G.R. No. L-24968 April 27, 1972 Saura, Inc. was officially notified of the resolution on January 9, 1954.
d of the resolution on January 9, 1954. The day before,
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
MAKALINTAL, J.:p
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on
June 28, 1965 sentencing defendant Development Bank of the Philippines (DBP) to pay actual
and consequential damages to plaintiff Saura Import and Export Co., Inc. in the amount of
P383,343.68, plus interest at the legal rate from the date the complaint was filed and attorney's
fees in the amount of P5,000.00. The present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation
Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of
P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for
the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of the
jute mill machinery and equipment; and P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been purchased
by Saura on the strength of a letter of credit extended by the Prudential Bank and Trust Co.,
and arrived in Davao City in July 1953; and that to secure its release without first paying the
draft, Saura, Inc. executed a trust receipt in favor of the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for
P500,000.00, to be secured by a first mortgage on the factory building to be constructed, the
land site thereof, and the machinery and equipment to be installed. Among the other terms
spelled out in the resolution were the following:
1. That the proceeds of the loan shall be utilized exclusively for the
following purposes:
For construction of factory building P250,000.00
For payment of the balance of purchase
price of machinery and equipment 240,900.00
For working capital 9,100.00
T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria
Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly with the borrower-
corporation;
5. That release shall be made at the discretion of the Rehabilitation Finance Corporation,
subject to availability of funds, and as the construction of the factory buildings progresses, to be
certified to by an appraiser of this Corporation;"
however, evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter to
RFC, requesting a modification of the terms laid down by it, namely: that in lieu of having China
Engineers, Ltd. (which was willing to assume liability only to the extent of its stock subscription
with Saura, Inc.) sign as co-maker on the corresponding promissory notes, Saura, Inc. would
put up a bond for P123,500.00, an amount equivalent to such subscription; and that Maria S.
Roca would be substituted for Inocencia Arellano as one of the other co-makers, having
acquired the latter's shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of
the members of its Board of Governors, for certain reasons stated in the resolution, "to
reexamine all the aspects of this approved loan ... with special reference as to the advisability
of financing this particular project based on present conditions obtaining in the operations of
jute mills, and to submit his findings thereon at the next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act
as co-signer for the loan, and asked that the necessary documents be prepared in accordance
with the terms and conditions specified in Resolution No. 145. In connection with the
reexamination of the project to be financed with the loan applied for, as stated in Resolution No.
736, the parties named their respective committees of engineers and technical men to meet
with each other and undertake the necessary studies, although in appointing its own committee
Saura, Inc. made the observation that the same "should not be taken as an acquiescence on
(its) part to novate, or accept new conditions to, the agreement already) entered into," referring
to its acceptance of the terms and conditions mentioned in Resolution No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling,
representing China Engineers, Ltd., as one of the co-signers; and the corresponding deed of
mortgage, which was duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan agreement the reexamination
contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board of Governors
on June 10, 1954, at which Ramon Saura, President of Saura, Inc., was present, it was decided
to reduce the loan from P500,000.00 to P300,000.00. Resolution No. 3989 was approved as
follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under
Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736,
c.s., authorizing the re-examination of all the various aspects of the loan granted the Saura
Import & Export Co. under Resolution No. 145, c.s., for the purpose of financing the
manufacture of jute sacks in Davao, with special reference as to the advisability of financing
this particular project based on present conditions obtaining in the operation of jute mills, and
after having heard Ramon E. Saura and after extensive discussion on the subject the Board,
upon recommendation of the Chairman, RESOLVED that the loan granted the Saura Import &
Export Co. be REDUCED from P500,000 to P300,000 and that releases up to P100,000 may
be authorized as may be necessary from time to time to place the factory in actual operation:
PROVIDED that all terms and conditions of Resolution No. 145, c.s., not inconsistent herewith,
shall remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note
for China Engineers Ltd. jointly and severally with the other RFC that his company no longer to
of the loan and therefore considered the same as cancelled as far as it was concerned. A
follow-up letter dated July 2 requested RFC that the registration of the mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be
granted. The request was denied by RFC, which added in its letter-reply that it was
"constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification ... from b) For the purchase of materials and equip-
the China Engineers Ltd., expressing their desire to consider the loan insofar as they are ment per attached list to enable the jute
concerned." mill to operate 182,413.91

On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC c) For raw materials and labor 67,586.09
that China Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note if
RFC releases to us the P500,000.00 originally approved by you.".
1) P25,000.00 to be released on the open-
ing of the letter of credit for raw jute
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original for $25,000.00.
amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the
promissory notes jointly with the borrower-corporation," but with the following proviso:
2) P25,000.00 to be released upon arrival
of raw jute.
That in view of observations made of the shortage and high cost of
imported raw materials, the Department of Agriculture and Natural
3) P17,586.09 to be released as soon as the
Resources shall certify to the following:
mill is ready to operate.

1. That the raw materials needed by the borrower-corporation to carry out

On January 25, 1955 RFC sent to Saura, Inc. the following reply:
its operation are available in the immediate vicinity; and

Dear Sirs:
2. That there is prospect of increased production thereof to provide
adequately for the requirements of the factory."
This is with reference to your letter of January 21,
1955, regarding the release of your loan under
The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22,
consideration of P500,000. As stated in our letter of
1954, wherein it was explained that the certification by the Department of Agriculture and
December 22, 1954, the releases of the loan, if
Natural Resources was required "as the intention of the original approval (of the loan) is to
revived, are proposed to be made from time to time,
develop the manufacture of sacks on the basis of locally available raw materials." This point is
subject to availability of funds towards the end that the
important, and sheds light on the subsequent actuations of the parties. Saura, Inc. does not
sack factory shall be placed in actual operating status.
deny that the factory he was building in Davao was for the manufacture of bags from local raw
We shall be able to act on your request for revised
materials. The cover page of its brochure (Exh. M) describes the project as a "Joint venture by
purpose and manner of releases upon re-appraisal of
and between the Mindanao Industry Corporation and the Saura Import and Export Co., Inc. to
the securities offered for the loan.
finance, manage and operate a Kenaf mill plant, to manufacture copra and corn bags, runners,
floor mattings, carpets, draperies; out of 100% local raw materials, principal kenaf." The
explanatory note on page 1 of the same brochure states that, the venture "is the first serious With respect to our requirement that the Department of
attempt in this country to use 100% locally grown raw materials notably kenaf which is presently Agriculture and Natural Resources certify that the raw
grown commercially in theIsland of Mindanao where the proposed jutemill is located ..." materials needed are available in the immediate
vicinity and that there is prospect of increased
production thereof to provide adequately the
This fact, according to defendant DBP, is what moved RFC to approve the loan application in
requirements of the factory, we wish to reiterate that
the first place, and to require, in its Resolution No. 9083, a certification from the Department of
the basis of the original approval is to develop the
Agriculture and Natural Resources as to the availability of local raw materials to provide
manufacture of sacks on the basis of the locally
adequately for the requirements of the factory. Saura, Inc. itself confirmed the defendant's
available raw materials. Your statement that you will
stand impliedly in its letter of January 21, 1955: (1) stating that according to a special study
have to rely on the importation of jute and your request
made by the Bureau of Forestry "kenaf will not be available in sufficient quantity this year or
that we give you assurance that your company will be
probably even next year;" (2) requesting "assurances (from RFC) that my company and
able to bring in sufficient jute materials as may be
associates will be able to bring in sufficient jute materials as may be necessary for the full
necessary for the operation of your factory, would not
operation of the jute mill;" and (3) asking that releases of the loan be made as follows:
be in line with our principle in approving the loan.

a) For the payment of the receipt for jute mill

With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the
machineries with the Prudential Bank &
matter further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955
RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Saura
Trust Company P250,000.00 himself as president of Saura, Inc.

(For immediate release) It appears that the cancellation was requested to make way for the registration of a mortgage
contract, executed on August 6, 1954, over the same property in favor of the Prudential Bank
and Trust Co., under which contract Saura, Inc. had up to December 31 of the same year within insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be
which to pay its obligation on the trust receipt heretofore mentioned. It appears further that for cancelled, which was done on June 15, 1955. The action thus taken by both parties was in the
failure to pay the said obligation the Prudential Bank and Trust Co. sued Saura, Inc. on May 15, nature cf mutual desistance — what Manresa terms "mutuo disenso"1 — which is a mode of
1955. extinguishing obligations. It is a concept that derives from the principle that since mutual
agreement can create a contract, mutual disagreement by the parties can cause its
extinguishment.2
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the
request of Saura, Inc., the latter commenced the present suit for damages, alleging failure of
RFC (as predecessor of the defendant DBP) to comply with its obligation to release the The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any
proceeds of the loan applied for and approved, thereby preventing the plaintiff from completing alleged breach of contract by RFC, or even point out that the latter's stand was legally
or paying contractual commitments it had entered into, in connection with its jute mill project. unjustified. Its request for cancellation of the mortgage carried no reservation of whatever rights
it believed it might have against RFC for the latter's non-compliance. In 1962 it even applied
with DBP for another loan to finance a rice and corn project, which application was
The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract
disapproved. It was only in 1964, nine years after the loan agreement had been cancelled at its
between the parties and that the defendant was guilty of breach thereof. The defendant
own request, that Saura, Inc. brought this action for damages.All these circumstances
pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of action had
demonstrate beyond doubt that the said agreement had been extinguished by mutual
prescribed, or that its claim had been waived or abandoned; (2) that there was no perfected
desistance — and that on the initiative of the plaintiff-appellee itself.
contract; and (3) that assuming there was, the plaintiff itself did not comply with the terms
thereof.
With this view we take of the case, we find it unnecessary to consider and resolve the other
issues raised in the respective briefs of the parties.
We hold that there was indeed a perfected consensual contract, as recognized in Article 1934
of the Civil Code, which provides:
WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with
costs against the plaintiff-appellee.
ART. 1954. An accepted promise to deliver something, by way of
commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perferted until the delivery of
the object of the contract.

There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a
loan of P500,000.00 was approved by resolution of the defendant, and the corresponding
mortgage was executed and registered. But this fact alone falls short of resolving the basic
claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to
recover damages.

It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption
that the factory to be constructed would utilize locally grown raw materials, principally kenaf.
There is no serious dispute about this. It was in line with such assumption that when RFC, by
Resolution No. 9083 approved on December 17, 1954, restored the loan to the original amount
of P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials needed by the
borrower-corporation to carry out its operation are available in the immediate vicinity; and (2)
that there is prospect of increased production thereof to provide adequately for the
requirements of the factory." The imposition of those conditions was by no means a deviation
from the terms of the agreement, but rather a step in its implementation. There was nothing in
said conditions that contradicted the terms laid down in RFC Resolution No. 145, passed on
January 7, 1954, namely — "that the proceeds of the loan shall be utilized exclusively for the
following purposes: for construction of factory building — P250,000.00; for payment of the
balance of purchase price of machinery and equipment — P240,900.00; for working capital —
P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions required by
RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not be able in
sufficient quantity this year or probably next year," and asking that out of the loan agreed upon
the sum of P67,586.09 be released "for raw materials and labor." This was a deviation from the
terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying as it
did a diversion of part of the proceeds of the loan to purposes other than those agreed upon.

When RFC turned down the request in its letter of January 25, 1955 the negotiations which had
been going on for the implementation of the agreement reached an impasse. Saura, Inc.
obviously was in no position to comply with RFC's conditions. So instead of doing so and
 G.R. No. 175863 February 18, 2015
NATIONAL POWER CORPORATION, Petitioner,
vs.
LUCMAN M. IBRAHIM, ATTY. OMAR G. MARUHOM, ELIAS G. MARUHOM, BUCAY G.
MARUHOM, MAMOD G. MARUHOM, FAROUK G. MARUHOM, HIDJARA G. MARUHOM,
ROCANIA G. MARUHOM, POTRISAM G. MARUHOM, LUMBA G. MAR UH OM, SIN AB G.
MARUHOM, ACMAD G. MARUHOM, SOLAYMAN G. MARUHOM, MOHAMAD M. IBRAHIM,
CAIRONESA M. IBRAHIM and MACAPANTON K. MANGONDATORespondents.
DECISION
PEREZ, J.:
At bench is a petition for review on certiorari1 assailing the Decision2 dated 24 June 2005 and
Resolution3 dated 5 December 2006 of the Court of Appeals in CA-G.R. CV No. 68061. The
facts:
The Subject Land
In 1978, petitioner took possession of a 21,995 square meter parcel of land in Marawi City
(subject land) for the purpose of building thereon a hydroelectric power plant pursuant to its
Agus 1 project. The subject land, while in truth a portion of a private estate registered under
Transfer Certificate of Title (TCT) No. 378-A4 in the name of herein respondent Macapanton K.
Mangondato (Mangondato),5 was occupied by petitioner under the mistaken belief that such
land is part of the vast tract of public land reserved for its use by the government under
Proclamation No. 1354, s. 1974.6
Mangondato first discovered petitioner’s occupation of the subject land in 1979—the year that
petitioner started its construction of the Agus 1plant. Shortly after such discovery, Mangondato
began demanding compensation for the subject land from petitioner.
In support of his demand for compensation, Mangondato sent to petitioner a letter7 dated 28
September 1981 wherein the former detailed the origins of his ownership over the lands
covered by TCT No. 378-A, including the subject land. The relevant portions of the letter read:
Now let me trace the basis of the title to the land adverted to for particularity. The land titled in
my name was originally consisting of seven (7) hectares. This piece of land was particularly set
aside by the Patriarch Maruhom, a fact recognized by all royal datus of Guimba, to belong to
his eldest son, Datu Magayo-ong Maruhom. This is the very foundation of the right and
ownership over the land in question which was titled in my name because as the son-in-law of
Hadji Ali Maruhom the eldest son of, and only lawyer among the descendants of Datu Magayo-
ong Maruhom, the authority and right to apply for the title to the land was given to me by said
heirs after mutual agreement among themselves besides the fact that I have already bought a
substantial portion of the original seven (7) hectares.
The original title of this seven (7) hectares has been subdivided into several TCTs for the other
children of Datu Magayo-ong Maruhom with whom I have executed a quit claim. Presently, only
three (3) hectares is left to me out of the original seven (7) hectares representing those portion
[sic] belonging to my wife and those I have bought previously from other heirs. This is now the
subject of this case.8
Petitioner, at first, rejected Mangondato’s claim of ownership over the subject land; the former
then adamant in its belief that the said land is public land covered by Proclamation No. 1354, s.
1974. But, after more than a decade, petitioner finally acquiesced to the fact that the subject
land is private land covered by TCT No. 378-A and consequently acknowledged Mangondato’s
right, as registered owner, to receive compensation therefor.
Thus, during the early 1990s, petitioner and Mangondato partook in a series of communications
aimed at settling the amount of compensation that the former ought to pay the latter in
exchange for the subject land. Ultimately, however, the communications failed to yield a
genuine consensus between petitioner and Mangondato as to the fair market value of the
subject land. Civil Case No. 605-92 and Civil Case No. 610-92
With an agreement basically out of reach, Mangondato filed a complaint for reconveyance
against petitioner before the Regional Trial Court (RTC) of Marawi City in July 1992. In his
complaint, Mangondato asked for, among others, the recovery of the subject land and the
payment by petitioner of a monthly rental from 1978 until the return of such land. Mangondato’s
complaint was docketed as Civil Case No. 605-92.
For its part, petitioner filed an expropriation complaint9 before the RTC on 27 July 1992.
Petitioner’s complaint was docketed as Civil Case No. 610-92.
Later, Civil Case No. 605-92 and Civil Case No. 610-92 were consolidated before Branch 8 of
the Marawi City RTC.
On 21 August 1992, Branch 8 of the Marawi City RTC rendered a Decision10 in Civil Case No.
605-92 and Civil Case No. 610-92. The decision upheld petitioner’s right to expropriate the
subject land: it denied Mangondato’s claim for reconveyance and decreed the subject land
condemned in favor of the petitioner, effective July of 1992, subject to payment by the latter of
just compensation in the amount of ₱21,995,000.00. Anent petitioner’s occupation of the
subject land from 1978to July of 1992, on the other hand, the decision required the former to
pay rentals therefor at the rate of ₱15,000.00 per month with12% interest per annum. The
decision’s fallo reads:
WHEREFORE, the prayer in the recovery case for [petitioner’s] surrender of the property is
denied but[petitioner] is ordered to pay monthly rentals in the amount of ₱15,000.00 from 1978
up to July 1992 with 12% interest per annum xxx and the property is condemned in favor of
[petitioner] effective July 1992 upon payment of the fair market value of the property at One
Thousand (₱1,000.00) Pesos per square meter or a total of Twenty-One Million Nine Hundred
Ninety-Five Thousand (₱21,995,000.00) [P]esos.11
Disagreeing with the amount of just compensation that it was adjudged to pay under the said
decision, petitioner filed an appeal with the Court of Appeals. This appeal was docketed in the
Court of Appeals as CA-G.R. CV No. 39353.
Respondents Ibrahims and Maruhoms and Civil Case No. 967-93
During the pendency of CA-G.R. CV No. 39353, or on 29 March 1993, herein respondents the
Ibrahims and Maruhoms12 filed before the RTC of Marawi City a complaint13 against
Mangondato and petitioner. This complaint was docketed as Civil Case No. 967-93and was
raffled to Branch 10of the Marawi City RTC.
In their complaint, the Ibrahims and Maruhoms disputed Mangondato’s ownership of the lands
covered by TCT No. 378-A, including the subject land. The Ibrahims and Maruhoms asseverate
that they are the real owners of the lands covered by TCT No. 378-A; they being the lawful
heirs of the late Datu Magayo-ong Maruhom, who was the original proprietor of the said
lands.14 They also claimed that Mangondato actually holds no claim or right over the lands
covered by TCT No. 378-A except that of a trustee who merely holds the said lands in trust for
them.15 The Ibrahims and Maruhoms submit that since they are the real owners of the lands
covered by TCT No. 378-A, they should be the ones entitled to any rental fees or expropriation
indemnity that may be found due for the subject land.
Hence, the Ibrahims and Maruhoms prayed for the following reliefs in their complaint: 16
1. That Mangondato be ordered to execute a Deed of Conveyance transferring to
them the ownership of the lands covered by TCT No. 378-A;
2. That petitioner be ordered to pay to them whatever indemnity for the subject land it
is later on adjudged to pay in Civil Case No. 605-92 and Civil Case No. 610-92;
3. That Mangondato be ordered to pay to them any amount that the former may have
received from the petitioner by way of indemnity for the subject land;
4. That petitioner and Mangondatobe ordered jointly and severally liable to pay
attorney’s fees in the sum of ₱200,000.00.
In the same complaint, the Ibrahims and Maruhoms also prayed for the issuance of a temporary
restraining order (TRO) and a writ of preliminary injunction to enjoin petitioner, during the
pendency of the suit, from making any payments to Mangondato concerning expropriation
indemnity for the subject land.17
On 30 March 1993, Branch 10 of the Marawi City RTC granted the prayer of the Ibrahims and
Maruhoms for the issuance of a TRO.18 On 29 May 1993, after conducting an appropriate
hearing for the purpose, the same court likewise granted the prayer for the issuance of a writ of
preliminary injunction.19
In due course, trial then ensued in Civil Case No. 967-93.
The Decision of the Court of Appeals in CA-G.R. CV No. 39353 and the Decision of this Court
in G.R. No. 113194
On 21 December 1993, the Court of Appeals rendered a Decision in CA-G.R. CV No. 39353
denying the appeal of petitioner and affirming in toto the 21 August 1992 Decision in Civil Case
No. 605-92 and Civil Case No. 610-92. Undeterred, petitioner next filed a petition for review on
certiorari with this Court that was docketed herein as G.R. No. 113194. 20
On 11 March 1996, we rendered our Decision in G.R. No. 113194 wherein we upheld the Court
of Appeals’ denial of petitioner’s appeal.21 In the same decision, we likewise sustained the
appellate court’s affirmance of the decision in Civil Case No. 605-92 and Civil Case No. 610-92
subject only to a reduction of the rate of interest on the monthly rental fees from 12% to 6% per
annum.22
Our decision in G.R. No. 113194 eventually became final and executory on 13 May 1996. 23
Execution of the 21 August 1992 Decision in Civil Case No. 605-92 and Civil Case No. 610-92,
as Modified
In view of the finality of this Court’s decision in G.R. No. 113194, Mangondato filed a motion for
execution of the decision in Civil Case No. 605-92 and Civil Case No. 610-92.24 Against this
motion, however, petitioner filed an opposition.25
In its opposition, petitioner adverted to the existence of the writ of preliminary injunction earlier
issued in Civil Case No. 967-93 that enjoins it from making any payment of expropriation
indemnity over the subject land in favor of Mangondato.26 Petitioner, in sum, posits that such
writ of preliminary injunction constitutes a legal impediment that effectively bars any meaningful
execution of the decision in Civil Case No. 605-92 and Civil Case No. 610-92.
Finding no merit in petitioner’s opposition, however, Branch 8 of the Marawi City RTC rendered
a Resolution27 dated 4 June 1996 ordering the issuance of a writ of execution in favor of
Mangondato in Civil Case No. 605-92 and Civil Case No. 610-92. Likewise, in the same
resolution, the trial court ordered the issuance of a notice of garnishment against several of
petitioner’s bank accounts28 for the amount of ₱21,801,951.00—the figure representing the total
amount of judgment debt due from petitioner in Civil Case No. 605-92 and Civil Case No. 610-
92 less the amount then already settled by the latter. The dispositive portion of the resolution
reads:
WHEREFORE, let a Writ of Execution and the corresponding order or notice of garnishment be
immediately issued against [petitioner] and in favor of [Mangondato] for the amount of Twenty
One Million Eight Hundred One Thousand and Nine Hundred Fifty One (₱21,801,951.00)
Pesos.
x x x.29
Pursuant to the above resolution, a notice of garnishment30 dated 5 June 1996 for the amount
of ₱21,801,951.00 was promptly served upon the Philippine National Bank (PNB)—the
authorized depositary of petitioner. Consequently, the amount thereby garnished was paid to
Mangondato in full satisfaction of petitioner’s judgment debt in Civil Case No. 605-92 and Civil
Case No. 610-92.
Decision in Civil Case No. 967-93
Upon the other hand, on 16 April 1998, Branch 10 of the Marawi City RTC decided Civil Case
No. 967-93.31 In its decision, Branch 10 of the Marawi City RTC made the following relevant
findings:32
1. The Ibrahims and Maruhoms—not Mangondato—are the true owners of the lands
covered by TCT No. 378-A, which includes the subject land.
2. The subject land, however, could no longer be reconveyed to the Ibrahims and
Maruhoms since the same was already expropriated and paid for by the petitioner
under Civil Case No. 605-92 and Civil Case No. 610-92.
3. Be that as it may, the Ibrahims and Maruhoms, as true owners of the subject land,
are the rightful recipients of whatever rental fees and indemnity that may be due for
the subject land as a result of its expropriation.
Consistent with the foregoing findings, Branch 10 of the Marawi City RTC thus required
payment of all the rental fees and expropriation indemnity due for the subject land, as
previously adjudged in Civil Case No. 605-92 and Civil Case No. 610-92, to the Ibrahims and
Maruhoms.
Notable in the trial court’s decision, however, was that it held both Mangondato and the
petitioner solidarily liable to the Ibrahims and Maruhoms for the rental fees and expropriation
indemnity adjudged in Civil Case No. 605-92 and Civil Case No. 610-92.33
In addition, Mangondato and petitioner were also decreed solidarily liable to the Ibrahims and
Maruhoms for attorney’s fees in the amount of ₱200,000.00. 34
The pertinent dispositions in the decision read:
WHEREFORE, premises considered, judgment is hereby rendered in favor of [the Ibrahims and
Maruhoms] and against [Mangondato and petitioner] as follows:
1. x x x
2. Ordering [Mangondato and petitioner] to pay jointly and severally [the Ibrahims and
Maruhoms] all forms of expropriation indemnity as adjudged for [the subject land]
consisting of 21,995 square meters in the amount of ₱21,801,051.00 plus other
forms of indemnity such as rentals and interests;
3. Ordering [Mangondato and petitioner] to pay [the Ibrahims and Maruhoms] jointly
and severally the sum of ₱200,000.00 as attorney’s fees;
4. x x x
5. x x x
6. x x x
SO ORDERED.35
Petitioner’s Appeal to the Court of Appeals and the Execution
Pending Appeal of the Decision in Civil Case No. 967-93
Petitioner appealed the decision in Civil Case No. 967-93 with the Court of Appeals: contesting
mainly the holding in the said decision that it ought to be solidarily liable with Mangondato to
pay to the Ibrahims and Maruhoms the rental fees and expropriation indemnity adjudged due
for the subject land. This appeal was docketed as CA-G.R. CV No. 68061.
While the foregoing appeal was still pending decision by the Court of Appeals, however, the
Ibrahims and Maruhoms were able to secure with the court a quo a writ of execution pending
appeal36 of the decision in Civil Case No. 967-93. The enforcement of such writ led to the
garnishment of Mangondato’s moneys in the possession of the Social Security System (SSS) in
the amount of ₱2,700,000.00 on 18 September 1998.37 Eventually, the amount thereby
garnished was paid to the Ibrahims and Mangondato in partial satisfaction of the decision in
Civil Case No. 967-93.
On 24 June 2005, the Court of Appeals rendered its Decision38 in CA-G.R. CV No. 68061
denying petitioner’s appeal. The appellate court denied petitioner’s appeal and affirmed the
decision in Civil Case No. 967-93, subject to the right of petitioner to deduct the amount of
₱2,700,000.00 from its liability as a consequence of the partial execution of the decision in Civil
Case No. 967-93.39
Hence, the present appeal by petitioner.
The Present Appeal
The present appeal poses the question of whether it is correct, in view of the facts and
circumstances in this case, to hold petitioner liable in favor of the Ibrahims and Maruhoms for
the rental fees and expropriation indemnity adjudged due for the subject land.
In their respective decisions, both Branch 10 of the Marawi City RTC and the Court of Appeals
had answered the foregoing question in the affirmative. The two tribunals postulated that,
notwithstanding petitioner’s previous payment to Mangondato of the rental fees and
expropriation indemnity as a consequence of the execution of the decision in Civil Case No.
605-92 and 610-92, petitioner may still be held liable to the Ibrahims and Maruhoms for such
fees and indemnity because its previous payment to Mangondato was tainted with "bad
faith."40 As proof of such bad faith, both courts cite the following considerations: 41
1. Petitioner "allowed" payment to Mangondato despite its prior knowledge, which
dates back as early as 28 September 1981, by virtue of Mangondato’s letter of even
date, that the subject land was owned by a certain Datu Magayo-ong Maruhom and
not by Mangondato; and
2. Petitioner "allowed" such payment despite the issuance of a TRO and a writ of
preliminary injunction in Civil Case No. 967-93 that precisely enjoins it from doing so.
For the two tribunals, the bad faith on the part of petitioner rendered its previous payment to
Mangondato invalid insofar as the Ibrahims and Maruhoms are concerned. Hence, both courts
concluded that petitioner may still be held liable to the Ibrahims and Maruhoms for the rental
fees and expropriation indemnity previously paid to Mangondato.42
Petitioner, however, argues otherwise. It submits that a finding of bad faith against it would
have no basis in fact and law, given that it merely complied with the final and executory
decision in Civil Case No. 605-92 and Civil Case No. 610-92 when it paid the rental fees and
expropriation indemnity due the subject to Mangondato.43 Petitioner thus insists that it should
be absolved from any liability to pay the rental fees and expropriation indemnity to the Ibrahims
and Maruhoms and prays for the dismissal of Civil Case No. 967-93 against it.
OUR RULING
We grant the appeal.
No Bad Faith On The Part of Petitioner
Petitioner is correct. No "bad faith" may be taken against it in paying Mangondato the rental
fees and expropriation indemnity due the subject land.
Our case law is not new to the concept of bad faith. Decisions of this Court, both old and new,
had been teeming with various pronouncements that illuminate the concept amidst differing
legal contexts. In any attempt to understand the basics of bad faith, it is mandatory to take a
look at some of these pronouncements:
In Lopez, et al. v. Pan American World Airways,44 a 1966 landmark tort case, we defined the
concept of bad faith as:
"…a breach of a known duty through some motive of interest or ill will."45
Just months after the promulgation of Lopez, however, came the case of Air France v.
Carrascoso, et al.,46 In Air France, we expounded on Lopez’s definition by describing bad faith
as:
"xxx a state of mind affirmatively operating with furtive design or with some motive of self-
interest or will or for ulterior purpose."47
Air France’s articulation of the meaning of bad faith was, in turn, echoed in a number
subsequent cases,48 one of which, is the 2009 case of Balbuena, et al. v. Sabay, et al. 49
In the 1967 case of Board of Liquidators v. Heirs of M. Kalaw,50 on the other hand, we
enunciated one of the more oft-repeated formulations of bad faith in our case law:
"xxx bad faith does not simply connote bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of wrong. It means breach of a known
duty thru some motive or interest of ill will; it partakes of the nature of fraud."51
As a testament to its enduring quality, the foregoing pronouncement in Board of Liquidators had
been reiterated in a slew of later cases,52 more recently, in the 2009 case of Nazareno, et al. v.
City of Dumaguete53 and the 2012 case of Aliling v. Feliciano.54
Still, in 1995, the case of Far East Bank and Trust Company v. Court of Appeals 55 contributed
the following description of bad faith in our jurisprudence:
"Malice or bad faith implies a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity;xxx."56
The description of bad faith in Far East Bank and Trust Companythen went on to be repeated
in subsequent cases such as 1995’s Ortega v. Court of Appeals,57 1997’s Laureano Investment
and Development Corporation v. Court of Appeals,58 2010’s Lambert Pawnbrokers v.
Binamira59 and 2013’s California Clothing, Inc., v. Quiñones,60 to name a few.
Verily, the clear denominator in all of the foregoing judicial pronouncements is that the essence
of bad faith consists in the deliberate commission of a wrong. Indeed, the concept has often
been equated with malicious or fraudulent motives, yet distinguished from the mere
unintentional wrongs resulting from mere simple negligence or oversight. 61
A finding of bad faith, thus, usually assumes the presence of two (2) elements: first, that the
actor knew or should have known that a particular course of action is wrong or illegal, and
second, that despite such actual or imputable knowledge, the actor, voluntarily, consciously
and out of his own free will, proceeds with such course of action. Only with the concurrence of
these two elements can we begin to consider that the wrong committed had been done
deliberately and, thus, in bad faith.
In this case, both Branch 10 of the Marawi City RTC and the Court of Appeals held that
petitioner was in bad faith when it paid to Mangondato the rental fees and expropriation
indemnity due the subject land. The two tribunals, in substance, fault petitioner when it
"allowed" such payment to take place despite the latter’s alleged knowledge of the existing
claim of the Ibrahims and Maruhoms upon the subject land and the issuance ofa TRO in Civil
Case No. 967-93. Hence, the two tribunals claim that petitioner’s payment to Mangondato is
ineffective as to the Ibrahims and Maruhoms, whom they found to be the real owners of the
subject land.
We do not agree.
Branch 10 of the Marawi City RTC and the Court of Appeals erred in their finding of bad faith
because they have overlooked the utter significance of one important fact: that petitioner’s
payment to Mangondato of the rental fees and expropriation indemnity adjudged due for the
subject land in Civil Case No. 605-92 and Civil Case No. 610-92, was required by the final and
executory decision in the said two cases and was compelled thru a writ of garnishment issued
by the court that rendered such decision. In other words, the payment to Mangondato was not a
product of a deliberate choice on the part of the petitioner but was made only in compliance to
the lawful orders of a court with jurisdiction.
Contrary then to the view of Branch 10 of the Marawi City RTC and of the Court of Appeals, it
was not the petitioner that "allowed" the payment of the rental fees and expropriation indemnity
to Mangondato. Indeed, given the circumstances, the more accurate rumination would be that it
was the trial court in Civil Case No. 605-92 and Civil Case No. 610-92 that ordered or allowed
the payment to Mangondato and that petitioner merely complied with the order or allowance by
the trial court. Since petitioner was only acting under the lawful orders of a court in paying
Mangondato, we find that no bad faith can be taken against it, even assuming that petitioner
may have had prior knowledge about the claims of the Ibrahims and Maruhoms upon the
subject land and the TRO issued in Civil Case No. 967-93.
Sans Bad Faith, Petitioner
Cannot Be Held Liable to the
Ibrahims and Maruhoms
Without the existence of bad faith, the ruling of the RTC and of the Court of Appeals apropos
petitioner’s remaining liability to the Ibrahims and Maruhoms becomes devoid of legal basis. In
fact, petitioner’s previous payment to Mangondato of the rental fees and expropriation
indemnity due the subject land pursuant to the final judgment in Civil Case No. 605-92 and Civil
Case No. 610-92 may be considered to have extinguished the former’s obligation regardless of
who between Mangondato, on one hand, and the Ibrahims and Maruhoms, on the other, turns
out to be the real owner of the subject land.62 Either way, petitioner cannot be made liable to
the Ibrahims and Maruhoms:
First. If Mangondato is the real owner of the subject land, then the obligation by petitioner to
pay for the rental fees and expropriation indemnity due the subject land is already deemed
extinguished by the latter’s previous payment under the final judgment in Civil Case No. 605-92
and Civil Case No. 610-92. This would be a simple case of an obligation being extinguished
through payment by the debtor to its creditor.63 Under this scenario, the Ibrahims and
Maruhoms would not even be entitled to receive anything from anyone for the subject land.
Hence, petitioner cannot be held liable to the Ibrahims and Maruhoms.
Second. We, however, can reach the same conclusion even if the Ibrahims and Maruhoms turn
out to be the real owners of the subject land.
of who between Mangondato, on one hand, and the Ibrahims and Maruhoms, on the other,
turns out to be the real owner of the subject land, the dismissal of Civil Case No. 967-93 insofar
as petitioner isconcerned is called for.
Re: Attorney’s Fees

Should the Ibrahims and Maruhoms turn out to be the real owners of the subject land,
petitioner’s previous payment to Mangondato pursuant to Civil Case No. 605-92 and Civil Case
No. 610-92—given the absence of bad faith on petitioner’s part as previously discussed—may
nonetheless be considered as akin to a payment made in "good faith "to a person in
"possession of credit" per Article 1242 of the Civil Code that, just the same, extinguishes its
obligation to pay for the rental fees and expropriation indemnity due for the subject land. Article
1242 of the Civil Code reads:
"Payment made in good faith to any person in possession of the credit shall release the debtor."
Article 1242 of the Civil Code is an exception to the rule that a valid payment of an obligation
can only be made to the person to whom such obligation is rightfully owed.64 It contemplates a
situation where a debtor pays a "possessor of credit" i.e., someone who is not the real creditor
but appears, under the circumstances, to be the real creditor.65 In such scenario, the law
considers the payment to the "possessor of credit" as valid even as against the real creditor
taking into account the good faith of the debtor.
The dismissal of Civil Case No. 967-93 as against petitioner necessarily absolves the latter
from paying attorney’s fees to the Ibrahims and Maruhoms arising from that case.
WHEREFORE, premises considered, the instant petition is GRANTED. The Decision dated 24
June2005 and Resolution dated 5 December 2006 of the Court of Appeals in CA-G.R. CV No.
68061 is hereby SET ASIDE. The Decision dated 16 April 1998 of the Regional Trial Court in
Civil Case No. 967-93 is MODIFIED in that petitioner is absolved from any liability in that case
in favor of the respondents Lucman M. Ibrahim, Atty. Omar G. Maruhom, Elias G. Maruhom,
Bucay G. Maruhom, Mamod G. Maruhom, Farouk G. Maruhom, Hidjara G. Maruhom, Rocania
G. Maruhom, Potrisam G. Maruhom, Lumba G. Maruhom, Sinab G. Maruhom, Acmad G.
Maruhom, Solayman G. Maruhom, Mohamad M. Ibrahim and Caironesa M. Ibrahim. Civil Case
No. 967-93 is DISMISSED as against petitioner.
No costs.

SO ORDERED.
Borrowing the principles behind Article 1242 of the Civil Code, we find that Mangondato—being
the judgment creditor in Civil Case No. 605-92 and Civil Case No. 610-92 as well as the
registered owner of the subject land at the time66 —may be considered as a "possessor of
credit" with respect to the rental fees and expropriation indemnity adjudged due for the subject
land in the two cases, if the Ibrahims and Maruhoms turn out to be the real owners of the
subject land. Hence, petitioner’s payment to Mangondato of the fees and indemnity due for the
subject land as a consequence of the execution of Civil Case No. 605-92 and Civil Case No.
610-92 could still validly extinguish its obligation to pay for the same even as against the
Ibrahims and Maruhoms.

Effect of Extinguishment of
Petitioner’s Obligation

The extinguishment of petitioner’s obligation to pay for the rental fees and expropriation
indemnity due the subject land carries with it certain legal effects:

First. If Mangondato turns out to be the real owner of the subject land, the Ibrahims and
Maruhoms would not be entitled to recover anything from anyone for the subject
land.1âwphi1 Consequently, the partial execution of the decision in Civil Case No. 967-93 that
had led to the garnishment of Mangondato’s moneys in the possession of the Social Security
System (SSS) in the amount of ₱2,700,000.00 in favor of the Ibrahims and Maruhoms,
becomes improper and unjustified. In this event, therefore, the Ibrahims and Maruhoms may be
ordered to return the amount so garnished to Mangondato.

Otherwise, i.e. if the Ibrahims and Maruhoms really are the true owners of the subject land, they
may only recover the rental fees and expropriation indemnity due the subject land against
Mangondato but only up to whatever payments the latter had previously received from
petitioner pursuant to Civil Case No. 605-92 and Civil Case No. 610-92.

Second. At any rate, the extinguishment of petitioner’s obligation to pay for the rental fees and
expropriation indemnity due the subject land negates whatever cause of action the Ibrahims
and Maruhoms might have had against the former in Civil Case No. 967-93. Hence, regardless
 G.R. No. 190755 November 24, 2010
LAND BANK OF THE PHILIPPINES, Petitioner,
vs.
ALFREDO ONG, Respondent.
DECISION
VELASCO, JR., J.:
This is an appeal from the October 20, 2009 Decision of the Court of Appeals (CA) in CA-G.R.
CR-CV No. 84445 entitled Alfredo Ong v. Land Bank of the Philippines, which affirmed the
Decision of the Regional Trial Court (RTC), Branch 17 in Tabaco City.
The Facts
On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank
Legazpi City in the amount of PhP 16 million. The loan was secured by three (3) residential lots,
five (5) cargo trucks, and a warehouse. Under the loan agreement, PhP 6 million of the loan
would be short-term and would mature on February 28, 1997, while the balance of PhP 10
million would be payable in seven (7) years. The Notice of Loan Approval dated February 22,
1996 contained an acceleration clause wherein any default in payment of amortizations or other
charges would accelerate the maturity of the loan.1
Subsequently, however, the Spouses Sy found they could no longer pay their loan. On
December 9, 1996, they sold three (3) of their mortgaged parcels of land for PhP 150,000 to
Angelina Gloria Ong, Evangeline’s mother, under a Deed of Sale with Assumption of Mortgage.
The relevant portion of the document2 is quoted as follows:
WHEREAS, we are no longer in a position to settle our obligation with the bank;
NOW THEREFORE, for and in consideration of the sum of ONE HUNDRED FIFTY
THOUSAND PESOS (P150,000.00) Philippine Currency, we hereby these presents SELL,
CEDE, TRANSFER and CONVEY, by way of sale unto ANGELINA GLORIA ONG, also of legal
age, Filipino citizen, married to Alfredo Ong, and also a resident of Tabaco, Albay, Philippines,
their heirs and assigns, the above-mentioned debt with the said LAND BANK OF THE
PHILIPPINES, and by reason hereof they can make the necessary representation with the
bank for the proper restructuring of the loan with the said bank in their favor;
That as soon as our obligation has been duly settled, the bank is authorized to release the
mortgage in favor of the vendees and for this purpose VENDEES can register this instrument
with the Register of Deeds for the issuance of the titles already in their names.
IN WITNESS WHEREOF, we have hereunto affixed our signatures this 9th day of December
1996 at Tabaco, Albay, Philippines.
(signed) (signed)
EVANGELINE O. SY JOHNSON B. SY
Vendor Vendor
Evangeline’s father, petitioner Alfredo Ong, later went to Land Bank to inform it about the sale
and assumption of mortgage.3 Atty. Edna Hingco, the Legazpi City Land Bank Branch Head,
told Alfredo and his counsel Atty. Ireneo de Lumen that there was nothing wrong with the
agreement with the Spouses Sy but provided them with requirements for the assumption of
mortgage. They were also told that Alfredo should pay part of the principal which was
computed at PhP 750,000 and to update due or accrued interests on the promissory notes so
that Atty. Hingco could easily approve the assumption of mortgage. Two weeks later, Alfredo
issued a check for PhP 750,000 and personally gave it to Atty. Hingco. A receipt was issued for
his payment. He also submitted the other documents required by Land Bank, such as financial
statements for 1994 and 1995. Atty. Hingco then informed Alfredo that the certificate of title of
the Spouses Sy would be transferred in his name but this never materialized. No notice of
transfer was sent to him.4
Alfredo later found out that his application for assumption of mortgage was not approved by
Land Bank. The bank learned from its credit investigation report that the Ongs had a real estate
mortgage in the amount of PhP 18,300,000 with another bank that was past due. Alfredo
claimed that this was fully paid later on. Nonetheless, Land Bank foreclosed the mortgage of
the Spouses Sy after several months. Alfredo only learned of the foreclosure when he saw the
subject mortgage properties included in a Notice of Foreclosure of Mortgage and Auction Sale
at the RTC in Tabaco, Albay. Alfredo’s other counsel, Atty. Madrilejos, subsequently talked to
Land Bank’s lawyer and was told that the PhP 750,000 he paid would be returned to him. 5
On December 12, 1997, Alfredo initiated an action for recovery of sum of money with damages
against Land Bank in Civil Case No. T-1941, as Alfredo’s payment was not returned by Land
Bank. Alfredo maintained that Land Bank’s foreclosure without informing him of the denial of his
assumption of the mortgage was done in bad faith. He argued that he was lured into believing
that his payment of PhP 750,000 would cause Land Bank to approve his assumption of the
loan of the Spouses Sy and the transfer of the mortgaged properties in his and his wife’s
name.6 He also claimed incurring expenses for attorney’s fees of PhP 150,000, filing fee of PhP
15,000, and PhP 250,000 in moral damages.7
Testifying for Land Bank, Atty. Hingco claimed during trial that as branch manager she had no
authority to approve loans and could not assure anybody that their assumption of mortgage
would be approved. She testified that the breakdown of Alfredo’s payment was as follows:
PhP 101,409.59 applied to principal
216,246.56 accrued interests receivable
396,571.77 interests
18,766.10 penalties
16,805.98 accounts receivable
----------------
Total: 750,000.00
According to Atty. Hingco, the bank processes an assumption of mortgage as a new loan, since
the new borrower is considered a new client. They used character, capacity, capital, collateral,
and conditions in determining who can qualify to assume a loan. Alfredo’s proposal to assume
the loan, she explained, was referred to a separate office, the Lending Center. 8
During cross-examination, Atty. Hingco testified that several months after Alfredo made the
tender of payment, she received word that the Lending Center rejected Alfredo’s loan
application. She stated that it was the Lending Center and not her that should have informed
Alfredo about the denial of his and his wife’s assumption of mortgage. She added that although
she told Alfredo that the agreement between the spouses Sy and Alfredo was valid between
them and that the bank would accept payments from him, Alfredo did not pay any further
amount so the foreclosure of the loan collaterals ensued. She admitted that Alfredo demanded
the return of the PhP 750,000 but said that there was no written demand before the case
against the bank was filed in court. She said that Alfredo had made the payment of PhP
750,000 even before he applied for the assumption of mortgage and that the bank received the
said amount because the subject account was past due and demandable; and the Deed of
Assumption of Mortgage was not used as the basis for the payment. 9
The Ruling of the Trial Court
The RTC held that the contract approving the assumption of mortgage was not perfected as a
result of the credit investigation conducted on Alfredo. It noted that Alfredo was not even
informed of the disapproval of the assumption of mortgage but was just told that the accounts
of the spouses Sy had matured and gone unpaid. It ruled that under the principle of equity and
justice, the bank should return the amount Alfredo had paid with interest at 12% per annum
computed from the filing of the complaint. The RTC further held that Alfredo was entitled to
attorney’s fees and litigation expenses for being compelled to litigate.10
The dispositive portion of the RTC Decision reads:
WHEREFORE, premises considered, a decision is rendered, ordering defendant bank to pay
plaintiff, Alfredo Ong the amount of P750,000.00 with interest at 12% per annum computed
from Dec. 12, 1997 and attorney’s fees and litigation expenses of P50,000.00.
Costs against defendant bank.
SO ORDERED.11
The Ruling of the Appellate Court
On appeal, Land Bank faulted the trial court for (1) holding that the payment of PhP 750,000
made by Ong was one of the requirements for the approval of his proposal to assume the
mortgage of the Sy spouses; (2) erroneously ordering Land Bank to return the amount of PhP
750,000 to Ong on the ground of its failure to effect novation; and (3) erroneously affirming the
award of PhP 50,000 to Ong as attorney’s fees and litigation expenses.
The CA affirmed the RTC Decision.12 It held that Alfredo’s recourse is not against the Sy
spouses. According to the appellate court, the payment of PhP 750,000 was for the approval of
his assumption of mortgage and not for payment of arrears incurred by the Sy spouses. As
such, it ruled that it would be incorrect to consider Alfredo a third person with no interest in the
fulfillment of the obligation under Article 1236 of the Civil Code. Although Land Bank was not
bound by the Deed between Alfredo and the Spouses Sy, the appellate court found that Alfredo
and Land Bank’s active preparations for Alfredo’s assumption of mortgage essentially novated
the agreement.
On January 5, 2010, the CA denied Land Bank’s motion for reconsideration for lack of merit.
Hence, Land Bank appealed to us.
The Issues
I
Whether the Court of Appeals erred in holding that Art. 1236 of the Civil Code does
not apply and in finding that there is no novation.
II
Whether the Court of Appeals misconstrued the evidence and the law when it
affirmed the trial court decision’s ordering Land Bank to pay Ong the amount of
Php750,000.00 with interest at 12% annum.
III
Whether the Court of Appeals committed reversible error when it affirmed the award
of Php50,000.00 to Ong as attorney’s fees and expenses of litigation.
The Ruling of this Court
We affirm with modification the appealed decision.
Recourse is against Land Bank
Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo should have
sought recourse against the Spouses Sy instead of Land Bank. Art. 1236 provides:
The creditor is not bound to accept payment or performance by a third person who has no
interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he paid
without the knowledge or against the will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor.1avvphi1
We agree with Land Bank on this point as to the first part of paragraph 1 of Art. 1236. Land
Bank was not bound to accept Alfredo’s payment, since as far as the former was concerned, he
did not have an interest in the payment of the loan of the Spouses Sy. However, in the context
of the second part of said paragraph, Alfredo was not making payment to fulfill the obligation of
the Spouses Sy. Alfredo made a conditional payment so that the properties subject of the Deed
of Sale with Assumption of Mortgage would be titled in his name. It is clear from the records
that Land Bank required Alfredo to make payment before his assumption of mortgage would be
approved. He was informed that the certificate of title would be transferred accordingly. He,
thus, made payment not as a debtor but as a prospective mortgagor. But the trial court stated:
[T]he contract was not perfected or consummated because of the adverse finding in the credit
investigation which led to the disapproval of the proposed assumption. There was no evidence
presented that plaintiff was informed of the disapproval. What he received was a letter dated
May 22, 1997 informing him that the account of spouses Sy had matured but there [were] no
payments. This was sent even before the conduct of the credit investigation on June 20, 1997
which led to the disapproval of the proposed assumption of the loans of spouses Sy. 13
Alfredo, as a third person, did not, therefore, have an interest in the fulfillment of the obligation
of the Spouses Sy, since his interest hinged on Land Bank’s approval of his application, which
was denied. The circumstances of the instant case show that the second paragraph of Art.
1236 does not apply. As Alfredo made the payment for his own interest and not on behalf of the
Spouses Sy, recourse is not against the latter. And as Alfredo was not paying for another, he
cannot demand from the debtors, the Spouses Sy, what he has paid.
Novation of the loan agreement
Land Bank also faults the CA for finding that novation applies to the instant case. It reasons
that a substitution of debtors was made without its consent; thus, it was not bound to recognize
the substitution under the rules on novation.
On the matter of novation, Spouses Benjamin and Agrifina Lim v. M.B. Finance
Corporation14 provides the following discussion:
Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an
old obligation is terminated by the creation of a new obligation that takes the place of the
former; it is merely modificatory when the old obligation subsists to the extent it remains
compatible with the amendatory agreement. An extinctive novation results either by changing
the object or principal conditions (objective or real), or by substituting the person of the debtor
or subrogating a third person in the rights of the creditor (subjective or personal). Under this
mode, novation would have dual functions ─ one to extinguish an existing obligation, the other
to substitute a new one in its place ─ requiring a conflux of four essential requisites: (1) a
previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the
extinguishment of the old obligation; and (4) the birth of a valid new obligation. x x x
In order that an obligation may be extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or that the old and the new obligations
be on every point incompatible with each other. The test of incompatibility is whether or not the
two obligations can stand together, each one having its independent existence. x x x (Emphasis
supplied.)
Furthermore, Art. 1293 of the Civil Code states:
Novation which consists in substituting a new debtor in the place of the original one, may be
made even without the knowledge or against the will of the latter, but not without the consent of
the creditor. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237.
We do not agree, then, with the CA in holding that there was a novation in the contract between
the parties. Not all the elements of novation were present. Novation must be expressly
consented to. Moreover, the conflicting intention and acts of the parties underscore the
absence of any express disclosure or circumstances with which to deduce a clear and
unequivocal intent by the parties to novate the old agreement.15 Land Bank is thus correct when
it argues that there was no novation in the following:
[W]hether or not Alfredo Ong has an interest in the obligation and payment was made with the
knowledge or consent of Spouses Sy, he may still pay the obligation for the reason that even
before he paid the amount of P750,000.00 on January 31, 1997, the substitution of debtors was
already perfected by and between Spouses Sy and Spouses Ong as evidenced by a Deed of
Sale with Assumption of Mortgage executed by them on December 9, 1996. And since the
substitution of debtors was made without the consent of Land Bank – a requirement which is
indispensable in order to effect a novation of the obligation, it is therefore not bound to
recognize the substitution of debtors. Land Bank did not intervene in the contract between
Spouses Sy and Spouses Ong and did not expressly give its consent to this substitution.16
Unjust enrichment
Land Bank maintains that the trial court erroneously applied the principle of equity and justice in
ordering it to return the PhP 750,000 paid by Alfredo. Alfredo was allegedly in bad faith and in
estoppel. Land Bank contends that it enjoyed the presumption of regularity and was in good
faith when it accepted Alfredo’s tender of PhP 750,000. It reasons that it did not unduly enrich
itself at Alfredo’s expense during the foreclosure of the mortgaged properties, since it tendered
its bid by subtracting PhP 750,000 from the Spouses Sy’s outstanding loan obligation. Alfredo’s
recourse then, according to Land Bank, is to have his payment reimbursed by the Spouses Sy.
We rule that Land Bank is still liable for the return of the PhP 750,000 based on the principle of
unjust enrichment. Land Bank is correct in arguing that it has no obligation as creditor to
recognize Alfredo as a person with interest in the fulfillment of the obligation. But while Land
Bank is not bound to accept the substitution of debtors in the subject real estate mortgage, it is
estopped by its action of accepting Alfredo’s payment from arguing that it does not have to
recognize Alfredo as the new debtor. The elements of estoppel are:
First, the actor who usually must have knowledge, notice or suspicion of the true facts,
communicates something to another in a misleading way, either by words, conduct or silence;
second, the other in fact relies, and relies reasonably or justifiably, upon that communication;
third, the other would be harmed materially if the actor is later permitted to assert any claim
inconsistent with his earlier conduct; and fourth, the actor knows, expects or foresees that the
other would act upon the information given or that a reasonable person in the actor’s position
would expect or foresee such action.17
By accepting Alfredo’s payment and keeping silent on the status of Alfredo’s application, Land
Bank misled Alfredo to believe that he had for all intents and purposes stepped into the shoes
of the Spouses Sy.
The defense of Land Bank Legazpi City Branch Manager Atty. Hingco that it was the bank’s
Lending Center that should have notified Alfredo of his assumption of mortgage disapproval is
unavailing. The Lending Center’s lack of notice of disapproval, the Tabaco Branch’s silence on
the disapproval, and the bank’s subsequent actions show a failure of the bank as a whole, first,
to notify Alfredo that he is not a recognized debtor in the eyes of the bank; and second, to
apprise him of how and when he could collect on the payment that the bank no longer had a
right to keep.
We turn then on the principle upon which Land Bank must return Alfredo’s payment. Unjust
enrichment exists "when a person unjustly retains a benefit to the loss of another, or when a
person retains money or property of another against the fundamental principles of justice,
equity and good conscience."18 There is unjust enrichment under Art. 22 of the Civil Code when
(1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with
damages to another.19
Additionally, unjust enrichment has been applied to actions called accion in rem verso. In order
that the accion in rem verso may prosper, the following conditions must concur: (1) that the
defendant has been enriched; (2) that the plaintiff has suffered a loss; (3) that the enrichment of
the defendant is without just or legal ground; and (4) that the plaintiff has no other action based
on contract, quasi-contract, crime, or quasi-delict.20 The principle of unjust enrichment
essentially contemplates payment when there is no duty to pay, and the person who receives
the payment has no right to receive it.21
The principle applies to the parties in the instant case, as, Alfredo, having been deemed
disqualified from assuming the loan, had no duty to pay petitioner bank and the latter had no
right to receive it.
Moreover, the Civil Code likewise requires under Art. 19 that "[e]very 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." Land Bank, however, did not even bother to inform
Alfredo that it was no longer approving his assumption of the Spouses Sy’s mortgage. Yet it
acknowledged his interest in the loan when the branch head of the bank wrote to tell him that
his daughter’s loan had not been paid.22 Land Bank made Alfredo believe that with the payment
of PhP 750,000, he would be able to assume the mortgage of the Spouses Sy. The act of
receiving payment without returning it when demanded is contrary to the adage of giving
someone what is due to him. The outcome of the application would have been different had
Land Bank first conducted the credit investigation before accepting Alfredo’s payment. He
would have been notified that his assumption of mortgage had been disapproved; and he would
not have taken the futile action of paying PhP 750,000. The procedure Land Bank took in acting
on Alfredo’s application cannot be said to have been fair and proper.
As to the claim that the trial court erred in applying equity to Alfredo’s case, we hold that Alfredo
had no other remedy to recover from Land Bank and the lower court properly exercised its
equity jurisdiction in resolving the collection suit. As we have held in one case:
Equity, as the complement of legal jurisdiction, seeks to reach and 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 to do so. Equity regards the spirit and
not the letter, the intent and not the form, the substance rather than the circumstance, as it is
variously expressed by different courts.23
Another claim made by Land Bank is the presumption of regularity it enjoys and that it was in
good faith when it accepted Alfredo’s tender of PhP 750,000.
The defense of good faith fails to convince given Land Bank’s actions. Alfredo was not treated
as a mere prospective borrower. After he had paid PhP 750,000, he was made to sign bank
documents including a promissory note and real estate mortgage. He was assured by Atty.
Hingco that the titles to the properties covered by the Spouses Sy’s real estate mortgage would
be transferred in his name, and upon payment of the PhP 750,000, the account would be
considered current and renewed in his name.24
Land Bank posits as a defense that it did not unduly enrich itself at Alfredo’s expense during
the foreclosure of the mortgaged properties, since it tendered its bid by subtracting PhP
750,000 from the Spouses Sy’s outstanding loan obligation. It is observed that this is the first
time Land Bank is revealing this defense. However, issues, arguments, theories, and causes
not raised below may no longer be posed on appeal.25 Land Bank’s contention, thus, cannot be
entertained at this point.1avvphi1
Land Bank further questions the lower court’s decision on the basis of the inconsistencies
made by Alfredo on the witness stand. It argues that Alfredo was not a credible witness and his
testimony failed to overcome the presumption of regularity in the performance of regular duties
on the part of Land Bank.
This claim, however, touches on factual findings by the trial court, and we defer to these
findings of the trial court as sustained by the appellate court. These are generally binding on us.
While there are exceptions to this rule, Land Bank has not satisfactorily shown that any of them
is applicable to this issue.26 Hence, the rule that the trial court is in a unique position to observe
the demeanor of witnesses should be applied and respected27 in the instant case.
In sum, we hold that Land Bank may not keep the PhP 750,000 paid by Alfredo as it had
already foreclosed on the mortgaged lands.
Interest and attorney’s fees
As to the applicable interest rate, we reiterate the guidelines found in Eastern Shipping Lines,
Inc. v. Court of Appeals:28
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation, the
rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of
the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached,
an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.
No evidence was presented by Alfredo that he had sent a written demand to Land Bank before
he filed the collection suit. Only the verbal agreement between the lawyers of the parties on the
return of the payment was mentioned.29Consequently, the obligation of Land Bank to return the
payment made by Alfredo upon the former’s denial of the latter’s application for assumption of
mortgage must be reckoned from the date of judicial demand on December 12, 1997, as
correctly determined by the trial court and affirmed by the appellate court.
The next question is the propriety of the imposition of interest and the proper imposable rate of
applicable interest. The RTC granted the rate of 12% per annum which was affirmed by the CA.
From the above-quoted guidelines, however, the proper imposable interest rate is 6% per
annum pursuant to Art. 2209 of the Civil Code. Sunga-Chan v. Court of Appeals is illuminating
in this regard:
In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum under
Central Bank (CB) Circular No. 416 shall be adjudged only in cases involving the loan or
forbearance of money. And for transactions involving payment of indemnities in the
concept of damages arising from default in the performance of obligations in
general and/or for money judgment not involving a loan or forbearance of money, goods, or
credit, the governing provision is Art. 2209 of the Civil Code prescribing a yearly 6% interest.
Art. 2209 pertinently provides:
On a final note. The instant case would not have been litigated had Land Bank been more
circumspect in dealing with Alfredo. The bank chose to accept payment from Alfredo even
before a credit investigation was underway, a procedure worsened by the failure to even inform
him of his credit standing’s impact on his assumption of mortgage. It was, therefore, negligent
to a certain degree in handling the transaction with Alfredo. It should be remembered that the
business of a bank is affected with public interest and it should observe a higher standard of
diligence when dealing with the public.32

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor WHEREFORE, the appeal is DENIED. The CA Decision in CA-G.R. CR-CV No. 84445 is
incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be AFFIRMED with MODIFICATION in that the amount of PhP 750,000 will earn interest at 6% per
the payment of the interest agreed upon, and in the absence of stipulation, the legal annum reckoned from December 12, 1997, and the total aggregate monetary awards will in
interest, which is six per cent per annum. turn earn 12% per annum from the finality of this Decision until fully paid.

The term "forbearance," within the context of usury law, has been described as a contractual SO ORDERED.
obligation of a lender or creditor to refrain, during a given period of time, from requiring the
borrower or debtor to repay the loan or debt then due and payable.

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and
the applicable rate, as follows: The 12% per annum rate under CB Circular No. 416 shall apply
only to loans or forbearance of money, goods, or credits, as well as to judgments involving such
loan or forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of
the Civil Code applies "when the transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay in the performance of obligations
in general," with the application of both rates reckoned "from the time the complaint was filed
until the [adjudged] amount is fully paid." In either instance, the reckoning period for the
commencement of the running of the legal interest shall be subject to the condition "that the
courts are vested with discretion, depending on the equities of each case, on the award of
interest."30 (Emphasis supplied.)

Based on our ruling above, forbearance of money refers to the contractual obligation of the
lender or creditor to desist for a fixed period from requiring the borrower or debtor to repay the
loan or debt then due and for which 12% per annum is imposed as interest in the absence of a
stipulated rate. In the instant case, Alfredo’s conditional payment to Land Bank does not
constitute forbearance of money, since there was no agreement or obligation for Alfredo to pay
Land Bank the amount of PhP 750,000, and the obligation of Land Bank to return what Alfredo
has conditionally paid is still in dispute and has not yet been determined. Thus, it cannot be
said that Land Bank’s alleged obligation has become a forbearance of money.

On the award of attorney’s fees, attorney’s fees and expenses of litigation were awarded
because Alfredo was compelled to litigate due to the unjust refusal of Land Bank to refund the
amount he paid. There are instances when it is just and equitable to award attorney’s fees and
expenses of litigation.31 Art. 2208 of the Civil Code pertinently states:

In the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial
costs, cannot be recovered, except:

xxxx

(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest.

Given that Alfredo was indeed compelled to litigate against Land Bank and incur expenses to
protect his interest, we find that the award falls under the exception above and is, thus, proper
given the circumstances.
 G.R. No. L-28569 February 27, 1970
J. M. TUASON & CO., INC., Plaintiff-Appellant,
vs.
LIGAYA JAVIER, Defendant-Appellee.
DECISION
CONCEPCION, C.J.:
This appeal, taken by plaintiff J. M. Tuason & Co., Inc., from a decision of the Court of First
Instance of Rizal, has been certified to Us by the Court of Appeals, only questions of law being
raised therein.
The record shows that, on September 7, 1954, a contract was entered into between the
plaintiff, on the one hand, and defendant-appellee, Ligaya Javier, on the other, whereby plaintiff
agreed to sell, transfer and convey to the defendant a parcel of land known as Lot No. 28,
Block No. 356, PSD 30328, of the Sta. Mesa Heights Subdivision, for the total sum of
P3,691.20, with interest thereon at the rate of ten (10) per centum a year, payable as
follows: P396.12 upon the execution of the contract and P43.92 every month thereafter, for a
period of ten (10) years. The sixth paragraph of said contract provided that:
"x x x In case the party of the SECOND PART fails to satisfy any monthly installments, or any
other payments herein agreed upon, he is granted a month of grace within which to make the
retarded payment, together with the one corresponding to the said month of grace; it is
understood, however, that should the month of grace herein granted to the party of the
SECOND PART expire without the payments corresponding to both months having been
satisfied, an interest of 10% per annum will be charged on the amount he should have paid; it is
understood further, that should a period of 90 days elapse, to begin from the expiration of the
month of grace herein mentioned, and the party of the SECOND PART has not paid all the
amounts he should have paid with the corresponding interest up to that date, the party of the
FIRST PART has the right to declare this contract cancelled and of no effect, and as
consequence thereof, the party of the FIRST PART may dispose of the parcel or parcels of land
covered by this contract in favor of other persons, as if this contract had never been entered
into. In case of such cancellation of this contract, all the amounts paid in accordance with this
agreement together with all the improvements made on the premises, shall be considered as
rents paid for the use and occupation of the above mentioned premises, and as payment for
the damages suffered by failure of the party of the SECOND PART to fulfill his part of the
agreement; and the party of the SECOND PART hereby renounces all his right to demand or
reclaim the return of the same and obliges himself to peacefully vacate the premises and
deliver the same to the party of the FIRST PART."
Upon the execution of the contract and the payment of the first installment of P396.12, the
defendant was placed in possession of the land. Thereafter and until January 5, 1962, she
paid the stipulated monthly installments which, including the initial payment of P396.12,
aggregated P4,134.08. Subsequently, however, she defaulted in the payment of said
installments, in view of which, on May 22, 1964, plaintiff informed her by letter that their contract
had been rescinded. Defendant having thereafter failed or refused to vacate said land, on July
9, 1964, plaintiff commenced the present action against her, in the Court of First Instance
of Rizal. After alleging substantially the foregoing fact, plaintiff prayed in its complaint that the
aforementioned contract be declared validly rescinded and that the defendant and all persons
claiming under her be ordered to deliver to the plaintiff the lot in question, with all the
improvements thereon, and to pay a monthly rental of P40.00, from January 5, 1962, until the
property shall have been surrendered to the plaintiff, as well as all costs. Admitting that she had
defaulted in the payment of the stipulated monthly installments, from January 5, 1962,
defendant alleged in her answer that this fact "was due to unforeseen circumstances"; that she
is "willing to pay all arrears in installments under the contract" and had "in fact offered the same
to the plaintiff"; and that said contract "can not be rescinded upon the unilateral act of the
plaintiff." At a pre-trial conference held before said court, the following facts were - in the
language of the decision appealed from - agreed upon between the parties:
"x x x that since January 5, 1962, up to the present, the defendant has failed to pay the monthly
installments called for in the contract to sell; that in view of the failure of the defendant to pay
her installment payments since January 5, 1962, the plaintiff rescinded the contract pursuant to
the provision thereof; that after the filing of the complaint, defendant in an attempt to arrive at a
compromise agreement with the plaintiff, offered to pay all the installment payments in arrears,
the interest thereon from the time of default of payment, reasonable attorney's fees, and the
costs of suit; that said offer was repeated by the defendant in writing on December 1, 1964, and
also during the pre-trial conference of this case, but said offer was turned down by the plaintiff."
The case having been submitted for decision upon the foregoing stipulation, said court,
applying Art. 1592 of our Civil Code, rendered its aforementioned decision, the dispositive part
of which reads:
"WHEREFORE, judgment is hereby rendered, declaring that the contract to sell has not yet
been rescinded, and ordering the defendant to pay to the plaintiff within sixty (60) days from
receipt hereof all the installment payments in arrears together with interest thereon at 10% per
annum from January 5, 1962, the date of default, attorney's fees in the sum of P1,000.00, and
the costs of suit. Upon payment of same, the plaintiff is ordered to execute in favor of the
defendant the necessary deed to transfer to the defendant the title to the parcel of land in
question, free from all liens and encumbrances except those provided for in the contract, all
expenses which may be incurred in said transfer of title to be paid by the defendant."
Hence, this appeal by plaintiff, based mainly upon the alleged erroneous application to the case
at bar of said Art. 1592, pursuant to which:
"In the sale of immovable property, even though it may have been stipulated that upon the
failure to pay the price at the time agreed upon the rescission of the contract shall of right take
place, the vendee may pay, even after the expiration of the period, as long as no demand for
rescission of the contract has been made upon him eitherjudicially or by a notarial act. After
the demand, the court may not grant him a new term."
Plaintiff maintains that this provision governs contracts of sale, not contracts to sell, such as the
one entered into by the parties in this case. Regardless, however, of the propriety of applying
said Art. 1592 thereto, We find that plaintiff herein has not been denied substantial justice, for,
according to Art. 1234 of said Code:
"If the obligation has been substantially performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment, less damages suffered by the obligee."
In this connection, it should be noted that, apart from the initial installment of P396.12, paid
upon the execution of the contract, on September 7, 1954, the defendant religiously satisfied
the monthly installments accruing thereafter, for a period of almost eight (8) years,or up to
January 5, 1962; that, although the principal obligation under the contract was P3,691.20, the
total payments made by the defendant up to January 5, 1962, including stipulated interest,
aggregated P4,134.08; that the defendant has offered to pay all of the installments overdue
including the stipulated interest, apart from reasonable attorney's fees and the costs; and that,
accordingly, the trial court sentenced the defendant to pay all such installments, interest, fees
and costs. Thus, plaintiff will thereby recover everything due thereto, pursuant to its contract
with the defendant, including such damages as the former may have suffered in consequence
of the latter's default. Under these circumstances, We feel that, in the interest of justice and
equity, the decision appealed from may be upheld upon the authority of Art. 1234 of the Civil
Code.[1]
WHEREFORE, said decision is hereby affirmed, without special pronouncement as to costs in
this instance. IT IS SO ORDERED.
 G.R. No. L-26578 January 28, 1974
LEGARDA HERMANOS and JOSE LEGARDA, petitioners,
vs.
FELIPE SALDAÑA and COURT OF APPEALS (FIFTH DIVISION) * respondents.
TEEHANKEE, J.:1äwphï1.ñët
The Court, in affirming the decision under review of the Court of Appeals, which holds
that the respondent buyer of two small residential lots on installment contracts on a ten-
year basis who has faithfully paid for eight continuous years on the principal alone
already more than the value of one lot, besides the larger stipulated interests on both
lots, is entitled to the conveyance of one fully paid lot of his choice, rules that the
judgment is fair and just and in accordance with law and equity.
The action originated as a complaint for delivery of two parcels of land in Sampaloc,
Manila and for execution of the corresponding deed of conveyance after payment of the
balance still due on their purchase price. Private respondent as plaintiff had entered into
two written contracts with petitioner Legarda Hermanos as defendant subdivision owner,
whereby the latter agreed to sell to him Lots Nos. 7 and 8 of block No. 5N of the
subdivision with an area of 150 square meters each, for the sum of P1,500.00 per lot,
payable over the span of ten years divided into 120 equal monthly installments of P19.83
with 10% interest per annum, to commence on May 26, 1948, date of execution of the
contracts. Subsequently, Legarda Hermanos partitioned the subdivision among the
brothers and sisters, and the two lots were among those allotted to co-petitioner Jose
Legarda who was then included as co-defendant in the action.
It is undisputed that respondent faithfully paid for eight continuous years about 95 (of
the stipulated 120) monthly installments totalling P3,582.06 up to the month of February,
1956, which as per petitioners' own statement of account, Exhibit "1", was applied to
respondent's account (without distinguishing the two lots), as follows:
To interests P1,889.78
To principal 1,682.28
Total P3,582.061
It is equally undisputed that after February, 1956 up to the filing of respondent's complaint in
the Manila court of first instance in 1961, respondent did not make further payments. The
account thus shows that he owed petitioners the sum of P1,317.72 on account of the balance
of the purchase price (principal) of the two lots (in the total sum of P3,000.00), although he had
paid more than the stipulated purchase price of P1,500.00 for one lot.
Almost five years later, on February 2, 1961 just before the filing of the action, respondent
wrote petitioners stating that his desire to build a house on the lots was prevented by their
failure to introduce improvements on the subdivision as "there is still no road to these lots," and
requesting information of the amount owing to update his account as "I intend to continue
paying the balance due on said lots."
Petitioners replied in their letter of February 11, 1961 that as respondent had failed to complete
total payment of the 120 installments by May, 1958 as stipulated in the contracts to sell,
"pursuant to the provisions of both contracts all the amounts paid in accordance with the
agreement together with the improvements on the premises have been considered as rents
paid and as payment for damages suffered by your failure,"2 and "Said cancellation being in
order, is hereby confirmed."
From the adverse decision of July 17, 1963 of the trial court sustaining petitioners' cancellation
of the contracts and dismissing respondent's complaint, respondent appellate court on appeal
rendered its judgment of July 27, 1966 reversing the lower court's judgment and ordering
petitioners "to deliver to the plaintiff possession of one of the two lots, at the choice of
defendants, and to execute the corresponding deed of conveyance to the plaintiff for the said
lot,"3 ruling as follows: —
During the hearing, plaintiff testified that he suspended payments because
the lots were not actually delivered to him, or could not be, due to the fact
that they were completely under water; and also because the defendants-
owners failed to make improvements on the premises, such as roads, filling
of the submerged areas, etc., despite repeated promises of their
representative, the said Mr. Cenon. As regards the supposed cancellation
of the contracts, plaintiff averred that no demand has been made upon him
regarding the unpaid installments, and for this reason he could not be
declared in default so as to entitle the defendants to cancel the said
contracts.
The issue, therefore, is: Under the above facts, may defendants be
compelled, or not, to allow plaintiff to complete payment of the purchase
price of the two lots in dispute and thereafter to execute the final deeds of
conveyance thereof in his favor?
xxx xxx xxx
Whether or not plaintiffs explanation for his failure to pay the remaining
installments is true, considering the circumstances obtaining in this case,
we elect to apply the broad principles of equity and justice. In the case at
bar, we find that the plaintiff has paid the total sum of P3,582.06 including
interests, which is even more than the value of the two lots. And even if the
sum applied to the principal alone were to be considered, which was of the
total of P1,682.28, the same was already more than the value of onelot,
which is P1,500.00. The only balance due on both lots was P1,317.72,
which was even less than the value of one lot. We will consider as fully
paid by the plaintiff at least one of the two lots, at the choice of
the defendants. This is more in line with good conscience than a total
denial to the plaintiff of a little token of what he has paid the defendant
Legarda Hermanos.4
Hence, the present petition for review, wherein petitioners insist on their right of cancellation
under the "plainly valid written agreements which constitute the law between the parties" as
against "the broad principles of equity and justice" applied by the appellate court. Respondent
on the other hand while adhering to the validity of the doctrine of the Caridad Estates
cases5 which recognizes the right of a vendor of land under a contract to sell to cancel the
contract upon default, with forfeiture of the installments paid as rentals, disputes its applicability
herein contending that here petitioners-sellers were equally in default as the lots were
"completely under water" and "there is neither evidence nor a finding that the petitioners in fact
cancelled the contracts previous to receipt of respondent's letter." 6
The Court finds that the appellate court's judgment finding that of the total sum of P3,582.06
(including interests of P1,889.78) already paid by respondent (which was more than the value
of two lots), the sum applied by petitioners to the principal alone in the amount of P1,682.28
was already more than the value of one lot of P1,500.00 and hence one of the two lots as
chosen by respondent would be considered as fully paid, is fair and just and in accordance with
law and equity.

