Ang Yu Asuncion et al. vs. Court of Appeals and Buen Realty Corp.

(G.R. No. 109125, December 2, 1994)

Ponente: Vitug

Topic: Sales; Contract of sale v. Contract to sell; remedies for violation of right of first refusal

Facts:
Petitioners Ang Yu Asuncion et. al. are lessees of residential and commercial spaces owned by the Unjiengs.
They have been leasing the property and possessing it since 1935 and have been paying rentals.

In 1986, the Unjiengs informed Petitioners Ang Yu Asuncion that the property was being sold and that
Petitioners were being given priority to acquire them (Right of First Refusal). They agreed on a price of P5M
but they had not yet agreed on the terms and conditions. Petitioners wrote to the Unjiengs twice, asking them to
specify the terms and conditions for the sale but received no reply. Later, the petitioners found out that the
property was already about to be sold, thus they instituted this case for Specific Performance [of the right of
first refusal].

The Trial Court dismissed the case. The trial court also held that the Unjieng’s offer to sell was never accepted
by the Petitioners for the reason that they did not agree upon the terms and conditions of the proposed sale,
hence, there was no contract of sale at all. Nonetheless, the lower court ruled that should the defendants
subsequently offer their property for sale at a price of P11-million or below, plaintiffs will have the right of first
refusal.

The Court of Appeals affirmed the decision of the Trial Court.

In the meantime, in 1990, the property was sold to De Buen Realty, Private Respondent in this case. The title to
the property was transferred into the name of De Buen and demanded that the Petitioners vacate the premises.

Because of this, Petitioners filed a motion for execution of the CA judgement. At first, CA directed the Sheriff
to execute an order directing the Unjiengs to issue a Deed of Sale in the Petitioner’s favour and nullified the sale
to De Buen Realty. But then, the CA reversed itself when the Private Respondents Appealed.

Issues:
1. Whether or not the Contract of Sale is perfected by the grant of a Right of First Refusal.
2. Whether or not a Right of First Refusal may be enforced in an action for Specific Performance.
Held:
1. No. A Right of First Refusal is not a Perfected Contract of Sale under Art. 1458 or an option
under Par. 2 Art 1479 or an offer under Art. 1319. In a Right of First Refusal, only the object of the
contract is determinate. This means that novinculum juris is created between the seller-offeror and the
buyer-offeree.
2. No. Since a contractual relationship does not exist between the parties, a Right of First Refusal
may not be enforced through an action for specific performance. Its conduct is governed by the law on
human relations under Art. 19-21 of the Civil Code and not by contract law.

Therefore, the Supreme Court held that the CA could not have decreed at the time the execution of any deed of
sale between the Unjiengs and Petitioners.

Other Rules, Comments and Discussion:

This case is notable because it lays down the rules on options contracts and right of first refusal as well as
promises to buy and sell. First, the Supreme Court discussed the stages of the formation of a sales contract,
these are:
1. Negotiation – covers the period from the time the prospective contracting parties indicate interest
in the contract to the time the contract is concluded (perfected).
2. Perfection – takes place upon the concurrence of the essential elements thereof. In a sales
contract this is governed by Art. 1458
3. Consummation – begins when the parties perform their respective undertakings under the
contract culminating in the extinguishment thereof
Until the contract is perfected (No. 2), it cannot, as an independent source of obligation, serve as a binding
juridical relation. A sales contract is perfected when a person, called the seller, obligates himself, for a price
certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter
agrees (Art 1458).

Under Art. 1458, there is no perfection of a sale under a “Contract to Sell”. A Contract to Sell is characterized
as a conditional sale and the breach of the suspensive condition will prevent the obligation to transfer title from
acquiring obligatory force.

Promises to Buy and Sell

Unconditional mutual promise to buy and sell – As long as the object is made determinate and the price is fixed,
can be obligatory on the parties, and compliance therewith may accordingly be exacted. The Right of First
Refusal falls under this classification.

Accepted unilateral promise – If it specifies the thing to be sold and the price to be paid and when coupled with
a valuable consideration distinct and separate from the price, is what may properly be termed a perfected
contract of option. This contract is legally binding. (Par. 2 Art. 1458) Note however, that the option is a contract
separate and distinct from the contract of sale. Once the option is exercised before it is withdrawn, a bilateral
promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective
undertakings.

Offers with a Period

Where a period is given to the offeree within which to accept the offer, the following rules generally govern:
1. If the period is not itself founded upon or supported by a consideration – Offeror may withdraw
offer at any time before its acceptance (or knowledge of its acceptance). However, the right to withdraw
must not be exercised whimsically or arbitrarily otherwise it can give rise to damages under Art. 19 of
the New Civil Code
2. If period is founded on a separate consideration – This is a perfected contract of option.
Withdrawal of the offer within the period of the option is deemed a breach of the contract of option (not
the sale). “If, in fact, the optioner-offeror withdraws the offer before its acceptance (exercise of the
option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract
(“object” of the option) since it has failed to reach its own stage of perfection. The optioner-offeror,
however, renders himself liable for damages for breach of the option.”
3. Earnest money – This is not an offer with a period. Earnest money is distinguished from the
option contract if the consideration given will be considered as a part of the purchase price of the object
of the sale. Earnest money is evidence of a perfected contract of sale. (Art. 1482)

Right of First Refusal

This is “an innovative juridical relation” because it is neither a perfected contract of sale under Art. 1458 nor an
option contract under par. 2 Art 1479. The object might be made determinate, the exercise of the right, however,
is dependent on the offeror’s eventual intention to enter into a binding juridical relation with another but also on
terms and conditions such as price. There is no juridical tie or vinculum juris.

Breach of the right cannot justify correspondingly an issuance of a writ of execution under a court judgement
that recognizes its existence, such as in Ang Yu Asuncion. An action for Specific Performance is not allowed
under a Right of First Refusal because doing so would negate the indispensable element of consensuality in the
perfection of contracts.

This right is not inconsequential because it gives right to an action for damages under Art. 19.

Other Acts that Won’t Bind

Public advertisements or solicitations – Construed as mere invitations to make offers and/or proposals.

Related Cases
The cases of Equatorial v. Mayfair and Parañaque Kings v. Court of Appeals held that if a sale happens in
violation of a Right of First Refusal where the buyer is aware of the existence of that right in favor of another
(such as when it is written in a lease contract), the sale may be rescinded and the seller may be forced to offer
the property to the party with the Right of First Refusal.

However, the case of Ang Yu Asuncion may still be good law for cases not involving a third party buyer in bad
faith.
 SAGRADA ORDEN VS NACOCO G.R. NO. L-3756 JUNE 30, 1952
FACTS:
The land in question belongs to plaintiff Sagrada Orden in whose name the title was registered before the war
On January 4, 1943, during the Japanese military occupation, the land was acquired by a Japanese corporation
by the name of Taiwan Tekkosho
After liberation on April 4, 1946, the Alien Property Custodian of the United States of America took possession,
control, and custody of the property pursuant to the Trading with the Enemy Act
The property was occupied by the Copra Export Management Company under a custodian agreement with US
Alien Property Custodian. When it vacated the property, it was occupied by defendant National Coconut
Corporation
The plaintiff made claim to the said property before the Alien Property Custodian. Alien Property Custodian
denied such claim
It bought an action in court which resulted to the cancellation of the title issued in the name of Taiwan
Tekkosho which was executed under threats, duress, and intimidation; reissuance of the title in favor of the
plaintiff; cancellation of the claims, rights, title, interest of the Alien property Custodian; and occupant National
Coconut Corporation’s ejection from the property. A right was also vested to the plaintiff to recover from the
defendants rentals for its occupation of the land from the date it vacated.
Defendant contests the rental claims on the defense that it occupied the property in good faith and under no
obligation to pay rentals.
ISSUE: Whether or not the defendant is obliged to pay rentals to the plaintiff
HELD: No. Nacoco is not liable to pay rentals prior the judgment. If defendant-appellant is liable at all, its
obligations, must arise from any of the four sources of obligations, namley, law, contract or quasi-contract,
crime, or negligence. (Article 1089, Spanish Civil Code.) Defendant-appellant is not guilty of any offense at all,
because it entered the premises and occupied it with the permission of the entity which had the legal control and
administration thereof, the Allien Property Administration. Neither was there any negligence on its part.

PERLA COMPANIA DE SEGUROS v. CA, GR No. 78860, 1990-05-28

Facts:
Private respondent Milagros Cayas was the registered owner of a Mazda bus with serial no. TA3H4 P-000445
and plate no. PUB-4G-593.[4] Said passenger vehicle was insured with
Perla Compania de Seguros, Inc. (PCSI) under policy no. LT0/60CC-04241 issued on February 3, 1978.
On December 17, 1978, the bus figured in an accident in Naic, Cavite injuring several of its passengers. One of
them, 19-year-old Edgardo Perea, sued Milagros Cayas for damages in the Court... of First Instance of Cavite,
Branch I[6] docketed as Civil Case No. NC-794; while three others, namely: Rosario del Carmen, Ricardo
Magsarili and Charlie Antolin, agreed to... a settlement of P4,000.00 each with Milagros Cayas.
Issues:
Petitioner seeks to limit its liability only to the payment made by private respondent to Perea and only up to the
amount of P12,000.00. It altogether denies liability for the payments made by private... respondents to the other
three (3) injured passengers Rosario del Carmen, Ricardo Magsarili and Charlie Antolin in the amount of
P4,000.00 each or a total of P12,000.00.
Ruling:
In the case at bar, the insurance policy clearly and categorically placed petitioner's liability for all damages
arising out of death or bodily injury sustained by one person as a result of any one accident at P12,000.00.
Said amount complied with... the minimum fixed by the law then prevailing, Section 377 of Presidential
Decree No. 612 (which was retained by P.D. No. 1460, the Insurance Code of 1978), which provided that the
liability of land transportation vehicle... operators for bodily injuries sustained by a passenger arising out of the
use of their vehicles shall not be less than P12,000.
 In other words, under the law, the minimum liability is P12,000 per passenger.
Petitioner's liability under the insurance contract not being less than P12,000.00, and therefore not contrary to
law, morals, good customs, public order or public policy, said stipulation must be upheld as effective, valid and
binding as between the... parties.
It being specifically required that petitioner's written consent be first secured before any payment in settlement
of any claim could be made, private respondent is precluded from seeking reimbursement of the payments made
to del Carmen, Magsarili... and Antolin in view of her failure to comply with the condition contained in the
insurance policy.
Clearly, the fundamental principle that contracts are respected as the law between the contracting parties finds
application in the present case.[17] Thus, it was error on the part of the trial and appellate courts to have...
disregarded the stipulations of the parties and to have substituted their own interpretation of the insurance
policy.
the first and fundamental duty of the courts is the application of the law according to... its express terms,
interpretation being called for only when such literal application is impossible.
Principles:
contracts which are the private laws of the contracting parties should be fulfilled according to the literal sense of
their stipulations, if their terms are clear and... leave no room for doubt as to the intention of the contracting
parties, for contracts are obligatory, no matter what form they may be, whenever the essential requisites for their
validity are present.

Adorable v. Court of Appeals, G.R. No. 119466 Case Digest

Obligations and Contracts: Remedies of a Creditor – Article 1177
Facts:
Petitioners Salvador Adorable and Ligaya Adorable were lessees of a portion of a lot owned by the respondents
Francisco Bareng and Saturnino Bareng. The Barengs failed to pay their loan to the Adorables resulting to a
compromise agreement between them whereby the Barengs acknowledged their debt and promised to pay on or
before an agreed date. When the maturity date arrived, Francisco Bareng still failed to pay the loan. Thus, a
demand letter was sent to him but he still refused to pay.
The Adorables, learning the sale of the parcels of land made by Francisco Bareng to Jose Ramos, filed a
complaint for the annulment or rescission of the sale on the ground that the sale was fraudulently prepared and
executed.
The Regional Trial Court dismissed the case for lack of cause of action and declared that the contract of sale
between Francisco Bareng and Jose Ramos valid.

On appeal, the Court of Appeals affirmed the decision of the Regional Trial Court.
Issue:
Whether or not the Adorables had the right to annul or rescind the contract of sale on the ground that the
Barengs failed to pay the loan from them.
Held:
No. The Supreme Court affirmed the decision of the Court of Appeals. Art. 1177 of the Civil Code provides:
The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise
all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his
person; they may also impugn the actions which the debtor may have done to defraud them.
Thus, the following successive measures must be taken by a creditor before he may bring an action for
rescission of an allegedly fraudulent sale:
1. Exhaust the properties of the debtor through levying by attachment and execution upon all the property of the
debtor, except such as are exempt by law from execution;
2. Exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria);
3. Seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana).
Undertaking the 3rd measure, without availing the 1st and 2nd remedies, cannot be done. The Adorables have not
shown that they have no other means of enforcing their credit. They also failed to show and prove that the
Barengs had no other property out of which they could have collected this debt.

Chavez vs. Gonzales

G.R. No. L-27454 April 30, 1970
Rosendo O. Chavez, plaintiff-appellant vs.
Fructuoso Gonzales, defendant-appellee
REYES, J.B.L., J.:

Facts: On July 1963, Rosendo Chavez brought his typewriter to Fructuoso Gonzales a typewriter repairman for
the cleaning and servicing of the said typewriter but the latter was not able to finish the job. During October
1963, the plaintiff gave the amount of P6.00 to the defendant which the latter asked from the plaintiff for the
purchase of spare parts, because of the delay of the repair the plaintiff decided to recover the typewriter to the
defendant which he wrapped it like a package. When the plaintiff reached their home he opened it and
examined that some parts and screws was lost. That on October 29, 1963 the plaintiff sent a letter to the
defendant for the return of the missing parts, the interior cover and the sum of P6.00 (Exhibit D). The following
day, the defendant returned to the plaintiff some of the missing parts, the interior cover and the P6.00. The
plaintiff brought his typewriter to Freixas Business Machines and the repair cost the amount of P89.85. He
commenced this action on August 23, 1965 in the City Court of Manila, demanding from the defendant the
payment of P90.00 as actual and compensatory damages, P100.00 for temperate damages, P500.00 for moral
damages, and P500.00 as attorney’s fees. The defendant made no denials of the facts narrated above, except the
claim of the plaintiff that the cost of the repair made by Freixas Business Machines be fully chargeable against
him.

Issue: Whether or not the defendant is liable for the total cost of the repair made by Freixas Business Machines
with the plaintiff typewriter?

