agreement and of his obligation as
the law between them and MAJESTIC.
a. Whether or not the petitioners are obligated to perform their obligations
We stress along this line that the complaint MAJESTIC filed below is for specific performance under the JVA, including that of providing round-the-clock security for the
and is not for rescission of contract. The complaint presupposes existing obligations on the part subject properties, despite respondents' failure or refusal to acknowledge, or
of the petitioners that MAJESTIC seeks to be carried out in accordance with the terms of the perform their reciprocal obligations there;
Agreement. Significantly, MAJESTIC did not pray in the complaint that petitioners be ordered to
secure the area from the influx of illegal settlers and squatters because petitioner's obligation in b. Whether or not the RTC gravely abused its discretion in directing the
this regard commenced upon the execution of the JVA and hence, is already an existing petitioners to perform their obligations under the JVA, including that of
obligation. What it did ask is for the petitioners to maintain a strong security force at all times providing round-the-clock security for the subject properties, although the
over the area, in keeping with their commitment to secure the area from the influx of illegal JVA had been suspended due to the parties' disagreement as to how to
settlers and occupant. To be sure, to "maintain" means "to continue", "to carry on", to "hold or implement the same;
keep in any particular state or condition" and presupposes an obligation that already began.
Thus, contrary to petitioner's submissions, the question of whether or not they have the
obligation to provide security in the area is not at all an issue in the case below. The issue c. Whether or not the RTC gravely abused its discretion in issuing the first and
MAJESTIC presented below is whether or not petitioner should be ordered to maintain a strong second assailed orders and prematurely resolving and disposing of one of
security force within the joint venture property. Hence, in issuing the assailed orders, the public the causes of action of the respondents, which was to provide round-the-
respondent prejudged no issue that is yet to be resolved after the parties shall have presented clock security for the subject properties, an issue proposed by the
their evidence. respondents, even before the termination of the pre-trial;

Our conclusion (that the petitioner's obligation to secure and protect the joint venture property is d. Whether or not the RTC gravely abused its discretion in issuing the first and
a non-issue in the case below) necessarily explains why the first assailed order -although not in second assailed orders in clear disregard of the mandatory requirements of
the form of a preliminary mandatory injunction -is nonetheless legally justified. As an established Rule 58 of the Rules of Court.22chanroblesvirtuallawlibrary
and undisputed interim measure pending the resolution of the case on the merits, we do not see
its enforcement as hindrance to whatever negotiations the parties may undertake to settle their
dispute.
Ruling of the Court
Nor do we find the principle of reciprocal obligations a justification for petitioner's refusal to
The appeal is meritorious. The CA erred in upholding the November 5, 2002 order of the RTC.
perform their commitment of safeguarding the joint venture property. For, while it is true that the
JVA gives rise to reciprocal obligations from both parties, these obligations are not necessarily
The obligations of the parties under the JVA were unquestionably reciprocal. Reciprocal
demandable at the same time. MAJESTIC's initial obligation under the JVA is to deliver or
obligations are those that arise from the same cause, and in which each party is a debtor and a
surrender to the petitioners the possession of the joint venture property -an obligation it fulfilled
creditor of the other at the same time, such that the obligations of one are dependent upon the
upon the execution of the Agreement. MAJESTIC's obligation under the JVA to deliver to the
obligations of the other. They are to be performed simultaneously, so that the performance by
petitioners the titles to the joint venture property and to reimburse them for tenant-related
one is conditioned upon the simultaneous fulfillment by the other.23 As the Court has expounded
expenses are demandable at later stages of the contract or upon completion of the
in Consolidated Industrial Gases, Inc. v. Alabang Medical Center:24chanroblesvirtuallawlibrary
development, and therefore may not be used by the petitioners as an excuse for not complying
with their own currently demandable obligation.
Reciprocal obligations are those which arise from the same cause, and in which each party is a
debtor and a creditor of the other, such that the obligation of one is dependent upon the Allow DEVELOPER to take other elements
obligation of the other. They are to be performed simultaneously, so that the performance of one possession of subject Art. III (c)
is conditioned upon the simultaneous fulfillment of the other. In reciprocal obligations, neither property To negotiate with occupants
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. From the moment one of the parties fulfills his obligation, delay Art. II(b) Art. V par. 2
DEVELOPER to pay and
by the other begins.
settle all monetary claims of Deliver any and all Pay real estate taxes
all tenants, settlers, documents required for the Art. II(c)
xxxx
occupants, tillers, cultivators successful development of Take possession of the
of the land. the Project parcels of land
In reciprocal obligations, before a party can demand the performance of the obligation of the Art. V par. 2 Art. III (j)
other, the former must also perform its own obligation. For its failure to turn over a complete
Pay real estate taxes Secure property from
project in accordance with the terms and conditions of the installation contracts, CIGI cannot Art. VI invasion of squatters and
demand for the payment of the contract price balance from AMC, which, in turn, cannot legally
Must consent on the other elements
be ordered to pay.25chanrobleslaw Art. III(a) par. 1
reasonableness of the
expenses. Advance expense for
The determination of default on the part of either of the parties depends on the terms of the JVA settlement and relocation
that clearly categorized the parties' several obligations into two types. Art. III(a) par. 2
Deposit P10M in a joint
The first type related to the continuous obligations that would be continuously performed from account of parties.
the moment of the execution of the JVA until the parties shall have achieved the purpose of their
joint venture. The continuous obligations under the JVA were as follows: (1) the developer would
DEVELOPER to relocate Art. II(b) Art. V par. 2
secure the joint venture property from unauthorized occupants; 26 (2) the owner would allow the
and transfer all the tenants, Deliver any and all Pay real estate taxes
developer to take possession of the joint venture property;27 (3) the owner would deliver any and
settlers, occupants, tillers, documents required for the Art. III(c)
all documents necessary for the accomplishment of each activity;28 and (4) both the developer
cultivators of the land to their successful development of Take possession of the
and the owner would pay the real estate taxes.29chanroblesvirtuallawlibrary
relocation site, and shall the Project parcels of land
endeavor to fulfill the same Art. V par. 2 Art. III(j)
The second type referred to the activity obligations. The following table shows the activity
and the two immediately Pay real estate taxes Secure property from
obligations of the parties under the JVA, to wit:
preceding paragraphs (b & Art. II(d) invasion of squatters and
c) up to the extent of 75% Agree to allocate and other elements
accomplishment thereof aggregate a resettlement Art. III(a) par. 1
SEQUENCE OF ACTIVITIES (Article XIV of the JVA) within a period of one (1) site within the property Advance expense for
year from date of execution subject to mutually accepted settlement and relocation
of this Agreement. The conditions. Art. III(a)par. 2
ACTIVITY OWNER DEVELOPER OBLIGATION
remaining 25% of the same Art. VI Deposit P10M in a joint
OBLIGATION
requirements shall be fully Must consent on the account of OWNER and
accomplished within another reasonableness of the DEVELOPER
Signing of JVA. Sign JVA Sign JVA 6 months from date of expenses. Art. III(c)
Art. II(b) Art. V par. 2 expiration of the original Relocate the occupants
Deliver any and all Pay real estate taxes one-year period.
documents required for the Art. IIIa par. 2
successful development of Deposit P10M
DEVELOPER to apply for Art. II(b) Art. V par. 2
the Project
and secure exemption or Deliver any and all Pay real estate taxes
Art. V par. 2
conversion permit and such documents required for the Art. II(c)
Pay real estate taxes
other related requirements successful development of Take possession of the
Art. II(g)
needed for the approval of the Project parcels of land
Warrant absolute ownership
exemption or conversion Art. V par. 2 Art. III (j)
application of the land in Pay real estate taxes Secure property from
DEVELOPER to negotiate Art. II(b) Art. V par. 2 question within a period of Art. II(f) invasion of squatters and
immediately with all tenants, Deliver any and all Pay real estate taxes one and a half (1 1/2) years Assist DEVELOPER secure other elements
settlers, occupants, tillers, documents required for the Art. II(c) from date of execution of this exemption from CARL and Art. III(a)
cultivators of the land in successful development of Take possession of the Agreement subject to a six conversion/reclassification of Advance expenses for
question. the Project parcels of land (6) month extension. subject property exemption, conversion, re-
Art. V par. 2 Art. III (j) Art. III(b) classification expenses.
Pay real estate taxes Secure property from Give DEVELOPER authority Art.III(b) secure exemption
Art. II(c) invasion of squatters and to apply for exemption, and conversion permit
conversion and re- the project in the respective DEVELOPER Art. III(k)
classification. names of the parties form Art. II(a) Process titling of lots
Art. VI the register of deeds. Execute Deed of
Must consent on the Assignment
reasonableness of the Art. III(a)
expenses. Pay all expenses for
settlement of claims,
relocation, application for
DEVELOPER to lay out a Art.III(i) Art. III(d) exemption, conversion, re-
complete Development Plan Give written conformity to Complete comprehensive classification.
the development plan development plan (within 6
months to one year from the
execution of the JVA) Market and Sell the property Fix selling date Fix selling date