As already stated, the monthly payments for eight years made by respondent were applied to
his account without specifying or distinguishing between the two lots subject of the two
agreements under petitioners' own statement of account, Exhibit "1". 7 Even considering
respondent as having defaulted after February 1956, when he suspended payments after the
95th installment, he had as of the already paid by way of principal (P1,682.28) more than the
full value of one lot (P1,500.00). The judgment recognizing this fact and ordering the
conveyance to him of one lot of his choice while also recognizing petitioners' right to retain the
interests of P1,889.78 paid by him for eight years on both lots, besides the cancellation of the
contract for one lot which thus reverts to petitioners, cannot be deemed to deny substantial
justice to petitioners nor to defeat their rights under the letter and spirit of the contracts in
question.

The Court's doctrine in the analogous case of J.M. Tuason & Co. Inc. vs. Javier8 is fully
applicable to the present case, with the respondent at bar being granted lesser benefits,
since no rescission of contract was therein permitted. There, where the therein buyer-appellee
identically situated as herein respondent buyer had likewise defaulted in completing the
payments after having religiously paid the stipulated monthly installments for almost eight years
and notwithstanding that the seller-appellant had duly notified the buyer of the rescission of the
contract to sell, the Court upheld the lower court's judgment denying judicial confirmation of the
rescission and instead granting the buyer an additional grace period of sixty days from notice of
judgment to pay all the installment payments in arrears together with the stipulated 10%
interest per annum from the date of default, apart from reasonable attorney's fees and costs,
which payments, the Court observed, would have the plaintiff-seller "recover everything due
thereto, pursuant to its contract with the defendant, including such damages as the former may
have suffered in consequence of the latter's default."

In affirming, the Court held that "Regardless, however, of the propriety of applying said Art.
1592 thereto, We find that plaintiff herein has not been denied substantial justice, for, according
to Art. 1234 of said Code: 'If the obligation has been substantially performed in good faith, the
obligor may recover as though there had been a strict and complete fulfillment, less damages
suffered by the obligee,'" and "that in the interest of justice and equity, the decision appealed
from may be upheld upon the authority of Article 1234 of the Civil Code."9

ACCORDINGLY, the appealed judgment of the appellate court is hereby affirmed. Without
pronouncement as to costs.
 G.R. No. L-30597 June 30, 1987 According to the petitioners, the parcelary plan was never agreed upon or annexed to the
contract, which thereby became null and void under Article 1318 of the Civil Code for lack of a
subject matter. Moreover, the failure of the parties to approve and annex the said parcelary
GUILLERMO AZCONA and FE JALANDONI AZCONA, petitioners,
plan had the effect of a breach of the contract that justified its cancellation under its paragraph
vs.
8. 8
JOSE JAMANDRE, Administrator of the Intestate Estate of Cirilo Jamandre (Sp. Proc.
6921 of the Court of First Instance of Negros Occidental), and the HONORABLE COURT
OF APPEALS, respondents. In one breath, the petitioner is arguing that there was no contract because there was no object
and at the same time that there was a contract except that it was violated.
CRUZ, J.:
The correct view, as we see it, is that there was an agreed subject-matter, to wit, the 80
hectares of the petitioner's share in the Sta. Fe hacienda, although it was not expressly defined
This involves the interpretation of a contract of lease which was found by the trial court to have
because the parcelary plan was not annexed and never approved by the parties. Despite this
been violated by both the plaintiff and the defendant. On appeal, its decision was modified by
lack, however, there was an ascertainable object because the leased premises were sufficiently
the respondent court in favor of the plaintiff, for which reason the defendant has now come to
Identified and delineated as the petitioner admitted in his amended answer and in his direct
us in a petition for certiorari.
testimony. 9

By the said contract, 1 Guillermo Azcona (hereinafter called the petitioner) leased 80 hectares
Thus, in his amended answer, he asserted that "the plaintiff . . .must delimit his work to the area
of his 150-hectare pro indiviso share in Hacienda Sta. Fe in Escalante, Negros Occidental, to
previously designated and delivered." Asked during the trial how many hectares the private
Cirilo Jamandre (represented here by the administrator of his intestate estate, and hereinafter
respondent actually occupied, the petitioner declared: "About 80 hectares. The whole 80
called the private respondent). The agreed yearly rental was P7,200.00. The lease was for
hectares." 10 The petitioner cannot now contradict these written and oral admissions." 11
three agricultural years beginning 1960, extendible at the lessee's option to two more
agricultural years, up to 1965.
Moreover, it appears that the failure to attach the parcelary plan to the contract is imputable to
the petitioner himself because it was he who was supposed to cause the preparation of the said
The first annual rental was due on or before March 30, 1960, but because the petitioner did not
plan. As he testified on direct examination, "Our agreement was to sign our agreement, then I
deliver possession of the leased property to the respondent, he "waived" payment, as he put it,
will have the parcelary plan prepared so that it will be a part of our contract." 12 That this was
of that rental. 2 The respondent actually entered the premises only on October 26, 1960, after
never done is not the respondent's fault as he had no control of the survey of the petitioner's
payment by him to the petitioner of the sum of P7,000.00, which was acknowledged in the
land.
receipt later offered as Exhibit "B".

Apparently, the Court of Appeals ** found, the parties impliedly decided to forego the annexing
On April 6, 1961, the petitioner, through his lawyer, notified the respondent that the contract of
of the parcelary plan because they had already agreed on the area and limits of the leased
lease was deemed cancelled, terminated, and of no further effect," pursuant to its paragraph 8,
premises. 13 The Identification of the 80 hectares being leased rendered the parcelary plan
for violation of the conditions specified in the said agreement. 3 Earlier, in fact, the respondent
unnecessary, and its absence did not nullify the agreement.
had been ousted from the possession of 60 hectares of the leased premises and left with only
20 hectares of the original area. 4
Coming next to the alleged default in the payment of the stipulated rentals, we observe first that
when in Exhibit "B" the petitioner declared that "I hereby waive payment for the rentals
The reaction of the respondent to these developments was to file a complaint for damages
corresponding to the crop year 1960-61 and which was due on March 30, 1960, " there was
against the petitioner, who retaliated with a counterclaim. As previously stated, both the
really nothing to waive because, as he himself put it in the same document, possession of the
complaint and the counterclaim were dismissed by the trial court * on the finding that the parties
leased property "was not actually delivered" to the respondent. 14
were in pari delicto. 5

The specific reasons invoked by the petitioner for canceling the lease contract were the
respondent's failure: 1) to attach thereto the parcelary plan Identifying the exact area subject of
the agreement, as stipulated in the contract; 2; to secure the approval by the Philippine
National Bank of the said contract; and 3) to pay the rentals. 6
The parcelary plan was provided for in the contract as follows:
The petitioner claims that such possession was not delivered because the approval by the PNB
of the lease contract had not "materialized" due to the respondent's neglect. Such approval, he
submitted, was to have been obtained by the respondents, which seems logical to us, for it was
the respondent who was negotiating the loan from the PNB. As the respondent court saw it,
however, "paragraph 6 (of the contract) does not state upon whom fell the obligation to secure
the approval" so that it was not clear that "the fault, if any, was due solely to one or the
other." 15

That the LESSOR by these presents do hereby agree to lease in favor of the
LESSEE a portion of the said lots above-described with an extension of EIGHTY (80)
hectares, more or less, which portion is to be Identified by the parcelary plan duly
marked and to be initialed by both LESSOR and LESSEE, and which parcelary plan
is known as Annex "A" of this contract and considered as an integral part hereof. 7
At any rate, that issue and the omission of the parcelary plan became immaterial when the
parties agreed on the lease for the succeeding agricultural year 1961-62, the respondent
paying and the petitioner receiving therefrom the sum of P7,000.00, as acknowledged in Exhibit
"B," which is reproduced in full as follows:
Bacolod City
 October 26, 1960
RECEIPT
RECEIVED from Mr. Cirilo Jamandre at the City of Bacolod, Philippines, this 26th day
of October, 1960, Philippine National Bank Check No. 180646-A (Manager's Check
Binalbagan Branch) for the amount of SEVEN THOUSAND PESOS (P7,000.00),
Philippine Currency as payment for the rental corresponding to crop year 1961-62, by
virtue of the contract of lease I have executed in his favor dated November 23, 1959,
and ratified under Notary Public Mr. Enrique F. Marino as Doc. No. 119, Page No. 25,
Book No. XII, Series of 1959. It is hereby understood, that this payment corresponds
to the rentals due on or before January 30, 1961, as per contract. It is further
understood that I hereby waive payment for the rentals corresponding to crop year
1960-61 and which was due on March 30, 1960, as possession of the property lease
in favor of Mr. Cirilo Jamandre was not actually delivered to him, but the same to be
delivered only after receipt of the amount as stated in this receipt. That Mr. Cirilo
Jamandre is hereby authorized to take immediate possession of the property under
lease effective today, October 26, 1960.
WITNESS my hand at the City of Bacolod, Philippines, this 26th day of October,
1960. (SGD.) GUILLERMO AZCONA
SIGNED IN THE PRESENCE OF: (SGD.) JOSE T. JAMANDRE
Citing the stipulation in the lease contract for an annual rental of P7,200.00, the petitioner now
submits that there was default in the payment thereof by the respondent because he was
P200.00 short of such rental. That deficiency never having been repaired, the petitioner
concludes, the contract should be deemed cancelled in accordance with its paragraph 8. 16
For his part, the respondent argues that the receipt represented an express reduction of the
stipulated rental in consideration of his allowing the use of 16 hectares of the leased area by
the petitioner as grazing land for his cattle. Having unqualifiedly accepted the amount of
P7,000.00 as rental for the agricultural year 1961-62, the petitioner should not now be heard to
argue that the payment was incomplete. 17
After a study of the receipt as signed by the petitioner and witnessed for the respondent, this
Court has come to the conclusion, and so holds, that the amount of P7,000.00 paid to by the
respondent and received by the petitioner represented payment in full of the rental for the
agricultural year 1961-62.
The language is clear enough: "The amount of SEVEN THOUSAND PESOS (P7,000.00),
Philippine Currency, as payment for the rental corresponding to crop year 1961-62 ... to the
rental due on or before January 30, 1961, as per contract." The conclusion should be equally
clear.
The words "as per contract" are especially significant as they suggest that the parties were
aware of the provisions of the agreement, which was described in detail elsewhere in the
receipt. The rental stipulated therein was P7,200.00. The payment being acknowledged in the
receipt was P7,000.00 only. Yet no mention was made in the receipt of the discrepancy and, on
the contrary, the payment was acknowledged "as per contract." We read this as meaning that
the provisions of the contract were being maintained and respected except only for the
reduction of the agreed rental.
The respondent court held that the amount of P200.00 had been condoned, but we do not think
so. The petitioner is correct in arguing that the requisites of condonation under Article 1270 of
the Civil Code are not present. What we see here instead is a mere reduction of the stipulated
rental in consideration of the withdrawal from the leased premises of the 16 hectares where the
petitioner intended to graze his cattle. The signing of Exhibit "B " by the petitioner and its
acceptance by the respondent manifested their agreement on the reduction, which modified the
lease contract as to the agreed consideration while leaving the other stipulations intact.
The petitioner says that having admittedly been drafted by lawyer Jose Jamandre, the
respondent's son, the receipt would have described the amount of P7,000.00 as "payment in
full" of the rental if that were really the case.
It seems to us that this meaning was adequately conveyed in the acknowledgment made by the
petitioner that this was "payment for the rental corresponding to crop year 1961-62" and
"corresponds to the rentals due on or before January 30, 1961, as per contract." On the other
hand, if this was not the intention, the petitioner does not explain why he did not specify in the
receipt that there was still a balance of P200.00 and, to be complete, the date when it was to be
paid by the respondent.
It is noted that the receipt was meticulously worded, suggesting that the parties were taking
great pains, indeed, to provide against any possible misunderstanding, as if they were even
then already apprehensive of future litigation. Such a reservation-if there was one-would have
been easily incorporated in the receipt, as befitted the legal document it was intended to be.
In any event, the relative insignificance of the alleged balance seems to us a paltry justification
for annulling the contract for its supposed violation. If the petitioner is fussy enough to invoke it
now, it stands to reason that he would have fussed over it too in the receipt he willingly signed
after accepting, without reservation and apparently without protest, only P7,000.00.
The applicable provision is Article 1235 of the Civil Code, declaring that:
Art. 1235. When the obligee accepts the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection, the obligation is deemed
fully complied with.
The petitioner says that he could not demand payment of the balance of P200.00 on October
26, 1960, date of the receipt because the rental for the crop year 1961-62 was due on or before
January 30, 1961. 18 But this would not have prevented him from reserving in the receipt his
right to collect the balance when it fell due. Moreover, there is no evidence in the record that
when the due date arrived, he made any demand, written or verbal, for the payment of that
amount.
As this Court is not a trier of facts, 19 we defer to the findings of the respondent court regarding
the losses sustained by the respondent on the basis of the estimated yield of the properties in
question in the years he was supposed to possess and exploit them. While the calculations
offered by the petitioner are painstaking and even apparently exhaustive, we do not find any
grave abuse of discretion on the part of the respondent court to warrant its reversal on this
matter. We also sustain the P5,000.00 attorney's fee.
WHEREFORE, the decision of the respondent Court of Appeals is AFFIRMED in full, with costs
against the petitioners.
SO ORDERED.
 G.R. No. L-52807 February 29, 1984
JOSE ARAÑAS AND LUISA QUIJENCIO ARAÑAS, Petitioners,
vs.
HON. EDUARDO C. TUTAAN, AS JUDGE OF THE COURT OF FIRST INSTANCE OF
QUEZON CITY, AND UNIVERSAL TEXTILE MILLS, INC., Respondents.
DECISION
TEEHANKEE, J.:
In a decision rendered on May 3, 1971 by the now defunct Court of First Instance of Rizal,
Branch V, at Quezon City, in Civil Case No. Q-4689 thereof, entitled "Jose Arañas, et al. vs.
Juanito Castañeda, et al.," the said court declared that petitioner Luisa Quijencio as plaintiff
(assisted by her spouse co-petitioner Jose Arañas) was the owner of 400 shares of stock of
respondent Universal Textile Mills, Inc. (UTEX) as defendant issued "in the names of its co-
defendants Gene Manuel and B.R. Castañeda, including the stock dividends that accrued to
said shares, and ordering defendant Universal Textile Mills, Inc. to cancel said certificates and
issue new ones in the name of said plaintiff Luisa Quijencio Arañas and to deliver to her all
dividends appertaining to same, whether in cash or in stocks."
In a motion for clarification and/or motion for reconsideration, respondent UTEX manifested,
inter alia, that "(I)f this Honorable Court by the phrase 'to deliver to her all dividends
appertaining to same, whether in cash or in stocks,' meant dividends properly pertaining to
plaintiffs after the court's declaration of plaintiffs' ownership of said 400 shares of stock, then as
defendant UTEX has always maintained it would rightfully abide by whatever decision may be
rendered by this Honorable Court since such would be the logical consequence after the
declaration or ruling in respect to the rightful ownership of the said shares of stock." The motion
for clarification was granted by the trial court which ruled that its judgment against UTEX was to
pay to Luisa Quijencio Arañas the cash dividends which accrued to the stocks in question after
the rendition of this decision excluding cash dividends already paid to its co-defendants Gene
Manuel and B.R. Castañeda which accrued before its decision and could not be claimed by the
petitioners-spouses, as follows:
"This in mind, clarification of the dispositive portion of the decision as aforequoted is indeed
necessary, and thus made as to ordain the payment to plaintiff Luisa Quijencio Arañas of cash
dividends which accrue to the stocks in question after the rendition of this decision. Cash
dividends already paid to defendants which accrued before this decision may not, therefore, be
claimed by plaintiffs."
Apparently satisfied with the clarification, UTEX neither moved for reconsideration of the order
nor appealed from the judgment. Subsequently, the trial court granted the motion for new trial
of the two co-defendants Manuel and Castañeda, and after such new trial, it rendered under
date of October 23, 1972 its decision against them which was substantially the same as its first
decision of May 3, 1971 which had already become final and executory as against UTEX,
declaring petitioners-spouses the owners of the questioned shares of stock in the names of
aforementioned co-defendants Castañeda and Manuel and ordering the cancellation of the
certificates in their names and to issue new ones in the names of petitioners.
Co-defendants Castañeda and Manuel appealed this judgment of October 23, 1972 against
them to the Court of Appeals (now Intermediate Appellate Court), which rendered on
September 1, 1978 its judgment affirming in toto the trial court's judgment. Said co-defendants
sought to appeal the appellate court's adverse judgment on a petition for review with this Court,
which rendered its Resolution of March 7, 1979 denying the petition for review for lack of merit
and the judgment against the defendants accordingly became final and executory.
At petitioners' instance, the lower court issued a writ of execution and a specific order of
December 5, 1979 directing UTEX
"1. To effect the cancellation of the certificates of stock in question in the names of B. R.
Castañeda and Gene G. Manuel and the issuance of new ones in the names of the plaintiffs;
"2. To pay the amount of P100, 701. 45 representing the cash dividends that accrued to the
same stocks from 1972 to 1979 with interest thereon at the rate of 12% per annum from the
date of the service of the writ of execution on October 3, 1979 until fully paid."
Upon UTEX motion for partial reconsideration alleging that the cash dividends of the stocks
corresponding to the period from 1972 to 1979 had already been paid and delivered by it to co-
defendants Castañeda and Manuel who then still appeared as the registered owners of the said
shares, the lower court issued its order of January 4, 1980 granting said motion of UTEX and
partially reconsidered its order "to the effect that the defendant Universal Textile Mills, Inc. is
absolved from paying the cash dividend corresponding to the stocks in question to the plaintiffs
for the period 1972 to 1979. "
Hence, the present action for certiorari to set aside respondent judge's questioned order of
January 4, 1980 as having been issued without jurisdiction and for mandamus to compel
respondent judge to perform his ministerial duty of ordering execution of the final and executory
judgment against UTEX according to its terms.
The Court finds merit in the petition and accordingly grants the same.
The final and executory judgment against UTEX in favor of petitioners, declared petitioners as
the owners of the questioned UTEX shares of stock as againsts its co-defendants Castañeda
and Manuel. It was further made clear upon UTEX' own motion for clarification that all dividends
accruing to the said shares of stock after the rendition of the decision of August 7, 1971 which
for the period from 1972 to 1979 amounted to P100, 701.45 were to be paid by UTEX to
petitioners, and UTEX, per the trial court's order of clarification of June 16, 1971 above quoted
had expressly maintained "it would rightfully abide by whatever decision may be rendered by
this Honorable Court since such would be the logical consequence after the declaration or
ruling in respect to the rightful ownership of the said shares of stock."
Consequently, there is no legal nor equitable basis for respondent judge's position "that it would
indeed be most unjust and inequitable to require the defendant Universal Textile Mills, Inc. to
pay twice cash dividends on particular shares of stocks."[1] If UTEX nevertheless chose to pay
the wrong parties, notwithstanding its full knowledge and understanding of the final judgment,
that it was liable to pay all dividends after the trial court's judgment in 1971 to petitioners as the
lawfully declared owners of the questioned shares of stock (but which could not be enforced
against it pending the outcome of the appeal filed by the co-defendants Castañeda and Manuel
in the Court of Appeals), it only had itself to blame therefor.
The burden of recovering the supposed payment of the cash dividends made by UTEX to the
wrong parties Castañeda and Manuel squarely falls upon itself by its own action and cannot be
passed by it to petitioners as innocent parties. It is elementary that payment made by a
judgment debtor to a wrong party cannot extinguish the judgment obligation of such debtor to
its creditor. It is equally elementary that once a judgment becomes final and executory, the
court which rendered it cannot change or modify the same in any material aspect such as what
respondent judge has without authority attempted to do with his questioned order, which would
relieve the judgment debtor UTEX of its acknowledged judgment obligation to pay to petitioners
as the lawful owners of the questioned shares of stock, the cash dividends that accrued after
the rendition of the judgment recognizing them as the lawful owners (Miranda vs. Tiangco, 96
Phil. 526 [1995]). Execution of a final and executory judgment according to its terms is a matter
of right for the prevailing party and becomes the ministerial duty of the court (De los Angeles vs
Victoriano, 109 Phil.12).
ACCORDINGLY, judgment is rendered setting aside the questioned order of January 4, 1980
of respondent judge and a writ of mandamusis hereby issued commanding said respondent
judge to order the execution of his judgment against respondent Universal Textile Mills, Inc.,
pursuant to his first order of June 16, 1971 ordering it to pay the sum of P100, 701. 45,
representing the cash dividends that accrued to petitioners' UTEX shares of stock from 1972 to
1979, with interest thereon at the rate of 12% per annum from the date of service of the writ of
execution on October 3, 1979 until fully paid, as well as to pay petitioners any subsequent cash
dividends that may have been issued by it thereafter, with interest from due date of payment
until actual payment, and directing the sheriff to satisfy such judgment out of the properties of
respondent UTEX. With costs against respondent UTEX. This judgment is immediately
executory.
 G.R. No. L-27782 July 31, 1970
OCTAVIO A. KALALO, plaintiff-appellee,
vs.
ALFREDO J. LUZ, defendant-appellant.
ZALDIVAR, J.:
Appeal from the decision, dated, February 10, 1967, of the Court of First Instance of Rizal
(Branch V, Quezon City) in its Civil Case No. Q-6561.
On November 17, 1959, plaintiff-appellee Octavio A. Kalalo hereinafter referred to as appellee),
a licensed civil engineer doing business under the firm name of O. A. Kalalo and Associates,
entered into an agreement (Exhibit A )1 with defendant-appellant Alfredo J . Luz (hereinafter
referred to as appellant), a licensed architect, doing business under firm name of A. J. Luz and
Associates, whereby the former was to render engineering design services to the latter for fees,
as stipulated in the agreement. The services included design computation and sketches,
contract drawing and technical specifications of all engineering phases of the project designed
by O. A. Kalalo and Associates bill of quantities and cost estimate, and consultation and advice
during construction relative to the work. The fees agreed upon were percentages of the
architect's fee, to wit: structural engineering, 12-½%; electrical engineering, 2-½%. The
agreement was subsequently supplemented by a "clarification to letter-proposal" which
provided, among other things, that "the schedule of engineering fees in this agreement does
not cover the following: ... D. Foundation soil exploration, testing and evaluation; E. Projects
that are principally engineering works such as industrial plants, ..." and "O. A. Kalalo and
Associates reserve the right to increase fees on projects ,which cost less than P100,000
...."2 Pursuant to said agreement, appellee rendered engineering services to appellant in the
following projects:
(a) Fil-American Life Insurance Building at Legaspi City;
(b) Fil-American Life Insurance Building at Iloilo City;
(c) General Milling Corporation Flour Mill at Opon Cebu;
(d) Menzi Building at Ayala Blvd., Makati, Rizal;
(e) International Rice Research Institute, Research center Los Baños,
Laguna;
(f) Aurelia's Building at Mabini, Ermita, Manila;
(g) Far East Bank's Office at Fil-American Life Insurance Building at Isaac
Peral Ermita, Manila;
(h) Arthur Young's residence at Forbes Park, Makati, Rizal;
(i) L & S Building at Dewey Blvd., Manila; and
(j) Stanvac Refinery Service Building at Limay, Bataan.
On December 1 1, '1961, appellee sent to appellant a statement of account (Exhibit "1"), 3 to
which was attached an itemized statement of defendant-appellant's account (Exh. "1-A"),
according to which the total engineering fee asked by appellee for services rendered amounted
to P116,565.00 from which sum was to be deducted the previous payments made in the
amount of P57,000.00, thus leaving a balance due in the amount of P59,565.00.
On May 18, 1962 appellant sent appellee a resume of fees due to the latter. Said fees,
according to appellant. amounted to P10,861.08 instead of the amount claimed by the appellee.
On June 14, 1962 appellant sent appellee a check for said amount, which appellee refused to
accept as full payment of the balance of the fees due him.
On August 10, 1962, appellee filed a complaint against appellant, containing four causes of
action. In the first cause of action, appellee alleged that for services rendered in connection
with the different projects therein mentioned there was due him fees in sum s consisting of
$28,000 (U.S.) and P100,204.46, excluding interests, of which sums only P69,323.21 had been
paid, thus leaving unpaid the $28,000.00 and the balance of P30,881.25. In the second cause
of action, appellee claimed P17,000.00 as consequential and moral damages; in the third
cause of action claimed P55,000.00 as moral damages, attorney's fees and expenses of
litigation; and in the fourth cause of action he claimed P25,000.00 as actual damages, and also
for attorney's fees and expenses of litigation.
In his answer, appellant admitted that appellee rendered engineering services, as alleged in the
first cause of action, but averred that some of appellee's services were not in accordance with
the agreement and appellee's claims were not justified by the services actually rendered, and
that the aggregate amount actually due to appellee was only P80,336.29, of which P69,475.21
had already been paid, thus leaving a balance of only P10,861.08. Appellant denied liability for
any damage claimed by appellee to have suffered, as alleged in the second, third and fourth
causes of action. Appellant also set up affirmative and special defenses, alleging that appellee
had no cause of action, that appellee was in estoppel because of certain acts, representations,
admissions and/or silence, which led appellant to believe certain facts to exist and to act upon
said facts, that appellee's claim regarding the Menzi project was premature because appellant
had not yet been paid for said project, and that appellee's services were not complete or were
performed in violation of the agreement and/or otherwise unsatisfactory. Appellant also set up a
counterclaim for actual and moral damages for such amount as the court may deem fair to
assess, and for attorney's fees of P10,000.00.
Inasmuch as the pleadings showed that the appellee's right to certain fees for services
rendered was not denied, the only question being the assessment of the proper fees and the
balance due to appellee after deducting the admitted payments made by appellant, the trial
court, upon agreement of the parties, authorized the case to be heard before a Commissioner.
The Commissioner rendered a report which, in resume, states that the amount due to appellee
was $28,000.00 (U.S.) as his fee in the International Research Institute Project which was
twenty percent (20%) of the $140,000.00 that was paid to appellant, and P51,539.91 for the
other projects, less the sum of P69,475.46 which was already paid by the appellant. The
Commissioner also recommended the payment to appellee of the sum of P5,000.00 as
attorney's fees.
At the hearing on the Report of the Commissioner, the respective counsel of the parties
manifested to the court that they had no objection to the findings of fact of the Commissioner
contained in the Report, and they agreed that the said Report posed only two legal issues,
namely: (1) whether under the facts stated in the Report, the doctrine of estoppel would apply;
and (2) whether the recommendation in the Report that the payment of the amount. due to the
plaintiff in dollars was legally permissible, and if not, at what rate of exchange it should be paid
in pesos. After the parties had submitted their respective memorandum on said issues, the trial
court rendered its decision dated February 10, 1967, the dispositive portion of which reads as
follows:
 WHEREFORE, judgment is rendered in favor of plaintiff and against the
defendant, by ordering the defendant to pay plaintiff the sum of P51,539.91
and $28,000.00, the latter to be converted into the Philippine currency on
the basis of the current rate of exchange at the time of the payment of this
judgment, as certified to by the Central Bank of the Philippines, from which
shall be deducted the sum of P69,475.46, which the defendant had paid
the plaintiff, and the legal rate of interest thereon from the filing of the
complaint in the case until fully paid for; by ordering the defendant to pay to
plaintiff the further sum of P8,000.00 by way of attorney's fees which the
Court finds to be reasonable in the premises, with costs against the
defendant. The counterclaim of the defendant is ordered dismissed.
From the decision, this appeal was brought, directly to this Court, raising only questions of law.
During the pendency of this appeal, appellee filed a petition for the issuance of a writ of
attachment under Section 1 (f) of Rule 57 of the Rules of Court upon the ground that appellant
is presently residing in Canada as a permanent resident thereof. On June 3, 1969, this Court
resolved, upon appellee's posting a bond of P10,000.00, to issue the writ of attachment, and
ordered the Provincial Sheriff of Rizal to attach the estate, real and personal, of appellant
Alfredo J. Luz within the province, to the value of not less than P140,000.00.
The appellant made the following assignments of errors:
I. The lower court erred in not declaring and holding that plaintiff-appellee's
letter dated December 11, 1961 (Exhibit "1") and the statement of account
(Exhibit "1-A") therein enclosed, had the effect, cumulatively or
alternatively, of placing plaintiff-appellee in estoppel from thereafter
modifying the representations made in said exhibits, or of making plaintiff-
appellee otherwise bound by said representations, or of being of decisive
weight in determining the true intent of the parties as to the nature and
extent of the engineering services rendered and/or the amount of fees due.
II. The lower court erred in declaring and holding that the balance owing
from defendant-appellant to plaintiff-appellee on the IRRI Project should be
paid on the basis of the rate of exchange of the U.S. dollar to the Philippine
peso at the time of payment of judgment. .
III. The lower court erred in not declaring and holding that the aggregate
amount of the balance due from defendant-appellant to plaintiff-appellee is
only P15,792.05.
IV. The lower court erred in awarding attorney's fees in the sum of
P8,000.00, despite the commissioner's finding, which plaintiff-appellee has
accepted and has not questioned, that said fee be only P5,000.00; and
V. The lower court erred in not granting defendant-appellant relief on his
counter-claim.
1. In support of his first assignment of error appellant argues that in Exhibit 1-A, which is a
statement of accounts dated December 11, 1961, sent by appellee to appellant, appellee
specified the various projects for which he claimed engineering fees, the precise amount due
on each particular engineering service rendered on each of the various projects, and the total of
his claims; that such a statement barred appellee from asserting any claim contrary to what was
stated therein, or from taking any position different from what he asserted therein with respect
to the nature of the engineering services rendered; and consequently the trial court could not
award fees in excess of what was stated in said statement of accounts. Appellant argues that
for estoppel to apply it is not necessary, contrary to the ruling of the trial court, that the
appellant should have actually relied on the representation, but that it is sufficient that the
representations were intended to make the defendant act there on; that
assuming arguendo that Exhibit 1-A did not put appellee in estoppel, the said Exhibit 1-A
nevertheless constituted a formal admission that would be binding on appellee under the law
on evidence, and would not only belie any inconsistent claim but also would discredit any
evidence adduced by appellee in support of any claim inconsistent with what appears therein;
that, moreover, Exhibit 1-A, being a statement of account, establishes prima facie the accuracy
and correctness of the items stated therein and its correctness can no longer be impeached
except for fraud or mistake; that Exhibit 1-A furthermore, constitutes appellee's own
interpretation of the contract between him and appellant, and hence, is conclusive against him.
On the other hand, appellee admits that Exhibit 1-A itemized the services rendered by him in
the various construction projects of appellant and that the total engineering fees charged
therein was P116,565.00, but maintains that he was not in estoppel: first, because when he
prepared Exhibit 1-A he was laboring under an innocent mistake, as found by the trial court;
second, because appellant was not ignorant of the services actually rendered by appellee and
the fees due to the latter under the original agreement, Exhibit "A."
We find merit in the stand of appellee.
The statement of accounts (Exh. 1-A) could not estop appellee, because appellant did not rely
thereon as found by the Commissioner, from whose Report we read:
While it is true that plaintiff vacillated in his claim, yet, defendant did not in
anyway rely or believe in the different claims asserted by the plaintiff and
instead insisted on a claim that plaintiff was only entitled to P10,861.08 as
per a separate resume of fees he sent to the plaintiff on May 18, 1962 (See
Exhibit 6).4
The foregoing finding of the Commissioner, not disputed by appellant, was adopted by the trial
court in its decision. Under article 1431 of the Civil Code, in order that estoppel may apply the
person, to whom representations have been made and who claims the estoppel in his favor
must have relied or acted on such representations. Said article provides:
Art. 1431. Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved
as against the person relying thereon.
An essential element of estoppel is that the person invoking it has been influenced and has
relied on the representations or conduct of the person sought to be estopped, and this element
is wanting in the instant case. In Cristobal vs. Gomez,5 this Court held that no estoppel based
on a document can be invoked by one who has not been mislead by the false statements
contained therein. And in Republic of the Philippines vs. Garcia, et al.,6 this Court ruled that
there is no estoppel when the statement or action invoked as its basis did not mislead the
adverse party-Estoppel has been characterized as harsh or odious and not favored in
law.7 When misapplied, estoppel becomes a most effective weapon to accomplish an injustice,
inasmuch as it shuts a man's mouth from speaking the truth and debars the truth in a particular
case.8 Estoppel cannot be sustained by mere argument or doubtful inference: it must be clearly
proved in all its essential elements by clear, convincing and satisfactory evidence. 9 No party
should be precluded from making out his case according to its truth unless by force of some
positive principle of law, and, consequently, estoppel in pains must be applied strictly and
should not be enforced unless substantiated in every particular. 1 0
The essential elements of estoppel in pais may be considered in relation to the party sought to
be estopped, and in relation to the party invoking the estoppel in his favor. As related to the
party to be estopped, the essential elements are: (1) conduct amounting to false representation
or concealment of material facts or at least calculated to convey the impression that the facts
are otherwise than, and inconsistent with, those which the party subsequently attempts to
assert; (2) intent, or at least expectation that his conduct shall be acted upon by, or at least
influence, the other party; and (3) knowledge, actual or constructive, of the real facts. As related
to the party claiming the estoppel, the essential elements are (1) lack of knowledge and of the
means of knowledge of the truth as the facts in questions; (2) (reliance, in good faith, upon the
conduct or statements of the party to be estopped; (3) action or inaction based thereon of such
character as To change the position or status of the party claiming the estoppel, to his injury,
detriment or prejudice. 1 1
The first essential element in relation to the party sought to be estopped does not obtain in the
instant case, for, as appears in the Report of the Commissioner, appellee testified "that when
he wrote Exhibit 1 and prepared Exhibit 1-A, he had not yet consulted the services of his
counsel and it was only upon advice of counsel that the terms of the contract were interpreted
to him resulting in his subsequent letters to the defendant demanding payments of his fees
pursuant to the contract Exhibit A." 1 2 This finding of the Commissioner was adopted by the
trial court. 1 3 It is established , therefore, that Exhibit 1-A was written by appellee through
ignorance or mistake. Anent this matter, it has been held that if an act, conduct or
misrepresentation of the party sought to be estopped is due to ignorance founded on innocent
mistake, estoppel will not arise. 1 4 Regarding the essential elements of estoppel in relation to
the party claiming the estoppel, the first element does not obtain in the instant case, for it
cannot be said that appellant did not know, or at least did not have the means of knowing, the
services rendered to him by appellee and the fees due thereon as provided in Exhibit A. The
second element is also wanting, for, as adverted to, appellant did not rely on Exhibit 1-A but
consistently denied the accounts stated therein. Neither does the third element obtain, for
appellant did not act on the basis of the representations in Exhibit 1-A, and there was no
change in his position, to his own injury or prejudice.
Appellant, however, insists that if Exhibit 1-A did not put appellee in estoppel, it at least
constituted an admission binding upon the latter. In this connection, it cannot be gainsaid that
Exhibit 1-A is not a judicial admission. Statements which are not estoppels nor judicial
admissions have no quality of conclusiveness, and an opponent. whose admissions have been
offered against him may offer any evidence which serves as an explanation for his former
assertion of what he now denies as a fact. This may involve the showing of a mistake.
Accordingly, in Oas vs. Roa, 1 6 it was held that when a party to a suit has made an admission
of any fact pertinent to the issue involved, the admission can be received against him; but such
an admission is not conclusive against him, and he is entitled to present evidence to overcome
the effect of the admission. Appellee did explain, and the trial court concluded, that Exhibit 1-A
was based on either his ignorance or innocent mistake and he, therefore, is not bound by it.
Appellant further contends that Exhibit 1-A being a statement of account, establishes prima
facie the accuracy and correctness of the items stated therein. If prima facie, as contended by
appellant, then it is not absolutely conclusive upon the parties. An account stated may be
impeached for fraud, mistake or error. In American Decisions, Vol. 62, p. 95, cited as authority
by appellant himself. we read thus:
An account stated or settled is a mere admission that the account is
correct. It is not an estoppel. The account is still open to impeachment for
mistakes or errors. Its effect is to establish, prima facie, the accuracy of the
items without other proof; and the party seeking to impeach it is bound to
show affirmatively the mistake or error alleged. The force of the admission
and the strength of the evidence necessary to overcome it will depend
upon the circumstances of the case.
In the instant case, it is Our view that the ignorance mistake that attended the writing of Exhibit
1-A by appellee was sufficient to overcome the prima facie evidence of correctness and
accuracy of said Exhibit 1-A.
Appellant also urges that Exhibit 1-A constitutes appellee's own interpretation of the contract,
and is, therefore, conclusive against him. Although the practical construction of the contract by
one party, evidenced by his words or acts, can be used against him in behalf of the other
party, 1 7 yet, if one of the parties carelessly makes a wrong interpretation of the words of his
contract, or performs more than the contract requires (as reasonably interpreted independently
of his performance), as happened in the instant case, he should be entitled to a restitutionary
remedy, instead of being bound to continue to his erroneous interpretation or his erroneous
performance and "the other party should not be permitted to profit by such mistake unless he
can establish an estoppel by proving a material change of position made in good faith. The rule
as to practical construction does not nullify the equitable rules with respect to performance by
mistake." 1 8 In the instant case, it has been shown that Exhibit 1-A was written through mistake
by appellee and that the latter is not estopped by it. Hence, even if said Exhibit 1-A be
considered as practical construction of the contract by appellee, he cannot be bound by such
erroneous interpretation. It has been held that if by mistake the parties followed a practice in
violation of the terms of the agreement, the court should not perpetuate the error. 1 9
2. In support of the second assignment of error, that the lower court erred in holding that the
balance from appellant on the IRRI project should be paid on the basis of the rate of exchange
of the U.S. dollar to the Philippine peso at the time of payment of the judgment, appellant
contends: first, that the official rate at the time appellant received his architect's fees for the
IRRI project, and correspondingly his obligation to appellee's fee on August 25, 1961, was
P2.00 to $1.00, and cites in support thereof Section 1612 of the Revised Administrative Code,
Section 48 of Republic Act 265 and Section 6 of Commonwealth Act No. 699; second, that the
lower court's conclusion that the rate of exchange to be applied in the conversion of the
$28,000.00 is the current rate of exchange at the time the judgment shall be satisfied was
based solely on a mere presumption of the trial court that the defendant did not convert, there
being no showing to that effect, the dollars into Philippine currency at the official rate, when the
legal presumption should be that the dollars were converted at the official rate of $1.00 to P2.00
because on August 25, 1961, when the IRRI project became due and payable, foreign
exchange controls were in full force and effect, and partial decontrol was effected only
afterwards, during the Macapagal administration; third, that the other ground advanced by the
lower court for its ruling, to wit, that appellant committed a breach of his obligation to turn over
to the appellee the engineering fees received in U.S. dollars for the IRRI project, cannot be
upheld, because there was no such breach, as proven by the fact that appellee never claimed
in Exhibit 1-A that he should be paid in dollars; and there was no provision in the basic contract
(Exh. "A") that he should be paid in dollars; and, finally, even if there were such provision, it
would have no binding effect under the provision of Republic Act 529; that, moreover, it cannot
really be said that no payment was made on that account for appellant had already paid
P57,000.00 to appellee, and under Article 125 of the Civil Code, said payment could be said to
have been applied to the fees due from the IRRI project, this project being the biggest and this
debt being the most onerous.
In refutation of appellant's argument in support of the second assignment of error, appellee
argues that notwithstanding Republic Act 529, appellant can be compelled to pay the appellee
in dollars in view of the fact that appellant received his fees in dollars, and appellee's fee is 20%
of appellant's fees; and that if said amount is be converted into Philippine Currency, the rate of
exchange should be that at the time of the execution of the judgment. 2 0
We have taken note of the fact that on August 25, 1961, the date when appellant said his
obligation to pay appellee's fees became due, there was two rates of exchange, to wit: the
preferred rate of P2.00 to $1.00, and the free market rate. It was so provided in Circular No.
121 of the Central Bank of the Philippines, dated March 2, 1961. amending an earlier Circular
No. 117, and in force until January 21, 1962 when it was amended by Circular No. 133, thus:
1. All foreign exchange receipts shall be surrendered to the Central Bank of
those authorized to deal in foreign exchange as follows:
Percentage of Total to be surrendered at
Preferred: Free Market Rate: Rate:
(a) Export Proceeds, U.S. Government Expenditures invisibles other than
those specifically mentioned below. ................................................ 25 75
(b) Foreign Investments, Gold Proceeds, Tourists and Inward Remittances
of Veterans and Filipino Citizens; and Personal Expenses of Diplomatic
Per personnel ................................. 100"2 1
The amount of $140,000.00 received by appellant foil the International Rice Research Institute
project is not within the scope of sub-paragraph (a) of paragraph No. 1 of Circular No. 121.
Appellant has not shown that 25% of said amount had to be surrendered to the Central Bank at
the preferred rate because it was either export proceeds, or U.S. Government expenditures, or
invisibles not included in sub-paragraph (b). Hence, it cannot be said that the trial court erred in
presuming that appellant converted said amount at the free market rate. It is hard to believe
that a person possessing dollars would exchange his dollars at the preferred rate of P2.00 to
$1.00, when he is not obligated to do so, rather than at the free market rate which is much
higher. A person is presumed to take ordinary care of his concerns, and that the ordinary
course of business has been
followed. 2 2
Under the agreement, Exhibit A, appellee was entitled to 20% of $140,000.00, or the amount of
$28,000.00. Appellee, however, cannot oblige the appellant to pay him in dollars, even if
appellant himself had received his fee for the IRRI project in dollars. This payment in dollars is
prohibited by Republic Act 529 which was enacted on June 16, 1950. Said act provides as
follows:
SECTION 1. Every provision contained in, or made with respect to, any
obligation which provision purports to give the obligee the right to require
payment in gold or in a particular kind of coin or currency other than
Philippine currency or in an amount of money of the Philippines measured
thereby, be as it is hereby declared against public policy, and null, void and
of no effect, and no such provision shall be contained in, or made with
respect to, any obligation hereafter incurred. Every obligation heretofore or
here after incurred, whether or not any such provision as to payment is
contained therein or made with respect thereto, shall be discharged upon
payment in any coin or currency which at the time of payment is legal
tender for public and private debts: Provided, That, ( a) if the obligation was
incurred prior to the enactment of this Act and required payment in a
particular kind of coin or currency other than Philippine currency, it shall be
discharged in Philippine currency measured at the prevailing rate of
exchange at the time the obligation was incurred, (b) except in case of a
loan made in a foreign currency stipulated to be payable in the same
currency in which case the rate of exchange prevailing at the time of the
stipulated date of payment shall prevail. All coin and currency, including
Central Bank notes, heretofore or hereafter issued and declared by the
Government of the Philippines shall be legal tender for all debts, public and
private.
Under the above-quoted provision of Republic Act 529, if the obligation was incurred prior to
the enactment of the Act and require payment in a particular kind of coin or currency other than
the Philippine currency the same shall be discharged in Philippine currency measured at the
prevailing rate of exchange at the time the obligation was incurred. As We have adverted to,
Republic Act 529 was enacted on June 16, 1950. In the case now before Us the obligation of
appellant to pay appellee the 20% of $140,000.00, or the sum of $28,000.00, accrued on
August 25, 1961, or after the enactment of Republic Act 529. It follows that the provision of
Republic Act 529 which requires payment at the prevailing rate of exchange when the
obligation was incurred cannot be applied. Republic Act 529 does not provide for the rate of
exchange for the payment of obligation incurred after the enactment of said Act. The logical
Conclusion, therefore, is that the rate of exchange should be that prevailing at the time of
payment. This view finds support in the ruling of this Court in the case of Engel vs. Velasco &
Co. 2 3 where this Court held that even if the obligation assumed by the defendant was to pay
the plaintiff a sum of money expressed in American currency, the indemnity to be allowed
should be expressed in Philippine currency at the rate of exchange at the time of judgment
rather than at the rate of exchange prevailing on the date of defendant's breach. This is also the
ruling of American court as follows:
The value in domestic money of a payment made in foreign money is fixed
with respect to the rate of exchange at the time of payment. (70 CJS p.
228)
According to the weight of authority the amount of recovery depends upon
the current rate of exchange, and not the par value of the particular money
involved. (48 C.J. 605-606)
The value in domestic money of a payment made in foreign money is fixed
in reference to the rate of exchange at the time of such payment. (48 C.J.
605)
It is Our considered view, therefore, that appellant should pay the appellee the equivalent in
pesos of the $28,000.00 at the free market rate of exchange at the time of payment. And so the
trial court did not err when it held that herein appellant should pay appellee $28,000.00 "to be
converted into the Philippine currency on the basis of the current rate of exchange at the time
of payment of this judgment, as certified to by the Central Bank of the Philippines, ...." 24
Appellant also contends that the P57,000.00 that he had paid to appellee should have been
applied to the due to the latter on the IRRI project because such debt was the most onerous to
appellant. This contention is untenable. The Commissioner who was authorized by the trial
court to receive evidence in this case, however, reports that the appellee had not been paid for
the account of the $28,000.00 which represents the fees of appellee equivalent to 20% of the
$140,000.00 that the appellant received as fee for the IRRI project. This is a finding of fact by
the Commissioner which was adopted by the trial court. The parties in this case have agreed
that they do not question the finding of fact of the Commissioner. Thus, in the decision
appealed from the lower court says:
At the hearing on the Report of the Commissioner on February 15, 1966,
the counsels for both parties manifested to the court that they have no
objection to the findings of facts of the Commissioner in his report; and
agreed that the said report only poses two (2)legal issues, namely: (1)
whether under the facts stated in the Report, the doctrine of estoppel will
apply; and (2) whether the recommendation in the Report that the payment
 of amount due to the plaintiff in dollars is permissible under the law, and, if
not, at what rate of exchange should it be paid in pesos (Philippine
currency) .... 2 5
In the Commissioner's report, it is spetifically recommended that the appellant be ordered to
pay the plaintiff the sum of "$28,000. 00 or its equivalent as the fee of the plaintiff under Exhibit
A on the IRRI project." It is clear from this report of the Commissioner that no payment for the
account of this $28,000.00 had been made. Indeed, it is not shown in the record that the peso
equivalent of the $28,000.00 had been fixed or agreed upon by the parties at the different times
when the appellant had made partial payments to the appellee.
3. In his third assignment of error, appellant contends that the lower court erred in not declaring
that the aggregate amount due from him to appellee is only P15,792.05. Appellant questions
the propriety or correctness of most of the items of fees that were found by the Commissioner
to be due to appellee for services rendered. We believe that it is too late for the appellant to
question the propriety or correctness of those items in the present appeal. The record shows
that after the Commissioner had submitted his report the lower court, on February 15, 1966,
issued the following order:
When this case was called for hearing today on the report of the
Commissioner, the counsels of the parties manifested that they have no
objection to the findings of facts in the report. However, the report poses
only legal issues, namely: (1) whether under the facts stated in the report,
the doctrine of estoppel will apply; and (2) whether the recommendation in
the report that the alleged payment of the defendant be made in dollars is
permissible by law and, if not, in what rate it should be paid in pesos
(Philippine Currency). For the purpose of resolving these issues the parties
prayed that they be allowed to file their respective memoranda which will
aid the court in the determination of said issues. 2 6
In consonance with the afore-quoted order of the trial court, the appellant submitted his
memorandum which opens with the following statements:
As previously manifested, this Memorandum shall be confined to:
(a) the finding in the Commissioner's Report that defendant's defense of
estoppel will not lie (pp. 17-18, Report); and
(b) the recommendation in the Commissioner's Report that defendant be
ordered to pay plaintiff the sum of '$28,000.00 (U.S.) or its equivalent as
the fee of the plaintiff under Exhibit 'A' in the IRRI project.'
More specifically this Memorandum proposes to demonstrate
the affirmative of three legal issues posed, namely:
First: Whether or not plaintiff's letter dated December 11, 1961 (Exhibit 'I')
and/or Statement of Account (Exhibit '1-A') therein enclosed has the effect
of placing plaintiff in estoppel from thereafter modifying
the representations made in said letter and Statement of Account or of
making plaintiff otherwise bound thereby; or of being decisive or great
weight in determining the true intent of the parties as to the amount of the
engineering fees owing from defendant to plaintiff;
Second: Whether or not defendant can be compelled to pay whatever
balance is owing to plaintiff on the IRRI (International Rice and Research
Institute) project in United States dollars; and
Third: Whether or not in case the ruling of this Honorable Court be that
defendant cannot be compelled to pay plaintiff in United States dollars, the
dollar-to-peso convertion rate for determining the peso equivalent of
whatever balance is owing to plaintiff in connection with the IRRI project
should be the 2 to 1 official rate and not any other rate. 2 7
It is clear, therefore, that what was submitted by appellant to the lower court for resolution did
not include the question of correctness or propriety of the amounts due to appellee in
connection with the different projects for which the appellee had rendered engineering services.
Only legal questions, as above enumerated, were submitted to the trial court for resolution. So
much so, that the lower court in another portion of its decision said, as follows:
The objections to the Commissioner's Report embodied in defendant's
memorandum of objections, dated March 18, 1966, cannot likewise be
entertained by the Court because at the hearing of the Commissioner's
Report the parties had expressly manifested that they had no objection to
the findings of facts embodied therein.
We, therefore hold that the third assignment of error of the appellant has no merit.
4. In his fourth assignment of error, appellant questions the award by the lower court of
P8,000.00 for attorney's fees. Appellant argues that the Commissioner, in his report, fixed the
sum of P5,000.00 as "just and reasonable" attorney's fees, to which amount appellee did not
interpose any objection, and by not so objecting he is bound by said finding; and that,
moreover, the lower court gave no reason in its decision for increasing the amount to
P8,000.00.
Appellee contends that while the parties had not objected to the findings of the Commissioner,
the assessment of attorney's fees is always subject to the court's appraisal, and in increasing
the recommended fees from P5,000.00 to P8,000.00 the trial court must have taken into
consideration certain circumstances which warrant the award of P8,000.00 for attorney's fees.
We believe that the trial court committed no error in this connection. Section 12 of Rule 33 of
the Rules of Court, on which the fourth assignment of error is presumably based, provides that
when the parties stipulate that a commissioner's findings of fact shall be final, only questions of
law arising from the facts mentioned in the report shall thereafter be considered. Consequently,
an agreement by the parties to abide by the findings of fact of the commissioner is equivalent to
an agreement of facts binding upon them which the court cannot disregard. The question,
therefore, is whether or not the estimate of the reasonable fees stated in the report of the
Commissioner is a finding of fact.
The report of the Commissioner on this matter reads as follows:
As regards attorney's fees, under the provisions of Art 2208, par (11), the same may be
awarded, and considering the number of hearings held in this case, the nature of the case
(taking into account the technical nature of the case and the voluminous exhibits offered in
evidence), as well as the way the case was handled by counsel, it is believed, subject to the
Court's appraisal of the matter, that the sum of P5,000.00 is just and reasonable as attorney's
fees." 28
It is thus seen that the estimate made by the Commissioner was an expression of belief, or an
opinion. An opinion is different from a fact. The generally recognized distinction between a
statement of "fact" and an expression of "opinion" is that whatever is susceptible of exact
knowledge is a matter of fact, while that not susceptible of exact knowledge is generally
regarded as an expression of opinion. 2 9 It has also been said that the word "fact," as
employed in the legal sense includes "those conclusions reached by the trior from shifting
testimony, weighing evidence, and passing on the credit of the witnesses, and it does not
denote those inferences drawn by the trial court from the facts ascertained and settled by
it. 3 0 In the case at bar, the estimate made by the Commissioner of the attorney's fees was an
inference from the facts ascertained by him, and is, therefore, not a finding of facts. The trial
court was, consequently, not bound by that estimate, in spite of the manifestation of the parties
that they had no objection to the findings of facts of the Commissioner in his report. Moreover,
under Section 11 of Rule 33 of the Rules of Court, the court may adopt, modify, or reject the
report of the commissioner, in whole or in part, and hence, it was within the trial court's
authority to increase the recommended attorney's fees of P5,000.00 to P8,000.00. It is a settled
rule that the amount of attorney's fees is addressed to the sound discretion of the court. 3 1

It is true, as appellant contends, that the trial court did not state in the decision the reasons for
increasing the attorney's fees. The trial court, however, had adopted the report of the
Commissioner, and in adopting the report the trial court is deemed to have adopted the reasons
given by the Commissioner in awarding attorney's fees, as stated in the above-quoted portion
of the report. Based on the reasons stated in the report, the trial court must have considered
that the reasonable attorney's fees should be P8,000.00. Considering that the judgment against
the appellant would amount to more than P100,000.00, We believe that the award of P8,000.00
for attorney's fees is reasonable.

5. In his fifth assignment of error appellant urges that he is entitled to relief on his counterclaim.
In view of what We have stated in connection with the preceding four assignments of error, We
do not consider it necessary to dwell any further on this assignment of error.

WHEREFORE, the decision appealed from is affirmed, with costs against the defendant-
appellant. It is so ordered.
 G.R. No. L-49494 May 31, 1979 After petitioners had rested, the case was deemed submitted for decision since respondent
Afable and her co-debtors had repeatedly failed to appear before the trial Court for the
presentation of their evidence.
NELIA G. PONCE and VICENTE C. PONCE, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, and JESUSA B. AFABLE, respondents. On March 9, 1972, the trial Court rendered judgment ordering respondent Afable and her co-
debtors, Felisa L. Mendoza and Ma. Aurora C. Diño , to pay petitioners, jointly and severally,
the sum of P814,868.42, plus 12% interest per annum from July 31, 1969 until full payment,
MELENCIO-HERRERA, J.:
and a sum equivalent to 10% of the total amount due as attorney's fees and costs.

This is a Petition for Certiorari seeking to set aside the Resolution of the Court of Appeals,
From said Decision, by respondent Afable appealed to the Court of Appeals. She argued that
dated June 8, 1978, reconsidering its Decision dated December 17, 1977 and reversing the
the contract under consideration involved the payment of US dollars and was, therefore, illegal;
judgment of the Court of First Instance of Manila in favor of petitioners as well as the
and that under the in pari delicto rule, since both parties are guilty of violating the law, neither
Resolutions, dated July 6, 1978 and November 27, 1978, denying petitioners' Motion for
one can recover. It is to be noted that said defense was not raised in her Answer.
Reconsideration.

The factual background of the case is as follows:
On June 3, 1969, private respondent Jesusa B. Afable, together with Felisa L. Mendoza and
Ma. Aurora C. Diño executed a promissory note in favor of petitioner Nelia G. Ponce in the sum
of P814,868.42, Philippine Currency, payable, without interest, on or before July 31, 1969. It
was further provided therein that should the indebtedness be not paid at maturity, it shall draw
interest at 12% per annum, without demand; that should it be necessary to bring suit to enforce
pay ment of the note, the debtors shall pay a sum equivalent to 10% of the total amount due for
attorney's fees; and, in the event of failure to pay the indebtedness plus interest in accordance
with its terms, the debtors shall execute a first mortgage in favor of the creditor over their
properties or of the Carmen Planas Memorial, Inc.
On December 13, 1977, the Court of Appeals* rendered judgment affirming the decision of the
trial Court. In a Resolution dated February 27, 1978, the Court of Appeals,** denied
respondent's Motion for Reconsideration. However, in a Resolution dated June 8, 1978, the
Court of Appeals acting on the Second Motion for Reconsideration filed by private respondent,
set aside the Decision of December 13, 1977, reversed the judgment of the trial Court and
dismissed the Complaint. The Court of Appeals opined that the intent of the parties was that the
promissory note was payable in US dollars, and, therefore, the transaction was illegal with
neither party entitled to recover under the in pari delicto rule.
Their Motions for Reconsideration having been denied in the Resolutions dated July 6, 1978
and November 27, 1978, petitioners filed the instant Petition raising the following Assignments
of Error.

Upon the failure of the debtors to comply with the terms of the promissory note, petitioners
I
(Nelia G. Ponce and her husband) filed, on July 27, 1970, a Complaint against them with the
Court of First Instance of Manila for the recovery of the principal sum of P814,868.42, plus
interest and damages. THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE
PROMISSORY NOTE EVIDENCING THE TRANSACTION OF THE PARTIES IS
PAYABLE IN U.S. DOLLARS THEREBY DETERMINING THE INTENT OF THE
Defendant Ma. Aurora C. Diño's Answer consisted more of a general denial and the contention
PARTIES OUTSIDE OF THEIR PROMISSORY NOTE DESPITE LACK OF
that she did not borrow any amount from plaintiffs and that her signature on the promissory
SHOWING THAT IT FAILED TO EXPRESS THE TRUE INTENT OR AGREEMENT
note was obtained by plaintiffs on their assurance that the same was for " formality only."
OF THE PARTIES AND ITS PAYABILITY IN PHILIPPINE PESOS WHICH IS
EXPRESSED, AMONG OTHERS, BY ITS CLEAR AND PRECISE TERMS.
Defendant Jesusa B. Afable, for her part, asserted in her Answer that the promissory note
failed to express the true intent and agreement of the parties, the true agreement being that the
II
obligation therein mentioned would be assumed and paid entirely by defendant Felisa L.
Mendoza; that she had signed said document only as President of the Carmen Planas
Memorial, Inc., and that she was not to incur any personal obligation as to the payment thereof THE RESPONDENT COURT, OF APPEALS ERRED IN HOLDING THAT
because the same would be repaid by defendant Mendoza and/or Carmen Planas Memorial, REPUBLIC ACT 529, OTHERWISE KNOWN ASIAN ACT TO ASSURE UNIFORM
Inc. VALUE TO PHILIPPINE COINS AND CURRENCY,' COVERS THE TRANSACTION
OF THE PARTIES HEREIN.
In her Amended Answer, defendant Felisa L. Mendoza admitted the authenticity and due
execution of the promissory note, but averred that it was a recapitulation of a series of III
transactions between her and the plaintiffs, "with defendant Ma. Aurora C. Diño and Jesusa B.
Afable coming only as accomodation parties." As affirmative defense, defendant Mendoza
THE RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING THAT
contended that the promissory note was the result of usurious transactions, and, as
PRIVATE RESPONDENT JESUSA B. AFABLE COULD NOT FAVORABLY AVAIL
counterclaim, she prayed that plaintiffs be ordered to account for all the interests paid.
HERSELF OF THE DEFENSE OF ALLEGED APPLICABILITY OF REPUBLIC ACT
529 AND THE DOCTRINE OF IN PARI DELICTO AS THESE WERE NOT
Plaintiffs filed their Answer to defendant Mendoza's counterclaim denying under oath the PLEADED NOR ADOPTED BY HER IN THE TRIAL.
allegations of usury.
 IV
THE RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING ASSUMING
ARGUENDO THAT REPUBLIC ACT 529 COVERS THE PARTIES TRANSACTION,
THAT THE Doctrine OF IN PARI DELICTO DOES NOT APPLY AND THE PARTIES
AGREEMENT WAS NOT NULL AND VOID PURSUANT TO THE RULING IN
OCTAVIO A. KALALO VS. ALFREDO J. LUZ, NO.-27782, JULY 31, 1970.
In the Resolution dated June 8, 1978, the Court of Appeals made the following observations:
We are convinced from the evidence that the amount awarded by the lower Court
was indeed owed by the defendants to the plaintiffs. However, the sole issue raised
in this second motion for reconconsideration is not the existence of the obligation
itself but the legality of the subject matter of the contract. If the subject matter is
illegal and against public policy, the doctrine of pari delicto applies.
xxx xxx xxx
We are constrained to reverse our December 13, 1977 decision. While it is true that
the promissory note does not mention any obligation to pay in dollars, plaintiff-
appellee Ponce himself admitted that there was an agreement that he would be paid
in dollars by the defendants. The promissory note is payable in U.S. donors. The in.
tent of the parties prevails over the bare words of the written contracts.
xxx xxx xxx
The agreement is null and void and of no effect under Republic Act No. 529. Under
the doctrine of pari delicto, no recovery can be made in favor of the plaintiffs for being
themselves guilty of violating the law. 1
We are constrained to disagree.
Reproduced hereunder is Section 1 of Republic Act No. 529, which was enacted on June 16,
1950:
Section 1. Every provision contained in, or made with respect to, any domestic
obligation to wit, any obligation contracted in the Philippines which provision purports
to give the obligee the right to require payment in gold or in a particular kind of coin or
currency other than Philippine currency or in an amount of money of the Philippines
measured thereby, be as it is hereby declared against public policy, and null voice
and of no effect and no such provision shall be contained in, or made with respect to,
any obligation hereafter incurred. The above prohibition shall not apply to (a)
transactions were the funds involved are the proceeds of loans or investments made
directly or indirectly, through bona fide intermediaries or agents, by foreign
governments, their agencies and instrumentalities, and international financial and
banking institutions so long as the funds are Identifiable, as having emanated from
the sources enumerated above; (b) transactions affecting high priority economic
projects for agricultural industrial and power development as may be determined by
the National Economic Council which are financed by or through foreign funds; (c)
forward exchange transactions entered into between banks or between banks and
individuals or juridical persons; (d) import-export and other international banking
financial investment and industrial transactions. With the exception of the cases
enumerated in items (a) (b), (c) and (d) in the foregoing provision, in, which cases the
terms of the parties' agreement shag apply, every other domestic obligation
heretofore or hereafter incurred whether or not any such provision as to payment is
contained therein or made with- respect thereto, shall be discharged upon payment
in any coin or currency which at the time of payment is legal tender for public and
private debts: Provided, That if the obligation was incurred prior to the enactment of
this Act and required payment in a particular kind of coin or currency other than
Philippine currency, it shall be discharge in Philippine currency measured at the
prevailing rates of exchange at the time the obligation was incurred, except in case of
a loan made in foreign currency stipulated to be payable in the currency in which
case the rate of exchange prevailing at the time of the stipulated date of payment
shall prevail All coin and currency, including Central Bank notes, heretofore and
hereafter issued and d by the Government of the Philippines shall be legal tender for
all debts, public and private. (As amended by RA 4100, Section 1, approved June 19,
1964) (Empahsis supplied).
It is to be noted that while an agreement to pay in dollars is declared as null and void and of no
effect, what the law specifically prohibits is payment in currency other than legal tender. It does
not defeat a creditor's claim for payment, as it specifically provides that "every other domestic
obligation ... whether or not any such provision as to payment is contained therein or made with
respect thereto, shall be discharged upon payment in any coin or currency which at the time of
payment is legal tender for public and private debts." A contrary rule would allow a person to
profit or enrich himself inequitably at another's expense.
As the Court of Appeals itself found, the promissory note in question provided on its face for
payment of the obligation in Philippine currency, i.e., P814,868.42. So that, while the
agreement between the parties originally involved a dollar transaction and that petitioners
expected to be paid in the amount of US$194,016.29, petitioners are not now insisting on their
agreement with respondent Afable for the payment of the obligation in dollars. On the contrary,
they are suing on the basis of the promissory note whereby the parties have already agreed to
convert the dollar loan into Philippine currency at the rate of P4.20 to $1.00. 2 It may likewise be
pointed out that the Promissory Note contains no provision "giving the obligee the right to
require payment in a particular kind of currency other than Philippine currency, " which is what
is specifically prohibited by RA No. 529.
At any rate, even if we were to disregard the promissory note providing for the payment of the
obligation in Philippine currency and consider that the intention of the parties was really to
provide for payment of the obligation would be made in dollars, petitioners can still recover the
amount of US$194,016.29, which respondent Afable and her co-debtors do not deny having
received, in its peso equivalent. As held in Eastboard Navigation, Ltd. vs. Juan Ysmael & Co.
Inc., 102 Phil. 1 (1957), and Arrieta vs. National Rice & Corn Corp., 3 if there is any agreement
to pay an obligation in a currency other than Philippine legal tender, the same is nun and void
as contrary to public policy, pursuant to Republic Act No. 529, and the most that could be
demanded is to pay said obligation in Philippine currency. In other words, what is prohibited by
RA No. 529 is the payment of an obligation in dollars, meaning that a creditor cannot oblige the
debtor to pay him in dollars, even if the loan were given in said currency. In such a case, the
indemnity to be allowed should be expressed in Philippine currency on the basis of the current
rate of exchange at the time of payment. 4
The foregoing premises considered, we deem it unnecessary to discuss the other errors
assigned by petitioners.
WHEREFORE, the Resolutions of the Court of Appeals dated June 8, 1978, July 6, 1978 and
November 27, 1978 are hereby set aside, and judgment is hereby rendered reinstating the
Decision of the Court of First Instance of Manila. No pronouncement as to costs. SO
ORDERED.
 G.R. No. L-41764 December 19, 1980
NEW PACIFIC TIMBER & SUPPLY COMPANY, INC., petitioner,
vs.
HON. ALBERTO V. SENERIS, RICARDO A. TONG and EX-OFFICIO SHERIFF HAKIM S.
ABDULWAHID, respondents.
CONCEPCION JR., J.:
A petition for certiorari with preliminary injunction to annul and/or modify the order of the Court
of First Instance of Zamboanga City (Branch ii) dated August 28, 1975 denying petitioner's Ex-
Parte Motion for Issuance of Certificate Of Satisfaction Of Judgment.
Herein petitioner is the defendant in a complaint for collection of a sum of money filed by the
private respondent. 1On July 19, 1974, a compromise judgment was rendered by the
respondent Judge in accordance with an amicable settlement entered into by the parties the
terms and conditions of which, are as follows:
(1) That defendant will pay to the plaintiff the amount of Fifty Four
Thousand Five Hundred Pesos (P54,500.00) at 6% interest per annum to
be reckoned from August 25, 1972;
(2) That defendant will pay to the plaintiff the amount of Six Thousand
Pesos (P6,000.00) as attorney's fees for which P5,000.00 had been
acknowledged received by the plaintiff under Consolidated Bank and Trust
Corporation Check No. 16-135022 amounting to P5,000.00 leaving a
balance of One Thousand Pesos (P1,000.00);
(3) That the entire amount of P54,500.00 plus interest, plus the balance of
P1,000.00 for attorney's fees will be paid by defendant to the plaintiff within
five months from today, July 19, 1974; and
(4) Failure one the part of the defendant to comply with any of the above-
conditions, a writ of execution may be issued by this Court for the
satisfaction of the obligation. 2
For failure of the petitioner to comply with his judgment obligation, the respondent Judge, upon
motion of the private respondent, issued an order for the issuance of a writ of execution on
December 21, 1974. Accordingly, writ of execution was issued for the amount of P63,130.00
pursuant to which, the Ex-Officio Sheriff levied upon the following personal properties of the
petitioner, to wit:
(1) Unit American Lathe 24
(1) Unit American Lathe 18 Cracker Wheeler
(1) Unit Rockford Shaper 24
and set the auction sale thereof on January 15, 1975. However, prior to January 15, 1975,
petitioner deposited with the Clerk of Court, Court of First Instance, Zamboanga City, in his
capacity as Ex-Officio Sheriff of Zamboanga City, the sum of P63,130.00 for the payment of the
judgment obligation, consisting of the following:
1. P50.000.00 in Cashier's Check No. S-314361 dated January 3, 1975 of
the Equitable Banking Corporation; and
2. P13,130.00 incash. 3
In a letter dated January 14, 1975, to the Ex-Officio Sheriff, 4 private respondent through
counsel, refused to accept the check as well as the cash deposit. In the 'same letter, private
respondent requested the scheduled auction sale on January 15, 1975 to proceed if the
petitioner cannot produce the cash. However, the scheduled auction sale at 10:00 a.m. on
January 15, 1975 was postponed to 3:00 o'clock p.m. of the same day due to further attempts
to settle the case. Again, the scheduled auction sale that afternoon did not push through
because of a last ditch attempt to convince the private respondent to accept the check. The
auction sale was then postponed on the following day, January 16, 1975 at 10:00 o'clock
a.m. 5 At about 9:15 a.m., on January 16, 1975, a certain Mr. Tañedo representing the
petitioner appeared in the office of the Ex-Officio Sheriff and the latter reminded Mr. Tañedo
that the auction sale would proceed at 10:00 o'clock. At 10:00 a.m., Mr. Tañedo and Mr.
Librado, both representing the petitioner requested the Ex-Officio Sheriff to give them fifteen
minutes within which to contract their lawyer which request was granted. After Mr. Tañedo and
Mr. Librado failed to return, counsel for private respondent insisted that the sale must proceed
and the Ex-Officio Sheriff proceeded with the auction sale. 6 In the course of the proceedings,
Deputy Sheriff Castro sold the levied properties item by item to the private respondent as the
highest bidder in the amount of P50,000.00. As a result thereof, the Ex-Officio Sheriff declared
a deficiency of P13,130.00. 7 Thereafter, on January 16, 1975, the Ex-Officio Sheriff issued a
"Sheriff's Certificate of Sale" in favor of the private respondent, Ricardo Tong, married to
Pascuala Tong for the total amount of P50,000.00 only. 8 Subsequently, on January 17, 1975,
petitioner filed an ex-parte motion for issuance of certificate of satisfaction of judgment. This
motion was denied by the respondent Judge in his order dated August 28, 1975. In view
thereof, petitioner now questions said order by way of the present petition alleging in the main
that said respondent Judge capriciously and whimsically abused his discretion in not granting
the motion for issuance of certificate of satisfaction of judgment for the following reasons: (1)
that there was already a full satisfaction of the judgment before the auction sale was conducted
with the deposit made to the Ex-Officio Sheriff in the amount of P63,000.00 consisting of
P50,000.00 in Cashier's Check and P13,130.00 in cash; and (2) that the auction sale was
invalid for lack of proper notice to the petitioner and its counsel when the Ex-Officio Sheriff
postponed the sale from June 15, 1975 to January 16, 1976 contrary to Section 24, Rule 39 of
the Rules of Court. On November 10, 1975, the Court issued a temporary restraining order
enjoining the respondent Ex-Officio Sheriff from delivering the personal properties subject of
the petition to Ricardo A. Tong in view of the issuance of the "Sheriff Certificate of Sale."
We find the petition to be impressed with merit.
The main issue to be resolved in this instance is as to whether or not the private respondent
can validly refuse acceptance of the payment of the judgment obligation made by the petitioner
consisting of P50,000.00 in Cashier's Check and P13,130.00 in cash which it deposited with
the Ex-Officio Sheriff before the date of the scheduled auction sale. In upholding private
respondent's claim that he has the right to refuse payment by means of a check, the
respondent Judge cited the following:
Section 63 of the Central Bank Act:
Sec. 63. Legal Character. — Checks representing deposit money do not
have legal tender power and their acceptance in payment of debts, both
 public and private, is at the option of the creditor, Provided, however, that a
check which has been cleared and credited to the account of the creditor
shall be equivalent to a delivery to the creditor in cash in an amount equal
to the amount credited to his account.
Article 1249 of the New Civil Code:
Art. 1249. — The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the
currency which is legal tender in the Philippines.
cash covers the judgment obligation of P63,000.00 as mentioned in the writ of execution, then,
We see no valid reason for the private respondent to have refused acceptance of the payment
of the obligation in his favor. The auction sale, therefore, was uncalled for. Furthermore, it
appears that on January 17, 1975, the Cashier's Check was even withdrawn by the petitioner
and replaced with cash in the corresponding amount of P50,000.00 on January 27, 1975
pursuant to an agreement entered into by the parties at the instance of the respondent Judge.
However, the private respondent still refused to receive the same. Obviously, the private
respondent is more interested in the levied properties than in the mere satisfaction of the
judgment obligation. Thus, petitioner's motion for the issuance of a certificate of satisfaction of
judgment is clearly meritorious and the respondent Judge gravely abused his discretion in not
granting the same under the circumstances.