Ruling: No, he is not liable for the total cost of the repair made by Freixas Business Machines instead he is only
liable for the cost of the missing parts and screws. The defendant contravened the tenor of his obligation in
repairing the typewriter of the plaintiff that he fails to repair it and returned it with the missing parts, he is liable
under “ART. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

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

Insurance Case Digest: Rizal Commercial Banking Corporation V. CA (1998)

G.R.Nos. 128833 April 20, 1998

Lessons Applicable: Assignee (Insurance)

FACTS:
 RCBC Binondo Branch initially granted a credit facility of P30M to Goyu & Sons, Inc. GOYU’s applied
again and through Binondo Branch key officer's Uy’s and Lao’s recommendation, RCBC’s executive
committee increased its credit facility to P50M to P90M and finally to P117M.
 As security, GOYU executed 2 real estate mortgages and 2 chattel mortgages in favor of RCBC.
 GOYU obtained in its name 10 insurance policy on the mortgaged properties from Malayan Insurance
Company, Inc. (MICO). In February 1992, he was issued 8 insurance policies in favor of RCBC.
 April 27, 1992: One of GOYU’s factory buildings was burned so he claimed against MICO for the loss who
denied contending that the insurance policies were either attached pursuant to writs of
attachments/garnishments or that creditors are claiming to have a better right
 GOYU filed a complaint for specific performance and damages at the RTC
  RCBC, one of GOYU’s creditors, also filed with MICO its formal claim over the proceeds of the insurance
policies, but said claims were also denied for the same reasons that MICO denied GOYU’s claims
 RTC: Confirmed GOYU’s other creditors (Urban Bank, Alfredo Sebastian, and Philippine Trust Company)
obtained their writs of attachment covering an aggregate amount of P14,938,080.23 and ordered that 10
insurance policies be deposited with the court minus the said amount so MICO deposited P50,505,594.60.
 Another Garnishment of P8,696,838.75 was handed down
 RTC: favored GOYU against MICO for the claim, RCBC for damages and to pay RCBC its loan
 CA: Modified by increasing the damages in favor of GOYU
 In G.R. No. 128834, RCBC seeks right to intervene in the action between Alfredo C. Sebastian (the
creditor) and GOYU (the debtor), where the subject insurance policies were attached in favor of Sebastian
 RTC and CA: endorsements do not bear the signature of any officer of GOYU concluded that the
endorsements favoring RCBC as defective.

ISSUE: W/N RCBC as mortgagee, has any right over the insurance policies taken by GOYU, the mortgagor, in
case of the occurrence of loss
HELD: YES.
 mortgagor and a mortgagee have separate and distinct insurable interests in the same mortgaged property,
such that each one of them may insure the same property for his own sole benefit
 although it appears that GOYU obtained the subject insurance policies naming itself as the sole payee, the
intentions of the parties as shown by their contemporaneous acts, must be given due consideration in order
to better serve the interest of justice and equity
 8 endorsement documents were prepared by Alchester in favor of RCBC
 MICO, a sister company of RCBC
 GOYU continued to enjoy the benefits of the credit facilities extended to it by RCBC.
 GOYU is at the very least estopped from assailing their operative effects.
 The two courts below erred in failing to see that the promissory notes which they ruled should be excluded
for bearing dates which are after that of the fire, are mere renewals of previous ones
 RCBC has the right to claim the insurance proceeds, in substitution of the property lost in the fire. Having
assigned its rights, GOYU lost its standing as the beneficiary of the said insurance policies
 insurance company to be held liable for unreasonably delaying and withholding payment of insurance
proceeds, the delay must be wanton, oppressive, or malevolent - not shown
 Sebastian’s right as attaching creditor must yield to the preferential rights of RCBC over the Malayan
insurance policies as first mortgagee.

Social Security System v. Moonwalk Development & Housing Corporation G.R. No. 73345 (April 7, 1993)

Facts:

1. Plaintiff (SSS) approved the application of the defendant (Moonwalk) for an interim loan.
2. The loan was released to the Moonwalk.
3. Moonwalk made a payment to SSS for the loan principal released to it.
4. The last payment made by Moonwalk was based on the Statement of Accountprepared by the SSS.
5. After the settlement of the account, SSS issued to Moonwalk the Release of Mortgage of Moonwalk’s
mortgaged properties.
6. In the letters to Moonwalk, SSS alleged that it committed an honest mistake in releasing Moonwalk (in the
mortgage).
7. Moonwalk replied in a letter that it had completely paid its obligations to SSS.

Issue/s:

1. Whether or not the 12% penalty demandable even after the extinguishment of the principal obligation
2. Whether or not Moonwalk was in default (mora)

Ruling:

1. No. Obligation was already extinguished by the payment by Moonwalk of its indebtedness to SSS and by the
latter’s act of cancelling the real estate mortgages executed in its favor by defendant moonwalk.
 What is sought to be recovered in this case is not the 12% interest on the loan but the 12% penalty for failure to
pay on time the amortization. What is sought to be enforced therefore is a penal clause of the contract entered
into between the parties.

Penal clause is an accessory obligation which the parties attach to a principal obligation for the purpose of
insuring the performance thereof by imposing on the debtor a special presentation in case the obligation is not
fulfilled or is irregularly or inadequately fulfilled. Accessory obligation is dependent for its existence on the
existence of a principal obligation. In the present case, the principal obligation is the loan between the parties.
The accessory obligation of a penal clause is to enforce the main obligation of payment of the loan. If therefore
the principal obligation does not exist the penalty being accessory cannot exist.

2. No. A penalty is demandable in case of non performance or late performance of the main obligation. There must
be a breach of the obligation either by total or partial non fulfillment or there is non-fulfillment in the point of
time which is called mora or delay. There is no mora or delay unless there is a demand.

In the present case, during all the period when the principal obligation was still subsisting, although there was
late amortizations there was no demand made by the creditor, for the payment of the penalty. Therefore up to
the time of the letter of SSS there was no demand for the payment of the penalty, hence the debtor was no in
mora in the payment of the penalty.

SSS issued its statement of account showing total obligation of Moonwalk, and forthwith demanded payment
from Moonwalk. Because of the demand for payment, Moonwalk made a complete payment of its obligation.
Because of this payment the obligation of Moonwalk was considered extinguished, and pursuant to said
extinguishment, the real estate mortgages given by Moonwalk were released. For all purposes therefor the
principal obligation of Moonwalk was deemed extinguished as well as the accessory obligation of real estate
mortgages.

The demand for payment of the penal clause made by SSS in its demand letter (November 28, 1989) are
therefore ineffective as there was nothing to demand. If the demand for the payment of the penalty was made
prior to the extinguishment because then the obligation of Moonwalk would consist of (1) principal obligation,
(2) an interest of 12% on the principal obligation, and (3) the penalty of 12% for the late payment for after
demand.

Moonwalk is not in default since there was no mora prior to the demand.

Notes/Doctrine:
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has been no performance, the penalty may be also be
reduced by the courts if it is iniquitous.

 If the penalty can be reduced after the principal obligation has been partly or irregularly complied with by the
debtor which is nonetheless a breach of the obligation, with more reason the penal clause is not demandable
when full obligation has been complied with since in that case there is no breach of obligation.

Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the
payment of interest in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages
shall be paid if the obligor refuses to pay the payment or is guilty of fraud in the fulfillment of the obligation.

Function of a Penal Clause:

1. to provide for liquidated damages, and

2. strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach.

Art. 1169. Those obliged to deliver or to something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.

Requisites for a debtor to be in default (mora):

1. The obligation be demandable and already liquidated;
2. the debtor delays performance; and
3. the creditor requires the performance judicially and extrajudicially.

Instances when demand is not necessary:

1. When the obligation or the law expressly so declares;
2. When from the nature and the circumstances of the obligation it appears that the designation of the time when
the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the
contract; or
3. When the demand would be useless, as when the obligor has rendered it beyond his power to perform.

[ G. R. No. L-12518, October 28, 1961 ]

COLLECTOR OF INTERNAL REVENUE, PETITIONER, VS. J. C. YUSECO AND THE COURT OF TAX
APPEALS, RESPONDENTS. D E C I S I O N

PADILLA, J.:

[, 28 October 1961]
The Collector of Internal Revenue seeks a review under section 18, Republic Act No. 1125, and prays for the
setting aside of the judgment rendered by the Court of Tax Appeals on 25 March 1957, in C.T.A. Case No. 217,
the dispositive part of which is, as follows:
Wherefore, pursuant to section 51 (d) of the National Internal Revenue Code, judgment is hereby rendered
declaring the warrant of distraint and levy issued by respondent on January 20, 1955 to effect collection of the
"amount of P2,447.30 as income tax for the year 1946 plus 5 per cent surcharge and the 1 percent monthly
interest from August 16, 1953" allegedly due from petitioner, is hereby declared null and void and of no legal
force and effect and respondent is hereby directed to return to petitioner the properties seized from the latter
under said warrant. The respondent Collector of Internal Revenue is likewise enjoined from taking any further
proceeding to effect by summary methods the collection, of the alleged income taxes assessed against petitioner
J. C. Yuseco in the sums of P134.14 and P2,447.30 for the years 1945 and 1946, respectively. Without
pronouncement as to costs. (Appendix N)
and the resolution entered by the same Court on 17 June 1957 denying his motion for reconsideration
(Appendix P).
The facts, which are not disputed, are, as summarized by the Court, as follows:
The facts established in this case show that petitioner did not file income tax returns for the Calendar years 1945
and 1946. This fact having come to the knowledge of revenue examiners, they accordingly made income tax
returns for petitioner upon which respondent on August 20, 1948, assessed against and demanded from
petitioner the sums of P134.14 and P7,563.28 representing alleged income taxes and corresponding surcharges
for the years 1945 and 1946. On September 1, 1948, petitioner wrote the respondent, requesting that he be
informed as to how the assessments were arrived at. In reply thereto, respondent in a letter dated September 17,
1948 furnished the information sought and at the same time demanded the payment of the aforesaid
assessments. On October 4, 1948, petitioner asked that he be given an opportunity to present his side of the
matter. However, respondent on December 18, 1948, denied reconsideration of the assessment and reiterated his
demand upon petitioner for payment thereof which was followed with another demand on June 29, 1949. On
July 28, 1949, petitioner once more requested for a reinvestigation of the case but the same was denied by
respondent in his letter dated February 7, 1951 wherein he repeated his demand for payment. On April 3, 1951,
petitioner renewed his request for reinvestigation and nothing was heard of the matter, for almost three years
thereafter.

On January 6, 1953, respondent issued a warrant of distraint and levy upon petitioner's properties which,
however, was not executed. On January 16, 1953, petitioner sought the withdrawal and/or reconsideration of
said warrant. Meanwhile, on July 2, 1953, respondent issued a revised assessment notice which reduced the
original assessment for the 1946 income tax to P2,447.30, including surcharge. On July 18, 1953, petitioner
asked that he be informed of the action upon his petition for reinvestigation. This request was reiterated in his
letter of August 18, 1953 wherein he acknowledged receipt of the modified assessment for the 1946 income tax.
On September 1, 1953, respondent wrote petitioner demanding from the latter payment of the said sum of
P2,447.30 as income tax for the year 1946 plus penalties incident to delinquency, and reiterating the demand for
the unrevised income tax assessment for 1945 in the sum of P134.14, but respondent did not take any further
action thereafter to effect collection of the assessment.

On January 20, 1955, respondent again issued a warrant of distraint and levy on the properties of petitioner, this
time only to effect collection of the said sum of P2,447.30 as income tax for 1946. The distraint being still
enforce, petitioner on December 12, 1955 filed his petition for prohibition with this Court.
The petitioner Collector of Internal Revenue assails the jurisdiction of the respondent Court of Tax Appeals to
take cognizance of the respondent taxpayer's petition that seeks to enjoin him (the petitioner) from collecting:
his income taxes due for the years 1945 and 1946 and surcharges by Nummary distraint of and levy upon his
personal and real properties, under the provisions of sections 316 to 330 of the National Internal Revenue Code.
The petitioner's contention is that the respondent taxpayer cannot bring in the respondent Court an independent
special civil action for prohibition without taking to said Court an appeal from the decision or ruling of the
Collector of Internal Revenue in the cases provided for in sections 7 and 11 of Republic Act No. 1125.
Sections 7, 9 and 11 of Republic Act No. 1125, creating the Court of Tax Appeals, provide:
SEC. 7. Jurisdiction. The Court of Tax Appeals shall exercise exchisive appellate jurisdiction to review by
appeal, as herein provided
(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the
National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue;
(2) Decisions of the Commissioner of Customs' in cases involving liability for customs duties, fees or other
money charges; seizure, detention or release of property affected; fines, forfeitures or other penalties imposed in
relation thereto; or either matters arising tinder the Customs Lalw or other law or part of law" administered by
the Bureau of Customs; and
(3) Decisions of provincial or city Boards of Assessment Appeals in cases involving thte assessment and
taxation of real property or other matters arising under the Assessment Law, including rules and regulations
relative thereto.
SEC. 9. Fees. The Court shall fix reasonable fees for the filing of an appeal for certified copies of any transcript
of record, entry or other document, and for other" authorized services rendered by the Court or its personnel.
SEC. 11. Who may appeal; effect of appeal. Any person, association or corporation adversely affected hy a
decision or ruling of the Collector of Internal Revenue, the Collector of Customs or any provincial or city Board
of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after the receipt of
such decision or ruling.
No appeal taken to the Court of Tax Appeals from the decision of the Collector of Internal Revenue or the
Collector of Customs shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for
the satisfaction of his tax liability as provided by existing law; Provided, however, That when in the opinion of
the Court the collection by the Bureau of Internal Revenue or the Commissioner of Customs may jeopardize the
interest of the Government and/or the taxpayer the Court at any stage of the proceeding may suspend the said
collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more
than double the amount with the court. (Italics supplied.)
The foregoing provisions of the law refer and limit only to appeals from decisions or rulings of the Collector of
Internal Revenue, Coihmissioner of Customs and Provincial or City Boards of Assessment Appeals in the
proper cases. Nowhere does the law expressly vest in the Court of Tax Appeals original jurisdiction to issue
writs of prohibition and injunction independently of, and apart from, an appealed case. The writ of prohibition
or injunction that it may issue under the provisions of section 11, Republic Act No. 1125, to suspend the
collection of taxes, is merely ancillary to and in furtherance of its appellate jurisdiction in the cases mentioned
in section 7 of the Act. The power to issue the writ exists only in. cases appealed to it. This is reflected dn the
explanatory note of the bill (House No. 175), creating the Court of Tax Appeals; We quote from the explanatory
note:
* * * It is proposed, in the attached, bill to establish not merely an administrative body but a regular court
vested with exclusive appellate jurisdiction over cages arising under the National Internal Revenue Code,
Customs Law and the Assessment Law. (Italics supplied, p. 2202, Congressional Record, Third Congress, Vol.
I, Part II.)
Congressman Castañeda, one of the proponents of the bill, in his opening remarks sponsoring its enactment into
law, said that "House Bill No. 175 has for its purpose the creation of a regular court of tax appeals." (p.
2204, supra.) Answering a question from Congressman Alonzo whether the Court of Tax Appeals would have
only appellate jurisdiction and no concurrent or original jurisdiction, the proponent said that "It has exclusive
jurisdiction with reference to matters or cases arising from the Internal Revenue Code, the Customs Law and the
Assessment Law." (pp. 2209-2210, supra). Dwelling further on the subject, the two members of the House of
Representatives continued their discussion, as follows:
Mr. Alonzo. So that under this proposal you will bring the case immediately to this court that you are proposing
to create, without first having it decided by the Commissioner of Customs or the Collector of Internal Revenue,
as the case may be.
Mr. Castañeda. It will have to be appealed from the decision of the Collector of Internal Revenue, the Collector
of Customs or the Assessors, to the Court of Tax Appeals, then to the Supreme Court, (pp. 2209-2210, supra.)
These statements made during the proceedings indicate that the intention of Congress was to vest the Court of
Tax Appeals with jurisdiction to issue writs of prohibition and injunction only in aid of its appellate jurisdiction
in cases appealed to it and not to clothe it with original jurisdiction to issue them. Such intent is reflected on the
second paragraph of section 11, Republic Act No. 1125 quoted above. Taxes being the chief source of revenue
for the Government to keep it running must be paid immediately and without delay. A taxpayer who feels
aggrieved by the decision or ruling handed down by a revenue officer and appeals from his decision or ruling to
the Court of Tax Appeals must pay the tax assessed, except that, if in the opinion of the Court the collection
would jeopardize the interest of the Government and/or the taxpayer, it could suspend the collection and require
the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount
of the tax assessed.
The judgment under review is annulled and set asiae, without pronouncement as to costs.
Bengzon, C. J., Bautista Angelo, Labrador, Concepion, Reyes, J. B. L., Paredes, Dizon, and De Leon,
JJ., concur.