DEVELOPER to apply for Art. II(b) Art. V par. 2 Owner to reimburse and pay
and secure all necessary Deliver any and all Pay real estate taxes the DEVELOPER
development permit, documents required for the Art. II(c)
performance bonds, successful development of Take possession of the
environmental compliance the Project parcels of land
certificate, license to sell and Art. V par. 2 Art. III (j) The activities under the JVA fell into seven major categories, specifically: (l)the relocation of the
all other related requirement Pay real estate taxes Secure property from occupants; (2) the completion of the development plan; (3) the securing of exemption and
from the pertinent Municipal invasion of squatters and conversion permits; (4) the obtention of the development permits from government agencies; (5)
Government, DENR, HLURB other elements the development of the subject land; (6) the issuance of titles for the subdivided lots; and (7) the
and other governmental Art. III(f) selling of the subdivided lots and the reimbursement of the advances.
agencies concerned within a Secure development permit,
period of 2 years from date ECC, License to Sell, etc. For the first activity (i.e., the relocation of the occupants), the developer was obliged to negotiate
of execution of this with the occupants, to advance payment for disturbance compensation, and to relocate the
Agreement. occupants to an area within the subject land, while the owner was obliged to agree to and to
allocate the resettlement site within the property, and to approve the expenses to be incurred for
the process. Should the owner fail to allocate the site for the resettlement, the obligation of the
DEVELOPER Art. II(b) Art. V par. 2
developer to relocate would not be demandable. Conversely, should the developer fail to
construction stage/ground Deliver any and all Pay real estate taxes
negotiate with the occupants, the owner's obligation to allocate the resettlement site would not
breaking to commence after documents required for the Art. II(c)
become due.
release of DAR exemption successful development of Take possession of the
permit or conversion the Project parcels of land
As to the second activity (i.e., the completion of the development plan), the developer had the
clearance and approval of Art. V par. 2 Art. III (j)
obligation to lay out the plan, but the owner needed to conform to the plan before the same was
other required permits by Pay real estate taxes Secure property from
finalized. Accordingly, the final development plan would not be generated should the owner fail
pertinent agencies of the invasion of squatters and
to approve the lay-out plan; nor would the owner be able to approve if no such plan had been
government. other elements
initially laid out by the developer.
Art. III(e)
Mobilize development work
In each activity, the obligation of each party was dependent upon the obligation of the other.
and solely pay its expenses
Although their obligations were to be performed simultaneously, the performance of an activity
Art. III(f)
obligation was still conditioned upon the fulfillment of the continuous obligation, and vice versa.
Develop the property and
Should either party cease to perform a continuous obligation, the other's subsequent activity
solely pay its expenses on
obligation would not accrue. Conversely, if an activity obligation was not performed by either
necessary permits
party, the continuous obligation of the other would cease to take effect. The performance of the
continuous obligation was subject to the resolutory condition that the precedent obligation of the
DEVELOPER to secure Art. II(b) Art. V par. 2 other party, whether continuous or activity, was fulfilled as it became due. Otherwise, the
approval of subdivision plan Deliver any and all Pay real estate taxes continuous obligation would be extinguished.
and technical description documents required for the Art. II(c)
from the Bureau of Lands successful development of Take possession of the According to Article 1184 of the Civil Code, the condition that some event happen at a
based on the approved the Project parcels of land determinate time shall extinguish the obligation as soon as the time expires, or if it has become
scheme and thereafter to Art. V par. 2 Art. III (j) indubitable that the event will not take place. Here, the common cause of the parties in entering
petition, follow-up and Pay real estate taxes Secure property from into the joint venture was the development of the joint venture property into the residential
secure the release of Art. II(a) invasion of squatters and subdivision as to eventually profit therefrom. Consequently, all of the obligations under the JVA
individual titles for all lots in Deliver titles to other elements were subject to the happening of the complete development of the joint venture property, or if it
would become indubitable that the completion would not take place, like when an obligation,
whether continuous or activity, was not performed. Should any of the obligations, whether essential, but the affected party neither sought such relief or the allegations in his pleading did
continuous or activity, be not performed, all the other remaining obligations would not ripen into not sufficiently make out a case for a temporary restraining order. The status quo order was thus
demandable obligations while those already performed would cease to take effect. This is issued motu proprio on equitable considerations. Also, unlike a temporary restraining order or a
because every single obligation of each party under the JVA rested on the common cause of preliminary injunction, a status quo order is more in the nature of a cease and desist order, since
profiting from the developed subdivision. it neither directs the doing or undoing of acts as in the case of prohibitory or mandatory
injunctive relief. The further distinction is provided by the present amendment in the sense that,
It appears that upon the execution of the JVA, the parties were performing their respective unlike the amended rule on restraining orders, astatus quo order does not require the posting of
obligations until disagreement arose between them that affected the subsequent performance of a bond.
their accrued obligations. Being reciprocal in nature, their respective obligations as the owner
and the developer were dependent upon the performance by the other of its obligations; hence,
The order of November 5, 2002, by directing the developer to provide sufficient round-the-clock
any claim of delay or non-performance against the other could prosper only if the complaining
security for the protection of the joint venture property during the pendency of the case, was not
party had faithfully complied with its own correlative obligation. 30chanroblesvirtuallawlibrary
of the nature of the status quo ante order because the developer, as averred in the complaint,
had not yet provided a single security watchman to secure the entire 215 hectares of land for
A respected commentator has cogently observed in this connection: 31chanroblesvirtuallawlibrary
several years.34 Also, the owner stated in the comment to the petition that the developer had
dismissed all the security guards posted in the property since 1997. 35 At the time of the filing of
§ 135. Same; consequences of simultaneous performance. As a consequence of the rule of the complaint for specific performance on February 29, 2000, therefore, the last actual,
simultaneous performance, if the party who has not performed his obligation demands peaceable and uncontested state of things preceding the controversy was the absence of such
performance from the other, the latter may interpose the defense of unfulfilled contract (exceptio security, not the installation of the security personnel/measures. In fact, the failure of the
non adimpleli contraclus) by virtue of which he cannot be obliged to perform while the other's developer to provide the round-the-clock security itself became the controversy that impelled the
obligation remains unfulfilled. Hence, the Spanish Supreme Court has ruled that the non- owner to bring the action against the petitioners.
performance of one party is justified if based on the non-performance of the other; that the party
who has failed to perform cannot demand performance from the other; and that judicial approval By preliminarily directing the developer to provide sufficient round-the-clock security for the
is not necessary to release a party from his obligation, the non-performance of the other being a protection of the joint venture property during the pendency of the case, the November 5, 2002
sufficient defense against any demand for performance by the guilty party. order of the RTC did not come under the category of the status quo ante order that would issue
upon equitable consideration, or even of an injunctive relief that would issue under Rule 58 of
Another consequence of simultaneous performance is the rule of compensatio morae, that is to the Rules of Court. Hence, the issuance of the order constituted a blatant jurisdictional error that
say that neither party incurs in delay if the other does not or is not ready to comply in a proper needed to be excised. Verily, a jurisdictional error is one by which the act complained of was
manner with what is incumbent upon him. From the moment one of the parties fulfills his issued by the court without or in excess of jurisdiction. 36Without jurisdiction means that the court
obligations, delay by the other begins. acted with absolute want of jurisdiction. Excess of jurisdiction means that the court has
jurisdiction but has transcended the same or acted without any statutory
Yet, the record is bereft of the proof to support the lower courts' unanimous conclusion that the authority.37chanroblesvirtuallawlibrary
owner had already performed its correlative obligation under the JVA as to place itself in the
position to demand that the developer should already perform its obligation of providing the Although the RTC undoubtedly had jurisdiction to hear and decide the principal action for
round-the-clock security on the property. In issuing its order of November 5, 2002, therefore, the specific performance as well as to act on the motions submitted to it in the course of the
RTC acted whimsically because it did not first ascertain whether or not the precedent reciprocal proceedings, the distinction between jurisdiction over the case and jurisdiction to issue an
obligation of the owner upon which the demanded obligation of the developer was dependent interlocutory order as an ancillary remedy incident to the principal action should be discerned.
had already been performed. Without such showing that the developer had ceased to perform a We have frequently declared that a court may have jurisdiction over the principal action but may
continuous obligation to provide security over the joint venture property despite complete nevertheless act irregularly or in excess of its jurisdiction in the course of its proceedings by the
fulfillment by the owner of all its accrued obligations, the owner had no right to demand from the granting of an auxiliary remedy.38 In Leung Ben v. O'Brien,39 for instance, this Court has thus
developer the round-the-clock security over the 215 hectares of land. clarified:

The CA further gravely erred in characterizing the order for the petitioners to implement the It may be observed in this connection that the word "jurisdiction" as used in attachment cases,
round-the-clock security provision of the JVA and the addendum as an established and has reference not only to the authority of the court to entertain the principal action but also to its
undisputed interim measure that could be issued pending the resolution of the case on the authority to issue the attachment, as dependent upon the existence of the statutory ground. (6 C.
merits. J., 89.) This distinction between jurisdiction to issue the attachment as an ancillary remedy
incident to the principal litigation is of importance; as a court's jurisdiction over the main action
Apart from the provisional remedies expressly recognized and made available under Rule 56 to may be complete, and yet it may lack authority to grant an attachment as ancillary to such
Rule 61 of the Rules of Court, the Court has sanctioned only the issuance of the status quo action. This distinction between jurisdiction over the ancillary has been recognized by this court
ante order but only to maintain the last, actual, peaceable and uncontested state of things that in connection with actions involving the appointment of a receiver. Thus in Rocha & Co. vs.
preceded the controversy.32The eminent Justice Florenz D. Regalado,33 an authority on remedial Crossfield and Figueras (6 Phil. Rep., 355), a receiver had been appointed without legal
law, has delineated the nature of the status quo ante order, and distinguished it from the justification. It was held that the order making the appointment was beyond the jurisdiction of the
provisional remedy of temporary restraining order, as follows: court; and though the court admittedly had jurisdiction of the main cause, the order was vacated
by this court upon application a writ of certiorari. (See Blanco vs. Ambler, 3 Phil. Rep., 358,
There have been instances when the Supreme Court has issued a status quo order which, as Blanco vs. Ambler and McMicking 3 Phil. Rep., 735, Yangco vs. Rohde, 1 Phil. Rep., 404.)
the very term connotes, is merely intended to maintain the last, actual, peaceable and
uncontested state of things which preceded the controversy. This was resorted to when the By parity of reasoning it must follow that when a court issues a writ of attachment for which there
projected proceedings in the case made the conservation of the status quo desirable or
is no statutory authority, it is acting irregularly and in excess of its jurisdiction, in the sense
necessary to justify the Supreme Court in granting relief by the writ of certiorari.

WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES and SETS
ASIDE the decision promulgated on April 27, 2005 and the resolution promulgated on
September 12, 2005; NULLIFIES the orders issued on November 5, 2002 and May 19, 2003 in
Civil Case No. 67813 by the Regional Trial Court, Branch 67, in Pasig City; DIRECTS the
Regional Trial Court, Branch 67, in Pasig City to resume the proceedings in Civil Case No.
67813 with dispatch; and ORDERS the respondents to pay the costs of suit.