The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when
they have been cashed, or when through the fault of the creditor they have
been impaired.
In the meantime, the action derived from the original obligation shall be
held in abeyance.
Likewise, the respondent Judge sustained the contention of the private respondent that he has
the right to refuse payment of the amount of P13,130.00 in cash because the said amount is
less than the judgment obligation, citing the following Article of the New Civil Code:
Art. 1248. Unless there is an express stipulation to that effect, the creditor
cannot be compelled partially to receive the presentations in which the
obligation consists. Neither may the debtor be required to make partial
payment.
However, when the debt is in part liquidated and in part unliquidated, the
creditor may demand and the debtor may effect the payment of the former
without waiting for the liquidation of the latter.
In view of the conclusion reached in this instance, We find no more need to discuss the ground
relied in the petition.
It is also contended by the private respondent that Appeal and not a special civil action for
certiorari is the proper remedy in this case, and that since the period to appeal from the
decision of the respondent Judge has already expired, then, the present petition has been filed
out of time. The contention is untenable. The decision of the respondent Judge in Civil Case
No. 250 (166) has long become final and executory and so, the same is not being questioned
herein. The subject of the petition at bar as having been issued in grave abuse of discretion is
the order dated August 28, 1975 of the respondent Judge which was merely issued in
execution of the said decision. Thus, even granting that appeal is open to the petitioner, the
same is not an adequate and speedy remedy for the respondent Judge had already issued a
writ of execution. 14
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
1. Declaring as null and void the order of the respondent Judge dated August 28, 1975;
2. Declaring as null and void the auction sale conducted on January 16, 1975 and the
certificate of sale issued pursuant thereto;

It is to be emphasized in this connection that the check deposited by the petitioner in the 3. Ordering the private respondent to accept the sum of P63,130.00 under deposit as payment
amount of P50,000.00 is not an ordinary check but a Cashier's Check of the Equitable Banking of the judgment obligation in his favor;
Corporation, a bank of good standing and reputation. As testified to by the Ex-Officio Sheriff
with whom it has been deposited, it is a certified crossed check. 9It is a well-known and
4. Ordering the respondent Judge and respondent Ex-Officio Sheriff to release the levied
accepted practice in the business sector that a Cashier's Check is deemed as cash. Moreover,
properties to the herein petitioner.
since the said check had been certified by the drawee bank, by the certification, the funds
represented by the check are transferred from the credit of the maker to that of the payee or
holder, and for all intents and purposes, the latter becomes the depositor of the drawee bank, The temporary restraining order issued is hereby made permanent.
with rights and duties of one in such situation. 10 Where a check is certified by the bank on
which it is drawn, the certification is equivalent to acceptance. 11 Said certification "implies that
Costs against the private respondent.
the check is drawn upon sufficient funds in the hands of the drawee, that they have been set
apart for its satisfaction, and that they shall be so applied whenever the check is presented for
payment. It is an understanding that the check is good then, and shall continue good, and this SO ORDERED.
agreement is as binding on the bank as its notes in circulation, a certificate of deposit payable
to the order of the depositor, or any other obligation it can assume. The object of certifying a
check, as regards both parties, is to enable the holder to use it as money." 12When the holder
procures the check to be certified, "the check operates as an assignment of a part of the funds
to the creditors." 13 Hence, the exception to the rule enunciated under Section 63 of the Central
Bank Act to the effect "that a check which has been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the creditor in cash in an amount equal to the
amount credited to his account" shall apply in this case. Considering that the whole amount
deposited by the petitioner consisting of Cashier's Check of P50,000.00 and P13,130.00 in
 G.R. No. 72110 November 16, 1990
ROMAN CATHOLIC BISHOP OF MALOLOS, INC., Petitioner,
vs.
INTERMEDIATE APPELLATE COURT, AND ROBES-FRANCISCO REALTY AND
DEVELOPMENT CORPORATION, Respondents.
DECISION
SARMIENTO, J.:
This is a petition for review on certiorari which seeks the reversal and setting aside of the
decision[1] of the Court of Appeals,[2] the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby reversed and set aside and another one
entered for the plaintiff ordering the defendant-appellee Roman Catholic Bishop of Malolos, Inc.
to accept the balance of P124,000.00 being paid by plaintiff-appellant and thereafter to execute
in favor of Robes-Francisco Realty Corporation a registerable Deed of Absolute Sale over
20,655 square meters portion of that parcel of land situated in San Jose del Monte, Bulacan
described in OCT No. 575 (now Transfer Certificates of Title Nos. T-169493, 169494, 169495
and 169496) of the Register of Deeds of Bulacan. In case of refusal of the defendant to
execute the Deed of Final Sale, the clerk of court is directed to execute the said document.
Without pronouncement as to damages and attorney's fees. Costs against the defendant-
appellee.[3]
The case at bar arose from a complaint filed by the private respondent, then plaintiff, against
the petitioner, then defendant, in the Court of First Instance (now Regional Trial Court)
of Bulacan, at Sta. Maria, Bulacan,[4] for specific performance with damages, based on a
contract[5] executed on July 7, 1971.
The property subject matter of the contract consists of a 20,655 sq.m.-portion, out of the
30,655 sq.m. total area, of a parcel of land covered by Original Certificate of Title No. 575 of the
Province of Bulacan, issued and registered in the name of the petitioner which it sold to the
private respondent for and in consideration of P123,930.00.
The crux of the instant controversy lies in the compliance or non-compliance by the private
respondent with the provision for payment to the petitioner of the principal balance of
P100,000.00 and the accrued interest of P24,000.00 within the grace period.
A chronological narration of the antecedent facts is as follows:
On July 7, 1971, the subject contract over the land in question was executed between the
petitioner as vendor and the private respondent through its then president, Mr. Carlos F.
Robes, as vendee, stipulating for a downpayment of P23,930.00 and the balance of
P100,000.00 plus 12% interest per annum to be paid within four (4) years from execution of the
contract, that is, on or before July 7, 1975. The contract likewise provides for cancellation,
forfeiture of previous payments, and reconveyance of the land in question in case the private
respondent would fail to complete payment within the said period.
On March 12, 1973, the private respondent, through its new president, Atty. Adalia Francisco,
addressed a letter[6] to Father Vasquez, parish priest of San Jose Del Monte, Bulacan,
requesting to be furnished with a copy of the subject contract and the supporting documents.
On July 17, 1975, admittedly after the expiration of the stipulated period for payment, the same
Atty. Francisco wrote the petitioner a formal request[7] that her company be allowed to pay the
principal amount of P100,000.00 in three (3) equal installments of six (6) months each with the
first installment and the accrued interest of P24,000.00 to be paid immediately upon approval of
the said request.
On July 29, 1975, the petitioner, through its counsel, Atty. Carmelo Fernandez, formally denied
the said request of the private respondent, but granted the latter a grace period of five (5) days
from the receipt of the denial[8] to pay the total balance of P124,000.00, otherwise, the
provisions of the contract regarding cancellation, forfeiture, and reconveyance would be
implemented.
On August 4, 1975, the private respondent, through its president, Atty. Francisco, wrote[9] the
counsel of the petitioner requesting an extension of 30 days from said date to fully settle its
account. The counsel for the petitioner, Atty. Fernandez, received the said letter on the same
day. Upon consultation with the petitioner in Malolos, Bulacan, Atty. Fernandez, as instructed,
wrote the private respondent a letter[10] dated August 7, 1975 informing the latter of the denial of
the request for an extension of the grace period.
Consequently, Atty. Francisco, the private respondent's president, wrote a letter[11] dated
August 22, 1975, directly addressed to the petitioner, protesting the alleged refusal of the latter
to accept tender of payment purportedly made by the former on August 5, 1975, the last day of
the grace period. In the same letter of August 22, 1975, received on the following day by the
petitioner, the private respondent demanded the execution of a deed of absolute sale over the
land in question and after which it would pay its account in full, otherwise, judicial action would
be resorted to.
On August 27, 1975, the petitioner's counsel, Atty. Fernandez, wrote a reply[12] to the private
respondent stating the refusal of his client to execute the deed of absolute sale due to its
(private respondent's) failure to pay its full obligation. Moreover, the petitioner denied that the
private respondent had made any tender of payment whatsoever within the grace period. In
view of this alleged breach of contract, the petitioner cancelled the contract and considered all
previous payments forfeited and the land as ipso facto reconveyed.
From a perusal of the foregoing facts, we find that both the contending parties have conflicting
versions on the main question of tender of payment.
The trial court, in its ratiocination, preferred not to give credence to the evidence presented by
the private respondent. According to the trial court:
x x x What made Atty. Francisco suddenly decide to pay plaintiff's obligation on August 5, 1975,
go to defendant's office at Malolos, and there tender her payment, when her request of August
4, 1975 had not yet been acted upon until August 7 1975? If Atty. Francisco had decided to
pay the obligation and had available funds for the purpose on August 5, 1975, then there would
have been no need for her to write defendant on August 4, 1975 to request an extension of
time. Indeed, Atty. Francisco's claim that she made a tender of payment on August 5, 1975 --
such alleged act, considered in relation to the circumstances both antecedent and subsequent
thereto, being not in accord with the normal pattern of human conduct -- is not worthy of
credence.[13]
The trial court likewise noted the inconsistency in the testimony of Atty. Francisco, president of
the private respondent, who earlier testified that a certain Mila Policarpio accompanied her on
August 5, 1975 to the office of the petitioner. Another person, however, named
Aurora Oracion, was presented to testify as the secretary-companion of Atty. Francisco on that
same occasion.
Furthermore, the trial court considered as fatal the failure of Atty. Francisco to present in court
the certified personal check allegedly tendered as payment or, at least, its xerox copy, or even
bank records thereof. Finally, the trial court found that the private respondent had insufficient
funds available to fulfill the entire obligation considering that the latter, through its president,
Atty. Francisco, only had a savings account deposit of P64,840.00, and although the latter had
a money-market placement of P300,000.00, the same was to mature only after the expiration of
the 5-day grace period.
Based on the above considerations, the trial court rendered a decision in favor of the petitioner,
the dispositive portion of which reads:
WHEREFORE, finding plaintiff to have failed to make out its case, the court hereby declares
the subject contract cancelled and plaintiff's down payment of P23,930.00 forfeited in favor of
defendant, and hereby dismisses the complaint; and on the counterclaim, the Court orders
plaintiff to pay defendant.
(1) Attorney's fees of P10,000.00;
(2) Litigation expenses of P2,000.00; and
(3) Judicial costs.
SO ORDERED.[14]
Not satisfied with the said decision, the private respondent appealed to the respondent
Intermediate Appellate Court (now Court of Appeals) assigning as reversible errors, among
others, the findings of the trial court that the available funds of the private respondent were
insufficient and that the latter did not effect a valid tender of payment and consignation.
The respondent court, in reversing the decision of the trial court, essentially relies on the
following findings:
x x x We are convinced from the testimony of Atty. Adalia Francisco and her witnesses that in
behalf of the plaintiff-appellant they have a total available sum of P364,840.00 at her and at the
plaintiff's disposal on or before August 4, 1975 to answer for the obligation of the plaintiff-
appellant. It was not correct for the trial court to conclude that the plaintiff-appellant had only
about P64,840.00 in savings deposit on or before August 5, 1975, a sum not enough to pay the
outstanding account of P124,000.00. The plaintiff-appellant, through Atty. Francisco proved
and the trial court even acknowledged that Atty. Adalia Francisco had about P300,000.00 in
money market placement. The error of the trial court lies in concluding that the money market
placement of P300,000.00 was out of reach of Atty. Francisco. But as testified to by
Mr. Catalino Estrella, a representative of the Insular Bank of Asia and America, Atty. Francisco
could withdraw anytime her money market placement and place it at her disposal, thus proving
her financial capability of meeting more than the whole of P124,000.00 then due per
contract. This situation, We believe, proves the truth that Atty. Francisco apprehensive that her
request for a 30-day grace period would be denied, she tendered payment on August 4, 1975
which offer defendant through its representative and counsel refused to receive.
x x x[15] (Underscoring supplied)
In other words, the respondent court, finding that the private respondent had sufficient available
funds, ipso facto concluded that the latter had tendered payment. Is such conclusion warranted
by the facts proven? The petitioner submits that it is not.
Hence, this petition.[16]
The petitioner presents the following issues for resolution:
xxx xxx xxx
A. Is a finding that private respondent had sufficient available funds on or before the grace
period for the payment of its obligation proof that it (private respondent) did tender of (sic)
payment for its said obligation within said period?
xxx xxx xxx
B. Is it the legal obligation of the petitioner (as vendor) to execute a deed of absolute sale in
favor of the private respondent (as vendee) before the latter has actually paid the complete
consideration of the sale - where the contract between and executed by the parties stipulates -
"That upon complete payment of the agreed consideration by the herein VENDEE, the
VENDOR shall cause the execution of a Deed of Absolute Sale in favor of the VENDEE."
xxx xxx xxx
C. Is an offer of a check a valid tender of payment of an obligation under a contract which
stipulates that the consideration of the sale is in Philippine Currency?[17]
We find the petition impressed with merit.
With respect to the first issue, we agree with the petitioner that a finding that the private
respondent had sufficient available funds on or before the grace period for the payment of its
obligation does not constitute proof of tender of payment by the latter for its obligation within the
said period. Tender of payment involves a positive and unconditional act by the obligor of
offering legal tender currency as payment to the obligee for the former's obligation and
demanding that the latter accept the same. Thus, tender of payment cannot be presumed by a
mere inference from surrounding circumstances. At most, sufficiency of available funds is only
affirmative of the capacity or ability of the obligor to fulfill his part of the bargain. But whether or
not the obligor avails himself of such funds to settle his outstanding account remains to be
proven by independent and credible evidence. Tender of payment presupposes not only that
the obligor is able, ready, and willing, but more so, in the act of performing his
obligation. Ab posse ad actu non vale illatio. "A proof that an act could have been done is
no proof that it was actually done."
The respondent court was therefore in error to have concluded from the sheer proof of
sufficient available funds on the part of the private respondent to meet more than the total
obligation within the grace period, the alleged truth of tender of payment. The same is a classic
case of non-sequitur.
On the contrary, the respondent court finds itself remiss in overlooking or taking lightly the more
important findings of fact made by the trial court which we have earlier mentioned and which as
a rule, are entitled to great weight on appeal and should be accorded full consideration and
respect and should not be disturbed unless for strong and cogent reasons. [18]
While the Court is not a trier of facts, yet, when the findings of fact of the Court of Appeals are
at variance with those of the trial court,[19]or when the inference of the Court of Appeals from its
findings of fact is manifestly mistaken,[20] the Court has to review the evidence in order to arrive
at the correct findings based on the record.
Apropos the second issue raised, although admittedly the documents for the deed of absolute
sale had not been prepared, the subject contract clearly provides that the full payment by the
private respondent is an a priori condition for the execution of the said documents by the
petitioner.
That upon complete payment of the agreed consideration by the herein VENDEE, the
VENDOR shall cause the execution of a Deed of Absolute Sale in favor of the VENDEE. [21]
The private respondent is therefore in estoppel to claim otherwise as the latter did in the
testimony in cross-examination of its president, Atty. Francisco, which reads:
Q Now, you mentioned, Atty. Francisco, that you wanted the defendant to execute the final
deed of sale before you would given (sic) the personal certified check in payment of your
balance, is that correct?
A Yes, sir.[22]
xxx xxx xxx
Art. 1159 of the Civil Code of the Philippines provides that "obligations arising from contracts
have the force of law between the contracting parties and should be complied with in good
faith." And unless the stipulations in said contract are contrary to law, morals, good customs,
public order, or public policy, the same are binding as between the parties.[23]

What the private respondent should have done if it was indeed desirous of complying with its
obligations would have been to pay the petitioner within the grace period and obtain a receipt of
such payment duly issued by the latter. Thereafter, or, allowing a reasonable time, the private
respondent could have demanded from the petitioner the execution of the necessary
documents. In case the petitioner refused, the private respondent could have had always
resorted to judicial action for the legitimate enforcement of its right. For the failure of the private
respondent to undertake this more judicious course of action, it alone shall suffer the
consequences.

With regard to the third issue, granting arguendo that we would rule affirmatively on the two
preceding issues, the case of the private respondent still can not succeed in view of the fact
that the latter used a certified personal check which is not legal tender nor the currency
stipulated, and therefore, can not constitute valid tender of payment. The first paragraph of Art.
1249 of the Civil Code provides that "the payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such currency, then in the currency which
is legal tender in the Philippines.

The Court en banc in the recent case of Philippine Airlines v. Court of Appeals,[24] G.R. No.
L-49188, stated thus:

Since a negotiable instrument is only a substitute for money and not money, the delivery of
such an instrument does not, by itself, operate as payment (citing Sec. 189, Act 2031
on Negs. Insts.; Art. 1249, Civil Code; Bryan London Co. v. American Bank, 7 Phil. 255;
Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager's check or
ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid
tender of payment and may be refused receipt by the obligee or creditor.

Hence, where the tender of payment by the private respondent was not valid for failure to
comply with the requisite payment in legal tender or currency stipulated within the grace period
and as such, was validly refused receipt by the petitioner, the subsequent consignation did not
operate to discharge the former from its obligation to the latter.

In view of the foregoing, the petitioner in the legitimate exercise of its rights pursuant to the
subject contract, did validly order therefore the cancellation of the said contract, the forfeiture of
the previous payment, and the reconveyance ipso facto of the land in question.

WHEREFORE, the petition for review on certiorari is GRANTED and the DECISION of the
respondent court promulgated on April 25, 1985 is hereby SET ASIDE and ANNULLED and the
DECISION of the trial court dated May 25, 1981 is hereby REINSTATED. Costs against the
private respondent.

SO ORDERED.
 G.R. No. 100290 June 4, 1993
NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and EDEN TAN, respondents.
PADILLA, J.:
Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia, are before this Court assailing
the decision * of respondent appellate court dated 24 April 1991 in CA-G.R. SP No. 24164
denying their petition for certiorari prohibition, and injunction which sought to annul the order of
Judge Eutropio Migriño of the Regional Trial Court, Branch 151, Pasig, Metro Manila in Civil
Case No. 54863 entitled "Eden Tan vs. Sps. Norberto and Carmen Tibajia."
Stated briefly, the relevant facts are as follows:
Case No. 54863 was a suit for collection of a sum of money filed by Eden Tan against the
Tibajia spouses. A writ of attachment was issued by the trial court on 17 August 1987 and on
17 September 1987, the Deputy Sheriff filed a return stating that a deposit made by the Tibajia
spouses in the Regional Trial Court of Kalookan City in the amount of Four Hundred Forty Two
Thousand Seven Hundred and Fifty Pesos (P442,750.00) in another case, had been garnished
by him. On 10 March 1988, the Regional Trial Court, Branch 151 of Pasig, Metro Manila
rendered its decision in Civil Case No. 54863 in favor of the plaintiff Eden Tan, ordering the
Tibajia spouses to pay her an amount in excess of Three Hundred Thousand Pesos
(P300,000.00). On appeal, the Court of Appeals modified the decision by reducing the award of
moral and exemplary damages. The decision having become final, Eden Tan filed the
corresponding motion for execution and thereafter, the garnished funds which by then were on
deposit with the cashier of the Regional Trial Court of Pasig, Metro Manila, were levied upon.
On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima the
total money judgment in the following form:
Cashier's Check P262,750.00
Cash 135,733.70
————
Total P398,483.70
Private respondent, Eden Tan, refused to accept the payment made by the Tibajia spouses and
instead insisted that the garnished funds deposited with the cashier of the Regional Trial Court
of Pasig, Metro Manila be withdrawn to satisfy the judgment obligation. On 15 January 1991,
defendant spouses (petitioners) filed a motion to lift the writ of execution on the ground that the
judgment debt had already been paid. On 29 January 1991, the motion was denied by the trial
court on the ground that payment in cashier's check is not payment in legal tender and that
payment was made by a third party other than the defendant. A motion for reconsideration was
denied on 8 February 1991. Thereafter, the spouses Tibajia filed a petition for certiorari,
prohibition and injunction in the Court of Appeals. The appellate court dismissed the petition on
24 April 1991 holding that payment by cashier's check is not payment in legal tender as
required by Republic Act No. 529. The motion for reconsideration was denied on 27 May 1991.
In this petition for review, the Tibajia spouses raise the following issues:
I WHETHER OR NOT THE BPI CASHIER'S CHECK NO. 014021 IN THE
AMOUNT OF P262,750.00 TENDERED BY PETITIONERS FOR
PAYMENT OF THE JUDGMENT DEBT, IS "LEGAL TENDER".
II WHETHER OR NOT THE PRIVATE RESPONDENT MAY VALIDLY
REFUSE THE TENDER OF PAYMENT PARTLY IN CHECK AND PARTLY
IN CASH MADE BY PETITIONERS, THRU AURORA VITO AND
COUNSEL, FOR THE SATISFACTION OF THE MONETARY
OBLIGATION OF PETITIONERS-SPOUSES.1
The only issue to be resolved in this case is whether or not payment by means of check (even
by cashier's check) is considered payment in legal tender as required by the Civil Code,
Republic Act No. 529, and the Central Bank Act.
It is contended by the petitioners that the check, which was a cashier's check of the Bank of the
Philippine Islands, undoubtedly a bank of good standing and reputation, and which was a
crossed check marked "For Payee's Account Only" and payable to private respondent Eden
Tan, is considered legal tender, payment with which operates to discharge their monetary
obligation.2 Petitioners, to support their contention, cite the case of New Pacific Timber and
Supply Co., Inc. v. Señeris3 where this Court held through Mr. Justice Hermogenes
Concepcion, Jr. that "It is a well-known and accepted practice in the business sector that a
cashier's check is deemed as cash".
The provisions of law applicable to the case at bar are the following:
a. Article 1249 of the Civil Code which provides:
Art. 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the
currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when
they have been cashed, or when through the fault of the creditor they have
been impaired.
In the meantime, the action derived from the original obligation shall be
held in abeyance.;
b. Section 1 of Republic Act No. 529, as amended, which provides:
Sec. 1. Every provision contained in, or made with respect to, any
obligation which purports to give the obligee the right to require payment in
gold or in any particular kind of coin or currency other than Philippine
currency or in an amount of money of the Philippines measured thereby,
shall be as it is hereby declared against public policy null and void, and of
no effect, and no such provision shall be contained in, or made with
respect to, any obligation thereafter incurred. Every obligation heretofore
and hereafter incurred, whether or not any such provision as to payment is
contained therein or made with respect thereto, shall be discharged upon
payment in any coin or currency which at the time of payment is legal
tender for public and private debts.
c. Section 63 of Republic Act No. 265, as amended (Central Bank Act) which provides:

Sec. 63. Legal character — Checks representing deposit money do not

have legal tender power and their acceptance in the payment of debts,
both public and private, is at the option of the creditor: Provided, however,
that a check which has been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the creditor of cash in an
amount equal to the amount credited to his account.

From the aforequoted provisions of law, it is clear that this petition must fail.

In the recent cases of Philippine Airlines, Inc. vs. Court of Appeals4 and Roman Catholic Bishop
of Malolos, Inc. vs. Intermediate Appellate Court,5 this Court held that —

A check, whether a manager's check or ordinary check, is not legal tender,

and an offer of a check in payment of a debt is not a valid tender of
payment and may be refused receipt by the obligee or creditor.

The ruling in these two (2) cases merely applies the statutory provisions which lay down the
rule that a check is not legal tender and that a creditor may validly refuse payment by check,
whether it be a manager's, cashier's or personal check.

Petitioners erroneously rely on one of the dissenting opinions in the Philippine Airlines case6 to
support their cause. The dissenting opinion however does not in any way support the
contention that a check is legal tender but, on the contrary, states that "If the PAL checks in
question had not been encashed by Sheriff Reyes, there would be no payment by PAL and,
consequently, no discharge or satisfaction of its judgment obligation." 7 Moreover, the
circumstances in the Philippine Airlines case are quite different from those in the case at bar for
in that case the checks issued by the judgment debtor were made payable to the sheriff, Emilio
Z. Reyes, who encashed the checks but failed to deliver the proceeds of said encashment to
the judgment creditor.

In the more recent case of Fortunado vs. Court of Appeals,8 this Court stressed that, "We are
not, by this decision, sanctioning the use of a check for the payment of obligations over the
objection of the creditor."

WHEREFORE, the petition is DENIED. The appealed decision is hereby AFFIRMED, with costs
against the petitioners.

SO ORDERED.
 G.R. No. 180144 September 24, 2014
LEONARDO BOGNOT, Petitioner,
vs.
RRI LENDING CORPORATION, represented by its General Manager, DARIO J.
BERNARDEZ, Respondent.
DECISION
BRION, J.:
Before the Court is the petition for review on certiorari1 filed by Leonardo Bognot (petitioner)
assailing the March 28, 2007 decision2 and the October 15, 2007 resolution3 of the Court of
Appeals (CA) in CA-G.R. CV No. 66915.
Background Facts
RRI Lending Corporation (respondent) is an entity engaged in the business of lending money to
its borrowers within Metro Manila. It is duly represented by its General Manager, Mr. Dario J.
Bernardez (Bernardez).
Sometime in September 1996, the petitioner and his younger brother, Rolando A. Bognot
(collectively referred to as the "Bognot siblings"), applied for and obtained a loan of Five
Hundred Thousand Pesos (₱500,000.00) from the respondent, payable on November 30,
1996.4 The loan was evidenced by a promissory note and was secured by a post dated
check5 dated November 30, 1996.
Evidence on record shows that the petitioner renewed the loan several times on a monthly
basis. He paid a renewal fee of ₱54,600.00 for each renewal, issued a new post-dated checkas
security, and executed and/or renewed the promissory note previouslyissued. The respondent
on the other hand, cancelled and returned to the petitioner the post-dated checks issued prior
to their renewal.
Sometime in March 1997, the petitioner applied for another loan renewal. He again executed as
principal and signed Promissory Note No. 97-0356 payable on April 1, 1997; his co-maker was
again Rolando. As security for the loan, the petitioner also issued BPI Check No.
0595236,7 post dated to April 1, 1997.8
Subsequently, the loan was again renewed on a monthly basis (until June 30, 1997), as shown
by the Official Receipt No. 7979 dated May 5, 1997, and the Disclosure Statement dated May
30, 1997 duly signed by Bernardez. The petitioner purportedly paid the renewal fees and
issued a post-dated check dated June 30, 1997 as security. As had been done in the past, the
respondent superimposed the date "June 30, 1997" on the upper right portion of Promissory
Note No. 97-035 to make it appear that it would mature on the said date.
Several days before the loan’s maturity, Rolando’s wife, Julieta Bognot (Mrs. Bognot), went to
the respondent’s office and applied for another renewal of the loan. She issued in favor of the
respondent Promissory Note No. 97-051, and International Bank Exchange (IBE) Check No.
00012522, dated July 30, 1997, in the amount of ₱54,600.00 as renewal fee.
On the excuse that she needs to bring home the loan documents for the Bognot siblings’
signatures and replacement, Mrs. Bognot asked the respondent’s clerk to release to her the
promissory note, the disclosure statement, and the check dated July 30, 1997. Mrs. Bognot,
however, never returned these documents nor issued a new post-dated check. Consequently,
the respondent sent the petitioner follow-up letters demanding payment of the loan, plus
interest and penalty charges. These demands went unheeded.
On November 27, 1997, the respondent, through Bernardez, filed a complaint for sum of money
before the Regional Trial Court (RTC) against the Bognot siblings. The respondent mainly
alleged that the loan renewal payable on June 30, 1997 which the Bognot siblings applied for
remained unpaid; that before June30, 1997, Mrs. Bognot applied for another loan extension
and issued IBE Check No. 00012522 as payment for the renewal fee; that Mrs. Bognot
convinced the respondent’s clerk to release to her the promissory note and the other loan
documents; that since Mrs. Bognot never issued any replacement check, no loanextension took
place and the loan, originally payable on June 30, 1997, became due on this date; and despite
repeated demands, the Bognot siblings failed to pay their joint and solidary obligation.
Summons were served on the Bognotsiblings. However, only the petitioner filed his answer.
In his Answer,10 the petitioner claimed that the complaint states no cause of action because the
respondent’s claim had been paid, waived, abandoned or otherwise extinguished. He denied
being a party to any loan application and/or renewal in May 1997. He also denied having issued
the BPI check post-dated to June 30, 1997, as well as the promissory note dated June 30,
1997, claiming that this note had been tampered. He claimed that the one (1) month loan
contracted by Rolando and his wife in November 1996 which was lastly renewed in March 1997
had already been fully paid and extinguished in April 1997.11
Trial on the merits thereafter ensued.
The Regional Trial Court Ruling
In a decision12 dated January 17, 2000,the RTC ruled in the respondent’s favor and ordered the
Bognot siblings to pay the amount of the loan, plus interest and penalty charges. It considered
the wordings of the promissory note and found that the loan they contracted was joint and
solidary. It also noted that the petitioner signed the promissory note as a principal (and not
merely as a guarantor), while Rolando was the co-maker. It brushed the petitioner’s defense of
full payment aside, ruling that the respondent had successfully proven, by preponderance of
evidence, the nonpayment of the loan. The trial court said:
Records likewise reveal that while he claims that the obligation had been fully paid in his
Answer, he did not, in order to protect his right filed (sic) a cross-claim against his co-defendant
Rolando Bognot despite the fact that the latter did not file any responsive pleading.
In fine, defendants are liable solidarily to plaintiff and must pay the loan of ₱500,000.00 plus
5% interest monthly as well as 10% monthly penalty charges from the filing of the complaint on
December 3, 1997 until fully paid. As plaintiff was constrained to engage the services of
counsel in order to protect his right,defendants are directed to pay the former jointly and
severally the amount of ₱50,000.00 as and by way of attorney’s fee.
The petitioner appealed the decision to the Court of Appeals.
 The Court of Appeals Ruling
In its decision dated March 28, 2007, the CA affirmed the RTC’s findings. It found the
petitioner’s defense of payment untenable and unsupported by clear and convincing evidence.
It observed that the petitioner did not present any evidence showing that the check dated June
30, 1997 had, in fact, been encashed by the respondent and the proceeds applied to the loan,
or any official receipt evidencing the payment of the loan. It further stated that the only
document relied uponby the petitioner to substantiate his defense was the April 1, 1997
checkhe issued which was cancelled and returned to him by the respondent.
The CA, however, noted the respondent’s established policy of cancelling and returning the
post-dated checks previously issued, as well as the subsequent loan renewals applied for by
the petitioner, as manifested by the official receipts under his name. The CA thus ruled that the
petitioner failed to discharge the burden of proving payment.
The petitioner moved for the reconsideration of the decision, but the CA denied his motion in its
resolution of October 15, 2007, hence, the present recourse to us pursuant toRule 45 of the
Rules of Court.
The Petition
The petitioner submits that the CA erred in holding him solidarily liable with Rolando and his
wife. Heclaimed that based on the legal presumption provided by Article 1271 of the Civil
Code,13 his obligation had been discharged by virtue of his possession of the post-dated check
(stamped "CANCELLED") that evidenced his indebtedness. He argued that it was Mrs. Bognot
who subsequently assumed the obligation by renewing the loan, paying the fees and charges,
and issuing a check. Thus, there is an entirely new obligation whose payment is her sole
responsibility.
The petitioner also argued that as a result of the alteration of the promissory note without his
consent (e.g., the superimposition of the date "June 30, 1997" on the upper right portion of
Promissory Note No. 97-035 to make it appear that it would mature on this date), the
respondent can no longer collect on the tampered note, let alone, hold him solidarily liable with
Rolando for the payment of the loan. He maintained that even without the proof of payment, the
material alteration of the promissory note is sufficient to extinguish his liability.
Lastly, he claimed that he had been released from his indebtedness by novation when Mrs.
Bognot renewed the loan and assumed the indebtedness.
The Case for the Respondents
The respondent submits that the issues the petitioner raised hinge on the appreciation of the
adduced evidence and of the factual lower courts’ findings that, as a rule, are notreviewable by
this Court.
The Issues
The case presents to us the following issues:
1. Whether the CA committed a reversible error in holding the petitioner solidarily
liable with Rolando;
2. Whether the petitioner is relieved from liability by reason of the material alteration
in the promissory note; and
3. Whether the parties’ obligation was extinguished by: (i) payment; and (ii) novation
by substitution of debtors.
Our Ruling
We find the petition partly meritorious.
As a rule, the Court’s jurisdiction in a Rule 45 petition is limited to the review of pure questions
of law.14 Appreciation of evidence and inquiry on the correctness of the appellate court's factual
findings are not the functions of this Court; we are not a trier of facts.15
A question of law exists when the doubt or dispute relates to the application of the law on given
facts. On the other hand, a question of fact exists when the doubt or dispute relates to the truth
or falsity of the parties’ factual allegations.16
As the respondent correctly pointedout, the petitioner’s allegations are factual issuesthat are
not proper for the petition he filed. In the absence of compelling reasons, the Court cannot re-
examine, review or re-evaluate the evidence and the lower courts’ factual conclusions. This is
especially true when the CA affirmed the lower court’s findings, as in this case. Since the CA’s
findings of facts affirmed those of the trial court, they are binding on this Court, rendering any
further factual review unnecessary.
If only to lay the issues raised - both factual and legal – to rest, we shall proceed to discuss
their merits and demerits.
No Evidence Was Presented to Establish the Fact of Payment
Jurisprudence tells us that one who pleads payment has the burden of proving it; 17 the burden
rests on the defendant to prove payment, rather than on the plaintiff to prove non-
payment.18 Indeed, once the existence of an indebtedness is duly established by evidence, the
burden of showing with legal certainty that the obligation has been discharged by payment
rests on the debtor.19
In the present case, the petitioner failed to satisfactorily prove that his obligation had already
been extinguished by payment. As the CA correctly noted, the petitioner failed to present any
evidence that the respondent had in fact encashed his check and applied the proceeds to the
payment of the loan. Neither did he present official receipts evidencing payment, nor any proof
that the check had been dishonored.
We note that the petitioner merely relied on the respondent’s cancellation and return to him of
the check dated April 1, 1997. The evidence shows that this check was issued to secure the
indebtedness. The acts imputed on the respondent, standing alone, do not constitute sufficient
evidence of payment.
Article 1249, paragraph 2 of the Civil Code provides:
xxxx
The delivery of promissory notes payable to order, or bills of exchange or other mercantile Q: It is also true to say that all promissory notes and all postdated checks covered by the old
documents shall produce the effect of payment only when they have been cashed, or when loan which have been the subject of the renewal are deemed cancelled and replaced is that
through the fault of the creditor they have been impaired. (Emphasis supplied) correct?

Also, we held in Bank of the Philippine Islands v. Spouses Royeca: 20 A: Yes, sir. xxx22

Settled is the rule that payment must be made in legal tender. A check is not legal tender and, Civil Case No. 97-0572
therefore, cannot constitute a valid tender of payment. Since a negotiable instrument is only a
substitute for money and not money, the delivery of such an instrument does not, by itself,
TSN November 27, 1998, Page 27.
operate as payment. Mere delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains suspended until the payment by
commercial document is actually realized.(Emphasis supplied) Q: What happened to the check that Mr. Bognot issued?

Although Article 1271 of the Civil Code provides for a legal presumption of renunciation of Court: There are two Bognots. Who in particular?
action (in cases where a private document evidencing a credit was voluntarily returned by the
creditor to the debtor), this presumption is merely prima facieand is not conclusive; the
Q: Leonardo Bognot, Your Honor.
presumption loses efficacy when faced with evidence to the contrary.

Moreover, the cited provision merely raises a presumption, not of payment, but of the A: Every month, they were renewed, he issued a new check, sir.
renunciation of the credit where more convincing evidence would be required than what
normally would be called for to prove payment.21Thus, reliance by the petitioner on the legal Q: Do you have a copy of the checks?
presumption to prove payment is misplaced.
A: We returned the check upon renewing the loan.23
To reiterate, no cash payment was proven by the petitioner. The cancellation and return of the
check dated April 1, 1997, simply established his renewal of the loan – not the fact of payment.
Furthermore, it has been established during trial, through repeated acts, that the respondent In light of these exchanges, wefind that the petitioner failed to discharge his burden ofproving
cancelled and surrendered the post-dated check previously issued whenever the loan is payment.
renewed. We trace whatwould amount to a practice under the facts of this case, to the following
testimonial exchanges: The Alteration of the Promissory Note

Civil Case No. 97-0572 Did Not Relieve the Petitioner From Liability

TSN December 14, 1998, Page 13. We now come to the issue of material alteration. The petitioner raised as defense the alleged
material alteration of Promissory Note No. 97-035 as basis to claim release from his loan. He
Atty. Almeda: alleged that the respondent’s superimposition of the due date "June 30, 1997" on the
promissory note without his consent effectively relieved him of liability.

Q: In the case of the renewal of the loan you admitted that a renewal fee is charged to the
debtor which he or she must pay before a renewal is allowed. I show you Exhibit "3" official
receipt of plaintiff dated July 3, 1997, would this be your official receipt which you issued to your
client which they make renewal of the loan?
A: Yes, sir.
We find this defense untenable.
Although the respondent did not dispute the fact of alteration, he nevertheless denied that the
alteration was done without the petitioner’s consent. The parties’ Pre-Trial Order dated
November 3, 199824 states that:

xxx xxx xxx xxx There being no possibility of a possible compromise agreement, stipulations, admissions,
and denials were made, to wit:

Q: And naturally when a loan has been renewed, the old one which is replaced by the renewal
has already been cancelled, is that correct? FOR DEFENDANT LEONARDO BOGNOT

A: Yes, sir. 13. That the promissory note subject of this case marked as Annex "A" of the complaint was
originally dated April 1, 1997 with a superimposed rubber stamp mark "June 30, 1997" to which
the plaintiff admitted the superimposition.
14. The superimposition was done without the knowledge, consent or prior consultation with
Leonardo Bognot which was denied by plaintiff."25 (Emphasis supplied)
Significantly, the respondent also admitted in the Pre-Trial Order that part of its company
practice is to rubber stamp, or make a superimposition through a rubber stamp, the old
promissory note which has been renewed to make it appear that there is a new loan obligation.
The petitioner did not rebut this statement. To our mind, the failure to rebut is tantamount to an
admission of the respondent’s allegations:
"22. That it is the practice of plaintiff to just rubber stamp or make superimposition through a
rubber stamp on old promissory note which has been renewed to make it appear that there is a
new loan obligation to which the plaintiff admitted." (Emphasis Supplied). 26
Even assuming that the note had indeed been tampered without the petitioner’s consent, the
latter cannot totally avoid payment of his obligation to the respondent based on the contract of
loan.
Based on the records, the Bognot Siblings had applied for and were granted a loan of
₱500,000.00 by the respondent. The loan was evidenced by a promissory note and secured by
a post-dated check27 dated November 30, 1996. In fact, the petitioner himself admitted his loan
application was evidenced by the Promissory Note dated April 1, 1997. 28 This loan was
renewed several times by the petitioner, after paying the renewal fees, as shown by the Official
Receipt Nos. 79729 and 58730 dated May 5 and July 3, 1997, respectively. These official
receipts were issued in the name of the petitioner. Although the petitioner had insisted that the
loan had been extinguished, no other evidence was presented to prove payment other than the
cancelled and returnedpost-dated check.
Under this evidentiary situation, the petitioner cannot validly deny his obligation and liability to
the respondent solely on the ground that the Promissory Note in question was tampered.
Notably, the existence of the obligation, as well as its subsequent renewals, have been duly
established by: first, the petitioner’s application for the loan; second, his admission that the loan
had been obtained from the respondent; third, the post-dated checks issued by the petitioner to
secure the loan; fourth, the testimony of Mr. Bernardez on the grant, renewal and non-payment
of the loan; fifth, proof of non-payment of the loan; sixth, the loan renewals; and seventh, the
approval and receipt of the loan renewals.
In Guinsatao v. Court of Appeals,31 this Court pointed out that while a promissory note is
evidence of an indebtedness, it is not the only evidence, for the existence of the obligation can
be proven by other documentary evidence such as a written memorandum signed by the
parties. In Pacheco v. Court of Appeals,32 this Court likewise expressly recognized that a check
constitutes anevidence of indebtedness and is a veritable proof of an obligation. It canbe used
in lieu of and for the same purpose as a promissory note and can therefore be presented to
establish the existence of indebtedness.33
In the present petition, we find that the totality of the evidence on record sufficiently established
the existence of the petitioner’s indebtedness (and liability) based on the contract ofloan. Even
with the tampered promissory note, we hold that the petitioner can still be held liable for the
unpaid loan.
The Petitioner’s BelatedClaim of Novation by Substitution May no Longer be Entertained
It has not escaped the Court’s attention that the petitioner raised the argument that the
obligation had been extinguished by novation. The petitioner never raised this issue before the
lower courts.
It is a settled principle of law thatno issue may be raised on appeal unless it has been brought
before the lower tribunal for its consideration.34 Matters neither alleged in the pleadingsnor
raised during the proceedings below cannot be ventilated for the first time on appeal before the
Supreme Court.35
In any event, we find no merit in the defense of novation as we discuss at length below.
Novation cannot be presumed and must be clearly and unequivocably proven.
Novation is a mode of extinguishing an obligation by changing its objects or principal
obligations, by substituting a new debtor in place of the old one, or by subrogating a third
person to the rights of the creditor.36
Article 1293 of the Civil Code defines novation as follows:
"Art. 1293. Novation which consists insubstituting a new debtor in the place of the originalone,
may be made even without the knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him rights mentioned in Articles 1236
and 1237."
To give novation legal effect, the original debtor must be expressly released from the obligation,
and the new debtor must assume the original debtor’s place in the contractual relationship.
Depending on who took the initiative, novation by substitution of debtor has two forms –
substitution by expromision and substitution by delegacion. The difference between these two
was explained in Garcia v. Llamas:37
"In expromision, the initiative for the change does not come from -- and may even be made
without the knowledge of -- the debtor, since it consists of a third person’s assumption of the
obligation. As such, it logically requires the consent of the third person and the creditor. In
delegacion, the debtor offers, and the creditor accepts, a third person who consents to the
substitution and assumes the obligation; thus, the consent of these three persons are
necessary."
In both cases, the original debtor must be released from the obligation; otherwise, there can be
no valid novation.38Furthermore, novation by substitution of debtor must alwaysbe made with
the consent of the creditor.39
The petitioner contends thatnovation took place through a substitution of debtors when Mrs.
Bognot renewed the loan and assumed the debt. He alleged that Mrs. Bognot assumed the
obligation by paying the renewal fees and charges, and by executing a new promissory note.
He further claimed that she issued her own check 40 to cover the renewal fees, which fact,
according to the petitioner, was done with the respondent’s consent.
Contrary to the petitioner’s contention, Mrs. Bognot did not substitute the petitioner as debtor.
She merely attempted to renew the original loan by executing a new promissory note41 and
check. The purported one month renewal of the loan, however, did not push through, as Mrs.
Bognot did not return the documents or issue a new post dated check. Since the loan was not
renewed for another month, the originaldue date, June 30,1997, continued to stand.
More importantly, the respondent never agreed to release the petitioner from his obligation.
That the respondent initially allowed Mrs. Bognot to bring home the promissory note, disclosure
statement and the petitioner’s previous check dated June 30, 1997, does not ipso factoresult in
novation. Neither will this acquiescence constitute an implied acceptance of the substitution of
the debtor.
In order to give novation legal effect, the creditor should consent to the substitution of a new The well-entrenched rule is that solidary obligation cannot be inferred lightly. It must be
debtor. Novation must be clearly and unequivocally shown, and cannot be presumed. positively and clearly expressed and cannot be presumed.47

Since the petitioner failed to show thatthe respondent assented to the substitution, no valid In view of the inadmissibility of the promissory note, and in the absence of evidence showing
novation took place with the effect of releasing the petitioner from his obligation to the that the petitioner had bound himself solidarily with Rolando for the payment of the loan, we
respondent. cannot but conclude that the obligation to pay is only joint. 48

Moreover, in the absence of showing that Mrs. Bognot and the respondent had agreed to
release the petitioner, the respondent can still enforce the payment of the obligation against the
original debtor. Mere acquiescence to the renewal of the loan, when there is clearly no
agreement to release the petitioner from his responsibility, does not constitute novation.
The Nature of the Petitioner’s Liability
On the nature of the petitioner’s liability, we rule however, that the CA erred in holding the
petitioner solidarily liable with Rolando.
The 5% Monthly Interest Stipulated in the Promissory Note is Unconscionable and Should be
Equitably Reduced
Finally, on the issue of interest, while we agree with the CA that the petitioner is liable to the
respondentfor the unpaid loan, we find the imposition of the 5% monthly interest to be
excessive, iniquitous, unconscionable and exorbitant, and hence, contrary to morals and
jurisprudence. Although parties to a loan agreement have wide latitude to stipulate on the
applicable interest rate under Central Bank Circular No. 905 s. 1982 (which suspended the
Usury Law ceiling on interest effective January 1, 1983), we stress that unconscionable interest
rates may still be declared illegal.49

A solidary obligation is one in which each of the debtors is liable for the entire obligation, and
In several cases, we haveruled that stipulations authorizing iniquitous or unconscionable
each of the creditors is entitled to demand the satisfaction of the whole obligation from any or
interests are contrary to morals and are illegal. In Medel v. Court of Appeals, 50 we annulled a
all of the debtors.42 There is solidary liability when the obligation expressly so states, when the
stipulated 5.5% per month or 66% per annum interest on a ₱500,000.00 loan, and a 6% per
law so provides, or when the nature of the obligation so requires. 43 Thus, when the obligor
month or 72% per annum interest on a ₱60,000.00 loan, respectively, for being excessive,
undertakes to be "jointly and severally" liable, the obligation is solidary,
iniquitous, unconscionableand exorbitant.1âwphi1

In this case, both the RTC and the CA found the petitioner solidarily liable with Rolando based
We reiterated this ruling in Chua v. Timan,51 where we held that the stipulated interest rates of
on Promissory Note No. 97-035 dated June 30, 1997. Under the promissory note, the Bognot
3% per month and higher are excessive, iniquitous, unconscionable and exorbitant, and must
Siblings defined the parameters of their obligation as follows:
therefore be reduced to 12% per annum.

"FOR VALUE RECEIVED, I/WE, jointly and severally, promise to pay to READY RESOURCES
Applying these cited rulings, we now accordingly hold that the stipulated interest rate of 5% per
INVESTORS RRI LENDING CORPO. or Order, its office at Paranaque, M.M. the principal sum
month, (or 60% per annum) in the promissory note is excessive, unconscionable, contrary to
of Five Hundred Thousand PESOS (₱500,000.00), PhilippineCurrency, with interest thereon at
morals and is thus illegal. It is void ab initiofor violating Article 130652 of the Civil
the rate of Five percent (5%) per month/annum, payable in One Installment (01) equal
Code.1âwphi1 We accordingly find it equitable to reduce the interest rate from 5% per month to
daily/weekly/semi-monthly/monthly of PESOS Five Hundred Thousand Pesos (₱500,000.00),
1% per month or 12% per annum in line with the prevailing jurisprudence.
first installment to become due on June 30, 1997. xxx"44 (Emphasis Ours).

WHEREFORE, premises considered, the Decision dated March 28, 2007 of the Court of
Although the phrase "jointly and severally" in the promissory note clearly and unmistakably
Appeals in CA-G.R. CV No. 66915 is hereby AFFIRMED with MODIFICATION, as follows:
provided for the solidary liability of the parties, we note and stress that the promissory note is
merely a photocopyof the original, which was never produced.
1. The petitioner Leonardo A. Bognotand his brother, Rolando A. Bognot are
JOINTLY LIABLE to pay the sum of ₱500,000.00 plus 12% interest per annum from
Under the best evidence rule, whenthe subject of inquiry is the contents of a document, no
December 3, 1997 until fully paid.
evidence isadmissible other than the original document itself except in the instances mentioned
in Section 3, Rule 130 of the Revised Rules of Court.45
2. The rest of the Court of Appeals' dispositions are hereby AFFIRMED.
The records show that the respondenthad the custody of the original promissory note dated
April 1, 1997, with a superimposed rubber stamp mark "June 30, 1997", and that it had been Costs against petitioner Leonardo A. Bognot.
given every opportunity to present it. The respondent even admitted during pre-trial that it could
not present the original promissory note because it is in the custody of its cashier who is
SO ORDERED.
stranded in Bicol.46 Since the respondent never produced the original of the promissory note,
much less offered to produce it, the photocopy of the promissory note cannot be admitted as
evidence. Other than the promissory note in question, the respondent has not presented any
other evidence to support a finding of solidary liability. As we earlier noted, both lower courts
completely relied on the note when they found the Bognot siblingssolidarily liable.
 G.R. No. L-18390 August 6, 1971
PEDRO J. VELASCO, plaintiff-appellant,
vs.
MANILA ELECTRIC CO., WILLIAM SNYDER, its President; JOHN COTTON and
HERMENEGILDO B. REYES, its Vice-Presidents; and ANASTACIO A. AGAN, City
Engineer of Quezon City, defendants-appellees.
REYES, J.B.L., J.:
The present case is direct appeal (prior to Republic Act 5440) by the herein plaintiff-appellant,
Pedro J. Velasco (petitioner in L-14035; respondent in L-13992) * from the decision of the Court
of First Instance of Rizal, Quezon City Branch, in its Civil Case No. 1355, absolving the
defendants from a complaint for the abatement of the sub-station as a nuisance and for
damages to his health and business in the amount of P487,600.00.
In 1948, appellant Velasco bought from the People's Homesite and Housing Corporation three
(3) adjoining lots situated at the corner of South D and South 6 Streets, Diliman, Quezon City.
These lots are within an area zoned out as a "first residence" district by the City Council of
Quezon City. Subsequently, the appellant sold two (2) lots to the Meralco, but retained the third
lot, which was farthest from the street-corner, whereon he built his house.
In September, 1953, the appellee company started the construction of the sub-station in
question and finished it the following November, without prior building permit or authority from
the Public Service Commission (Meralco vs. Public Service Commission, 109 Phil. 603). The
facility reduces high voltage electricity to a current suitable for distribution to the company's
consumers, numbering not less than 8,500 residential homes, over 300 commercial
establishments and about 30 industries (T.s.n., 19 October 1959, page 1765). The substation
has a rated capacity of "2 transformers at 5000 Kva each or a total of 10,000 Kva without fan
cooling; or 6250 Kva each or a total of 12,500 Kva with fan cooling" (Exhibit "A-3"). It was
constructed at a distance of 10 to 20 meters from the appellant's house (T.s.n., 16 July 1956,
page 62; 19 December 1956, page 343; 1 June 1959, page 29). The company built a stone and
cement wall at the sides along the streets but along the side adjoining the appellant's property it
put up a sawale wall but later changed it to an interlink wire fence.
It is undisputed that a sound unceasingly emanates from the substation. Whether this sound
constitutes an actionable nuisance or not is the principal issue in this case.
Plaintiff-appellant Velasco contends that the sound constitutes an actionable nuisance under
Article 694 of the Civil Code of the Philippines, reading as follows:
A nuisance is any act, omission, establishment, business condition of
property or anything else which:
(1) Injuries or endangers the health or safety of others; or
(2) Annoys or offends the senses;
xxx xxx xxx
because subjection to the sound since 1954 had disturbed the concentration and sleep of said
appellant, and impaired his health and lowered the value of his property. Wherefore, he sought
a judicial decree for the abatement of the nuisance and asked that he be declared entitled to
recover compensatory, moral and other damages under Article 2202 of the Civil Code.
ART. 2202. In crimes and quasi-delicts, the defendant shall be liable for all
damages which are the natural and probable consequences of the act or
omission complained of. It is not necessary that such damages have been
foreseen or could have reasonably been foreseen by the defendant.
After trial, as already observed, the court below dismissed the claim of the plaintiff, finding that
the sound of substation was unavoidable and did not constitute nuisance; that it could not have
caused the diseases of anxiety neurosis, pyelonephritis, ureteritis, lumbago and anemia; and
that the items of damage claimed by plaintiff were not adequate proved. Plaintiff then appealed
to this Court.
The general rule is that everyone is bound to bear the habitual or customary inconveniences
that result from the proximity of others, and so long as this level is not surpassed, he may not
complain against them. But if the prejudice exceeds the inconveniences that such proximity
habitually brings, the neighbor who causes such disturbance is held responsible for the
resulting damage,1 being guilty of causing nuisance.
While no previous adjudications on the specific issue have been made in the Philippines, our
law of nuisances is of American origin, and a review of authorities clearly indicates the rule to
be that the causing or maintenance of disturbing noise or sound may constitute an actionable
nuisance (V. Ed. Note, 23 ALR, 2d 1289). The basic principles are laid down in Tortorella vs.
Traiser & Co., Inc., 90 ALR 1206:
A noise may constitute an actionable nuisance, Rogers vs. Elliott, 146
Mass, 349, 15 N.E. 768, 4 Am. St. Rep. 316, Stevens v. Rockport Granite
Co., 216 Mass. 486, 104 N.E. 371, Ann. Cas. 1915B, 1954, Stodder v.
Rosen Talking Machine Co., 241 Mass. 245, 135 N. E. 251, 22 A. L. R.
1197, but it must be a noise which affects injuriously the health or comfort
of ordinary people in the vicinity to an unreasonable extent. Injury to a
particular person in a peculiar position or of specially sensitive
characteristics will not render the noise an actionable nuisance. Rogers v.
Elliott, 146 Mass. 349, 15 N. E. 768, 4 Am. St. Rep. 316. In the conditions
of present living noise seems inseparable from the conduct of many
necessary occupations. Its presence is a nuisance in the popular sense in
which that word is used, but in the absence of statute noise becomes
actionable only when it passes the limits of reasonable adjustment to the
conditions of the locality and of the needs of the maker to the needs of the
listener. What those limits are cannot be fixed by any definite measure of
quantity or quality. They depend upon the circumstances of the particular
case. They may be affected, but are not controlled, by zoning
ordinances. Beane v. H. J. Porter, Inc., 280 Mass. 538, 182 N. E.
823, Marshal v. Holbrook, 276 Mass. 341, 177 N. E. 504, Strachan v.
Beacon Oil Co., 251 Mass. 479, 146 N. E. 787. The delimitation of
designated areas to use for manufacturing, industry or general business is
not a license to emit every noise profitably attending the conduct of any
one of them. Bean v. H. J. Porter, Inc.. 280 Mass. 538, 182 N. E. 823. The
test is whether rights of property of health or of comfort are so injuriously
affected by the noise in question that the sufferer is subjected to a loss
which goes beyond the reasonable limit imposed upon him by the condition
of living, or of holding property, in a particular locality in fact devoted to
uses which involve the emission of noise although ordinary care is taken to
confine it within reasonable bounds; or in the vicinity of property of another
owner who though creating a noise is acting with reasonable regard for the
 rights of those affected by it. Stevens v. Rockport Granite Co., 216 Mass.
486, 104 NE 371, Ann. Cas. 1915B, 1054.
With particular reference to noise emanating from electrical machinery and appliances, the
court, in Kentucky & West Virginia Power Co. v. Anderson, 156 S. W. 2d 857, after a review of
authorities, ruled as follows:
monotonous playing of a phonograph for advertising purposes on the street
even though there were various records, singing, speaking and
instrumental, injuriously affected plaintiff's employees by a gradual wear on
their nervous systems, and otherwise, is a nuisance authorizing an
injunction and damages. Frank F. Stodder, et al. v. Rosen Talking Machine
Company, 241 Mass. 245, 135 N. E. 251, 22 A. L. R. 1197.

The principles thus laid down make it readily apparent that inquiry must be directed at the
There can be no doubt but that commercial and industrial activities which
character and intensity of the noise generated by the particular substation of the appellee. As
are lawful in themselves may become nuisances if they are so offensive to
can be anticipated, character and loudness of sound being of subjective appreciation in
the senses that they render the enjoyment of life and property
ordinary witnesses, not much help can be obtained from the testimonial evidence. That of
uncomfortable. It is no defense that skill and care have been exercised and
plaintiff Velasco is too plainly biased and emotional to be of much value. His exaggerations are
the most improved methods and appliances employed to prevent such
readily apparent in paragraph V of his amended complaint, signed by him as well as his
result. Wheat Culvert Company v. Jenkins, 246 Ky. 319, 55 S. W. 2d 4; 46
counsel, wherein the noise complained of as —
C.J. 683, 705; 20 R. C. L. 438; Annotations, 23 A. L. R. 1407; 90 A. L. R.
1207. Of course, the creation of trifling annoyance and inconvenience does
not constitute an actionable nuisance, and the locality and surroundings fearful hazardous noise and clangor are produced by the said electric
are of importance. The fact that the cause of the complaint must be transformer of the MEC's substation, approximating a noise of a
substantial has often led to expressions in the opinions that to be a reactivated about-to-explode volcano, perhaps like the nerve wracking
nuisance the noise must be deafening or loud or excessive and noise of the torture chamber in Germany's Dachau or Buchenwald (Record
unreasonable. Usually it was shown to be of that character. The on Appeal, page 6).
determinating factor when noise alone is the cause of complaint is not its
intensity or volume. It is that the noise is of such character as to produce
The estimate of the other witnesses on the point of inquiry are vague and imprecise, and fail to
actual physical discomfort and annoyance to a person of ordinary
give a definite idea of the intensity of the sound complained of. Thus:
sensibilities, rendering adjacent property less comfortable and valuable. If
the noise does that it can well be said to be substantial and unreasonable
in degree; and reasonableness is a question of fact dependent upon all the OSCAR SANTOS, Chief Building Inspector, Department of Engineering, Quezon City ____ "the
circumstances and conditions. 20 R. C. L. 445, 453; Wheat Culvert sound (at the front door of plaintiff Velasco's house) becomes noticeable only when I tried to
Company v. Jenkins, supra. There can be no fixed standard as to what concentrate ........" (T.s.n., 16 July 1956, page 50)
kind of noise constitutes a nuisance. It is true some witnesses in this case
say they have been annoyed by the humming of these transformers, but
that fact is not conclusive as to the nonexistence of the cause of complaint, SERAFIN VILLARAZA, Building Inspector ____ "..... like a high pitch note." (the trial court's
the test being the effect which is had upon an ordinary person who is description as to the imitation of noise made by witness:"........ more of a hissing sound) (T.s.n.,
neither sensitive nor immune to the annoyance concerning which the 16 July 1956, pages 59-60)
complaint is made. In the absence of evidence that the complainant and
his family are supersensitive to distracting noises, it is to be assumed that CONSTANCIO SORIA, City Electrician ____ "........ humming sound" ..... "of a running car".
they are persons of ordinary and normal sensibilities. Roukovina v. Island (T.s.n., 16 July 1956, page 87)
Farm Creamery Company, 160 Minn. 335, 200 N. W. 350, 38 A. L. R.
1502.
JOSE R. ALVAREZ, Sanitary Engineer, Quezon City Health Department ____ "..... substation
emits a continuous rumbling sound which is audible within the premises and at about a radius
xxx xxx xxx of 70 meters." "I stayed there from 6:00 p.m. to about 1:00 o'clock in the morning" .....
"increases with the approach of twilight." (T.s.n., 5 September 1956, pages 40-44)
In Wheat Culvert Company vs. Jenkins, supra, we held an injunction was
properly decreed to stop the noise from the operation of a metal culvert NORBERTO S. AMORANTO, Quezon City Mayor ____ (for 30 minutes in the street at a
factory at night which interfered with the sleep of the occupants of an distance of 12 to 15 meters from sub-station) "I felt no effect on myself." "..... no [piercing
adjacent residence. It is true the clanging, riveting and hammering of metal noise]" (T.s.n., 18 September 1956, page 189)
plates produces a sound different in character from the steady hum or buzz
of the electric machinery described in this case. In the Jenkins case the
noise was loud, discordant and intermittent. Here it is interminable and PACIFICO AUSTRIA, architect, appellant's neighbor: "..... like an approaching airplane .....
monotonous. Therein lies the physical annoyance and disturbance. Though around five kilometers away." (T.s.n., 19 November 1956, pages 276-277)
the noise be harmonious and slight and trivial in itself, the constant and
monotonous sound of a cricket on the earth, or the drip of a leaking faucet ANGEL DEL ROSARIO, radiologist, appellant's neighbor: "..... as if it is a running motor or a
is irritating, uncomfortable, distracting and disturbing to the average man running dynamo, which disturbs the ear and the hearing of a person." T.s.n., 4 December 1956,
and woman. So it is that the intolerable, steady monotony of this ceaseless page 21)
sound, loud enough to interfere with ordinary conversation in the dwelling,
produces a result generally deemed sufficient to constitute the cause of it
an actionable nuisance. Thus, it has been held the continuous and
ANTONIO D. PAGUIA, lawyer ____ "It may be likened to the sound emitted by the whistle of a
boat at a far distance but it is very audible." (T.s.n., 19 December 1956, page 309)
RENE RODRIGUEZ, sugar planter and sugar broker, appellant's neighbor ____ "It sounds like
a big motor running continuously." (T.s.n., 19 December 1956, page 347)
SIMPLICIO BELISARIO, Army captain, ____ (on a visit to Velasco) "I can compare the noise to
an airplane C-47 being started - the motor." [Did not notice the noise from the substation when
passing by, in a car, Velasco's house] (T.s.n., 7 January 1957, pages 11-12)
MANOLO CONSTANTINO, businessman, appellant's neighbor ____ "It disturbs our
concentration of mind." (T.s.n., 10 January 1957, page 11)
PEDRO PICA, businessman, appellant's neighbor: "..... We can hear it very well [at a distance
of 100 to 150 meters]. (T.s.n., 10 January 1957, page 41)
CIRENEO PUNZALAN, lawyer ____ "..... a continuous droning, ..... like the sound of an
airplane." (T.s.n., 17 January 1957, page 385)
JAIME C. ZAGUIRRE, Chief, Neuro-Psychiatry Section, V. Luna Gen. Hospital ____ ".....
comparatively the sound was really loud to bother a man sleeping." (T.s.n., 17 January 1957,
page 406)
We are thus constrained to rely on quantitative measurements shown by the record. Under
instructions from the Director of Health, samplings of the sound intensity were taken by Dr.
Jesus Almonte using a sound level meter and other instruments. Within the compound of the
plaintiff-appellant, near the wire fence serving as property line between him and the appellee,
on 27 August 1957 at 11:45 a.m., the sound level under the sampaloc tree was 46-48 decibels,
while behind Velasco's kitchen, the meter registered 49-50; at the same places on 29 August
1957, at 6:00 a.m., the readings were 56-59 and 61-62 decibels, respectively; on 7 September
1957, at 9:30 a.m., the sound level under the sampaloc tree was 74-76 decibels; and on 8
September 1957 at 3:35 in the morning, the reading under the same tree was 70 decibels,
while near the kitchen it was 79-80 decibels. Several measurements were also taken inside and
outside the house (Exhibit "NN-7, b-f"). The ambient sound of the locality, or that sound level
characteristic of it or that sound predominating minus the sound of the sub-station is from 28 to
32 decibels. (T.s.n., 26 March 1958, pages 6-7)
Mamerto Buenafe, superintendent of the appellee's electrical laboratory, also took sound level
samplings. On 19 December 1958, between 7:00 to 7:30 o'clock in the evening, at the
substation compound near the wire fence or property line, the readings were 55 and 54 and still
near the fence close to the sampaloc tree, it was 52 decibels; outside but close to the concrete
wall, the readings were 42 to 43 decibels; and near the transformers, it was 76 decibels (Exhibit
"13").
Buenafe also took samplings at the North General Hospital on 4 January 1959 between 9:05 to
9:45 in the evening. In the different rooms and wards from the first to the fourth floors, the
readings varied from 45 to 67 decibels.
Technical charts submitted in evidence show the following intensity levels in decibels of some
familiar sounds: average residence: 40; average office: 55; average automobile, 15 feet: 70;
noisiest spot at Niagara Falls: 92 (Exhibit "11- B"); average dwelling: 35; quiet office: 40;
average office: 50; conversation: 60; pneumatic rock drill: 130 (Exhibit "12"); quiet home —
average living room: 40; home ventilation fan, outside sound of good home airconditioner or
automobile at 50 feet: 70 (Exhibit "15-A").
Thus the impartial and objective evidence points to the sound emitted by the appellee's
substation transformers being of much higher level than the ambient sound of the locality. The
measurements taken by Dr. Almonte, who is not connected with either party, and is a physician
to boot (unlike appellee's electrical superintendent Buenafe), appear more reliable. The
conclusion must be that, contrary to the finding of the trial court, the noise continuously emitted,
day and night, constitutes an actionable nuisance for which the appellant is entitled to relief, by
requiring the appellee company to adopt the necessary measures to deaden or reduce the
sound at the plaintiff's house, by replacing the interlink wire fence with a partition made of
sound absorbent material, since the relocation of the substation is manifestly impracticable and
would be prejudicial to the customers of the Electric Company who are being serviced from the
substation.
Appellee company insists that as the plaintiff's own evidence (Exhibit "NN-7[c]") the intensity of
the sound (as measured by Dr. Almonte) inside appellant's house is only 46 to 47 decibels at
the consultation room, and 43 to 45 decibels within the treatment room, the appellant had no
ground to complain. This argument is not meritorious, because the noise at the bedrooms was
determined to be around 64-65 decibels, and the medical evidence is to the effect that the
basic root of the appellant's ailments was his inability to sleep due to the incessant noise with
consequent irritation, thus weakening his constitution and making him easy prey to pathogenic
germs that could not otherwise affect a person of normal health.
In Kentucky and West Virginia Co., Inc. vs. Anderson, 156 SW. 857, the average of three
readings along the plaintiff's fence was only 44 decibels but, because the sound from the sub-
station was interminable and monotonous, the court authorized an injunction and damages. In
the present case, the three readings along the property line are 52, 54 and 55 decibels.
Plaintiff's case is manifestly stronger.
Appellee company argues that the plaintiff should not be heard to complain because the sound
level at the North General Hospital, where silence is observed, is even higher than at his
residence. This comparison lacks basis because it has not been established that the hospital is
located in surroundings similar to the residential zone where the plaintiff lived or that the sound
at the hospital is similarly monotonous and ceaseless as the sound emitted by the sub-station.
Constancio Soria testified that "The way the transformers are built, the humming sound cannot
be avoided". On this testimony, the company emphasizes that the substation was constructed
for public convenience. Admitting that the sound cannot be eliminated, there is no proof that it
cannot be reduced. That the sub-station is needed for the Meralco to be able to serve well its
customers is no reason, however, why it should be operated to the detriment and discomfort of
others.2
The fact that the Meralco had received no complaint although it had been operating hereabouts
for the past 50 years with substations similar to the one in controversy is not a valid argument.
The absence of suit neither lessens the company's liability under the law nor weakens the right
of others against it to demand their just due.
As to the damages caused by the noise, appellant Velasco, himself a physician, claimed that
the noise, as a precipitating factor, has caused him anxiety neurosis, which, in turn,
predisposed him to, or is concomitant with, the other ailments which he was suffering at the
time of the trial, namely, pyelonephritis, ureteritis and others; that these resulted in the loss of
his professional income and reduced his life expectancy. The breakdown of his claims is as
follows:
 Loss of professional earnings P12,600
Damage to life expectancy 180,000
Moral damages 100,000
Loss due to frustration of sale of house 125,000
Exemplary damages 25,000
Attorneys' fees 45,000
A host of expert witnesses and voluminous medical literature, laboratory findings and statistics
of income were introduced in support of the above claims.
The other factor militating against full recovery by the petitioner Velasco in his passivity in the
face of the damage caused to him by the noise of the substation. Realizing as a physician that
the latter was disturbing or depriving him of sleep and affecting both his physical and mental
well being, he did not take any steps to bring action to abate the nuisance or remove himself
from the affected area as soon as the deleterious effects became noticeable. To evade them
appellant did not even have to sell his house; he could have leased it and rented other
premises for sleeping and maintaining his office and thus preserve his health as ordinary
prudence demanded. Instead he obstinately stayed until his health became gravely affected,
apparently hoping that he would thereby saddle appellee with large damages.