Barzaga v CA Digest
G.R. No. 115129 February 12, 1997

Facts:
The petitioner’s wife was suffering from a debilitating ailment and with forewarning of her impending death,
she expressed her wish to be laid to rest before Christmas day to spare her family of the long vigils as it was
almost Christmas. After his wife passed away, petitioner bought materials from herein private respondents for
the construction of her niche. Private respondents however failed to deliver on agreed time and date despite
repeated follow-ups. The niche was completed in the afternoon of the 27th of December, and Barzaga's wife
was finally laid to rest. However, it was two-and-a-half (2-1/2) days behind schedule.
Issue: Was there delay in the performance of the private respondent's obligation?

Ruling: Yes. Since the respondent was negligent and incurred delay in the performance of his contractual
obligations, the petitioner is entitled to be indemnified for the damage he suffered as a consequence of the delay
or contractual breach. There was a specific time agreed upon for the delivery of the materials to the cemetery.

This is clearly a case of non-performance of a reciprocal obligation, as in the contract of purchase and sale, the
petitioner had already done his part, which is the payment of the price. It was incumbent upon respondent to
immediately fulfill his obligation to deliver the goods otherwise delay would attach. An award of moral
damages is incumbent in this case as the petitioner has suffered so much.

VERMEN REALTY DEVELOPMENT CORPORATION VS. COURT OF APPEALS G.R. No. 101762

FACTS:

Under the conditions of the so-called “Offsetting Agreement”, Vermen Realty (the first party in the contract)
and Seneca Hardware (the second party) were under a reciprocal obligation. Seneca Hardware shall deliver to
Vermen Realty construction materials worth P552,000.00. Vermen Realty's obligation under the agreement is
three-fold: he shall pay Seneca Hardware P276,000.00 in cash; he shall deliver possession of units 601 and 602,
Phase I, Vermen Pines Condominiums (with total value of P276,000.00) to Seneca Hardware; upon completion
of Vermen Pines Condominiums Phase II, Seneca Hardware shall be given option to transfer to similar units
therein.
As found by the appellate court and admitted by both parties, Seneca Hardware had paid Vermen Realty the
amount of P110,151.75, and at the same time delivered construction materials worth P219,727.00. Pending
completion of Phase II of the Vermen Pines Condominiums, Vermen Realty delivered to Seneca Hardware units
601 and 602 at Phase I of the Vermen Pines Condominiums (Rollo, p. 28). In 1982, the Vermen Realty
repossessed unit 602. As a consequence of the repossession, the officers of the Seneca Hardware corporation
had to rent another unit for their use when they went to Baguio on April 8, 1982.

In its reply the Vermen Realty corporation averred that Room 602 was leased to another tenant because Seneca
Hardware corporation had not paid anything for purchase of the condominium unit. Vermen Realty corporation
demanded payment of P27,848.25 representing the balance of the purchase price of Room 601.

On June 21, 1985, Seneca Hardware filed a complaint with the Regional Trial Court of Quezon City (Branch
92) for rescission of the Offsetting Agreement with damages. In said complaint, Seneca Hardware alleged that
Vermen Realty Vermen Realty Corporation had stopped issuing purchase orders of construction materials after
April, 1982, without valid reason, thus resulting in the stoppage of deliveries of construction materials on its
(Seneca Hardware) part, in violation of the Offsetting Agreement.

After conducting hearings, the trial court rendered a decision dismissing the complaint and ordering the plaintiff
(Seneca Hardware in this petition) to pay defendant (Vermen Realty in this petition) on its counterclaim in the
amount of P27,848.25 representing the balance due on the purchase price of condominium unit 601.

On appeal, respondent court reversed the trial court's decision as adverted to above.

ISSUE:
Do the circumstances of the case warrant rescission of the Offsetting Agreement as prayed for by Seneca
Hardware?

RULING:

Yes. The Court ruled in favor of Seneca Hardware. There is no controversy that the provisions of the Offsetting
Agreement are reciprocal in nature. Reciprocal obligations are those created or established at the same time, out
of the same cause, and which results in a mutual relationship of creditor and debtor between parties. In
reciprocal obligations, the performance of one is conditioned on the simultaneous fulfillment of the other
obligation Under the agreement, Seneca Hardware shall deliver to Vermen Realty construction materials.
Vermen Realty's obligation under the agreement is three-fold: he shall pay Seneca Hardware P276,000.00 in
cash; he shall deliver possession of units 601 and 602, Phase I, Vermen Pines Condominiums (with total value
of P276,000.00) to Seneca Hardware; upon completion of Vermen Pines Condominiums Phase II, Seneca
Hardware shall be given option to transfer to similar units therein.

Article 1191 of the Civil Code provides the remedy of rescission in (more appropriately, the term is
"resolution") in case of reciprocal obligations, where one of the obligors fails to comply with what is incumbent
upon him.
In the case at bar, Vermen Realty argues that it was Seneca Hardware who failed to perform its obligation in the
Offsetting Agreement.
Seneca Hardware, on the other hand, points out that the subject of the Offsetting Agreement is Phase II of the
Vermen Pines Condominiums. It alleges that since construction of Phase II of the Vermen Pines Condominiums
has failed to begin it has reason to move for rescission of the Offsetting Agreement, as it cannot forever wait for
the delivery of the condominium units to it.
It is evident from the facts of the case that Seneca Hardware did not fail to fulfill its obligation in the Offsetting
Agreement. The discontinuance of delivery of construction materials to Vermen Realty stemmed from the
failure of Vermen Realty to send purchase orders to Seneca Hardware.

The impossibility of fulfillment of the obligation on the part of Vermen Realty necessitates resolution of the
contract for indeed, the non-fulfillment of the obligation aforementioned constitutes substantial breach of the
Offsetting Agreement.
ROSE PACKING VS. CA AND PCIB G.R. No. L-33084 November 14, 1988

FACTS:

On December 12, 1962 respondent bank (PCIB) approved a letter-request by petitioner for the reactivation of its
overdraft line of P50,000.00 discounting line of P100,000.00 and a letter of credit-trust receipt line of
P550,000.00 as well as an application for a loan of P300,000.00, on fully secured real estate and chattel
mortgage and on the further condition that respondent PCIB appoint as it is did appoint its executive vice-
president Roberto S. Benedicto as its representative in petitioner's board of directors.

On November 3, 1965 the National Investment & Development Corporation (NIDC), the wholly owned
investment subsidiary of the Philippine National Bank, approved a P2.6 million loan application of petitioner
with certain conditions. NIDC had only released a total of P200,000 to petitioner corporation. Thereafter, the
NIDC refused to make further releases on the approved loan of petitioner.
On January 5, 1968 respondent PCIB filed a complaint against petitioner and Rene Knecht, its president for the
collection of petitioner's indebtedness as Civil Case No. 71697 of the Court of First Instance of Manila.
On January 22, 1968, PCIB gave petitioner notice that it would cause the real estate mortgage to be foreclosed
at an auction sale, which it scheduled for February 27, 1968. Thus, respondent Sheriff served notice of sheriff's
sale.

ISSUES:

1. Was petitioner corporation in default, justifying the foreclosure of mortgaged property?

2. Did PCIB effectively deliver the consideration expected from it by petitioner corporation?
3. Can the real estate mortgage of petitioner be entirely foreclosed to satisfy its debt with PCIB?

RULING:

1. No. The loans of petitioner corporation from respondent bank were supposed to become due only at the time
that it receives from the NIDC and PDCP the proceeds of the approved financing scheme. As it is, the
conditions did not happen. NIDC refused to make further releases after it had made two releases totaling
P200,000.00. The efficacy or obligatory force of a conditional obligation is subordinated to the happening of a
future and uncertain event so that if the suspensive condition does not take place, the parties would stand as if
the conditional obligation had never existed.
For an obligation to become due there must generally be a demand. Default generally begins from the moment
the creditor demands the performance of the obligation. Without such demand, judicial or extrajudicial, the
effects of default will not arise (Namarco v. Federation of United Namarco Distributors, Inc. 49 SCRA 238
[1973
2. No. The loan agreements between petitioner and respondent Bank are reciprocal obligations (the obligation
or promise of each party is the consideration for that of the other) The promise of petitioner to pay is the
consideration for the obligation of respondent bank to furnish the loan.
Respondent bank's designation of its own choice of people holding key positions in petitioner corporation tied
the hands of petitioner's board of directors to make decisions for the interest of petitioner corporation, in fact,
undermined the latter's financial stability.
In a similar case, Filipinas Marble Corporation v. Intermediate Appellate Court (142 SCRA 180 [1986] where
the lending institution took over the management of the borrowing corporation and led that corporation to
bankruptcy through mismanagement or misappropriation of the funds, defeating the very purpose of the loan
which is to develop the projects of the corporation, the Court ruled that it is as if the loan was never delivered to
it and thus, there was failure on the part of the respondent DBP to deliver the consideration for which the
mortgage and the assignment of deed were executed.
3. No. Respondent bank was in default in fulfilling its reciprocal obligation under their loan agreement. By its
own admission it failed to release the P710,000.00 loan it approved on October 13, 1966 in which case,
petitioner corporation, under Article 1191 of the Civil Code, may choose between specific performance or
rescission with damages in either case.
As a consequence, the real estate mortgage of petitioner corporation cannot be entirely foreclosed to satisfy its
total debt to respondent bank.
The issue of whether the foreclosure sale of the mortgaged properties en masse was valid or not must be
answered in the negative. The rule of indivisibility of a real estate mortgage refers to the provisions of Article
2089 of the Civil Code.
The rule in Article 2089 is not applicable to the instant case as it presupposes several heirs of the debtor or
creditor which does not obtain in this case. Furthermore, the rule of indivisibility of mortgage cannot apply
where there was failure of consideration on the part of respondent bank for the mismanagement of the affairs of
petitioner corporation and where said bank is in default in complying with its obligation to release to petitioner
corporation the amount of P710,000.00. Finally, it is noted that as already stated hereinabove, the exact amount
of petitioner's total debt was still unknown.

[ GR No. 100594, Mar 10, 1993 ]

BINALBAGAN TECH INC. v. CA +
DECISION

MELO, J.:
The petition for review on certiorari now before us seeks to reverse the decision of the Court of Appeals
promulgated on March 27, 1991 in CA-G.R. CV No. 24635 (de Pano, Cacdac (P), and VaiIoces, JJ.).

The facts of the case, as borne out by the record, are as follows:

On May 11, 1967, private respondents, through Angelina P. Echaus, in her capacity as Judicial Administrator of
the intestate estate of Luis B. Puentevella, executed a Contract to Sell and a Deed of Sale of forty-two
subdivision lots within the Phib-Khik Subdivision of the Puentevella family, conveying and transferring said
lots to petitioner Binalbagan Tech., Inc. (hereinafter referred to as Binalbagan). In turn, Binalbagan, through its
president, petitioner Hermilo J. Nava (hereinafter referred to as Nava), executed an Acknowledgment of Debt
with Mortgage Agreement, mortgaging said lots in favor of the estate of Puentevella.

Upon the transfer to Binalbagan of titles to the 42 subdivision lots, said petitioner took possession of the lots
and the building and improvements thereon. Binalbagan started operating a school on the property from 1967
when the titles and possession of the lots were transferred to it.

It appears that there was a pending case, Civil Case No. 7435 of Regional Trial Court stationed at Himamaylan,
Negros Occidental. Relative to said case we shall quote the findings of fact of the Court of Appeals in its
decision dated October 30, 1978 in CA-G.R. No. 42211-R:

To have a better perspective of the background facts leading to the filing of this instant case on appeal, there is a
need to make reference to the circumstances surrounding the filing of Civil Case No. 7435, to wit:

The intestate estate of the late Luis B. Puentevella as registered owner of several subdivision lots, specifically
mentioned in paragraph 2 of plaintiffs' complaint, thru Judicial Administratrix, Angelina L. Puentevella sold
said aforementioned lots to Raul Javellana with the condition that the vendee-promisee would not transfer his
rights to said lots without the express consent of Puentevella and that in case of the cancellation of the contract
by reason of the violation of any of the terms thereof, all payments therefor made and all improvements
introduced on the property shall pertain to the promissor and shall be considered as rentals for the use and
occupation thereof.

Javellana having failed to pay the installments for a period of five years, Civil Case No. 7435 was filed by
defendant Puentevella against Raul Javellana and the Southern Negros Colleges which was impleaded as a party
defendant it being in actual possession thereof, for the rescission of their contract to sell and the recovery of
possession of the lots and buildings with damages.