SO ORDERED.cralawlawlibrary
G.R. No. 96053 March 3, 1993 representing the remaining balance was paid to them. Because of the apprehension that the
heirs of Juan Galicia, Sr. are disavowing the contract inked by their predecessor, private
respondent filed the complaint for specific performance.
JOSEFINA TAYAG, RICARDO GALICIA, TERESITA GALICIA, EVELYN GALICIA, JUAN
GALICIA, JR. and RODRIGO GALICIA, petitioners,
vs. In addressing the issue of whether the conditions of the instrument were performed by herein
COURT OF APPEALS and ALBRIGIDO LEYVA, respondents. private respondent as vendee, the Honorable Godofredo Rilloraza, Presiding Judge of Branch
31 of the Regional Trial Court, Third Judicial Region stationed at Guimba, Nueva Ecija, decided
to uphold private respondent's theory on the basis of constructive fulfillment under Article 1186
Facundo T. Bautista for petitioners.
and estoppel through acceptance of piecemeal payments in line with Article 1235 of the Civil
Code.
Jesus T. Garcia for private respondent.
Anent the P10,000.00 specified as second installment, the lower court counted against the
vendors the candid statement of Josefina Tayag who sat on the witness stand and made the
admission that the check issued as payment thereof was nonetheless paid on a staggered basis
when the check was dishonored (TSN, September 1, 1983, pp. 3-4; p. 3, Decision; p. 66, Rollo).
MELO, J.:
Regarding the third condition, the trial court noted that plaintiff below paid more than P6,000.00
to the Philippine Veterans Bank but Celerina Labuguin, the sister and co-vendor of Juan Galicia,
The deed of conveyance executed on May 28, 1975 by Juan Galicia, Sr., prior to his demise in Sr. paid P3,778.77 which circumstance was construed to be a ploy under Article 1186 of the
1979, and Celerina Labuguin, in favor of Albrigido Leyva involving the undivided one-half portion Civil Code that "prematurely prevented plaintiff from paying the installment fully" and "for the
of a piece of land situated at Poblacion, Guimba, Nueva Ecija for the sum of P50,000.00 under purpose of withdrawing the title to the lot". The acceptance by petitioners of the various
the following terms: payments even beyond the periods agreed upon, was perceived by the lower court as
tantamount to faithful performance of the obligation pursuant to Article 1235 of the Civil Code.
Furthermore, the trial court noted that private respondent consigned P18,520.00, an amount
1. The sum of PESOS: THREE THOUSAND (P3,000.00) is HEREBY sufficient to offset the remaining balance, leaving the sum of P1,315.00 to be credited to private
acknowledged to have been paid upon the execution of this agreement; respondent.

2. The sum of PESOS: TEN THOUSAND (P10,000.00) shall be paid within On September 12, 1984, judgment was rendered:
ten (10) days from and after the execution of this agreement;

1. Ordering the defendants — heirs of Juan Galicia, to execute the Deed of


3. The sum of PESOS: TEN THOUSAND (P10,000.00) represents the Sale of their undivided ONE HALF (1/2) portion of Lot No. 1130, Guimba
VENDORS' indebtedness with the Philippine Veterans Bank which is hereby Cadastre, covered by TCT No. NT-120563, in favor of plaintiff Albrigido
assumed by the VENDEE; and Leyva, with an equal frontage facing the national road upon finality of
judgment; that, in their default, the Clerk of Court II, is hereby ordered to
4. The balance of PESOS: TWENTY SEVEN THOUSAND (P27,000.00.) execute the deed of conveyance in line with the provisions of Section 10,
shall be paid within one (1) year from and after the execution of this Rule 39 of the Rules of Court;
instrument. (p. 53, Rollo)
2. Ordering the defendants, heirs of Juan Galicia, jointly and severally to
is the subject matter of the present litigation between the heirs of Juan Galicia, Sr. who assert pay attorney's fees of P6,000.00 and the further sum of P3,000.00 for actual
breach of the conditions as against private respondent's claim anchored on full payment and and compensatory damages;
compliance with the stipulations thereof.
3. Ordering Celerina Labuguin and the other defendants herein to surrender
The court of origin which tried the suit for specific performance filed by private respondent on to the Court the owner's duplicate of TCT No. NT-120563, province of
account of the herein petitioners' reluctance to abide by the covenant, ruled in favor of the Nueva Ecija, for the use of plaintiff in registering the portion, subject matter
vendee (p. 64, Rollo) while respondent court practically agreed with the trial court except as to of the instant suit;
the amount to be paid to petitioners and the refund to private respondent are concerned (p.
46, Rollo). 4. Ordering the withdrawal of the amount of P18,520.00 now consigned with
the Court, and the amount of P17,204.75 be delivered to the heirs of Juan
There is no dispute that the sum of P3,000.00 listed as first installment was received by Juan Galicia as payment of the balance of the sale of the lot in question, the
Galicia, Sr. According to petitioners, of the P10,000.00 to be paid within ten days from execution defendants herein after deducting the amount of attorney's fees and
of the instrument, only P9,707.00 was tendered to, and received by, them on numerous damages awarded to the plaintiff hereof and the delivery to the plaintiff of
occasions from May 29, 1975, up to November 3, 1979. Concerning private respondent's the further sum of P1,315.25 excess or over payment and, defendants to
assumption of the vendors' obligation to the Philippine Veterans Bank, the vendee paid only the pay the cost of the suit. (p. 69, Rollo)
sum of P6,926.41 while the difference the indebtedness came from Celerina Labuguin (p.
73, Rollo). Moreover, petitioners asserted that not a single centavo of the P27,000.00
and following the appeal interposed with respondent court, Justice Dayrit with whom Justices In a perfected contract of sale of land under an agreed schedule of
Purisima and Aldecoa, Jr. concurred, modified the fourth paragraph of the decretal portion to payments, while the parties may mutually oblige each other to compel the
read: specific performance of the monthly amortization plan, and upon failure of
the buyer to make the payment, the seller has the right to ask for a
rescission of the contract under Art. 1191 of the Civil Code, this shall be
4. Ordering the withdrawal of the amount of P18,500.00 now consigned with
deemed waived by acceptance of posterior payments.
the Court, and that the amount of P16,870.52 be delivered to the heirs of
Juan Galicia, Sr. as payment to the unpaid balance of the sale, including the
reimbursement of the amount paid to Philippine Veterans Bank, minus the Both the trial and appellate courts were, therefore, correct in sustaining the claim of private
amount of attorney's fees and damages awarded in favor of plaintiff. The respondent anchored on estoppel or waiver by acceptance of delayed payments under Article
excess of P1,649.48 will be returned to plaintiff. The costs against 1235 of the Civil Code in that:
defendants. (p. 51, Rollo)
When the obligee accepts the performance, knowing its incompleteness or
As to how the foregoing directive was arrived at, the appellate court declared: irregularity, and without expressing any protest or objection, the obligation is
deemed fully complied with.
With respect to the fourth condition stipulated in the contract, the period
indicated therein is deemed modified by the parties when the heirs of Juan considering that the heirs of Juan Galicia, Sr. accommodated private respondent by accepting
Galicia, Sr. accepted payments without objection up to November 3, 1979. the latter's delayed payments not only beyond the grace periods but also during the pendency of
On the basis of receipts presented by appellee commencing from August 8, the case for specific performance (p. 27, Memorandum for petitioners; p. 166, Rollo). Indeed, the
1975 up to November 3, 1979, a total amount of P13,908.25 has been paid, right to rescind is not absolute and will not be granted where there has been substantial
thereby leaving a balance of P13,091.75. Said unpaid balance plus the compliance by partial payments (4 Caguioa, Comments and Cases on Civil Law, First Ed. [1968]
amount reimbursable to appellant in the amount of P3,778.77 will leave an p. 132). By and large, petitioners' actuation is susceptible of but one construction — that they are
unpaid total of P16,870.52. Since appellee consigned in court the sum of now estopped from reneging from their commitment on account of acceptance of benefits arising
P18,500.00, he is entitled to get the excess of P1,629.48. Thus, when the from overdue accounts of private respondent.
heirs of Juan Galicia, Sr. (obligees) accepted the performance, knowing its
incompleteness or irregularity and without expressing any protest or
Now, as to the issue of whether payments had in fact been made, there is no doubt that the
objection, the obligation is deemed fully complied with (Article 1235, Civil
second installment was actually paid to the heirs of Juan Galicia, Sr. due to Josefina Tayag's
Code). (p. 50, Rollo)
admission in judicio that the sum of P10,000.00 was fully liquidated. It is thus erroneous for
petitioners to suppose that "the evidence in the records do not support this conclusion" (p. 18,
Petitioners are of the impression that the decision appealed from, which agreed with the Memorandum for Petitioners; p. 157, Rollo). A contrario, when the court of origin, as well as the
conclusions of the trial court, is vulnerable to attack via the recourse before Us on the principal appellate court, emphasized the frank representation along this line of Josefina Tayag before the
supposition that the full consideration of the agreement to sell was not paid by private trial court (TSN, September l, 1983, pp. 3-4; p. 5, Decision in CA-G.R. CV No. 13339, p.
respondent and, therefore, the contract must be rescinded. 50, Rollo; p. 3, Decision in Civil Case No. 681-G, p. 66, Rollo), petitioners chose to remain
completely mute even at this stage despite the opportunity accorded to them, for clarification.
Consequently, the prejudicial aftermath of Josefina Tayag's spontaneous reaction may no longer
The suggestion of petitioners that the covenant must be cancelled in the light of private
be obliterated on the basis of estoppel (Article 1431, Civil Code; Section 4, Rule 129; Section
respondent's so-called breach seems to overlook petitioners' demeanor who, instead of
2(a), Rule 131, Revised Rules on Evidence).
immediately filing the case precisely to rescind the instrument because of non-compliance,
allowed private respondent to effect numerous payments posterior to the grace periods provided
in the contract. This apathy of petitioners who even permitted private respondent to take the Insofar as the third item of the contract is concerned, it may be recalled that respondent court
initiative in filing the suit for specific performance against them, is akin to waiver or abandonment applied Article 1186 of the Civil Code on constructive fulfillment which petitioners claim should
of the right to rescind normally conferred by Article 1191 of the Civil Code. As aptly observed by not have been appreciated because they are the obligees while the proviso in point speaks of
Justice Gutierrez, Jr. in Angeles vs. Calasanz (135 SCRA 323 [1985]; 4 Paras, Civil Code of the the obligor. But, petitioners must concede that in a reciprocal obligation like a contract of
Philippines Annotated, Twelfth Ed. [1989], p. 203: purchase, (Ang vs. Court of Appeals, 170 SCRA 286 [1989]; 4 Paras, supra, at p. 201), both
parties are mutually obligors and also obligees (4 Padilla, supra, at p. 197), and any of the
contracting parties may, upon non-fulfillment by the other privy of his part of the prestation,
. . . We agree with the plaintiffs-appellees that when the defendants-
rescind the contract or seek fulfillment (Article 1191, Civil Code). In short, it is puerile for
appellants, instead of availing of their alleged right to rescind, have
petitioners to say that they are the only obligees under the contract since they are also bound as
accepted and received delayed payments of installments, though the
obligors to respect the stipulation in permitting private respondent to assume the loan with the
plaintiffs-appellees have been in arrears beyond the grace period mentioned
Philippine Veterans Bank which petitioners impeded when they paid the balance of said loan. As
in paragraph 6 of the contract, the defendants-appellants have waived, and
vendors, they are supposed to execute the final deed of sale upon full payment of the balance
are now estopped from exercising their alleged right of rescission . . .
as determined hereafter.