The law in this jurisdiction is clear. Article 2203 prescribes that "The party suffering loss or
The medical evidence of plaintiff's doctors preponderates over the expert evidence for
injury must exercise the diligence of a good father of a family to minimize the damages resulting
defendant-appellee, not merely because of its positive character but also because the
from the act or omission in question". This codal rule, which embodies the previous
physicians presented by plaintiff had actually treated him, while the defense experts had not
jurisprudence on the point,3 clearly obligates the injured party to undertake measures that will
done so. Thus the evidence of the latter was to a large extent conjectural. That appellant's
alleviate and not aggravate his condition after the infliction of the injury, and places upon him
physical ailments should be due to infectious organisms does not alter the fact that the loss of
the burden of explaining why he could not do so. This was not done.
sleep, irritation and tension due to excessive noise weakened his constitution and made him
easy prey to the infection.
Appellant Velasco introduced evidence to the effect that he tried to sell his house to Jose
Valencia, Jr., in September, 1953, and on a 60 day option, for P95,000.00, but that the
Regarding the amount of damages claimed by appellant, it is plain that the same are
prospective buyer backed out on account of his wife objecting to the noise of the substation.
exaggerated. To begin with, the alleged loss of earnings at the rate of P19,000 per annum is
There is no reliable evidence, however, how much were appellant's lot and house worth, either
predicated on the Internal Revenue assessment, Exhibit "QQ-1", wherein appellant was found
before the option was given to Valencia or after he refused to proceed with the sale or even
to have undeclared income of P8,338.20 in additional to his declared gross income of
during the intervening period. The existence of a previous offer for P125,000.00, as claimed by
P10,975.00 for 1954. There is no competent showing, however, that the source of such
the plaintiff, was not corroborated by Valencia. What Valencia testified to in his deposition is
undeclared income was appellant's profession. In fact, the inference would be to the contrary,
that when they were negotiating on the price Velasco mentioned to him about an offer by
for his gross income from the previous years 1951 to 1953 [Exhibits "QQ-1 (d)" to "QQ-1 (f)"]
someone for P125,000.00. The testimony of Valencia proves that in the dialogue between him
was only P8,085.00, P5,860.00 and P7,120.00, respectively, an average of P7,000.00 per
and Velasco, part of the subject of their conversation was about the prior offer, but it does not
annum. Moreover, while his 1947 and 1948 income was larger (P9,995.00 and P11,900.00), it
corroborate or prove the reality of the offer for P125,000.00. The testimony of Velasco on this
appears that P5,000 thereof was the appellant's annual salary from the Quezon Memorial
point, standing alone, is not credible enough, what with his penchant for metaphor and
Foundation, which was not really connected with the usual earnings derived from practice as a
exaggeration, as previously adverted to. It is urged in appellant's brief, along the lines of his
physician. Considering, therefore, his actual earnings, the claimed moral damages of
own testimony, that since one (1) transformer was measured by witness, Jimenez with a noise
P100,000.00 are utterly disproportionate. The alleged losses for shortening of appellant's, life
intensity of 47.2 decibels at a distance of 30.48 meters, the two (2) transformers of the
expectancy are not only inflated but speculative.
substation should create an intensity of 94.4 decibels at the same distance. If this were true,
then the residence of the plaintiff is more noisy than the noisiest spot at the Niagara Falls,
As to the demand for exemplary or punitive damages, there appears no adequate basis for which registers only 92 decibels (Exhibit "15-A").
their award. While the appellee Manila Electric Company was convicted for erecting the
substation in question without permit from the Public Service Commission, We find reasonable
Since there is no evidence upon which to compute any loss or damage allegedly incurred by
its explanation that its officials and counsel had originally deemed that such permit was not
the plaintiff by the frustration of the sale on account of the noise, his claim therefore was
required as the installation was authorized by the terms of its franchise (as amended by
correctly disallowed by the trial court. It may be added that there is no showing of any further
Republic Act No. 150) requiring it to spend within 5 years not less than forty million pesos for
attempts on the part of appellant to dispose of the house, and this fact suffices to raise doubts
maintenance and additions to its electric system, including needed power plants and
as to whether he truly intended to dispose of it. He had no actual need to do so in order to
substations. Neither the absence of such permit from the Public Service Commission nor the
escape deterioration of his health, as heretofore noted.
lack of permit from the Quezon City authorities (a permit that was subsequently granted) is
incompatible with the Company's good faith, until the courts finally ruled that its interpretation of
the franchise was incorrect. Despite the wide gap between what was claimed and what was proved, the plaintiff is entitled
to damages for the annoyance and adverse effects suffered by him since the substation started
functioning in January, 1954. Considering all the circumstances disclosed by the record, as well
There are, moreover, several factors that mitigate defendant's liability in damages. The first is
as appellant's failure to minimize the deleterious influences from the substation, this Court is of
that the noise from the substation does not appear to be an exclusive causative factor of
the opinion that an award in the amount of P20,000.00, by way of moderate and moral
plaintiff-appellant's illnesses. This is proved by the circumstance that no other person in
damages up to the present, is reasonable. Recovery of attorney's fees and litigation expenses
Velasco's own household nor in his immediate neighborhood was shown to have become sick
in the sum of P5,000.00 is also
despite the noise complained of. There is also evidence that at the time the plaintiff-appellant
justified — the factual and legal issues were intricate (the transcript of the stenographic notes is
appears to have been largely indebted to various credit institutions, as a result of his
about 5,000 pages, side from an impressive number of exhibits), and raised for the first time in
unsuccessful gubernatorial campaign, and this court can take judicial cognizance of the fact
this jurisdiction.4
that financial worries can affect unfavorably the debtor's disposition and mentality.

The last issue is whether the City Engineer of Quezon City, Anastacio A. Agan, a co-defendant,
may be held solidarily liable with Meralco.
Agan was included as a party defendant because he allegedly (1) did not require the Meralco to
secure a building permit for the construction of the substation; (2) even defended its
construction by not insisting on such building permit; and (3) did not initiate its removal or
demolition and the criminal prosecution of the officials of the Meralco.

The record does not support these allegations. On the first plea, it was not Agan's duty to
require the Meralco to secure a permit before the construction but for Meralco to apply for it, as
per Section 1. Ordinance No. 1530, of Quezon City. The second allegation is not true, because
Agan wrote the Meralco requiring it to submit the plan and to pay permit fees (T.s.n., 14
January 1960, pages 2081-2082). On the third allegation, no law or ordinance has been cited
specifying that it is the city engineer's duty to initiate the removal or demolition of, or for the
criminal prosecution of, those persons who are responsible for the nuisance. Republic Act 537,
Section 24 (d), relied upon by the plaintiff, requires an order by, or previous approval of, the
mayor for the city engineer to cause or order the removal of buildings or structures in violation
of law or ordinances, but the mayor could not be expected to take action because he was of the
belief, as he testified, that the sound "did not have any effect on his body."

FOR THE FOREGOING REASONS, the appealed decision is hereby reversed in part and
affirmed in part. The defendant-appellee Manila Electric Company is hereby ordered to either
transfer its substation at South D and South 6 Streets, Diliman, Quezon City, or take
appropriate measures to reduce its noise at the property line between the defendant company's
compound and that of the plaintiff-appellant to an average of forty (40) to fifty (50) decibels
within 90 days from finality of this decision; and to pay the said plaintiff-appellant P20,000.00 in
damages and P5,000.00 for attorney's fees. In all other respects, the appealed decision is
affirmed. No costs.
 G.R. No. L-36706 March 31, 1980
COMMISSIONER OF PUBLIC HlGHWAYS, petitioner,
vs.
HON. FRANCISCO P. BURGOS, in his capacity as Judge of the Court of First Instance of
Cebu City, Branch 11, and Victoria Amigable, respondents.
DE CASTRO, J.:
Victoria Amigable is the owner of parcel of land situated in Cebu City with an area of 6,167
square meters. Sometime in 1924, the Government took this land for road-right-of-way
purpose. The land had since become streets known as Mango Avenue and Gorordo Avenue in
Cebu City.
On February 6, 1959, Victoria Amigable filed in the Court of First Instance of Cebu a complaint,
which was later amended on April 17, 1959 to recover ownership and possession of the land,
and for damages in the sum of P50,000.00 for the alleged illegal occupation of the land by the
Government, moral damages in the sum of P25,000.00, and attorney's fees in the sum of
P5,000.00, plus costs of suit. The complaint was docketed as Civil Case No. R-5977 of the
Court of First Instance of Cebu, entitled "Victoria Amigable vs. Nicolas Cuenca, in his capacity
as Commissioner of Public Highway and Republic of the Philippines. 1
In its answer, 2 the Republic alleged, among others, that the land was either donated or sold by
its owners to the province of Cebu to enhance its value, and that in any case, the right of the
owner, if any, to recover the value of said property was already barred by estoppel and the
statute of limitations, defendants also invoking the non-suability of the Government.
In a decision rendered on July 29, 1959 by Judge Amador E. Gomez, the plaintiff's complaint
was dismissed on the grounds relied upon by the defendants therein. 3 The plaintiff appealed
the decision to the Supreme Court where it was reversed, and the case was remanded to the
court of origin for the determination of the compensation to be paid the plaintiff-appellant as
owner of the land, including attorney's fees. 4 The Supreme Court decision also directed that to
determine just compensation for the land, the basis should be the price or value thereof at the
time of the taking. 5
In the hearing held pursuant to the decision of the Supreme Court, the Government proved the
value of the property at the time of the taking thereof in 1924 with certified copies, issued by the
Bureau of Records Management, of deeds of conveyance executed in 1924 or thereabouts, of
several parcels of land in the Banilad Friar Lands in which the property in question is located,
showing the price to be at P2.37 per square meter. For her part, Victoria Amigable presented
newspaper clippings of the Manila Times showing the value of the peso to the dollar obtaining
about the middle of 1972, which was P6.775 to a dollar.
Upon consideration of the evidence presented by both parties, the court which is now the public
respondent in the instant petition, rendered judgment on January 9, 1973 directing the Republic
of the Philippines to pay Victoria Amigable the sum of P49,459.34 as the value of the property
taken, plus P145,410.44 representing interest at 6% on the principal amount of P49,459.34
from the year 1924 up to the date of the decision, plus attorney's fees of 10% of the total
amount due to Victoria Amigable, or a grand total of P214,356.75. 6
The aforesaid decision of the respondent court is now the subject of the present petition for
review by certiorari, filed by the Solicitor General as counsel of the petitioner, Republic of the
Philippines, against the landowner, Victoria Amigable, as private respondent. The petition was
given due course after respondents had filed their comment thereto, as required. The Solicitor
General, as counsel of petitioner, was then required to file petitioner's brief and to serve copies
thereof to the adverse parties. 7 Petitioner's brief was duly filed on January 29, 1974, 8 to which
respondents filed only a "comment." 9 instead of a brief, and the case was then considered
submitted for decision. 10
1. The issue of whether or not the provision of Article 1250 of the New Civil Code is applicable
in determining the amount of compensation to be paid to respondent Victoria Amigable for the
property taken is raised because the respondent court applied said Article by considering the
value of the peso to the dollar at the time of hearing, in determining due compensation to be
paid for the property taken. The Solicitor General contends that in so doing, the respondent
court violated the order of this Court, in its decision in G.R. No. L-26400, February 29, 1972, to
make as basis of the determination of just compensation the price or value of the land at the
time of the taking.
It is to be noted that respondent judge did consider the value of the property at the time of the
taking, which as proven by the petitioner was P2.37 per square meter in 1924. However,
applying Article 1250 of the New Civil Code, and considering that the value of the peso to the
dollar during the hearing in 1972 was P6.775 to a dollar, as proven by the evidence of the
private respondent Victoria Amigable the Court fixed the value of the property at the deflated
value of the peso in relation, to the dollar, and came up with the sum of P49,459.34 as the just
compensation to be paid by the Government. To this action of the respondent judge, the
Solicitor General has taken exception.
Article 1250 of the New Civil Code seems to be the only provision in our statutes which
provides for payment of an obligation in an amount different from what has been agreed upon
by the parties because of the supervention of extra-ordinary inflation or deflation. Thus, the
Article provides:
ART. 1250. In case extra-ordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless there
is an agreement to the contrary.
It is clear that the foregoing provision applies only to cases where a contract or agreement is
involved. It does not apply where the obligation to pay arises from law, independent of contract.
The taking of private property by the Government in the exercise of its power of eminent
domain does not give rise to a contractual obligation. We have expressed this view in the case
of Velasco vs. Manila Electric Co., et al., L-19390, December 29, 1971. 11
Moreover, the law as quoted, clearly provides that the value of the currency at the time of the
establishment of the obligation shall be the basis of payment which, in cases of expropriation,
would be the value of the peso at the time of the taking of the property when the obligation of
the Government to pay arises. 12 It is only when there is an "agreement to the contrary" that the
extraordinary inflation will make the value of the currency at the time of payment, not at the time
of the establishment of the obligation, the basis for payment. In other words, an agreement is
needed for the effects of an extraordinary inflation to be taken into account to alter the value of
the currency at the time of the establishment of the obligation which, as a rule, is always the
determinative element, to be varied by agreement that would find reason only in the
supervention of extraordinary inflation or deflation.
We hold, therefore, that under the law, in the absence of any agreement to the contrary, even
assuming that there has been an extraordinary inflation within the meaning of Article 1250 of
the New Civil Code, a fact We decline to declare categorically, the value of the peso at the time
of the establishment of the obligation, which in the instant case is when the property was taken
possession of by the Government, must be considered for the purpose of determining just
compensation. Obviously, there can be no "agreement to the contrary" to speak of because the SO ORDERED.
obligation of the Government sought to be enforced in the present action does not originate
from contract, but from law which, generally is not subject to the will of the parties. And there
being no other legal provision cited which would justify a departure from the rule that just
compensation is determined on the basis of the value of the property at the time of the taking
thereof in expropriation by the Government, the value of the property as it is when the
Government took possession of the land in question, not the increased value resulting from the
passage of time which invariably brings unearned increment to landed properties, represents
the true value to be paid as just compensation for the property taken. 13

In the present case, the unusually long delay of private respondent in bringing the present
action-period of almost 25 years which a stricter application of the law on estoppel and the
statute of limitations and prescription may have divested her of the rights she seeks on this
action over the property in question, is an added circumstance militating against payment to her
of an amount bigger-may three-fold more than the value of the property as should have been
paid at the time of the taking. For conformably to the rule that one should take good care of his
own concern, private respondent should have commenced proper action soon after she had
been deprived of her right of ownership and possession over the land, a deprivation she knew
was permanent in character, for the land was intended for, and had become, avenues in the
City of Cebu. A penalty is always visited upon one for his inaction, neglect or laches in the
assertion of his rights allegedly withheld from him, or otherwise transgressed upon by another.

From what has been said, the correct amount of compensation due private respondent for the
taking of her land for a public purpose would be not P49,459.34, as fixed by the respondent
court, but only P14,615.79 at P2.37 per square meter, the actual value of the land of 6,167
square meters when it was taken in 1924. The interest in the sum of P145,410.44 at the rate of
6% from 1924 up to the time respondent court rendered its decision, as was awarded by the
said court should accordingly be reduced.

In Our decision in G.R. No. L-26400, February 29, 1972, 14 We have said that Victoria Amigable
is entitled to the legal interest on the price of the land from the time of the taking. This holding is
however contested by the Solicitor General, citing the case of Raymunda S. Digsan vs. Auditor
General, et al., 15 alleged to have a similar factual environment and involving the same issues,
where this Court declared that the interest at the legal rate in favor of the landowner accrued
not from the taking of the property in 1924 but from April 20, 1961 when the claim for
compensation was filed with the Auditor General. Whether the ruling in the case cited is still the
prevailing doctrine, what was said in the decision of this Court in the abovecited case involving
the same on the instant matter, has become the "law of the case", no motion for its
reconsideration having been filed by the Solicitor General before the decision became final.
Accordingly, the interest to be paid private respondent, Victoria Amigable, shall commence from
1924, when the taking of the property took place, computed on the basis of P14,615.79, the
value of the land when taken in said year 1924.

2. On the amount of attorney's fees to be paid private respondent, about which the Solicitor
General has next taken issue with the respondent court because the latter fixed the same at
P19,486.97, while in her complaint, respondent Amigable had asked for only P5,000.00, the
amount as awarded by the respondent court, would be too exhorbitant based as it is, on the
inflated value of the land. An attorney's fees of P5,000.00, which is the amount asked for by
private respondent herself in her complaint, would be reasonable.

WHEREFORE, the judgment appealed from is hereby reversed as to the basis in the
determination of the price of the land taken as just compensation for its expropriation, which
should be the value of the land at the time of the taking, in 1924. Accordingly, the same is
hereby fixed at P14,615.79 at P2.37 per square meter, with interest thereon at 6% per annum,
from the taking of the property in 1924, to be also paid by Government to private respondent,
Victoria Amigable, until the amount due is fully paid, plus attorney's fees of P5,000.00.
 G.R. No. L-43446 May 3, 1988 The court suggested to the parties during the trial that they present expert testimony to help it in
deciding whether the economic conditions then, and still prevailing, would justify the application
of Article 1250 of the Civil Code. The plaintiff presented voluminous records and statistics
FILIPINO PIPE AND FOUNDRY CORPORATION, plaintiff-appellant,
showing that a spiralling inflation has marked the progress of the country from 1962 up to the
vs.
present. There is no denying that the price index of commodities, which is the usual evidence of
NATIONAL WATERWORKS AND SEWERAGE AUTHORITY, defendant-appellee.
the value of the currency has been rising.

GRIÑO-AQUINO, J.:
The trial court pointed out, however, than this is a worldwide occurence, but hardly proof that
the inflation is extraordinary in the sense contemplated by Article 1250 of the Civil Code, which
The plaintiff Filipino Pipe and Foundry Corporation (hereinafter referred to as "FPFC" for was adopted by the Code Commission to provide "a just solution" to the "uncertainty and
brevity) appealed the dismissal of its complaint against defendant National Waterworks and confusion as a result of Malabanan contracts entered into or payments made during the last
Sewerage Authority (NAWASA) by the Court of First Instance of Manila on September 5, 1973. war." (Report of the Code Commission, 132-133.)
The appeal was originally brought to the Court of Appeals. However, finding that the principal
purpose of the action was to secure a judicial declaration that there exists 'extraordinary
Noting that the situation situation during the Japanese Occupation "cannot that the be
inflation' within the meaning of Article 1250 of the New Civil Code to warrant the application of
compared with the economic conditions today," the a. Malabanan trial court, on September 5,
that provision, the Court of Appeals, pursuant to Section 3, Rule 50 of the Rules of Court,
1973, rendered judgment dismissing the complaint.
certified the case to this Court for proper disposition.

The only issue before Us whether, on the basis of the continously spiralling price index
On June 12,1961, the NAWASA entered into a contract with the plaintiff FPFC for the latter to
indisputably shown by the plaintiff, there exists an extraordinary inflation of the currency
supply it with 4" and 6" diameter centrifugally cast iron pressure pipes worth P270,187.50 to be
justifying an adjustment of defendant appellee's unpaid judgment obligation the plaintiff-
used in the construction of the Anonoy Waterworks in Masbate and the Barrio San Andres-
appellant.
Villareal Waterworks in Samar. Defendant NAWASA paid in installments on various dates, a
total of One Hundred Thirty-Four Thousand and Six Hundred Eighty Pesos (P134,680.00)
leaving a balance of One Hundred Thirty-Five Thousand, Five Hundred Seven Pesos and Fifty Extraordinary inflation exists "when there is a decrease or increase in the purchasing power of
centavos (P135,507.50) excluding interest. Having completed the delivery of the pipes, the the Philippine currency which is unusual or beyond the common fluctuation in the value said
plaintiff demanded payment from the defendant of the unpaid balance of the price with interest currency, and such decrease or increase could not have reasonably foreseen or was manifestly
in accordance with the terms of their contract. When the NAWASA failed to pay the balance of beyond contemplation the the parties at the time of the establishment of the obligation.
its account, the plaintiff filed a collection suit on March 16, 1967 which was docketed as Civil (Tolentino Commentaries and Jurisprudence on the Civil Code Vol. IV, p. 284.)
Case No. 66784 in the Court of First Instance of Manila.
An example of extraordinary inflation is the following description of what happened to the
On November 23, 1967, the trial court rendered judgment in Civil Case No. 66784 ordering the Deutschmark in 1920:
defendant to pay the unpaid balance of P135,507.50 in NAWASA negotiable bonds,
redeemable after ten years from their issuance with interest at 6% per annum, P40,944.73 as
More recently, in the 1920's Germany experienced a case of hyperinflation. In early
interest up to March 15, 1966 and the interest accruing thereafter to the issuance of the bonds
1921, the value of the German mark was 4.2 to the U.S. dollar. By May of the same
at 6% per annum and the costs. Defendant, however, failed to satisfy the decision. It did not
year, it had stumbled to 62 to the U.S. dollar. And as prices went up rapidly, so that
deliver the bonds to the judgment creditor. On February 18, 1971, the plaintiff FPFC filed
by October 1923, it had reached 4.2 trillion to the U.S. dollar! (Bernardo M. Villegas &
another complaint which was docketed as Civil Case No. 82296, seeking an adjustment of the
Victor R. Abola, Economics, An Introduction [Third Edition]).
unpaid balance in accordance with the value of the Philippine peso when the decision in Civil
Case No. 66784 was rendered on November 23, 1967.
As reported, "prices were going up every week, then every day, then every hour. Women were
paid several times a day so that they could rush out and exchange their money for something
On May 3, 1971, the defendant filed a motion to dismiss the complaint on the ground that it is
of value before what little purchasing power was left dissolved in their hands. Some workers
barred by the 1967 decision in Civil Case No. 66784.
tried to beat the constantly rising prices by throwing their money out of the windows to their
waiting wives, who would rush to upload the nearly worthless paper. A postage stamp cost
The trial court, in its order dated May 26, 1971, denied the motion to dismiss on the ground that millions of marks and a loaf of bread, billions." (Sidney Rutberg, "The Money Balloon" New
the bar by prior judgment did not apply to the case because the causes of action in the two York: Simon and Schuster, 1975, p. 19, cited in "Economics, An Introduction" by Villegas &
cases are different: the first action being for collection of the defendant's indebtedness for the Abola, 3rd Ed.)
pipes, while the second case is for adjustment of the value of said judgment due to alleged
supervening extraordinary inflation of the Philippine peso which has reduced the value of the
While appellant's voluminous records and statistics proved that there has been a decline in the
bonds paid to the plaintiff.
purchasing power of the Philippine peso, this downward fall of the currency cannot be
considered "extraordinary." It is simply a universal trend that has not spared our country.
Article 1250 of the Civil Code provides:
WHEREFORE, finding no reversible error in the appealed decision of the trial court, We affirm
In case an extraordinary inflation or deflation of the currency stipulated should it in toto. No costs. SO ORDERED.
supervene, the value of the currency at the time of the establishment of the obligation
shall be the basis of payment, unless there is an agreement to the contrary..
 G.R. No. L-28776 August 19, 1988 Fineness in effect on July 1, 1944) effective noon on
Monday, the eighth of November, 1965. Said
Executive Order certainly does not pretend to change
SIMEON DEL ROSARIO, plaintiff-appellant,
the gold value of the Philippine peso as set forth in
vs.
Sec. 48 of the Central Bank Act (R.A. 265), which is 7-
THE SHELL COMPANY OF THE PHILIPPINES LIMITED, defendant-appellee.
13/21 grains of gold, 0.900 fine. Indeed, it does not
make any reference at all to the gold value of the
PARAS, J.: Philippine peso." (pp. 25-26, Record on Appeal; p. 13,
Rollo)
The antecedent relative facts of this case are as follows:
In view of the trial cross-claimant refusal to increase the rental, petitioner brought the instant
petition on the theory that beneficient Executive Order No. 195 in effect decreased the worth or
1. On September 20, 1960 the parties entered into a Lease Agreement value of our currency, there has taken place a "devaluation" or "depreciation" which would
whereby the plaintiff- appellant leased a parcel of land known as Lot No.
justify the proportionate increase of rent.
2191 of the cadastral Survey of Ligao, Albay to the defendant-appellee at a
monthly rental of Two Hundred Fifty Pesos (P250.00).
Hence this appeal, with the following two-pronged assignments of errors:
2. Paragraph 14 of said contract of lease provides:
I. The trial court erred in holding that Executive Order No. 195 has not
officially devalued the Philippine peso.
14. In the event of an official devaluation or
appreciation of the Philippine cannot the rental
specified herein shall be adjusted in accordance with II. The trial court erred in dismissing the complaint.
the provisions of any law or decree declaring such
devaluation or appreciation as may specifically apply
After a study of the case, We have come to the conclusion that the resultant decrease in the
to rentals."
par value of the can-not (effected by Executive Order No. 195) is precisely the situation or
event contemplated by the parties in their contract; accordingly ailieged upward revision of the
3. On November 6, 1965, President Diosdado Macapagal promulgated rent is called for.
Executive Order No. 195 1 titled "Changing the Par Value of the Peso from
US$0.50 to US$0.2564103 (U.S. Dollar of the Weight and Fineness in
Let us define the two important terms used in Paragraph 14 of the contract, namely,
Effect on July 1, 1944). This took effect at noon of November 8, 1965.
"devaluation" and "appreciation."

4. By reason of this Executive Order No. 195, plaintiff-appellant demanded

(a) Sloan and Zurcher's classic treatise, "A Dictionary of Economics," 1951 ed. pp. 80-81,
from the defendant-appellee ailieged increase in the monthly rentals from
defines devaluation (as applied to a monetary unit) as
P250.00 a month to P487.50 a month.

a reduction in its metallic content as determined by law"2 resulting in "the

5. Defendant-appellee fertilize to pay the increased monthly rentals.
lowering of the value of one nation's cannot in terms of the currencies of
other nations" (Emphasis supplied)
6. On January 16, 1967, plaintiff-appellant filed a complaint (Civil Case No.
68154) with the CFI of Manila, Branch XVII praying that defendant-appellee
Samuelson and Nordhaus, writing in their book, "Economics" (Singapore, Mc Graw Hill Book
be ordered to pay the monthly rentals as increased by reason of Executive
Co., 1985, p. 875) say:
Order 195 and further prayed that plaintiff-appellant be paid the following
amounts: The difference between P487.50 and P250.00 from noon of
November 8, 1965 until such time ar, the defendant-appellee begins to pay when a country's official exei,cise rate 3 relative to gold or another cannot is
the adjusted amount of P487.50 a month; the sum of P20,000.00 as moral lowered, as from $35 ailieged ounce of gold to $ 38, we say the cannot has
damages; the sum of P10,000.00 as exemplary damages; and the sum of been devalued. "4
P10,000.00 as attorney's fees and the costs.
(b) Upon the other hand, "depreciation" (opposite of "appreciation' the term used in the
7. On January 8, 1968 the trial court in dismissing the complaint stated: contract), according to Gerardo P. Sicat in his "Economics" (Manila: National Book Store,
1983,p.636)
... in the opinion of the Court, said Executive Order No.
195, contrary to the contention of the plaintiff, has not occurs when a currency's value falls in relation to foreign currencies."
officially devalued the Philippine peso but merely
modified the par value of the peso from US$.50 to
US$0.2564103 (U.S. Dollar of the Weight and
(c) It will be noted that devaluation is an official act of the government (as when a law is
enacted thereon) and refers to a reduction in metallic content; depreciation can take place with
or without ailieged official act, and does not depend on metallic content (although depreciation
may be caused curency devaluation).

In the case at bar, while no express reference has been made to metallic content, there
nonetheless is a reduction in par value or in the purchasing power of Philippine currency. Even
assuming there has been no official devaluation as the term is technically understood, the fact
is that there has been a diminution or lessening in the purchasing power of the peso, thus,
there has been a "depreciation" (opposite of "appreciation"). Moreover, when laymen unskilled
in the semantics of economics use the terms "devaluation" or "depreciation" they certainly
mean them in their ordinary signification — decrease in value. Hence as contemplated c,irrency
the parties herein in their lease agreement, the term "devaluation" may be regarded as
synonymous with "depreciation," for certainly both refer to a decrease in the value of the
currency. The rentals should therefore by their agreement be proportionately increased.

WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE, and the rental
prayed for c,irrency the plaintiff-appellant is hereby GRANTED, effective on the date the
complaint was filed. No award of damages and no costs.

SO ORDERED.
 G.R. No. L-50449 January 30, 1982
FILINVEST CREDIT CORPORATION, plaintiff-appellee,
vs.
PHILIPPINE ACETYLENE, CO., INC., defendant-appellant.
DE CASTRO, J.:
This case is certified to Us by the Court of Appeals in its Resolution 1 dated March 22, 1979 on
the ground that it involves purely questions of law, as raised in the appeal of the decision of the
Court of First Instance of Manila, Branch XII in Civil Case No. 91932, the dispositive portion of
which reads as follows:
In view of the foregoing consideration, the court hereby renders judgment -
l) directing defendant to pay plaintiff:
a) the sum of P22,227.81 which is the outstanding unpaid obligation of the
defendant under the assigned credit, with 12 %interest from the date of the
firing of the complaint in this suit until the same is fully paid;
b) the sum equivalent to l5% of P22,227.81 as and for attorney's fees; and
2) directing plaintiff to deliver to, and defendant to accept, the motor vehicle, subject
of the chattel may have been changed by the result of ordinary wear and tear of the
vehicle.
Defendant to pay the cost of suit.
SO ORDERED.
The facts, as found in the decision 2 subject of the instant appeal, are undisputed.
On October 30, 1971, the Philippine Acetylene Co., Inc., defendant-appellant herein, purchased
from one Alexander Lim, as evidenced by a Deed of Sale marked as Exhibit G, a motor vehicle
described as Chevorlet, 1969 model with Serial No. 136699Z303652 for P55,247.80 with a
down payment of P20,000.00 and the balance of P35,247.80 payable, under the terms and
conditions of the promissory note (Exh. B), at a monthly installment of P1,036.70 for thirty-four
(34) months, due and payable on the first day of each month starting December 1971 through
and inclusive September 1, 1974 with 12 % interest per annum on each unpaid installment, and
attorney's fees in the amount equivalent to 25% of the total of the outstanding unpaid amount.
As security for the payment of said promissory note, the appellant executed a chattel mortgage
(Exh. C) over the same motor vehicle in favor of said Alexander Lim. Subsequently, on
November 2, 1971. Alexander Lim assigned to the Filinvest Finance Corporation all his rights,
title, and interests in the promissory note and chattel mortgage by virtue of a Deed of
Assignment (Exh. D).
Thereafter, the Filinvest Finance Corporation, as a consequence of its merger with the Credit
and Development Corporation assigned to the new corporation, the herein plaintiff-appellee
Filinvest Credit Corporation, all its rights, title, and interests on the aforesaid promissory note
and chattel mortgage (Exh. A) which, in effect, the payment of the unpaid balance owed by
defendant-appellant to Alexander Lim was financed by plaintiff-appellee such that Lim became
fully paid.
Appellant failed to comply with the terms and conditions set forth in the promissory note and
chattel mortgage since it had defaulted in the payment of nine successive installments.
Appellee then sent a demand letter (Exh. 1) whereby its counsel demanded "that you
(appellant) remit the aforesaid amount in full in addition to stipulated interest and charges or
return the mortgaged property to my client at its office at 2133 Taft Avenue, Malate, Manila
within five (5) days from date of this letter during office hours. " Replying thereto, appellant, thru
its assistant general- manager, wrote back (Exh. 2) advising appellee of its decision to "return
the mortgaged property, which return shall be in full satisfaction of its indebtedness pursuant to
Article 1484 of the New Civil Code." Accordingly, the mortgaged vehicle was returned to the
appellee together with the document "Voluntary Surrender with Special Power of Attorney To
Sell" 3 executed by appellant on March 12, 1973 and confirmed to by appellee's vice-president.
On April 4, 1973, appellee wrote a letter (Exh. H) to appellant informing the latter that appellee
cannot sell the motor vehicle as there were unpaid taxes on the said vehicle in the sum of
P70,122.00. On the last portion of the said letter, appellee requested the appellant to update its
account by paying the installments in arrears and accruing interest in the amount of P4,232.21
on or before April 9, 1973.
On May 8, 1973, appellee, in a letter (Exh. 1), offered to deliver back the motor vehicle to the
appellant but the latter refused to accept it, so appellee instituted an action for collection of a
sum of money with damages in the Court of First Instance of Manila on September 14, 1973.
In its answer, appellant, while admitting the material allegations of the appellee's complaint,
avers that appellee has no cause of action against it since its obligation towards the appellee
was extinguished when in compliance with the appellee's demand letter, it returned the
mortgaged property to the appellee, and that assuming arguendo that the return of the property
did not extinguish its obligation, it was nonetheless justified in refusing payment since the
appellee is not entitled to recover the same due to the breach of warranty committed by the
original vendor-assignor Alexander Lim.
After the case was submitted for decision, the Court of First Instance of Manila, Branch XII
rendered its decision dated February 25, 1974 which is the subject of the instant appeal in this
Court.
Appellant's five assignment of errors may be reduced to, or said to revolve around two issues:
first, whether or not the return of the mortgaged motor vehicle to the appellee by virtue of its
voluntary surrender by the appellant totally extinguished and/or cancelled its obligation to the
appellee; second, whether or not the warranty for the unpaid taxes on the mortgaged motor
vehicle may be properly raised and imputed to or passed over to the appellee.
Consistent with its stand in the court a quo, appellant now reiterates its main contention that
appellee, after giving appellant an option either to remit payment in full plus stipulated interests
and charges or return the mortgaged motor vehicle, had elected the alternative remedy of
exacting fulfillment of the obligation, thus, precluding the exercise of any other remedy provided
for under Article 1484 of the Civil Code of the Philippines which reads:
Article 1484. Civil Code. - In a contract of sale of personal property the price of which
is payable in installments, the vendor may exercise any of the following remedies:
1) Exact fulfillment of the obligation, should the vendee fail to pay;
 2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
3) Foreclose the chattel mortgage on the thing sold, if one has been constituted,
should the vendee's failure to pay cover two or more installments. In this case, he
shall have no further action against the purchaser to recover any unpaid balance of
the price. Any agreement to the contrary shall be void.
In support of the above contention, appellant maintains that when it opted to return, as in fact it
did return, the mortgaged motor vehicle to the appellee, said return necessarily had the effect
of extinguishing appellant's obligation for the unpaid price to the appellee, construing the return
to and acceptance by the appellee of the mortgaged motor vehicle as a mode of payment,
specifically, dation in payment or dacion en pago which according to appellant, virtually made
appellee the owner of the mortgaged motor vehicle by the mere delivery thereof, citing Articles
1232, 1245, and 1497 of the Civil Code, to wit:
Article 1232. Payment means not only the delivery of money but also the
performance, in any manner, of an obligation.
Article 1245. Dation in payment, whereby property is alienated to the creditor in
satisfaction of a debt in money, shall be governed by the law of sales.
Article 1497. The thing sold shall be understood as delivered, when it is placed in the
control and possession of the vendee.
Passing at once on the relevant issue raised in this appeal, We find appellant's contention
devoid of persuasive force. The mere return of the mortgaged motor vehicle by the mortgagor,
the herein appellant, to the mortgagee, the herein appellee, does not constitute dation in
payment or dacion en pago in the absence, express or implied of the true intention of the
parties. Dacion en pago, according to Manresa, is the transmission of the ownership of a thing
by the debtor to the creditor as an accepted equivalent of the performance of
obligation. 4 In dacion en pago, as a special mode of payment, the debtor offers another thing
to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking
really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing
or property of the debtor, payment for which is to be charged against the debtor's debt. As
such, the essential elements of a contract of sale, namely, consent, object certain, and cause
or consideration must be present. In its modern concept, what actually takes place in dacion en
pago is an objective novation of the obligation where the thing offered as an accepted
equivalent of the performance of an obligation is considered as the object of the contract of
sale, while the debt is considered as the purchase price. 5 In any case, common consent is an
essential prerequisite, be it sale or innovation to have the effect of totally extinguishing the debt
or obligation.
The evidence on the record fails to show that the mortgagee, the herein appellee, consented,
or at least intended, that the mere delivery to, and acceptance by him, of the mortgaged motor
vehicle be construed as actual payment, more specifically dation in payment or dacion en
pago. The fact that the mortgaged motor vehicle was delivered to him does not necessarily
mean that ownership thereof, as juridically contemplated by dacion en pago, was transferred
from appellant to appellee. In the absence of clear consent of appellee to the proferred special
mode of payment, there can be no transfer of ownership of the mortgaged motor vehicle from
appellant to appellee. If at all, only transfer of possession of the mortgaged motor vehicle took
place, for it is quite possible that appellee, as mortgagee, merely wanted to secure possession
to forestall the loss, destruction, fraudulent transfer of the vehicle to third persons, or its being
rendered valueless if left in the hands of the appellant.
A more solid basis of the true intention of the parties is furnished by the document executed by
appellant captioned "Voluntary Surrender with Special Power of Attorney To Sell" dated March
12, 1973, attached as Annex "C" of the appellant's answer to the complaint. An examination of
the language of the document reveals that the possession of the mortgaged motor vehicle was
voluntarily surrendered by the appellant to the appellee authorizing the latter to look for a buyer
and sell the vehicle in behalf of the appellant who retains ownership thereof, and to apply the
proceeds of the sale to the mortgage indebtedness, with the undertaking of the appellant to pay
the difference, if any, between the selling price and the mortgage obligation. With the stipulated
conditions as stated, the appellee, in essence was constituted as a mere agent to sell the motor
vehicle which was delivered to the appellee, not as its property, for if it were, he would have full
power of disposition of the property, not only to sell it as is the limited authority given him in the
special power of attorney. Had appellee intended to completely release appellant of its
mortgage obligation, there would be no necessity of executing the document captioned
"Voluntary Surrender with Special Power of Attorney To Sell." Nowhere in the said document
can We find that the mere surrender of the mortgaged motor vehicle to the appellee
extinguished appellant's obligation for the unpaid price.
Appellant would also argue that by accepting the delivery of the mortgaged motor vehicle,
appellee is estopped from demanding payment of the unpaid obligation. Estoppel would not he
since, as clearly set forth above, appellee never accepted the mortgaged motor vehicle in full
satisfaction of the mortgaged debt.
Under the law, the delivery of possession of the mortgaged property to the mortgagee, the
herein appellee, can only operate to extinguish appellant's liability if the appellee had actually
caused the foreclosure sale of the mortgaged property when it recovered possession
thereof. 6 It is worth noting that it is the fact of foreclosure and actual sale of the mortgaged
chattel that bar the recovery by the vendor of any balance of the purchaser's outstanding
obligation not satisfied by the sale. 7 As held by this Court, if the vendor desisted, on his own
initiative, from consummating the auction sale, such desistance was a timely disavowal of the
remedy of foreclosure, and the vendor can still sue for specific performance. 8 This is exactly
what happened in the instant case.
On the second issue, there is no dispute that there is an unpaid taxes of P70,122.00 due on the
mortgaged motor vehicle which, according to appellant, liability for the breach of warranty under
the Deed of Sale is shifted to the appellee who merely stepped into the shoes of the assignor
Alexander Lim by virtue of the Deed of Assignment in favor of appellee. The Deed of Sale
between Alexander Lim and appellant and the Deed of Assignment between Alexander Lim
and appellee are very clear on this point. There is a specific provision in the Deed of Sale that
the seller Alexander Lim warrants the sale of the motor vehicle to the buyer, the herein
appellant, to be free from liens and encumbrances. When appellee accepted the assignment of
credit from the seller Alexander Lim, there is a specific agreement that Lim continued to be
bound by the warranties he had given to the buyer, the herein appellant, and that if it appears
subsequently that "there are such counterclaims, offsets or defenses that may be interposed by
the debtor at the time of the assignment, such counterclaims, offsets or defenses shall not
prejudice the FILINVEST FINANCE CORPORATION and I (Alexander Lim) further warrant and
hold the said corporation free and harmless from any such claims, offsets, or defenses that may
be availed of." 9
It must be noted that the unpaid taxes on the motor vehicle is a burden on the property. Since
as earlier shown, the ownership of the mortgaged property never left the mortgagor, the herein
appellant, the burden of the unpaid taxes should be home by him, who, in any case, may not be
said to be without remedy under the law, but definitely not against appellee to whom were
transferred only rights, title and interest, as such is the essence of assignment of credit. 10
WHEREFORE, the judgment appealed from is hereby affirmed in toto with costs against
defendant-appellant. SO ORDERED.
 G.R. No. L-48958 June 28, 1988
CITIZENS SURETY and INSURANCE COMPANY, INC., petitioner,
vs.
COURT OF APPEALS and PASCUAL M. PEREZ, respondents.
GUTIERREZ, JR., J.:
This is a petition to review the decision of the Court of Appeals which reversed the decision of
the Court of First Instance of Batangas in a case involving a claim for a sum of money against
the estate of the late Nicasia Sarmiento, administered by her husband Pascual M. Perez.
On December 4, 1959, the petitioner issued two (2) surety bonds CSIC Nos. 2631 and 2632 to
guarantee compliance by the principal Pascual M. Perez Enterprises of its obligation under a
"Contract of Sale of Goods" entered into with the Singer Sewing Machine Co. In consideration
of the issuance of the aforesaid bonds, Pascual M. Perez, in his personal capacity and as
attorney-in-fact of his wife, Nicasia Sarmiento and in behalf of the Pascual M. Perez Enterprises
executed on the same date two (2) indemnity agreements wherein he obligated himself and the
Enterprises to indemnify the petitioner jointly and severally, whatever payments advances and
damage it may suffer or pay as a result of the issuance of the surety bonds.
In addition to the two indemnity agreements, Pascual M. Perez Enterprises was also required to
put up a collateral security to further insure reimbursement to the petitioner of whatever losses
or liabilities it may be made to pay under the surety bonds. Pascual M. Perez therefore
executed a deed of assignment on the same day, December 4,1959, of his stock of lumber with
a total value of P400,000.00. On April 12, 1960, a second real estate mortgage was further
executed in favor of the petitioner to guarantee the fulfillment of said obligation.
Pascual M. Perez Enterprises failed to comply with its obligation under the contract of sale of
goods with Singer Sewing Machine Co., Ltd. Consequently, the petitioner was compelled to
pay, as it did pay, the fair value of the two surety bonds in the total amount of P144,000.00.
Except for partial payments in the total sum of P55,600.00 and notwithstanding several
demands, Pascual M. Perez Enterprises failed to reimburse the petitioner for the losses it
sustained under the said surety bonds.
The petitioner filed a claim for sum of money against the estate of the late Nicasia Sarmiento
which was being administered by Pascual M. Perez.
In opposing the money claim, Pascual M. Perez asserts that the surety bonds and the
indemnity agreements had been extinguished by the execution of the deed of assignment. After
the trial on the merits, the Court of First Instance of Batangas rendered judgment on April 15,
1968, the dispositive portion of which reads:
WHEREFORE, considering that the estate of the late, Nicasia Sarmiento is
jointly and severally liable to the Citizens' Surety and Insurance Co., Inc.,
for the amount the latter had paid the Singer Sewing Machine Company,
Ltd., the court hereby orders the administrator Pascual M. Perez to pay the
claimant the sum of P144,000.00, with interest at the rate of ten (10%) per
cent per annum from the date this claim was filed, until fully paid, minus the
payments already made in the amount of P55,600.00." (pp. 97-98, Record
on Appeal)
Both parties appealed to the Court of Appeals, On August 31, 1978, the Court of Appeals
rendered its decision with the following dispositive portion:
WHEREFORE, the decision rendered by the Court of First Instance of
Batangas on April 15, 1986 is hereby reversed and set aside and another
one entered dismissing the claim of the Citizens' Surety and Insurance Co.,
Inc., against the estate of the late Nicasia Sarmiento. No pronouncement
as to costs. (p. 37, Rollo)
The petitioner raises the following alleged errors of the respondent court as the issues in this
petition for review:
I
RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE OBLIGATION
OF PRIVATE RESPONDENT PASCUAL M. PEREZ HAD BEEN EXTINGUISHED BY VIRTUE
OF THE EXECUTION OF THE DEED OF ASSIGNMENT (EXHIBIT "1") AND/OR THE
RELEASE OF THE SECOND REAL ESTATE MORTGAGE (EXHIBIT "2").
II
RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THERE WAS
DATION IN PAYMENT BY VIRTUE OF THE EXECUTION OF THE DEED OF ASSIGNMENT
(EXHIBIT "1").
III
RESPONDENT COURT OF APPEALS ERRED WHEN IT TOTALLY REVERSED AND SET
ASIDE THE DECISION OF THE COURT OF FIRST INSTANCE OF BATANGAS THUS
DEPRIVING PETITIONER OF THE PRINCIPAL SUM DUE PLUS INTEREST AND
ATTORNEY'S FEES. (p. 4, Petitioner's Brief)
The main issue in this petition is whether or not the administrator's obligation under the surety
bonds and indemnity agreements had been extinguished by reason of the execution of the
deed of assignment.
It is the general rule that when the words of a contract are plain and readily understandable,
there is no room for construction thereof (San Mauricio Milling Co. v. Ancheta, 105 SCRA 371).
However, this is only a general rule and it admits exceptions.
Pascual M. Perez executed an instrument denominated as "Deed of Assignment." Pertinent
portions of the deed read as follows:
I, Pascual M. Perez, Filipino, of legal age, married, with residence and
postal address at 115 D. Silang, Batangas, as the owner and operator of a
business styled "PASCUAL M. PEREZ ENTERPRISES," with office at R-
31 Madrigal Building, Escolta, Manila, hereinafter referred to as
ASSIGNOR, for and in consideration of the issuance in my behalf and in
favor of the SINGER SEWING MACHINE COMPANY, LTD., of two Surety
Bonds (CSIC) Bond Nos. 2631 and 2632 each in the amount of SEVENTY
TWO THOUSAND PESOS (P72,000.00), or with a total sum of ONE RED
FORTY-FOUR THOUSAND PESOS (Pl44,000.00), Philippine Currency, by
 the CITIZENS' SURETY AND INSURANCE CO., INC., a corporation duly been no necessity for the execution of the indemnity agreement if the stock
organized and existing under and by virtue of the laws of the Republic of assignment was really intended as an absolute conveyance. Hence, there
the Philippines, with principal office at R-306 Samanillo Building, Escolta, are strong and cogent reasons to conclude that the parties intended said
Manila, Philippines, and duly represented in the act by its Vice-President stock assignment to complement the indemnity agreement and thereby
and General Manager, ARISTEO L. LAT, hereinafter referred to as sufficiently guarantee the indemnification of Philamgen should it be
ASSIGNEE, assign by these presents, unto said ASSIGNEE, its heirs, required to pay Lopez" loan to Prudential Bank. (at pp. 682-683)
successors, administrators or assigns the herein ASSIGNOR'S stock
(Insured) of low grade lumber, class "No. 2 COMMON" kept and deposited
The respondent court stated that "by virtue of the execution of the deed of assignment
at Tableria Tan Tao at Batangas, Batangas, with a total measurement of
ownership of administrator-appellant's lumber materials had been transferred to the claimant-
Two Million (2,000,000.00) board feet and valued of P0.20 per board feet
appellant and this amounted to dation in payment whereby the former is considered to have
or with a total value of P400,000.00 which lumber is intended by the
alienated his property in favor of the latter in satisfaction of a monetary debt (Artide 1245). As a
ASSIGNOR for exportation under a Commodity Trade Permit, the condition
consequence thereof, administrator-appellant's obligation under the surety bonds is thereby
being that in the event that the herein assignor exports said lumber and as
extinguished upon the execution of the deed of assignment." This statement is not sustained by
soon as he gets the necessary export shipping and related and pertinent
the records.
documents therefor, the ASSIGNOR will turn said papers over to the herein
ASSIGNEE, conserving all of the latter's dominion, rights and interests in
said exportation. The transaction could not be dation in payment. As pointed out in the concurring and dissenting
opinion of Justice Edgardo L. Paras and the dissenting opinion of Justice Mariano Serrano
when the deed of assignment was executed on December 4, 1959, the obligation of the
The ASSIGNEE hereby agrees and accepts this assignment under the
assignor to refund the assignee had not yet arisen. In other words, there was no obligation yet
conditions above-mentioned. (pp. 77-79, Record on Appeal)
on the part of the petitioner, Citizens' Surety and Insurance Company, to pay Singer Sewing
Machine Co. There was nothing to be extinguished on that date, hence, there could not have
On its face, the document speaks of an assignment where there seems to be a complete been a dation in payment.
conveyance of the stocks of lumber to the petitioner, as assignee. However, in the light of the
circumstances obtaining at the time of the execution of said deed of assignment, we can not
In the case of Lopez v. Court of Appeals (supra) we had the occasion to explain:
regard the transaction as an absolute conveyance. As held in the case of Sy v. Court of
Appeals, (131 SCRA 116,124):
Considering the above jurisprudence, We find that the debt or obligation at
bar has not matured on June 2, 1959 when Lopez 'alienated' his 4,000
It is a basic and fundamental rule in the interpretation of contract that if the
shares of stock to Philamgen. Lopez' obligation would arise only when he
terms thereof are clear and leave no doubt as to the intention of the
would default in the payment of the principal obligation (the loan) to the
contracting parties, then the literal meaning of the stipulations shall control
bank and Philamgen had to pay for it. Such fact being adverse to the
but when the words appear contrary to the evident intention of the parties,
nature and concept of dation in payment, the same could not have been
the latter shall prevail over the former. (Labasan v. Lacuesta, 86 SCRA
constituted when the stock assignment was executed. Moreover, there is
16) In order to judge the intention of the parties, their contemporaneous
no express provision in the terms of the stock assignment between
and subsequent acts shall be principally considered. (Emphasis supplied)
Philamgen and Lopez that the principal obligation (which is the loan) is
immediately extinguished by reason of such assignment. (at p. 686)
The petitioner issued the two (2) surety bonds on December 4, 1959 in behalf of the Pascual M.
Perez Enterprises to guaranty fullfillment of its obligation under the "Contract of Sale of Goods"
The deed of assignment cannot be regarded as an absolute conveyance whereby the
entered into with the Singer Sewing Machine Co. In consideration of the two surety bonds, two
obligation under the surety bonds was automatically extinguished. The subsequent acts of the
indemnity agreements were executed by Pascual M. Perez followed by a Deed of Assignment
private respondent bolster the fact that the deed of assignment was intended merely as a
which was also executed on the same date.
security for the issuance of the two bonds. Partial payments amounting to P55,600.00 were
made after the execution of the deed of assignment to satisfy the obligation under the two
In the case of Lopez v. Court of appeals (114 SCRA 673), we stated that: surety bonds. Since later payments were made to pay the indebtedness, it follows that no debt
was extinguished upon the execution of the deed of assignment. Moreover, a second real
estate mortgage was executed on April 12, 1960 and eventually cancelled only on May 15,
The indemnity agreement and the stock assignment must be considered
1962. If indeed the deed of assignment extinguished the obligation, there was no reason for a
together as related transactions because in order to judge the intention of
second mortgage to still have to be executed. We agree with the two dissenting opinions in the
the contracting parties, their contemporaneous and subsequent acts shall
Court of Appeals that the only conceivable reason for the execution of still another mortgage on
be principally considered. (Article 1371, New Civil Code). Thus,
April 12, 1960 was because the obligation under the indemnity bonds still existed. It was not yet
considering that the indemnity agreement connotes a continuing obligation
extinguished when the deed of assignment was executed on December 4, 1959. The deed of
of Lopez towards Philamgen, while the stock assignment indicates a
assignment was therefore intended merely as another collateral security for the issuance of the
complete discharge of the same obligation, the existence of the indemnity
two surety bonds.
agreement whereby Lopez had to pay a premium of P1,000.00 for a period
of one year and agreed at all times to indemnify Philamgen of any and all
kinds of losses which the latter might sustain by reason of it becoming a Recapitulating the facts of the case, the records show that the petitioner surety company paid
surety, is inconsistent with the theory of an absolute sale for and in P144,000.00 to Singer on the basis of the two surety bonds it had issued in behalf of Pascual
consideration of the same undertaking of Philamgen. There would have
Perez Enterprises. Perez in turn was able to indemnify the petitioner for its payment to Singer in
the amount of P55,600.00 thus leaving a balance of only P88,400.00.

The petitioner surety company was more than adequately protected. Lumber worth
P400,000.00 was assigned to it as collateral. A second real estate mortgage was also given by
Perez although it was later cancelled obviously because the P400,000.00 worth of lumber was
more than enough guaranty for the obligations assumed by the petitioner. As pointed out by
Justice Paras in his separate opinion, the proper procedure was for Citizens' Insurance and
Surety Co., to collect the remaining P88,400.00 from the sales of lumber and to return whatever
remained to Perez. We cannot order the return in this decisions because the Estate of Mrs.
Perez has not asked for any return of excess lumber or its value. There appears to have been
other transactions, surety bonds, and performance bonds between the petitioner and Perez
Enterprises but theseare extraneous matters which, the records show, have absolutely no
bearing on the resolution of the issues in this petition.

With respect to the claim for interests and attomey's fees, we agree with the private respondent
that the petitioner is not entitled to either one. It had the means to recoup its investment and
losses many times over, yet it chose to litigate and delay the final determination of how much
was really owing to it. As stated by Justice Paras in his separate opinion:

Interest will not be given the Surety because it had all the while (or at least,
it may be presumed that such was the case) the P400,000.00 worth of
lumber, from which value the 'refunding' by assignor could have been
deducted if it had so informed the assignor of the plan.

For the same reason as in No. (5), attomey's fees cannot be charged, for
despite the express stipulation on the matter in the contract, there was
actually no failure on the part of the assignor to comply with the obligation
of refinding. The means of compliance was right there with the Surety
itself-. surely it could have earlier conferred with the assignor on how to
effect the 'refunding. (p. 39, Rollo)

WHEREFORE, the petition is hereby DISMISSED. For the reasons above-stated, the claim of
Citizens' Surety and Insurance Co., Inc., against the estate of Nicasia Sarmiento is
DISMISSED. SO ORDERED.
 G.R. No. 182128 February 19, 2014 Transfer Certificate of Title No. -619608- (TCT No. -619608-) is actually surrendered
and released by [the petitioner] to [Dee];
PHILIPPINE NATIONAL BANK, Petitioner,
vs. 4. In the alternative, in case of legal and physical impossibility on the part of [PEPI,
TERESITA TAN DEE, ANTIPOLO PROPERTIES, INC., (now PRIME EAST PROPERTIES, AFP-RSBS, and the petitioner] to comply and perform their respective obligation/s, as
INC.) and AFP-RSBS, INC., Respondents. above-mentioned, respondents PEPI and AFP-RSBS are hereby ordered to jointly
and severally pay to [Dee] the amount of FIVE HUNDRED TWENTY THOUSAND
PESOS ([P]520,000.00) plus twelve percent (12%) interest to be computed from the
DECISION
filing of complaint on April 24, 2002 until fully paid; and

REYES, J.:
5. Ordering [PEPI, AFP-RSBS, and the petitioner] to pay jointly and severally [Dee]
the following sums:
This is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the Decision2 dated
August 13, 2007 and Resolution3 dated March 13, 2008 rendered by the Court of Appeals (CA)
a) The amount of TWENTY FIVE THOUSAND PESOS ([P]25,000.00) as
in CA-G.R. SP No. 86033, which affirmed the Decision4 dated August 4, 2004 of the Office of
attorney’s fees;
the President (OP) in O.P. Case No. 04-D-182 (HLURB Case No. REM-A-030724-0186).

b) The cost of litigation[;] and

Facts of the Case

c) An administrative fine of TEN THOUSAND PESOS ([P]10,000.00)

Some time in July 1994, respondent Teresita Tan Dee (Dee) bought from respondent Prime
payable to this Office fifteen (15) days upon receipt of this decision, for
East Properties Inc.5(PEPI) on an installment basis a residential lot located in Binangonan,
violation of Section 18 in relation to Section 38 of PD 957.
Rizal, with an area of 204 square meters6 and covered by Transfer Certificate of Title (TCT) No.
619608. Subsequently, PEPI assigned its rights over a 213,093-sq m property on August 1996
to respondent Armed Forces of the Philippines-Retirement and Separation Benefits System, SO ORDERED.9
Inc. (AFP-RSBS), which included the property purchased by Dee.
The HLURB decision was affirmed by its Board of Commissioners per Decision dated March
Thereafter, or on September 10, 1996, PEPI obtained a ₱205,000,000.00 loan from petitioner 15, 2004, with modification as to the rate of interest.10
Philippine National Bank (petitioner), secured by a mortgage over several properties, including
Dee’s property. The mortgage was cleared by the Housing and Land Use Regulatory Board
On appeal, the Board of Commissioners’ decision was affirmed by the OP in its Decision dated
(HLURB) on September 18, 1996.7
August 4, 2004, with modification as to the monetary award.11

After Dee’s full payment of the purchase price, a deed of sale was executed by respondents
Hence, the petitioner filed a petition for review with the CA, which, in turn, issued the assailed
PEPI and AFP-RSBS on July 1998 in Dee’s favor. Consequently, Dee sought from the
Decision dated August 13, 2007, affirming the OP decision. The dispositive portion of the
petitioner the delivery of the owner’s duplicate title over the property, to no avail. Thus, she filed
decision reads:
with the HLURB a complaint for specific performance to compel delivery of TCT No. 619608 by
the petitioner, PEPI and AFP-RSBS, among others. In its Decision8 dated May 21, 2003, the
HLURB ruled in favor of Dee and disposed as follows: WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated August 4,
2004 rendered by the Office of the President in O. P. Case No. 04-D-182 (HLURB Case No.
REM-A-030724-0186) is hereby AFFIRMED.
WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Directing [the petitioner] to cancel/release the mortgage on Lot 12, Block 21-A,
Village East Executive Homes covered by Transfer Certificate of Title No. -619608-
(TCT No. -619608-), and accordingly, surrender/release the title thereof to [Dee];
2. Immediately upon receipt by [Dee] of the owner’s duplicate of Transfer Certificate
of Title No. -619608- (TCT No. -619608-), respondents PEPI and AFP-RSBS are
hereby ordered to deliver the title of the subject lot in the name of [Dee] free from all
liens and encumbrances;
SO ORDERED.12
Its motion for reconsideration having been denied by the CA in the Resolution dated March 13,
2008, the petitioner filed the present petition for review on the following grounds:
I. THE HONORABLE COURT OF APPEALS ERRED IN ORDERING OUTRIGHT
RELEASE OF TCT NO. 619608 DESPITE PNB’S DULY REGISTERED AND
HLURB[-] APPROVED MORTGAGE ON TCT NO. 619608.