Accordingly, after trial, judgment was rendered in favor of Puentevella and thereafter, defendants Deputy
Sheriffs served a copy of the writ of execution on the Acting Director of the Southern Negros College and
delivered possession of the lots and buildings to defendant Puentevella's representative, Mrs. Manuel
Gentapanan, and further levied execution on the books and school equipment, supplies, library, apparatus, etc.
to satisfy the monetary portion of the judgment under execution on October 27, 1967. Said books, equipment,
etc. as reflected in the Depositary Receipt, (Exh. "B") dated October 28, 1965, were delivered by the Sheriffs to
the Acting Director of the Southern Negros College as depositary of the same.

Came December 29, 1965 when the plaintiffs in the instant case on appeal filed their Third-Party Claim based
on an alleged Deed of Sale executed in their favor by spouses Jose and Lolita Lopez, thus Puentevella was
constrained to assert physical possession of the premises to counteract the fictitious and unenforceable claim of
herein plaintiffs.

Upon the filing of the instant case for injunction and damages on January 3, 1966, an ex-parte writ of
preliminary injunction was issued by the Honorable Presiding Judge Carlos Abiera, which order, however, was
elevated to the Honorable Court of Appeals which issued a writ of preliminary injunction ordering Judge Carlos
Abiera or any other persons or persons in his behalf to refrain from further enforcing the injunction issued by
him in this case and from further issuing any other writs or prohibitions which would in any manner, affect the
enforcement of the judgment rendered in Civil Case 7435, pending the finality of the decision of the Honorable
Court of Appeals in the latter case. Thus, defendant Puentevella was restored to the possession of the lots and
buildings subject of this case. However, plaintiffs filed a petition for review with the Supreme Court which
issued a restraining order against the sale of the properties claimed by the spouses-plaintiffs [in Abierra vs.
Court of Appeals, 45 SCRA 314].
When the Supreme Court dissolved the aforesaid injunction issued by the Court of Appeals, possession of the
building and other property was taken from petitioner Binalbagan and given to the third-party claimants, the de
la Cruz spouses. Petitioner Binalbagan transferred its school to another location. In the meantime, an appeal was
interposed by the defendants in Civil Case No. 293 with the Court of Appeals where the appeal was docketed as
CA-G.R. No. 42211-R. On October 30, 1978, the Court of Appeals rendered judgment, reversing the appealed
decision in Civil Case No. 293. On April 29, 1981, judgment was entered in CA-G.R. No. 42211, and the record
of the case was remanded to the court of origin on December 22, 1981. Consequently, in 1982, the judgment in
Civil Case No. 7435 was finally executed and enforced, and petitioner was restored to the possession of the
subdivision lots on May 31, 1982. It will be noted that petitioner was not in possession of the lots from 1974 to
May 31, 1982.

After petitioner Binalbagan was again placed in possession of the subdivision lots, private respondent Angelina
Echaus demanded payment from petitioner Binalbagan for the subdivision lots, enclosing in the letter of
demand a statement of account as of September 1982 showing a total amount due of P367,509.93, representing
the price of the land and accrued interest as of that date.

As petitioner Binalbagan failed to effect payment, private respondent Angelina P, Echaus filed on October 8,
1982 Civil Case No. 1354 of the Regional Trial Court of the Sixth Judicial Region stationed in Himamaylan,
Negros Occidental against petitioner's for recovery of title and damages. An amended complaint was filed by
private respondent Angelina P. Echaus by including her mother, brothers, and sisters as co-plaintiffs, which was
admitted by the trial court on March 18, 1983.

After trial, the trial court rendered a decision on August 30, 1989, the dispositive portion of which reads as
follows:

IN VIEW OF THE FOREGOING, and inasmuch as there is no fraud and since the action on the written
contract, Exh. "C", has long prescribed, judgment is hereby rendered in favor of the defendants and against the
plaintiffs dismissing the amended complaint.

The counterclaim is likewise dismissed for lack of sufficient proof. Each shall bear their respective expenses of
litigation. (pp. 71-72, Rollo)
Private respondents appealed to the Court of Appeals which rendered a decision on March 27, 1991, disposing:

WHEREFORE, premises considered, the appealed decision is REVERSED and SET ASIDE and a new one is
rendered ordering the appellee Binalbagan Tech. Inc, through any of its officers, to execute a deed of
conveyance or any other instrument, transferring and returning unto the appellants the ownership and titles of
the subject 42 subdivision lots. Costs against appellees. (pp. 51-52, Rollo)
Thus, this petition for review on certiorari wherein petitioners assign the following alleged errors of the Court of
Appeals:

First Error
The Court of Appeals erred in holding that the cause of action of the respondents has not prescribed.

Second Error
The Court of Appeals erred in holding that Civil Case No. 293 interrupts the running of the period of the
prescription.

Third Error
The Court of Appeals erred in citing the cases of David-Garlitos and Rivero vs. Rivero to support its contention
that the period of prescription was interrupted in the case at bar.
Fourth Error

The finding of facts of the Honorable Court of Appeals in reversing the lower court decision has no basis and is
contradicted by the evidence on record of the case at bar as well as the admission of parties." (p. 16, Rollo)

The main issue of this case is: Whether private respondents' cause of action in Civil Case No. 1354 is
barred by prescription.

On this point the Court of Appeals held:

As it is evident that there was an interruption during the period from 1974 up to 1982, the period of prescription,
as correctly maintained by the appellants, was tolled during such period, due to the injunctive writ in Civil Case
No. 293 as discussed earlier when the vendors could not maintain the vendee in possession, and consequently
was in no position to legally demand payment of the price. Accordingly, while it may be conceded that
appellants' cause of action to demand performance had accrued on June 10, 1967 due to the appellee
institution's default in the payment of the first installment which became due on that date, the running of
prescription was interrupted in 1974 when, from the words of the lower court itself, "the Supreme Court
reversed the Court of Appeal's decision and dissolved the injunction which the latter court had earlier issued in
Civil Case No. 293, possession of the building and other properties was taken from defendant Binalbagan Tech.
Inc. and given to the de la Cruz spouses, through Southern Negros College". And the period of prescription
commenced to run anew only on May 31, 1982 when the appellants were finally able to fully implement the
already executory judgment in Case No. 7435, and thus restore appellees in possession of the 42 subdivision
lots.

In other words, the period of prescription was interrupted, because from 1974 up to 1982, the appellants
themselves could not have restored unto the appellees the possession of the 42 subdivision lots precisely
because of the preliminary injunction mentioned elsewhere. Consequently, the appellants could not have
prospered in any suit to compel performance or payment from the appellees-buyers, because the appellants
themselves were in no position to perform their own corresponding obligation to deliver to and maintain said
buyers in possession of the lots subject matter of the sale. (Article 1458, 1495, 1537, Civil Code). (pp. 49-50,
Rollo)

We agree with the Court of Appeals.

A party to a contract cannot demand performance of the other party's obligations unless he is in a position to
comply with his own obligations. Similarly, the right to rescind a contract can be demanded only if a party
thereto is ready, willing and able to comply with his own obligations thereunder (Art. 1191, Civil Code; Seva
vs. Berwin, 48 Phil. 581 [1926]; Paras, Civil Code of the Philippines, 12th ed. Vol. IV, p. 200). In a contract of
sale, the vendor is bound to transfer the ownership of and deliver, as well as warrant, the thing which is the
object of the sale (Art. 1495, Civil Code); he warrants that the buyer shall, from the time ownership is passed,
have and enjoy the legal and peaceful possession of the thing -

Art. 1547. In a contract of sale, unless a contrary intention appears, there is:

(1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the
ownership is to pass, and that the buyer shall from that time have and enjoy the legal and peaceful possession of
the thing.

xxx
As afore-stated, petitioner was evicted from the subject subdivision lots in 1974 by virtue of a court order in
Civil Case No. 293 and reinstated to the possession thereof only in 1982. During the period, therefore, from
1974 to 1982, seller private respondent Angelina Echaus' warranty against eviction given to buyer petitioner
was breached though, admittedly, through no fault of her own. It follows that during that period, 1974 to 1982,
private respondent Echaus was not in a legal position to demand compliance of the prestation of petitioner to
pay the price of said subdivision lots. In short, her right to demand payment was suspended during that period,
1974-1982.

The prescriptive period within which to institute an action upon a written contract is ten years (Art. 1144, Civil
Code). The cause of action of private respondent Echaus is based on the deed of sale aforementioned. The deed
of sale whereby private respondent Echaus transferred ownership of the subdivision lots was executed on May
11, 1967. She filed Civil Case No. 1354 for recovery of title and damages only on October 8, 1982. From May
11, 1967 to October 8, 1982, more than fifteen (15) years elapsed. Seemingly, the 10-year prescriptive period
had expired before she brought her action to recover title. However, the period 1974 to 1982 should be deducted
in computing the prescriptive period for the reason that, as above discussed, from 1974 to 1982, private
respondent Echaus was not in a legal position to initiate action against petitioner since as afore-stated, through
no fault of hers, her warranty against eviction was breached. In the case of Daniel vs. Garlitos, (95 Phil. 387
[1954]), it was held that a court order deferring action on the execution of judgment suspended the running of
the 5-year period for execution of a judgment. Here the execution of the judgment in Civil Case No. 7435 was
stopped by the writ of preliminary injunction issued in Civil Case No. 293. It was only when Civil Case No. 293
was dismissed that the writ of execution in Civil Cse No. 7435 could be implemented and petitioner Binalbagan
restored to the possession of the subject lots.

Deducting eight years (1974 to 1982) from the period 1967 to 1982, only seven years elapsed. Consequently,
Civil Case No. 1354 was filed within the 10-year prescriptive period. Working against petitioner's position too
is the principle against unjust enrichment which would certainly be the result if petitioner is allowed to own the
42 lots without full payment thereof.

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 24635
is AFFIRMED.
SO ORDERED.

Feliciano, (Acting Chairman), Bidin, Davide, Jr., and Romero, JJ., concur.

[ G.R. No. L-30056, August 30, 1988 ]

MARCELO AGCAOILI, PLAINTIFF-APPELLEE, VS. GOVERNMENT SERVICE INSURANCE SYSTEM,

DEFENDANT-APPELLANT.