In Development Bank of the Philippines vs. Sarandi (5 CAR (25) 811; 817-818; cited in 4 Padilla,
Lastly, petitioners argue that there was no valid tender of payment nor consignation of the sum
Civil Code Annotated, Seventh Ed. [1987], pp. 212-213) a similar opinion was expressed to the
of P18,520.00 which they acknowledge to have been deposited in court on January 22, 1981
effect that:
five years after the amount of P27,000.00 had to be paid (p. 23, Memorandum for Petitioners; p.
162, Rollo). Again this suggestion ignores the fact that consignation alone produced the effect of
payment in the case at bar because it was established below that two or more heirs of Juan
Galicia, Sr. claimed the same right to collect (Article 1256, (4), Civil Code; pp. 4-5, Decision in
Civil Case No. 681-G; pp. 67-68, Rollo). Moreover, petitioners did not bother to refute the
evidence on hand that, aside from the P18,520.00 (not P18,500.00 as computed by respondent
court) which was consigned, private respondent also paid the sum of P13,908.25 (Exhibits "F" to
"CC"; p. 50, Rollo). These two figures representing private respondent's payment of the fourth
condition amount to P32,428.25, less the P3,778.77 paid by petitioners to the bank, will lead us
to the sum of P28,649.48 or a refund of P1,649.48 to private respondent as overpayment of the
P27,000.00 balance.

WHEREFORE, the petition is hereby DISMISSED and the decision appealed from is hereby
AFFIRMED with the slight modification of Paragraph 4 of the dispositive thereof which is thus
amended to read:

4. ordering the withdrawal of the sum of P18,520.00 consigned with the


Regional Trial Court, and that the amount of P16,870.52 be delivered by
private respondent with legal rate of interest until fully paid to the heirs of
Juan Galicia, Sr. as balance of the sale including reimbursement of the sum
paid to the Philippine Veterans Bank, minus the attorney's fees and
damages awarded in favor of private respondent. The excess of P1,649.48
shall be returned to private respondent also with legal interest until fully paid
by petitioners. With costs against petitioners.

SO ORDERED.
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, v. STA. INES MELALE FOREST
PRODUCTS CORPORATION, RODOLFO CUENCA, MANUEL TINIO, CUENCA TO : Development Bank of the Philippines
INVESTMENT CORPORATION AND UNIVERSAL HOLDINGS National Development Company
CORPORATION, Respondents. Maritime Industry Authority

G.R. No. 193099, February 1, 2017

NATIONAL DEVELOPMENT CORPORATION, Petitioner, v. STA. INES MELALE FOREST


PRODUCTS CORPORATION, RODOLFO M. CUENCA, MANUEL I. TINIO, CUENCA DIRECTING A REHABILITATION PLAN FOR
INVESTMENT CORPORATION AND UNIVERSAL HOLDINGS CORPORATION, Respondents. GALLEON SHIPPING CORPORATION

DECISION
WHEREAS, Galleon Shipping Corporation is presently in a distressed state in view of the
LEONEN, J.: unfavorable developments in the liner shipping business;

A condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfilment and a WHEREAS, the exposure of the Philippine government financial institutions is substantial;
debtor loses the right to make use of the period when a condition is violated, making the
obligation immediately demandable.1
WHEREAS, it is a policy of government to provide a reliable liner service between the
Philippines and its major trading partners;
This resolves the consolidated Petitions for Review filed by the Development Bank of the
Philippines (DBP)2 and the National Development Corporation (NEDC)3 assailing the Court of
WHEREAS, it is a policy to have a Philippine national flag liner service to compete with other
Appeals Decision4dated March 24, 2010 and Court of Appeals Resolution5 dated July 21, 2010, heavily subsidized national shipping companies of other countries;
which affirmed with modifications the Decision6 dated September 16, 2003 of Branch 137,
Regional Trial Court of Makati City.7
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, do hereby direct
the following:
Sometime in 1977, National Galleon Shipping Corporation (Galleon), "formerly known as
Galleon Shipping Corporation, was organized to operate a liner service between the Philippines
and its ... trading partners."8 Galleon's major stockholders were respondents Sta. Ines Melale 1. NDC shall acquire 100% of the shareholdings of Galleon Shipping
Forest Products Corporation (Sta. Ines), Cuenca Investment Corporation (Cuenca Investment), Corporation from its present owners for the amount of P46.7 million which is
Universal Holdings Corporation (Universal Holdings), Galleon's President Rodolfo M. Cuenca the amount originally contributed by the present shareholders, payable after
(Cuenca), Manuel I. Tinio (Tinio), and the Philippine National Construction Corporation (PNCC). 9 five years with no interest cost.

Galleon experienced financial difficulties and had to take out several loans from different sources 2. NDC to immediately infuse P30 million into Galleon Shipping Corporation in
such as foreign financial institutions, its shareholders (Sta. Ines, Cuenca Investment, Universal lieu of its previously approved subscription to Philippine National Lines. In
Holdings, Cuenca, and Tinio), and other entities "with whom it had ongoing commercial addition, NDC is to provide additional equity to Galleon as may be required.
relationships."10
3. DBP to advance for a period of three years from date hereof both the
11 principal and the interest on Galleon's obligations falling due and to convert
DBP guaranteed Galleon's foreign loans. In return, Galleon and its stockholders Sta. Ines,
such advances into 12% preferred shares in Galleon Shipping Corporation.
Cuenca Investment, Universal Holdings, Cuenca, and Tinio, executed a Deed of
Undertaking12 on October 10, 1979 and obligated themselves to guarantee DBP's potential
liabilities.13 4. DBP and NDC to negotiate a restructuring of loans extended by foreign
creditors of Galleon.
To secure DBP's guarantee, Galleon undertook to secure a first mortgage on its five new
vessels and two second-hand vessels.14 However, despite the loans extended to it, "[Galleon's] 5. MARINA to provide assistance to Galleon by mandating a rational liner
financial condition did not improve."15 shipping schedule considering existing freight volume and to immediately
negotiate a bilateral agreement with the United States in accordance with
UNCTAD resolutions.
Cuenca, as Galleon's president, wrote to the members of the Cabinet Standing Committee "for
the consideration of a policy decision to support a liner service." 16 Cuenca also wrote then
President Ferdinand Marcos and asked for assistance.17 These instructions are to take effect immediately.19

On July 21, 1981, President Marcos issued Letter of Instructions No. 115518 addressed to the On August 10, 1981,20 pursuant to Letter of Instructions No. 1155, Galleon's stockholders,
NDC, DBP, and the Maritime Industry Authority. Letter of Instructions No. 1155 reads: represented by Cuenca, and NDC, through its then Chairman of the Board of Directors, Roberto
V. Ongpin (Ongpin) entered into a Memorandum of Agreement,21 where NDC and Galleon
undertook to prepare and sign a share purchase agreement covering 100% of Galleon's equity 5. As security for the payment of the aforementioned purchase price, Buyer shall issue to each
for P46,740,755.00.22 The purchase price was to be paid after five years from the execution of of the GSC stockholders listed in Annex A a negotiable promissory note in the amount
the share purchase agreement.23 The share purchase agreement also provided for the release corresponding to the respective paid-up capital in GSC of each of such stockholders and with
of Sta. Ines, Cuenca, Tinio and Construction Development Corporation of the Philippines from maturity on the date of the fifth annual anniversary of the share purchase agreement.
the personal counter-guarantees they issued in DBP's favor under the Deed of Undertaking. 24
6. Notwithstanding the provisions of clauses 4 and 5 above, upon the signing of the share
The Memorandum of Agreement reads: purchase agreement, it is understood that Sellers shall deliver to Buyer all the stock certificates
covering 10,000,000 common shares of GSC, and duly and validly endorsed for transfer, free
from any and all Hens and encumbrances whatsoever. It is likewise understood that Buyer shall
KNOW ALL MEN BY THESE PRESENTS:
at that time acquire all the subscription rights to 100,000,000 common shares of which
P36,740,755.00 has been paid by Sellers, and shall assume the obligation to pay the unpaid
This Memorandum of Agreement made and entered into this day of August, 1981, at Makati, portion of such subscription.
Metro Manila, Philippines, by and between the stockholders of Galleon Shipping Corporation
listed in Annex A hereof, represented herein by their duly authorized attorney-in-fact, Mr.
7. The stock purchase agreement to be prepared and signed by the parties within sixty (60) days
Rodolfo M. Cuenca (hereinafter called "Sellers") and National Development Company,
from date hereof shall contain, among other things:
represented herein by its Chairman of the Board, Hon. Minister Roberto V. Ongpin (hereinafter
called "Buyer").

WITNESSETH: That — (a) standard warranties of seller including, but not limited to, warranties pertaining to the
accuracy of financial and other statements of GSC; disclosure of liabilities; payment of all
taxes, duties, licenses and fees; non-encumbrance of corporate assets; valid contracts
WHEREAS, Sellers and Buyer desire to implement immediately Letter of Instructions No. 1155, with third parties, etc. including an indemnity clause covering any breach thereof.
dated July 21, 1981, which directs that Buyer acquire 100% of the shareholdings of Galleon
Shipping Corporation ("GSC") from Sellers who are the present owners.
(b) provisions that Buyer shall retain 2 representatives of Sellers in the board of GSC only for
as long as Sellers have not been paid, or have not negotiated or discounted any of the
WHEREAS, Sellers have consented to allow Buyer to assume actual control over the promissory notes referred to in clause 5 above.
management and operations of GSC prior to the execution of a formal share purchase
agreement and the transfer of all the shareholdings of Sellers to Buyer.
(c) provisions whereby Construction Development Corporation of the Philippines, Sta. Ines
Melale Forest Products Corporation, Mr. Rodolfo M. Cuenca and Mr. Manuel I. Tinio shall
NOW, THEREFORE, the parties agree as follows: be released from counter-guarantees they have issued in favor of DBP and other
financial institutions in connection with GSC's various credit accommodations.
1. Within seven (7) days after the signing hereof, Sellers shall take all steps necessary to cause
five (5) persons designated by Buyer to be elected directors of GSC, it being understood that (d) provisions for arbitration as a means of settling disputes and differences of opinion
Sellers shall retain the remaining two (2) seats in the GSC board subject to the condition regarding the stock purchase agreement.
hereafter stated in clause 7(b).

2. The new board to be created pursuant to clause 1 above shall elect Antonio L. Carpio as
8. Sellers hereby make a special warranty that:chanRoblesvirtualLawlibrary
Chairman and Chief Executive Officer and Rodolfo M. Cuenca as President. All other officers will
be nominated and appointed by Buyer.

(a) any and all liabilities and obligations as disclosed in the financial statements of Galleon
3. As soon as possible, but not more than 60 days after the signing hereof, the parties shall Shipping Corporation are valid, regular, normal and incurred in the ordinary course of
endeavor to prepare and sign a share purchase agreement covering 100% of the shareholdings business of Galleon Shipping Corporation, and Buyer will verify this warranty and conduct
of Sellers in GSC to be transferred to Buyer, i.e. 10,000,000 fully paid common shares of the par an audit of Galleon Shipping Corporation as of March 31 and July 31, 1981; liabilities that
value of P1.00 per share and subscription of an additional 100,000,000 common shares of the do not fall under the above definition are to be for the account of the Seller; and
par value of P1.00 per share of which P36,740,755.00 has been paid, but not yet issued.