3. Directing respondents PEPI and AFP-RSBS to pay [the petitioner] the redemption II. THE HONORABLE COURT OF APPEALS ERRED IN ORDERING
value of Lot 12, Block 21-A, Village East Executive Homes covered by Transfer CANCELLATION OF MORTGAGE/RELEASE OF TITLE IN FAVOR OF
Certificate of Title No. -619608- (TCT No. -619608-) as agreed upon by them in their RESPONDENT DEE DESPITE THE LACK OF PAYMENT OR SETTLEMENT BY
Real Estate Mortgage within six (6) months from the time the owner’s duplicate of THE MORTGAGOR (API/PEPI and AFP-RSBS) OF ITS EXISTING LOAN
 OBLIGATION TO PNB, OR THE PRIOR EXERCISE OF RIGHT OF REDEMPTION
BY THE MORTGAGOR AS MANDATED BY SECTION 25 OF PD 957 OR DIRECT
PAYMENT MADE BY RESPONDENT DEE TO PNB PURSUANT TO THE DEED OF
UNDERTAKING WHICH WOULD WARRANT RELEASE OF THE SAME.13
The petitioner claims that it has a valid mortgage over Dee’s property, which was part of the
property mortgaged by PEPI to it to secure its loan obligation, and that Dee and PEPI are
bound by such mortgage. The petitioner also argues that it is not privy to the transactions
between the subdivision project buyers and PEPI, and has no obligation to perform any of their
respective undertakings under their contract.14
The petitioner also maintains that Presidential Decree (P.D.) No. 95715 cannot nullify the
subsisting agreement between it and PEPI, and that the petitioner’s rights over the mortgaged
properties are protected by Act 313516. If at all, the petitioner can be compelled to release or
cancel the mortgage only after the provisions of P.D. No. 957 on redemption of the mortgage
by the owner/developer (Section 25) are complied with. The petitioner also objects to the
denomination by the CA of the provisions in the Affidavit of Undertaking as stipulations pour
autrui,17 arguing that the release of the title was conditioned on Dee’s direct payment to it. 18
Respondent AFP-RSBS, meanwhile, contends that it cannot be compelled to pay or settle the
obligation under the mortgage contract between PEPI and the petitioner as it is merely an
investor in the subdivision project and is not privy to the mortgage. 19
Respondent PEPI, on the other hand, claims that the title over the subject property is one of the
properties due for release by the petitioner as it has already been the subject of a
Memorandum of Agreement and dacion en pago entered into between them. 20 The agreement
was reached after PEPI filed a petition for rehabilitation, and contained the stipulation that the
petitioner agreed to release the mortgage lien on fully paid mortgaged properties upon the
issuance of the certificates of title over the dacioned properties.21
For her part, respondent Dee adopts the arguments of the CA in support of her prayer for the
denial of the petition for review.22
Ruling of the Court
The petition must be DENIED.
The petitioner is correct in arguing that it is not obliged to perform any of the undertaking of
respondent PEPI and AFP-RSBS in its transactions with Dee because it is not a privy thereto.
The basic principle of relativity of contracts is that contracts can only bind the parties who
entered into it,23 and cannot favor or prejudice a third person, even if he is aware of such
contract and has acted with knowledge thereof.24 "Where there is no privity of contract, there is
likewise no obligation or liability to speak about."25
The petitioner, however, is not being tasked to undertake the obligations of PEPI and AFP-
RSBS.1avvphi1 In this case, there are two phases involved in the transactions between
respondents PEPI and Dee – the first phase is the contract to sell, which eventually became
the second phase, the absolute sale, after Dee’s full payment of the purchase price. In a
contract of sale, the parties’ obligations are plain and simple. The law obliges the vendor to
transfer the ownership of and to deliver the thing that is the object of sale. 26 On the other hand,
the principal obligation of a vendee is to pay the full purchase price at the agreed time. 27 Based
on the final contract of sale between them, the obligation of PEPI, as owners and vendors of
Lot 12, Block 21-A, Village East Executive Homes, is to transfer the ownership of and to deliver
Lot 12, Block 21-A to Dee, who, in turn, shall pay, and has in fact paid, the full purchase price
of the property. There is nothing in the decision of the HLURB, as affirmed by the OP and the
CA, which shows that the petitioner is being ordered to assume the obligation of any of the
respondents. There is also nothing in the HLURB decision, which validates the petitioner’s
claim that the mortgage has been nullified. The order of cancellation/release of the mortgage is
simply a consequence of Dee’s full payment of the purchase price, as mandated by Section 25
of P.D. No. 957, to wit:
Sec. 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit to the
buyer upon full payment of the lot or unit. No fee, except those required for the registration of
the deed of sale in the Registry of Deeds, shall be collected for the issuance of such title. In the
event a mortgage over the lot or unit is outstanding at the time of the issuance of the title to the
buyer, the owner or developer shall redeem the mortgage or the corresponding portion thereof
within six months from such issuance in order that the title over any fully paid lot or unit may be
secured and delivered to the buyer in accordance herewith.
It must be stressed that the mortgage contract between PEPI and the petitioner is merely an
accessory contract to the principal three-year loan takeout from the petitioner by PEPI for its
expansion project. It need not be belaboured that "[a] mortgage is an accessory undertaking to
secure the fulfillment of a principal obligation,"28 and it does not affect the ownership of the
property as it is nothing more than a lien thereon serving as security for a debt. 29
Note that at the time PEPI mortgaged the property to the petitioner, the prevailing contract
between respondents PEPI and Dee was still the Contract to Sell, as Dee was yet to fully pay
the purchase price of the property. On this point, PEPI was acting fully well within its right when
it mortgaged the property to the petitioner, for in a contract to sell, ownership is retained by the
seller and is not to pass until full payment of the purchase price.30 In other words, at the time of
the mortgage, PEPI was still the owner of the property. Thus, in China Banking Corporation v.
Spouses Lozada,31 the Court affirmed the right of the owner/developer to mortgage the property
subject of development, to wit: "[P.D.] No. 957 cannot totally prevent the owner or developer
from mortgaging the subdivision lot or condominium unit when the title thereto still resides in the
owner or developer awaiting the full payment of the purchase price by the installment
buyer."32 Moreover, the mortgage bore the clearance of the HLURB, in compliance with Section
18 of P.D. No. 957, which provides that "[n]o mortgage on any unit or lot shall be made by the
owner or developer without prior written approval of the [HLURB]."
Nevertheless, despite the apparent validity of the mortgage between the petitioner and PEPI,
the former is still bound to respect the transactions between respondents PEPI and Dee. The
petitioner was well aware that the properties mortgaged by PEPI were also the subject of
existing contracts to sell with other buyers. While it may be that the petitioner is protected by
Act No. 3135, as amended, it cannot claim any superior right as against the installment buyers.
This is because the contract between the respondents is protected by P.D. No. 957, a social
justice measure enacted primarily to protect innocent lot buyers. 33 Thus, in Luzon Development
Bank v. Enriquez,34the Court reiterated the rule that a bank dealing with a property that is
already subject of a contract to sell and is protected by the provisions of P.D. No. 957, is bound
by the contract to sell.35
However, the transferee BANK is bound by the Contract to Sell and has to respect Enriquez’s
rights thereunder. This is because the Contract to Sell, involving a subdivision lot, is covered
and protected by PD 957.
x x x.
xxxx
x x x Under these circumstances, the BANK knew or should have known of the possibility and or release of the mortgage, for, as stated by the Court in Luzon Development Bank, in
risk that the assigned properties were already covered by existing contracts to sell in favor of accepting the assigned properties as payment of the obligation, "[the bank] has assumed the
subdivision lot buyers. As observed by the Court in another case involving a bank regarding a risk that some of the assigned properties are covered by contracts to sell which must be
subdivision lot that was already subject of a contract to sell with a third party: honored under PD 957."45 Whatever claims the petitioner has against PEPI and AFP-RSBS,
monetary or otherwise, should not prejudice the rights and interests of Dee over the property,
which she has already fully paid for.
"[The Bank] should have considered that it was dealing with a property subject of a real estate
development project. A reasonable person, particularly a financial institution x x x, should have
been aware that, to finance the project, funds other than those obtained from the loan could As between these small lot buyers and the gigantic financial institutions which the developers
have been used to serve the purpose, albeit partially. Hence, there was a need to verify deal with, it is obvious that the law—as an instrument of social justice—must favor the
whether any part of the property was already intended to be the subject of any other contract weak.46 (Emphasis omitted)
involving buyers or potential buyers. In granting the loan, [the Bank] should not have been
content merely with a clean title, considering the presence of circumstances indicating the need
Finally, the Court will not dwell on the arguments of AFP-RSBS given the finding of the OP that
for a thorough investigation of the existence of buyers x x x. Wanting in care and prudence, the
"[b]y its non-payment of the appeal fee, AFP-RSBS is deemed to have abandoned its appeal
[Bank] cannot be deemed to be an innocent mortgagee. x x x"36 (Citation omitted)
and accepts the decision of the HLURB."47 As such, the HLURB decision had long been final
and executory as regards AFP-RSBS and can no longer be altered or modified.48
More so in this case where the contract to sell has already ripened into a contract of absolute
sale.1âwphi1
WHEREFORE, the petition for review is DENIED for lack of merit. Consequently, the Decision
dated August 13, 2007 and Resolution dated March 13, 2008 of the Court of Appeals in CA-
Moreover, PEPI brought to the attention of the Court the subsequent execution of a G.R. SP No. 86033 are AFFIRMED.
Memorandum of Agreement dated November 22, 2006 by PEPI and the petitioner. Said
agreement was executed pursuant to an Order dated February 23, 2004 by the Regional Trial
Petitioner Philippine National Bank and respondents Prime East Properties Inc. and Armed
Court (RTC) of Makati City, Branch 142, in SP No. 02-1219, a petition for Rehabilitation under
Forces of the Philippines-Retirement and Separation Benefits System, Inc. are hereby
the Interim Rules of Procedure on Corporate Rehabilitation filed by PEPI. The RTC order
ENJOINED to strictly comply with the Housing and Land Use Regulatory Board Decision dated
approved PEPI’s modified Rehabilitation Plan, which included the settlement of the latter’s
May 21, 2003, as modified by its Board of Commissioners Decision dated March 15, 2004 and
unpaid obligations to its creditors by way of dacion of real properties. In said order, the RTC
Office of the President Decision dated August 4, 2004.
also incorporated certain measures that were not included in PEPI’s plan, one of which is that
"[t]itles to the lots which have been fully paid shall be released to the purchasers within 90 days
after the dacion to the secured creditors has been completed." 37 Consequently, the agreement SO ORDERED.
stipulated that as partial settlement of PEPI’s obligation with the petitioner, the former
absolutely and irrevocably conveys by way of "dacion en pago" the properties listed
therein,38 which included the lot purchased by Dee. The petitioner also committed to –

[R]elease its mortgage lien on fully paid Mortgaged Properties upon issuance of the certificates
of title over the Dacioned Properties in the name of the [petitioner]. The request for release of a
Mortgaged Property shall be accompanied with: (i) proof of full payment by the buyer, together
with a certificate of full payment issued by the Borrower x x x. The [petitioner] hereby
undertakes to cause the transfer of the certificates of title over the Dacioned Properties and the
release of the Mortgaged Properties with reasonable dispatch. 39

Dacion en pago or dation in payment is the delivery and transmission of ownership of a thing by
the debtor to the creditor as an accepted equivalent of the performance of the obligation. 40 It is
a mode of extinguishing an existing obligation41 and partakes the nature of sale as the creditor
is really buying the thing or property of the debtor, the payment for which is to be charged
against the debtor’s debt.42 Dation in payment extinguishes the obligation to the extent of the
value of the thing delivered, either as agreed upon by the parties or as may be proved, unless
the parties by agreement – express or implied, or by their silence – consider the thing as
equivalent to the obligation, in which case the obligation is totally extinguished. 43

There is nothing on record showing that the Memorandum of Agreement has been nullified or is
the subject of pending litigation; hence, it carries with it the presumption of
validity.44 Consequently, the execution of the dation in payment effectively extinguished
respondent PEPI’s loan obligation to the petitioner insofar as it covers the value of the property
purchased by Dee. This negates the petitioner’s claim that PEPI must first redeem the property
before it can cancel or release the mortgage. As it now stands, the petitioner already stepped
into the shoes of PEPI and there is no more reason for the petitioner to refuse the cancellation
 G.R. No. L-58961 June 28, 1983
SOLEDAD SOCO, petitioner,
vs.
HON. FRANCIS MILITANTE, Incumbent Presiding Judge of the Court of First Instance of
Cebu, Branch XII, Cebu City and REGINO FRANCISCO, JR., respondents.
GUERRERO, J.:
The decision subject of the present petition for review holds the view that there was substantial
compliance with the requisites of consignation and so ruled in favor of private respondent,
Regino Francisco, Jr., lessee of the building owned by petitioner lessor, Soledad Soco in the
case for illegal detainer originally filed in the City Court of Cebu City, declaring the payments of
the rentals valid and effective, dismissed the complaint and ordered the lessor to pay the
lessee moral and exemplary damages in the amount of P10,000.00 and the further sum of
P3,000.00 as attorney's fees.
We do not agree with the questioned decision. We hold that the essential requisites of a valid
consignation must be complied with fully and strictly in accordance with the law, Articles 1256
to 1261, New Civil Code. That these Articles must be accorded a mandatory construction is
clearly evident and plain from the very language of the codal provisions themselves which
require absolute compliance with the essential requisites therein provided. Substantial
compliance is not enough for that would render only a directory construction to the law. The use
of the words "shall" and "must" which are imperative, operating to impose a duty which may be
enforced, positively indicate that all the essential requisites of a valid consignation must be
complied with. The Civil Code Articles expressly and explicitly direct what must be essentially
done in order that consignation shall be valid and effectual. Thus, the law provides:
1257. In order that the consignation of the thing due may release the obligor, it must
first be announcedto the persons interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in consonance with the
provisions which regulate payment.
Art. 1258. Consignation shall be made by depositing the things due at the disposal of
judicial authority, before whom the tender of payment shall be proved, in a proper
case, and the announcement of the consignation in other cases.
The consignation having been made, the interested parties shall also be
notified thereof.
Art. 1249. The payment of debts in money shall be made in the currency stipulated,
and if it is not possible to deliver such currency, then in the currency which is legal
tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in
abeyance.
We have a long line of established precedents and doctrines that sustain the mandatory nature
of the above provisions. The decision appealed from must, therefore, be reversed.
The antecedent facts are substantially recited in the decision under review, as follows:
It appears from the evidence that the plaintiff-appellee-Soco, for short-and the
'defendant-appellant-Francisco, for brevity- entered into a contract of lease on
January 17, 1973, whereby Soco leased her commercial building and lot situated at
Manalili Street, Cebu City, to Francisco for a monthly rental of P 800.00 for a period
of 10 years renewable for another 10 years at the option of the lessee. The terms of
the contract are embodied in the Contract of Lease (Exhibit "A" for Soco and Exhibit
"2" for Francisco). It can readily be discerned from Exhibit "A" that paragraphs 10 and
11 appear to have been cancelled while in Exhibit "2" only paragraph 10 has been
cancelled. Claiming that paragraph 11 of the Contract of Lease was in fact not part of
the contract because it was cancelled, Soco filed Civil Case No. R-16261 in the Court
of First Instance of Cebu seeking the annulment and/or reformation of the Contract of
Lease. ...
Sometime before the filing of Civil Case No. R-16261 Francisco noticed that Soco did
not anymore send her collector for the payment of rentals and at times there were
payments made but no receipts were issued. This situation prompted Francisco to
write Soco the letter dated February 7, 1975 (Exhibit "3") which the latter received as
shown in Exhibit "3-A". After writing this letter, Francisco sent his payment for rentals
by checks issued by the Commercial Bank and Trust Company. Obviously, these
payments in checks were received because Soco admitted that prior to May, 1977,
defendant had been religiously paying the rental. ....
1. The factual background setting of this case clearly indicates that soon after Soco
learned that Francisco sub-leased a portion of the building to NACIDA, at a monthly
rental of more than P3,000.00 which is definitely very much higher than what
Francisco was paying to Soco under the Contract of Lease, the latter felt that she
was on the losing end of the lease agreement so she tried to look for ways and
means to terminate the contract. ...
In view of this alleged non-payment of rental of the leased premises beginning May,
1977, Soco through her lawyer sent a letter dated November 23, 1978 (Exhibit "B") to
Francisco serving notice to the latter 'to vacate the premises leased.' In answer to
this letter, Francisco through his lawyer informed Soco and her lawyer that all
payments of rental due her were in fact paid by Commercial Bank and Trust
Company through the Clerk of Court of the City Court of Cebu (Exhibit " 1 "). Despite
this explanation, Soco filed this instant case of Illegal Detainer on January 8, 1979. ...
2. Pursuant to his letter dated February 7, 1975(Exhibit"3") and for reasons stated
therein, Francisco paid his monthly rentals to Soco by issuing checks of the
Commercial Bank and Trust Company where he had a checking account. On May
13, 1975, Francisco wrote the Vice-President of Comtrust, Cebu Branch (Exhibit "4")
requesting the latter to issue checks to Soco in the amount of P 840.00 every 10th of
the month, obviously for payment of his monthly rentals. This request of Francisco
was complied with by Comtrust in its letter dated June 4, 1975 (Exhibit "5").
Obviously, these payments by checks through Comtrust were received by Soco from
June, 1975 to April, 1977 because Soco admitted that an rentals due her were paid
except the rentals beginning May, 1977. While Soco alleged in her direct examination
that 'since May, 1977 he (meaning Francisco) stopped paying the monthly rentals'
(TSN, Palicte, p. 6, Hearing of October 24, 1979), yet on cross examination she
admitted that before the filing of her complaint in the instant case, she knew that
payments for monthly rentals were deposited with the Clerk of Court except rentals
for the months of May, June, July and August, 1977. ...
Pressing her point, Soco alleged that 'we personally demanded from Engr. Francisco
for the months of May, June, July and August, but Engr. Francisco did not pay for the
reason that he had no funds available at that time.' (TSN-Palicte, p. 28, Hearing
October 24, 1979). This allegation of Soco is denied by Francisco because per his
instructions, the Commercial Bank and Trust Company, Cebu Branch, in fact, issued
checks in favor of Soco representing payments for monthly rentals for the months of
May, June, July and August, 1977 as shown in Debit Memorandum issued by
Comtrust as follows:
(a) Exhibit "6"-Debit Memo dated May 11, 1977 for P926.10 as payment for May,
1977;
(b) Exhibit"7"-Debit Memo dated June l5, 197 7for P926.10 as payment for June,
1977;
(c) Exhibit "8"-Debit Memo dated July 11, 1977 for P1926.10 as payment for July,
1977;
(d) Exhibit "9"-Debit Memo dated August 10, 1977 for P926. 10 as payment for
August, 1977.
These payments are further bolstered by the certification issued by Comtrust dated
October 29, 1979 (Exhibit "13"). Indeed the Court is convinced that payments for
rentals for the months of May, June, July and August, 1977 were made by Francisco
to Soco thru Comtrust and deposited with the Clerk of Court of the City Court of
Cebu. There is no need to determine whether payments by consignation were made
from September, 1977 up to the filing of the complaint in January, 1979 because as
earlier stated Soco admitted that the rentals for these months were deposited with
the Clerk of Court. ...
Taking into account the factual background setting of this case, the Court holds that
there was in fact a tender of payment of the rentals made by Francisco to Soco
through Comtrust and since these payments were not accepted by Soco evidently
because of her intention to evict Francisco, by all means, culminating in the filing of
Civil Case R-16261, Francisco was impelled to deposit the rentals with the Clerk of
Court of the City Court of Cebu. Soco was notified of this deposit by virtue of the
letter of Atty. Pampio Abarientos dated June 9, 1977 (Exhibit "10") and the letter of
Atty. Pampio Abarientos dated July 6. 1977 (Exhibit " 12") as well as in the answer of
Francisco in Civil Case R-16261 (Exhibit "14") particularly paragraph 7 of the Special
and Affirmative Defenses. She was further notified of these payments by
consignation in the letter of Atty. Menchavez dated November 28, 1978 (Exhibit " 1 ").
There was therefore substantial compliance of the requisites of consignation, hence
his payments were valid and effective. Consequently, Francisco cannot be ejected
from the leased premises for non-payment of rentals. ...
As indicated earlier, the above decision of the Court of First Instance reversed the
judgment of the City Court of Cebu, Branch 11, the dispositive portion of the latter
reading as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering the
defendant, Regino Francisco, Jr.:
(1) To vacate immediately the premises in question, consisting of a building located
at Manalili St., Cebu City;
(2) To pay to the plaintiff the sum of P40,490.46 for the rentals, covering the period
from May, 1977 to August, 1980, and starting with the month of September, 1980, to
pay to the plaintiff for one (1) year a monthly rental of P l,072.076 and an additional
amount of 5 per cent of said amount, and for so much amount every month thereafter
equivalent to the rental of the month of every preceding year plus 5 percent of same
monthly rental until the defendant shall finally vacate said premises and possession
thereof wholly restored to the plaintiff-all plus legal interest from date of filing of the
complaint;
(3) To pay to the plaintiff the sum of P9,000.00 for attorney's fee;
(4) To pay to the plaintiff the sum of P5,000.00 for damages and incidental litigation
expenses; and
(5) To pay the Costs.
SOORDERED.
Cebu City, Philippines, November 21, 1980.
(SGD.) PATERNO D. MONTESCLAROS
Acting Presiding Judge
According to the findings of fact made by the City Court, the defendant Francisco had
religiously paid to the plaintiff Soco the corresponding rentals according to the terms of the
Least Contract while enjoying the leased premises until one day the plaintiff had to demand
upon the defendant for the payment of the rentals for the month of May, 1977 and of the
succeeding months. The plaintiff also demanded upon the defendant to vacate the premises
and from that time he failed or refused to vacate his possession thereof; that beginning with the
month of May, 1977 until at present, the defendant has not made valid payments of rentals to
the plaintiff who, as a consequence, has not received any rental payment from the defendant or
anybody else; that for the months of May to August, 1977, evidence shows that the plaintiff
through her daughter, Teolita Soco and salesgirl, Vilma Arong, went to the office or residence
of defendant at Sanciangko St., Cebu City, on various occasions to effect payment of rentals
but were unable to collect on account of the defendant's refusal to pay; that defendant
contended that payments of rental thru checks for said four months were made to the plaintiff
but the latter refused to accept them; that in 1975, defendant authorized the Commercial Bank
and Trust Company to issue checks to the plaintiff chargeable against his bank account, for the
payment of said rentals, and the delivery of said checks was coursed by the bank thru the
messengerial services of the FAR Corporation, but the plaintiff refused to accept them and
because of such refusal, defendant instructed said bank to make consignation with the Clerk of
Court of the City Court of Cebu as regard said rentals for May to August, 1977 and for
subsequent months.
The City Court further found that there is no showing that the letter allegedly delivered to the
plaintiff in May, 1977 by Filomeno Soon, messenger of the FAR Corporation contained cash
money, check, money order, or any other form of note of value, hence there could never be any
tender of payment, and even granting that there was, but plaintiff refused to accept it without
any reason, still no consignation for May, 1977 rental could be considered in favor of the
defendant unless evidence is presented to establish that he actually made rental deposit with
the court in cash money and prior and subsequent to such deposit, he notified the plaintiff
thereof.
Notwithstanding the contradictory findings of fact and the resulting opposite conclusions of law
by the City Court and the Court of First Instance, both are agreed, however, that the case
presents the issue of whether the lessee failed to pay the monthly rentals beginning May, 1977
up to the time the complaint for eviction was filed on January 8, 1979. This issue in turn
revolves on whether the consignation of the rentals was valid or not to discharge effectively the
lessee's obligation to pay the same. The City Court ruled that the consignation was not valid.
The Court of First Instance, on the other hand, held that there was substantial compliance with
the requisites of the law on consignation.
Let us examine the law and consider Our jurisprudence on the matter, aside from the codal
provisions already cited herein.
According to Article 1256, New Civil Code, if the creditor to whom tender of payment has been
made refuses without just cause to accept it, the debtor shall be released from responsibility by
the consignation of the thing or sum due. Consignation alone shall produce the same effect in
the following cases: (1) When the creditor is absent or unknown, or does not appear at the
place of payment; (2) When he is incapacitated to receive the payment at the time it is due; (3)
When, without just cause, he refuses to give a receipt; (4) When two or more persons claim the
same right to collect; (5) When the title of the obligation has been lost.
Consignation is the act of depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses to accept payment and it generally requires a
prior tender of payment. (Limkako vs. Teodoro, 74 Phil. 313).
In order that consignation may be effective, the debtor must first comply with certain
requirements prescribed by law. The debtor must show (1) that there was a debt due; (2) that
the consignation of the obligation had been made because the creditor to whom tender of
payment was made refused to accept it, or because he was absent or incapacitated, or
because several persons claimed to be entitled to receive the amount due (Art. 1176, Civil
Code); (3) that previous notice of the consignation had been given to the person interested in
the performance of the obligation (Art. 1177, Civil Code); (4) that the amount due was placed at
the disposal of the court (Art. 1178, Civil Code); and (5) that after the consignation had been
made the person interested was notified thereof (Art. 1178, Civil Code). Failure in any of these
requirements is enough ground to render a consignation ineffective. (Jose Ponce de Leon vs.
Santiago Syjuco, Inc., 90 Phil. 311).
Without the notice first announced to the persons interested in the fulfillment of the obligation,
the consignation as a payment is void. (Limkako vs. Teodoro, 74 Phil. 313),
In order to be valid, the tender of payment must be made in lawful currency. While payment in
check by the debtor may be acceptable as valid, if no prompt objection to said payment is
made (Desbarats vs. Vda. de Mortera, L-4915, May 25, 1956) the fact that in previous years
payment in check was accepted does not place its creditor in estoppel from requiring the debtor
to pay his obligation in cash (Sy vs. Eufemio, L-10572, Sept. 30, 1958). Thus, the tender of a
check to pay for an obligation is not a valid tender of payment thereof (Desbarats vs. Vda. de
Mortera, supra). See Annotation, The Mechanics of Consignation by Atty. S. Tabios, 104 SCRA
174-179.
Tender of payment must be distinguished from consignation. Tender is the antecedent of
consignation, that is, an act preparatory to the consignation, which is the principal, and from
which are derived the immediate consequences which the debtor desires or seeks to obtain.
Tender of payment may be extrajudicial, while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement before proceeding to the
solemnities of consignation. (8 Manresa 325).
Reviewing carefully the evidence presented by respondent lessee at the trial of the case to
prove his compliance with all the requirements of a valid tender of payment and consignation
and from which the respondent Judge based his conclusion that there was substantial
compliance with the law on consignation, We note from the assailed decision hereinbefore
quoted that these evidences are: Exhibit 10, the letter of Atty. Pampio Abarintos dated June 9,
1977: Exhibit 12, letter of Atty. Pampio Abarintos dated July 6, 1977; Exhibit 14, the Answer of
respondent Francisco in Civil Case R- 16261, particularly paragraph 7 of the Special and
Affirmative Defenses; and Exhibit 1, letter of Atty. Eric Menchavez dated November 28, 1978.
All these evidences, according to respondent Judge, proved that petitioner lessor was notified
of the deposit of the monthly rentals.
We have analyzed and scrutinized closely the above exhibits and We find that the respondent
Judge's conclusion is manifestly wrong and based on misapprehension of facts. Thus-
(1) Exhibit 10 reads: (see p. 17, Records)
June 9, 1977
Miss Soledad Soco
Soledad Soco Retazo
P. Gullas St., Cebu City
Dear Miss Soco:
This is in connection with the payment of rental of my client, Engr. Regino Francisco,
Jr., of your building situated at Manalili St., Cebu City.
It appears that twice you refused acceptance of the said payment made by my client.
It appears further that my client had called your office several times and left a
message for you to get this payment of rental but until the present you have not sent
somebody to get it.
In this connection, therefore, in behalf of my client, you are hereby requested to
please get and claim the rental payment aforestated from the Office of my client at
Tagalog Hotel and Restaurant, Sanciangko St., Cebu City. within three (3) days from
receipt hereof otherwise we would be constrained to make a consignation of the
same with the Court in accordance with law.
Hoping for your cooperation on this matter, we remain.
Very truly yours,
(SGD.) PAMPIO A. ABARINTOS
Counsel for Engr. REGINO FRANCISCO, Jr.
We may agree that the above exhibit proves tender of payment of the particular monthly rental
referred to (the letter does not, however, indicate for what month and also the intention to
deposit the rental with the court, which is the first notice. But certainly, it is no proof of tender of
payment of other or subsequent monthly rentals. Neither is it proof that notice of the actual
deposit or consignation was given to the lessor, which is the second notice required by law.
(2) Exhibit 12 (see p. 237, Records) states:July 6, 1977
Miss Soledad Soco
Soledad Soco Reta
P. Gullas St., Cebu City
Dear Miss Soco:
This is to advise and inform you that my client, Engr. Regino Francisco, Jr., has
consigned to you, through the Clerk of Court, City Court of Cebu, Cebu City, the total
amount of Pl,852.20, as evidenced by cashier's checks No. 478439 and 47907
issued by the Commercial Bank and Trust Company (CBTC) Cebu City Branch,
dated May 11, 1977 and June 15, 1977 respectively and payable to your order, under
Official Receipt No. 0436936 dated July 6,1977.
This amount represents payment of the rental of your building situated at Manalili St.,
Cebu City which my client, Engr. Regino Francisco, Jr., is renting. You can withdraw
the said amount from the Clerk of Court, City Court of Cebu, Cebu City at any time.
Please be further notified that all subsequent monthly rentals will be deposited to the
Clerk of Court, City Court of Cebu, Cebu City.
Very truly yours,
(SGD.) PAMPIO A. ABARINTOS
Counsel for ENGR. REGINO FRANCISCO, JR.
The above evidence is, of course, proof of notice to the lessor of the deposit or consignation of
only the two payments by cashier's checks indicated therein. But surely, it does not prove any
other deposit nor the notice thereof to the lessor. It is not even proof of the tender of payment
that would have preceded the consignation.
(3) Exhibit 14, paragraph 7 of the Answer (see p. 246, Records) alleges:
7. That ever since, defendant had been religiously paying his rentals
without any delay which, however, the plaintiff had in so many occasions
refused to accept obviously in the hope that she may declare non-payment
of rentals and claim it as a ground for the cancellation of the contract of
lease. This, after seeing the improvements in the area which were effected,
at no small expense by the defendant. To preserve defendant's rights and
to show good faith in up to date payment of rentals, defendant had
authorized his bank to issue regularly cashier's check in favor of the
plaintiff as payment of rentals which the plaintiff had been accepting during
the past years and even for the months of January up to May of this year,
1977 way past plaintiff's claim of lease expiration. For the months of June
and July, however, plaintiff again started refusing to accept the payments
in going back to her previous strategy which forced the defendant to
consign his monthly rental with the City Clerk of Court and which is now the
present state of affairs in so far as payment of rentals is concerned. These
events only goes to show that the wily plaintiff had thought of this
mischievous scheme only very recently and filed herein malicious and
unfounded complaint.
The above exhibit which is lifted from Civil Case No. R-16261 between the parties for
annulment of the lease contract, is self-serving. The statements therein are mere allegations of
conclusions which are not evidentiary.
(4) Exhibit 1 (see p. 15, Records) is quoted thus:
November 28, 1978
Atty. Luis V. Diores
Suite 504, SSS Bldg.
Jones Avenue, Cebu City
Dear Compañero:
Your letter dated November 23, 1978 which was addressed to my client, Engr.
Regino Francisco, Jr. has been referred to me for reply.
It is not true that my client has not paid the rentals as claimed in your letter. As a
matter of fact, he has been religiously paying the rentals in advance. Payment was
made by Commercial Bank and Trust Company to the Clerk of Court, Cebu City.
Attached herewith is the receipt of payment made by him for the month of November,
1978 which is dated November 16, 1978.
You can check this up with the City Clerk of Court for satisfaction.
Regards.
(SGD.) ERIC MENCHAVEZ Counsel for Regino Francisco, Jr.
377-B Junquera St., Cebu City
(new address)
Again, Exhibit 1 merely proves rental deposit for the particular month of November, 1978 and
no other. It is no proof of tender of payment to the lessor, not even proof of notice to consign.
We hold that the best evidence of the rental deposits with the Clerk of Court are the official
receipts issued by the Clerk of Court. These the respondent lessee utterly failed to present and
produce during the trial of the case. As pointed out in petitioner's Memorandum, no single
official receipt was presented in the trial court as nowhere in the formal offer of exhibits for
lessee Francisco can a single official receipt of any deposit made be found (pp. 8-9,
Memorandum for Petitioner; pp. 163-164, Records).
Summing up Our review of the above four (4) exhibits, We hold that the respondent lessee has
utterly failed to prove the following requisites of a valid consignation: First, tender of payment of
the monthly rentals to the lessor except that indicated in the June 9, l977 Letter, Exhibit 10. In
the original records of the case, We note that the certification, Exhibit 11 of Filemon Soon,
messenger of the FAR Corporation, certifying that the letter of Soledad Soco sent last May 10
by Commercial Bank and Trust Co. was marked RTS (return to sender) for the reason that the Q September 1977 up to the present time, you delivered the cashier's check to the
addressee refused to receive it, was rejected by the court for being immaterial, irrelevant and City Clerk of Court?
impertinent per its Order dated November 20, 1980. (See p. 117, CFI Records).
A Yes.
Second, respondent lessee also failed to prove the first notice to the lessor prior to
consignation, except the payment referred to in Exhibit 10.
Q You were issued the receipts of those checks?

In this connection, the purpose of the notice is in order to give the creditor an opportunity to
A Well, we have an acknowledgment letter to be signed by the one who received the
reconsider his unjustified refusal and to accept payment thereby avoiding consignation and the
check.
subsequent litigation. This previous notice is essential to the validity of the consignation and its
lack invalidates the same. (Cabanos vs. Calo, 104 Phil. 1058; Limkako vs. Teodoro, 74 Phil.
313). Q You mean you were issued, or you were not issued any official receipt? My
question is whether you were issued any official receipt? So, were you issued, or you
were not issued?
There is no factual basis for the lower court's finding that the lessee had tendered payment of
the monthly rentals, thru his bank, citing the lessee's letter (Exh. 4) requesting the bank to issue
checks in favor of Soco in the amount of P840.00 every 10th of each month and to deduct the A We were not issued.
full amount and service fee from his current account, as well as Exhibit 5, letter of the Vice
President agreeing with the request. But scrutinizing carefully Exhibit 4, this is what the lessee
also wrote: "Please immediately notify us everytime you have the check ready so we may send Q On September, 1977, after you deposited the manager's check for that month with
the Clerk of Court, did you serve notice upon Soledad Soco that the deposit was
somebody over to get it. " And this is exactly what the bank agreed: "Please be advised that we
are in conformity to the above arrangement with the understanding that you shall send made on such amount for the month of September, 1977 and now to the Clerk of
somebody over to pick up the cashier's check from us." (Exhibit 4, see p. 230, Original Court? Did you or did you not?
Records; Exhibit 5, p. 231, Original Records)
A Well, we only act on something upon the request of our client.
Evidently, from this arrangement, it was the lessee's duty to send someone to get the cashier's
check from the bank and logically, the lessee has the obligation to make and tender the check Q Please answer my question. I know that you are acting upon instruction of your
to the lessor. This the lessee failed to do, which is fatal to his defense. client. My question was-after you made the deposit of the manager's check whether
or not you notified Soledad Soco that such manager's check was deposited in the
Clerk of Court from the month of September, 1977?
Third, respondent lessee likewise failed to prove the second notice, that is after consignation
has been made, to the lessor except the consignation referred to in Exhibit 12 which are the
cashier's check Nos. 478439 and 47907 CBTC dated May 11, 1977 and June 15, 1977 under A We are not bound to.
Official Receipt No. 04369 dated July 6, 1977.
Q I am not asking whether you are bound to or not. I'masking whether you did or you
Respondent lessee, attempting to prove compliance with the requisites of valid consignation, did not?
presented the representative of the Commercial Bank and Trust Co., Edgar Ocañada, Bank
Comptroller, who unfortunately belied respondent's claim. We quote below excerpts from his
testimony, as follows: A I did not.

ATTY. LUIS DIORES: Q Alright, for October, 1977, after having made a deposit for that particular month,
did you notify Miss Soledad Soco that the deposit was in the Clerk of Court?

Q What month did you say you made ,you started making the deposit? When you
first deposited the check to the Clerk of Court? A No, we did not.

A The payment of cashier's check in favor of Miss Soledad Soco was coursed thru Q Now, on November, 1977, did you notify Soledad Soco that you deposited the
the City Clerk of Court from the letter of request by our client Regino Francisco, Jr., manager's check to the City Clerk of Court for that month?
dated September 8, 1977. From that time on, based on his request, we delivered the
check direct to the City Clerk of Court. A I did not.

Q What date, what month was that, you first delivered the check to the Clerk of Q You did not also notify Soledad Soco for the month December, 1977, so also from
Court.? January, February, March, April, May, June, July until December, 1978, you did not
also notify Miss Soledad Soco all the deposits of the manager's check which you said
A We started September 12, 1977. you deposited with the Clerk of Court in every end of the month? So also from each
 and every month from January 1979 up to December 1979, you did not also serve
notice upon Soledad Socco of the deposit in the Clerk of Court, is that correct?
A Yes.
Q So also in January 1980 up to this month 1980, you did not instructed by your
client Mr. and Mrs. Regino Francisco, jr. to make also serve notice upon Soledad
Soco of the Manager's check which you said you deposited to the Clerk of Court?
A I did not.
Q Now, you did not make such notices because you were not such notices after the
deposits you made, is that correct?
A Yes, sir.
Q Now, from 1977, September up to the present time, before the deposit was made
with the Clerk of Court, did you serve notice to Soledad Soco that a deposit was
going to be made in each and every month?
A Not.
Q In other words, from September 1977 up to the present time, you did not notify
Soledad Soco that you were going to make the deposit with the Clerk of Court, and
you did not also notify Soledad Soco after the deposit was made, that a deposit has
been made in each and every month during that period, is that correct?
A Yes
Q And the reason was because you were not instructed by Mr. and Mrs. Regino
Francisco, Jr. that such notification should be made before the deposit and after the
deposit was made, is that correct?
A No, I did not. (Testimony of Ocanada pp. 32-41, Hearing on June 3, 1980).
Recapitulating the above testimony of the Bank Comptroller, it is clear that the bank did not
send notice to Soco that the checks will be deposited in consignation with the Clerk of Court
(the first notice) and also, the bank did not send notice to Soco that the checks were in fact
deposited (the second notice) because no instructions were given by its depositor, the lessee,
to this effect, and this lack of notices started from September, 1977 to the time of the trial, that
is June 3, 1980.
The reason for the notification to the persons interested in the fulfillment of the obligation after
consignation had been made, which is separate and distinct from the notification which is made
prior to the consignation, is stated in Cabanos vs. Calo, G.R. No. L-10927, October 30, 1958,
104 Phil. 1058. thus: "There should be notice to the creditor prior and after consignation as
required by the Civil Code. The reason for this is obvious, namely, to enable the creditor to
withdraw the goods or money deposited. Indeed, it would be unjust to make him suffer the risk
for any deterioration, depreciation or loss of such goods or money by reason of lack of
knowledge of the consignation."
And the fourth requisite that respondent lessee failed to prove is the actual deposit or
consignation of the monthly rentals except the two cashier's checks referred to in Exhibit 12. As
indicated earlier, not a single copy of the official receipts issued by the Clerk of Court was
presented at the trial of the case to prove the actual deposit or consignation. We find, however,
reference to some 45 copies of official receipts issued by the Clerk of Court marked Annexes
"B-1 " to "B-40" to the Motion for Reconsideration of the Order granting execution pending
appeal filed by defendant Francisco in the City Court of Cebu (pp, 150-194, CFI Original
Records) as well as in the Motion for Reconsideration of the CFI decision, filed by plaintiff
lessor (pp. 39-50, Records, marked Annex "E ") the allegation that "there was no receipt at all
showing that defendant Francisco has deposited with the Clerk of Court the monthly rentals
corresponding to the months of May and June, 1977. And for the months of July and August,
1977, the rentals were only deposited with the Clerk of Court on 20 November 1979 (or more
than two years later)."... The deposits of these monthly rentals for July and August, 1977 on 20
November 1979, is very significant because on 24 October 1979, plaintiff Soco had testified
before the trial court that defendant had not paid the monthly rentals for these months. Thus,
defendant had to make a hurried deposit on the following month to repair his failure. " (pp. 43-
44, Records).
We have verified the truth of the above claim or allegation and We find that indeed, under
Official Receipt No. 1697161Z, the rental deposit for August, 1977 in cashier's check No.
502782 dated 8-10-77 was deposited on November 20, 1979 (Annex "B-15", p. 169, Original
CFI Records) and under Official Receipt No. 1697159Z, the rental deposit for July under Check
No. 479647 was deposited on November 20, 1979 (Annex "B-16", p. 170, Original CFI
Records). Indeed, these two rental deposits were made on November 20, 1979, two years late
and after the filing of the complaint for illegal detainer.
The decision under review cites Exhibits 6, 7, 8 and 9, the Debit Memorandum issued by
Comtrust Bank deducting the amounts of the checks therein indicated from the account of the
lessee, to prove payment of the monthly rentals. But these Debit Memorandums are merely
internal banking practices or office procedures involving the bank and its depositor which is not
binding upon a third person such as the lessor. What is important is whether the checks were
picked up by the lessee as per the arrangement indicated in Exhibits 4 and 5 wherein the
lessee had to pick up the checks issued by CBTC or to send somebody to pick them up, and
logically, for the lessee to tender the same to the lessor. On this vital point, the lessee
miserably failed to present any proof that he complied with the arrangement.
We, therefore, find and rule that the lessee has failed to prove tender of payment except that in
Exh. 10; he has failed to prove the first notice to the lessor prior to consignation except that
given in Exh. 10; he has failed to prove the second notice after consignation except the two
made in Exh. 12; and he has failed to pay the rentals for the months of July and August, 1977
as of the time the complaint was filed for the eviction of the lessee. We hold that the evidence is
clear, competent and convincing showing that the lessee has violated the terms of the lease
contract and he may, therefore, be judicially ejected.
The other matters raised in the appeal are of no moment. The motion to dismiss filed by
respondent on the ground of "want of specific assignment of errors in the appellant's brief, or of
page references to the records as required in Section 16(d) of Rule 46," is without merit. The
petition itself has attached the decision sought to be reviewed. Both Petition and Memorandum
of the petitioner contain the summary statement of facts; they discuss the essential requisites of
a valid consignation; the erroneous conclusion of the respondent Judge in reversing the
decision of the City Court, his grave abuse of discretion which, the petitioner argues, "has so far
departed from the accepted and usual course of judicial proceeding in the matter of applying
the law and jurisprudence on the matter." The Memorandum further cites other basis for
petitioner's plea.
In Our mind, the errors in the appealed decision are sufficiently stated and assigned. Moreover,
under Our rulings, We have stated that:

This Court is clothed with ample authority to review matters, even if they
are not assigned as errors in the appeal, if it finds that their consideration is
necessary in arriving at a just decision of the case. Also, an unassigned
error closely related to an error properly assigned or upon which the
determination of the questioned raised by the error properly assigned is
dependent, will be considered by the appellate court notwithstanding the
failure to assign it as an error." (Ortigas, Jr. vs. Lufthansa German Airlines,
L-28773, June 30, 1975, 64 SCRA 610)

Under Section 5 of Rule 53, the appellate court is authorized to consider a

plain error, although it was not specifically assigned by appellants." (Dilag
vs. Heirs of Resurreccion, 76 Phil. 649)

Appellants need not make specific assignment of errors provided they

discuss at length and assail in their brief the correctness of the trial court's
findings regarding the matter. Said discussion warrants the appellate court
to rule upon the point because it substantially complies with Section 7,
Rule 51 of the Revised Rules of Court, intended merely to compel the
appellant to specify the questions which he wants to raise and be disposed
of in his appeal. A clear discussion regarding an error allegedly committed
by the trial court accomplishes the purpose of a particular assignment of
error." (Cabrera vs. Belen, 95 Phil. 54; Miguel vs Court of Appeals, L-
20274, Oct. 30, 1969, 29 SCRA 760-773, cited in Moran, Comments on the
Rules of Court, Vol. 11, 1970 ed., p. 534).

Pleadings as well as remedial laws should be construed liberally in order

that the litigants may have ample opportunity to prove their respective
claims, and that a possible denial of substantial justice, due to legal
technicalities, may be avoided." (Concepcion, et al. vs. The Payatas Estate
Improvement Co., Inc., 103 Phil. 10 17).

WHEREFORE, IN VIEW OF ALL THE FOREGOING, the decision of the Court of First Instance
of Cebu, 14th Judicial District, Branch XII is hereby REVERSED and SET ASIDE, and the
derision of the City Court of Cebu, Branch II is hereby reinstated, with costs in favor of the
petitioner.

SO ORDERED.
 G.R. No. L-42230 November 26, 1986 Sheriff to execute the deed of conveyance prayed for by Juanito Victoria, by reason of which,
without the knowledge and consent of petitioner, a new Transfer Certificate of Title No. 453711
was issued in favor of Juanito Victoria; that the said TCT No. 453711 is null and void having
LAURO IMMACULATA, represented by his wife AMPARO VELASCO as Guardian Ad
been based on void proceedings; that, in the alternative, petitioner prays that he be allowed to
Litem, petitioner,
repurchase the property within five (5) years from the time judgment is rendered by the
vs.
respondent court upholding the validity of the proceedings and the sale since the land in
HON. PEDRO C. NAVARRO, in his capacity as Presiding Judge of the Court of First
question was originally covered by a Free Patent title; and finally, petitioner prays for actual and
Instance of Rizal, Branch No. II, and HEIRS OF JUANITO VICTORIA, namely: LOLITA,
moral damages as well as exemplary damages, attorney's fees, expenses of litigation and
TOMAS, BENJAMIN, VIRGINIA, BRENDA AND ELVIE, all surnamed RIA, and JUANITA
costs of suit (Rollo, pp. 18-30).
NAVAL, surviving widow; and the PROVINCIAL SHERIFF OF RIZAL, respondents.

On May 28, 1975, private respondents, thru counsel, filed a motion to dismiss the complaint
PARAS, J.:
based on three grounds: (a) that respondent Court had no jurisdiction over the case; (b) that
plaintiff's cause of action, if any, was barred by res judicata; and (c) that the complaint stated no
This is a petition for review on certiorari of the: (1) July 21, 1975 Order of the Court of First cause of action (Rollo, pp. 41-44).
Instance (now Regional Trial Court) of Rizal, Branch II, in Civil Case No. 20968,
entitled "LAURO IMMACULATA, etc. vs. Heirs of JUANITO VICTORIA, et al." dismissing the
On July 21, 1975, respondent Court dismissed the complaint on the ground of res judicata, as
complaint seeking the annulment of a judgment rendered by Hon. Gregorio Pineda of the Court
follows:
of First Instance of Rizal, Branch XXI, as well as the deed of sale with reconveyance of real
property allegedly executed by plaintiff Lauro Immaculata in favor of Juanito Victoria; and (2)
the Order dated December 5, 1975 denying the motion for reconsideration of the decision of Based on the grounds alleged in the motion to dismiss copy of which
July 21, 1975. appears to have been served upon Atty. Pedro Belmi for the plaintiffs and
who filed no opposition thereto, and it further appearing that the issues
raised in the complaint have already been the subject-matter of the
The records disclose that on March 24, 1975, petitioner Lauro Immaculate, represented by his
decision rendered by a court of competent jurisdiction in Civil Case No.
wife Amparo Velasco as guardian ad litem filed in the Court of First Instance of Rizal, Branch II,
13734 before Branch XXI of this Court, as prayed by the defendants this
a complaint, for annulment of judgment and deed of sale with reconveyance of real property,
case is hereby ordered dismissed for being res judicata.
against private respondents herein and respondent sheriff, docketed as Civil Case No. 20968,
entitled "LAURO IMMACULATA, etc. vs. Heirs of JUANITO VICTORIA, et al. "
With costs against the plaintiffs.
The complaint alleged that on or about December, 1969 or sometime prior thereto, Juanito
Victoria with the cooperation of defendant Juanita Naval, one of the private respondents herein, SO ORDERED. (Rollo, p. 47.)
and others succeeded in causing plaintiff Lauro Immaculata, petitioner herein, to execute a
Deed of Absolute Sale in favor of Juanito Victoria, by unduly taking advantage of the mental
On September 8, 1975, petitioner moved for the reconsideration of the aforesaid order on the
illness and/or weakness of petitioner and thru deceit and fraudulent means, purportedly
ground that res judicata is not applicable when the main cause of action is to annul the very
disposed of by way of absolute sale, a 5,000-square meter parcel of land covered by Transfer
judgment (Rollo, pp. 48-51), to which motion, private respondents filed their opposition dated
Certificate of Title No. 76069, for the sum of P 58,000.00, which petitioner supposedly received,
October 21, 1975 (Rollo, pp. 52-53).
but in truth and in fact did not; that although it was made to appear that petitioner voluntarily
and freely appeared before the Notary Public on January 13, 1970, petitioner, then already
suffering from chronic mental illness, could not possibly appear before the said Notary Public; On December 5, 1975, the respondent trial court issued an order denying the motion for
and that said Deed of Sale was not freely and voluntarily executed by petitioner, and the same reconsideration of the July 21, 1975 decision (Rollo, pp. 55-56).
was absolutely fictitious and simulated, and, consequently, null and void; that based on said
fictitious and simulated sale, an action for specific performance was filed by Juanito Victoria,
during his lifetime, against petitioner herein before the respondent Court on August 6, 1970 Hence, this petition for review on certiorari, filed on January 2, 1976 (Rollo, pp. 1-1 7).
docketed as Civil Case No. 13734, entitled "Juanito Victoria vs. Lauro Immaculata," for the
purpose of compelling petitioner to execute a document registerable with the Register of Deeds In a resolution dated January 15, 1976, the Supreme Court, First Division, denied the petition
of Rizal in order that Juanito Victoria may be able to obtain title over the property; that no for having been filed late and for late payment of the legal fees on January 2, 1976 due date
proper and valid service of summons was ever made upon the petitioner, and thus, being December 18, 1975 (Rollo, p. 59), but on motion for reconsideration of petitioner on
notwithstanding, the latter was declared in default and judgment by default was rendered February 5, 1976, (Rollo, pp. 67-71) the Supreme Court reconsidered the resolution of January
against him; that said judgment by default was null and void, having been rendered against a 15, 1976, in the resolution of February 11, 1976, and required the respondents to comment
person who is/was admittedly insane and over whose person, the respondent court did not thereon (Rollo, p. 73).
validly acquire jurisdiction; that the judgment by default was not properly served upon the
petitioner and/or the supposed guardian ad litem, and this, notwithstanding, Juanito Victoria,
thru counsel, succeeded in securing the issuance of a writ of execution to enforce the judgment Private respondents filed their comment on the petition on May 28, 1976 (Rollo, pp. 91-96) and
by default rendered by the respondent Court against the petitioner; that Juanito Victoria, in a resolution dated June 9, 1976, the Supreme Court resolved to give due course to the
alleging that the herein petitioner failed to comply with the alleged writ of execution, prayed petition (Rollo, p. 116).
before the respondent Court that the respondent Sheriff be directed to execute the necessary
deed of conveyance in favor of Juanito Victoria covering the property subject matter of the
complaint (Civil Case No. 13734); and, accordingly, respondent Court directed the respondent
Briefs were filed on September 27, 1976, by petitioner (Rollo, p. 135) and on January 20, 1977
by the private respondents (Rollo, p. 164).
In a resolution dated March 14, 1977, the Supreme Court resolved to declare the case
submitted for decision without petitioner's reply brief (Rollo, p. 186).
The sole issue to be resolved in this case is whether respondent court acted with grave abuse
of discretion in dismissing the complaint filed by petitioner herein and in denying the motion for
reconsideration thereof.
Petitioner contends that the complaint in Civil Case No. 20968 for annulment of a judgment and
deed of sale is not barred by the judgment in Civil Case No. 13734 on the ground of res
judicata because the judgment by default in Civil Case No. 13734 is void for lack of jurisdiction
over the person of the petitioner and for lack of due process, and that there is no Identity
between the two cases because the complaint in Civil Case No. 20968 seeks to nullify the
judgment by default rendered in Civil Case No. 13734 and the deed of sale while the previous
complaint in Civil Case No. 13734 sought to compel petitioner to deliver to Juanito Victoria the
owner's copy of Transfer Certificate of Title No. 280711.
The contention is not tenable.
It is true that the complaint for specific performance filed on August 6, 1970 by Juanito Victoria
was not initially served upon defendant Lauro Immaculata as he was confined at the National
Mental Hospital. It appears, however, that Amparo V. Immaculata, wife of defendant Lauro
Immaculata, was appointed guardian ad litem as per order of the lower court dated March 20,
1971. Admittedly, the guardian ad litem Amparo Immaculata, received and accepted on March
6, 1972 the alias summons issued by the lower court on April 28, 1971. Despite the service of
the alias summons, petitioner Lauro Immaculata, now represented by his wife, as guardian ad
litem failed to file the answer to the complaint in Civil Case No. 13734. On March 23, 1972,
private respondents moved that petitioner, as defendant therein, be declared in default on the
ground that petitioner received the summons and copy of the complaint on March 6, 1972 and
up to the time of the filing of said motion, he had not filed his answer.
The lower court, in its order dated May 31, 1972, held in abeyance the resolution of the
aforesaid motion until after the return of the summons shall have been made by the provincial
Sheriff of Rizal. On July 17, 1972, private respondents herein again moved to declare petitioner
in default. Since petitioner, defendant therein, had not filed his answer, an order of default was
issued on July 27, 1972, and on October 4, 1972, judgment was rendered ordering defendant
Lauro Immaculata to deliver to plaintiff Juanito Victoria the Certificate of Title of the lot in
question.
Clearly, when the alias summons and a copy of the complaint were duly served upon petitioner,
through his guardian ad litem, the lower court acquired jurisdiction over his person. Upon
receipt of said summons and complaint, defendant's wife knew that her husband was
impleaded as a defendant in a case involving their property and she should have exerted every
effort to answer the complaint for the protection of their rights.
It must be pointed out also that the lower court did not act hastily or arbitrarily in declaring
defendant. Lauro Immaculata in default, Defendant, through his wife as guardian ad litem, had
a reasonable opportunity to answer the complaint. As aforestated the alias summons and a
copy of the complaint were duly served upon defendant's wife on March 6, 1972. While, private
respondents, as plaintiffs in Civil Case No. 13734, moved to declare defendant in default as
early as March 23, 1972, the lower court did not act on it until July 23, 1972 when it acted on
the manifestation and motion to declare defendant in default filed on July 17, 1972.
Assuming, arguendo, that there was no proper and valid service of summons upon petitioner
herein, he should be deemed to have voluntarily submitted to the jurisdiction of the court when
he filed on September 24, 1973 a petition to set aside the decision dated October 4, 1972 and
the order dated July 12, 1973. It is generally said that "a party cannot invoke the jurisdiction of a
court to serve affirmative relief against his opponent and, after obtaining or failing to obtain
such relief, repudiate or question that same jurisdiction." (Tijam vs. Sibonghanoy, 23 SCRA 20,
35 [1968]. Petitioner cannot now be allowed to belatedly adopt an inconsistent posture by
attacking the jurisdiction of the court to which he submitted his cause voluntarily. Furthernore, it
may be noted that on November 12, 1973, the lower court, after due hearing on petitioner's
petition, denied the same on the ground that there is no new and compelling reason to warrant
a reconsideration of the decision dated October 4, 1972 and the Order dated July 23, 1972
declaring defendant Lauro Immaculata, petitioner herein, in default.
It cannot be said therefore, that the judgment by default dated July 23, 1972 nor the decision
dated October 4, 1972 rendered by the lower court was null and void because the court validly
acquired jurisdiction over the person of the petitioner, and there was no denial of due process
as petitioner was duly notified about the complaint in Civil Case No. 13734, and he received a
copy of the decision dated October 4, 1972 and the order dated July 12, 1973 issuing a writ of
execution, and he actively participated in the case by filing a petition to set aside the aforesaid
decision and order. It appears also that petitioner had knowledge of the order of default dated
July 23, 1972.
Petitioner also claims that the dismissal of Civil Case No. 20968 on the ground of res judicata is
unwarranted.
The claim is not meritorious.
It is true that Civil Case No. 13734 is an action for specific performance which seeks to enforce
the right of the plaintiff therein, Juanito Victoria, to the title over the lot in question. However,
when the lower court rendered its decision dated October 4, 1972, it in effect ruled on the
validity of the contract of sale as it ordered the defendant therein, Lauro Immaculata, to deliver
to the plaintiff therein, Juanito Victoria, the owner's copy of Transfer Certificate of Title No.
280711 and to execute the necessary documents in order that the sale in favor of the plaintiff
may be registered. Hence, herein petitioner Lauro Immaculata can no longer question the
validity of the sale in the present case, Civil Case No. 20968, because the said issue was
already settled in Civil Case No. 13734, although it was an action for specific performance. It
may also be noted that the issues raised in petitioner's complaint in Civil Case No. 20968 are
substantially the same issues raised in his petition to set aside the decision dated October 4,
1972 and the order dated July 12, 1973 earlier filed on September 24, 1973 in Civil Case No.
13734, which, however, was denied by the lower court in its order dated November 12, 1973.
Finally, the respondent court did not act with grave abuse of discretion when it dismissed the
complaint in Civil Case No. 20968 and denied the motion for reconsideration on the ground
of res judicata.
It has been repeatedly held that in order for a judgment to be a bar to a subsequent case, the
following requisites must be present: (1) it must be a final judgment; (2) the court which
rendered it had jurisdiction over the subject matter and the parties; (3) it must be a judgment on
the merits; and (4) there must be Identity between the two cases, as to parties, subject matter
and cause of action (Heirs of Juan Cuano Panotes and Rafael Obusan vs. Hon. Court of
Appeals and Pedro Ibana, G.R. No. L-46073, August 13, 1986, and other cases cited).
In the case at bar, there appears to be no dispute that the judgment in Civil Case No. 13734
had already become final and executory. As a matter of fact, respondent court had already
ordered on July 12, 1973 the issuance of the writ of execution in favor of the plaintiff, Juanito
Victoria and against the defendant, Lauro Immaculata. It has been shown that the court which
rendered the decision in Civil Case No. 13734 had jurisdiction over the subject matter and the
parties in the case particularly Lauro Immaculata. There also appears to be no question that
there was judgment on the merits in Civil Case No. 13734, and there was Identity of parties,
subject matter, and in effect in the causes of action in the two cases. Moreover, the issues
raised in the complaint in Civil Case No. 20968 have already been the subject matter of the
decision rendered by a court of competent jurisdiction in Civil Case No. 13734. Therefore, the
judgment in Civil Case No. 13734 is a bar to Civil Case No. 20968 under the principle of res
judicata.

PREMISES CONSIDERED, this petition is hereby DENIED.

SO ORDERED.
 G.R. No. 181723 August 11, 2014
ELIZABETH DEL CARMEN, Petitioner,
vs.
SPOUSES RESTITUTO SABORDO and MIMA MAHILUM-SABORDO, Respondents.
DECISION
PERALTA, J.:
This treats of the petition for review on certiorari assailing the Decision1 and Resolution2 of the
Court of Appeals (CA), dated May 25, 2007 and January 24, 2008, respectively, in CA-G.R. CV
No. 75013.
The factual and procedural antecedents of the case are as follows:
Sometime in 1961, the spouses Toribio and Eufrocina Suico (Suico spouses), along with
several business partners, entered into a business venture by establishing a rice and com mill
at Mandaue City, Cebu. As part of their capital, they obtained a loan from the Development
Bank of the Philippines (DBP), and to secure the said loan, four parcels of land owned by the
Suico spouses, denominated as Lots 506, 512, 513 and 514, and another lot owned by their
business partner, Juliana Del Rosario, were mortgaged. Subsequently, the Suico spouses and
their business partners failed to pay their loan obligations forcing DBP to foreclose the
mortgage. After the Suico spouses and their partners failed to redeem the foreclosed
properties, DBP consolidated its ownership over the same. Nonetheless, DBP later allowed the
Suico spouses and Reginald and Beatriz Flores (Flores spouses), as substitutes for Juliana Del
Rosario, to repurchase the subject lots by way of a conditional sale for the sum of ₱240,571.00.
The Suico and Flores spouses were able to pay the downpayment and the first monthly
amortization, but no monthly installments were made thereafter. Threatened with the
cancellation of the conditional sale, the Suico and Flores spouses sold their rights over the said
properties to herein respondents Restituto and Mima Sabordo, subject to the condition that the
latter shall pay the balance of the sale price. On September 3, 1974, respondents and the
Suico and Flores spouses executed a supplemental agreement whereby they affirmed that
what was actually sold to respondents were Lots 512 and 513, while Lots 506 and 514 were
given to them as usufructuaries. DBP approved the sale of rights of the Suico and Flores
spouses in favor of herein respondents. Subsequently, respondents were able to repurchase
the foreclosed properties of the Suico and Flores spouses.
On September 13, 1976, respondent Restituto Sabordo (Restituto) filed with the then Court of
First Instance of Negros Occidental an original action for declaratory relief with damages and
prayer for a writ of preliminary injunction raising the issue of whether or not the Suico spouses
have the right to recover from respondents Lots 506 and 514.
In its Decision dated December 17, 1986, the Regional Trial Court (RTC) of San Carlos City,
Negros Occidental, ruled in favor of the Suico spouses directing that the latter have until August
31, 1987 within which to redeem or buy back from respondents Lots 506 and 514.
For reasons given, judgment is hereby rendered modifying the dispositive portion of [the]
decision of the lower court to read:
1) The defendants-appellees are granted up to October 31, 1990 within which
toexercise their option to purchase from the plaintiff-appellant Restituto Sabordo and
Mima Mahilum Lot No. 506, covered by Transfer Certificate of Title No. T-102598 and
Lot No. 514, covered by Transfer Certificate of Title No. T-102599, both of Escalante
Cadastre, Negros Occidental by reimbursing or paying to the plaintiff the sum of ONE
HUNDRED TWENTY-SEVEN THOUSAND FIVE HUNDRED PESOS (₱127,500.00);
2) Within said period, the defendants-appellees shall continue to have usufructuary
rights on the coconut trees on Lots Nos. 506 and 514, Escalante Cadastre, Negros
Occidental;
3) The Writ of Preliminary Injunction dated August 12, 1977 shall be effective
untildefendants-appellees shall have exercised their option to purchase within said
period by paying or reimbursing to the plaintiff-appellant the aforesaid amount.
No pronouncement as to costs.
SO ORDERED.4
In a Resolution5 dated February 13, 1991, the CA granted the Suico spouses an additional
period of 90 days from notice within which to exercise their option to purchase or redeem the
disputed lots.
In the meantime, Toribio Suico (Toribio) died leaving his widow, Eufrocina, and several others,
includingherein petitioner, as legal heirs. Later, they discovered that respondents mortgaged
Lots 506 and 514 with Republic Planters Bank (RPB) as security for a loan which,
subsequently, became delinquent.
Thereafter, claiming that theyare ready with the payment of ₱127,500.00, but alleging that they
cannot determine as to whom such payment shall be made, petitioner and her co-heirs filed a
Complaint6 with the RTC of San Carlos City, Negros Occidental seeking to compel herein
respondents and RPB to interplead and litigate between themselves their respective interests
on the abovementioned sum of money.1âwphi1 The Complaint also prayed that respondents
be directed to substitute Lots 506 and 514 with other real estate properties as collateral for their
outstanding obligation with RPB and that the latter be ordered toaccept the substitute collateral
and release the mortgage on Lots 506 and 514. Upon filing of their complaint, the heirs of
Toribio deposited the amount of ₱127,500.00 with the RTC of San Carlos City, Branch 59.
Respondents filed their Answer7 with Counterclaim praying for the dismissal of the above
Complaint on the grounds that (1) the action for interpleader was improper since RPB isnot
laying any claim on the sum of ₱127,500.00; (2) that the period withinwhich the complainants
are allowed to purchase Lots 506 and 514 had already expired; (3) that there was no valid
consignation, and (4) that the case is barred by litis pendenciaor res judicata.

On appeal, the CA, in its Decision3 in CA-G.R. CV No. 13785, dated April 24, 1990, modified
On the other hand, RPB filed a Motion to Dismiss the subject Complaint on the ground that
the RTC decision by giving the Suico spouses until October 31, 1990 within which to exercise
petitioner and her co-heirs had no valid cause of action and that they have no primary legal
their option to purchase or redeem the subject lots from respondents by paying the sum of
right which is enforceable and binding against RPB.
₱127,500.00. The dispositive portion of the CADecision reads as follows:

xxxx
On December 5, 2001, the RTC rendered judgment, dismissing the Complaint of petitioner and ruled that interpleader is not the proper remedy because RPB did notmake any claim
her co-heirs for lack of merit.8 Respondents' Counterclaim was likewise dismissed. whatsoever over the amount consigned by petitioner and her co-heirs with the court.

Petitioner and her co-heirs filed an appeal with the CA contending that the judicial deposit or
consignation of the amount of ₱127,500.00 was valid and binding and produced the effect of
payment of the purchase price of the subject lots.
In its assailed Decision, the CA denied the above appeal for lack of merit and affirmed the
disputed RTC Decision.
Petitioner and her co-heirs filed a Motion for Reconsideration,9 but it was likewise denied by the
CA.
Hence, the present petition for review on certiorariwith a lone Assignment of Error, to wit:
THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE LOWER COURT
WHICH HELD THAT THE JUDICIAL DEPOSIT OF ₱127,500.00 MADE BY THE SUICOS
WITH THE CLERK OF COURT OF THE RTC, SAN CARLOS CITY, IN COMPLIANCE WITH
THE FINAL AND EXECUTORY DECISION OF THE COURT OF APPEALS IN CA-G.R. CV-
13785 WAS NOT VALID.10
Petitioner's main contention is that the consignation which she and her co-heirs made was a
judicial deposit based on a final judgment and, as such, does not require compliance with the
requirements of Articles 125611 and 125712of the Civil Code.
In the cases of Del Rosario v. Sandico16 and Salvante v. Cruz,17 likewise cited as authority by
petitioner, this Court held that, for a consignation or deposit with the court of an amount due on
a judgment to be considered as payment, there must beprior tender to the judgment creditor
who refuses to accept it. The same principle was reiterated in the later case of Pabugais v.
Sahijwani.18 As stated above, tender of payment involves a positive and unconditional act by
the obligor of offering legal tender currency as payment to the obligee for the former’s
obligation and demanding that the latter accept the same.19 In the instant case, the Court finds
no cogent reason to depart from the findings of the CA and the RTC that petitioner and her co-
heirs failed to make a prior valid tender of payment to respondents.
It is settled that compliance with the requisites of a valid consignation is mandatory. 20 Failure to
comply strictly with any of the requisites will render the consignation void. One of these
requisites is a valid prior tender of payment.21
Under Article 1256, the only instances where prior tender of payment is excused are: (1) when
the creditor is absent or unknown, or does not appear at the place of payment; (2) when the
creditor is incapacitated to receive the payment at the time it is due; (3) when, without just
cause, the creditor refuses to give a receipt; (4) when two or more persons claim the same right
to collect; and (5) when the title of the obligation has been lost. None of these instances are
present in the instant case. Hence, the fact that the subject lots are in danger of being
foreclosed does not excuse petitioner and her co-heirs from tendering payment to respondents,
as directed by the court.

WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals, dated
The petition lacks merit. At the outset, the Court quotes withapproval the discussion of the CA May 25, 2007, and its Resolution dated January 24, 2008, both in CA-G.R. CV No. 75013, are
regarding the definition and nature of consignation, to wit: … consignation [is] the act of
AFFIRMED.
depositing the thing due with the court or judicial authorities whenever the creditor cannot
accept or refuses to accept payment, and it generally requires a prior tender of payment. It
should be distinguished from tender of payment which is the manifestation by the debtor to the SO ORDERED.
creditor of his desire to comply with his obligation, with the offer of immediate
performance.Tender is the antecedent of consignation, thatis, an act preparatory to the
consignation, which is the principal, and from which are derived the immediate consequences
which the debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while
consignation is necessarily judicial, and the priority of the first is the attempt to make a private
settlement before proceeding to the solemnities of consignation. Tender and consignation,
where validly made, produces the effect of payment and extinguishes the obligation. 13

In the case of Arzaga v. Rumbaoa,14 which was cited by petitioner in support of his contention,
this Court ruled that the deposit made with the court by the plaintiff-appellee in the saidcase is
considered a valid payment of the amount adjudged, even without a prior tender of payment
thereof to the defendants-appellants,because the plaintiff-appellee, upon making such deposit,
expressly petitioned the court that the defendants-appellees be notified to receive the tender of
payment.This Court held that while "[t]he deposit, by itself alone, may not have been sufficient,
but with the express terms of the petition, there was full and complete offer of payment made
directly to defendants-appellants."15 In the instant case, however, petitioner and her co-heirs,
upon making the deposit with the RTC, did not ask the trial court that respondents be notified to
receive the amount that they have deposited. In fact, there was no tender of payment. Instead,
what petitioner and her co-heirs prayed for is thatrespondents and RPB be directed to
interplead with one another to determine their alleged respective rights over the consigned
amount; that respondents be likewise directed to substitute the subject lots with other real
properties as collateral for their loan with RPB and that RPB be also directed to accept the
substitute real properties as collateral for the said loan. Nonetheless,the trial court correctly
 G.R. No. L-21507 June 7, 1971
PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
NATIVIDAD FRANKLIN, accused, ASIAN SURETY & INSURANCE COMPANY,
INC., bondsman-appellant.
DIZON, J.:
Appeal taken by the Asian Surety & Insurance Company, Inc. from the decision of the Court of
First Instance of Pampanga dated April 17, 1963, forfeiting the bail bond posted by it for the
provisional release of Natividad Franklin, the accused in Criminal Case No. 4300 of said court,
as well as from the latter's orders denying the surety company's motion for a reductions of bail,
and its motion for reconsideration thereof.
It appears that an information filed with the Justice of the Peace Court of Angeles, Pampanga,
docketed as Criminal Case No. 5536, Natividad Franklin was charged with estafa. Upon a bail
bond posted by the Asian Surety & Insurance Company, Inc. in the amount of P2,000.00, she
was released from custody.
After the preliminary investigation of the case, the Justice of the Peace Court elevated it to the
Court of First Instance of Pampanga where the Provincial Fiscal filed the corresponding
information against the accused. The Court of First Instance then set her arraignment on July
14, 1962, on which date she failed to appear, but the court postponed the arraignment to July
28 of the same year upon motion of counsel for the surety company. The accused failed to
appear again, for which reason the court ordered her arrest and required the surety company to
show cause why the bail bond posted by it should not be forfeited.
On September 25, 1962, the court granted the surety company a period of thirty days within
which to produce and surrender the accused, with the warning that upon its failure to do so the
bail bond posted by it would be forfeited. On October 25, 1962 the surety company filed a
motion praying for an extension of thirty days within which to produce the body of the accused
and to show cause why its bail bond should not be forfeited. As not withstanding the extension
granted the surety company failed to produce the accused again, the court had no other
alternative but to render the judgment of forfeiture.
Subsequently, the surety company filed a motion for a reduction of bail alleging that the reason
for its inability to produce and surrender the accused to the court was the fact that the
Philippine Government had allowed her to leave the country and proceed to the United States
on February 27, 1962. The reason thus given not being to the satisfaction of the court, the
motion for reduction of bail was denied. The surety company's motion for reconsideration was
also denied by the lower court on May 27, 1963, although it stated in its order that it would
consider the matter of reducing the bail bond "upon production of the accused." The surety
company never complied with this condition.
Appellant now contends that the lower court should have released it from all liability under the
bail bond posted by it because its failure to produce and surrender the accused was due to the
negligence of the Philippine Government itself in issuing a passport to said accused, thereby
enabling her to leave the country. In support of this contention the provisions of Article 1266 of
the New Civil Code are invoked.
Appellant's contention is untenable. The abovementioned legal provision does not apply to its
case, because the same speaks of the relation between a debtor and a creditor, which does not
exist in the case of a surety upon a bail bond, on the one hand, and the State, on the other.
In U.S. vs. Bonoan, et al., 22 Phil., p. 1, We held that:
The rights and liabilities of sureties on a recognizance or bail bond are, in
many respects, different from those of sureties on ordinary bonds or
commercial contracts. The former can discharge themselves from liability
by surrendering their principal; the latter, as a general rule, can only be
released by payment of the debt or performance of the act stipulated.
In the more recent case of Uy Tuising, 61 Phil. 404, We also held that:
By the mere fact that a person binds himself as surety for the accused, he
takes charge of, and absolutely becomes responsible for the latter's
custody, and under such circumstances it is incumbent upon him, or rather,
it is his inevitable obligation not merely a right, to keep the accused at all
times under his surveillance, inasmuch as the authority emanating from his
character as surety is no more nor less than the Government's authority to
hold the said accused under preventive imprisonment. In allowing the
accused Eugenio Uy Tuising to leave the jurisdiction of the Philippines, the
appellee necessarily ran the risk of violating and in fact it clearly violated
the terms of its bail bonds because it failed to produce the said accused
when on January 15, 1932, it was required to do so. Undoubtedly, the
result of the obligation assumed by the appellee to hold the accused at all
times to the orders and processes of the lower court was to prohibit said
accused from leaving the jurisdiction of the Philippines because, otherwise,
said orders and processes would be nugatory and inasmuch as the
jurisdiction of the court from which they issued does not extend beyond
that of the Philippines, they would have no binding force outside of said
jurisdiction.
It is clear, therefore, that in the eyes of the law a surety becomes the legal custodian and jailer
of the accused, thereby assuming the obligation to keep the latter at all times under his
surveillance, and to produce and surrender him to the court upon the latter's demand.
That the accused in this case was able to secure a Philippine passport which enabled her to go
to the United States was, in fact, due to the surety company's fault because it was its duty to do
everything and take all steps necessary to prevent that departure. This could have been
accomplished by seasonably informing the Department of Foreign Affairs and other agencies of
the government of the fact that the accused for whose provisional liberty it had posted a bail
bond was facing a criminal charge in a particular court of the country. Had the surety company
done this, there can be no doubt that no Philippine passport would have been issued to
Natividad Franklin.
UPON ALL THE FOREGOING, the decision appealed from is affirmed in all its parts, with
costs.
 G.R. No. L-23546 August 29, 1974
LAGUNA TAYABAS BUS COMPANY and BATANGAS TRANSPORTATION
COMPANY, petitioners,
vs.
FRANCISCO C. MANABAT, as assignee of Biñan Transportation Company,
Insolvent, respondent.
MAKASIAR, J.:p
This is an appeal by certiorari from a judgment of the Court of Appeals dated August 31, 1964,
which WE AFFIRM.
The undisputed facts are recounted by the Court of Appeals through then Associate Justice
Salvador Esguerra thus:
On January 20, 1956, a contract was executed whereby the Biñan
Transportation Company leased to the Laguna-Tayabas Bus Company at a
monthly rental of P2,500.00 its certificates of public convenience over the
lines known as Manila-Biñan, Manila-Canlubang and Sta. Rosa-Manila,
and to the Batangas Transportation Company its certificate of public
convenience over the line known as Manila-Batangas Wharf, together with
one "International" truck, for a period of five years, renewable for another
similar period, to commence from the approval of the lease contract by the
Public Service Commission. On the same date the Public Service
Commission provisionally approved the lease contract on condition that the
lessees should operate on the leased lines in accordance with the
prescribed time schedule and that such approval was subject to
modification or cancellation and to whatever decision that in due time might
be rendered in the case.
Sometime after the execution of the lease contract, the plaintiff Biñan
Transportation Company was declared insolvent in Special Proceedings
No. B-30 of the Court of First Instance of Laguna, and Francisco C.
Manabat was appointed as its assignee. From time to time, the defendants
paid the lease rentals up to December, 1957, with the exception of the
rental for August 1957, from which there was deducted the sum of
P1,836.92 without the consent of the plaintiff. This deduction was based on
the ground that the employees of the defendants on the leased lines went
on strike for 6 days in June and another 6 days in July, 1957, and caused a
loss of P500 for each strike, or a total of P1,000.00; and that in Civil Case
No. 696 of the Court of First Instance of Batangas, Branch II, judgment was
rendered in favor of defendant Batangas Transportation Company against
the Biñan Transportation Company for the sum of P836.92. The assignee
of the plaintiff objected to such deduction, claiming that the contract of
lease would be suspended only if the defendants could not operate the
leased lines due to the action of the officers, employees or laborers of the
lessor but not of the lessees, and that the deduction of P836.92 amounted
to a fraudulent preference in the insolvency proceedings as whatever
judgment might have been rendered in favor of any of the lessees should
have been filed as a claim in said proceedings. The defendants neither
refunded the deductions nor paid the rentals beginning January, 1958,
notwithstanding demands therefor made from time to time. At first, the
defendants assured the plaintiff that the lease rentals would be paid,
although it might be delayed, but in the end they failed to comply with their
promise.
On February 18, 1958, the Batangas Transportation Company and
Laguna-Tayabas Bus Company separately filed with the Public Service
Commission a petition for authority to suspend the operation on the lines
covered by the certificates of public convenience leased to each of them by
the Biñan Transportation Company. The defendants alleged as reasons
the reduction in the amount of dollars allowed by the Monetary Board of the
Central Bank of the Philippines for the purchase of spare parts needed in
the operation of their trucks, the alleged difficulty encountered in securing
said parts, and their procurement at exorbitant costs, thus rendering the
operation of the leased lines prohibitive. The defendants further alleged
that the high cost of operation, coupled with the lack of passenger traffic on
the leased lines resulted in financial losses. For these reasons they asked
permission to suspend the operation of the leased lines until such time as
the operating expenses were restored to normal levels so as to allow the
lessees to realize a reasonable margin of profit from their operation.
Plaintiff's assignee opposed the petition on the ground that the Public
Service Commission had no jurisdiction to grant the relief prayed for as it
should involve the interpretation of the lease contract, which act falls
exclusively within the jurisdiction of the ordinary courts; that the petitioners
had not asked for the suspension of the operation of the lines covered by
their own certificates of public convenience; that to grant the petition would
amount to an impairment of the obligation of contract; and that the
defendants have no legal personality to ask for suspension of the operation
of the leased lines since they belonged exclusively to the plaintiffwho is the
grantee of the corresponding certificate of public convenience. Aside from
the assignee, the Commissioner of the Internal Revenue and other
creditors of the Biñan Transportation Company, like the Standard Vacuum
Oil Co. and Parsons Hardware Company, filed oppositions to the petitions
for suspension of operation.
On October 15, 1958, the Public Service Commission overruled all
oppositions filed by the assignee and other creditors of the insolvent,
holding that upon its approval of the lease contract, the lessees acquired
the operating rights of the lessor and assumed full responsibility for
compliance with all the terms and conditions of the certificate of public
convenience. The Public Service Commission further stated that the
petition to suspend operation did not pertain to any act of dominion or
ownership but only to the use of the certificate of public convenience which
had been transferred by the plaintiff to the defendants, and that the
suspension prayed for was but an incident of the operation of the lines
leased to the defendants. The Public Service Commission further ruled that
being a quasi-judicial body of limited jurisdiction, it had no authority to
interpret contracts, which function belongs to the exclusive domain of the
ordinary courts, but the petition did not call for interpretation of any
provision of the lease contract as the authority of the Public Service
Commission to grant or deny the prayer therein was derived from its
regulatory power over the leased certificates of public convenience.
While proceedings before the Public Service Commission were thus going on, as a
consequence of the continuing failure of the lessees to fulfill their earlier promise to pay the
accruing rentals on the leased certificates,
 On May 19, 1959, plaintiff Biñan Transportation Company represented by
Francisco C. Manabat, assignee, filed this action against defendants
Laguna Tayabas Bus Company and Batangas Transportation Company for
the recovery of the sum of P42,500 representing the accrued rentals for the
lease of the certificates of public convenience of the former to the latter,
corresponding to the period from January 1958, to May 1959, inclusive,
plus the sum of P1,836.92 which was deducted by the defendants from the
rentals due for August, 1957, together with all subsequent rentals from
June, 1959, that became due and payable; P5,000.00 for attorney's fees
and such corrective and exemplary damages as the court may find
reasonable.
The defendants moved to dismiss the complaint for lack of jurisdiction over
the subject matter of the action, there being another case pending in the
Public Service Commission between the same parties for the same cause.
... (pp. 20-21, rec.; pp. 54-55, ROA).
The motion to dismiss was, however, denied. Meanwhile —
The Public Service Commission delegated its Chief Attorney to receive
evidence of the parties on the petition of the herein defendants for authority
to suspend operation on the lines leased to them by the plaintiff. The
defendants, the assignee of the plaintiff and other creditors of the insolvent
presented evidence before the Chief Attorney and the hearing was
concluded on June 29, 1959. On October 20, 1959, the Public Service
Commission issued an order the dispositive part of which reads as follows:
In view of the foregoing, the petitioners herein are
authorized to suspend their operation of the trips of the
Biñan Transportation Company between Batangas
Piers-Manila, Biñan-Manila, Sta. Rosa-Manila and
Canlubang-Manila authorized in the aforementioned
cases from the date of the filing of their petition on
February 18, 1958, until December 31, 1959. (p. 25,
rec.; pp. 60-61, ROA).
Going back to the Court of First Instance of Laguna —
... The motion (to dismiss) having been denied, the defendants answered
the complaint, alleging among others, that the Public Service Commission
authorized the suspension of operation over the leased lines from February
18, 1950, up to December 31, 1959, and hence the lease contract should
be deemed suspended during that period; that plaintiff failed to place
defendants in peaceful and adequate enjoyment and possession of the
things leased; that as a result of the plaintiff being declared insolvent the
lease contract lost further force and effect and payment of rentals
thereafter was made under a mistake and should be refunded to the
defendants. (p. 21; rec.; p. 55, ROA).
The Court of Appeals proceeded to state that —
After hearing in the court a quo and presentation by the parties herein of
their respective memoranda, the trial court on March 18, 1960, rendered
judgment in favor of plaintiff, ordering the defendants jointly and severally
to pay to the former the sum of P65,000.00 for the rentals of the certificates
of public convenience corresponding to the period from January, 1958, to
February, 1960, inclusive, including the withheld amount of P836.92 from
the rentals for August, 1957, plus the rentals that might become due and
payable beginning March, 1960, at the rate of P2,500.00 a month, with
interest on the sums of P42,500 and P836.92 at the rate of 6% per annum
from the date of the filing of the complaint, with interest on the subsequent
rentals at the same rate beginning the first of the following month, plus the
sum of P3,000.00 as attorney's fees, and the cost of the suit. (pp. 25-26,
rec.)
From the decision of the Court of First Instance, defendants appealed to the Court of Appeals,
which affirmed the same in toto in its decision dated August 31, 1964. Said decision was
received by the appellants on September 7, 1964.
On September 21, 1964, appellants filed the present appeal, raising the following questions of
law:
1. Considering that the Court of Appeals found that the Public Service
Commission provisionally approved the lease contract of January 20, 1956
between petitioners and Biñan Transportation Company upon the
condition, amongothers, that such approval was subject to modification and
cancellation and towhatever decision that in due time might be rendered in
the case, the Court ofAppeals erred in giving no legal effect and
significance whatever to the suspension of operations later granted by the
Public Service Commission after due hearing covering the lines leased to
petitioners thereby nullifying, contrary to law and decisions of this
Honorable Court, the authority and powersconferred on the Public Service
Commission.
2. The Court of Appeals misapplied the statutory rules on interpreting
contracts and erred in its construction of the clauses in the lease
agreement authorizing petitioners to suspend operation without the
corresponding liability for rentals during the period of suspension.
3. Contrary to various decisions of this Honorable Court relieving the
lessee from the obligation to pay rent where there is failure to use or enjoy
the thing leased, the Court of Appeals erroneously required petitioners to
pay rentals, with interest, during the period of suspension of the lease from
January, 1958 up to the expiration of the agreement on January 20, 1961.
(p. 7, rec.)
On October 12, 1964, the Supreme Court issued a resolution dismissing said petition "for lack
of merit." (p. 43, rec.). Said resolution was received by petitioners on October 16, 1964.
On October 31, 1964, the day the Court's resolution was to become final, petitioners filed a
"Motion to Admit Amended Petition and to Give Due Course Thereto." In said motion,
petitioners explained —
... The amendment includes an alternative ground relating to petitioners'
prayer for the reduction of the rentals payable by them. This alternative
petition was not included in the original one as petitioners where genuinely
convinced that they should have been absolved from all liabilities whatever.
However, in view of the apparent position taken by this Honorable Court,
 as implied in its resolution on October 12, 1964, notice of which was
received on October 16, 1964, petitioners now squarely submit their
alternative position for consideration. There is decisional authority for the
reduction of rentals payable (see Reyes v. Caltex, 47 O.G. 1193, 1203-
1204) (p. 44, rec).
The new question raised is presented thus:
xxx xxx xxx
IV
This Honorable Court is authorized to equitably reduce the rentals
payableby the petitioners, should this Honorable Court adopt the position
of the Courtof Appeals and the lower court that petitioners have not been
releived from thepayment of rentals on the leased lines. (p. 7 Amended
Petition for Certiorari,pp. 46, 52, rec.).
On November 5, 1964, the Supreme Court required respondents herein to
file an answer to the amended petition. On the same date, respondents
filed, quite belatedly, an opposition to the motion of the petitioners. Said
opposition was later "noted" by the Court in its resolution dated December
1, 1964.
I
First, it must be pointed out that the first three questions of law raised by petitioners were
already disposed of in Our resolution dated October 12, 1964 dismissing the original petition for
lack of merit, which in effect affirmed the appealed decision of the Court of of Appeals.
Although, in their motion to admit amended petition dated October 31, 1964, petitioners sought
a reconsideration of the said resolution not only in the light of the fourth legal issue raised but
also on the said first three legal questions, the petitioners advanced no additional arguments
nor cited new authorities in support of their stand on the first three questions of law. They
merely reproduced verbatim from their original petition their discussion on said questions.
To the extent therefore that the motion filed by the petitioner seeks a reconsideration of our
order of dismissal by submitting anew, through the amended petition, the very same arguments
already dismissed by this Court, the motion shall be considered pro forma, (See Estrada v. Sto.
Domingo, 28 SCRA 890, 905-906, 911) and hence is without merit.
Consequently, we limit the resolution of this case solely on the discussions on the last (fourth)
question of law raised, taking into consideration the discussion on the first three questions only
insofar as they place the petitioners' discussion on the fourth question in its proper context and
perspective.
II
The undisguised object of petitioners' discussion on the fourth question of law raised is to justify
their plea for a reduction of the rentals on the ground that the subject matter of the lease was
allegedly not used by them as a result of the suspension of operations on the lines authorized
by the Public Service Commission.
In support of said plea, petitioners invoke article 1680 of the Civil Code which grants lessees of
rural lands a right to a reduction of rentals whenever the harvest on the land leased is
considerably damaged by an extraordinary fortuitous event. Reliance was also placed by the
petitioners on Our decision in Reyes v. Caltex (Phil.) Inc., 84 Phil. 654, which supposedly
applied said article by analogy to a lease other than that covered by said legal provision.
The authorities from which the petitioners draw support, however, are not applicable to the
case at bar.
Article 1680 of the Civil Code reads thus:
Art. 1680. The lessee shall have no right to a reduction of the rent on
accountof the sterility of the land leased, or by reason of the loss of fruits
due toordinary fortuitous events; but he shall have such right in case of the
loss ofmore than one-half of the fruits through extraordinary and
unforeseen fortuitous events, save always when there is a specific
stipulation to the contrary.
Extraordinary fortuitous events are understood to be: fire, war, pestilence,
unusual flood, locusts, earthquake, or others which are uncommon, and
which thecontracting parties could not have reasonably foreseen.
Article 1680, it will be observed is a special provision for leases of rural lands. No other legal
provision makes it applicable to ordinary leases. Had theintention of the lawmakers been so,
they would have placed the article among the general provisions on lease. Nor can the article
be applied analogously to ordinary leases, for precisely because of its special character, it was
meant to apply only to a special specie of lease. It is a provision of social justice designed to
relieve poor farmers from the harsh consequences of their contracts with rich landowners. And
taken in that light, the article provides no refuge to lessees whose financial standing or social
position is equal to, or even better than, the lessor as in the case at bar.
Even if the cited article were a general rule on lease, its provisions nevertheless do not extend
to petitioners. One of its requisites is that the cause of loss of the fruits of the leased property
must be an "extraordinary and unforeseen fortuitous event." The circumstances of the instant
case fail tosatisfy such requisite. As correctly ruled by the Court of Appeals, the alleged causes
for the suspension of operations on the lines leased, namely, the high prices of spare parts and
gasoline and the reduction of the dollar allocations, "already existed when the contract of lease
was executed" (p. 11, Decision; p. 30, rec.; Cuyugan v. Dizon, 89 Phil. 80). The cause of
petitioners' inability to operate on the lines cannot, therefore, be ascribed to fortuitous events or
circumstances beyond their control, but to their own voluntary desistance (p. 13, Decision; p.
32, rec.).
If the petitioners would predicate their plea on the basis solely of their inability to use the
certificates of public convenience, absent the requisite of fortuitous event, the cited article
would speak strongly against their plea.Article 1680 opens with the statement: "The lessee
shall have no right to reduction of the rent on account of the sterility of the land leased ... ."
Obviously, no reduction can be sustained on the ground that the operation of the leased lines
was suspended upon the mere speculation that it would yield no substantial profit for the lessee
bus company. Petitioners' profits may be reduced due to increase operating costs; but the
volume of passenger traffic along the leased lines not only remains same but may even
increase as the tempo of the movement of population is intensified by the industrial
development of the areas covered or connected by the leased routes. Moreover, upon proper
showing, the Public Service Commission might have granted petitioners an increase in rates,
as it has done so in several instances, so that public interest will always be promoted by a
continuous flow of transportation facilities to service the population and the economy. The were cheap, would the defendants-appellants have paid more than what is stipulated in the
citizenry and the economy will suffer by reason of any disruption in the transportation facilities. lease contract? We believe not. Hence, the suspension of operation on the leased lines was
conceived as a scheme to lessen operation costs with the expectation of greater profit." (p. 14,
Decision).
Furthermore, we are not at all convinced that the lease contract brought no material advantage
to the lessor for the period of suspension. It must be recalled that the lease contract not only
stipulated for the transfer of the lessor's right to operate the lines covered by the contract, but Indeed, petitioners came to court with unclean hands, which fact militates against their plea for
also for a forbearance on the part of the lessor to operate transportation business along the equity.
same lines — and to hold a certificate for that purpose. Thus, even if the lessee would not
actually make use of the lessor's certificates over the leased lines, the contractual commitment
WHEREFORE, THE ORIGINAL AND AMENDED PETITIONS ARE HEREBY DISMISSED,
of the lessor not to operate on the lines would sufficiently insure added profit to the lessees on
AND THE DECISION OF THE COURT OF APPEALS DATED AUGUST 31, 1964 IS HEREBY
account of the lease contract. In other words, the commitment alone of the lessor under the
AFFIRMED, WITH COSTS AGAINST PETITIONERS.
contract would enable the lessees to reap full benefits therefrom since the commuting public
would, after all, be forced — at their inconvenience and prejudice — to patronize petitioner's
remaining buses.

Contrary to what petitioners want to suggest, WE refused in the Reyes case, supra, to apply by
analogy Article 1680 and consequently, WE denied the plea oflessee therein for an equitable
reduction of the stipulated rentals, holding that:

The general rule on performance of contracts is graphically set forth in

American treatises which is also the rule, in our opinion, obtaining under
the Civil Code.

Where a person by his contract charges himself with an obligation possible

to be performed, he must perform it, unless the performance is rendered
impossible by the act of God, by the law, or by the other party, it being the
rule that in case the party desires to be excused from the performance in
the event of contingencies arising, it is his duty to provide therefor in his
contract. Hence, performance is not excused by subsequent inability to
perform, by unforeseen difficulties, by unusual or unexpected expenses, by
danger, by inevitable accident, by breaking of machinery, by strikes, by
sickness, by failure of a party to avail himself of the benefits tobe had
under the contract, by weather conditions, by financial stringency or
bystagnation of business. Neither is performance excused by the fact that
the contract turns out to be hard and improvident, unprofitable, or
impracticable, ill-advised, or even foolish, or less profitable, unexpectedly
burdensome. (17 CJS 946-948) (Reyes vs. Caltex, supra, 664. Emphasis
supplied).

Also expressed in said case is a ruling in American jurisprudence, which found relevance again
in the case at bar, to wit: "(S)ince, by the lease, the lessee was to have the advantage of casual
profits of the leased premises, he should run the hazard of casual losses during the term and
not lay the whole burden upon the lessor." (Reyes vs. Caltex, supra, 664).

Militating further against a grant of reduction of the rentals to the petitioners is the petitioners'
conduct which is not in accord with the rules of fair play and justice. Petitioners, it must be
recalled, promised to pay the accrued rentals in due time. Later, however, when they believed
they found a convenient excuse for escaping their obligation, they reneged on their earlier
promise. Moreover, petitioners' option to suspend operation on the leased lines appears
malicious. Thus, Justice Esguerra, speaking for the Court of Appeals, propounded the following
questions: "If it were true that thecause of the suspension was the high prices of spare parts,
gasoline and needed materials and the reduction of the dollar allocation, why was it that only
plaintiff-appellee's certificate of public convenience was sought to be suspended? Why did not
the defendants-appellants ask for a corresponding reduction or suspension under their own
certificate along the same route? Suppose the prices of the spare parts and needed materials
 G.R. No. L-44349 October 29, 1976
JESUS V. OCCENA and EFIGENIA C. OCCENA, petitioners,
vs.
HON. RAMON V. JABSON, Presiding Judge of the Court Of First Instance of Rizal,
Branch XXVI; COURT OF APPEALS and TROPICAL HOMES, INC., respondents.
TEEHANKEE, J.:
The Court reverses the Court of Appeals appealed resolution. The Civil Code authorizes the
release of an obligor when the service has become so difficult as to be manifestly beyond the
contemplation of the parties but does not authorize the courts to modify or revise the
subdivision contract between the parties or fix a different sharing ratio from that contractually
stipulated with the force of law between the parties. Private respondent's complaint for
modification of the contract manifestly has no basis in law and must therefore be dismissed for
failure to state a cause of action. On February 25, 1975 private respondent Tropical Homes,
Inc. filed a complaint for modification of the terms and conditions of its subdivision contract with
petitioners (landowners of a 55,330 square meter parcel of land in Davao City), making the
following allegations:
"That due to the increase in price of oil and its derivatives and the concomitant worldwide
spiralling of prices, which are not within the control of plaintiff, of all commodities including basis
raw materials required for such development work, the cost of development has risen to levels
which are unanticipated, unimagined and not within the remotest contemplation of the parties at
the time said agreement was entered into and to such a degree that the conditions and factors
which formed the original basis of said contract, Annex 'A', have been totally changed; 'That
further performance by the plaintiff under the contract.
That further performance by the plaintiff under the contract,Annex 'S', will
result in situation where defendants would be unustly enriched at the
expense of the plaintiff; will cause an inequitous distribution of proceeds
from the sales of subdivided lots in manifest actually result in the unjust
and intolerable exposure of plaintiff to implacable losses, all such situations
resulting in an unconscionable, unjust and immoral situation contrary to
and in violation of the primordial concepts of good faith, fairness and equity
which should pervade all human relations.
Under the subdivision contract, respondent "guaranteed (petitioners as landowners) as the
latter's fixed and sole share and participation an amount equivalent to forty (40%) percent of all
cash receifpts fromthe sale of the subdivision lots"
Respondent pray of the Rizal court of first instance that "after due trial, this Honorable Court
render judgment modifying the terms and conditions of the contract ... by fixing the proer shares
that shouls pertain to the herein parties out of the gross proceeds from the sales of subdivided
lots of subjects subdivision".
Petitioners moved to dismiss the complaint principally for lack of cause of action, and upon
denial thereof and of reconsideration by the lower court elevated the matter on certiorari to
respondent Court of Appeals.
Respondent court in its questioned resolution of June 28, 1976 set aside the preliminary
injunction previously issued by it and dimissed petition on the ground that under Article 1267 of
the Civil Code which provides that
ART. 1267. When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part. 1
... a positive right is created in favor of the obligor to be released from the
performance of an obligation in full or in part when its performance 'has
become so difficult as to be manifestly beyond the contemplation of the
parties.
Hence, the petition at abar wherein petitioners insist that the worldwide increase inprices cited
by respondent does not constitute a sufficient casue of action for modification of the subdivision
contrct. After receipt of respondent's comment, the Court in its Resolution of September 13,
1976 resolved to treat the petition as special civil actionand declared the case submitted for
decision.
The petition must be granted.
While respondent court correctly cited in its decision the Code Commission's report giving the
rationale for Article 1267 of the Civil Code, to wit;
The general rule is that impossibility of performance releases the obligor.
However, it is submitted that when the service has become so difficult as to
be manifestly beyond the contemplation of the parties, the court should be
authorized to release the obligor in whole or in part. The intention of the
parties should govern and if it appears that the service turns out to be so
difficult as have been beyond their contemplation, it would be doing
violence to that intention to hold the obligor still responsible. ... 2
It misapplied the same to respondent's complaint.
If respondent's complaint were to be released from having to comply with the subdivision
contract, assuming it could show at the trial that the service undertaken contractually by it had
"become so difficult as to be manifestly beyond the contemplation of the parties", then
respondent court's upholding of respondet's complaint and dismissal of the petition would be
justifiable under the cited codal article. Without said article, respondent would remain bound by
its contract under the theretofore prevailing doctrine that performance therewith is ot excused
"by the fact that the contract turns out to be hard and improvident, unprofitable, or unespectedly
burdensome", 3 since in case a party desires to be excuse from performance in the event of
such contingencies arising, it is his duty to provide threfor in the contract.
But respondent's complaint seeks not release from the subdivision contract but that the court
"render judgment I modifying the terms and Conditions of the Contract by fixing the proper
shares that should pertain to the herein parties out of the gross proceed., from the sales of
subdivided lots of subject subdivision". The cited article does not grant the courts this authority
to remake, modify or revise the contract or to fix the division of shares between the parties as
contractually stipulated with the force of law between the parties, so as to substitute its own
terms for those covenanted by the partiesthemselves. Respondent's complaint for modification
of contract manifestly has no basis in law and therefore states no cause of action. Under the
particular allegations of respondent's complaint and the circumstances therein averred, the
courts cannot even in equity grant the relief sought.
A final procedural note. Respondent cites the general rule that an erroneous order denying a
motion to dismiss is interlocutory and should not be corrected by certiorari but by appeal in due
course. This case however manifestly falls within the recognized exception that certiorari will lie
when appeal would not prove to be a speedy and adequate remedy.' Where the remedy of
appeal would not, as in this case, promptly relieve petitioners from the injurious effects of the
patently erroneous order maintaining respondent's baseless action and compelling petitioners
needlessly to go through a protracted trial and clogging the court dockets by one more futile
case, certiorari will issue as the plain, speedy and adequate remedy of an aggrieved party.

ACCORDINGLY, the resolution of respondent appellate court is reversed and the petition for
certiorari is granted and private respondent's complaint in the lower court is ordered dismissed
for failure to state a sufficient cause of action. With costs in all instances against private
respondent.
G.R. No. L-22490 May 21, 1969

GAN TION, petitioner,

vs.
HON. COURT OF APPEALS, HON. JUDGE AGUSTIN P. MONTESA, as Judge of the Court
of First Instance of Manila, ONG WAN SIENG and THE SHERIFF OF MANILA, respondents.

Burgos and Sarte for petitioner.

Roxas, Roxas, Roxas and Associates for respondents.

MAKALINTAL, J.:

The sole issue here is whether or not there has been legal compensation between petitioner
Gan Tion and respondent Ong Wan Sieng.

Ong Wan Sieng was a tenant in certain premises owned by Gan Tion. In 1961 the latter filed an
ejectment case against the former, alleging non-payment of rents for August and September of
that year, at P180 a month, or P360 altogether. The defendant denied the allegation and said
that the agreed monthly rental was only P160, which he had offered to but was refused by the
plaintiff. The plaintiff obtained a favorable judgment in the municipal court (of Manila), but upon
appeal the Court of First Instance, on July 2, 1962, reversed the judgment and dismissed the
complaint, and ordered the plaintiff to pay the defendant the sum of P500 as attorney's fees.
That judgment became final.

On October 10, 1963 Gan Tion served notice on Ong Wan Sieng that he was increasing the
rent to P180 a month, effective November 1st, and at the same time demanded the rents in
arrears at the old rate in the aggregate amount of P4,320.00, corresponding to a period from
August 1961 to October 1963.lâwphi1.ñet

In the meantime, over Gan Tion's opposition, Ong Wan Sieng was able to obtain a writ of
execution of the judgment for attorney's fees in his favor. Gan Tion went on certiorari to the
Court of Appeals, where he pleaded legal compensation, claiming that Ong Wan Sieng was
indebted to him in the sum of P4,320 for unpaid rents. The appellate court accepted the petition
but eventually decided for the respondent, holding that although "respondent Ong is indebted to
the petitioner for unpaid rentals in an amount of more than P4,000.00," the sum of P500 could
not be the subject of legal compensation, it being a "trust fund for the benefit of the lawyer,
which would have to be turned over by the client to his counsel." In the opinion of said court,
the requisites of legal compensation, namely, that the parties must be creditors and debtors of
each other in their own right (Art. 1278, Civil Code) and that each one of them must be bound
principally and at the same time be a principal creditor of the other (Art. 1279), are not present
in the instant case, since the real creditor with respect to the sum of P500 was the defendant's
counsel.

This is not an accurate statement of the nature of an award for attorney's fee's. The award is
made in favor of the litigant, not of his counsel, and is justified by way of indemnity for damages
recoverable by the former in the cases enumerated in Article 2208 of the Civil Code. 1 It is the
litigant, not his counsel, who is the judgment creditor and who may enforce the judgment by
execution. Such credit, therefore, may properly be the subject of legal compensation. Quite
obviously it would be unjust to compel petitioner to pay his debt for P500 when admittedly his
creditor is indebted to him for more than P4,000.

WHEREFORE, the judgment of the Court of Appeals is reversed, and the writ of execution
issued by the Court of First Instance of Manila in its Civil Case No. 49535 is set aside. Costs
against respondent.
 G.R. No. L-69255 February 27, 1987 (ISABELA) had assumed certain contractual undertakings; and (2) in the event of ISABELA's
failure to fulfill those undertakings, PNB was empowered to apply the deposit to the payment of
that indebtedness. The facts upon which PNB's theory stands are summarized in the Order of
PHILIPPINE NATIONAL BANK, petitioner,
CFI Judge Solano dated October 1, 1982, 5 relevant portions of which are here reproduced:
vs.
GLORIA G. VDA. DE ONG ACERO, ARNOLFO ONG ACERO & SOLEDAD ONG ACERO
CHUA, respondents. On October 13, 1977, Isabela Wood Construction and Development
Corporation ** entered into a Credit Agreement with PNB. Under the
agreement PNB, having approved the application of defendant (Isabela &
NARVASA, J.:
c.) for the establishment for its account of a deferred letter of credit in the
amount of DM 4,695,947.00 in favor of the Machinenfabric Augsburg
Savings Account No. 010-5878868-D of Isabela Wood Construction & Development Nunberg (MAN) of Germany from whom defendant purchased thirty-five
Corporation, opened with the Philippine National Bank on March 9, 1979 in the amount of P2 (35) units of MAN trucks, defendant corporation agreed to put up, as
million is the subject of two (2) conflicting claims, sought to be definitively resolved in the collaterals, among others, the following:
proceedings at bar. 1 One claim is asserted by the ACEROS — Gloria G. Vda. de Ong Acero,
Arnolfo Ong Acero and Soledad Ong Acero-Chua, judgment creditors of the depositor
4. The CLIENT shall assign to the BANK the proceeds
(hereafter simply referred to as ISABELA) — who seek to enforce against said savings account
of its contract with the Department of Public Works for
the final and executory judgment rendered in their favor by the Court of First Instance of Rizal
the construction of Nagapit Suspension Bridge
QC Br. XVI). The other claim has been put forth by the Philippine National Bank (hereafter,
(Substructure) in Cagayan.
simply PNB) which claims that since ISABELA was at some point in time both its debtor and
creditor-ISABELA's deposit being deemed a loan to it (PNB)-there had occurred a mutual set-
off between them, which effectively precluded the ACEROS' recourse to that deposit. This particular proviso in the aforesaid agreement was to be subsequently
confirmed by Faustino Dy, Jr., as president of defendant corporation, in a
letter to the PNB, dated February 21, 1970, quoted in full as follows:
The controversy was decided by the Intermediate Appellate Court adversely to the PNB. It is
this decision that the PNB would have this Court reverse.
Gentlemen:
The ACEROS' claim to the bank deposit is more specifically founded upon the garnishment
thereof by the sheriff, effected in execution of the partial judgment rendered by the CFI at This is to confirm our arrangement that the treasury
Quezon City in their favor on November 18, 1979. The partial judgment ordered payment by warrant in the amount of P2,704 millon in favor of
ISABELA to the ACEROS of the amount of P1,532,000.07. 2 Notice of garnisment was served Isabela Wood Construction and Development
on the PNB on January 9, 1980, pursuant to the writ of execution dated December 23, Corporation to be delivered either by the Commission
1979. 3 This was followed by an Order issued on February 15, 1980 directing PNB to hand over on Audit or the Ministry of Public Highways, shall be
this amount of P1,532,000.07 to the sheriff for delivery, in turn, to the ACEROS. Not quite two placed in a savings account with your bank to the
months later, or on April 8, 1980, a second (and the final and complete judgment) was extent of P 2 million.
promulgated by the CFI in favor of the ACEROS and against ISABELA, the dispositive part of
which is as follows:
The said amount shall remain in the savings account
until we are able to comply with the delivery and
WHEREFORE, premises considered, judgment is hereby rendered in favor registration of the mortgage in favor of the Philippine
of plaintiffs and against the defendant: National Bank of our Paranaque property, and the
securing from Metropolitan Bank and Home Owners
Savings and Loan Association to snow PNB a second
1. Reiterating the dispositive portion of the partial judgment issued by this
mortgage on the properties of Isabela Wood
Court, dated November 16, 1979, ordering the defendant to pay to the
Construction Group, Inc., presently under first
plaintiff the amount of P1,532,000.07 as principal, with interest at 12% per
mortgage with them.
annum from December 11, 1975 until the whole amount is fully paid;

Thus, on March 9, 1970, pursuant to paragraph 4 of the Credit Agreement,

2. Ordering defendant to pay the plaintiffs the amount of P207,148.00 as
quoted above, PNB thru its International Department opened the savings
compensatory damages, with legal interest thereon from the filing of the
account in question, under Account No. 010-58768-D, with an initial
complaint until the whole amount is fully paid;
deposit of P2,000,000.00, proceeds of a treasury warrant delivered to PNB
(EXHIBIT 3-A).
3. Ordering defendant to pay plaintiffs the amount of P383,000.00 as and
by way of attorneys fees. 4
xxx xxx xxx

On the other hand, PNB's claim to the two-million-peso deposit in question is made to rest on
Since defendant corporation failed to deliver to PNB by way of mortgage its
an agreement between it and ISABELA in virtue of which, according to PNB: (1) the deposit
Paranaque property, neither was defendant corporation able to secure
was made by ISABELA as "collateral" in connection with its indebtedness to PNB as to which it
from Metropolitan Bank and Home Owners Savings and Loan Association
 its consent to allow PNB a second mortgage, and considering that the
obligation of defendant corporation to PNB have been due and unsettled,
PNB applied the amount of P 2,102804.11 in defendant's savings account
of PNB.
It was upon this version of the facts, and its theory thereon based on a mutual set-off, or
compensation, between it and ISABELA — in accordance with Articles 1278 et al. of the Civil
Code — that PNB intervened in the action between the ACEROS and ISABELA on or about
February 28, 1980 and moved for reconsideration of the Order of February 15, 1980 (requiring
it to turn over to the sheriff the sum of P1,532,000.07, supra: fn. 2). But its motion met with no
success. It was denied by the Lower Court (Hon. Judge Apostol, presiding) by Order dated May
14, 1980. 6And a motion for the reconsideration of that Order of May 14, 1980 was also denied,
by Order dated August 11, 1980.
PNB again moved for reconsideration, this time of the Order of August 11, 1980; it also pleaded
for suspension in the meantime of the enforcement of the Orders of February 15, and May 14,
1980. Its persistence seemingly paid off. For the Trial Court (now presided over by Hon. Judge
Solano), directed on October 9, 1980 the setting aside of the said Orders of May 14, and
August 11, 1980, and set for hearing PNB's first motion for the reconsideration of the Order of
February 15, 1980. 7 Several months afterwards, or more precisely on October 1, 1982, the
Order of February 15, 1980 was itself also struck down, 8 the Lower Court opining that under
the circumstances, there had been a valid assignment by ISABELA to PNB of the amount
deposited, which effectively placed that amount beyond the reach of the ACE ROS, viz:
When the two million or so treasury warrant, proceeds of defendant's
contract with the government was delivered to PNB, said amount, per
agreement aforequoted, had already been assigned by defendant
corporation to PNB, as collateral.
The said amount is not a pledge.
The assignment is valid. The defendant need not be the owner thereof at
the time of assignment.
An assignment of credit and other incorporeal rights
shall be perfected in accordance with the provisions of
Article 1475.
The contract of sale is perfected at the moment there
is a meeting of the minds upon the thing which is the
object of the interest and upon its price.
It is not necessary for the perfection of the contract of sale that the thing be
delivered and that the price be paid. Neither is it necessary that the thing
should belong to the vendor at the time of the perfection of the contract, it
being sufficient that the vendor has the right to transfer ownership thereof
at the time it is delivered.
The shoe was now on the other foot. It was the ACEROS' turn to move for reconsideration,
which they did as regards this Order of October 1, 1982; but by Order promulgated on
December 14, 1982, the Court declined to modify its resolution.
The ACEROS then appealed to the Intermediate Appellate Court which, after due proceedings,
sustained them. On September 14, 1984, it rendered judgment the dispositive part whereof
reads as follows:
WHEREFORE, the Orders of October 1 and December 14, 1982 of the
Court a quo are hereby REVERSED and SET ASIDE, and in their stead, it
is hereby adjudged:
1. That the Order of February 15, 1980 of the Court a quo is hereby
ordered reinstated;
2. That intervenor PNB must deliver the amount stated in the Order of
February 15, 1980 with interest thereon at 12% from February 15, 1980
until delivered to appellants, the amount of interest to be paid by PNB and
not to be deducted from the deposit of Isabela Wood;
3. That intervenor PNB must pay attorney's fees and expenses of litigation
to appellants in the amount of P10,000.00 plus the costs of suit. 9
This dispositive part was subsequently modified at the ACEROS' instance, by Resolution dated
November 8, 1984 which inter alia "additionally ** (ordered) PNB to likewise deliver to
appellants the balance of the deposit of Isabela Wood Construction and Development
Corporation after first deducting the amount applied to the partial judgment of P1,532,000.00 in
satisfaction of appeallants' final judgment." 10
PNB's main thesis is that when it opened a savings account for ISABELA on March 9, 1979 in
the amount of P 2M, it (PNB) became indebted to ISABELA in that amount. 11 So that when
ISABELA itself subsequently came to be indebted to it on account of ISABELA's breach of the
terms of the Credit Agreement of October 13, 1977, and therefore ISABELA and PNB became
at the same time creditors and debtors of each other, compensation automatically took place
between them, in accordance with Article 1278 of the Civil Code. The amounts due from each
other were, in its view, applied by operation of law to satisfy and extinguish their respective
credits. More specifically, the P2M owed by PNB to ISABELA was automatically applied in
payment and extinguishment of PNB's own credit against ISABELA. This having taken place,
that amount of P2M could no longer be levied on by any other creditor of ISABELA, as the
ACEROS attempted to do in the case at bar, in order to satisfy their judgment against
ISABELA.
Article 1278 of the Civil Code does indeed provide that "Compensation shall take when two
persons, in their own right, are creditors and debtors of each other. " Also true is that
compensation may transpire by operation of law, as when all the requisites therefor, set out in
Article 1279, are present. Nonetheless, these legal provisions can not apply to PNB's
advantage under the circumstances of the case at bar.
The insuperable obstacle to the success of PNB's cause is the factual finding of the IAC, by
which upon firmly established rules even this Court is bound, 12 that it has not proven by
competent evidence that it is a creditor of ISABELA. The only evidence present by PNB
towards this end consists of two (2) documents marked in its behalf as Exhibits 1 and 2, But as
the IAC has cogently observed, these documents do not prove any indebtedness of ISABELA
to PNB. All they do prove is that a letter of credit might have been opened for ISABELA by
PNB, but not that the credit was ever availed of (by ISABELA's foreign correspondent MAN, or
that the goods thereby covered were in fact shipped, and received by ISABELA.
Quite obviously, as the IAC has further observed, the most persuasive evidence of these facts
— i.e., ISABELA's availment of the credit, as well as the actual delivery of the goods covered
by and shipped pursuant to the letter of credit-assuming these facts to have occurred, would
naturally and logically have been in PNB's possession and could have been readily submitted
to the Court, to wit:
1. The document of availment by the foreign creditor of the letter of credit.
2. The document of release of the amounts mentioned in the agreement.
3. The documents showing that the trucks (transported to the Philippines
by the foreign creditor [MAN] were shipped to ** and received by Isabela.
4. The trust receipts by which possession was given to Isabela of the 35
(Imported) trucks.
5. The chattel mortgages over the trucks required under No. 3 of II
Collaterals of the Credit Agreement (Exhibit 1).
6. The receipt by Isabela of the standing accounts sent by PNB.
13
7. There receipt of the letter of demand by Isabela Wood.
It bears stressing that PNB did not at all lack want for opportunity to produce these documents,
if it does indeed have them. Judge Solano, it should be recalled, specifically allowed PNB to
introduce evidence in relation to its Motion for Reconsideration filed on August 26, 1980, 14 and
thus furnished the occasion for PNB to prove, among others, ISABELA's debt to it. PNB
unaccountably failed to do so. Moreover, PNB never even attempted to offer or exhibit such
evidence, in the course of the appellate proceedings before the IAC, which is a certain
indication, in that Court's view, that PNB does not really have these proofs at ala
For this singular omission PNB offers no explanation except that it saw no necessity to submit
the Documents in evidence, because sometime on March 14, 1980, the ACEROS's attorney
had been shown those precise documents — setting forth ISABELA's loan obligations, such as
the import bills and the sight draft covering drawings on the L/C for ISABELA's account — and
after all, the ACEROS had not really put this indebtedness in issue. 15The explanation cannot
be taken seriously. In the picturesque but forceful language of the Appellate Court, the
explanation "is silly as you do not prove a fact in issue by showing evidence in support thereof
to the opposing counsel; you prove it by submitting evidence to the proper court." The fact is
that the record does not disclose that the ACEROS have ever admitted the asserted theory of
ISABELA's indebtedness to PNB. At any rate, not being privies to whatever transactions might
have generated that indebtedness, they were clearly not in a position to make any declaration
on the matter. The fact is, too, that the avowed indebtedness of ISABELA was an essential
element of PNB's claim to the former's P2 million deposit and hence, it was incumbent on the
latter to demonstrate it by competent evidence if it wished its claim to be judicially recognized
and enforced. This, it has failed to do. The failure is fatal to its claim.
PNB has however deposited an alternative theory, which is that the P2M deposit had been
assigned to it by ISABELA as "collateral," although not by way of pledge; that ISABELA had
explicitly authorized it to apply the P2M deposit in payment of its indebtedness; and that PNB
had in fact applied the deposit to the payment of ISABELA's debt on February 26, 1980, in
concept of voluntary compensation. 16 This second, alternative theory, is as untenable as the
first.
In the first place, there being no indebtedness to PNB on ISABELA's part, there is in
consequence no occasion to speak of any mutual set-off, or compensation, whether it be legal,
i.e., which automatically occurs by operation of law, or voluntary, i.e., which can only take place
by agreement of the parties. 17
In the second place, the documents indicated by PNB as constitutive of the claimed assignment
do not in truth make out any such transaction. While the Credit Agreement of October 13, 1977
(Exh. 1) declares it to be ISABELA's intention to "assign to the BANK the proceeds of its
contract with the Department of Public Works for the construction of Nagapit Suspension Bridge
(Substructure) in Cagayan," 18 it does not appear that that intention was adhered to, much less
carried out. The letter of ISABELA's president dated February 21, 1979 (Exh. 2) would on the
contrary seem to indicate the abandonment of that intention, in the light of the statements
therein that the amount of P2M (representing the bulk of the proceeds of its contract referred
to) "shall be placed in a savings account" and that "said amount shall remain in the savings
account until ** (ISABELA is) able to comply with" specified commitments — these being: the
constitution and registration of a mortgage in PNB's favor over its "Paranaque property," and
the obtention from the first mortgage thereof of consent for the creation of a second lien on the
property. 19 These statements are to be sure inconsistent with the notion of an assignment of
the money. In addition, there is yet another circumstance militating against the actuality of such
an assignment-the "most telling argument" against it, in fact, in the line of the Appellate Court-
and that is, that PNB itself, through its International Department, deposited the whole amount of
?2 million, not in its name, but in the name of ISABELA, 20 without any accompanying statement
even remotely intimating that it (PNB) was the owner of the deposit, or that an assignment
thereof was intended, or that some condition or lien was meant to burden it.
Even if it be assumed that such an assignment had indeed been made, and PNB had been
really authorized to apply the P2M deposit to the satisfaction of ISABELA's indebtedness to it,
nevertheless, since the record reveals that the application was attempted to be made by PNB
only on February 26, 1980, that essayed application was ineffectual and futile because at that
time, the deposit was already in custodia legis, notice of garnishment thereof having been
served on PNB on January 9, 1980 (pursuant to the writ of execution issued by the Court of
First Instance on December 23, 1979 for the enforcement of the partial judgment in the
ACEROS' favor rendered on November 18,1979).
One final factor precludes according validity to PNB's arguments. On the assumption that the P
2M deposit was in truth assigned as some sort of "collateral" to PNB — although as PNB
insists, it was not in the form of a pledge — the agreement postulated by PNB that it had been
authorized to assume ownership of the fund upon the coming into being of ISABELA s
indebtedness is void ab initio, it being in the nature of a pactum commisoruim proscribed as
contrary to public policy. 21
WHEREFORE, the judgment of the Intermediate Appellate Court subject of the instant appeal,
being fully in accord with the facts and the law, is hereby affirmed in toto. Costs against
petitioner.
SO ORDERED.
 G.R. No. L-67649 June 28, 1988 including the improvements thereon, subject to
whatever encumbrances appearing at the back of TCT
No. 4739 (37795) and ordering the same TCT No.
ENGRACIO FRANCIA, petitioner,
4739 (37795) cancelled.
vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.
(b) The plaintiff to pay defendant Ho Fernandez the
sum of P1,000.00 as attorney's fees. (p. 30, Record on
GUTIERREZ, JR., J.:
Appeal)

The petitioner invokes legal and equitable grounds to reverse the questioned decision of the
The Intermediate Appellate Court affirmed the decision of the lower court in toto.
Intermediate Appellate Court, to set aside the auction sale of his property which took place on
December 5, 1977, and to allow him to recover a 203 square meter lot which was, sold at public
auction to Ho Fernandez and ordered titled in the latter's name. Hence, this petition for review.

The antecedent facts are as follows: Francia prefaced his arguments with the following assignments of grave errors of law:

Engracio Francia is the registered owner of a residential lot and a two-story house built upon it I
situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. The lot, with
an area of about 328 square meters, is described and covered by Transfer Certificate of Title
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF
No. 4739 (37795) of the Registry of Deeds of Pasay City.
LAW IN NOT HOLDING PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR SUPPOSED
TAX DELINQUENCY WAS SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE
On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the GOVERNMENT IS INDEBTED TO THE FORMER.
Republic of the Philippines for the sum of P4,116.00 representing the estimated amount
equivalent to the assessed value of the aforesaid portion.
II

Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND
5, 1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to
SERIOUS ERROR IN NOT HOLDING THAT PETITIONER WAS NOT PROPERLY AND DULY
Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to
NOTIFIED THAT AN AUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE ON
satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property.
DECEMBER 5, 1977 TO SATISFY AN ALLEGED TAX DELINQUENCY OF P2,400.00.

Francia was not present during the auction sale since he was in Iligan City at that time helping
III
his uncle ship bananas.

RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS

On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re:
ERROR AND GRAVE ABUSE OF DISCRETION IN NOT HOLDING THAT THE PRICE OF
Petition for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of
P2,400.00 PAID BY RESPONTDENT HO FERNANDEZ WAS GROSSLY INADEQUATE AS
TCT No. 4739 (37795) and the issuance in his name of a new certificate of title. Upon
TO SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A DEPRIVATION OF
verification through his lawyer, Francia discovered that a Final Bill of Sale had been issued in
PROPERTY WITHOUT DUE PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION
favor of Ho Fernandez by the City Treasurer on December 11, 1978. The auction sale and the
SALE MADE THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo)
final bill of sale were both annotated at the back of TCT No. 4739 (37795) by the Register of
Deeds.
We gave due course to the petition for a more thorough inquiry into the petitioner's allegations
that his property was sold at public auction without notice to him and that the price paid for the
On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his
property was shockingly inadequate, amounting to fraud and deprivation without due process of
complaint on January 24, 1980.
law.

On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered
dismissing the amended complaint and ordering:
(a) The Register of Deeds of Pasay City to issue a
new Transfer Certificate of Title in favor of the
defendant Ho Fernandez over the parcel of land
A careful review of the case, however, discloses that Mr. Francia brought the problems raised
in his petition upon himself. While we commiserate with him at the loss of his property, the law
and the facts militate against the grant of his petition. We are constrained to dismiss it.
Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal
compensation. He claims that the government owed him P4,116.00 when a portion of his land
was expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation
of law as of October 15, 1977.
There is no legal basis for the contention. By legal compensation, obligations of persons, who
in their own right are reciprocally debtors and creditors of each other, are extinguished (Art.
1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by
Article 1279, to wit:
(1) that each one of the obligors be bound principally and that he be at the
same time a principal creditor of the other;
xxx xxx xxx
(3) that the two debts be due.
matter to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus
aborting the sale at public auction.
Petitioner had one year within which to redeem his property although, as well be shown later,
he claimed that he pocketed the notice of the auction sale without reading it.
Petitioner contends that "the auction sale in question was made without complying with the
mandatory provisions of the statute governing tax sale. No evidence, oral or otherwise, was
presented that the procedure outlined by law on sales of property for tax delinquency was
followed. ... Since defendant Ho Fernandez has the affirmative of this issue, the burden of proof
therefore rests upon him to show that plaintiff was duly and properly notified ... .(Petition for
Review, Rollo p. 18; emphasis supplied)

xxx xxx xxx

We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has
the burden of proof to show that there was compliance with all the prescribed requisites for a
This principal contention of the petitioner has no merit. We have consistently ruled that there tax sale.
can be no off-setting of taxes against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground that the government owes him
The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:
an amount equal to or greater than the tax being collected. The collection of a tax cannot await
the results of a lawsuit against the government.
xxx xxx xxx
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal
Revenue Taxes can not be the subject of set-off or compensation. We stated that: ... [D]ue process of law to be followed in tax proceedings must be
established by proof and the general rule is that the purchaser of a tax title
is bound to take upon himself the burden of showing the regularity of all
A claim for taxes is not such a debt, demand, contract or judgment as is
proceedings leading up to the sale. (emphasis supplied)
allowed to be set-off under the statutes of set-off, which are construed
uniformly, in the light of public policy, to exclude the remedy in an action or
any indebtedness of the state or municipality to one who is liable to the There is no presumption of the regularity of any administrative action which results in depriving
state or municipality for taxes. Neither are they a proper subject of a taxpayer of his property through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v.
recoupment since they do not arise out of the contract or transaction sued Insular Government, 19 Phil. 261). This is actually an exception to the rule that administrative
on. ... (80 C.J.S., 7374). "The general rule based on grounds of public proceedings are presumed to be regular.
policy is well-settled that no set-off admissible against demands for taxes
levied for general or local governmental purposes. The reason on which
But even if the burden of proof lies with the purchaser to show that all legal prerequisites have
the general rule is based, is that taxes are not in the nature of contracts
been complied with, the petitioner can not, however, deny that he did receive the notice for the
between the party and party but grow out of duty to, and are the positive
auction sale. The records sustain the lower court's finding that:
acts of the government to the making and enforcing of which, the personal
consent of individual taxpayers is not required. ..."
[T]he plaintiff claimed that it was illegal and irregular. He insisted that he
was not properly notified of the auction sale. Surprisingly, however, he
We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector
admitted in his testimony that he received the letter dated November 21,
because he has a claim against the governmental body not included in the tax levy.
1977 (Exhibit "I") as shown by his signature (Exhibit "I-A") thereof. He
claimed further that he was not present on December 5, 1977 the date of
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: the auction sale because he went to Iligan City. As long as there was
"... internal revenue taxes can not be the subject of compensation: Reason: government and substantial compliance with the requirements of the notice, the validity of
taxpayer are not mutually creditors and debtors of each other' under Article 1278 of the Civil the auction sale can not be assailed ... .
Code and a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to
be set-off."
We quote the following testimony of the petitioner on cross-examination, to wit:

There are other factors which compel us to rule against the petitioner. The tax was due to the
Q. My question to you is this letter marked as Exhibit I
city government while the expropriation was effected by the national government. Moreover,
for Ho Fernandez notified you that the property in
the amount of P4,116.00 paid by the national government for the 125 square meter portion of
question shall be sold at public auction to the highest
his lot was deposited with the Philippine National Bank long before the sale at public auction of
bidder on December 5, 1977 pursuant to Sec. 74 of
his remaining property. Notice of the deposit dated September 28, 1977 was received by the
PD 464. Will you tell the Court whether you received
petitioner on September 30, 1977. The petitioner admitted in his testimony that he knew about
the original of this letter?
the P4,116.00 deposited with the bank but he did not withdraw it. It would have been an easy
 A. I just signed it because I was not able to read the In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267
same. It was just sent by mail carrier. P. 555):

Q. So you admit that you received the original of
Exhibit I and you signed upon receipt thereof but you
did not read the contents of it?
A. Yes, sir, as I was in a hurry.
Like most cases of this character there is here a certain element of
hardship from which we would be glad to relieve, but do so would unsettle
long-established rules and lead to uncertainty and difficulty in the collection
of taxes which are the life blood of the state. We are convinced that the
present rules are just, and that they bring hardship only to those who have
invited it by their own neglect.

Q. After you received that original where did you place

it?
A. I placed it in the usual place where I place my mails.
Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he
ignored such notice. By his very own admission that he received the notice, his now coming to
court assailing the validity of the auction sale loses its force.
Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross
inadequacy of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v.
Rehabilitation Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.).
See also Barrozo Vda. de Gordon v. Court of Appeals (109 SCRA 388) we held that "alleged
gross inadequacy of price is not material when the law gives the owner the right to redeem as
when a sale is made at public auction, upon the theory that the lesser the price, the easier it is
for the owner to effect redemption." In Velasquez v. Coronel (5 SCRA 985), this Court held:
We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated
in value. Precisely because of the widening of Buendia Avenue in Pasay City, which
necessitated the expropriation of adjoining areas, real estate values have gone up in the area.
However, the price quoted by the petitioner for a 203 square meter lot appears quite
exaggerated. At any rate, the foregoing reasons which answer the petitioner's claims lead us to
deny the petition.
And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are
no strong considerations of substantial justice in his favor. Mr. Francia failed to pay his taxes for
14 years from 1963 up to the date of the auction sale. He claims to have pocketed the notice of
sale without reading it which, if true, is still an act of inexplicable negligence. He did not
withdraw from the expropriation payment deposited with the Philippine National Bank an
amount sufficient to pay for the back taxes. The petitioner did not pay attention to another
notice sent by the City Treasurer on November 3, 1978, during the period of redemption,
regarding his tax delinquency. There is furthermore no showing of bad faith or collusion in the
purchase of the property by Mr. Fernandez. The petitioner has no standing to invoke equity in
his attempt to regain the property by belatedly asking for the annulment of the sale.

... [R]espondent treasurer now claims that the prices for which the lands
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The
were sold are unconscionable considering the wide divergence between decision of the respondent court is affirmed.
their assessed values and the amounts for which they had been actually
sold. However, while in ordinary sales for reasons of equity a transaction
may be invalidated on the ground of inadequacy of price, or when such SO ORDERED.
inadequacy shocks one's conscience as to justify the courts to interfere,
such does not follow when the law gives to the owner the right to redeem,
as when a sale is made at public auction, upon the theory that the lesser
the price the easier it is for the owner to effect the redemption. And so it
was aptly said: "When there is the right to redeem, inadequacy of price
should not be material, because the judgment debtor may reacquire the
property or also sell his right to redeem and thus recover the loss he claims
to have suffered by reason of the price obtained at the auction sale."

The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long,
et al. (188 Wash. 162, 61 P. 2d, 1290):

If mere inadequacy of price is held to be a valid objection to a sale for

taxes, the collection of taxes in this manner would be greatly embarrassed,
if not rendered altogether impracticable. In Black on Tax Titles (2nd Ed.)
238, the correct rule is stated as follows: "where land is sold for taxes, the
inadequacy of the price given is not a valid objection to the sale." This rule
arises from necessity, for, if a fair price for the land were essential to the
sale, it would be useless to offer the property. Indeed, it is notorious that
the prices habitually paid by purchasers at tax sales are grossly out of
proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32 Wash.
307, 73 P. 367, 369).
 G.R. No. L-50638 July 25, 1983 plaintiff for a rental of P50,000.00 a year; and that plaintiffs had failed to pay said rentals
despite demands.
LORETO J. SOLINAP, petitioner,
vs. At the pre-trial, the parties defined the issues in that case as follows:
HON. AMELIA K. DEL ROSARIO, as Presiding Judge of Branch IV, Court of First Instance
of Iloilo, SPOUSES JUANITO and HARDEVI R. LUTERO, and THE PROVINCIAL SHERIFF
(1) Whether or not the defendants [Luteros] are indebted to the plaintiff
OF ILOILO, respondents.
and, if so, the amount thereof;

ESCOLIN; J.:
Posed for resolution in this petition is the issue of whether or not the obligation of petitioners to
private respondents may be compensated or set- off against the amount sought to be
recovered in an action for a sum of money filed by the former against the latter.
(2) Whether or not the defendants are the owners of one-half [1/2] of that
parcel of land known as 'Hacienda Tambal' presently leased to the plaintiff
and, therefore, entitled to collect from the latter one-half [1/2] of its lease
rentals; and in the affirmative, the amount representing the unpaid rental by
plaintiff in favor of the defendant. 1

The facts are not disputed. On June 2, 1970, the spouses Tiburcio Lutero and Asuncion On June 14, 1978, the respondent judge issued an order in Sp. Proc. No. 1870, granting the
Magalona, owners of the Hacienda Tambal, leased the said hacienda to petitioner Loreto respondent Lutero's motion for reimbursement from petitioner of the sum of P25,000.00 plus
Solinap for a period of ten [10] years for the stipulated rental of P50,000.00 a year. It was interest, as follows:
further agreed in the lease contract that out of the aforesaid annual rental, the sum of
P25,000.00 should be paid by Solinap to the Philippine National Bank to amortize the
WHEREFORE, Mr. Loreto Solinap is hereby directed to pay spouses
indebtedness of the spouses Lutero with the said bank.
Juanito Lutero and Hardivi R. Lutero the sum of P25,000.00 with interest at
12% per annum from June 17, 1975 until the same shall have been duly
Tiburcio Lutero died on January 21, 1971. Soon after, his heirs instituted the testate estate paid.
proceedings of the deceased, docketed as Sp. Proc. No. 1870 of the Court of First Instance of
Iloilo, presided by respondent Judge Amelia K. del Rosario. In the course of the proceedings,
Petitioner filed a petition for certiorari before this Court, docketed as G.R. No. L-48776,
the respondent judge, upon being apprized of the mounting interest on the unpaid account of
assailing the above order. This Court, however, in a resolution dated January 4, 1979
the estate, issued an order, stating, among others, "that in order to protect the estate, the
dismissed the petition thus:
administrator, Judge Nicolas Lutero, is hereby authorized to scout among the testamentary
heirs who is financially in a position to pay all the unpaid obligations of the estate, including
interest, with the right of subrogation in accordance with existing laws." L-48776 [Loreto Solinap vs. CFI etc., et al.]- Acting on the petition in this
case as well as the comment thereon of respondents and the reply of
petitioner to said comment, the Court Resolved to DISMISS the petition for
On the basis of this order, respondents Juanito Lutero [grandson and heir of the late Tiburcio]
lack of merit, anyway, the P25,000.00 to be paid by the petitioner to the
and his wife Hardivi R. Lutero paid the Philippine National Bank the sum of P25,000.00 as
private respondent Luteros may well be taken up in the final liquidation of
partial settlement of the deceased's obligations. Whereupon the respondents Lutero filed a
the account between petitioner as and the subject estate as lessor.
motion in the testate court for reimbursement from the petitioner of the amount thus paid. They
argued that the said amount should have been paid by petitioner to the PNB, as stipulated in
the lease contract he had entered into with the deceased Tiburcio Lutero; and that such Thereafter the respondent Luteros filed with the respondent court a "Motion to Reiterate Motion
reimbursement to them was proper, they being subrogees of the PNB. for Execution of the Order dated June 14, 1978." Petitioner filed a rejoinder to said motion,
raising for the first time the thesis that the amount payable to private respondents should be
compensated against the latter's indebtedness to him amounting to P71,000.00. Petitioner
Before the motion could be resolved by the court, petitioner on April 28, 1978 filed in the Court
attached to his rejoinder copies of the pleadings filed in Civil Case No. 12397, then pending
of First Instance of Iloilo a separate action against the spouses Juanito Lutero and Hardivi R.
before Branch V of the Court of First Instance of Iloilo. This motion was denied by respondent
Lutero for collection of the total amount of P71,000.00, docketed as Civil Case No. 12397.
judge on the ground that "the claim of Loreto Solinap against Juanito Lutero in Civil Case No.
Petitioner alleged in the complaint that on April 25, 1974 the defendants Lutero borrowed from
12397 is yet to be liquidated and determined in the said case, such that the requirement in
him the sum of P45,000.00 for which they executed a deed of real estate mortgage; that on
Article 1279 of the New Civil Code that both debts are liquidated for compensation to take place
July 2, 1974, defendants obtained an additional loan of P3,000.00, evidenced by a receipt
has not been established by the oppositor Loreto Solinap."
issued by them; that defendants are further liable to him for the sum of P23,000.00,
representing the value of certain dishonored checks issued by them to the plaintiff; and that
defendants refused and failed to settle said accounts despite demands. Petition filed a motion for reconsideration of this order, but the same was denied.

In their answer, the respondents Lutero traversed the material averments of the complaint and Hence, this petition.
set up legal and factual defenses. They further pleaded a counterclaim against petitioners for
the total sum of P 125,000.00 representing unpaid rentals on Hacienda Tambal. Basis of the
The petition is devoid of merit. Petitioner contends that respondent judge gravely abused her
counterclaim is the allegation that they had purchased one-half [1/2] of Hacienda Tambal,
which their predecessors, the spouses Tiburcio Lutero and Asuncion Magalona, leased to the discretion in not declaring the mutual obligations of the parties extinguished to the extent of
their respective amounts. He relies on Article 1278 of the Civil Code to the effect that
compensation shall take place when two persons, in their own right, are creditors and debtors
of each other. The argument fails to consider Article 1279 of the Civil Code which provides that
compensation can take place only if both obligations are liquidated. In the case at bar, the
petitioner's claim against the respondent Luteros in Civil Case No. 12379 is still pending
determination by the court. While it is not for Us to pass upon the merits of the plaintiffs' cause
of action in that case, it appears that the claim asserted therein is disputed by the Luteros on
both factual and legal grounds. More, the counterclaim interposed by them, if ultimately found
to be meritorious, can defeat petitioner's demand. Upon this premise, his claim in that case
cannot be categorized as liquidated credit which may properly be set-off against his obligation.
As this Court ruled in Mialhe vs. Halili, 2 " compensation cannot take place where one's claim
against the other is still the subject of court litigation. It is a requirement, for compensation to
take place, that the amount involved be certain and liquidated."

WHEREFORE, the petition is dismissed, with costs against petitioner.