DECISION

NARVASA, J.:
The appellant Government Service Insurance System (GSIS , for short) having approved the application of the
appellee Agcaoili for the purchase of a house and lot in the GSIS Housing Project at Nangka, Marikina, Rizal,
subject to the condition that the latter should forthwith occupy the house, a condition that Agcaoili tried to
fulfill but could not for the reason that the house was absolutely uninhabitable; Agcaoili, after paying the first
installment and other fees, having thereafter refused to make further payment of other stipulated installments
until GSIS had made the house habitable; and appellant having refused to do so, opting instead to cancel the
award and demand the vacation by Agcaoili of the premises; and Agcaoili having sued the GSIS in the Court of
First Instance of Manila for specific performance with damages and having obtained a favorable judgment, the
case was appealed to this Court by the GSIS. Its appeal must fail.
The essential facts are not in dispute. Approval of Agcaoili's aforementioned application for purchase was
contained in a letter addressed to Agcaoili and signed by GSIS Manager Archimedes Villanueva in behalf of the
Chairman-General Manager, reading as follows:
"Please be informed that your application to purchase a house and lot in our GSIS Housing Project at Nangka,
Marikina, Rizal, has been approved by this Office. Lot No. 26, Block No. (48) 2, together with the housing unit
constructed thereon, has been allocated to you.
"You are, therefore, advised to occupy the said house immediately.
"If you fail to occupy the same within three (3) days from receipt of this notice, your application shall be
considered automatically disapproved and the said house and lot will be awarded to another applicant."
Agcaoili lost no time in occupying the house. He could not stay in it, however, and had to leave the very next
day, because the house was nothing more than a shell, in such a state of incompleteness that civilized
occupation was not possible: ceiling, stairs, double ceiling, lighting facilities, water connection, bathroom,
toilet, kitchen, drainage, were inexistent. Agcaoili did however ask a homeless friend, a certain Villanueva, to
stay in the premises as some sort of watchman, pending completion of the construction of the house. Agcaoili
thereafter complained to the GSIS, to no avail.
The GSIS asked Agcaoili to pay the monthly amortizations and other fees. Agcaoili paid the first monthly
installment and the incidental fees, but refused to make further payments until and unless the GSIS completed
the housing unit. What the GSIS did was to cancel the award and require Agcaoili to vacate the
premises. Agcaoili reacted by instituting suit in the Court of First Instance of Manila for specific performance
and damages. Pending the action, a written protest was lodged by other awardees of housing units in the same
subdivision, regarding the failure of the System to complete construction of their own houses. [6] Judgment was
in due course rendered, on the basis of the evidence adduced by Agcaoili only, the GSIS having opted to
dispense with presentation of its own proofs. The judgment was in Agcaoili's favor and contained the following
dispositions, to wit:
"1) Declaring the cancellation of the award (of a house and lot) in favor of plaintiff (Mariano Agcaoili) illegal
and void;
2) Ordering the defendant (GSIS) to respect and enforce the aforesaid award to the plaintiff relative to Lot No.
26, Block No. (48) 2 of the Government Service Insurance System (GSIS) low cost housing project at Nangka,
Marikina, Rizal;
3) Ordering the defendant to complete the house in question so as to make the same habitable and authorizing it
(defendant) to collect the monthly amortization thereon only after said house shall have been completed under
the terms and conditions mentioned in Exhibit A; and
4) Ordering the defendant to pay P100.00 as damages and P300.00 as and for attorney's fees, and costs."
Appellant GSIS would have this Court reverse this judgment on the argument that -
1) Agcaoili had no right to suspend payment of amortizations on account of the incompleteness of his housing
unit, since said unit had been sold "in the condition and state of completion then existing * * * (and) he is
deemed to have accepted the same in the condition he found it when he accepted the award;" and assuming
indefiniteness of the contract in this regard, such circumstance precludes a judgment for specific performance.
2) perfection of the contract of sale between it and Agcaoili being conditioned upon the latter's immediate
occupancy of the house subject thereof, and the latter having failed to comply with the condition, no contract
ever came into existence between them;
3) Agcaoili's act of placing his homeless friend, Villanueva, in possession, "without the prior or subsequent
knowledge or consent of the defendant (GSIS)" operated as a repudiation by Agcaoili of the award and a
deprivation of the GSIS at the same time of the reasonable rental value of the property.
Agcaoili's offer to buy from GSIS was contained in a printed form drawn up by the latter, entitled "Application
to Purchase a House and/or Lot." Agcaoili filled up the form, signed it, and submitted it. The acceptance of the
application was also set out in a form (mimeographed) also prepared by the GSIS. As already mentioned, this
form sent to Agcaoili, duly filled up, advised him of the approval of his "application to purchase a house and lot
in our GSIS Housing Project at NANGKA, MARIKINA, RIZAL," and that "Lot No. 26. Block No. (48) 2,
together with the housing unit constructed thereon, has been allocated to you." Neither the application form nor
the acceptance or approval form of the GSIS nor the notice to commence payment of monthly amortizations,
which again refers to "the house and lot awarded" contained any hint that the house was incomplete, and was
being sold "as is," i.e., in whatever state of completion it might be at the time. On the other hand, the condition
explicitly imposed on Agcaoili "to occupy the said house immediately," or in any case within three (3) days
from notice, otherwise his "application shall be considered automatically disapproved and the said house and lot
will be awarded to another applicant" would imply that construction of the house was more or less complete,
and it was by reasonable standards, habitable, and that indeed, the awardee should stay and live in it; it could
not be interpreted as meaning that the awardee would occupy it in the sense of a pioneer or settler in a rude
wilderness, making do with whatever he found available in the environment.
There was then a perfected contract of sale between the parties; there had been a meeting of the minds upon the
purchase by Agcaoili of a determinate house and lot in the GSIS Housing Project at Nangka, Marikina, Rizal at
a definite price payable in amortizations at P31.56 per month, and from that moment the parties acquired the
right to reciprocally demand performance.[13] It was, to be sure, the duty of the GSIS, as seller, to deliver the
thing sold in a condition suitable for its enjoyment by the buyer for the purpose contemplated, in other words, to
deliver the house subject of the contract in a reasonably livable state. This it failed to do.
It sold a house to Agcaoili, and required him to immediately occupy it under pain of cancellation of the sale.
Under the circumstances there can hardly be any doubt that the house contemplated was one that could be
occupied for purposes of residence in reasonable comfort and convenience. There would be no sense to require
the awardee to immediately occupy and live in a shell of a house, a structure consisting only of four walls with
openings, and a roof; and to theorize, as the GSIS does, that this was what was intended by the parties, since the
contract did not clearly impose upon it the obligation to deliver a habitable house, is to advocate an absurdity,
the creation of an unfair situation. By any objective interpretation of its terms, the contract can only be
understood as imposing on the GSIS an obligation to deliver to Agcaoili a reasonably habitable dwelling in
return for his undertaking to pay the stipulated price. Since GSIS did not fulfill that obligation, and was not
willing to put the house in habitable state, it cannot invoke Agcaoili's suspension of payment of amortizations as
cause to cancel the contract between them. It is axiomatic that "(i)n reciprocal obligations, neither party incurs
in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon
him."
Nor may the GSIS succeed in justifying its cancellation of the award to Agcaoili by the claim that the latter had
not complied with the condition of occupying the house within three (3) days. The record shows that Agcaoili
did try to fulfill the condition; he did try to occupy the house but found it to be so uninhabitable that he had to
leave it the following day. He did however leave a friend in the structure, who being homeless and hence
willing to accept shelter even of the most rudimentary sort, agreed to stay therein and look after it. Thus the
argument that Agcaoili breached the agreement by failing to occupy the house, and by allowing another person
to stay in it without the consent of the GSIS, must be rejected as devoid of merit.
Finally, the GSIS should not be heard to say that the agreement between it and Agcaoili is silent, or imprecise as
to its exact prestation. Blame for the imprecision cannot be imputed to Agcaoili; it was after all the GSIS which
caused the contract to come into being by its written acceptance of Agcaoili's offer to purchase, that offer being
contained in a printed form supplied by the GSIS. Said appellant having caused the ambiguity of which it would
now make capital, the question of interpretation arising therefrom, should be resolved against it.
It will not do, however, to dispose of the controversy by simply declaring that the contract between the parties
had not been validly cancelled and was therefore still in force, and that Agcaoili could not be compelled by the
GSIS to pay the stipulated price of the house and lot subject of the contract until and unless it had first
completed construction of the house. This would leave the contract hanging or in suspended animation, as it
were, Agcaoili unwilling to pay unless the house were first completed, and the GSIS averse to completing
construction, which is precisely what has been the state of affairs between the parties for more than twenty (20)
years now. On the other hand, assuming it to be feasible to still finish the construction of the house at this time,
to compel the GSIS to do so so that Agcaoili's prestation to pay the price might in turn be demanded, without
modifying the price therefor, would not be quite fair. The cost to the GSIS of completion of construction
at present prices would make the stipulated price disproportionate, unrealistic.
The situation calls for the exercise by this Court of its equity jurisdiction, to the end that it may render complete
justice to both parties.
"As we * * * reaffirmed in Air Manila, Inc. vs. Court of Industrial Relations (83 SCRA 579, 589 [1978]),
'(E)quity as the complement of legal jurisdiction seeks to reach and do complete justice where courts of law,
through the inflexibility of their rules and want of power to adapt their judgments to the special circumstances
of cases, are incompetent so to do. Equity regards the spirit of and not the letter, the intent and not the form, the
substance rather than the circumstance, as it is variously expressed by different courts.'"
In this case, the Court cannot require specific performance of the contract in question according to its literal
terms, as this would result in inequity. The prevailing rule is that in decreeing specific performance equity
requires
"* * * not only that the contract be just and equitable in its provisions, but that the consequences of specific
performance likewise be equitable and just. The general rule is that this equitable relief will not be granted if,
under the circumstances of the case, the result of the specific enforcement of the contract would be harsh,
inequitable, oppressive, or result in an unconscionable advantage to the plaintiff * * *."
In the exercise of its equity jurisdiction, the Court may adjust the rights of parties in accordance with the
circumstances obtaining at the time of rendition of judgment, when these are significantly different from those
existing at the time of generation of those rights.
"The Court is not restricted to an adjustment of the rights of the parties as they existed when suit was brought,
but will give relief appropriate to events occurring ending the suit.[18]
"While equitable jurisdiction is generally to be determined with reference to the situation existing at the time the
suit is filed, the relief to be accorded by the decree is governed by the conditions which are shown to exist at the
time of making thereof, and not by the circumstances attending the inception of the litigation. In making up the
final decree in an equity suit the judge may rightly consider matters arising after suit was brought. Therefore, as
a general rule, equity will administer such relief as the nature, rights, facts end exigencies of the case demand at
the close of the trial or at the time of the making of the decree."
That adjustment is entirely consistent with the Civil Law principle that in the exercise of rights a person must
act with justice, give everyone his due, and observe honesty and good faith.[20] Adjustment of rights has been
held to be particularly applicable when there has been a depreciation of currency.
"Depreciation of the currency or other medium of payment contracted for has frequently been held to justify the
court in withholding specific performance or at least conditioning it upon payment of the actual value of the
property contracted for. Thus, in an action for the specific performance of a real estate contract, it has been held
that where the currency in which the plaintiff had contracted to pay had greatly depreciated before enforcement
was sought, the relief would be denied unless the complainant would undertake to pay the equitable value of the
land. (Willard & Tayloe [U.S.]18 Wall 557, 19 L Ed 501; Doughdrill v. Edwards, 59 Ala 424)
In determining the precise relief to give, the Court will "balance the equities" or the respective interests of the
parties, and take account of the relative hardship that one relief or another may occasion to them.[22]
The completion of the unfinished house so that it may be put into habitable condition, as one form of relief to
the plaintiff Agcaoili, no longer appears to be a feasible option in view of the not inconsiderable time that has
already elapsed. That would require an adjustment of the price of the subject of the sale to conform to present
prices of construction materials and labor. It is more in keeping with the realities of the situation, and with
equitable norms, to simply require payment for the land on which the house stands, and for the house itself, in
its unfinished state, as of the time of the contract. In fact, this is an alternative relief proposed by Agcaoili
himself, i.e., "that judgment issue * * * (o)rdering the defendant (GSIS) to execute a deed of sale that would
embody and provide for a reasonable amortization of payment on the basis of the present actual unfinished and
uncompleted condition, worth and value of the said house."
WHEREFORE, the judgment of the Court a quo insofar as it invalidates and sets aside the cancellation by
respondent GSIS of the award in favor of petitioner Agcaoili of Lot No. 26, Block No. (48) 2 of the GSIS low
cost housing project at Nangka, Marikina, Rizal, and orders the former to respect the aforesaid award and to pay
damages in the amounts specified, is AFFIRMED as being in accord with the facts and the law. Said judgment
is however modified by deleting the requirement for respondent GSIS "to complete the house in question so as
to make the same habitable," and instead it is hereby ORDERED that the contract between the parties relative to
the property above described be modified by adding to the cost of the land, as of the time of perfection of the
contract, the cost of the house in its unfinished state also as of the time of perfection of the contract, and
correspondingly adjusting the amortizations to be paid by petitioner Agcaoili, the modification to be effected
after determination by the Court a quo of the value of said house on the basis of the agreement of the parties, or
if this is not possible, by such commissioner or commissioners as the Court may appoint. No pronouncement as
to costs.
SO ORDERED.
Cruz, Gancayco, Griño-Aquino and Medialdea, JJ., concur.
[6]
The letter was sent thru the awardees' "Samahang Lakas ng Mahihirap," copy having been marked at the
trial as Exh. F; to the letter was attached a resolution of said Samahan adopted at its meeting of July 23, 1967
and to which, in turn, was appended a 3-page list of uncompleted houses with a specification of items not
completed.
[20]
Art. 19, Civil Code: "Every person must, in the exercise of his rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty and good faith."
[22]
27 Am. Jur. 2d, 628-629: "There is a general principle that a court of equity will balance the equities'
between the parties in determining what, if any, relief to give. * * * Thus, for example, where the effect of the
only relief which can be granted to protect the plaintiff will be destructive of the defendants' business, which
would be lawful but for the harm it does to the plaintiff, relief may be refused if, on a balancing of the
respective interests, that of the defendant is found to be relatively important, and that of the plaintiff relatively
insignificant. * * *."'

[ G.R. No. L-21291, March 28, 1969 ]

PRECIOLITA V. CORLISS, PLAINTIFF-APPELLANT, VS. THE MANILA RAILROAD CO.,

DEFENDANT-APPELLEE.