4. Sellers hereby warrant that P46,740,755[.00] had been actually paid to Galleon Shipping
Corporation, which amount represents payment of Sellers for 46,740,755 common shares of (b) from July 31, 1981 to the date of the election of Buyers' representatives to the Board of
said Corporation. This warranty shall be verified by Buyer, the results of which will determine the GSC, GSC has not and shall not enter into any contract and has not and shall not incur
final purchase price to be paid to Sellers. The purchase price directed by LOI 1155 to be paid to any liability except what is normal and usual in the ordinary course of shipping business.
Sellers shall be paid after five (5) years from date of the share purchase agreement with no
interest cost to buyer.
9. Valid and duly authorized liabilities of GSC which are the subject of a WHEREAS, in such a situation the financial exposure of the Government will continue to
meritorious lawsuit, or which have been arranged and guaranteed by Mr. increase and therefore the appropriate steps must be taken to limit and protect the
Rodolfo M. Cuenca, may be considered by Buyer for priority in the Government's exposure;
repayment of accounts, provided that, upon review, the Buyer shall
determine these to be legitimate and were validly incurred in the ordinary
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, do hereby direct
course of GSC's principal business.
the following:

IN WITNESS HEREOF, the parties have signed this Memorandum of Agreement this day of
August 1981, in Makati, Metro Manila.
1) The DBP and the NDC shall take immediate steps, including foreclosure of Galleon
vessels and other assets, as may be deemed necessary to limit and protect the
STOCKHOLDERS OF Government's exposure;
GALLEON SHIPPING
CORPORATION
2) NDC shall discharge such maritime liens as it may deem necessary to allow the
By: foreclosed vessels to engage in the international shipping business;
(signed)
RODOLFO M. 3) Any provision of LOI No. 1155 inconsistent with this Letter of Instructions is hereby
CUENCA rescinded.

NATIONAL DEVELOPMENT
COMPANY These instructions are to take effect immediately.30
By:
(signed) On April 22, 1985, respondents Sta. Ines, Cuenca, Tinio, Cuenca Investment and Universal
Holdings filed a Complaint with Application for the Issuance of a Temporary Restraining Order or
ROBERTO V. Writ of Preliminary Injunction.31 The Complaint was amended several times to implead new
ONGPIN25 parties and to include new claims/counterclaims.32

Acting as Galleon's guarantor, DBP paid off Galleon's debts to its foreign bank creditor and, on In their Complaint, Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings alleged
January 25, 1982, pursuant to the Deed of Undertaking, Galleon executed a mortgage that NDC, "without paying a single centavo, took over the complete, total, and absolute
contract26 over seven of its vessels in favor of DBP. ownership, management, control, and operation of defendant [Galleon] and all its assets, even
prior to the formality of signing a share purchase agreement, which was held in abeyance
because the defendant NDC was verifying and confirming the amounts paid by plaintiffs to
NDC took over Galleon's operations "even prior to the signing of a share purchase
Galleon, and certain liabilities of Galleon to plaintiffs[.]"33
agreement."27However, despite NDC's takeover, the share purchase agreement was never
formally executed.28
Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings also alleged that NDC
tried to delay 'the formal signing of the share purchase agreement in order to interrupt the
On February 10, 1982, or barely seven months from the issuance of Letter of Instructions No.
running of the 5-year period to pay ... the purchase of the shares in the amount of
1155, President Marcos issued Letter of Instructions No. 1195, 29 which reads:
P46,740,755[.00] and the execution of the negotiable promissory notes to secure payment[.] 34

TO : Development Bank of the As for DBP, Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings claimed that
Philippines "DBP can no longer go after [them] for any deficiency judgment [since] NDC had been
National Development subrogated [in their place] as borrower[s], hence the Deed of Undertaking between [Sta. Ines,
Company Cuenca Investment, Universal Holdings, Cuenca, and Tinio and DBP] had been extinguished
RE : Galleon Shipping Corporation and novated[.]"35

Meanwhile, on December 8, 1986, Proclamation No. 50 created the Asset Privatization


WHEREAS, NDC has assumed management of Galleon's operations pursuant to LOI No. 1155; Trust.36 The Asset Privatization Trust was tasked to "take title to and possession of, conserve,
provisionally manage and dispose of, assets which have been identified for privatization or
WHEREAS, the original terms under which Galleon acquired or leased the vessels were such disposition and transferred to the TI-List for [that] purpose."37
that Galleon would be unable to pay from its cash flows the resulting debt service burden;
Under Administrative Order No. 14 issued by then President Corazon C. Aquino, certain assets
of DBP, which included Galleon's loan accounts, "were identified for transfer to the National
Government."38
On February 27, 1987, a Deed of Transfer was executed providing for the transfer of the Galleon Cuenca Investment, and Universal Holdings free from liability under the mortgage contract with
loan account from DBP to the National Government.39 The Asset Privatization Trust was DBP and the deficiency claim of DBP.47 The Regional Trial Court also deleted the award of
"constituted as [the National Government's] trustee over the transferred accounts and assets[.]" 40 US$2.3 million to Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings since
they failed to Include the same in their fourth amended complaint.48 The dispositive portion of the
Regional Trial Court Order, as amended, reads:
On September 16, 2003, the Regional Trial Court upheld the validity of Letter of Instructions No.
1155 and the Memorandum of Agreement executed by NDC and Galleon's stockholders,
pursuant to Letter of Instructions No. 1155.41 WHEREFORE, judgment is hereby rendered (1) ordering defendants National Development
Corporation and National Galleon Shipping Corporation, jointly and severally, to pay plaintiffs
Sta. Ines Melale Forest Products Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca
The Regional Trial Court also held that Letter of Instructions No. 1195 did not supersede or
Investment Corporation and Universal Holdings Corporation, the amount of P15,150,000.00
impliedly repeal Letter of Instructions No. 1155, and assuming that it did impliedly repeal Letter
representing the amount of advances made by plaintiffs in behalf of defendant NGSC, plus legal
of Instructions No. 1155, it would be void and unconstitutional for violating the non-impairment
interest at the rate of 6% per annum from the date of filing of this case on 22 April 1985 up to full
clause.42
payment;

As regards NDC's argument that Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal
(2) ordering defendants National Development Corporation and National Galleon Shipping
Holdings had no basis to compel it to pay Galleon's shares of stocks because no share purchase
Corporation, jointly and severally, to pay plaintiffs Sta. Ines Melale Forest Products Corporation,
agreement was executed, the Regional Trial Court held that the NDC was in estoppel since it
Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and Universal Holdings
prevented the execution of the share purchase agreement and had admitted to being Galleon's
Corporation, the amount of P46,740,755.00, representing the price of the shares of stock of
owner.43
plaintiffs and defendant PNCC in defendant NGSC, plus legal interest at the rate of 6% per
annum from the date of filing of this case on 22 April 1985 up to full payment;
The Regional Trial Court also ruled that Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings' liability to DBP under the Deed of Undertaking had been extinguished due to
(3) ordering defendants National Development Corporation and National Galleon Shipping
novation, with NDC replacing them and PNCC as debtors.44 The dispositive of the Regional Trial
Corporation, jointly and severally, to pay plaintiffs Sta. Ines Melale Forest Products Corporation,
Court's Decision reads:
Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and Universal Holdings
Corporation, attorney's fees equivalent to 10% of the amount due; and costs of suit;
WHEREFORE, judgment is hereby rendered (1) ordering defendants National Development
Corporation and National Galleon Shipping Corporation, jointly and severally, to pay plaintiffs
(4) ordering defendants National Development Corporation and National Galleon Shipping
Sta. Ines Melale Forest Products Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca
Corporation, jointly and severally, to pay to each plaintiff and defendant Philippine National
Investment Corporation and Universal Holdings Corporation, the amounts of P15,150,000.00
Construction Corporation, P10,000.00 as moral damages; and P10,000.00 as exemplary
and US$2.3 million, representing the amount of advances made by plaintiffs in behalf of
damages; and
defendant Galleon, plus legal interest at the rate of 6% per annum from the date of filing of this
case on 22 April 1985 up to full payment;
(5) declaring plaintiffs Sta. Ines Melale Forest Products Corporation, Rodolfo M. Cuenca, Manuel
I. Tinio, Cuenca Investment Corporation and Universal Holdings Corporation and defendant
(2) ordering defendants National Development Corporation and National Galleon Shipping
Philippine National Construction Corporation to be no longer liable to defendants National
Corporation, jointly and severally, to pay plaintiffs Sta. Ines Melale Forest Products Corporation,
Development Corporation, Development Bank of the Philippines and Asset Privatization Trust
Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and Universal Holdings
under the deed of undertaking, pledge, mortgages, and other accessory contracts between the
Corporation, the amount of P46,740,755.00, representing the price of the shares of stock of
parties; and consequently, permanently enjoining defendant DBP or APT from filing a deficiency
plaintiffs and defendant PNCC in defendant Galleon, plus legal interest at the rate of 6% per
claim against plaintiffs and defendant PNCC.
annum from the date of filing of this case on 22 April 1985 up to full payment;

SO ORDERED.49
(3) ordering defendants National Development Corporation and National Galleon Shipping
Corporation, jointly and severally, to pay plaintiffs Sta. Ines Melale Forest Products Corporation,
Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and Universal Holdings On March 9, 2004 and March 16, 2004, DBP and NDC filed their respective notices of appeal to
Corporation, attorney's fees equivalent to 10% of the amount due; and costs of suit; and the Court of Appeals.50

(4) ordering defendants National Development Corporation, Development Bank of the In its assailed Decision dated March 24, 2010, the Court of Appeals upheld the Regional Trial
Philippines and National Galleon Shipping Corporation, jointly and severally, to pay each plaintiff Court's findings that the Memorandum of Agreement between NDC and Cuenca (representing
and defendant Philippine National Construction Corporation, P10,000.00 as moral damages; and Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings) was a perfected contract,
P10,000.00 as exemplary damages. which bound the parties,51thus:

SO ORDERED.45 Although the Supreme Court ruled in the Poliand case that LOI No. 1155 is a mere
administrative issuance and, as such, cannot be a valid source of obligation, the defendant-
appellant NDC cannot escape its liabilities to the plaintiffs-appellees considering that the
On February 23, 2003, the Regional Trial Court issued an Order46 partially reconsidering and
Memorandum of Agreement that it executed with the plaintiffs-appellees created certain rights
modifying the September 16, 2003 Decision by categorically declaring Sta. Ines, Cuenca, Tinio,
and obligations between the parties which may be enforced by the parties against each other.
The situation in the Poliand case is different because Poliand was not a party to the (4) ordering the defendants National Development Corporation and National Galleon Shipping
Memorandum of Agreement.52 Corporation, jointly and severally, to pay to each plaintiffs and defendant Philippine National
Construction Corporation, P10,000.00 as moral damages; and P10,000.00 as exemplary
damages; and
The Court of Appeals ruled that NDC is estopped from claiming that there was no agreement
between it and Cuenca since the agreement had already been partially executed after NDC took
over the control and management of Galleon.53 (5) declaring plaintiffs Sta. Ines Melale Forest Products Corporation, Rodolfo M. Cuenca, Manuel
I. Tinio, Cuenca Investment Corporation and Universal Holdings Corporation and defendant
Philippine National Construction Corporation to be no longer liable to defendants National
The Court of Appeals also rejected NDC's argument that it should not be held liable for the
Development Corporation, Development Bank of the Philippines and Asset Privatization Trust
payment of Galleon's shares.54 The Court of Appeals held that NDC "voluntarily prevented the
under the deed of undertaking, pledge, mortgages, and other accessory contracts between the
execution of a share purchase agreement when it reneged on its various obligations under the
parties; and consequently, permanently enjoining defendant DBP or APT from filing a deficiency
Memorandum of Agreement."55
claim against plaintiffs and defendant PNCC.