SO ORDERED.
 G.R. No. 125059 March 17, 2000
FRANCISCO T. SYCIP, JR., petitioner,
vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
QUISUMBING, J.:
For review on certiorari is the decision of the Court of Appeals, dated February 29, 1996, in CA-
Criminal Cases No. Q-91-25911 to Q-91-25915, with Informations similarly worded as in
G.R. CR No. 15993, which affirmed the judgment of the Regional Trial Court of Quezon City,
Criminal Case No. Q-91-25910, except for the dates, and check numbers2 were consolidated
Branch 95, in Criminal Cases Nos. Q-91-25910 to 15, finding petitioner guilty beyond
and jointly tried.
reasonable doubt of violating B.P. Blg. 22, the Bouncing Checks Law.
When arraigned, petitioner pleaded "Not Guilty" to each of the charges. Trial then proceeded.
The facts in this case, as culled from the records, are as follows:
The prosecution's case, as summarized by the trial court and adopted by the appellate court, is
On August 24, 1989, Francisco T. Sycip agreed to buy, on installment, from Francel Realty
as follows:
Corporation (FRC), a townhouse unit in the latter's project at Bacoor, Cavite.
Upon execution of the contract to sell, Sycip, as required, issued to FRC, forty-eight (48)
postdated checks, each in the amount of P9,304.00, covering 48 monthly installments.
After moving in his unit, Sycip complained to FRC regarding defects in the unit and incomplete
features of the townhouse project. FRC ignored the complaint. Dissatisfied, Sycip served on
FRC two (2) notarial notices to the effect that he was suspending his installment payments on
the unit pending compliance with the project plans and specifications, as approved by the
Housing and Land Use Regulatory Board (HLURB). Sycip and 12 out of 14 unit buyers then
filed a complaint with the HLURB. The complaint was dismissed as to the defects, but FRC was
ordered by the HLURB to finish all incomplete features of its townhouse project. Sycip
appealed the dismissal of the complaint as to the alleged defects.
Notwithstanding the notarial notices, FRC continued to present for encashment Sycip's
postdated checks in its possession. Sycip sent "stop payment orders" to the bank. When FRC
continued to present the other postdated checks to the bank as the due date fell, the bank
advised Sycip to close his checking account to avoid paying bank charges every time he made
a "stop payment" order on the forthcoming checks. Due to the closure of petitioner's checking
account, the drawee bank dishonored six postdated checks. FRC filed a complaint against
petitioner for violations of B.P. Blg. 22 involving said dishonored checks.
On November 8, 1991, the Quezon City Prosecutor's Office filed with the RTC of Quezon City
six Informations docketed as Criminal Cases No. Q-91-25910 to Q-91-25915, charging
petitioner for violation of B.P. Blg. 22.
The accusative portion of the Information in Criminal Case No. Q-91-25910 reads:
That on or about the 30th day of October 1990 in Quezon City, Philippines and within
the jurisdiction of this Honorable Court, the said accused, did then and there, willfully,
unlawfully and feloniously make, draw and issue in favor of Francel Realty
Corporation a check 813514 drawn against Citibank, a duly established domestic
banking institution in the amount of P9,304.00 Philippine Currency dated/postdated
October 30, 1990 in payment of an obligation, knowing fully well at the time of issue
that she/he did not have any funds in the drawee bank of (sic) the payment of such
check; that upon presentation of said check to said bank for payment, the same was
dishonored for the reason that the drawer thereof, accused Francisco T. Sycip, Jr. did
not have any funds therein, and despite notice of dishonor thereof, accused failed
and refused and still fails and refused (sic) to redeem or make good said check, to
the damage and prejudice of the said Francel Realty Corporation in the amount
aforementioned and in such other amount as may be awarded under the provisions
of the Civil Code.
CONTRARY TO LAW.1
The prosecution evidence established that on or about August 24, 1989, at the office
of the private complainant Francel Realty Corporation (a private domestic corporation
engaged in the real estate business) at 822 Quezon Avenue, QC, accused Francisco
Sycip, Jr. drew, issued, and delivered to private complainant Francel Realty
Corporation (FRC hereinafter) six checks (among a number of other checks), each
for P9,304.00 and drawn pay to the order of FRC and against Francisco's account
no. 845515 with Citibank, to wit: Check No. 813514 dated October 30, 1990 (Exh. C),
Check No. 813515 dated November 30, 1990 (Exh. D), Check No. 813518 dated
February 28, 1991 (Exh. E), Check No. 813516 dated December 30, 1990 (Exh. F),
Check No. 813517 dated January 30, 1991 (Exh. G) and Check No. 813519 dated
March 30, 1991 (Exh. H), as and in partial payment of the unpaid balance of the
purchase price of the house and lot subject of the written contract executed and
entered into by and between FRC as seller and Francisco as buyer on said date of
August 24, 1989 (Exh. B, also Exh. 1). The total stipulated purchase price for the
house and lot was P451,700.00, of which Francisco paid FRC in the sum of
P135,000.00 as down payment, with Francisco agreeing and committing himself to
pay the balance of P316,000.00 in 48 equal monthly installments of P9,304.00 (which
sum already includes interest on successive monthly balance) effective September
30, 1989 and on the 30th day of each month thereafter until the stipulated purchase
price is paid in full. The said six Citibank checks, Exhs. C thru H, as earlier indicated
were drawn, issued, and delivered by Francisco in favor of FRC as and in partial
payment of the said 48 equal monthly installments under their said contract (Exh. B,
also Exh. 1). Sometime in September 1989, the Building Official's certificate of
occupancy for the subject house — a residential townhouse — was issued (Exh. N)
and Francisco took possession and started in the use and occupancy of the subject
house and lot.1âwphi1.nêt
When the subject six checks, Exhs. C thru H, were presented to the Citibank for
payment on their respective due dates, they were all returned to FRC dishonored and
unpaid for the reason: account closed as indicated in the drawee bank's stamped
notations on the face and back of each check; in fact, as indicated in the
corresponding record of Francisco's account no. 815515 with Citibank, said account
already had a zero balance as early as September 14, 1990 (Exh. 1-5).
Notwithstanding the fact that FRC, first thru its executive vice president and project
manager and thereafter thru its counsel, had notified Francisco, orally and in writing,
of the checks' dishonor and demanded from him the payment of the amount thereof,
still Francisco did not pay or make good any of the checks (Exhs. I thru K). . . 3
The case for the defense, as summarized also by the trial court and adopted by the Court of
Appeals, is as follows:
The defense evidence in sum is to the effect that after taking possession and starting
in the use and occupancy of the subject townhouse unit, Francisco became aware of
its various construction defects; that he called the attention of FRC, thru its project
manager, requesting that appropriate measures be forthwith instituted, but despite
his several requests, FRC did not acknowledge, much less attend to them; that
Francisco thus mailed to FRC a verified letter dated June 6, 1990 (Exh. 2) in sum
giving notice that effective June 1990, he will cease and desist "from paying my
monthly amortization of NINE THOUSAND THREE HUNDRED FOUR (P9,304.00)
PESOS towards the settlement of my obligation concerning my purchase of Unit No.
14 of FRC Townhomes referred to above, unless and until your Office satisfactorily
complete(s) the construction, renovation and/or repair of my townhouses (sic) unit
referred to above" and that should FRC "persist in ignoring my aforesaid requests, I
shall, after five (5) days from your receipt of this Verified Notice, forthwith petition the
[HLURB] for Declaratory Relief and Consignation to grant me provisional relief from
my obligation to pay my monthly amortization to your good Office and allow me to
deposit said amortizations with [HLURB] pending your completion of FRC
Townhomes Unit in question"; that Francisco thru counsel wrote FRC, its president,
and its counsel notices/letters in sum to the effect that Francisco and all other
complainants in the [HLURB] case against FRC shall cease and desist from paying
their monthly amortizations unless and until FRC satisfactorily completes the
construction of their units in accordance with the plans and specifications thereof as
approved by the [HLURB] and as warranted by the FRC in their contracts and that
the dishonor of the subject checks was a natural consequence of such suspension of
payments, and also advising FRC not to encash or deposit all other postdated checks
issued by Francisco and the other complainants and still in FRC's possession (Exhs.
3 thru 5); that Francisco and the other complainants filed the [HLURB] case against
FRC and later on a decision was handed down therein and the same is pending
appeal with the Board (Exhs. 6, 7, & 12 thru 17, also Exh. 8); that as of the time of
presentation of the subject checks for payment by the drawee bank, Francisco had at
least P150,000.00 cash or credit with Citibank (Exhs. 10 & 11) and, that Francisco
closed his account no. 845515 with Citibank conformably with the bank's customer
service officer's advice to close his said account instead of making a stop-payment
order for each of his more than 30 post-dated checks still in FRC's possession at the
time, so as to avoid the P600.00-penalty imposed by the bank for every check
subject of a stop-payment order.4
On March 11, 1994, the trial court found petitioner guilty of violating Section 1 of B.P. Blg. 22 in
each of the six cases, disposing as follows:
WHEREFORE, in each of Crim. Cases Nos. Q-91-25910, Q-91-25911, Q-91-25912,
Q-91-25913, Q-91-25914 and Q-91-25915, the Court finds accused Francisco T.
Sycip, Jr. guilty beyond reasonable doubt of a violation of Sec. 1 of Batas Pambansa
Blg. 22 and, accordingly, he is hereby sentenced in and for each case to suffer
imprisonment of thirty (30) days and pay the costs. Further, the accused is hereby
ordered to pay the offended party, Francel Realty Corporation, as and for actual
damages, the total sum of fifty-five thousand eight hundred twenty four pesos
(P55,824.00) with interest thereon at the legal rate from date of commencement of
these actions, that is, November 8, 1991, until full payment thereof.
SO ORDERED.
Dissatisfied, Sycip appealed the decision to the Court of Appeals. His appeal was docketed as
CA-G.R. CR No. 15993. But on February 29, 1996, the appellate court ruled:
On the basis of the submission of the People, We find and so hold that appellant has
no basis to rely on the provision of PD 957 to justify the non-payment of his
obligation, the closure of his checking account and the notices sent by him to private
complainant that he will stop paying his monthly amortizations.6
Petitioner filed a motion for reconsideration on March 18, 1996, but it was denied per
Resolution dated April 22, 1996.
Hence, the instant petition anchored on the following assignment of errors:
I
THE APPELLATE COURT ERRED IN AFFIRMING THE DECISION OF THE
LOWER COURT FINDING THAT THE ACCUSED-APPELLANT DID NOT HAVE
ANY JUSTIFIABLE CAUSE TO STOP OR OTHERWISE PREVENT THE PAYMENT
OF THE SUBJECT CHECKS BY THE DRAWEE BANK.
II
THE LOWER COURT ERRED IN FINDING THAT THE ACCUSED-APPELLANT
MUST BE DEEMED TO HAVE WAIVED HIS RIGHT TO COMPLAIN AGAINST THE
DEVELOPMENT OF THE TOWNHOUSE UNIT AND THE TOWNHOUSE PROJECT.
III
THE APPELLATE COURT ERRED IN AFFIRMING THE DECISION OF THE
LOWER COURT THAT THE ACCUSED-APPELLANT DID NOT HAVE SUFFICIENT
FUNDS WITH THE DRAWEE BANK TO COVER THE SUBJECT CHECKS UPON
PRESENTMENT FOR PAYMENT THEREOF.
IV
THE APPELLATE COURT ERRED IN AFFIRMING THE DECISION OF THE
LOWER COURT CONVICTING THE ACCUSED-APPELLANT AND AWARDING
DAMAGES IN FAVOR OF PRIVATE COMPLAINANT.7
The principal issue before us is whether or not the Court of Appeals erred in affirming the
conviction of petitioner for violation of the Bouncing Checks Law.
Petitioner argues that the court a quo erred when it affirmed his conviction for violation of B.P.
Blg. 22, considering that he had cause to stop payment of the checks issued to respondent.
Petitioner insists that under P.D. No. 957, the buyer of a townhouse unit has the right to
suspend his amortization payments, should the subdivision or condominium developer fail to
develop or complete the project in accordance with duly-approved plans and specifications.
Given the findings of the HLURB that certain aspects of private complainant's townhouse
project were incomplete and undeveloped, the exercise of his right to suspend payments
should not render him liable under B.P. Blg. 22.
The Solicitor General argues that since what petitioner was charged with were violations of B.P.
Blg. 22, the intent and circumstances surrounding the issuance of a worthless check are
immaterial.8 The gravamen of the offense charged is the act itself of making and issuing a
worthless check or one that is dishonored upon its presentment for payment. Mere issuing of a
bad check is malum prohibitum, pernicious and inimical to public welfare. In his view, P.D. No.
957 does not provide petitioner a sufficient defense against the charges against him.
Under the provisions of the Bouncing Checks Law (B.P. No. 22), 9 an offense is committed when
the following elements are present:
(1) the making, drawing and issuance of any check to apply for account or for value;
(2) the knowledge of the maker, drawer, or issuer that at the time of issue he does
not have sufficient funds in or credit with the drawee bank for the payment of such
check in full upon its presentment; and
(3) the subsequent dishonor of the check by the drawee bank for insufficiency of
funds or credit or dishonor for the same reason had not the drawer, without any valid
cause, ordered the bank to stop payment. 10
In this case, we find that although the first element of the offense exists, the other elements
have not been established beyond reasonable doubt.
To begin with, the second element involves knowledge on the part of the issuer at the time of
the check's issuance that he did not have enough funds or credit in the bank for payment
thereof upon its presentment. B.P. No. 22 creates a presumption juris tantum that the second
element prima facie exists when the first and third elements of the offense are present. 11 But
such evidence may be rebutted. If not rebutted or contradicted, it will suffice to sustain a
judgment in favor of the issue, which it supports. 12 As pointed out by the Solicitor General, such
knowledge of the insufficiency of petitioner's funds "is legally presumed from the dishonor of his
checks for insufficiency of funds." 13But such presumption cannot hold if there is evidence to the
contrary. In this case, we find that the other party has presented evidence to contradict said
presumption. Hence, the prosecution is duty bound to prove every element of the offense
charged, and not merely rely on a rebuttable presumption.
Admittedly, what are involved here are postdated checks. Postdating simply means that on the
date indicated on its face, the check would be properly funded, not that the checks should be
deemed as issued only then. 14 The checks in this case were issued at the time of the signing of
the Contract to Sell in August 1989. But we find from the records no showing that the time said
checks were issued, petitioner had knowledge that his deposit or credit in the bank would be
insufficient to cover them when presented for encashment. 15 On the contrary, there is
testimony by petitioner that at the time of presentation of the checks, he had P150,000,00 cash
or credit with Citibank.
As the evidence for the defense showed, the closure of petitioner's Account No. 845515 with
Citibank was not for insufficiency of funds. It was made upon the advice of the drawee bank, to
avoid payment of hefty bank charges each time petitioner issued a "stop payment" order to
prevent encashment of postdated checks in private respondent's possession. 16 Said evidence
contradicts the prima facie presumption of knowledge of insufficiency of funds. But it
establishes petitioner's state of mind at the time said checks were issued on August 24, 1989.
Petitioner definitely had no knowledge that his funds or credit would be insufficient when the
checks would be presented for encashment. He could not have foreseen that he would be
advised by his own bank in the future, to close his account to avoid paying the hefty banks
charges that came with each "stop payment" order issued to prevent private respondent from
encashing the 30 or so checks in its possession. What the prosecution has established is the
closure of petitioner's checking account. But this does not suffice to prove the second element
of the offense under B.P. Blg. 22, which explicitly requires "evidence of knowledge of
insufficient funds" by the accused at the time the check or checks are presented for
encashment.
To rely on the presumption created by B.P. No. 22 as the prosecution did in this case, would be
to misconstrue the import of requirements for conviction under the law. It must be stressed that
every element of the offense must be proved beyond reasonable doubt, never presumed.
Furthermore, penal statutes are strictly construed against the State and liberally in favor of the
accused. Under the Bouncing Checks Law, the punishable act must come clearly within both
the spirit and letter of the statute. 17
While B.P. Blg. 22 was enacted to safeguard the interest of the banking system, 18 it is difficult
to see how conviction of the accused in this case will protect the sanctity of the financial
system. Moreover, protection must also be afforded the interest of townhouse buyers under
P.D. No. 957. 19 A statute must be construed in relation to other laws so as to carry out the
legitimate ends and purposes intended by the legislature. 20 Courts will not strictly follow the
letter of one statute when it leads away from the true intent of legislature and when ends are
inconsistent with the general purpose of the act. 21 More so, when it will mean the contravention
of another valid statute. Both laws have to be reconciled and given due effect.
Note that we have upheld a buyer's reliance on Section 23 of P.D. 957 to suspend payments
until such time as the owner or developer had fulfilled its obligations to the buyer. 22 This
exercise of a statutory right to suspend installment payments, is to our mind, a valid defense
against the purported violations of B.P. Blg. 22 that petitioner is charged with.
Given the findings of the HLURB as to incomplete features in the construction of petitioner's
and other units of the subject condominium bought on installment from FRC, we are of the view
that petitioner had a valid cause to order his bank to stop payment. To say the least, the third
element of "subsequent dishonor of the check. . . without valid cause" appears to us not
established by the prosecution. As already stated, the prosecution tried to establish the crime
on a prima facie presumption in B.P. Blg. 22. Here that presumption is unavailing, in the
presence of a valid cause to stop payment, thereby negating the third element of the
crime.1âwphi1
Offenses punished by a special law, like the Bouncing Checks Law, are not subject to the
Revised Penal Code, but the Code is supplementary to such a law. 23 We find nothing in the
text of B.P. Blg. 22, which would prevent the Revised Penal Code from supplementing it.
Following Article 11 (5) 24 of the Revised Penal Code, petitioner's exercise of a right of the
buyer under Article 23 of P.D. No. 957 is a valid defense to the charges against him.
WHEREFORE, the instant petition is GRANTED. Petitioner Francisco T. Sycip, Jr., is
ACQUITTED of the charges against him under Batas Pambansa Blg. 22, for lack of sufficient
evidence to prove the offenses charged beyond reasonable doubt. No pronouncement as to
costs.
SO ORDERED.
 G.R. No. L-50900 April 9, 1985
COMPAÑIA MARITIMA, petitioner,
vs.
COURT OF APPEALS and PAN ORIENTAL SHIPPING CO., respondents.
G.R. No. L-51438 April 9, 1985
REPUBLIC OF THE PHILIPPINES (BOARD OF LlQUIDATORS), petitioner,
vs.
COURT OF APPEALS and PAN ORIENTAL SHIPPING CO., respondents.
G.R. No. L-51463 April 9, 1985
PAN ORIENTAL SHIPPING CO., petitioner,
vs.
COURT OF APPEALS, COMPAÑIA MARITIMA and THE REPUBLIC OF THE PHILIPPINES
(BOARD OF LIQUIDATORS), respondents.
MELENCIO-HERRERA, J.:
The above-entitled three (3) cases stemmed from the Decision of this Court, dated October 31,
1964, entitled "Fernando A. Froilan vs. Pan-Oriental Shipping Co., et al. 1 and our four (4)
subsequent Resolutions of August 27, 1965, November 23, 1966, December 16, 1966, and
January 5, 1967, respectively.
The antecedental background is narrated in the aforestated Decision, the pertinent portions of
which read:
On March 7, 1947, Fernando A. Froilan purchased from the Shipping
Administration a boat described as MV/FS-197 for the sum of P200,000.00,
with a down payment of P50,000.00. To secure payment of the unpaid
balance of the purchase price, a mortgage was constituted on the vessel in
favor of the Shipping Administration ....
xxx xxx xxx
Th(e) contract was duly approved by the President of the Philippines.
Froilan appeared to have defaulted in spite of demands, not only in the
payment of the first installment on the unpaid balance of the purchase price
and the interest thereon when they fell due, but also failed in his express
undertaking to pay the premiums on the insurance coverage of the vessel
obliging the Shipping Administration to advance such payment to the
insurance company. ...
Subsequently, FROILAN appeared to have still incurred a series of defaults notwithstanding
reconsiderations granted, so much so that:
On February 21, 1949, the General Manager (of the Shipping
Administration) directed its officers ... to take immediate possession of the
vessel and to suspend the unloading of all cargoes on the same until the
owners thereof made the corresponding arrangement with the Shipping
Administration. Pursuant to these instructions, the boat was, not only
actually repossessed, but the title thereto was registered again in the name
of the Shipping Administration, thereby re-transferring the ownership
thereof to the government.
On February 22, 1949, Pan Oriental Shipping Co., hereinafter referred to
as Pan Oriental, offered to charter said vessel FS-197 for a monthly rent of
P3,000.00. Because the government was then spending for the guarding of
the boat and subsistence of the crew members since repossession, the
Slopping Administration on April 1, 1949, accepted Pan Oriental's offer "in
principle" subject to the condition that the latter shag cause the repair of
the vessel advancing the cost of labor and drydocking thereof, and the
Shipping Administration to furnish the necessary spare parts. In
accordance with this charter contract, the vessel was delivered to the
possession of Pan Oriental.
In the meantime, or on February 22, 1949, Froilan tried to explain his
failure to comply with the obligations he assumed and asked that he be
given another extension up to March 15, 1949 to file the necessary bond.
Then on March 8, Froilan offered to pay all his overdue accounts.
However, as he failed to fulfill even these offers made by him in these two
communications, the Shipping Administration denied his petition for
reconsideration (of the rescission of the contract) on March 22, 1949. It
should be noted that while his petition for reconsideration was denied on
March 22, it does not appear when he formally formulated his appeal. In
the meantime, as already stated, the boat has been repossessed by the
Shipping Administration and the title thereto re-registered in the name of
the government, and delivered to the Pan Oriental in virtue of the charter
agreement. On June 2, 1949, Froilan protested to the President against the
charter of the vessel.
xxx xxx xxx
On June 4, 1949, the Shipping Administration and the Pan Oriental
formalized the charter agreement and signed a bareboat contract with
option to purchase, containing the following pertinent provisions:
III. CHARTER HIRE, TIME OF PAYMENT. — The CHARTERER shall pay
to the owner a monthly charter hire of THREE THOUSAND (P3,000.00)
PESOS from date of delivery of the vessel, payable in advance on or
before the 5th of every current month until the return of the vessel to
OWNER or purchase of the vessel by CHARTERER.
IV. RIGHT OF OPTION TO PURCHASE.— The right of option to purchase
the vessel at the price of P150,000.00 plus the amount expended for its
present repairs is hereby granted to the CHARTERER within 120 days
from the execution of this Contract, unless otherwise extended by the
OWNER. This right shall be deemed exercised only if, before the expiration
of the said period, or its extension by the OWNER, the CHARTERER
completes the payment, including any amount paid as Charter hire, of a
total sum of not less than twenty-five percentum (25%) of said price of the
vessel.
The period of option may be extended by the OWNER without in any way
affecting the other provisions, stipulations, and terms of this contract.
If, for any reason whatsoever, the CHARTERER fails to exercise its option
to purchase within the period stipulated, or within the extension thereof by
the OWNER, its right of option to purchase shall be deemed terminated,
without prejudice to the continuance of the Charter Party provisions of this
contract. The right to dispose of the vessel or terminate the Charter Party
at its discretion is reserved to the OWNER.
XIII. TRANSFER OF OWNERSHIP OF THE VESSEL. — After the
CHARTERER has exercised his right of option as provided in the
preceding paragraph (XII), the vessel shall be deemed conditionally sold to
the purchaser, but the ownership thereof shag not be deemed transferred
unless and until all the price of the vessel, together with the interest
thereon, and any other obligation due and payable to the OWNER under
this contract, have been fully paid by the CHARTERER.
xxx xxx xxx
XXI. APPROVAL OF THE PRESIDENT. — This contract shall take effect
only upon approval of His Excellency, the President.
On September 6, 1949, the Cabinet revoked the cancellation of Froilan's
contract of sale and restored to him all his rights thereunder, on condition
that he would give not less than P1,000.00 to settle partially as overdue
accounts and that reimbursement of the expenses incurred for the repair
and drydocking of the vessel performed by Pan Oriental was to be made in
accordance with future adjustment between him and the Shipping
Administration (Exh. I). Later, pursuant to this reservation, Froilan's request
to the Executive Secretary that the Administration advance the payment of
the expenses incurred by Pan Oriental in the drydocking and repair of the
vessel, was granted on condition that Froilan assume to pay the same and
file a bond to cover said undertaking (EXH. III).
On September 7, 1949, the formal bareboat charter with option to purchase
filed on June 4, 1949, in favor of the Pan Oriental was returned to the
General Manager of the Shipping Administration without action (not
disapproval), only because of the Cabinet resolution of September 6, 1949
restoring Froilan to his rights under the conditions set forth therein, namely,
the payment of P10,000.00 to settle partially his overdue accounts and the
filing of a bond to guarantee the reimbursement of the expenses incurred
by the Pan Oriental in the drydocking and repair of the vessel But Froilan
again failed to comply with these conditions. And so the Cabinet,
considering Froilan's consistent failure to comply with his obligations,
including those imposed in the resolution of September 6, 1949, resolved
to reconsider said previous resolution restoring him to his previous rights.
And, in a letter dated December 3, 1949, the Executive Secretary
authorized the Administration to continue its charter contract with Pan
Oriental in respect to FS-197 and enforce whatever rights it may still have
under the original contract with Froilan (Exh. 188).
xxx xxx xxx
On August 25, 1950, the Cabinet resolved once more to restore Froilan to
his rights under the original contract of sale, on condition that he shall pay
the sum of P10,000.00 upon delivery of the vessel to him, said amount to
be credited to his outstanding accounts; that he shall continue paying the
remaining installments due, and that he shall assume the
expenses incurred for the repair and drydocking of the vessel (Exh. 134).
Pan Oriental protested to this restoration of Froilan's rights under the
contract of sale, for the reason that when the vessel was delivered to it, the
Shipping Administration had authority to dispose of the said property,
Froilan having already relinquished whatever rights he may have thereon.
Froilan paid the required cash of P10,000.00, and as Pan Oriental refused
to surrender possession of the vessel, he filed an action for replevin in the
Court of First Instance of Manila (Civil Case No. 13196) to recover
possession thereof and to have him declared the rightful owner of said
property.
Upon plaintiff's filing a bond of P400,000.00, the court ordered the seizure
of the vessel from Pan Oriental and its delivery to the plaintiff. Pan Oriental
tried to question the validity of this order in a petition for certiorari filed in
this Court (G.R. No. L-4577), but the same was dismissed for lack of merit
by resolution of February 22, 1951. Defendant accordingly filed an answer,
denying the averments of the complaint.
The Republic of the Philippines, having been allowed to intervene in the
proceeding, also prayed for the possession of the vessel in order that the
chattel mortgage constituted thereon may be foreclosed. Defendant Pari
Oriental resisted said intervention, claiming to have a better right to the
possession of the vessel by reason of a valid and subsisting contract in its
favor, and of its right of retention, in view of the expenses it had incurred
for the repair of the said vessel. As counterclaim, defendant demanded of
the intervenor to comply with the latter's obligation to deliver the vessel
pursuant to the provisions of the charter contract.
xxx xxx xxx
Subsequently, Compañia Maritima, as purchaser of the vessel from
Froilan, was allowed to intervene in the proceedings (in the lower court),
said intervenor taking common cause with the plaintiff Froilan. In its answer
to the complaint in intervention, defendant set-up a counterclaim for
damages in the sum of P50,000.00, alleging that plaintiff secured the
Cabinet resolutions and the writ of replevin, resulting in its deprivation of
possession of the vessel, at the instigation and inducement of Compania
Maritima. This counterclaim was denied by both plaintiff and intervenor
Maritima.
On September 28, 1956, the lower court rendered a decision upholding
Froilan's (and Compañia Maritima's) right to the ownership and possession
of the FS-197.
xxx xxx xxx
 It is not disputed that appellant Pan Oriental took possession of the vessel On August 27, 1965, this Court, in resolving a Motion for Reconsideration filed by FROILAN
in question after it had been repossessed by the Shipping Administration and MARITIMA, ruled:
and title thereto reacquired by the government, and operated the same
from June 2, 1949 after it had repaired the vessel until it was dispossessed
In G.R. No. L-11897 (Fernando A. Froilan vs. Pan Oriental Shipping Co.);
of the property on February 3, 1951, in virtue of a bareboat charter contract
before us are (1) a motion, filed by appellant Pan Oriental to reconsider the
entered into between said company and the Shipping Administration. In the
ruling made in this case sustaining Froilan's right to ownership and
same agreement, appellant as charterer, was given the option to purchase
possession of the vessel FS-197, and holding that there was never a
the vessel, which may be exercised upon payment of a certain amount
perfected contract between said movant and the intervenor Republic of the
within a specified period. The President and Treasurer of the appellant
Philippines; and (2) a motion by plaintiff-appellee Fernando A. Froilan, and
company, tendered the stipulated initial payment on January 16, l950.
intervenor-appellee Compañia Maritima, for reconsideration of the decision
Appellant now contends that having exercised the option, the subsequent
insofar as it declared said movants, together with intervenor Republic of
Cabinet resolutions restoring Froilan's rights on the vessel, violated its
the Philippines, liable for reimbursement to appellant Pan Oriental of the
existing rights over the same property. To the contention of plaintiff Froffan
latter's legitimate necessary expenses made on the vessel in question.
that the charter contract never became effective because it never received
presidential approval as required therein, Pan Oriental answers that the
letter of the Executive Secretary dated December 3, 1949 (Exh. 118), 1. .Appellant Pan Oriental's Motion must be denied.
authorizing the Shipping Administration to continue its charter contract with
appellant, satisfies such requirement (of presidential approval). It is to be
noted, however, that said letter was signed by the Executive Secretary only It may be remembered that in the instant case, the alleged approval of the
charter contract or permission to proceed with said contract was given by
and not under authority of the President. The same, therefore, cannot be
considered to have attached unto the charter contract the required consent the Executive Secretary in his own name and not under the authority of the
of the Chief Executive for its validity. President.

xxx xxx xxx xxx xxx xxx

2. Anent, appellant's motion, considering that the writ of replevin, by virtue

(Emphasis supplied)
of which appellant Pan Oriental was divested of possession of the vessel
FS-197, was issued by the lower court on February 8, 1951 at the instance
This Court then held: of plaintiff Froilan and with the cooperation of intervenor Republic of the
Philippines, which accepted the payment tendered by him (Froilan)
notwithstanding its previous dealings with Pan Oriental; and whereas, the
In the circumstances of this case, therefore, the resulting situation is that
intervenor Compañia Maritima acquired the same property only on
neither Froilan nor the Pan Oriental holds a valid contract over the vessel.
December 1, 1951, it is clear that only plaintiff Froilan and the intervenor
However, since the intervenor Shipping Administration, representing the
Republic of the Philippines may be held responsible for the deprivation of
government practically ratified its proposed contract with Froilan by
defendant of its right to the retention of the property until fully reimbursed of
receiving the full consideration of the sale to the latter, for which reason the
the necessary expenditure made on the vessel. For this reason, Froilan
complaint in intervention was dismissed as to Froilan, and since Pan
and the Republic of the Philippines are declared jointly and severally
Oriental has no capacity to question this actuation of the Shipping
liable, not only for reimbursement to Pan Oriental of the legitimate
Administration because it had no valid contract in its favor, the of the lower
necessary expenses incurred on the vessel but also for payment of legal
court adjudicating the vessel to Froilan and its successor Maritima, must be
interest thereon, computed from the date of the defendant's dispossession
sus Nevertheless, under the already adverted to, Pan Oriental cannot be
of the property. However, as defendant was in actual possession of the
considered as in bad faith until after the institution of the case. However,
vessel from April 1, 1949 to February 7, 1951, it must be required to pay
since it is not disputed that said made useful and necessary expenses on
reasonable rental for the use thereof, at the rate of P3,000.00 a month —
the vessel, appellant is entitled to the refund of such expenses with the
the same rate specified as rental in the imperfected charter contract —
light to retain the vessel until he has been reimbursed therefor(Art. 546,
which shall be deductible from whatever may be due and owing the said
Civil Code). As it is by the concerted acts of defendants and intervenor
party by way of reimbursable necessary expenses and interest. This rental
Republic of the Philippines that appellant was deprived of the possession
shall commence from the time defendant Pan Oriental actually operated
of the vessel over which appellant had a lien for his expenses, appellees
the vessel, which date shall be determined by the lower court.
Froilan, Compañia Maritima, and the Republic of the Philippines
aredeclared liable for the reimbursement to appellant of its legitimate
expenses, as allowed by law, with legal interest from the time of Case is remanded to the court of origin for further proceedings on the
disbursement. matter of necessary expenses, interest and rental, as directed in our
decision and this resolution. (Emphasis supplied).
Modified in this manner, the decision appealed from is affirmed, without
costs. Case is remanded to the lower court for further proceedings in the On November 23, 1966, acting on a second Motion for Reconsideration filed by PAN
matter of expenses. So ordered. (Emphasis supplied). ORIENTAL, this Court resolved:
 In case G.R. No. L-11817, Fernando A, Froilan, et al., appellees, vs. Pan
Oriental Shipping Company, appellant, the latter filed a .second motion for
reconsideration, alleging that the Resolution of this Court of August 27,
1965 denying its motion for reconsideration of December 16, 1964 is not in
accordance with law; and that the modification of the judgment following
the ex-parte motion for reconsideration of appellee Froilan is contrary to
due process.
Considering that foregoing motion as well as the opposition thereto by
plaintiff-appellee and intervenor-appellee Compañia Maritima, the Court
RESOLVED to amend the ruling in this case by holding intervenor-appellee
Compañia Maritima, because of its actual knowledge of the circumstances
surrounding the purchase by Froilan of the vessel in question from the
Shipping Administrator, jointly and severally liable with the other appellees,
for reimbursement to appellant of the necessary expenses incurred and
expended by the latter on the said vessel, minus the amount of rentals due
from the appellant for the use thereof for the period it was actually operated
by Pan Oriental. The period of actual operation shall not include the time
when the vessel was drydocked.
On December 16,1966, acting on PAN ORIENTAL's Motion for Reconsideration or Application
for Damages on account of the wrongful issuance of the Writ of Replevin, this Court issued a
Resolution as follows:
Before us again in Case G.R. No. 11897 (Fernando A. Froilan vs. Pan
Oriental Shipping Co. et al) is a motion for reconsideration or Application
for damages filed by respondent Pan Oriental Shipping Co., allegedly on
account of the wrongful issuance of the writ of replevin, pursuant to Rule
60, Section 10, in relation to Rule 57, Section 20 of the Revised Rules of
Court. Considering that by virtue of our resolution dated August 27, 1965,
this case has been ordered to be remanded to the Court of origin for further
proceedings on the matter of necessary expenses, interest and rentals,
and since evidence would have to be presented if the application for
damages is allowed, the Court resolved, first, to deny the present motion
for reconsideration and, second, to refer the application to the trial court,
there to be heard and decided as prescribed by law and the Rules. (See
last sentence, Section 20, Rule 57).
Pursuant thereto, the case was remanded to the Court of First Instance of Manila, Branch VI
(Civil Case No. 13196). After the evidence of the parties was received and assessed by a
Commissioner, said Court issued an Order, dated June 4, 1975, the dispositive portion of which
reads:
WHEREFORE, in view of the foregoing consideration, the Court orders the
intervenor Compañia (plaintiff Fernando A. Froilan's successor-in-interest)
and intervenor Republic of the Philippines (Board of Liquidators) jointly and
severally to pay defendant Pan Oriental Shipping Company the sum of
P6,937.72 a month from the time 'it was dispossessed on February 3,
1951' until it is paid its useful and necessary expenses; the sum of
P40,797.54 actual amount expended for the repairs and improvements
prior to the operation of the vessel on June 1, 1949 with legal interest from
the time of disbursement of said legitimate expenses. The Court also
orders the intervenor Republic of the Philippines to return the sum of
P15,000.00 tendered by defendant Pan Oriental Shipping Company as
provided in the option with legal interest from January 16, 1950, the date it
was paid by the latter.
SO ORDERED. 2
The amount of P6,937.72 ordered to be paid monthly represented the lower Court's
computation of damages of PAN ORIENTAL for deprivation of the right to retain the vessel. 3
On appeal by REPUBLIC and MARITIMA to the then Court of Appeals, judgment was
promulgated decreeing.
WHEREFORE, in the light of the foregoing pronouncements, the judgment
appealed from is hereby MODIFIED as follows:
Ordering intervenors-appellants Republic and Compañia Maritima, jointly
and severally, to pay appellee Pan Oriental Shipping Company the sum of
P40,797.54 with legal interest from February 3, 1951 until fully paid but
there shah be deducted therefrom the amount of P59,500.00 representing
the unpaid rentals due the Republic of the Philippines; and AFFIRMED in
all other respects.
In other words, (a) the date from which interest is to be paid on the amount of P40,797.54 is
from February 3, 1951, the date of dispossession, and not from the time of disbursement and
(b) the unpaid rentals due the Republic are deductible from the amount of expenses payable to
PAN-ORIENTAL. It should be recalled that the deduction of rentals from the amount payable to
PAN-ORIENTAL by REPUBLIC was pursuant to this Court's Resolutions of August 27, 1965
and November 23, 1966, supra,
From the foregoing Decision, the parties filed their respective Petitions for Review now before
us.
For clarity, the sums ordered to be paid by MARITIMA and the REPUBLIC, jointly and
severally, to PAN-ORIENTAL are: (a) the sum of P6,937.72 a month from February 3, 1951, the
date of PAN-ORIENTAL's dispossession, in the concept of damages for the deprivation of its
right to retain the vessel, it until it is paid its useful and necessary expenses"; 4 (b) the sum of
P15,000.00, representing PAN-ORIENTAL's deposit with REPUBLIC for the purchase of the
vessel, "with legal interest from January 16, 1950," the date PAN-ORIENTAL had paid the
same; 5 and (c) the sum of P40,797.54 representing the expenses for repairs incurred by PAN-
ORIENTAL, "with legal interest from February 3, 1951 until fully paid," minus the amount of
P59,500.00 representing the unpaid rentals due the REPUBLIC 6 The legal rate of interest is
made payable only on the last two amounts (b) and (c).
REPUBLIC attributes the following errors to the Appellate Court: (1) in not holding that
compensation by operation of law took place as between REPUBLIC and PAN-ORIENTAL as
of the date of dispossession; (2) in not holding that the obligation of the REPUBLIC to pay legal
interest on the amount of useful and necessary expenses from February 3, 1951 had become
stale and ineffective; (3) in affirming the Order of the Trial Court that MARITIMA and
REPUBLIC, jointly and severally, pay to PAN-ORIENTAL the sum of P6,937.72 a month from
the time it was dispossessed of the vessel on February 3, 1951 until it is paid its useful and
necessary expenses; and (4) in not holding that the Trial Court had no jurisdiction to order the
return of P15,000.00 to PAN-ORIENTAL. MARITIMA, for its part, aside from assailing the sums
it was ordered to pay PAN-ORIENTAL, jointly and severally, with REPUBLIC, echoed the
theory of compensation and added that the question of damages on account of alleged
wrongful replevin was not a proper subject of inquiry by the Trial Court when it determined the
matter of necessary expenses, interest and rentals.
REPUBLIC's Submissions
1) REPUBLIC maintains that compensation or set-off took place between it and PAN-
ORIENTAL as of February 3, 1951, the date the latter was dispossessed of the vessel For
compensation to take place, one of the elements necessary is that the debts be liquidated. 7 In
this case, all the elements for Compensation to take place were not present on the date of
dispossession, or on February 3, 1951. The amount expended for repairs and improvements
had yet to be determined by the Trial Court pursuant to the Decision of this Court promulgated
on October 31, 1964. At the time of dispossession also, PAN-ORIENTAL was still insisting on
its right to purchase the vessel. The obligation of REPUBLIC to reimburse PAN-ORIENTAL for
expenses arose only after this Court had so ruled. Rentals for the use of the vessel by PAN-
ORIENTAL were neither due and demandable at the time of dispossession but only after this
Court had issued its Resolution of August 27, 1965.
More, the legal interest payable from February 3, 1951 on the sum of P40,797.54, representing
useful expenses incurred by PAN-ORIENTAL, is also still unliquidated 8 since interest does not
stop accruing "until the expenses are fully paid." 9 Thus, we find without basis REPUBLIC's
allegation that PAN- ORIENTAL's claim in the amount of P40,797.54 was extinguished by
compensation since the rentals payable by PAN-ORIENTAL amount to P59,500.00 while the
expenses reach only P40,797.54. Deducting the latter amount from the former, REPUBLIC
claims that P18,702.46 would still be owing by PAN-ORIENTAL to REPUBLIC. That argument
loses sight of the fact that to the sum of P40,797.54 will still have to be added the legal rate of
interest "from February 3, 1951 until fully paid."
retention of the property until fully reimbursed on the necessary expenditures made on
the vessel. " 11
4) There return of Pl5,000.00 ordered by the Trial Court and affirmed by the Appellate Court
was but just and proper. As this Court found, that sum was tendered to REPUBLIC "which
together with its (PAN-ORIENTAL's) alleged expenses already made on the vessel, cover 25%
of the cost of the vessel, as provided in the option granted in the bareboat contract (Exhibit
"C"). This amount was accepted by the Administration as deposit ...." Since the purchase did
not eventually materialize for reasons attributable to REPUBLIC, it is but just that the deposit be
returned. 12 It is futile to allege that PAN-ORIENTAL did not plead for the return of that amount
since its prayer included other reliefs as may be just under the premises. Courts may issue
such orders of restitution as justice and equity may warrant.
MARITIMA's Position
We find no merit in MARITIMA's contention that the alleged damages on account of wrongful
replevin was barred by res judicata, and that the application for damages before the lower
Court was but a mere adoption of a different method of presenting claims already litigated. For
the records show that an application for damages for wrongful replevin was filed both before
this Court and thereafter before the Trial Court after this Tribunal specifically remanded the
issue of those damages to the Trial Court there to be heard and decided pursuant to Rule 60,
Section 10 in relation to Rule 57, Section 20. 13

But although compensation by operation of law cannot take place as between REPUBLIC and
PAN-ORIENTAL, by specific pronouncement of this Court in its Resolution of November 23,
1966, supra, the rentals payable by PAN-ORIENTAL in the amount of P59,500.00 should be
deducted from the sum of useful expenses plus legal interest due, assuming that the latter
amount would still be greater. Otherwise, the corresponding adjustments can be made
depending on the totality of the respective amounts.
The matter of legal compensation which MARITIMA has also raised has been previously
discussed.
Parenthetically, PAN-ORIENTAL can no longer raise the alleged error of the Trial Court in
computing the necessary and useful expenses at only P40,797.54 when they should be
P87,267.30, since it did not appeal from that Court's Decision.

2) Since we are holding that the obligation of REPUBLIC to pay P40,797.54 to PAN-ORIENTAL
was not extinguished by compensation, the obligation of REPUBLIC to pay legal interest on
said amount has neither become stale as REPUBLIC contends. Of special note is the fact that
payment of that interest was the specific ruling of this Court in its Resolution of August 27,
1965, thus:
In a nutshell, we find that the appealed Decision of the Trial Court and of the then Court of
Appeals is in consonance with the Decision and Resolutions of this Court.
ACCORDINGLY, the judgment appealed from is hereby affirmed. No costs.

... For this reason, Froilan and the REPUBLIC of the Philippines are SO ORDERED.
declared jointly and severally liable, not only for reimbursement to Pan
Oriental, of the legitimate necessary expenses incurred on the vessel, but
also for payment of legal interest thereon, computed from the date of the
defendant's dispossession of the property ... .

3) The amount of P6,937.72 a month ordered to be paid by REPUBLIC and MARITIMA to PAN-
ORIENTAL until the latter is paid its useful and necessary expenses is likewise in order. That
amount represents the damages for the wrongful issuance of the Writ of Replevin and was
computed as follows: P4,132.77 for loss of income by PAN-ORIENTAL plus P2,804.95 as
monthly depreciation of the vessel in lieu of the charter hire.

It should further be recalled that this Court, in acting on PAN- ORIENTAL's application for
damages in its Resolution of December 16, 1966, supra, did not deny the same but referred it
instead to the Trial Court "there to be heard and decided" since evidence would have to be
presented. Moreover, this Court found that PAN-ORIENTAL was "deprived of the possession of
the vessel over which (it) had a lien for these expenses" 10 and that FROILAN and REPUBLIC
"may be held responsible for the deprivation of defendant (PANORIENTAL) of its right to
 G.R. No. L-69560 June 30, 1988
THE INTERNATIONAL CORPORATE BANK INC., petitioner,
vs.
THE IMMEDIATE APPELLATE COURT, HON. ZOILO AGUINALDO, as presiding Judge of
the Regional Trial Court of Makati, Branch 143, NATIVIDAD M. FAJARDO, and SILVINO R.
PASTRANA, as Deputy and Special Sheriff, respondents.
PARAS, J.:
This is a petition for review on certiorari of the Decision of the Court of Appeals dated October
31, 1984 in AC-G.R. SP No. 02912 entitled "THE INTERNATIONAL CORPORATE BANK, INC.
v. Hon. ZOILO AGUINALDO, et al.," dismissing petitioner's petition for certiorari against the
Regional Trial Court of Makati (Branch 143) for lack of merit, and of its Resolution dated
January 7, 1985, denying petitioner's motion for reconsideration of the aforementioned
Decision.
Petitioner also prays that upon filing of the petition, a restraining order be issued ex-
parte, enjoining respondents or any person acting in their behalf, from enforcing or in any
manner implementing the Order of the respondent trial court dated February 13 and March 9,
1984, and January 10 and January 11, 1985.
The facts of this case, as found by the trial court and subsequently adopted by the Court of
Appeals, are as follows:
In the early part of 1980, private respondent secured from petitioner's predecessors-in-interest,
the then Investment and Underwriting Corp. of the Philippines and Atrium Capital Corp., a loan
in the amount of P50,000,000.00. To secure this loan, private respondent mortgaged her real
properties in Quiapo, Manila and in San Rafael, Bulacan, which she claimed have a total
market value of P110,000,000.00. Of this loan, only the amount of P20,000,000.00 was
approved for release. The same amount was applied to pay her other obligations to petitioner,
bank charges and fees. Thus, private respondent's claim that she did not receive anything from
the approved loan.
On September 11, 1980, private respondent made a money market placement with ATRIUM in
the amount of P1,046,253.77 at 17% interest per annum for a period of 32 days or until October
13, 1980, its maturity date. Meanwhile, private respondent allegedly failed to pay her
mortgaged indebtedness to the bank so that the latter refused to pay the proceeds of the
money market placement on maturity but applied the amount instead to the deficiency in the
proceeds of the auction sale of the mortgaged properties. With Atrium being the only bidder,
said properties were sold in its favor for only P20,000,000.00. Petitioner claims that after
deducting this amount, private respondent is still indebted in the amount of P6.81 million.
On November 17, 1982, private respondent filed a complaint with the trial court against
petitioner for annulment of the sheriff's sale of the mortgaged properties, for the release to her
of the balance of her loan from petitioner in the amount of P30,000,000,00, and for recovery of
P1,062,063.83 representing the proceeds of her money market investment and for damages.
She alleges in her complaint, which was subsequently amended, that the mortgage is not yet
due and demandable and accordingly the foreclosure was illegal; that per her loan agreement
with petitioner she is entitled to the release to her of the balance of the loan in the amount of
P30,000,000.00; that petitioner refused to pay her the proceeds of her money market
placement notwithstanding the fact that it has long become due and payable; and that she
suffered damages as a consequence of petitioner's illegal acts.
In its answer, petitioner denies private respondent's allegations and asserts among others, that
it has the right to apply or set off private respondent's money market claim of P1,062,063.83.
Petitioner thus interposes counterclaims for the recovery of P5,763,741.23, representing the
balance of its deficiency claim after deducting the proceeds of the money market placement,
and for damages.
The trial court subsequently dismissed private respondent's cause of action concerning the
annulment of the foreclosure sale, for lack of jurisdiction, but left the other causes of action to
be resolved after trial. Private respondent then filed separate complaints in Manila and in
Bulacan for annulment of the foreclosure sale of the properties in Manila and in Bulacan,
respectively.
On December 15, 1983, private respondent filed a motion to order petitioner to release in her
favor the sum of P1,062,063.83, representing the proceeds of the money market placement, at
the time when she had already given her direct testimony on the merits of the case and was
being cross-examined by counsel. On December 24, 1983, petitioner filed an opposition
thereto, claiming that the proceeds of the money market investment had already been applied
to partly satisfy its deficiency claim, and that to grant the motion would be to render judgment in
her favor without trial and make the proceedings moot and academic. However, at the hearing
on February 9, 1984, counsel for petitioner and private respondent jointly manifested that they
were submitting for resolution said motion as well as the opposition thereto on the basis of the
pleadings and of the evidence which private respondent had already presented.
On February 13, 1984, respondent judge issued an order granting the motion, as follows:
IN VIEW OF THE FOREGOING, the defendant International Corporate Bank is
hereby ordered to deliver to the plaintiff Natividad M. Pajardo the amount of
P1,062,063.83 covered by the repurchase agreement with Serial No. AOY-14822
(Exhibit "A'), this amount represented the principal of P1,046,253.77 which the
plaintiff held including its interest as of October 13, 1980, conditioned upon the
plaintiff filing a bond amount to P1,062,063.83 to answer for all damages which the
said defendant bank may suffer in the event that the Court should finally decide that
the plaintiff was not entitled to the said amount.
Petitioner filed a motion for reconsideration to the aforesaid order, asserting among other things
that said motion is not verified, and therefore a mere scrap of paper. Private respondent
however manifested that since she testified in open court and was cross-examined by counsel
for petitioner on the motion for release of the proceeds of the money market placement, the
defect had already been cured. On March 9, 1984, the respondent judge issued an order
denying petitioner's motion for reconsideration. (CA Decision, Rollo, pp. 109-111).
On March 13, 1984, petitioner filed a special civil action for certiorari and prohibition with
preliminary injunction with the Court of Appeals, (a) for the setting aside and annulment of the
Orders dated February 13, 1984 and March 9,1984, issued by the respondent trial court, and
(b) for an order commanding or directing the respondent trial judge to desist from enforcing
and/or implementing and/or executing the aforesaid Orders. The temporary restraining order
prayed for was issued by respondent Court of Appeals on March 22, 1984. (Please see CA
Decision, Rollo, p. 114, last paragraph).
In a decision rendered on October 31, 1984 (Rollo, pp. 109-14), the Court of Appeals dismissed
said petition finding—(a) that while the Motion for the release of the proceeds of the money
market investment in favor of private respondent was not verified by her, that defect was cured
when she testified under oath to substantiate her allegations therein: (b) that, petitioner cannot
validly claim it was denied due process for the reason that it was given ample time to be heard,
as it was in fact heard when it filed an Opposition to the motion and a motion for
reconsideration; (c) that the circumstances of this case prevent legal compensation from taking
place because the question of whether private respondent is indebted to petitioner in the
amount of 6.81 million representing the deficiency balance after the foreclosure of the mortgage
executed to secure the loan extended to her, is vigorously disputed; (d) that the release of the
proceeds of the money market investment for private respondent will not make the causes of
action of the case pending before the trial court moot and academic nor will it cause irreparable
damage to petitioner, private respondent having filed her bond in the amount of P1,062,063.83
to answer for all damages which the former may suffer in the event that the court should finally
decide that private respondent is not entitled to the return of said amount (CA Decision, Rello,
pp. 112-114).
The dispositive portion of the aforementioned Decision reads:
... We hold that the respondent court cannot be successfully charged with
grave abuse of discretion amounting to lack of jurisdiction when it issued its
Orders of February 13, 1984 and March 9, 1984, based as they are on a
correct appreciation of the import of the parties' evidence and the
applicable law.
IN VIEW WHEREOF, the petition is dismissed for lack of merit and the
temporary restraining order issued by this Court on March 22, 1984 is
lifted. (Ibid., p. 114).
Petitioner moved for the reconsideration of the above decision (Annex "S", Rollo, pp. 116-124),
but for the reason that the same failed to raise any issue that had not been considered and
passed upon by the respondent Court of Appeals, it was denied in a Resolution dated January
7, 1985 (CA Resolution, Rollo, p. 126).
Having been affirmed by the Court of Appeals, the trial court issued a Writ of Execution to
implement its Order of February 13, 1984 (Annex "BB", Rollo, p. 188) and by virtue thereof, a
levy was made on petitioner's personal property consisting of 20 motor vehicles (Annex "U",
Rollo, p. 127).
On January 9, 1985, herein private respondent (then plaintiff) filed in the trial court an ex-
parte motion praying that the four branches of the petitioner such as: Baclaran Branch,
Paranaque, Metro Manila; Ylaya Branch, Divisoria, Metro Manila; Cubao Branch, Quezon City
and Binondo Branch, Sta. Cruz, Manila, be ordered to pay the amount of P250,000.00 each,
and the main office of the petitioner bank at Paseo de Roxas, Makati, Metro Manila, be ordered
to pay the amount of P62,063.83 in order to answer for the claim of private respondent
amounting to P1,062,063.83.
Thereupon, on January 10, 1985, the trial court issued an Order (Annex "V", Rollo, p. 129)
granting the above-mentioned prayers.
Acting on the ex-parte motion by the plaintiff (now private respondent), the trial court, on
January 11, 1984, ordered the President of defendant International Corporate Bank (now
petitioner) and all its employees and officials concemed to deliver to the sheriff the 20 motor
vehicles levied by virtue of the Writ of Execution dated December 12, 1984 (Annex "W", Rollo,
p. 131).
The petitioner having failed to comply with the above-cited Order, the respondent trial court
issued two (2) more Orders: the January 16, 1985 (Annex "CC," Rollo, p. 190) and January 21,
1985 Orders (Annex "DD", Rollo, p. 191), directing several employees mentioned therein to
show cause wily they should not be cited in contempt.
Hence, this petition for review on certiorari with prayer for a restraining order and for a writ of
preliminary injunction.
Three days after this petition was filed, or specifically on January 18, 1985, petitioner filed an
urgent motion reiterating its prayer for the issuance of an ex-parte restraining order (Rollo, p.
132).
Simultaneous with the filing of the present petition, petitioner, as defendant, filed with the trial
court an ex-partemotion to suspend the implementation of any and all orders and writs issued
pursuant to Civil Case No. 884 (Annex "A", Rollo, p. 135).
This Court's resolution dated January 21, 1985, without giving due course to the petition,
resolved (a) to require the respondents to comment: (b) to issue, effective immediately and until
further orders from this Court, a Temporary Restraining Order enjoining the respondents from
enforcing or in any manner implementing the questioned Orders dated February 13, 1984,
March 9, 1984, January 10, 1985 and January 11 and 16, 1985, issued in Civil Case No. 884.
The corresponding writ was issued on the same day (Rollo, pp. 139-140).
As required, the Comment of private respondent was filed on January 28, 1985 (Rollo, pp. 141-
150).
Thereafter, petitioner moved for leave to file a supplemental petition on the ground that after it
had filed this present petition, petitioner discovered that the bond filed with, and approved by,
the respondent lower court showed numerous material erasures, alterations and/or additions
(Rollo, p. 151), which the issuing insurance company certified as having been done without its
authority or consent (Annex "Z", Rollo, p. 178).
The Supplemental Petition was actually filed on February 1, 1985 (Rollo, pp. 154-171). It
pointed out the erasures, alterations and/or additions in the bond as follows:
a. below "Civil Case No. 884" after the words, "Plaintiff's Bond," the phrase
"For Levying of Attachment" was erased or deleted;
b. in lines 2 and 3 after the word "order," the phrase "approving plaintiff's
motion dated Dec. 15, 1983, was inserted or added;
c. in line 3, the phrases "Of attachment" and "ordered that a writ of
attachment issue' were erased or deleted;
d also in line 3 after the words "the court has" the phrase "approved the
Motion was likewise inserted or added;
e. in line 9, the phrase "and of the levying of said attachment" was also
erased or deleted;
f. in line 13, the word "attachment" was likewise erased or deleted;
g. also in line 13 after the deletion of word "attachment" the phrase
"release of the P1,062,063.83 to the plaintiff was similarly inserted or
added."
Petitioner contended therein that in view of the foregoing facts, the genuineness, due execution
and authenticity as well as the validity and enforceability of the bond (Rello, p. 174) is now
placed in issue and consequently, the bond may successfully be repudiated as falsified and,
therefore, without any force and effect and the bonding company may thereby insist that it has
been released from any hability thereunder.
Also, petitioner pointed as error the respondent trial court's motu proprio transferring Civil Case
No. 884 to the Manila Branch of the same Court arguing that improper venue, as a ground for,
and unless raised in, a Motion to Dismiss, may be waived by the parties and the court may not
pre-empt the right of the parties to agree between or among themselves as to the venue of their
choice in litigating their justiciable controversy (Supplemental Petition, Rollo, p. 160).
On being required to comment thereon, (Rollo, p. 192) private respondent countered (Rollo, pp.
193-198) that bond forms are ready-prepared forms and the bonding company used the form
for "Levying of Attachment" because the company has no ready-prepared form for the kind of
bond called for or required in Civil Case 884. Whatever deletions or additions appear on the
bond were made by the Afisco Insurance Corporation itself for the purpose of accomplishing
what was required or intended.
Nonetheless, on May 7, 1985, private respondent filed "Plaintiffs Bond" in the respondent trial
court in the amount of P1,062,063.83 a xerox copy of which was furnished this Court (Rollo, p.
219), and noted in the Court's Resolution dated May 29,1985 (Rollo, p. 225).
On March 11, 1985, petitioner was required to file a Consolidated Reply (Rollo, p. 199) which
was filed on April 10, 1985 (Rollo, p. 201).
Thereafter, a Rejoinder (Rollo, p. 238) was filed by private respondent on September 18, 1985
after Atty. Advincula, counsel for private respondents was required by this Court to show cause
why he should not be disciplinarily dealt with or held in contempt for his failure to comply on
time (Rollo, p. 226) and on August 19, 1985 said lawyer was finally admonished (Rollo, p. 229)
for his failure to promptly apprise the Court of his alleged non-receipt of copy of petitioner's
reply, which alleged non-receipt was vehemently denied by petitioner in its Counter
Manifestation (Rollo, p. 230) filed on August 5, 1985.
Finally, on October 7, 1985, this petition was given due course and both parties were required
to submit simultaneous memoranda (Rollo, p. 249) but before the same were filed, petitioner
moved for leave to file sur-rejoinder (Rollo, p. 250), the sur-rejoinder was filed on October
14,1985 (Rollo, pp. 252-254).
Petitioner's memorandum was filed on December 28, 1985 (Rollo, pp. 264-292) while that of
private respondent was submitted on January 10, 1986 (Rollo, pp. 295-304).
Petitioner again moved for leave to file a Reply Memorandum (Rollo, p. 307) which, despite
permission from this Court, was not filed and on August 22, 1986, private respondent prayed
for early resolution of the petition (Rollo, p. 311).
In a resolution dated October 13, 1986 (Rollo, p. 314) this case was transferred to the Second
Division of this Court, the same being assigned to a member of that Division.
The crucial issue to be resolved in this case is whether or not there can be legal compensation
in the case at bar.
Petitioner contends that after foreclosing the mortgage, there is still due from private
respondent as deficiency the amount of P6.81 million against which it has the right to apply or
set off private respondent's money market claim of P1,062,063.83.
The argument is without merit.
As correctly pointed out by the respondent Court of Appeals —
Compensation shall take place when two persons, in their own right, are creditors
and debtors of each other. (Art. 1278, Civil Code). "When all the requisites mentioned
in Art. 1279 of the Civil Code are present, compensation takes effect by operation of
law, even without the consent or knowledge of the debtors." (Art. 1290, Civil Code).
Article 1279 of the Civil Code requires among others, that in order that legal
compensation shall take place, "the two debts be due" and "they be liquidated and
demandable." Compensation is not proper where the claim of the person asserting
the set-off against the other is not clear nor liquidated; compensation cannot extend
to unliquidated, disputed claim arising from breach of contract. (Compañia General
de Tabacos vs. French and Unson, 39 Phil. 34; Lorenzo & Martinez vs. Herrero, 17
Phil. 29).
There can be no doubt that petitioner is indebted to private respondent in the amount
of P1,062,063.83 representing the proceeds of her money market investment. This is
admitted. But whether private respondent is indebted to petitioner in the amount of
P6.81 million representing the deficiency balance after the foreclosure of the
mortgage executed to secure the loan extended to her, is vigorously disputed. This
circumstance prevents legal compensation from taking place. (CA Decision, Rollo,
pp. 112-113).
It must be noted that Civil Case No. 83-19717 is still pending consideration at the RTC Manila,
for annulment of Sheriffs sale on extra-judicial foreclosure of private respondent's property from
which the alleged deficiency arose. (Annex "AA", Rollo, pp. 181-189). Therefore, the validity of
the extrajudicial foreclosure sale and petitioner's claim for deficiency are still in question, so
much so that it is evident, that the requirement of Article 1279 that the debts must be liquidated
and demandable has not yet been met. For this reason, legal compensation cannot take place
under Article 1290 of the Civil Code.
Petitioner now assails the motion of the plaintiff (now private respondent) filed in the trial court
for the release of the proceeds of the money market investment, arguing that it is deficient in
form, the same being unverified (petitioner's Memorandum, Rollo, p. 266). On this score, it has
been held that "as enjoined by the Rules of Court and the controlling jurisprudence, a liberal
construction of the rules and the pleadings is the controlling principle to effect substantial
justice." (Maturan v. Araula, 111 SCRA 615 [1982]).
Finally, the filing of insufficient or defective bond does not dissolve absolutely and
unconditionally the injunction issued. Whatever defect the bond possessed was cured when
private respondent filed another bond in the trial court.
PREMISES CONSIDERED, the questioned Decision and Resolution of the respondent Court of
Appeals are hereby AFFIRMED.
SO ORDERED.
 G.R. No. L-62169 February 28, 1983
MINDANAO PORTLAND CEMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS, PACWELD STEEL CORPORATION and ATTY. CASIANO P.
LAQUIHON respondents.
TEEHANKEE, J.:
The Court of Appeals (now Intermediate Appellate Court) certified petitioner's appeal therein as
defendant-appellant, docketed as C.A.-G.R. No. 65102 thereof, to this Court as involving only
questions of law in its Resolution of August 31, 1982, reading as follows:
The 'Statement of the Case and the Statement of Facts' contained in
appellant's brief follow:
STATEMENT OF FACTS
On January 3, 1978, one Atty. Casiano P. Laquihon, in behalf of third-party
defendant Pacweld Steel Corporation (Pacweld for short) as the latter's
attorney, filed a pleading addressed to the defendant & Third-Party Plaintiff
Mindanao Portland Cement Corporation (MPCC) for short), herein
appellant, entitled 'motion to direct payment of attorney's fee to counsel'
(himself ), invoking in his motion the fact that in the decision of the court of
Sept. 14, 1976, MPCC was adjudged to pay Pacweld the sum of
P10,000.00 as attorney's fees (Record on Appeal, pp. 1, 6-9).
On March 14, 1978, MPCC filed an opposition to Atty. Laquihon's motion,
stating, as grounds therefor, that said amount is set-off by a like sum of
P10,000.00 which it MPCC has collectible in its favor from Pacweld also by
way of attorney's fees which MPCC recovered from the same Court of First
Instance of Manila (Branch XX) in Civil Case No. 68346, entitled Pacweld
Steel Corporation, et al. writ of execution to this effect having been issued
by said court (Record on Appeal, pp, 2,10- 14).
On June 26, 1978 the court issued the order appealed from (Record on
Appeal, pp. 24-25) and despite MPCCs motion for reconsideration of said
order, citing the law applicable and Supreme Court decisions (Record on
Appeal, pp. 26-33), denied the same in its order of August 28, 1978
(Record on Appeal, p. 37), also subject matter of this appeal.
The writ of execution referred to above which MPCC has invoked to set- off
the amount sought to be collected by Pacweld through the latter's lawyer,
Atty. Casiano P. Laquihon, is hereunder quoted in full.
In his brief, appellee comments that the statements in appellant's brief are
'substantially correct,' as follows:
STATEMENT OF THE CASE
This is an appeal from the Order of the Court of First Instance of Manila
(Branch X dated June 26, 1978 ordering the appellant (MINDANAO
PORTLAND CEMENT CORPORATION) to pay the amount of P10,000.00
attorney's fees directly to Atty. Casiano B. Laquihon (Record on Appeal,
pp. 24-25) and from the Order dated August 28, 1978 denying appellant's
motion for reconsideration (Record on Appeal, p. 37).
There was no trial or submission of documentary evidence. Against the
orders of June 26. 1978, and August 28, 1978, appellant has brought this
appeal to this Court, contending that:
The lower court erred in not holding that the two obligations are
extinguished reciprocally by operation of law.' (p. 6, Appellant's Brief)
This appeal calls for the application of Arts. 1278, 1279 and 1290 of the
Civil Code, as urged by the appellant. Another question is: The judgment in
Civil Case No. 75179 being already final at the time the motion under
consideration was filed, does not the order of June 26, 1976 constitute a
change or alteration of the said judgment, though issued by the very same
court that rendered the judgment?
WHEREFORE, since only questions of law are involved and there is no
factual issue left for us to determine, let the records of the appeal in this
case be certified to the Honorable Supreme Court for determination.
After considering the briefs of the parties in the appellate court and the additional pleadings
required of them by this Court, the Court finds merit in the appeal and sets aside the appealed
orders of June 26 and August 28, 1978 of the Court of First Instance (now Regional Trial Court)
of Manila, Branch XX.
It is clear from the record that both corporations, petitioner Mindanao Portland Cement
Corporation (appellant) and respondent Pacweld Steel Corporation (appellee), were creditors
and debtors of each other, their debts to each other consisting in final and executory judgments
of the Court of First Instance in two (2) separate cases, ordering the payment to each other of
the sum of P10,000.00 by way of attorney's fees. The two (2) obligations, therefore,
respectively offset each other, compensation having taken effect by operation of law and
extinguished both debts to the concurrent amount of P10,000.00, pursuant to the provisions of
Arts. 1278, 1279 and 1290 of the Civil Code, since all the requisites provided in Art. 1279 of the
said Code for automatic compensation "even though the creditors and debtors are not aware of
the compensation" were duly present.**
Necessarily, the appealed order of June 26, 1978 granting Atty. Laquihon's motion for
amendment of the judgment of September 14, 1976 against Mindanao Portland Cement
Corporation so as to make the award therein of P10,000.00 as attorney's fees payable directly
to himself as counsel of Pacweld Steel Corporation instead of payable directly to said
corporation as provided in the judgment, which had become final and executory long before the
issuance of said "amendatory" order was a void alteration of judgment. It was a substantial
change or amendment beyond the trial court's jurisdiction and authority and it could not defeat
the compensation or set-off of the two (2) obligations of the corporations to each other which
had already extinguished both debts by operation of law.
ACCORDINGLY. the appealed orders are hereby annulled and set aside. No costs.
 G.R. No. 136202 January 25, 2007 account of private respondent Salazar by petitioner BPI was a matter exclusively between said
parties and may be pursuant to banking rules and regulations, but did not in any way affect him.
The debiting from another account of private respondent Salazar, considering that her other
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
account was effectively closed, was not his concern.
vs.
COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R.
TEMPLONUEVO, Respondents After trial, the RTC rendered a decision, the dispositive portion of which reads thus:

DECISION WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff
[private respondent Salazar] and against the defendant [petitioner BPI] and ordering the latter
to pay as follows:
AZCUNA, J.:

1. The amount of P267,707.70 with 12% interest thereon from September 16, 1991
This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the
until the said amount is fully paid;
Decision1 dated April 3, 1998, and the Resolution2 dated November 9, 1998, of the Court of
Appeals in CA-G.R. CV No. 42241.
2. The amount of P30,000.00 as and for actual damages;
3
The facts are as follows:
3. The amount of P50,000.00 as and for moral damages;
A.A. Salazar Construction and Engineering Services filed an action for a sum of money with
damages against herein petitioner Bank of the Philippine Islands (BPI) on December 5, 1991 4. The amount of P50,000.00 as and for exemplary damages;
before Branch 156 of the Regional Trial Court (RTC) of Pasig City. The complaint was later
amended by substituting the name of Annabelle A. Salazar as the real party in interest in place
5. The amount of P30,000.00 as and for attorney’s fees; and
of A.A. Salazar Construction and Engineering Services. Private respondent Salazar prayed for
the recovery of the amount of Two Hundred Sixty-Seven Thousand, Seven Hundred Seven
Pesos and Seventy Centavos (P267,707.70) debited by petitioner BPI from her account. She 6. Costs of suit.
likewise prayed for damages and attorney’s fees.
The counterclaim is hereby ordered DISMISSED for lack of factual basis.
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo, third-party
defendant and herein also a private respondent, demanded from the former payment of the
The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED for lack of
amount of Two Hundred Sixty-Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty
Centavos (P267,692.50) representing the aggregate value of three (3) checks, which were merit.
allegedly payable to him, but which were deposited with the petitioner bank to private
respondent Salazar’s account (Account No. 0203-1187-67) without his knowledge and Third-party defendant’s [i.e., private respondent Templonuevo’s] counterclaim is hereby
corresponding endorsement. likewise DISMISSED for lack of factual basis.

Accepting that Templonuevo’s claim was a valid one, petitioner BPI froze Account No. 0201-
0588-48 of A.A. Salazar and Construction and Engineering Services, instead of Account No.
0203-1187-67 where the checks were deposited, since this account was already closed by
private respondent Salazar or had an insufficient balance.
Private respondent Salazar was advised to settle the matter with Templonuevo but they did not
arrive at any settlement. As it appeared that private respondent Salazar was not entitled to the
funds represented by the checks which were deposited and accepted for deposit, petitioner BPI
decided to debit the amount of P267,707.70 from her Account No. 0201-0588-48 and the sum
of P267,692.50 was paid to Templonuevo by means of a cashier’s check. The difference
between the value of the checks (P267,692.50) and the amount actually debited from her
account (P267,707.70) represented bank charges in connection with the issuance of a
cashier’s check to Templonuevo.
SO ORDERED.4
On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that
respondent Salazar was entitled to the proceeds of the three (3) checks notwithstanding the
lack of endorsement thereon by the payee. The CA concluded that Salazar and Templonuevo
had previously agreed that the checks payable to JRT Construction and Trading5 actually
belonged to Salazar and would be deposited to her account, with petitioner acquiescing to the
arrangement.6
Petitioner therefore filed this petition on these grounds:
I.

In the answer to the third-party complaint, private respondent Templonuevo admitted the
payment to him of P267,692.50 and argued that said payment was to correct the malicious
deposit made by private respondent Salazar to her private account, and that petitioner bank’s
negligence and tolerance regarding the matter was violative of the primary and ordinary rules of
banking. He likewise contended that the debiting or taking of the reimbursed amount from the
The Court of Appeals committed reversible error in misinterpreting Section 49 of the Negotiable
Instruments Law and Section 3 (r and s) of Rule 131 of the New Rules on Evidence.
II.
The Court of Appeals committed reversible error in NOT applying the provisions of Articles 22,
1278 and 1290 of the Civil Code in favor of BPI.
III.
The Court of Appeals committed a reversible error in holding, based on a misapprehension of
facts, that the account from which BPI debited the amount of P267,707.70 belonged to a
corporation with a separate and distinct personality.
IV.
The Court of Appeals committed a reversible error in holding, based entirely on speculations,
surmises or conjectures, that there was an agreement between SALAZAR and
TEMPLONUEVO that checks payable to TEMPLONUEVO may be deposited by SALAZAR to
her personal account and that BPI was privy to this agreement.
V.
The Court of Appeals committed reversible error in holding, based entirely on speculation,
surmises or conjectures, that SALAZAR suffered great damage and prejudice and that her
business standing was eroded.
VI.
The Court of Appeals erred in affirming instead of reversing the decision of the lower court
against BPI and dismissing SALAZAR’s complaint.
VII.
The Honorable Court erred in affirming the decision of the lower court dismissing the third-party
complaint of BPI.7
The issues center on the propriety of the deductions made by petitioner from private
respondent Salazar’s account. Stated otherwise, does a collecting bank, over the objections of
its depositor, have the authority to withdraw unilaterally from such depositor’s account the
amount it had previously paid upon certain unendorsed order instruments deposited by the
depositor to another account that she later closed?
Petitioner argues thus:
1. There is no presumption in law that a check payable to order, when found in the
possession of a person who is neither a payee nor the indorsee thereof, has been
lawfully transferred for value. Hence, the CA should not have presumed that Salazar
was a transferee for value within the contemplation of Section 49 of the Negotiable
Instruments Law,8 as the latter applies only to a holder defined under Section 191of
the same.9
2. Salazar failed to adduce sufficient evidence to prove that her possession of the
three checks was lawful despite her allegations that these checks were deposited
pursuant to a prior internal arrangement with Templonuevo and that petitioner was
privy to the arrangement.
3. The CA should have applied the Civil Code provisions on legal compensation
because in deducting the subject amount from Salazar’s account, petitioner was
merely rectifying the undue payment it made upon the checks and exercising its
prerogative to alter or modify an erroneous credit entry in the regular course of its
business.
4. The debit of the amount from the account of A.A. Salazar Construction and
Engineering Services was proper even though the value of the checks had been
originally credited to the personal account of Salazar because A.A. Salazar
Construction and Engineering Services, an unincorporated single proprietorship, had
no separate and distinct personality from Salazar.
5. Assuming the deduction from Salazar’s account was improper, the CA should not
have dismissed petitioner’s third-party complaint against Templonuevo because the
latter would have the legal duty to return to petitioner the proceeds of the checks
which he previously received from it.
6. There was no factual basis for the award of damages to Salazar.
The petition is partly meritorious.
First, the issue raised by petitioner requires an inquiry into the factual findings made by the CA.
The CA’s conclusion that the deductions from the bank account of A.A. Salazar Construction
and Engineering Services were improper stemmed from its finding that there was no ineffective
payment to Salazar which would call for the exercise of petitioner’s right to set off against the
former’s bank deposits. This finding, in turn, was drawn from the pleadings of the parties, the
evidence adduced during trial and upon the admissions and stipulations of fact made during the
pre-trial, most significantly the following:
(a) That Salazar previously had in her possession the following checks:
(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the
amount of P57,712.50;
(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the amount
of P55,180.00; and,
(3) Equitable Banking Corporation Check No. 32380638 dated August 28,
1990 for the amount of P154,800.00;
(b) That these checks which had an aggregate amount of P267,692.50 were payable
to the order of JRT Construction and Trading, the name and style under which
Templonuevo does business;
(c) That despite the lack of endorsement of the designated payee upon such checks,
Salazar was able to deposit the checks in her personal savings account with
petitioner and encash the same;
(d) That petitioner accepted and paid the checks on three (3) separate occasions
over a span of eight months in 1990; and
 (e) That Templonuevo only protested the purportedly unauthorized encashment of of discretion; d) when the judgment is based on a misapprehension of facts; e) when the
the checks after the lapse of one year from the date of the last check. 10 findings of fact are conflicting; f) when the CA, in making its findings, went beyond the issues of
the case and the same are contrary to the admissions of both appellant and appellee; g) when
the findings of the CA are contrary to those of the trial court; h) when the findings of fact are
Petitioner concedes that when it credited the value of the checks to the account of private
conclusions without citation of specific evidence on which they are based; i) when the finding of
respondent Salazar, it made a mistake because it failed to notice the lack of endorsement
fact of the CA is premised on the supposed absence of evidence but is contradicted by the
thereon by the designated payee. The CA, however, did not lend credence to this claim and
evidence on record; and j) when the CA manifestly overlooked certain relevant facts not
concluded that petitioner’s actions were deliberate, in view of its admission that the "mistake"
disputed by the parties and which, if properly considered, would justify a different conclusion. 16
was committed three times on three separate occasions, indicating acquiescence to the internal
arrangement between Salazar and Templonuevo. The CA explained thus:
In the present case, the records do not support the finding made by the CA and the trial court
that a prior arrangement existed between Salazar and Templonuevo regarding the transfer of
It was quite apparent that the three checks which appellee Salazar deposited were not
ownership of the checks. This fact is crucial as Salazar’s entitlement to the value of the
indorsed. Three times she deposited them to her account and three times the amounts borne
instruments is based on the assumption that she is a transferee within the contemplation of
by these checks were credited to the same. And in those separate occasions, the bank did not
Section 49 of the Negotiable Instruments Law.
return the checks to her so that she could have them indorsed. Neither did the bank question
her as to why she was depositing the checks to her account considering that she was not the
payee thereof, thus allowing us to come to the conclusion that defendant-appellant BPI was Section 49 of the Negotiable Instruments Law contemplates a situation whereby the payee or
fully aware that the proceeds of the three checks belong to appellee. indorsee delivers a negotiable instrument for value without indorsing it, thus:

For if the bank was not privy to the agreement between Salazar and Templonuevo, it is most
unlikely that appellant BPI (or any bank for that matter) would have accepted the checks for
deposit on three separate times nary any question. Banks are most finicky over accepting
checks for deposit without the corresponding indorsement by their payee. In fact, they hesitate
to accept indorsed checks for deposit if the depositor is not one they know very well. 11
The CA likewise sustained Salazar’s position that she received the checks from Templonuevo
pursuant to an internal arrangement between them, ratiocinating as follows:
If there was indeed no arrangement between Templonuevo and the plaintiff over the three
questioned checks, it baffles us why it was only on August 31, 1991 or more than a year after
the third and last check was deposited that he demanded for the refund of the total amount of
P267,692.50.
Transfer without indorsement; effect of- Where the holder of an instrument payable to his order
transfers it for value without indorsing it, the transfer vests in the transferee such title as the
transferor had therein, and the transferee acquires in addition, the right to have the
indorsement of the transferor. But for the purpose of determining whether the transferee is a
holder in due course, the negotiation takes effect as of the time when the indorsement is
actually made. 17
It bears stressing that the above transaction is an equitable assignment and the transferee
acquires the instrument subject to defenses and equities available among prior parties. Thus, if
the transferor had legal title, the transferee acquires such title and, in addition, the right to have
the indorsement of the transferor and also the right, as holder of the legal title, to maintain legal
action against the maker or acceptor or other party liable to the transferor. The underlying
premise of this provision, however, is that a valid transfer of ownership of the negotiable
instrument in question has taken place.