DECISION

FERNANDO, J.:
Youth, the threshold of life, is invariably accompanied by that euphoric sense of well-being, and with
reason. The future, bright with promise, looms ahead. One's powers are still to be tested, but one feels ready
for whatever challenge may come his way. There is that heady atmosphere of self-confidence, at times carried
to excess. The temptation to take risks is there, ever so often, difficult, if not impossible, to resist. There could
be then a lessening of prudence and foresight, qualities usually associated with age. For death seems so remote
and contingent an event. Such is not always the case though, and a slip may be attended with consequences at
times unfortunate, even fatal.
Some such thought apparently was in the mind of the lower court when it dismissed the complaint for recovery
of damages filed by plaintiff-appellant, Preciolita V. Corliss, whose husband, the late Ralph W. Corliss, was, at
the tender age of twenty-one, the victim of a grim tragedy, when the jeep he was driving collided with a
locomotive of defendant-appellee Manila Railroad Company, close to midnight on the evening of February 21,
1957, at the railroad crossing in Balibago, Angeles, Pampanga, in front of the Clark Air Force Base. In the
decision appealed from, the lower court, after summarizing the evidence, concluded that the deceased "in his
eagerness to beat, so to speak, the oncoming locomotive, took the risk and attempted to reach the other side, but
unfortunately he became the victim of his own miscalculation."
The negligence imputed to defendant-appellee was thus ruled out by the lower court, satisfactory proof to that
effect, in its opinion, being lacking. Hence this appeal direct to us, the amount sought in the concept of
damages reaching the sum a P282,065.40. An examination of the evidence of record fails to yield a basis for a
reversal of the decision appealed from. We affirm.
According to the decision appealed from, there is no dispute as to the following: "In December 1956, plaintiff,
19 years of age, married Ralph W. Corliss, Jr., 21 years of age, * * *; that Corliss, Jr. was an air police of the
Clark Air Force Base; that at the time of the accident, he was driving the fatal jeep; that he was then returning in
said jeep, together with a P. C. soldier, to the Base; and that Corliss, Jr. died of serious burns at the Base
Hospital the next day, while the soldier sustained serious physical injuries and burns."
Then came a summary of the testimony of two of the witnesses for plaintiff-appellant. Thus: "Ronald J. Ennis,
a witness of the plaintiff, substantially declared in his deposition, * * *, that at the time of the accident, he was
awaiting transportation at the entrance of Clark Field, which was about 40 to 50 yards away from the tracks and
that while there he saw the jeep coming towards the Base. He said that said jeep slowed down before reaching
the crossing, that it made a brief stop but that it did not stop dead stop. Elaborating, he declared that while it
was slowing down, Corliss, Jr. shifted into first gear and that was what he meant by a brief stop. He also
testified that he could see the train coming from the direction of San Fernando and that he heard a warning but
that it was not sufficient enough to avoid the accident." Also: "Virgilio de la Paz, another witness of the
plaintiff, testified that on the night of February 21, 1957, he was at the Balibago checkpoint and saw the train
coming from Angeles and a jeep going towards the direction of Clark Field. He stated that he heard the whistle
of the locomotive and saw the collision. The jeep, which caught fire, was pushed forward. He helped the P. C.
soldier. He stated that he saw the jeep running fast and heard the tooting of the horn. It did not stop at the
railroad crossing, according to him."
After which reference was made to the testimony of the main witness for defendant-appellee, Teodorico Capin,
"who was at the engine at the time of the mishap," and who "testified that before the locomotive, which had
been previously inspected and found to be in good condition, approached the crossing, that is, about 300 meters
away, he blew the siren and repeated it in compliance with the regulations until he saw the jeep suddenly spurt,
and that although the locomotive was running between 20 and 25 kilometers an hour and although he had
applied the brakes, the jeep was caught in the middle of the tracks."
1. The above finding as to the non-existence of negligence attributable to defendant-appellee Manila Railroad
Company comes to us encased in the armor of what admittedly appears to be a careful judicial appraisal and
scrutiny of the evidence of record. It is thus proof against any attack unless sustained and overwhelming. Not
that it is invulnerable, but it is likely to stand firth in the face of even the most formidable barrage.
In the more traditional terminology, the lower court judgment has in its favor the presumption of correctness. It
is entitled to great respect. After all, the lower court had the opportunity of weighing carefully what was
testified to and apparently did not neglect it. There is no affront to justice then if its finding be accorded
acceptance, subject of course to the contingency of ultimate reversal if error or errors, substantial in character,
be shown in the conclusion thus arrived at. It is a fair statement of the governing principle to say that the
appellate function is exhausted when there is found to be a rational basis for the result reached by the trial court.
As was held in a 1961 decision: "We have already ruled that when the credibility of witnesses is the one at
issue, the trial court's judgment as to their degree of credence deserves serious consideration by this Court." An
earlier expression of the same view is found in Jai-Alai Corporation v. Ching Kiat: "After going over the
record, we find no reason for rejecting the findings of the court below. The questions raised hinge on
credibility, and it is well-settled that in the absence of compelling reasons, its determination is best left to the
trial judge who had the advantage of hearing the parties testify and of observing their demeanor on the witness
stand."
In a 1964 opinion, we adhered to such an approach. Thus: "'Nothing in the record suggests any arbitrary or
abusive conduct on the part of the trial judge in the formulation of the ruling. His conclusion on the matter is
sufficiently borne out by the evidence presented. We are denied, therefore, the prerogative to disturb that
finding, consonant to the time-honored tradition of this Tribunal to hold trial judges better situated to make
conclusions on questions of fact.” On this ground alone we can rest the affirmance of the judgment appealed
from.
2. Nor is the result different even if no such presumption were indulged in and the matter examined as if we
were exercising original and not appellate jurisdiction. The sad and deplorable situation in which plaintiff-
appellant now finds herself, to the contrary notwithstanding, we find no reason for reversing the judgment of the
lower court.
This action is predicated on negligence, the Civil Code making clear that whoever by act or omission causes
damage to another, there being negligence, is under obligation to pay for the damage done. Unless it could be
satisfactorily shown, therefore, that defendant-appelleewas guilty of negligence then it could riot be held
liable. The crucial question, therefore, is the existence of negligence.
The above Civil Code provision, which is a reiteration of that found in the Civil Code of Spain, formerly
applicable in this jurisdiction, had been interpreted in earlier decisions. Thus, in Smith v. Cadwallader Gibson
Lumber Co., Manresa was cited to the following effect: "'Among the questions most frequently raised and upon
which the majority of cases have been decided with respect to the application of this liability, are those referring
to the determination of the damage or prejudice, and to the fault or negligence of the person
responsible therefor. These are the two indispensable factors in the obligations under discussion, for without
damage or prejudice there can be no liability, and although this element is present no indemnity can be awarded
unless arising from some person's fault or negligence."
Negligence was defined by us in two 1912 decisions, United States v. Juanillo and United States
v. Barias Cooley's formulation was quoted with approval in both
the Juanillo and Barias decisions. Thus: "Judge Cooley, in his work on Torts (3d ed.)', Sec. 1324, defines
negligence to be: 'The failure to observe for the protection of the interests of another person that degree of care,
precaution, and vigilance which the circumstances justly demand, whereby such other person suffers injury.'"
There was likewise a reliance on Ahern v. Oregon Telephone Co.[14] Thus: "Negligence is want of the care
required by the circumstances. It is a relative or comparative, not an absolute, term and its application depends
upon the situation of the parties and the degree of care and vigilance which the circumstances reasonably
require. Where the danger is great, a high degree of care is necessary, and the failure to observe it is a want of
ordinary care under the circumstances."
To repeat, by such a test, no negligence could be imputed to defendant-appellee, and the action of plaintiff-
appellant must necessary fail. The facts, being what they are, compel the conclusion that the liability sought to
be fastened on defendant-appellee had not arisen.
3. Plaintiff-appellant, in her brief, however, would seek a reversal of the judgment appealed from on the ground
that there was a failure to appreciate the true situation. Thus the first three assigned errors are factual in
character. The third assigned error could be summarily disposed of. It would go against the evidence to
maintain the view that the whistle was not sounded and the brakes not applied at a distance of 300 meters before
reaching the crossing
The first two assigned errors would make much of the failure of the lower court to hold that the crossing bars
not having been put down and there being no guard at the gatehouse, there still was a duty on the part
of Corliss to stop his jeep to avoid a collision and that Teodorico Capili, who drove the engine, was not
qualified to do so at the time of the accident. For one cannot just single out a circumstance and then confidently
assign to it decisive weight and significance. Considered separately, neither of the two above errors assigned
would call for a judgment different in character. Nor would a combination of acts allegedly impressed with
negligence suffice to alter the result. The quantum of proof required still had not been met. The alleged errors
fail of-their desired effect. The case for plaintiff-appellant, such as it was, had not been improved. There is no
justification for reversing the judgment of the lower court.
It cannot be stressed too much that the decisive considerations are too variable, too dependent in the last
analysis upon a common sense estimate of the situation as it presented itself to the parties for us to be able to
say that this or that element having been isolated, negligence is shown. The factors that enter the judgment are
too many and diverse for us 'to imprison them in a formula sufficient of itself to yield the correct answer to the
multi-faceted problems the question of negligence poses. Every case must be dependent on its facts. The
circumstances indicative of lack of due care must be judged in the light of what could reasonably be expected of
the parties. If the objective standard of prudence be met, then negligence is ruled out.
In this particular case, it would be to show less than fidelity to the controlling facts to impute negligence to,
defendant-appellee. The first three errors assigned certainly do not call for that conclusion.
4. The fourth assigned error is deserving of a more extended treatment. Plaintiff-appellant apparently had in
mind this portion of the opinion of the lower court: "The weight of authorities is to the effect that a railroad
track is in itself a warning or a signal of danger to those who go upon it, and that those who, for reasons of their
own, ignore such warning, do so at their own risk and responsibility. Corliss, Jr., who undoubtedly had crossed
the checkpoint frequently, if not daily, must have known that locomotive engines and trains usually pass at that
particular crossing where the accident had taken place."
Her assignment of error, however, would single out not the above excerpt from the decision appealed from but
what to her is the apparent reliance of the lower court on Mestres v. Manila Electric Railroad & Light Co. and
United States v. Manabat & Pasibi. In the Manabat case, the doctrine announced by this Court follows: "A
person in control of an automobile who crosses a railroad, even at a regular road crossing, and who does not
exercise that precaution and that control over it as to be able to stop the same almost immediately upon the
appearance of a train, is guilty of criminal negligence, providing a collision occurs and injury
results. Considering the purposes and the general methods adopted for the management of railroads and
railroad trains, we think it is incumbent upon one approaching a railroad crossing to use all of his faculties of
seeing and hearing. He should approach a railroad crossing cautiously and carefully. He should look and listen
and do everything that a reasonably prudent man would do before he attempts to cross the track."
The Mestresdoctrine in a suit arising from a collision between an automobile and a street car is substantially
similar. Thus: "It may be said, however, that, where a person is nearing a street crossing toward which a car is
approaching, the duty is on the party to stop and avoid a collision who can most readily adjust himself to the
exigencies of the case, and where such person can do so more readily, the motorman has a right to presume that
such duty will be performed."
It is true, as plaintiff-appellant would now v. Manila Railroad Co.,[18] the controlling facts of allege, that there
has been a drift away from the apparent rigid and inflexible doctrine thus set forth in the two above cases as
evidenced by Lilius which, however, are easily distinguishable from what had been correctly ascertained in the
present case. Such a deviation from the earlier principle announced is not only true of this jurisdiction, but also
of the United States.
This is made clear by Prosser. Speaking of a 1927 decision by Justice Holmes, he had the following to
say: "Especially noteworthy in this respect is the attempt of Mr. Justice Holmes, in Baltimore & Ohio Railway
v. Goodman, to 'lay down a standard once for all, which would require an automobile driver approaching a
railroad crossing with an obstructed view to stop, look and listen, and if he cannot be sure otherwise that no
train is coming, to get out of the car. The basic idea behind this is sound enough: it is by no means proper care
to cross a railroad track without taking reasonable precautions against a train, and normally such precautions
will require looking, hearing, and a stop, or at least slow speed, where the view is obstructed."
Then, barely seven years later, in 1934, came Pokora v. Wabash Railway, where, according to Prosser, it being
shown that "the only effective stop must be made upon the railway tracks themselves, in a position of obvious
danger, the court disregarded any such uniform rule, rejecting the 'get out of the car' requirement as 'an
uncommon precaution, likely to be futile and sometimes even dangerous, and saying that the driver need not
always stop. 'Illustrations such as these, said Mr. Justice Cardozo, 'bear witness to the need for caution in
framing standards of behavior that amount to rules of law, * * * Extraordinary situations may not wisely or
fairly be subjected to tests or regulations that are fitting for the commonplace or normal."
What Justice Cardozo announced would merely emphasize what was set forth earlier that each and every case
on questions of negligence is to be decided in accordance with the peculiar circumstances that present
themselves. There can be no hard and fast rule. There must be that observance of that degree of care,
precaution, and vigilance which the situation demands. Thus defendant-appellee acted. It is undeniable, then
that no negligence can rightfully be imputed to it.
What commends itself for acceptance is this conclusion arrived at by the lower court: "Predicated on the
testimonies of the plaintiff's witnesses, on the knowledge of the deceased and his familiarity with the setup of
the checkpoint, the existence of the tracks; and on the further fact that the locomotive had blown its siren or
whistle, which was heard by said witnesses, it is clear that Corliss, Jr. was so sufficiently warned in advance of
the oncoming train that it was incumbent upon him to avoid a possible accident and this consisted simply in
stopping his vehicle before the crossing and allowing the train to move on. A prudent man under similar
circumstances would have acted in this manner. This, unfortunately, Corliss, Jr. failed to do."
WHEREFORE, the decision of the lower court of November 29, 1962 dismissing the complaint, is
affirmed. Without pronouncement as to costs.
Concepcion, C.J., Reyes, JBL, Dizon, Makalintal, Zaldivar, Sanchez, Ruiz Castro,
Capistrano, Teehankee, and Barredo, JJ., concur.

[14]
35 Pac. 549 (1894). Negligence as a concept has a well-understood meaning in both American and Spanish
law. It may not be amiss to state that according to the prevailing American doctrine, there is an objective test
for negligence which according to 2 Harper and James in their treatise on The Law of Torts (1956), citing the
Restatement of Torts is "conduct * * * which falls below the standard established by law for the protection of
others against unreasonable risk of harm." (At p. 896). Prosser on Torts, the third edition of which was
published in 1964, is of the same mind. (At p. 149). Terry and Edgerton viewed the matter similarly. Cf.
Terry, Negligence, 29 Harv.Law Rev. 40 (1915); Edgerton, Negligence, Inadvertence and Indifference,
39 Harv. Law Rev. 849 (1926). The above authors show the influence of Holmes in their definitions of the Law
of Negligence. According to Holmes in his classic, The Common Law (1881): "Thus the standard represents
the general level of moral judgment of the community, what it feels ought ordinarily to be done, and not
necessarily what is ordinarily done, although in practice the two would every often ear, come to same thing."
(At p. 110).
[18]
59 Phil. 758 (1934). Cf. however. Aguilar v. People (71 Phil. 426), a 1941 decision, where there is a
reiteration of the principle "that a person in control of an automobile who approaches a railroad track and
desires to cross it is bound to take that precaution and that control over the car as to be able to stop it almost
immediately upon the appearance of the train, * * *. " (At p. 428). This decision cited U. S. v.Mananquil, 42
Phil. 90 (1921); U.S. v. Manabat, 28 Phil. 560 (1914), and Yamada v. Manila Railroad Co., 33 Phil. 8 (1915).

[ GR No. 98695, Jan 27, 1993 ]

JUAN J. SYQUIA v. CA +
DECISION

CAMPOS, JR., J.:

Herein petitioners, Juan J. Syquia and Corazon C. Syquia, Carlota C. Syquia, Carlos C. Syquia, and Anthony
Syquia, were the parents and siblings, respectively, of the deceased Vicente Juan Syquia. On March 5, 1979,
they filed a complaint in the then Court of First Instance against herein private respondent, Manila Memorial
Park Cemetery, Inc. for recovery of damages arising from breach of contract and/or quasi-delict. The trial court
dismissed the complaint.

The antecedent facts, as gathered by the respondent court, are as follows:

"On March 5, 1979, Juan, Corazon, Carlota and Anthony all surnamed Syquia, plaintiffs-appellants herein, filed
a complaint for damages against defendant-appellee, Manila Memorial Park Cemetery, Inc.

The complaint alleged among others, that pursuant to a Deed of Sale (Contract No. 6885) dated August 27,
1969 and Interment Order No. 7106 dated July 21, 1978 executed between plaintiff-appellant Juan J. Syquia
and defendant-appellee, the former, father of deceased Vicente Juan J. Syquia authorized and instructed
defendant-appellee to inter the remains of deceased in the Manila Memorial Park Cemetery in the morning of
July 25, 1978 conformably and in accordance with defendant-appellant's (sic) interment procedures; that on
September 4, 1978, preparatory to transferring the said remains to a newly purchased family plot also at the
Manila Memorial Park Cemetery, the concrete vault encasing the coffin of the deceased was removed from its
niche underground with the assistance of certain employees of defendant-appellant (sic); that as the concrete
vault was being raised to the surface, plaintiffs-appellants discovered that the concrete vault had a hole
approximately three (3) inches in diameter near the bottom of one of the walls closing out the width of the vault
on one end and that for a certain length of time (one hour, more or less), water drained out of the hole; that
because of the aforesaid discovery, plaintiffs-appellants became agitated and upset with concern that the water
which had collected inside the vault might have risen as it in fact did rise, to the level of the coffin and flooded
the same as well as the remains of the deceased with ill effects thereto; that pursuant to an authority granted by
the Municipal Court of Parañaque, Metro Manila on September 14, 1978, plaintiffs-appellants with the
assistance of licensed morticians and certain personnel of defendant-appellant (sic) caused the opening of the
concrete vault on September 15, 1978; that upon opening the vault, the following became apparent to the
plaintiffs-appellants: (a) the interior walls of the concrete vault showed evidence of total flooding; (b) the coffin
was entirely damaged by water, filth and silt causing the wooden parts to warp and separate and to crack the
viewing glass panel located directly above the head and torso of the deceased; (c) the entire lining of the coffin,
the clothing of the deceased, and the exposed parts of the deceased's remains were damaged and soiled by the
action of the water and silt and were also coated with filth.

Due to the alleged unlawful and malicious breach by the defendant-appellee of its obligation to deliver a defect-
free concrete vault designed to protect the remains of the deceased and the coffin against the elements which
resulted in the desecration of deceased's grave and in the alternative, because of defendant-appellee's gross
negligence conformably to Article 2176 of the New Civil Code in failing to seal the concrete vault, the
complaint prayed that judgment be rendered ordering defendant-appellee to pay plaintiffs-appellants P30,000.00
for actual damages, P500,000.00 for moral damages, exemplary damages in the amount determined by the
court, 20% of defendant-appellee's total liability as attorney's fees, and expenses of litigation and costs of suit."
In dismissing the complaint, the trial court held that the contract between the parties did not guarantee that the
cement vault would be waterproof; that there could be no quasi-delict because the defendant was not guilty of
any fault or negligence, and because there was a pre?existing contractual relation between the Syquias and
defendant Manila Memorial Park Cemetery, Inc.. The trial court also noted that the father himself, Juan Syquia,
chose the gravesite despite knowing that said area had to be constantly sprinkled with water to keep the grass
green and that water would eventually seep through the vault. The trial court also accepted the explanation
given by defendant for boring a hole at the bottom side of the vault: "The hole had to be bored through the
concrete vault because if it has no hole the vault will (sic) float and the grave would be filled with water and the
digging would caved (sic) in the earth, the earth would caved (sic) in the (sic) fill up the grave."