The Court of Appeals likewise affirmed the Regional Trial Court's ruling that novation took place
SO ORDERED.59 (Emphasis and underscoring in the original)
when NDC agreed to be substituted in place of Sta. Ines, Cuenca, Tinio, Cuenca Investment,
and Universal Holdings in the counter-guarantees they issued in favor of DBP.56
On September 16, 2010, NDC appealed the Court of Appeals Decision to this Court. In its
Petition for Review,60 NDC maintains that the Memorandum of Agreement does not bind it, since
The Court of Appeals ruled that DBP was privy to the Memorandum of Agreement between NDC
Ongpin was not equipped with authority from the NDC Board to sign the Memorandum of
and Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings, since Ongpin was
Agreement on NDC's behalf.61NDC also denies that it took over the control and management of
concurrently Governor of DBP and chairman of the NDC Board at the time the Memorandum of
Galleon or that it "prevented the execution of the [s]hare [p]urchase [a]greement[.]" 62
Agreement was signed.57

NDC asserts that even assuming that the Memorandum of Agreement was binding, what was
The Court of Appeals further held that DBF was no longer the real party-in-interest as the loan
agreed upon was that the parties shall execute a share purchase agreement within a certain
accounts of Galleon were transferred to the Asset Privatization Trust.58
period of time.63The Memorandum of Agreement was only a preliminary agreement between
Cuenca and Ongpin for NDC's "intended purchase of Galleon's equity[,] pursuant to [Letter of
The fallo of the Court of Appeals Decision reads: Instructions No.] 1155."64 The Memorandum of Agreement cannot "be considered as the
executing agreement or document for the purchase of the shares." 65
WHEREFORE, in view of the foregoing premises, the assailed Decision, as well as,
assailed Order, appealed from is hereby AFFIRMED with MODIFICATIONS such that, as On September 13, 2010, DBP filed its Petition for Review66 before this Court. DBP insisted that
modified, the dispositive portion thereof shall now read as follows: novation did not take place because: (a) there was no second binding contract designed to
replace the Deed of Undertaking; (b) it did not give its consent to the substitution of debtors
under the Memorandum of Agreement; and (c) there was no agreement that unequivocally
"WHEREFORE, judgment is hereby rendered (1) ordering defendants National Development
declared novation by substitution of debtors.67
Corporation and National Galleon Shipping Corporation jointly and severally, to pay plaintiffs
Sta. Ines Melale Forest Products Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca
Investment Corporation and Universal Holdings Corporation, the amount of P15,150,000.00 The issues raised for the resolution of this Court are as follows:
representing the amount of advances made by plaintiffs in behalf of defendant NGSC, plus
interest at the rate of twelve percent (12%) per annum from the date of filing of this case on 22
April 1985 until instant Decision becomes final and executory, thereafter the said amount shall
earn an interest at the rate of twelve (12%) percent per annum from such finality until its a) Whether the Memorandum of Agreement obligates NDC to purchase Galleon's shares of
satisfaction; stocks and pay the advances made by respondents in Galleon's favor; 68

(2) ordering the defendants National Development Corporation and National Galleon Shipping b) Whether the Memorandum of Agreement novated the Deed of Undertaking executed
[C]orporation, jointly and severally, to pay plaintiffs Sta. Ines Melale Forest Products between DBP and respondents;69 and
Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and Universal
Holdings Corporation, the amount of P46,740,755.00, representing the price of the shares of c) Whether the computation of legal interest should be at the rate of 6% per annum, instead
stock of plaintiffs and defendant PNCC in defendant NGSC, plus interest at the rate of twelve of the 12% per annum pegged by the Court of Appeals.70
percent (12%) per annum from the date of filing of this case on 22 April 1985 until
instant Decision becomes final and executory, thereafter the said amount shall earn an interest
at the rate of twelve percent (12%) per annum from such finality until its satisfaction;
I
(3) ordering the defendants National Development Corporation and National Galleon Shipping
Corporation, jointly and severally, to pay plaintiffs Sta. Ines Melale Forest Products Corporation, When the "terms of a contract are clear and leave no doubt upon the intention of the contracting
Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and Universal Holdings parties, the literal meaning of its stipulations shall control."71
Corporation, attorney's fees equivalent to 10% of the amount due; and costs of suit;
Bautista v. Court of Appeals72 instructs that where the language of a contract is plain and
unambiguous, the contract must be taken at its face value, thus: b) consent for NDC to assume actual control over Galleon's management and operations
prior to the execution of a formal share purchase agreement and prior to the transfer to
NDC of Galleon's shareholdings;
The rule is that where the language of a contract is plain and unambiguous, its meaning should
be determined without reference to extrinsic facts or aids. The intention of the parties must be
gathered from that language, and from that language alone. Stated differently, where the c) elect NDC's designated five persons to Galleon's Board of Directors;
language of a written contract is clear and unambiguous, the contract must be taken to mean
that which, on its face, it purports to mean, unless some good reason can be assigned to show
d) warrant that P46,740,755.00 had been actually paid to Galleon, representing payment of
that the words used should be understood in a different sense. Courts cannot make for the
46,740,755 common shares to Galleon;
parties better or more equitable agreements than they themselves have been satisfied to make,
or rewrite contracts because they operate harshly or inequitably as to one of the parties, or alter
them for the benefit of one party and to the detriment of the other, or by construction, relieve one e) deliver to NDC, upon signing of the share purchase agreement, 10,000,000 common
of the parties from terms which he voluntarily consented to, or impose on him those which he did shares of Galleon, duly and validly endorsed for transfer, free from any and all liens and
not.73 encumbrances whatsoever; and

It is not disputed that NDC and respondents Sta. Ines, Cuenca, Tinio, Cuenca Investment, and f) make special warranties under clause 8.
Universal Holdings executed a Memorandum of Agreement pursuant to the directives of Letter of
Instructions No. 1155.

As parties to the Memorandum of Agreement, NDC and respondents jointly undertook to:
Under the Memorandum of Agreement, NDC, as the Buyer, undertook to:

a) immediately implement Letter of Instructions No. 1155;


a) implement Letter of Instructions No. 1155 and acquire 100% of Galleon's shareholdings;

b) endeavor to prepare and sign a share purchase agreement covering 100% of Galleon's
b) assume actual control over Galleon's management and operations prior to the execution shareholdings not more than 60 days after the signing of the Memorandum of Agreement;
of a formal share purchase agreement and prior to the transfer to NDC of Galleon's and
shareholdings;

c) incorporate the conditions listed down in clause 7 in the share purchase agreement.
c) designate five persons to sit in Galleon's Board of Directors;

d) pay Galleon's stockholders the share purchase price after five years from the date of the The law is categorical that "various stipulations of a contract shall be interpreted together,
share purchase agreement; attributing to the doubtful ones that sense which may result from all of them taken
jointly."74Fernandez v. Court of Appeals75 further emphasizes that "[t]he important task in
e) issue each Galleon stockholder a negotiable promissory note with maturity on the date of contract interpretation is always the ascertainment of the intention of the contracting parties and
the fifth annual anniversary of the share purchase agreement; that task is of course to be discharged by looking to the words they used to project that intention
in their contract, all the words not just a particular word or two, and words in context not words
standing alone."76
f) verify Galleon's special warranty on its liabilities and obligations by conducting an audit;
and
The Court of Appeals found that the Memorandum of Agreement between NDC and Galleon
was a perfected contract for NDC to purchase 100% of Galleon's shareholdings. However, a
g) consider for priority in the repayment of accounts, Galleon's valid and duly authorized careful reading of the Memorandum of Agreement shows that what the parties agreed to was the
liabilities which are the subject of meritorious lawsuit or which have been arranged and execution of a share purchase agreement to effect the transfer of 100% of Galleon's
guaranteed by Cuenca. shareholdings to NDC, as seen in clause 3:

3. As soon as possible, but not more than 60 days after the signing hereof, the parties shall
While respondents, Galleon's stockholders, as the Sellers, undertook to: endeavor to prepare and sign a share purchase agreement covering 100% of the shareholdings
of Sellers in GSC to be transferred to Buyer, i.e. 10,000,000 fully paid common shares of the par
value of P1.00 per share and subscription of an additional 100,000,000 common shares of the
par value of P1.00 per share of which P36,740,755.00 has been paid, but not yet issued.
a) implement Letter of Instructions No. 1155 by allowing NDC to purchase 100% of their
shareholdings;
The second paragraph of clause 4 likewise makes the execution of a share purchase agreement
a condition before the purchase price can be paid to respondents, since the payment of the
purchase price becomes due only after five years from the date of execution of the share favor of DBP and other financial institutions in connection with Galleon's various credit
purchase agreement: accommodations; and (d) arbitration as a means of settling disputes and differences of opinion
regarding the stock purchase agreement.
4. Sellers hereby warrant that P46,740,755[.00] had been actually paid to Galleon Shipping
Corporation, which amount represents payment of Sellers for 46,740,755 common shares of Taking the provisions of the Memorandum of Agreement as a whole, it is clear that while there
said Corporation. This warranty shall be verified by Buyer, the results of which will determine the was an intention to follow the directives of Letter of Instructions No. 1155, the transfer of shares
final purchase price to be paid to Sellers. from respondents to NDC was to be effected only with the execution of the share purchase
agreement, the terms and conditions of which were laid out in the Memorandum of Agreement.
The purchase price directed by LOI 1155 to be paid to Sellers shall be paid after five (5) years
from date of the share purchase agreement with no interest cost to buyer. (Emphasis supplied) NDC and the respondents undertook to prepare and sign a share purchase agreement over
100% of respondents' shares in Galleon not more than sixty days after the signing of the
Memorandum of Agreement:
NDC asserts that the Memorandum of Agreement was only a preliminary agreement between
Galleon, represented by Cuenca, and NDC, represented by Ongpin, for the intended purchase
of Galleon's equity pursuant to Letter of Instructions No. 1155, 77 thus: 3. As soon as possible, but not more than 60 days after the signing hereof, the parties shall
endeavor to prepare and sign a share purchase agreement covering 100% of the shareholdings
of Sellers in GSC to be transferred to Buyer, i.e. 10,000,000 fully paid common shares of the par
It merely prescribed the manner, terms and conditions of said purchase. In fact, the
value of P1.00 per share and subscription of an additional 100,000,000 common shares of the
[Memorandum of Agreement] provided for a time frame for the execution of the share purchase
par value of P1.00 per share of which P36,740,755.00 has been paid, but not yet issued.
agreement which is within sixty (60) days from the signing thereof. By no means can it be
considered as the executing agreement or document for the purchase of the shares.78
The execution of a share purchase agreement was a condition precedent to the transfer of
Galleon's shares to NDC. However, the Court of Appeals found that the NDC prevented its
NDC's assertion that the Memorandum of Agreement was merely a preliminary agreement that
execution by deliberately delaying its review of Galleon's financial accounts:
was separate and distinct from the share purchase agreement, finds support in clause 7 of the
Memorandum of Agreement, which lists down the terms and conditions to be included in the
share purchase agreement as follows: From the foregoing, it is evident that the period for the payment of the purchase price is entirely
dependent on the execution of a share purchase agreement by the parties. The evidence on
record, however, show that the defendant-appellant NDC itself voluntarily prevented the
7. The stock purchase agreement to be prepared and signed by the parties within sixty (60) days
execution of a share purchase agreement when it reneged on its various obligations under the
from date hereof shall contain, among other things:
Memorandum of Agreement. The evidence on record show that the share purchase agreement
was not formally executed because then Minister Roberto Ongpin claimed that the accounts of
defendant Galleon had to be reviewed and cleared up before the share purchase agreement is
(a) standard warranties of seller including, but not limited to, warranties pertaining to the signed. While defendant Galleon made its financial records available to defendant-appellant
accuracy of financial and other statements of GSC; disclosure of liabilities; payment of all NDC for their review, the latter never made any serious effort to review the financial accounts of
taxes, duties, licenses and fees; non-encumbrance of corporate assets; valid contracts the defendant Galleon, hence, effectively preventing the execution of the share purchase
with third parties, etc. including an indemnity clause covering any breach thereof. agreement. Consequently, the condition for the running of the period for the payment of the
purchase price of the shares of stocks in defendant Galleon by the defendant-appellant
NDC, i.e., the execution of the Share Purchase Agreement, was deemed fulfilled as it was the
(b) provisions that Buyer shall retain 2 representatives of Sellers in the board of GSC only for defendant-appellant NDC itself which prevented it from happening. Under Article 1186 of the
as long as Sellers have not been paid, or have not negotiated or discounted any of the Civil Code, a "condition shall be deemed fulfilled when the obligor voluntarily prevents its
promissory notes referred to in clause 5 above. fulfilment." This applies in the instant case.79 (Emphasis supplied)

(c) provisions whereby Construction Development Corporation of the Philippines, Sta. Ines The Regional Trial Court likewise found that respondent Cuenca, as Galleon's representative,
Melale Forest Products Corporation, Mr. Rodolfo M. Cuenca and Mr. Manuel I. Tinio shall initiated moves for the preparation and execution of the share purchase agreement and NDC's
be released from counter-guarantees they have issued in favor of DBP and other takeover of Galleon.80 Nonetheless, despite Cuenca's efforts, the share purchase agreement
financial institutions in connection with GSC's various credit accommodations. was never formally executed:

(d) provisions for arbitration as a means of settling disputes and differences of opinion Assuming that the share purchase agreement was a condition for the effectivity of the
regarding the stock purchase agreement. Memorandum of Agreement (dated 10 August 1981), said condition is deemed fulfilled by virtue
of Art. 1186 of the Civil Code, which provides that "the condition shall be deemed fulfilled when
the obligor voluntarily prevents its fulfillment." Plaintiff Cuenca, as representative of the former
shareholders of defendant Galleon, in order to clear up the accounts preparatory to the
Under clause 7 of the Memorandum of Agreement, NDC and respondents agreed to include in execution of the share purchase agreement, created a team to prepare a statement of defendant
the still-to-be-executed share purchase agreement, provisions on: (a) standard warranties, Galleon's outstanding accounts which statement of account was intended to be included as part
including warranties on the accuracy of Galleon's financials, disclosure of liabilities, etc; (b) the of the annexes of the said share purchase agreement. Another team with representatives from
retention of Galleon's representatives in Galleon's board of directors prior to the payment of the both parties, that is, the former stockholders of defendant Galleon and defendant NDC, had to
share purchase price; (c) the release of respondents from the counter-guarantees they made in
be created for a smoother turnover. However, despite said efforts done by plaintiff Cuenca the In clause 4 of the Memorandum of Agreement, NDC as the buyer was to verify the warranty of
share purchase agreement was not formally executed.81 (Emphasis in the original) the Galleon shareholders that P46,740,755.00 was paid for Galleon's 46,740,755 common
shares with par value of P1.00 per share. The results of the verification would have determined
the final purchase price to be paid to the Galleon shareholders. Nonetheless, despite the
NDC denies that it caused the delay in the execution of the share purchase agreement and
verification still to be done, both parties agreed to execute the share purchase agreement as
argues that it was Cuenca who caused the delay for insisting on the payment first of the
soon as possible but not more than sixty days from the signing of the Memorandum of
advances made in Galleon's favor before executing the share purchase agreement and
Agreement.
relinquishing control over Galleon.82

We uphold the Court of Appeals' finding that the failure to execute the share purchase
NDC's bare denials cannot succeed in light of the preponderance of evidence submitted by
agreement was brought about by NDC's delay in reviewing the financial accounts submitted by
respondents.
Galleon's stockholders. The Memorandum of Agreement was executed on August 10, 1981,
giving the parties no more than sixty days or up to October 9, 1981, to prepare and sign the
In his Affidavit83 dated June 17, 1999, Cuenca narrated the preparations the Galleon share purchase agreement. However, it was only on April 26, 1982, or more than eight months
stockholders undertook for the execution of the share purchase agreement with NDC: after the Memorandum of Agreement was signed, did NDC's General Director submit his
recommendation on Galleon's outstanding account. Even then, there was no clear intention to
execute a share purchase agreement as compliance with the Memorandum of Agreement.
Article 1186 of the Civil Code is categorical that a "condition shall be deemed fulfilled when the
What happened to the share purchase agreement referred to in the obligor voluntarily prevents its fulfilment." Considering NDC's delay, the execution of the share
168. Q :
Memorandum of Agreement dated August 1981 (Exhibit "J")? purchase agreement should be considered fulfilled with NDC as the new owner of 100% of
Galleon's shares of stocks.
The share purchase agreement was never drawn up despite persistent
A : attempts by myself to see it prepared and executed. In fact, we continually The due execution of the share purchase agreement is further bolstered by Article 1198(4) of the
negotiated with NDC and DBP throughout 1982 and 1983 on the matter. Civil Code, which states that the debtor loses the right to make use of the period when a
condition is violated, making the obligation immediately demandable:
169. Q : Why was it never executed?
Article 1198. The debtor shall lose every right to make use of the period:
Minister Ongpin kept claiming that the accounts had to be cleared up before
A :
any formal agreement could be signed. (1) When after the obligation has been contracted, he becomes insolvent, unless he gives a
guaranty or security for the debt;
What steps, if any, did the parties take to clear up the accounts preparatory
170. Q : (2) When he does not furnish to the creditor the guaranties or securities which he has promised;
to the signing of the share purchase agreement?

During the transition period, prior to the signing of the share purchase (3) When by his own acts he has impaired said guaranties or securities after their establishment,
agreement, I created a team to prepare a statement of Galleon's outstanding and when through a fortuitous event they disappear, unless he immediately gives new ones
accounts which we intended to include as part of the annexes of the share equally satisfactory;
purchase agreement. Another team with representatives from both parties,
A : i.e., the former stockholders of Galleon and NDC, had to be created for a (4) When the debtor violates any undertaking, in consideration of which the creditor agreed to
smoother turn-over. In short, we did all that was possible and required of us the period;
under the Memorandum of Agreement. We negotiated with NDC in good
faith for years but NDC kept stonewalling the execution of the share
purchase agreement.84(Emphasis supplied) (5) When the debtor attempts to abscond. (Emphasis supplied)

Well-settled is the rule that findings of fact made by a trial court and the Court of Appeals are
On April 26, 1982, Antonio L. Carpio, NDC's General Manager,85 sent Ongpin a accorded the highest degree of respect by this Court, and, absent a clear disregard of the
Memorandum,86 where Carpio acknowledged reviewing Galleon's outstanding accounts evidence before it that can otherwise affect the results of the case, those findings should not be
submitted by Cuenca.87 This supports Cuenca's statement that they submitted a statement of ignored.88
Galleon's outstanding accounts for NDC's review, as per Ongpin's request, a fact not denied by
NDC. II