From this judgment, the Syquias appealed. They alleged that the trial court erred in holding that the contract
allowed the flooding of the vault; that there was no desecration; that the boring of the hole was justifiable; and
in not awarding damages.

The Court of Appeals in the Decision dated December 7, 1990 however, affirmed the judgment of dismissal.
Petitioner's motion for reconsideration was denied in a Resolution dated April 25, 1991.

Unsatisfied with the respondent Court's decision, the Syquias filed the instant petition. They allege herein that
the Court of Appeals committed the following errors when it:

1. held that the contract and the Rules and Regulations of private respondent allowed the flooding of the vault
and the entrance thereto of filth and silt;

2. held that the act of boring a hole was justifiable and corollarily, when it held that no act of desecration was
committed;

3. overlooked and refused to consider relevant, undisputed facts, such as those which have been stipulated upon
by the parties, testified to by private respondent's witnesses, and admitted in the answer, which could have
justified a different conclusion;

4. held that there was no tort because of a pre-existing contract and the absence of fault/negligence; and

5. did not award the P25,000.00 actual damages which was agreed upon by the parties, moral and exemplary
damages, and attorney's fees.
At the bottom of the entire proceedings is the act of boring a hole by private respondent on the vault of the
deceased kin of the bereaved petitioners. The latter allege that such act was either a breach of private
respondent's contractual obligation to provide a sealed vault, or, in the alternative, a negligent act which
constituted a quasi-delict. Nonetheless, petitioners claim that whatever kind of negligence private respondent
has committed, the latter is liable for desecrating the grave of petitioners' dead.

In the instant case, We are called upon to determine whether the Manila Memorial Park Cemetery, Inc.
breached its contract with petitioners; or, alternatively, whether private respondent was guilty of a tort.

We understand the feelings of petitioners and empathize with them. Unfortunately, however, We are more
inclined to answer the foregoing questions in the negative. There is not enough ground, both in fact and in law,
to justify a reversal of the decision of the respondent Court and to uphold the pleas of the petitioners.

With respect to herein petitioners' averment that private respondent has committed culpa aquiliana, the Court of
Appeals found no negligent act on the part of private respondent to justify an award of damages against it.
Although a pre-existing contractual relation between the parties does not preclude the existence of a culpa
aquiliana, We find no reason to disregard the respondent's Court finding that there was no negligence.

"Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged
to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict x x x." (Underscoring Ours).

In this case, it has been established that the Syquias and the Manila Memorial Park Cemetery, Inc., entered into
a contract entitled "Deed of Sale and Certificate of Perpetual Care" on August 27, 1969. That agreement
governed the relations of the parties and defined their respective rights and obligations. Hence, had there been
actual negligence on the part of the Manila Memorial Park Cemetery, Inc., it would be held liable not for
a quasi-delict or culpa aquiliana, but for culpa contractual as provided by Article 1170 of the Civil Code, to
wit:

"Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof, are liable for damages."
The Manila Memorial Park Cemetery, Inc. bound itself to provide the concrete box to be used in the interment.
Rule 17 of the Rules and Regulations of private respondent provides that:

"Rule 17. Every earth interment shall be made enclosed in a concrete box, or in an outer wall of stone, brick or
concrete, the actual installment of which shall be made by the employees of the Association."
Pursuant to this above-mentioned Rule, a concrete vault was provided on July 27, 1978, the day before the
interment, and was on the same day, installed by private respondent's employees in the grave which was dug
earlier. After the burial, the vault was covered by a cement lid.

Petitioners however claim that private respondent breached its contract with them as the latter held out in the
brochure it distributed that the "x x x lot may hold single or double internment (sic) underground in sealed
concrete vault." Petitioners claim that the vault provided by private respondent was not sealed, that is, not
waterproof. Consequently, water seeped through the cement enclosure and damaged everything inside it.

We do not agree. There was no stipulation in the Deed of Sale and Certificate of Perpetual Care and in the Rules
and Regulations of the Manila Memorial Park Cemetery, Inc. that the vault would be waterproof. Private
respondent's witness, Mr. Dexter Heuschkel, explained that the term "sealed" meant "closed." On the other
hand, the word "seal" is defined as "x x x any of various closures or fastenings x x x that cannot be opened
without rupture and that serve as a check against tampering or unauthorized opening." The meaning that has
been given by private respondent to the word conforms with the cited dictionary definition. Moreover, it is also
quite clear that "sealed" cannot be equated with "waterproof". Well settled is the rule that when the terms of the
contract are clear and leave no doubt as to the intention of the contracting parties, then the literal meaning of the
stipulation shall control. Contracts should be interpreted according to their literal meaning and should not be
interpreted beyond their obvious intendment. As ruled by the respondent Court:

"When plaintiff-appellant Juan J. Syquia affixed his signature to the Deed of Sale (Exhibit "A") and the attached
Rules and Regulations (Exhibit "1"), it can be assumed that he has accepted defendant-appellee's undertaking to
merely provide concrete vault. He can not now claim that said concrete vault must in addition, also be
waterproofed (sic). It is basic that the parties are bound by the terms of their contract, which is the law between
them (Rizal Commercial Banking Corporation vs. Court of Appeals, et al. 178 SCRA 739). Where there is
nothing in the contract which is contrary to law, morals, good customs, public order, or public policy, the
validity of the contract must be sustained (Phil. American Insurance Co. vs. Judge Pineda 175 SCRA 416).
Consonant with this ruling, a contracting party cannot incur a liability more than what is expressly specified in
his undertaking. It cannot be extended by implication, beyond the terms of the contract (Rizal Commercial
Banking Corporation vs. Court of Appeals, supra). And as a rule of evidence, where the terms of an agreement
are reduced to writing, the document itself, being constituted by the parties as the expositor of their intentions,
is the only instrument of evidence in respect of that agreement which the law will recognize, so long as its (sic)
exists for the purpose of evidence (Starkie, Ev., pp. 648, 655, Kasheenath vs. Chundy, 5 W.R. 68 cited in
Francisco, Revised Rules of Court in the Phil. p. 153, 1973 Ed.). And if the terms of the contract are clear and
leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control
(Santos vs. CA, et al., G.R. No. 83664, Nov. 13, 1989; Prudential Bank & Trust Co. vs. Community Builders
Co., Inc., 165 SCRA 285; Balatero vs. IAC, 154 SCRA 530)."
We hold, therefore, that private respondent did not breach the tenor of its obligation to the Syquias. While this
may be so, can private respondent be liable for culpa aquiliana for boring the hole on the vault? It cannot be
denied that the hole made possible the entry of more water and soil than was natural had there been no hole.

The law defines negligence as the "omission of that diligence which is required by the nature of the obligation
and corresponds with the circumstances of the persons, of the time and of the place." In the absence of
stipulation or legal provision providing the contrary, the deligence to be observed in the performance of the
obligation is that which is expected of a good father of a family.

The circumstances surrounding the commission of the assailed act - boring of the hole - negate the allegation of
negligence. The reason for the act was explained by Henry Flores, Interment Foreman, who said that:
"Q: It has been established in this particular case that a certain Vicente Juan Syquia was interred on July 25,
1978 at the Parañaque Cemetery of the Manila Memorial Park Cemetery, Inc., will you please tell the Hon.
Court what or whether you have participation in connection with said internment (sic)?

A: A day before Juan (sic) Syquia was buried our personnel dug a grave. After digging the next morning a vault
was taken and placed in the grave and when the vault was placed on the grave a hole was placed on the vault so
that water could come into the vault because it was raining heavily then because the vault has no hole the vault
will float and the grave would be filled with water and the digging would caved (sic) in and the earth, the earth
would (sic) caved in and fill up the grave.” (Underscoring ours)
Except for the foreman's opinion that the concrete vault may float should there be a heavy rainfall, from the
above-mentioned explanation, private respondent has exercised the diligence of a good father of a family in
preventing the accumulation of water inside the vault which would have resulted in the caving in of earth
around the grave filling the same with earth.

Thus, finding no evidence of negligence on the part of private respondent, We find no reason to award damages
in favor of petitioners.

In the light of the foregoing facts, and construed in the language of the applicable laws and jurisprudence, We
are constrained to AFFIRMin toto the decision of the respondent Court of Appeals dated December 7, 1990.
No costs.
SO ORDERED.

Narvasa, C.J., (Chairman), Feliciano, Regalado, and Nocon, JJ., concur.

[ GR No. 126152, Sep 28, 1999 ]

PHILIPPINE NATIONAL BANK v. CA +
DECISION

373 Phil. 942

BELLOSILLO, J.:
PHILIPPINE NATIONAL BANK filed this petition for review on certiorari under Rule 45 of the Rules of
Court assailing the Decision of the Court of Appeals which affirmed the award of damages by the Regional
Trial Court, Branch 154, Pasig City in favor of private respondent Lily S. Pujol.

Sometime prior to 23 October 1990 private respondent Lily S. Pujol opened with petitioner Philippine National
Bank, Mandaluyong Branch (PNB for brevity), an account denominated as "Combo Account," a combination of
Savings Account and Current Account in private respondent's business name "Pujol Trading," under which
checks drawn against private respondent's checking account could be charged against her Savings Account
should the funds in her Current Account be insufficient to cover the value of her checks. Hence, private
respondent was issued by petitioner a passbook on the front cover of which was typewritten the words "Combo
Deposit Plan."

On 23 October 1990, private respondent issued a check in the amount of P30,000.00 in favor of her daughter-in-
law, Dr. Charisse M. Pujol. When issued and presented for payment, private respondent had sufficient funds in
her Savings Account. However, petitioner dishonored her check allegedly for insufficiency of funds and debited
her account with P250.00 as penalty charge.

On 24 October 1990 private respondent issued another check in the amount of P30,000.00 in favor of her
daughter, Ms. Venus P. De Ocampo. When issued and presented for payment petitioner had sufficient funds in
her Savings Account. But, this notwithstanding, petitioner dishonored her check for insufficiency of funds and
debited her account with P250.00 as penalty charge. On 4 November 1990, after realizing its mistake, petitioner
accepted and honored the second check for P30,000.00 and re-credited to private respondent's account the
P250.00 previously debited as penalty.

Private respondent Lily S. Pujol filed with the Regional Trial Court of Pasig City a complaint for moral and
exemplary damages against petitioner for dishonoring her checks despite sufficiency of her funds in the bank.

Petitioner admitted in its answer that private respondent Pujol opened a "Combo Account," a combination of
Savings Account and Current Account, with its Mandaluyong branch. It however justified the dishonor of the
two (2) checks by claiming that at the time of their issuance private respondent Pujol's account was not yet
operational due to lack of documentary requirements, to wit: (a) Certificate of Business Registration; (b) Permit
to Operate Business; (c) ID Card; and, (d) Combination Agreement. Petitioner further alleged that despite the
non-compliance with such requirements petitioner placed the sign "Combo Flag" on respondent Pujol's account
out of courtesy and generosity. Petitioner also admitted that it later honored private respondent's second check,
debited the amount stated therein from her account and re-credited the amount of P250.00 initially charged as
penalty.

On 27 September 1994 the trial court rendered a decision ordering petitioner to pay private respondent Pujol
moral damages of P100,000.00 and attorney's fees of P20,000.00. It found that private respondent suffered
mental anguish and besmirched reputation as a result of the dishonor of her checks, and that being a former
member of the judiciary who was expected to be the embodiment of integrity and good behavior, she was
subjected to embarrassment due to the erroneous dishonor of her checks by petitioner.

The Court of Appeals affirmed in toto the decision of the trial court. Hence, petitioner comes to this Court
alleging that the appellate court erred (a) in holding that petitioner was estopped from denying the existence of a
"Combo Account" and the fact that it was operational at the time of the issuance of the checks because
respondent Pujol was issued a Savings Account passbook bearing the printed words "Combo Deposit Plan;"
and, (b) in not holding that the award by the trial court of moral damages of P100,000.00 and attorney's fees of
P20,000.00 was inordinately disproportionate and unconscionable.

We cannot sustain petitioner. Findings of fact and conclusions of the lower courts are entitled to great weight on
appeal and will not be disturbed except for strong and cogent reasons, and for that matter, the findings of the
Court of Appeals especially when they affirm the trial court, and which are supported by substantial evidence,
are almost beyond the power of review by the Supreme Court.

Petitioner does not dispute the fact that private respondent Pujol maintained a Savings Account as well as a
Current Account with its Mandaluyong Branch and that private respondent applied for a "Combination Deposit
Plan" where checks issued against the Current Account of the drawer shall be charged automatically against the
latter's Savings Account if her funds in the Current Account be insufficient to cover her checks. There was also
no question that the Savings Account passbook of respondent Pujol contained the printed words "Combo
Deposit Plan" without qualification or condition that it would take effect only after submission of certain
requirements. Although petitioner presented evidence before the trial court to prove that the arrangement was
not yet operational at the time respondent Pujol issued the two (2) checks, it failed to prove that she had actual
knowledge that it was not yet operational at the time she issued the checks considering that the passbook in her
Savings Account already indicated the words "Combo Deposit Plan." Hence, respondent Pujol had justifiable
reason to believe, based on the description in her passbook, that her accounts were effectively covered by the
arrangement during the issuance of the checks. Either by its own deliberate act, or its negligence in causing the
"Combo Deposit Plan" to be placed in the passbook, petitioner is considered estopped to deny the existence of
and perfection of the combination deposit agreement with respondent Pujol. Estoppel in pais or equitable
estoppel arises when one, by his acts, representations or admissions, or by his silence when he ought to speak
out, intentionally or through culpable negligence, induces another to believe certain facts to exist and such other
rightfully relies and acts on such belief so that he will be prejudiced if the former is permitted to deny the
existence of such facts.

As found by the Court of Appeals, petitioner knew it committed a mistake in dishonoring the checks of
respondent Pujol. This was based on the testimony of Pedro Lopez, petitioner's employee, that after the second
check was dishonored, petitioner examined respondent Pujol's account and learned that there was sufficient
funds in the Savings Account, and that only after the second check was dishonored did petitioner rectify its
error. The appellate court also found that respondent Pujol, who is a retired judge and community leader, issued
the first check dated 23 October 1990 to her daughter-in-law, Dr. Charisse Pujol, who in turn indorsed the check
to her mother. The latter needed the money to refloat two (2) of their vessels which sank during a typhoon.
When the check was dishonored for insufficient funds, private respondent's daughter-in-law confronted the
former which subjected her to embarrassment and humiliation. Petitioner issued the second check dated 24
October 1990 to daughter Venus de Ocampo as payment for the expenses of her round trip ticket to the United
States which were shouldered by her son-in-law, husband of Venus de Ocampo. When the second check was
initially dishonored for insufficiency of funds, she again suffered serious anxiety and mental anguish that her
son-in-law would no longer hold her in high esteem.