Upon receiving Galleon's outstanding accounts, NDC and Sta. Ines, Cuenca, Tinio, Cuenca The Regional Trial Court found that the advances made by respondents in Galleon's behalf
Investment and Universal Holdings should have initiated the execution of the share purchase covered legitimate expenses in the ordinary course of business,89 making NDC liable under
agreement. However, the share purchase agreement was never executed, through no fault of clause 9 of the Memorandum of Agreement, which states:
Galleon's stockholders.
9. Valid and duly authorized liabilities of GSC which are the subject of a meritorious lawsuit, or The general rule is that, "[i]n the absence of an authority from the board of directors, no person,
which have been arranged and guaranteed by Mr. Rodolfo M. Cuenca, may be considered by not even the officers of the corporation, can validly bind the corporation." 98 A corporation is a
Buyer for priority in the repayment of accounts, provided that, upon review, the Buyer shall juridical person, separate and distinct from its stockholders and members, having "powers,
determine these to be legitimate and were validly incurred in the ordinary course of GSC's attributes and properties expressly authorized by law or incident to its existence." 99
principal business.
Section 23100 of the Corporation Code provides that "the corporate powers of all corporations . . .
NDC's liability for the advances made in Galleon's behalf was upheld by the Court of Appeals, shall be exercised, all business conducted and all property of such corporations [shall] be
which held that the advances made were valid and authorized liabilities incurred by Galleon in controlled and held by the board of directors[.]"
the course of its business, thus:
People's Aircargo and Warehousing Co. Inc. v. Court of Appeals101 explains that under Section
In the instant case, the advances being claimed by [respondents] are in the nature of guarantee 23 of the Corporation Code, the power and responsibility to bind a corporation can be delegated
fees in consideration for the personal undertakings of the [respondents] to secure the potential to its officers, committees, or agents. Such delegated authority is derived from law, corporate
liabilities of defendant-appellant DBP in favor of defendant Galleon's foreign creditors, advances bylaws, or authorization from the board:
to cover payments of interest, security and management fees arising out of a mortgage contract,
charter line payments, bare boat hire payments, fuel and ship franchise payments, salaries and
Under this provision, the power and the responsibility to decide whether the corporation should
wages and advertising expenses[.]90
enter into a contract that will bind the corporation is lodged in the board, subject to the articles of
incorporation, bylaws, or relevant provisions of law. However, just as a natural person may
Ordinary and necessary business expenses are those that are "directly attributable to, the authorize another to do certain acts for and on his behalf, the board of directors may validly
development, management, operation and/or conduct of the trade, business or exercise of a delegate some of its functions and powers to officers, committees or agents. The authority of
profession[.]"91 such individuals to bind the corporation is generally derived from law, corporate bylaws or
authorization from the board, either expressly or impliedly by habit, custom or acquiescence in
the general course of business, viz.:
In Carpio's Memorandum to Ongpin dated April 26, 1982, he recommended that the guarantee
fees being claimed by Galleon's stockholders should not be paid. Carpio also questioned the
P1,400,000.00 interest being charged by Sta. Ines from the ]P6,650,000.00 cash advances it "A corporate officer or agent may represent and bind the corporation in transactions with third
made in Galleon's behalf. Carpio likewise questioned the charge of P600,000.00 being claimed persons to the extent that [the] authority to do so has been conferred upon him, and this includes
as Galleon's share for the Construction Development Corporation of the Philippine’s basketball powers which have been intentionally conferred, and also such powers as, in the usual course of
team with the Philippine Basketball Association.92 the particular business, are incidental to, or may be implied from, the powers intentionally
conferred, powers added by custom and usage, as usually pertaining to the particular officer or
agent, and such apparent powers as the corporation has caused persons dealing with the officer
We see no reason to disturb the findings of fact made by the trial court and the Court of Appeals
or agent to believe that it has conferred."102 (Emphasis supplied)
considering that the same are duly supported by substantial evidence.

Aside from Ongpin being the concurrent head of DBP and NDC at the time the Memorandum of
III
Agreement was executed, there was no proof presented that Ongpin was duly authorized by the
DBP to give consent to the substitution by NDC as a co-guarantor of Galleon's debts. Ongpin is
Novation is a mode of extinguishing an obligation by "[c]hanging [its] object or principal not DBP, therefore, it is wrong to assume that DBP impliedly gave its consent to the substitution
conditions[,] [substituting the person of the debtor [or] [s]ubrogating a third person in the rights of simply by virtue of the personality of its Governor.
the creditor."93While novation, "which consists in substituting a new debtor in the place of the
original one may be made even without the knowledge or against the will of the latter, [it must be
Novation is never presumed. The animus novandi, whether partial or total, "must appear by
with] the consent of the creditor."94
express agreement of the parties, or by their acts which are too clear and unequivocal to be
mistaken."103
Testate Estate of Mota v. Serra95 instructs that for novation to have legal effect, the creditor must
expressly consent to the substitution of the new debtor:
There was no such animus novandi in the case at bar between DBP and respondents, thus,
respondents have not been discharged as Galleon's co-guarantors under the Deed of
It should be noted that in order to give novation its legal effect, the law requires that the creditor Undertaking and they remain liable to DBP.
should consent to the substitution of a new debtor. This consent must be given expressly for the
reason that, since novation extinguishes the personality of the first debtor who is to be
IV
substituted by new one, it implies on the part of the creditor a waiver of the right that he had
before the novation, which waiver must be express under the principle that renuntiatio non
præsumitur, recognized by the law in declaring that a waiver of right may not be performed On the issue of attorney's fees and moral and exemplary damages awarded to Sta. Ines,
unless the will to waive is indisputably shown by him who holds the right. 96 (Emphasis supplied) Cuenca, Tinio, Cuenca Investment, and Universal Holdings, the Court of Appeals upheld the
findings of the Regional Trial Court for being just, reasonable, and supported by the evidence on
record.104
The Court of Appeals erred when it ruled that DBP was privy to the Memorandum of Agreement
since Ongpin was concurrently Governor of DBP and chairman of NDC Board of Directors at the
time the Memorandum of Agreement was signed.97 We see no reason to disturb the findings of the lower courts.
However, on the issue of compensatory interest as damages, where the Regional Trial Court
imposed an interest rate of six percent (6%) per annum on the advances made and the payment annum to be computed from default, i.e., from judicial or extrajudicial demand under and
due for the shares of stock,105 the Court of Appeals modified the Regional Trial Court's ruling subject to the provisions of Article 1169 of the Civil Code.
insofar as the interest rate to be imposed was concerned. 106 The Court of Appeals ruled that the
advances made by Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings and
the payment due them for the Galleon shares of stocks were loans or forbearances of money ...
that should earn interest of 12% from the date the case was filed. 107 Furthermore, the Court of
Appeals held that these amounts should likewise earn an additional 12% interest per annum 3. When the judgment of the court awarding a sum of money becomes final and executory,
from finality until its satisfaction.108 the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
Estores v. Spouses Supangan109 defined forbearance as an arrangement other than a loan deemed to be by then an equivalent to a forbearance of credit. 113 (Emphasis supplied,
where a person agrees to the temporary use of his money, goods, or credits subject to the citations omitted)
fulfilment of certain conditions.110

In this case, Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings advanced On May 16, 2013, the Monetary Board of the Bangko Sentral ng Pilipinas issued Resolution No.
money in Galleon's favor and agreed to turn over management and control of Galleon to NDC 796, which revised the interest rate to be imposed for the loan or forbearance of any money,
even before receiving payment for their shares of stocks. They were deprived of the use of their goods, or credits. This was implemented by Bangko Sentral ng Pilipinas Circular No.
money in both cases for the periods pending fulfillment of the agreed conditions. When those 799,114 Series of 2013, which reads:
conditions were not met, they became entitled not only to the return of their advances and
payment of their shares of stocks, but also to the compensation for the use of their money and The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following
property. The unwarranted withholding of the money, which rightfully pertains to Sta. Ines,
revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby
Cuenca, Tinio, Cuenca Investment, and Universal Holdings, amounts to forbearance of money. amending Section 2 of Circular No. 905, Series of 1982:

Sunga-Chan v. Court of Appeals,111 citing Eastern Shipping Lines, Inc. v. Court of


Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the
Appeals,112 reiterated the rule on application of interest: rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall
be six percent (6%) per annum.
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the
applicable rate, as follows: The 12% per annum rate under CB Circular No. 416 shall apply only Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and
to loans or forbearance of money, goods, or credits, as well as to judgments involving such loan Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial
or forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil
Institutions are hereby amended accordingly.
Code applies "when the transaction involves the payment of indemnities in the concept of
damage arising from the breach or a delay in the performance of obligations in general," with the
application of both rates reckoned "from the time the complaint was filed until the [adjudged] This Circular shall take effect on 1 July 2013.
amount is fully paid." In either instance, the reckoning period for the commencement of the
running of the legal interest shall be subject to the condition "that the courts are vested with
Nacar v. Gallery Frames, et al.115 then modified the guidelines laid down in Eastern Shipping
discretion, depending on the equities of each case, on the award of interest."
Lines to embody Bangko Sentral ng Pilipinas Circular No. 799, thus:

Otherwise formulated, the norm to be followed in the future on the rates and application thereof
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
is:
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under
Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable
I. When an obligation, regardless of its source, is breached, the contravenor damages.
can be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of
II. With regard particularly to an award of interest in the concept of actual and compensatory
recoverable damages.
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, 1. When the obligation is breached, and it consists in the payment of a sum of
is imposed, as follows:chanRoblesvirtualLawlibrary money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 6% per annum to be
1. When the obligation breached consists in the payment of a sum of money, i.e., a loan or computed from default, i.e., from judicial or extrajudicial demand under and
forbearance of money, the interest due should be that which may have been stipulated in subject to the provisions of Article 1169 of the Civil Code.
writing. Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
2. When an obligation, not constituting a loan or forbearance of money, is These amounts shall earn interest at the rate of 6% per annum from the finality of this Decision
breached, an interest on the amount of damages awarded may be imposed until its satisfaction.
at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages, except
SO ORDERED.
when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1,
2013, shall not be disturbed and shall continue to be implemented applying the rate of interest
fixed therein.116

Applying these guidelines, the Court of Appeals' ruling must be modified to reflect the ruling
in Nacar. The award of the advances made by Sta. Ines, Cuenca, Tinio, Cuenca Investment,
and Universal Holdings in Galleon's favor and payment for their shares of stocks in Galleon shall
earn an interest rate of 12% per annum from the date of filing of this case on April 22,
1985117 until June 30, 2013. After June 30, 2013, these amounts shall earn interest at six
percent (6%) per annum until the Decision becomes final and executory. An interest of six
percent (6%) per annum shall be imposed on such amounts from the finality of the Decision until
its satisfaction.

Finally, DBP's claims for damages are denied since it failed to support its claims of malicious
prosecution and a deliberate act of Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal
Holdings to cause loss or injury to DBP.

WHEREFORE, the March 24, 2010 Decision and July 21, 2010 Resolution of the Court of
Appeals in CA-G.R. CV No. 85385 are AFFIRMED with the following MODIFICATIONS:

(1) Sta. Ines Melale Forest Products Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca
Investment Corporation, Universal Holdings Corporation, and the Philippine National
Construction Corporation are declared LIABLE to the National Development Corporation, the
Development Bank of the Philippines, and the Asset Privatization Trust under the deed of
undertaking, pledge, mortgages, and other accessory contracts among the parties; and

(2) The award of the advances made by Sta. Ines Melale Forest Products Corporation, Rodolfo
M. Cuenca, Manuel L. Tinio, Cuenca Investment Corporation, and Universal Holdings
Corporation in Galleon's favour, as well as the award of the payment for their shares of stocks in
Galleon, shall earn an interest rate of 12% per annum from the date of the filing of this case on
April 22, 1985 until June 30, 2013, after which, they shall earn interest at the rate of 6% per
annum until the Decision becomes final and executory.