This Court has ruled that a bank is under obligation to treat the accounts of its depositors with meticulous care
whether such account consists only of a few hundred pesos or of millions of pesos. Responsibility arising from
negligence in the performance of every kind of obligation is demandable. While petitioner's negligence in this
case may not have been attended with malice and bad faith, nevertheless, it caused serious anxiety,
embarrassment and humiliation to private respondent Lily S. Pujol for which she is entitled to recover
reasonable moral damages. In the case of Leopoldo Araneta v. Bank of America we held that it can hardly be
possible that a customer's check can be wrongfully refused payment without some impeachment of his credit
which must in fact be an actual injury, although he cannot, from the nature of the case, furnish independent and
distinct proof thereof.

Damages are not intended to enrich the complainant at the expense of the defendant, and there is no hard-and-
fast rule in the determination of what would be a fair amount of moral damages since each case must be
governed by its own peculiar facts. The yardstick should be that it is not palpably and scandalously excessive.
In this case, the award of P100,000.00 is reasonable considering the reputation and social standing of private
respondent Pujol and applying our rulings in similar cases involving banks' negligence with regard to the
accounts of their depositors.The award of attorney's fees in the amount of P20,000.00 is proper for respondent
Pujol was compelled to litigate to protect her interest.

WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals which affirmed the award by
the Regional Trial Court of Pasig City of moral damages of P100,000.00 and attorney's fees of P20,000.00 in
favor of private respondent Lily S. Pujol is AFFIRMED. Costs against petitioner.

SO ORDERED.

Mendoza, Quisumbing, and Buena, JJ., concur.

[ G.R. No. L-25414, July 30, 1971 ]

LEOPOLDO ARANETA, PETITIONER, VS. BANK OF AMERICA, RESPONDENT.

DECISION
MAKALINTAL, J.:
Petition for review by certiorari of the decision of the Court of Appeals in CA-G.R. No. L-34508-R modifying
that of the Court of First Instance of Manila in the Civil Case No. 52442.
Leopoldo Araneta, the petitioner herein, was a local merchant engaged in the import and export business. On
June 30, 1961 he issued a check for $500 payable to cash and drawn against the San Francisco main office of
the Bank of America, where he had been maintaining a dollar current account since 1948. At that time he had a
credit balance of $523.81 in his account, confirmed by the bank's assistant cashier in a letter to Araneta dated
September 7, 1961. However, when the check was received by the bank on September 8, 1961, a day after the
date of the letter, it was dishonored and stamped with the notation "Account Closed."
Upon inquiry by Araneta as to why his check had been dishonored, the Bank of America acknowledged that it
was an error, explaining that for some reason the check had been encoded with wrong account number, and
promising that "we shall make every effort to see that this does not reoccur." The bank sent a letter of apology
to the payee of the check, a Mr. Harry Gregory of Hongkong, stating that "the check was returned through an
error on our part and should not reflect adversely upon Mr. Araneta." In all probability the matter would have
been considered closed, but another incident of a similar nature occurred later.
On May 25 and 31, 1962 Araneta issued Check No. 110 for $500 and Check No. 111 for $150, respectively,
both payable to cash and drawn against the Bank of America. These two checks were received by the bank on
June 3, 1962. The first check appeared to have come into the hands of Rufina Saldaña, who deposited it to her
account with the First National City Bank of New York, which in turn cleared it through the Federal Reserve
Bank. The second check appeared to have been cleared through the Wells Fargo Bank. Despite the sufficiency
of Araneta's deposit balance to cover both checks, they were again stamped with the notation "Account Closed"
and returned to the respective clearing banks.
In the particular case of Check No. 110, it was actually paid by the Bank of America to the First National City
Bank. Subsequently, however, the Bank of America, claiming that the payment had been inadvertently made,
returned the check to the First National City Bank with the request that the amount thereof be credited back to
the Bank of America. In turn, the First National City Bank wrote to the depositor of the check, Rufina Saldaña,
informing her about its return with the notation "Account Closed" and asking her consent to the deduction of its
amount from her deposit. However, before Mrs. Saldaña's reply could be received, the Bank of America
recalled the check from the First National City Bank and honored it.
In view of the foregoing incidents, Araneta, through counsel, sent a letter to the Bank of America demanding
damages in the sum of $20,000. While admitting responsibility for the inconvenience caused to Araneta, the
bank claimed that the amount demanded was excessive, and offered to pay the sum of P2,000.00. The offer was
rejected.
On December 11, 1962 Araneta filed the complaint in this case against the Bank of America for the recovery of
the following:
1. Actual or compensatory damages P30,000.00
2. Moral damages 20,000.00
3. Temperate damages 50,000.00
4. Exemplary damages 10,000.00
5. Attorney's fees 10,000.00
TOTAL P120,000.00
The judgment of the trial court awarded all the items prayed for, but on appeal by the defendant the Court of
Appeals eliminated the award of compensatory and temperate damages and reduced the moral damages to
P8,000.00, the exemplary damages to P1,000.00 and the attorney's fees to P1,000.00.
Not satisfied with the decision of the appellate court, the plaintiff filed the instant petition for review, alleging
two reasons why it should be allowed, as follows:
"(1) The Court of Appeals erred in holding that temperate damages cannot be awarded without proof of actual
pecuniary loss. There is absolutely no legal basis for this ruling; worse yet, it runs counter to the very pro-
visions of ART. 2216 of the New Civil Code and to the established jurisprudence on the matter;
"(2) The Court of Appeals erred in not holding that moral damages may be recovered as an item separate and
distinct from the damages recoverable for injury to business standing and commercial credit. This involves the
application of paragraph (2) of Art. 2205 of the New Civil Code which up to now has not yet received an
authoritative interpretation from the Supreme Court. x x x."
In his brief, however, the petitioner assigned five (5) errors committed by the appellate court, namely: (1) in
concluding that the petitioner, on the basis of the evidence, had not sufficiently proven his claim for actual
damages, where such evidence, both testimonial and documentary, stands uncontradicted on the record; (2) in
holding that temperate damages cannot be awarded to the petitioner without proof of actual pecuniary loss; (3)
in not granting moral damages for mental anguish, besmirched reputation, wounded feelings, social humiliation,
etc., separate and distinct from the damages recoverable for injury to business reputation; (4) in reducing,
without any ostensible reason, the award of exemplary damages granted by the lower court; and (5) in reducing,
without special reason, the award of attorney's fees by the lower court.
We consider the second and third errors, as they present the issues raised in the petition for review and on the
basis of which it was given due course.
In disallowing the award of temperate damages, the Court of Appeals ruled:
"In view of all the foregoing considerations we hold that the plaintiff has not proven his claim that the two
checks for $500 each were in partial payment of two orders for jewels worth P50,000 each. He has likewise not
proven the actual damage which he claims he has suffered. And in view of the fact that he has not proven the
existence of the supposed contract for him to buy jewels at a profit there is not even an occasion for an award of
temperate damages on this score."
This ruling is now assailed as erroneous and without legal basis. The petitioner maintains that in an action by a
depositor against a bank for damages resulting from the wrongful dishonor of the depositor's checks, temperate
damages for injury to business standing or commercial credit may be recovered even in the absence of definite
proof of direct pecuniary loss to the plaintiff, a finding - as it was found by the Court of Appeals - that the
wrongful acts of the respondent had adversely affected his credit being sufficient for the purpose. The
following provisions of the Civil Code are invoked:
"ART. 2205. Damages may be recovered:
(1) For loss or impairment of earning capacity in cases of temporary or permanent personal injury;
(2) For injury to the plaintiff's business standing or commercial credit."
"ART. 2216. No proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or
exemplary damages may be adjudicated. The assessment of such damages, except liquidated ones, is left to the
discretion of the court, according to the circumstances of each case."
Also invoked by the petitioner is the case of Atlanta National Bank vs. Davis, 96 Ga 334, 23 SE 190,[1] and the
following citations in American Jurisprudence:
"In some states what are called 'temperate damages' are allowed in certain classes of cases, without proof of
actual or special damages, where the wrong done must in fact have caused actual damage to the plaintiff, though
from the nature of the case, he cannot furnish independent, distinct proof thereof. Temperate damages are more
than nominal damages, and, rather, are such as would be a reasonable compensation for the injury
sustained. x x x." (15 Am. Jur. 400)
"x x x. It has been generally, although not universally, held, in an action based upon the wrongful act of a bank
in dishonoring checks of a merchant or trader having sufficient funds on deposit with the bank, that substantial
damages will be presumed to follow such act as a necessary and natural consequence, and accordingly, that
special damages need not be shown. One of the reasons given for this rule is that the dishonor of a merchant's
or trader's check is tantamount or analogous, to a slander of his trade or business, imputing to him insolvency or
bad faith. x x x." (10 Am. Jur. 2d. 545)
On the other hand the respondent argues that since the petitioner invokes Article 2205 of the Civil Code, which
speaks of actual or compensatory damages for injury to business standing or commercial credit, he may not
claim them as temperate damages and thereby dispense with proof of pecuniary loss under Article 2216. The
respondent cites Article 2224, which provides that "temperate or moderate damages, which are more than
nominal but less than compensatory damages may be recovered when the court finds that some pecuniary loss
has been suffered but its amount cannot, from the nature of the case, be proved with certainty," and contends
that the petitioner failed to show any such loss in this case.
The question, therefore, is whether or not on the basis of the findings of the Court of Appeals, there is reason to
conclude that the petitioner did sustain some pecuniary loss although no sufficient proof of the amount thereof
has been adduced. In rejecting the claim for temperate damages the said Court referred specifically to the
petitioner's failure to prove "the existence of a supposed contract for him to buy jewels at a profit," in
connection with which he issued the two checks which were dishonored by the respondent. This may be true as
far as it goes, that is, with particular reference to the alleged loss in that particular transaction. But it does not
detract from the finding of the same Court that actual damage had been suffered, thus:
"... Obviously, the check passed the hands of other banks since it was cleared in the United States. The adverse
reflection against the credit of Araneta with said banks was not cured nor explained by the letter of apology to
Mr. Gregory."
x x x
"... This incident obviously affected the credit of Araneta with Miss Saldaña.
x x x
"However, in so far as the credit of Araneta with the First National City Bank, with Miss Rufina Saldaña and
with any other persons who may have come to know about the refusal of the defendant to honor said checks, the
harm was done..."
The financial credit of a businessman is a prized and valuable asset, it being a significant part of the foundation
of his business. Any adverse reflection thereon constitutes some material loss to him. As stated in the case
Atlanta National Bank vs. Davis, supra, citing 2 Morse Banks, Sec. 458, "it can hardly be possible that a
customer's check can be wrongfully refused payment without some impeachment of his credit, which must in
fact be an actual injury, though he cannot, from the nature of the case, furnish independent, distinct proof
thereof."
The Code Commission, in explaining the concept of temperate damages under Article 2224, makes the fol-
lowing comment:
"In some States of the American Union, temperate damages are allowed. There are cases where from the nature
of the case, definite proof of pecuniary loss cannot be offered, although the court is convinced that there has
been such loss. For instance, injury to one's commercial credit or to the goodwill of a business firm is often
hard to show with certainty in terms of money. Should damages be denied for that reason? The judge should
be empowered to calculate moderate damages in such cases, rather than that the plaintiff should suffer, without
redress from the defendant's wrongful act."
The petitioner, as found by the Court of Appeals, is a merchant of long standing and good reputation in the
Philippines. Some of his record is cited in the decision appealed from. We are of the opinion that his claim for
temperate damages is legally justified. Considering all the circumstances, including the rather small size of the
petitioner's account with the respondent, the amounts of the checks which were wrongfully dishonored, and the
fact that the respondent tried to rectify the error soon after it was discovered, although the rectification came
after the damage had been caused, we believe that an award of P5,000 by way of temperate damages is
sufficient.
Under the third error assigned by the petitioner in his brief, which is the second of the two reasons relied upon
in his petition for review, he contends that moral damages should have been granted for the injury to his
business standing or commercial credit, separately from his wounded feelings and mental anguish. It is true that
under Article 2217 of the Civil Code, "besmirched reputation" is a ground upon which moral damages may be
claimed, but the Court of Appeals did take this element into consideration in adjudging the sum of P8,000 in his
favor. We quote from the decision:
"... the damages to his reputation as an established and well known international trader entitled him to recover
moral damages."
x x x
"... It was likewise established that when plaintiff learned that his checks were not honored by the drawee Bank,
his wounded feelings and the mental anguish suffered by him caused his blood pressure to rise beyond normal
limits, thereby necessitating medical attendance for an extended period."
The trial court awarded attorney's fees in the amount of P10,000. This was reduced by the Court of Appeals to
only P1,000. Considering the nature and extent of the services rendered by the petitioner's counsel both in the
trial and appellate courts, the amount should be increased to P4,000. This may be done motu proprio by this
Court under Article 2208 of the Civil Code, which provides that attorney's fees may be recovered in the
instances therein enumerated and "in any other case where the Court deems it first and equitable that attorney's
fees... should be recovered," provided the amount thereof be reasonable in all cases.
We do not entertain the first and fourth errors assigned by the petitioner. Neither of them was raised and ruled
upon as reasons for the allowance of his petition for review, as required by Section 2 of Rule 45. Besides, the
first error involves a question of fact and calls for a review of the evidence and a reappraisal of its probative
value - a task not within the appellate jurisdiction of this Court in this case. And with respect to the fourth error,
while there was gross negligence on the part of the respondent, the record shows, as hereinbefore observed, that
it tried to rectify its error soon after the same was discovered, although not in time to prevent the damage to the
petitioner.
Wherefore, the judgment of the Court of Appeals is modified by awarding temperate damages to the petitioner
in the sum of P5,000 and increasing the attorney's fees to P4,000; and is affirmed in all other respects. Costs
against respondent.
Concepcion, C.J., Reyes, J.B.L., Zaldivar, Ruiz Castro, Fernando, Teehankee, Barredo, Villamor, and Makasiar,
JJ., concur.
Dizon, J., on leave.

[1]
In this case the plaintiff, whose check was wrongfully dishonored by the bank, was not required to prove
special damages in order to recover substantial damages since, the court observed, such damages would
naturally follow the dishonor of a check by a bank, although they were probably not susceptible of independent
distinct proof. The plaintiff was awarded $200 as temperate damages.