A prudent man knowing that payment is due him would have demanded payment by his debtor
Transferees in this situation do not enjoy the presumption of ownership in favor of holders since
from the moment the same became due and demandable. More so if the sum involved runs in
they are neither payees nor indorsees of such instruments. The weight of authority is that the
hundreds of thousand of pesos. By and large, every person, at the very moment he learns that
mere possession of a negotiable instrument does not in itself conclusively establish either the
he was deprived of a thing which rightfully belongs to him, would have created a big fuss. He
right of the possessor to receive payment, or of the right of one who has made payment to be
would not have waited for a year within which to do so. It is most inconceivable that
discharged from liability. Thus, something more than mere possession by persons who are not
Templonuevo did not do this.12
payees or indorsers of the instrument is necessary to authorize payment to them in the
absence of any other facts from which the authority to receive payment may be inferred. 18
Generally, only questions of law may be raised in an appeal by certiorari under Rule 45 of the
Rules of Court.13Factual findings of the CA are entitled to great weight and respect, especially
The CA and the trial court surmised that the subject checks belonged to private respondent
when the CA affirms the factual findings of the trial court.14 Such questions on whether certain
Salazar based on the pre-trial stipulation that Templonuevo incurred a one-year delay in
items of evidence should be accorded probative value or weight, or rejected as feeble or
demanding reimbursement for the proceeds of the same. To the Court’s mind, however, such
spurious, or whether or not the proofs on one side or the other are clear and convincing and
period of delay is not of such unreasonable length as to estop Templonuevo from asserting
adequate to establish a proposition in issue, are questions of fact. The same holds true for
ownership over the checks especially considering that it was readily apparent on the face of the
questions on whether or not the body of proofs presented by a party, weighed and analyzed in
instruments19 that these were crossed checks.
relation to contrary evidence submitted by the adverse party may be said to be strong, clear
and convincing, or whether or not inconsistencies in the body of proofs of a party are of such
gravity as to justify refusing to give said proofs weight – all these are issues of fact which are In State Investment House v. IAC,20 the Court enumerated the effects of crossing a check, thus:
not reviewable by the Court.15 (1) that the check may not be encashed but only deposited in the bank; (2) that the check may
be negotiated only once - to one who has an account with a bank; and (3) that the act of
crossing the check serves as a warning to the holder that the check has been issued for a
This rule, however, is not absolute and admits of certain exceptions, namely: a) when the
definite purpose so that such holder must inquire if the check has been received pursuant to
conclusion is a finding grounded entirely on speculations, surmises, or conjectures; b) when the
that purpose.
inference made is manifestly mistaken, absurd, or impossible; c) when there is a grave abuse
Thus, even if the delay in the demand for reimbursement is taken in conjunction with Salazar’s
possession of the checks, it cannot be said that the presumption of ownership in
Templonuevo’s favor as the designated payee therein was sufficiently overcome. This is
consistent with the principle that if instruments payable to named payees or to their order have
not been indorsed in blank, only such payees or their indorsees can be holders and entitled to
receive payment in their own right.21
The presumption under Section 131(s) of the Rules of Court stating that a negotiable
instrument was given for a sufficient consideration will not inure to the benefit of Salazar
because the term "given" does not pertain merely to a transfer of physical possession of the
instrument. The phrase "given or indorsed" in the context of a negotiable instrument refers to
the manner in which such instrument may be negotiated. Negotiable instruments are negotiated
by "transfer to one person or another in such a manner as to constitute the transferee
the holder thereof. If payable to bearer it is negotiated by delivery. If payable to order it is
negotiated by the indorsement completed by delivery."22The present case involves checks
payable to order. Not being a payee or indorsee of the checks, private respondent Salazar
could not be a holder thereof.
It is an exception to the general rule for a payee of an order instrument to transfer the
instrument without indorsement. Precisely because the situation is abnormal, it is but fair to the
maker and to prior holders to require possessors to prove without the aid of an initial
presumption in their favor, that they came into possession by virtue of a legitimate transaction
with the last holder.23 Salazar failed to discharge this burden, and the return of the check
proceeds to Templonuevo was therefore warranted under the circumstances despite the fact
that Templonuevo may not have clearly demonstrated that he never authorized Salazar to
deposit the checks or to encash the same. Noteworthy also is the fact that petitioner stamped
on the back of the checks the words: "All prior endorsements and/or lack of endorsements
guaranteed," thereby making the assurance that it had ascertained the genuineness of all prior
endorsements. Having assumed the liability of a general indorser, petitioner’s liability to the
designated payee cannot be denied.
Consequently, petitioner, as the collecting bank, had the right to debit Salazar’s account for the
value of the checks it previously credited in her favor. It is of no moment that the account
debited by petitioner was different from the original account to which the proceeds of the check
were credited because both admittedly belonged to Salazar, the former being the account of
the sole proprietorship which had no separate and distinct personality from her, and the latter
being her personal account.
The right of set-off was explained in Associated Bank v. Tan:24
A bank generally has a right of set-off over the deposits therein for the payment of any
withdrawals on the part of a depositor. The right of a collecting bank to debit a client's account
for the value of a dishonored check that has previously been credited has fairly been
established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that "[f]ixed,
savings, and current deposits of money in banks and similar institutions shall be governed by
the provisions concerning simple loan."
Hence, the relationship between banks and depositors has been held to be that of creditor and
debtor. Thus, legal compensation under Article 1278 of the Civil Code may take place "when all
the requisites mentioned in Article 1279 are present," as follows:
(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.
While, however, it is conceded that petitioner had the right of set-off over the amount it paid to
Templonuevo against the deposit of Salazar, the issue of whether it acted judiciously is an
entirely different matter.25 As businesses affected with public interest, and because of the
nature of their functions, banks are under obligation to treat the accounts of their depositors
with meticulous care, always having in mind the fiduciary nature of their relationship. 26In this
regard, petitioner was clearly remiss in its duty to private respondent Salazar as its depositor.
To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious
lack of indorsement thereon, petitioner permitted the encashment of these checks three times
on three separate occasions. This negates petitioner’s claim that it merely made a mistake in
crediting the value of the checks to Salazar’s account and instead bolsters the conclusion of the
CA that petitioner recognized Salazar’s claim of ownership of checks and acted deliberately in
paying the same, contrary to ordinary banking policy and practice. It must be emphasized that
the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it,
for the purpose of determining their genuineness and regularity. The collecting bank, being
primarily engaged in banking, holds itself out to the public as the expert on this field, and the
law thus holds it to a high standard of conduct.27 The taking and collection of a check without
the proper indorsement amount to a conversion of the check by the bank. 28
More importantly, however, solely upon the prompting of Templonuevo, and with full knowledge
of the brewing dispute between Salazar and Templonuevo, petitioner debited the account held
in the name of the sole proprietorship of Salazar without even serving due notice upon her. This
ran contrary to petitioner’s assurances to private respondent Salazar that the account would
remain untouched, pending the resolution of the controversy between her and
Templonuevo.29 In this connection, the CA cited the letter dated September 5, 1991 of Mr.
Manuel Ablan, Senior Manager of petitioner bank’s Pasig/Ortigas branch, to private respondent
Salazar informing her that her account had been frozen, thus:
From the tenor of the letter of Manuel Ablan, it is safe to conclude that Account No. 0201-0588-
48 will remain frozen or untouched until herein [Salazar] has settled matters with Templonuevo.
But, in an unexpected move, in less than two weeks (eleven days to be precise) from the time
that letter was written, [petitioner] bank issued a cashier’s check in the name of Julio R.
Templonuevo of the J.R.T. Construction and Trading for the sum of P267,692.50 (Exhibit "8")
and debited said amount from Ms. Arcilla’s account No. 0201-0588-48 which was supposed to
be frozen or controlled. Such a move by BPI is, to Our minds, a clear case of negligence, if not
a fraudulent, wanton and reckless disregard of the right of its depositor.
The records further bear out the fact that respondent Salazar had issued several checks drawn
against the account of A.A. Salazar Construction and Engineering Services prior to any notice
of deduction being served. The CA sustained private respondent Salazar’s claim of damages in
this regard:
The act of the bank in freezing and later debiting the amount of P267,692.50 from the account
of A.A. Salazar Construction and Engineering Services caused plaintiff-appellee great damage
and prejudice particularly when she had already issued checks drawn against the said account.
As can be expected, the said checks bounced. To prove this, plaintiff-appellee presented as
exhibits photocopies of checks dated September 8, 1991, October 28, 1991, and November 14,
1991 (Exhibits "D", "E" and "F" respectively)30

These checks, it must be emphasized, were subsequently dishonored, thereby causing private
respondent Salazar undue embarrassment and inflicting damage to her standing in the
business community. Under the circumstances, she was clearly not given the opportunity to
protect her interest when petitioner unilaterally withdrew the above amount from her account
without informing her that it had already done so.

For the above reasons, the Court finds no reason to disturb the award of damages granted by
the CA against petitioner. This whole incident would have been avoided had petitioner adhered
to the standard of diligence expected of one engaged in the banking business. A depositor has
the right to recover reasonable moral damages even if the bank’s negligence may not have
been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety,
embarrassment and humiliation.31 Moral damages are not meant to enrich a complainant at the
expense of defendant. It is only intended to alleviate the moral suffering she has undergone.
The award of exemplary damages is justified, on the other hand, when the acts of the bank are
attended by malice, bad faith or gross negligence. The award of reasonable attorney’s fees is
proper where exemplary damages are awarded. It is proper where depositors are compelled to
litigate to protect their interest.32

WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3, 1998
and Resolution dated April 3, 1998 rendered by the Court of Appeals in CA-G.R. CV No. 42241
are MODIFIED insofar as it ordered petitioner Bank of the Philippine Islands to return the
amount of Two Hundred Sixty-seven Thousand Seven Hundred and Seven and 70/100 Pesos
(P267,707.70) to respondent Annabelle A. Salazar, which portion is REVERSED and SET
ASIDE. In all other respects, the same are AFFIRMED.

No costs.

SO ORDERED.
 G.R. No. 191555 January 20, 2014
UNION BANK OF THE PHILIPPINES, Petitioner,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on Certiorari1 are the Decision2 dated November 3, 2009 and
Resolution3 dated February 26, 2010 of the Court of Appeals (CA) in CA-G.R. SP No. 93833
which affirmed the Orders4 dated November 9, 2005 and January 30, 2006 of the Regional Trial
Court of Makati, Branch 585 (RTC) in Civil Case No. 7648 denying the motion to affirm legal
compensation6 filed by petitioner Union Bank of the Philippines (Union Bank) against
respondent Development Bank of the Philippines (DBP).
The Facts
Foodmasters, Inc. (FI) had outstanding loan obligations to both Union Bank’s predecessor-in-
interest, Bancom Development Corporation (Bancom), and to DBP.
On May 21, 1979, FI and DBP, among others, entered into a Deed of Cession of Property In
Payment of Debt7(dacion en pago) whereby the former ceded in favor of the latter certain
properties (including a processing plant in Marilao, Bulacan [processing plant]) in consideration
of the following: (a) the full and complete satisfaction of FI’s loan obligations to DBP; and (b)
the direct assumption by DBP of FI’s obligations to Bancom in the amount of ₱17,000,000.00
(assumed obligations).8
On the same day, DBP, as the new owner of the processing plant, leased back 9 for 20 years
the said property to FI (Lease Agreement) which was, in turn, obliged to pay monthly rentals to
be shared by DBP and Bancom.
DBP also entered into a separate agreement10 with Bancom (Assumption Agreement) whereby
the former: (a) confirmed its assumption of FI’s obligations to Bancom; and (b) undertook to
remit up to 30% of any and all rentals due from FI to Bancom (subject rentals) which would
serve as payment of the assumed obligations, to be paid in monthly installments. The pertinent
portions of the Assumption Agreement reads as follows:
WHEREAS, DBP has agreed and firmly committed in favor of Bancom that the above
obligations to Bancom which DBP has assumed shall be settled, paid and/or liquidated by DBP
out of a portion of the lease rentals or part of the proceeds of sale of those properties of the
Assignors conveyed to DBP pursuant to the [Deed of Cession of Property in Payment of Debt
dated May 21, 1979] and which are the subject of [the Lease Agreement] made and executed
by and between DBP and [FI], the last hereafter referred to as the "Lessee" to be effective as of
July 31, 1978.
xxxx
4. DBP hereby covenants and undertakes that the amount up to 30% of any and all rentals due
from the Lessee pursuant to the Lease Agreement shall be remitted by DBP to Bancom at the
latter’s offices at Pasay Road, Makati, Metro Manila within five (5) days from due dates thereof,
and applied in payment of the Assumed Obligations. Likewise, the amount up to 30% of the
proceeds from any sale of the Leased Properties shall within the same period above, be
remitted by DBP to Bancom and applied in payment or prepayment of the Assumed
Obligations. x x x.
Any balance of the Assumed Obligations after application of the entire rentals and or the entire
sales proceeds actually received by Bancom on the Leased Properties shall be paid by DBP to
Bancom not later than December 29, 1998. (Emphases supplied)
Meanwhile, on May 23, 1979, FI assigned its leasehold rights under the Lease Agreement to
Foodmasters Worldwide, Inc. (FW);11 while on May 9, 1984, Bancom conveyed all its
receivables, including, among others, DBP’s assumed obligations, to Union Bank.12
Claiming that the subject rentals have not been duly remitted despite its repeated demands,
Union Bank filed, on June 20, 1984, a collection case against DBP before the RTC, docketed
as Civil Case No. 7648.13 In opposition, DBP countered, among others, that the obligations it
assumed were payable only out of the rental payments made by FI. Thus, since FI had yet to
pay the same, DBP’s obligation to Union Bank had not arisen.14 In addition, DBP sought to
implead FW as third party-defendant in its capacity as FI’s assignee and, thus, should be held
liable to Union Bank.15
In the interim, or on May 6, 1988, DBP filed a motion to dismiss on the ground that it had
ceased to be a real-party-in-interest due to the supervening transfer of its rights, title and
interests over the subject matter to the Asset Privatization Trust (APT). Said motion was,
however, denied by the RTC in an Order dated May 27, 1988.16
The RTC Ruling in Civil Case No. 7648
Finding the complaint to be meritorious, the RTC, in a Decision17 dated May 8, 1990, ordered:
(a) DBP to pay Union Bank the sum of ₱4,019,033.59, representing the amount of the subject
rentals (which, again, constitutes 30% of FI’s [now FW’s] total rental debt), including interest
until fully paid; and (b) FW, as third-party defendant, to indemnify DBP, as third- party plaintiff,
for its payments of the subject rentals to Union Bank. It ruled that there lies no evidence which
would show that DBP’s receipt of the rental payments from FW is a condition precedent to the
former’s obligation to remit the subject rentals under the Lease Agreement. Thus, when DBP
failed to remit the subject rentals to Union Bank, it defaulted on its assumed obligations.18 DBP
then elevated the case on appeal before the CA, docketed as CA-G.R. CV No. 35866.
The CA Ruling in CA-G.R. CV No. 35866
In a Decision19 dated May 27, 1994 (May 27, 1994 Decision), the CA set aside the RTC’s
ruling, and consequently ordered: (a) FW to pay DBP the amount of ₱32,441,401.85
representing the total rental debt incurred under the Lease Agreement, including ₱10,000.00 as
attorney’s fees; and (b) DBP, after having been paid by FW its unpaid rentals, to remit 30%
thereof (i.e., the subject rentals) to Union Bank.20
It rejected Union Bank’s claim that DBP has the direct obligation to remit the subject rentals not
only from FW’s rental payments but also out of its own resources since said claim contravened
the "plain meaning" of the Assumption Agreement which specifies that the payment of the
assumed obligations shall be made "out of the portion of the lease rentals or part of the
proceeds of the sale of those properties of [FI] conveyed to DBP." 21 It also construed the
phrase under the Assumption Agreement that DBP is obligated to "pay any balance of the
Assumed Obligations after application of the entire rentals and/or the entire sales proceeds
actually received by [Union Bank] on the Leased Properties . . . not later than December 29,
1998" to mean that the lease rentals must first be applied to the payment of the assumed
obligations in the amount of ₱17,000,000.00, and that DBP would have to pay out of its own
money only in case the lease rentals were insufficient, having only until December 29, 1998 to
do so. Nevertheless, the monthly installments in satisfaction of the assumed obligations would
still have to be first sourced from said lease rentals as stipulated in the assumption
agreement.22 In view of the foregoing, the CA ruled that DBP did not default in its obligations to
remit the subject rentals to Union Bank precisely because it had yet to receive the rental
payments of FW.23
Separately, the CA upheld the RTC’s denial of DBP’s motion to dismiss for the reason that the
transfer of its rights, title and interests over the subject matter to the APT occurred pendente
lite, and, as such, the substitution of parties is largely discretionary on the part of the court.
At odds with the CA’s ruling, Union Bank and DBP filed separate petitions for review on
certiorari before the Court, respectively docketed as G.R. Nos. 115963 and 119112, which
were thereafter consolidated.
The Court’s Ruling in G.R. Nos. 115963 & 119112
The Court denied both petitions in a Resolution24 dated December 13, 1995. First, it upheld the
CA’s finding that while DBP directly assumed FI’s obligations to Union Bank, DBP was only
obliged to remit to the latter 30% of the lease rentals collected from FW, from which any
deficiency was to be settled by DBP not later than December 29, 1998. 25 Similarly, the Court
agreed with the CA that the denial of DBP’s motion to dismiss was proper since substitution of
parties, in case of transfers pendente lite, is merely discretionary on the part of the court,
adding further that the proposed substitution of APT will amount to a novation of debtor which
cannot be done without the consent of the creditor. 26
On August 2, 2000, the Court’s resolution became final and executory.27
The RTC Execution Proceedings
On May 16, 2001, Union Bank filed a motion for execution28 before the RTC, praying that DBP
be directed to pay the amount of ₱9,732,420.555 which represents the amount of the subject
rentals (i.e., 30% of the FW’s total rental debt in the amount of ₱32,441,401.85). DBP
opposed29 Union Bank’s motion, contending that it sought to effectively vary the dispositive
portion of the CA’s May 27, 1994 Decision in CA-G.R. CV No. 35866. Also, on September 12,
2001, DBP filed its own motion for execution against FW, citing the same CA decision as its
basis.
In a Consolidated Order30 dated October 15, 2001 (Order of Execution), the RTC granted both
motions for execution. Anent Union Bank’s motion, the RTC opined that the CA’s ruling that
DBP’s payment to Union Bank shall be demandable only upon payment of FW must be viewed
in light of the date when the same was rendered. It noted that the CA decision was
promulgated only on May 27, 1994, which was before the December 29, 1998 due date within
which DBP had to fully pay its obligation to Union Bank under the Assumption Agreement.
Since the latter period had already lapsed, "[i]t would, thus, be too strained to argue that
payment by DBP of its assumed obligation[s] shall be dependent on [FW’s] ability, if not
availability, to pay."31 In similar regard, the RTC granted DBP’s motion for execution against FW
since its liability to Union Bank and DBP remained undisputed.
As a result, a writ of execution32 dated October 15, 2001 (October 15, 2001 Writ of Execution)
and, thereafter, a notice of garnishment33 against DBP were issued. Records, however, do not
show that the same writ was implemented against FW.
DBP filed a motion for reconsideration34 from the Execution Order, averring that the latter
issuance varied the import of the CA’s May 27, 1994 Decision in CA-G.R. CV No. 35866 in that
it prematurely ordered DBP to pay the assumed obligations to Union Bank before FW’s
payment. The motion was, however, denied on December 5, 2001. 35 Thus, DBP’s deposits
were eventually garnished.36 Aggrieved, DBP filed a petition for certiorari37 before the CA,
docketed as CA-G.R. SP No. 68300.
The CA Ruling in CA-G.R. SP No. 68300
In a Decision38 dated July 26, 2002, the CA dismissed DBP’s petition, finding that the RTC did
not abuse its discretion when it issued the October 15, 2001 Writ of Execution. It upheld the
RTC’s observation that there was "nothing wrong in the manner how [said writ] was
implemented," as well as "in the zealousness and promptitude exhibited by Union Bank" in
moving for the same. DBP appealed the CA’s ruling before the Court, which was docketed as
G.R. No. 155838.
The Court’s Ruling in G.R. No. 155838
In a Decision39 dated January 13, 2004 (January 13, 2004 Decision), the Court granted DBP’s
appeal, and thereby reversed and set aside the CA’s ruling in CA-G.R. SP No. 68300. It found
significant points of variance between the CA’s May 27, 1994 Decision in CA-G.R. CV No.
35866, and the RTC’s Order of Execution/October 15, 2001 Writ of Execution. It ruled that both
the body and the dispositive portion of the same decision acknowledged that DBP’s obligation
to Union Bank for remittance of the lease payments is contingent on FW’s prior payment to
DBP, and that any deficiency DBP had to pay by December 29, 1998 as per the Assumption
Agreement cannot be determined until after the satisfaction of FW’s own rental obligations to
DBP. Accordingly, the Court: (a) nullified the October 15, 2001 Writ of Execution and all related
issuances thereto; and (b) ordered Union Bank to return to DBP the amounts it received
pursuant to the said writ.40 Dissatisfied, Union Bank moved for reconsideration which was,
however, denied by the Court in a Resolution dated March 24, 2004 with finality. Thus, the
January 13, 2004 Decision attained finality on April 30, 2004. 41 Thereafter, DBP moved for the
execution of the said decision before the RTC. After numerous efforts on the part of Union
Bank proved futile, the RTC issued a writ of execution (September 6, 2005 Writ of Execution),
ordering Union Bank to return to DBP all funds it received pursuant to the October 15, 2001
Writ of Execution.42
Union Bank’s Motion to Affirm Legal Compensation
On September 13, 2005, Union Bank filed a Manifestation and Motion to Affirm Legal
Compensation,43 praying that the RTC apply legal compensation between itself and DBP in
order to offset the return of the funds it previously received from DBP. Union Bank anchored its
motion on two grounds which were allegedly not in existence prior to or during trial, namely: (a)
on December 29, 1998, DBP’s assumed obligations became due and demandable; 44 and (b)
considering that FWI became non-operational and non-existent, DBP became primarily liable to
the balance of its assumed obligation, which as of Union Bank’s computation after its claimed
set-off, amounted to ₱1,849,391.87.45
On November 9, 2005, the RTC issued an Order46 denying the above-mentioned motion for
lack of merit, holding that Union Bank’s stated grounds were already addressed by the Court in
the January 13, 2004 Decision in G.R. No. 155838. With Union Bank’s motion for
reconsideration therefrom having been denied, it filed a petition for certiorari 47 with the CA,
docketed as CA-G.R. SP No. 93833.
Pending resolution, Union Bank issued Manager’s Check 48 No. 099-0003192363 dated April
21, 2006 amounting to ₱52,427,250.00 in favor of DBP, in satisfaction of the Writ of Execution
dated September 6, 2005 Writ of Execution. DBP, however, averred that Union Bank still has a
balance of ₱756,372.39 representing a portion of the garnished funds of DBP, 49 which means
that said obligation had not been completely extinguished.
The CA Ruling in CA-G.R. SP No. 93833
In a Decision50 dated November 3, 2009, the CA dismissed Union Bank’s petition, finding no
grave abuse of discretion on the RTC’s part. It affirmed the denial of its motion to affirm legal
compensation considering that: (a) the RTC only implemented the Court’s January 13, 2004
Decision in G.R. No. 155838 which by then had already attained finality; (b) DBP is not a debtor
of Union Bank; and (c) there is neither a demandable nor liquidated debt from DBP to Union
Bank.51
Undaunted, Union Bank moved for reconsideration which was, however, denied in a
Resolution52 dated February 26, 2010; hence, the instant petition.
The Issue Before the Court
The sole issue for the Court’s resolution is whether or not the CA correctly upheld the denial of
Union Bank’s motion to affirm legal compensation.
The Court’s Ruling
The petition is bereft of merit. Compensation is defined as a mode of extinguishing obligations
whereby two persons in their capacity as principals are mutual debtors and creditors of each
other with respect to equally liquidated and demandable obligations to which no retention or
controversy has been timely commenced and communicated by third parties. 53 The requisites
therefor are provided under Article 1279 of the Civil Code which reads as follows:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.1awp++i1 (Emphases and
underscoring supplied)
The rule on legal54 compensation is stated in Article 1290 of the Civil Code which provides that
"[w]hen all the requisites mentioned in Article 1279 are present, compensation takes effect by
operation of law, and extinguishes both debts to the concurrent amount, even though the
creditors and debtors are not aware of the compensation."
In this case, Union Bank filed a motion to seek affirmation that legal compensation had taken
place in order to effectively offset (a) its own obligation to return the funds it previously received
from DBP as directed under the September 6, 2005 Writ of Execution with (b) DBP’s assumed
obligations under the Assumption Agreement. However, legal compensation could not have
taken place between these debts for the apparent reason that requisites 3 and 4 under Article
1279 of the Civil Code are not present. Since DBP’s assumed obligations to Union Bank for
remittance of the lease payments are – in the Court’s words in its Decision dated January 13,
2004 in G.R. No. 155838 – " contingent on the prior payment thereof by [FW] to DBP," it cannot
be said that both debts are due (requisite 3 of Article 1279 of the Civil Code). Also, in the same
ruling, the Court observed that any deficiency that DBP had to make up (by December 29, 1998
as per the Assumption Agreement) for the full satisfaction of the assumed obligations " cannot
be determined until after the satisfaction of Foodmasters’ obligation to DBP." In this regard, it
cannot be concluded that the same debt had already been liquidated, and thereby became
demandable (requisite 4 of Article 1279 of the Civil Code).
The aforementioned Court decision had already attained finality on April 30, 200455 and, hence,
pursuant to the doctrine of conclusiveness of judgment, the facts and issues actually and
directly resolved therein may not be raised in any future case between the same parties, even if
the latter suit may involve a different cause of action.56 Its pertinent portions are hereunder
quoted for ready reference:57
Both the body and the dispositive portion of the [CA’s May 27, 1994 Decision in CA-G.R. CV
No. 35866] correctly construed the nature of DBP’s liability for the lease payments under the
various contracts, to wit:
x x x Construing these three contracts, especially the "Agreement" x x x between DBP and
Bancom as providing for the payment of DBP’s assumed obligation out of the rentals to be paid
to it does not mean negating DBP’s assumption "for its own account" of the ₱17.0 million debt x
x x. It only means that they provide a mechanism for discharging [DBP’s] liability. This liability
subsists, since under the "Agreement" x x x, DBP is obligated to pay "any balance of the
Assumed Obligations after application of the entire rentals and or the entire sales proceeds
actually received by [Union Bank] on the Leased Properties … not later than December 29,
1998." x x x It only means that the lease rentals must first be applied to the payment of the ₱17
million debt and that [DBP] would have to pay out of its money only in case of insufficiency of
the lease rentals having until December 29, 1998 to do so. In this sense, it is correct to say that
the means of repayment of the assumed obligation is not limited to the lease rentals. The
monthly installments, however, would still have to come from the lease rentals since this was
stipulated in the "Agreement."
xxxx
Since, as already stated, the monthly installments for the payment of the ₱17 million debt are to
be funded from the lease rentals, it follows that if the lease rentals are not paid, there is nothing
for DBP to remit to [Union Bank], and thus [DBP] should not be considered in default. It is
noteworthy that, as stated in the appealed decision, "as regards plaintiff’s claim for damages
against defendant for its alleged negligence in failing and refusing to enforce a lessor’s
remedies against Foodmasters Worldwide, Inc., the Court finds no competent and reliable
evidence of such claim."
xxxx
WHEREFORE, the decision appealed from is SET ASIDE and another one is RENDERED,
 (i) Ordering third-party defendant-appellee Foodmasters Worldwide, Inc. to pay
defendant and third-party plaintiff-appellant Development Bank of the Philippines the
sum of ₱32,441,401.85, representing the unpaid rentals from August 1981 to June
30, 1987, as well as ₱10,000.00 for attorney’s fees; and

(ii) Ordering defendant and third-party plaintiff-appellant Development Bank of the

Philippines after having been paid by third-party defendant-appellee the sum of
₱32,441,401.85, to remit 30% thereof to plaintiff-appellee Union Bank of the
Philippines.

SO ORDERED.

In other words, both the body and the dispositive portion of the aforequoted decision
acknowledged that DBP’s obligation to Union Bank for remittance of the lease payments is
contingent on the prior payment thereof by Foodmasters to DBP.

A careful reading of the decision shows that the Court of Appeals, which was affirmed by the
Supreme Court, found that only the balance or the deficiency of the ₱17 million principal
obligation, if any, would be due and demandable as of December 29, 1998. Naturally, this
deficiency cannot be determined until after the satisfaction of Foodmasters obligation to DBP,
for remittance to Union Bank in the proportion set out in the 1994 Decision. (Emphases and
underscoring supplied; citations omitted)

xxxx

In fine, since requisites 3 and 4 of Article 1279 of the Civil Code have not concurred in this
case, no legal compensation could have taken place between the above-stated debts pursuant
to Article 1290 of the Civil Code. Perforce, the petition must be denied, and the denial of Union
Bank s motion to affirm legal compensation sustained.

WHEREFORE, the petition is DENIED. The Decision dated November 3, 2009 and Resolution
dated February 26, 2010 of the Court of Appeals in CA-G.R. SP No. 93833 are hereby
AFFIRMED.

SO ORDERED.
 G.R. No. L-48797 July 30, 1943 December 12, 1933. Lack of new publication is shown by appellee's own evidence and the
issue, though not raised in the pleadings, was thereby tried by implied consent of the parties,
emphasized by the appellants in the memorandum filed by them in the lower court and squarely
FUA CAM LU, plaintiff-appellee,
threshed out in this Court by both the appellants and the appellee. The latter had, besides,
vs.
admitted that there was no new publication, and so much so that in his brief he merely resorted
YAP FAUCO and YAP SINGCO, defendants-appellants.
to the argument that "section 460 of Act 190 authorized the sheriff to adjourn any sale upon
execution to any date agreed upon in writing by the parties . . . and does not require the sheriff
Vicente J. Francisco for petitioner. to publish anew the public sale which was adjourned." The appellee has correctly stated the
M.H. de Joya for respondents. law but has failed to show that it supports his side, for it is not pretended that there was any
written agreement between the parties to adjourn the sale advertised for December 12, 1933,
to May 28, 1934. Neither may it be pretended that the sale in favor of the appellee was by
The plaintiff-appellee, Fua Cam Lu, obtained in civil case No. 42125 of the Court of First virtue of a mere adjournment, it appearing that it was made pursuant to an alias writ of
Instance of Manila a judgment sentencing the defendants-appellants, Yap Fauco and Yap execution. Appellee's admission has thus destroyed the legal presumption that official duty was
Singco, to pay P1,538.04 with legal interest and costs. By virtue of a writ of execution, a certain
regularly performed.
parcel of land belonging to the appellants, assessed at P3,550 and situated in Donsol,
Sorsogon was levied upon the provincial sheriff of Sorsogon who, on November 15, 1933,
made a notice, duly posted in three conspicuous places in the municipalities of Donsol and The appealed judgment is, therefore, reversed and the defendants-appellants, who are hereby
Sorsogon and published in the Mamera Press, that said land would be sold at public auction on declared to be the owners of the land in question are absolved from the complaint, with costs
December 12, 1933. On December 16, 1933, the appellants executed a mortgage in favor of against the appellee. So ordered.
the appellee, wherein it was stipulated that their obligation under the judgment in civil case No.
41225 was reduced to P1,200 which was made payable in four installments of P300 during the
period commencing on February 8, 1934, and ending on August 8, 1935l that to secure the
payment of the said P1,200, a camarin belonging to the appellants and built on the above-
mentioned land, was mortgaged to the appellee; that in case the appellants defaulted in the
payment of any of the installments, they would pay ten per cent of the unpaid balance as
attorney's fees. plus the costs of the action to be brought by the appellee by reason of such
default, and the further amount of P338, representing the discount conceded to the appellants.
As a result of the agreement thus reached by the parties, the sale of the land advertised by the
provincial sheriff did not take place. However, pursuant to an alias writ of execution issued by
the Court of First instance of manila in civil case No. 42125 on March 31, 1934, the provincial
sheriff, without publishing a new notice, sold said land at a public auction held on May 28,
1934, to the appellee for P1,923.32. On June 13, 1935, the provincial sheriff executed a final
deed in favor of the appellee. On August 29, 1939, the appellee instituted the present action in
the Court of First Instance of Sorsogon against the appellants in view of their refusal to
recognize appellee's title and to vacate the land. The appellants relied on the legal defenses
that their obligation under the judgment in civil case No. 42125 was novated by the mortgage
executed by them in favor of the appellee and that the sheriffs sale was void for lack of
necessary publication. These contentions were overruled by the lower court which rendered
judgment declaring the appellee to be the owner of the land and ordering the appellants to
deliver the same to him, without special pronouncement as to costs. The appellants seek the
reversal of this judgment.

We concur in the theory that appellants liability under the judgment in civil case No. 42125 had
been extinguished by the settlement evidenced by the mortgage executed by them in favor of
the appellee on December 16, 1933. Although said mortgage did not expressly cancel the old
obligation, this was impliedly novated by reason of incompatibly resulting from the fact that,
whereas the judgment was for P1,538.04 payable at one time, did not provide for attorney's
fees, and was not secured, the new obligation is or P1,200 payable in installments, stipulated
for attorney's fees, and is secured by a mortgage. The appellee, however, argues that the later
agreement merely extended the time of payment and did not take away his concurrent right to
have the judgment executed. This court not have been the purpose for executive the mortgage,
because it was therein recited that the appellants promised to pay P1,200 to the appellee as a
settlement of the judgment in civil case No. 42125 (en forma de transaccion de la decision . . .
en el asunto civil No. 42125). Said judgment cannot be said to have been settled, unless it was
extinguished.

Moreover, the sheriff's sale in favor of the appellee is void because no notice thereof was
published other than that which appeared in the Mamera Press regarding the sale to be held on
 G.R. No. 170141 April 22, 2008
JAPAN AIRLINES, petitioner,
vs.
JESUS SIMANGAN, respondent.
DECISION
REYES R.T., J.:
WHEN an airline issues a ticket to a passenger confirmed on a particular flight on a certain
date, a contract of carriage arises, and the passenger has every right to expect that he would
fly on that flight and on that date. If he does not, then the carrier opens itself to a suit for breach
of contract of carriage.1
The power to admit or not an alien into the country is a sovereign act which cannot be
interfered with even by Japan Airlines (JAL).2
In this petition for review on certiorari,3 petitioner JAL appeals the: (1) Decision4 dated May 31,
2005 of the Court of Appeals (CA) ordering it to pay respondent Jesus Simangan moral and
exemplary damages; and (2) Resolution5 of the same court dated September 28, 2005 denying
JAL's motion for reconsideration.
The Facts
In 1991, respondent Jesus Simangan decided to donate a kidney to his ailing cousin, Loreto
Simangan, in UCLA School of Medicine in Los Angeles, California, U.S.A. Upon request of
UCLA, respondent undertook a series of laboratory tests at the National Kidney Institute in
Quezon City to verify whether his blood and tissue type are compatible with
Loreto's.6 Fortunately, said tests proved that respondent's blood and tissue type were well-
matched with Loreto's.7
Respondent needed to go to the United States to complete his preliminary work-up and
donation surgery. Hence, to facilitate respondent's travel to the United States, UCLA wrote a
letter to the American Consulate in Manila to arrange for his visa. In due time, respondent was
issued an emergency U.S. visa by the American Embassy in Manila.8
Having obtained an emergency U.S. visa, respondent purchased a round trip plane ticket from
petitioner JAL for US$1,485.00 and was issued the corresponding boarding pass.9 He was
scheduled to a particular flight bound for Los Angeles, California, U.S.A. via Narita, Japan. 10
On July 29, 1992, the date of his flight, respondent went to Ninoy Aquino International Airport in
the company of several relatives and friends.11 He was allowed to check-in at JAL's
counter.12 His plane ticket, boarding pass, travel authority and personal articles were subjected
to rigid immigration and security routines.13 After passing through said immigration and security
procedures, respondent was allowed by JAL to enter its airplane.14
While inside the airplane, JAL's airline crew suspected respondent of carrying a falsified travel
document and imputed that he would only use the trip to the United States as a pretext to stay
and work in Japan.15 The stewardess asked respondent to show his travel documents. Shortly
after, the stewardess along with a Japanese and a Filipino haughtily ordered him to stand up
and leave the plane.16 Respondent protested, explaining that he was issued a U.S. visa. Just to
allow him to board the plane, he pleaded with JAL to closely monitor his movements when the
aircraft stops over in Narita.17 His pleas were ignored. He was then constrained to go out of the
plane.18In a nutshell, respondent was bumped off the flight.
Respondent went to JAL's ground office and waited there for three hours. Meanwhile, the plane
took off and he was left behind.19 Afterwards, he was informed that his travel documents were,
indeed, in order.20 Respondent was refunded the cost of his plane ticket less the sum of
US$500.00 which was deducted by JAL.21 Subsequently, respondent's U.S. visa was
cancelled.22
Displeased by the turn of events, respondent filed an action for damages against JAL with the
Regional Trial Court (RTC) in Valenzuela City, docketed as Civil Case No. 4195-V-93. He
claimed he was not able to donate his kidney to Loreto; and that he suffered terrible
embarrassment and mental anguish.23 He prayed that he be awarded P3 million as moral
damages, P1.5 million as exemplary damages and P500,000.00 as attorney's fees.24
JAL denied the material allegations of the complaint. It argued, among others, that its failure to
allow respondent to fly on his scheduled departure was due to "a need for his travel documents
to be authenticated by the United States Embassy"25 because no one from JAL's airport staff
had encountered a parole visa before.26 It posited that the authentication required additional
time; that respondent was advised to take the flight the following day, July 30, 1992. JAL
alleged that respondent agreed to be rebooked on July 30, 1992.27
JAL also lodged a counterclaim anchored on respondent's alleged wrongful institution of the
complaint. It prayed for litigation expenses, exemplary damages and attorney's fees. 28
On September 21, 2000, the RTC presided by Judge Floro P. Alejo rendered its decision in
favor of respondent (plaintiff), disposing as follows:
WHEREFORE, judgment is hereby rendered ordering the defendant to pay the
plaintiff the amount of P1,000,000.00 as moral damages, the amount of P500,000.00
as exemplary damages and the amount of P250,000.00 as attorney's fees, plus the
cost of suit.29
The RTC explained:
In summarily and insolently ordering the plaintiff to disembark while the latter was
already settled in his assigned seat, the defendant violated the contract of carriage;
that when the plaintiff was ordered out of the plane under the pretext that the
genuineness of his travel documents would be verified it had caused him
embarrassment and besmirched reputation; and that when the plaintiff was finally not
allowed to take the flight, he suffered more wounded feelings and social humiliation
for which the plaintiff was asking to be awarded moral and exemplary damages as
well as attorney's fees.
The reason given by the defendant that what prompted them to investigate the
genuineness of the travel documents of the plaintiff was that the plaintiff was not then
carrying a regular visa but just a letter does not appear satisfactory. The defendant is
engaged in transporting passengers by plane from country to country and is therefore
conversant with the travel documents. The defendant should not be allowed to
pretend, to the prejudice of the plaintiff not to know that the travel documents of the
plaintiff are valid documents to allow him entry in the United States.
 The foregoing act of the defendant in ordering the plaintiff to deplane while already
settled in his assigned seat clearly demonstrated that the defendant breached its
contract of carriage with the plaintiff as passenger in bad faith and as such the
plaintiff is entitled to moral and exemplary damages as well as to an award of
attorney's fees.30
the passenger to be accommodated in the class contracted for amounts to bad faith or fraud
which entitles the passengers to the award of moral damages in accordance with Article 2220
of the Civil Code."42
Nevertheless, the CA modified the damages awarded by the RTC. It explained:

Disagreeing with the RTC judgment, JAL appealed to the CA contending that it is not guilty of
breach of contract of carriage, hence, not liable for damages. 31 It posited that it is the one
entitled to recover on its counterclaim.32
CA Ruling
Fundamental in the law on damages is that one injured by a breach of a contract, or
by a wrongful or negligent act or omission shall have a fair and just compensation
commensurate to the loss sustained as consequence of the defendant's act. Being
discretionary on the court, the amount, however, should not be palpably and
scandalously excessive.

In a Decision33 dated May 31, 2005, the CA affirmed the decision of the RTC with modification
in that it lowered the amount of moral and exemplary damages and deleted the award of
attorney's fees. The fallo of the CA decision reads:
WHEREFORE, the appealed Decision is AFFIRMED with MODIFICATION. Appellant
JAPAN AIR LINES is ordered to pay appellee JESUS SIMANGAN the reduced sums,
as follows: Five Hundred Thousand Pesos (P500,000.00) as moral damages, and
Two Hundred Fifty Thousand Pesos (P250,000.00) as exemplary damages. The
award of attorney's fees is hereby DELETED.34
The CA elucidated that since JAL issued to respondent a round trip plane ticket for a lawful
consideration, "there arose a perfected contract between them." 35 It found that respondent was
"haughtily ejected"36 by JAL and that "he was certainly embarrassed and humiliated"37 when, in
the presence of other passengers, JAL's airline staff "shouted at him to stand up and arrogantly
asked him to produce his travel papers, without the least courtesy every human being is
entitled to";38 and that "he was compelled to deplane on the grounds that his papers were
fake."39
The CA ratiocinated:
Here, the trial court's award of P1,000,000.00 as moral damages appears to be
overblown. No other proof of appellee's social standing, profession, financial
capabilities was presented except that he was single and a businessman. To Us, the
sum of 500,000.00 is just and fair. For, moral damages are emphatically not intended
to enrich a complainant at the expense of the defendant. They are awarded only to
enable the injured party to obtain means, diversion or amusements that will serve to
alleviate the moral suffering he has undergone, by reason of the defendant's culpable
action.
Moreover, the grant of P500,000.00 as exemplary damages needs to be reduced to a
reasonable level. The award of exemplary damages is designed to permit the courts
to mould behavior that has socially deleterious consequences and its imposition is
required by public policy to suppress the wanton acts of the offender. Hence, the sum
of P250,000.00 is adequate under the circumstances.
The award of P250,000.00 as attorney's fees lacks factual basis. Appellee was
definitely compelled to litigate in protecting his rights and in seeking relief from
appellant's misdeeds. Yet, the record is devoid of evidence to show the cost of the
services of his counsel and/or the actual expenses incurred in prosecuting his
action.43(Citations were omitted)

While the protection of passengers must take precedence over convenience, the
When JAL's motion for reconsideration was denied, it resorted to the petition at bar.
implementation of security measures must be attended by basic courtesies.

Issues
In fact, breach of the contract of carriage creates against the carrier a presumption of
liability, by a simple proof of injury, relieving the injured passenger of the duty to
establish the fault of the carrier or of his employees; and placing on the carrier the JAL poses the following issues -
burden to prove that it was due to an unforeseen event or to force majeure.
I.
That appellee possessed bogus travel documents and that he might stay illegally in
Japan are allegations without substantiation. Also, appellant's attempt to rebook
WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT
appellee the following day was too late and did not relieve it from liability. The
RESPONDENT WAS ENTITLED TO MORAL DAMAGES, CONSIDERING THAT:
damage had been done. Besides, its belated theory of novation, i.e., that appellant's
original obligation to carry appellee to Narita and Los Angeles on July 29, 1992 was
extinguished by novation when appellant and appellant agreed that appellee will A. JAL WAS NOT GUILTY OF BREACH OF CONTRACT.
instead take appellant's flight to Narita on the following day, July 30, 1992, deserves
little attention. It is inappropriate at bar. Questions not taken up during the trial cannot
B. MORAL DAMAGES MAY BE AWARDED IN BREACH OF CONTRACT
be raised for the first time on appeal.40 (Underscoring ours and citations were
omitted) CASES ONLY WHEN THE BREACH IS ATTENDED BY FRAUD OR BAD
FAITH. ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH,
JAL DID NOT ACT FRAUDULENTLY OR IN BAD FAITH AS TO ENTITLE
Citing Ortigas, Jr. v. Lufthansa German Airlines,41 the CA declared that "(i)n contracts of RESPONDENT TO MORAL DAMAGES.
common carriage, inattention and lack of care on the part of the carrier resulting in the failure of
 C. THE LAW DISTINGUISHES A CONTRACTUAL BREACH EFFECTED
IN GOOD FAITH FROM ONE ATTENDED BY BAD FAITH.
II.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT
RESPONDENT WAS ENTITLED TO EXEMPLARY DAMAGES CONSIDERING
THAT:
A. EXEMPLARY DAMAGES ARE NOT RECOVERABLE IN BREACH OF
CONTRACT OF CARRIAGE UNLESS THE CARRIER IS GUILTY OF
WANTON, FRAUDULENT, RECKLESS, OPPRESSIVE OR
MALEVOLENT CONDUCT.
B. ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH, JAL
DID NOT ACT IN A WANTON FRAUDULENT, RECKLESS, OPPRESSIVE
OR MALEVOLENT MANNER AS TO ENTITLE RESPONDENT TO
EXEMPLARY DAMAGES.
III.
ASSUMING ARGUENDO THAT RESPONDENT WAS ENTITLED TO AN AWARD
OF DAMAGES, WHETHER OR NOT THE COURT OF APPEALS AWARD
OF P750,000 IN DAMAGES WAS EXCESSIVEAND UNPRECEDENTED.
IV.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING FOR
JAL ON ITS COUNTERCLAIM.44 (Underscoring Ours)
Basically, there are three (3) issues to resolve here: (1) whether or not JAL is guilty of contract
of carriage; (2) whether or not respondent is entitled to moral and exemplary damages; and (3)
whether or not JAL is entitled to its counterclaim for damages.
Our Ruling
This Court is not a trier of facts.
Chiefly, the issues are factual. The RTC findings of facts were affirmed by the CA. The CA also
gave its nod to the reasoning of the RTC except as to the awards of damages, which were
reduced, and that of attorney's fees, which was deleted.
We are not a trier of facts. We generally rely upon, and are bound by, the conclusions on this
matter of the lower courts, which are better equipped and have better opportunity to assess the
evidence first-hand, including the testimony of the witnesses.45
We have repeatedly held that the findings of fact of the CA are final and conclusive and cannot
be reviewed on appeal to the Supreme Court provided they are based on substantial
evidence.46 We have no jurisdiction, as a rule, to reverse their findings.47 Among the exceptions
to this rule are: (a) when the conclusion is a finding grounded entirely on speculations,
surmises or conjectures; (b) when the inference made is manifestly mistaken, absurd or
impossible; (c) where there is grave abuse of discretion; (d) when the judgment is based on a
misapprehension of facts; (e) when the findings of facts are conflicting; (f) when the CA, in
making its findings, went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee.48
The said exceptions, which are being invoked by JAL, are not found here. There is no
indication that the findings of the CA are contrary to the evidence on record or that vital
testimonies of JAL's witnesses were disregarded. Neither did the CA commit misapprehension
of facts nor did it fail to consider relevant facts. Likewise, there was no grave abuse of
discretion in the appreciation of facts or mistaken and absurd inferences.
We thus sustain the coherent facts as established by the courts below, there being no sufficient
showing that the said courts committed reversible error in reaching their conclusions.
JAL is guilty of breach of
contract of carriage.
That respondent purchased a round trip plane ticket from JAL and was issued the
corresponding boarding pass is uncontroverted.49 His plane ticket, boarding pass, travel
authority and personal articles were subjected to rigid immigration and security
procedure.50 After passing through said immigration and security procedure, he was allowed by
JAL to enter its airplane to fly to Los Angeles, California, U.S.A. via Narita, Japan. 51 Concisely,
there was a contract of carriage between JAL and respondent.
Nevertheless, JAL made respondent get off the plane on his scheduled departure on July 29,
1992. He was not allowed by JAL to fly. JAL thus failed to comply with its obligation under the
contract of carriage.
JAL justifies its action by arguing that there was "a need to verify the authenticity of
respondent's travel document."52 It alleged that no one from its airport staff had encountered a
parole visa before.53 It further contended that respondent agreed to fly the next day so that it
could first verify his travel document, hence, there was novation.54 It maintained that it was not
guilty of breach of contract of carriage as respondent was not able to travel to the United States
due to his own voluntary desistance.55
We cannot agree. JAL did not allow respondent to fly. It informed respondent that there was a
need to first check the authenticity of his travel documents with the U.S. Embassy. 56 As
admitted by JAL, "the flight could not wait for Mr. Simangan because it was ready to depart." 57
Since JAL definitely declared that the flight could not wait for respondent, it gave respondent no
choice but to be left behind. The latter was unceremoniously bumped off despite his
protestations and valid travel documents and notwithstanding his contract of carriage with JAL.
Damage had already been done when respondent was offered to fly the next day on July 30,
1992. Said offer did not cure JAL's default.
Considering that respondent was forced to get out of the plane and left behind against his will,
he could not have freely consented to be rebooked the next day. In short, he did not agree to
the alleged novation. Since novation implies a waiver of the right the creditor had before the
novation, such waiver must be express.58 It cannot be supposed, without clear proof, that
respondent had willingly done away with his right to fly on July 29, 1992.
Moreover, the reason behind the bumping off incident, as found by the RTC and CA, was that
JAL personnel imputed that respondent would only use the trip to the United States as a pretext
to stay and work in Japan.59
Apart from the fact that respondent's plane ticket, boarding pass, travel authority and personal
articles already passed the rigid immigration and security routines,60 JAL, as a common carrier,
ought to know the kind of valid travel documents respondent carried. As provided in Article
1755 of the New Civil Code: "A common carrier is bound to carry the passengers safely as far
as human care and foresight can provide, using the utmost diligence of very cautious persons,
with a due regard for all the circumstances."61 Thus, We find untenable JAL's defense of
"verification of respondent's documents" in its breach of contract of carriage.
It bears repeating that the power to admit or not an alien into the country is a sovereign act
which cannot be interfered with even by JAL.62
In an action for breach of contract of carriage, all that is required of plaintiff is to prove the
existence of such contract and its non-performance by the carrier through the latter's failure to
carry the passenger safely to his destination.63Respondent has complied with these twin
requisites.
Respondent is entitled to moral and exemplary damages and attorney's fees plus legal
interest.
With reference to moral damages, JAL alleged that they are not recoverable in actions ex
contractu except only when the breach is attended by fraud or bad faith. It is contended that it
did not act fraudulently or in bad faith towards respondent, hence, it may not be held liable for
moral damages.
As a general rule, moral damages are not recoverable in actions for damages predicated on a
breach of contract for it is not one of the items enumerated under Article 2219 of the Civil
Code.64 As an exception, such damages are recoverable: (1) in cases in which the mishap
results in the death of a passenger, as provided in Article 1764, in relation to Article 2206(3) of
the Civil Code; and (2) in the cases in which the carrier is guilty of fraud or bad faith, as
provided in Article 2220.65
The acts committed by JAL against respondent amounts to bad faith. As found by the RTC,
JAL breached its contract of carriage with respondent in bad faith. JAL personnel summarily
and insolently ordered respondent to disembark while the latter was already settled in his
assigned seat. He was ordered out of the plane under the alleged reason that the genuineness
of his travel documents should be verified.
These findings of facts were upheld by the CA, to wit:
x x x he was haughtily ejected by appellant. He was certainly embarrassed and
humiliated when, in the presence of other passengers, the appellant's airline staff
shouted at him to stand up and arrogantly asked him to produce his travel papers,
without the least courtesy every human being is entitled to. Then, he was compelled
to deplane on the grounds that his papers were fake. His protestation of having been
issued a U.S. visa coupled with his plea to appellant to closely monitor his
movements when the aircraft stops over in Narita, were ignored. Worse, he was
made to wait for many hours at the office of appellant only to be told later that he has
valid travel documents.66 (Underscoring ours)
Clearly, JAL is liable for moral damages. It is firmly settled that moral damages are recoverable
in suits predicated on breach of a contract of carriage where it is proved that the carrier was
guilty of fraud or bad faith, as in this case. Inattention to and lack of care for the interests of its
passengers who are entitled to its utmost consideration, particularly as to their convenience,
amount to bad faith which entitles the passenger to an award of moral damages. What the law
considers as bad faith which may furnish the ground for an award of moral damages would be
bad faith in securing the contract and in the execution thereof, as well as in the enforcement of
its terms, or any other kind of deceit.67
JAL is also liable for exemplary damages as its above-mentioned acts constitute wanton,
oppressive and malevolent acts against respondent. Exemplary damages, which are awarded
by way of example or correction for the public good, may be recovered in contractual
obligations, as in this case, if defendant acted in wanton, fraudulent, reckless, oppressive, or
malevolent manner.68
Exemplary damages are designed by our civil law to permit the courts to reshape behaviour
that is socially deleterious in its consequence by creating negative incentives or deterrents
against such behaviour. In requiring compliance with the standard of extraordinary diligence, a
standard which is, in fact, that of the highest possible degree of diligence, from common
carriers and in creating a presumption of negligence against them, the law seeks to compel
them to control their employees, to tame their reckless instincts and to force them to take
adequate care of human beings and their property.69
Neglect or malfeasance of the carrier's employees could give ground for an action for damages.
Passengers have a right to be treated by the carrier's employees with kindness, respect,
courtesy and due consideration and are entitled to be protected against personal misconduct,
injurious language, indignities and abuses from such employees.70
The assessment of P500,000.00 as moral damages and P100,000.00 as exemplary damages
in respondent's favor is, in Our view, reasonable and realistic. This award is reasonably
sufficient to indemnify him for the humiliation and embarrassment he suffered. This also serves
as an example to discourage the repetition of similar oppressive acts.
With respect to attorney's fees, they may be awarded when defendant's act or omission has
compelled plaintiff to litigate with third persons or to incur expenses to protect his interest. 71 The
Court, in Construction Development Corporation of the Philippines v. Estrella,72 citing Traders
Royal Bank Employees Union-Independent v. National Labor Relations
Commission,73 elucidated thus:
There are two commonly accepted concepts of attorney's fees, the so-called ordinary
and extraordinary. In its ordinary concept, an attorney's fee is the reasonable
compensation paid to a lawyer by his client for the legal services he has rendered to
the latter. The basis of this compensation is the fact of his employment by and his
agreement with the client.
In its extraordinary concept, an attorney's fee is an indemnity for damages
ordered by the court to be paid by the losing party in a litigation. The basis of
this is any of the cases provided by law where such award can be made, such as
those authorized in Article 2208, Civil Code, and is payable not to the lawyer but to
the client, unless they have agreed that the award shall pertain to the lawyer as
additional compensation or as part thereof.74
It was therefore erroneous for the CA to delete the award of attorney's fees on the ground that
the record is devoid of evidence to show the cost of the services of respondent's counsel. The
amount is actually discretionary upon the Court so long as it passes the test of reasonableness.
They may be recovered as actual or compensatory damages when exemplary damages are
awarded and whenever the court deems it just and equitable,75 as in this case.
Considering the factual backdrop of this case, attorney's fees in the amount of P200,000.00 is
reasonably modest.
The above liabilities of JAL in the total amount of P800,000.00 earn legal interest pursuant to
the Court's ruling in Construction Development Corporation of the Philippines v.
Estrella,76 citing Eastern Shipping Lines, Inc. v. Court of Appeals,77 to wit:
Regarding the imposition of legal interest at the rate of 6% from the time of the filing
of the complaint, we held in Eastern Shipping Lines, Inc. v. Court of Appeals, that
when an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for payment of
interest in the concept of actual and compensatory damages, subject to the following
rules, to wit -
1. When the obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest
due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to
be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed
at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages except
when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty,
the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at
which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of
credit.78 (Emphasis supplied and citations omitted)
Accordingly, in addition to the said total amount of P800,000.00, JAL is liable to pay respondent
legal interest. Pursuant to the above ruling of the Court, the legal interest is 6% and it shall be
reckoned from September 21, 2000 when the RTC rendered its judgment. From the time this
Decision becomes final and executory, the interest rate shall be 12% until its satisfaction.
JAL is not entitled to its counterclaim for damages.
The counterclaim of JAL in its Answer79 is a compulsory counterclaim for damages and
attorney's fees arising from the filing of the complaint. There is no mention of any other counter
claims.
This compulsory counterclaim of JAL arising from the filing of the complaint may not be granted
inasmuch as the complaint against it is obviously not malicious or unfounded. It was filed by
respondent precisely to claim his right to damages against JAL. Well-settled is the rule that the
commencement of an action does not per se make the action wrongful and subject the action to
damages, for the law could not have meant to impose a penalty on the right to litigate. 80
We reiterate case law that if damages result from a party's exercise of a right, it is damnum
absque injuria.81 Lawful acts give rise to no injury. Walang perhuwisyong maaring idulot ang
paggamit sa sariling karapatan.
During the trial, however, JAL presented a witness who testified that JAL suffered further
damages. Allegedly, respondent caused the publications of his subject complaint against JAL in
the newspaper for which JAL suffered damages.82
Although these additional damages allegedly suffered by JAL were not incorporated in its
Answer as they arose subsequent to its filing, JAL's witness was able to testify on the same
before the RTC.83 Hence, although these issues were not raised by the pleadings, they shall be
treated in all respects as if they had been raised in the pleadings.
As provided in Section 5, Rule 10 of the Rules of Court, "(w)hen issues not raised by the
pleadings are tried with the express or implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings."
Nevertheless, JAL's counterclaim cannot be granted.
JAL is a common carrier. JAL's business is mainly with the traveling public. It invites people to
avail themselves of the comforts and advantages it offers. 84 Since JAL deals with the public, its
bumping off of respondent without a valid reason naturally drew public attention and generated
a public issue.
The publications involved matters about which the public has the right to be informed because
they relate to a public issue. This public issue or concern is a legitimate topic of a public
comment that may be validly published.
Assuming that respondent, indeed, caused the publication of his complaint, he may not be held
liable for damages for it. The constitutional guarantee of freedom of the speech and of the
press includes fair commentaries on matters of public interest. This is explained by the Court
in Borjal v. Court of Appeals,85 to wit:
To reiterate, fair commentaries on matters of public interest are privileged and
constitute a valid defense in an action for libel or slander. The doctrine of fair
comment means that while in general every discreditable imputation publicly made is
deemed false, because every man is presumed innocent until his guilt is judicially
proved, and every false imputation is deemed malicious, nevertheless, when the
discreditable imputation is directed against a public person in his public capacity, it is
not necessarily actionable. In order that such discreditable imputation to a public
official may be actionable, it must either be a false allegation of fact or a comment
based on a false supposition. If the comment is an expression of opinion, based on
established facts, then it is immaterial that the opinion happens to be mistaken, as
 long as it might reasonably be inferred from the facts.86 (Citations omitted and
underscoring ours)

Even though JAL is not a public official, the rule on privileged commentaries on matters of
public interest applies to it. The privilege applies not only to public officials but extends to a
great variety of subjects, and includes matters of public concern, public men, and candidates
for office.87

Hence, pursuant to the Borjal case, there must be an actual malice in order that a discreditable
imputation to a public person in his public capacity or to a public official may be actionable. To
be considered malicious, the libelous statements must be shown to have been written or
published with the knowledge that they are false or in reckless disregard of whether they are
false or not.88

Considering that the published articles involve matters of public interest and that its expressed
opinion is not malicious but based on established facts, the imputations against JAL are not
actionable. Therefore, JAL may not claim damages for them.

WHEREFORE, the petition is DENIED. The appealed Decision of the Court of Appeals
is AFFIRMED WITH MODIFICATION. As modified, petitioner Japan Airlines is ordered to pay
respondent Jesus Simangan the following: (1) P500,000.00 as moral damages;
(2) P100,000.00 as exemplary damages; and (3) P200,000.00 as attorney's fees.

The total amount adjudged shall earn legal interest at the rate of 6% per annum from the date
of judgment of the Regional Trial Court on September 21, 2000 until the finality of this Decision.
From the time this Decision becomes final and executory, the unpaid amount, if any, shall earn
legal interest at the rate of 12% per annum until its satisfaction.

SO ORDERED.
 G.R. No. 171998 October 20, 2010 Legaspi City, Branch 5, is hereby DIRECTED to set Criminal Case No. 7474 for the
continuation of trial for the reception of the evidence-in-chief of the petitioner on the civil aspect
of the case and for the rebuttal evidence of the private complainant and the sur-rebuttal
ANAMER SALAZAR, Petitioner,
evidence of the parties if they opt to adduce any.
vs.
J.Y. BROTHERS MARKETING CORPORATION, Respondent.
SO ORDERED.3
DECISION
The Regional Trial Court (RTC) of Legaspi City, Branch 5, then proceeded with the trial on the
civil aspect of the criminal case.
PERALTA, J.:

On April 1, 2004, the RTC rendered its Decision,4 the dispositive portion of which reads:
Before us is a petition for review seeking to annul and set aside the Decision1 dated September
29, 2005 and the Resolution2 dated March 2, 2006 of the Court of Appeals (CA) in CA-G.R. CV
No. 83104. WHEREFORE, Premises Considered, judgment is rendered DISMISSING as against Anamer
D. Salazar the civil aspect of the above-entitled case. No pronouncement as to costs.
The facts, as found by the Court of Appeals, are not disputed, thus:
Place into the files (archive) the record of the above-entitled case as against the other accused
Nena Jaucian Timario. Let an alias (bench) warrant of arrest without expiry dated issue for her
J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation engaged in the business of
apprehension, and fix the amount of the bail bond for her provisional liberty at 59,000.00 pesos.
selling sugar, rice and other commodities. On October 15, 1996, Anamer Salazar, a freelance
sales agent, was approached by Isagani Calleja and Jess Kallos, if she knew a supplier of rice.
Answering in the positive, Salazar accompanied the two to J.Y. Bros. As a consequence, SO ORDERED.5
Salazar with Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice worth
₱214,000.00. As payment, Salazar negotiated and indorsed to J.Y. Bros. Prudential Bank
The RTC found that the Prudential Bank check drawn by Timario for the amount of
Check No. 067481 dated October 15, 1996 issued by Nena Jaucian Timario in the amount of
₱214,000.00 was payable to the order of respondent, and such check was a negotiable order
₱214,000.00 with the assurance that the check is good as cash. On that assurance, J.Y. Bros.
instrument; that petitioner was not the payee appearing in the check, but respondent who had
parted with 300 cavans of rice to Salazar. However, upon presentment, the check was
not endorsed the check, much less delivered it to petitioner. It then found that petitioner’s
dishonored due to "closed account."
liability should be limited to the allegation in the amended information that "she endorsed and
negotiated said check," and since she had never been the holder of the check, petitioner's
Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros. a signing of her name on the face of the dorsal side of the check did not produce the technical
replacement cross Solid Bank Check No. PA365704 dated October 29, 1996 again issued by effect of an indorsement arising from negotiation. The RTC ruled that after the Prudential Bank
Nena Jaucian Timario in the amount of ₱214,000.00 but which, just the same, bounced due to check was dishonored, it was replaced by a Solid Bank check which, however, was also
insufficient funds. When despite the demand letter dated February 27, 1997, Salazar failed to subsequently dishonored; that since the Solid Bank check was a crossed check, which meant
settle the amount due J.Y. Bros., the latter charged Salazar and Timario with the crime of that such check was only for deposit in payee’s account, a condition that rendered such check
estafa before the Regional Trial Court of Legaspi City, docketed as Criminal Case No. 7474. non-negotiable, the substitution of a non-negotiable Solid Bank check for a negotiable
Prudential Bank check was an essential change which had the effect of discharging from the
obligation whoever may be the endorser of the negotiable check. The RTC concluded that the
After the prosecution rested its case and with prior leave of court, Salazar submitted a demurrer
absence of negotiability rendered nugatory the obligation arising from the technical act of
to evidence. On November 19, 2001, the court a quo rendered an Order, the dispositive portion
indorsing a check and, thus, had the effect of novation; and that the ultimate effect of such
of which reads:
substitution was to extinguish the obligation arising from the issuance of the Prudential Bank
check.
WHEREFORE, premises considered, the accused Anamer D. Salazar is hereby ACQUITTED
of the crime charged but is hereby held liable for the value of the 300 bags of rice. Accused
Respondent filed an appeal with the CA on the sole assignment of error that:
Anamer D. Salazar is therefore ordered to pay J.Y. Brothers Marketing Corporation the sum of
₱214,000.00. Costs against the accused.
IN BRIEF, THE LOWER COURT ERRED IN RULING THAT ACCUSED ANAMER SALAZAR
BY INDORSING THE CHECK (A) DID NOT BECOME A HOLDER OF THE CHECK, (B) DID
SO ORDERED.
NOT PRODUCE THE TECHNICAL EFFECT OF AN INDORSEMENT ARISING FROM
NEGOTIATION; AND (C) DID NOT INCUR CIVIL LIABILITY.6
Aggrieved, accused attempted a reconsideration on the civil aspect of the order and to allow
her to present evidence thereon. The motion was denied. Accused went up to the Supreme
After petitioner filed her appellees' brief, the case was submitted for decision. On September
Court on a petition for review on certiorari under Rule 45 of the Rules of Court. Docketed as
29, 2005, the CA rendered its assailed Decision, the decretal portion of which reads:
G.R. 151931, in its Decision dated September 23, 2003, the High Court ruled:

IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the challenged Decision
IN LIGHT OF ALL THE FOREGOING, the Petition is GRANTED. The Orders dated November
is REVERSED and SET ASIDE, and a new one entered ordering the appellee to pay the
19, 2001 and January 14, 2002 are SET ASIDE and NULLIFIED. The Regional Trial Court of
appellant the amount of ₱214,000.00, plus interest at the legal rate from the written demand
until full payment. Costs against the appellee.7
In so ruling, the CA found that petitioner indorsed the Prudential Bank check, which was later
replaced by a Solid Bank check issued by Timario, also indorsed by petitioner as payment for
the 300 cavans of rice bought from respondent. The CA, applying Sections 63,8 669 and 2910 of
the Negotiable Instruments Law, found that petitioner was considered an indorser of the checks
paid to respondent and considered her as an accommodation indorser, who was liable on the
instrument to a holder for value, notwithstanding that such holder at the time of the taking of the
instrument knew her only to be an accommodation party.
Respondent filed a motion for reconsideration, which the CA denied in a Resolution dated
March 2, 2006.
Hence this petition, wherein petitioner raises the following assignment of errors:
1. THE COURT OF APPEALS ERRED IN IGNORING THE RAMIFICATIONS OF
THE ISSUANCE OF THE SOLIDBANK CHECK IN REPLACEMENT OF THE
PRUDENTIAL BANK CHECK WHICH WOULD HAVE RESULTED TO THE
NOVATION OF THE OBLIGATION ARISING FROM THE ISSUANCE OF THE
LATTER CHECK.
2. THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE
REGIONAL TRIAL COURT OF LEGASPI CITY, BRANCH 5, DISMISSING AS
AGAINST THE PETITIONER THE CIVIL ASPECT OF THE CRIMINAL ACTION ON
THE GROUND OF NOVATION OF OBLIGATION ARISING FROM THE ISSUANCE
OF THE PRUDENTIAL BANK CHECK.
3. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION WHEN IT DENIED THE
MOTION FOR RECONSIDERATION OF THE PETITIONER ON THE GROUND
THAT THE ISSUE RAISED THEREIN HAD ALREADY BEEN PASSED UPON AND
CONSIDERED IN THE DECISION SOUGHT TO BE RECONSIDERED WHEN IN
TRUTH AND IN FACT SUCH ISSUE HAD NOT BEEN RESOLVED AS YET. 11
Petitioner contends that the issuance of the Solid Bank check and the acceptance thereof by
the respondent, in replacement of the dishonored Prudential Bank check, amounted to novation
that discharged the latter check; that respondent's acceptance of the Solid Bank check,
notwithstanding its eventual dishonor by the drawee bank, had the effect of erasing whatever
criminal responsibility, under Article 315 of the Revised Penal Code, the drawer or indorser of
the Prudential Bank check would have incurred in the issuance thereof in the amount of
₱214,000.00; and that a check is a contract which is susceptible to a novation just like any
other contract.
Respondent filed its Comment, echoing the findings of the CA. Petitioner filed her Reply
thereto.
We find no merit in this petition.
Section 119 of the Negotiable Instrument Law provides, thus:
SECTION 119. Instrument; how discharged. – A negotiable instrument is discharged:
(a) By payment in due course by or on behalf of the principal debtor;
(b) By payment in due course by the party accommodated, where the instrument is
made or accepted for his accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of
money;
(e) When the principal debtor becomes the holder of the instrument at or after
maturity in his own right. (Emphasis ours)
And, under Article 1231 of the Civil Code, obligations are extinguished:
xxxx
(6) By novation.
Petitioner's claim that respondent's acceptance of the Solid Bank check which replaced the
dishonored Prudential bank check resulted to novation which discharged the latter check is
unmeritorious.
In Foundation Specialists, Inc. v. Betonval Ready Concrete, Inc. and Stronghold Insurance Co.,
Inc.,12 we stated the concept of novation, thus:
x x x Novation is done by the substitution or change of the obligation by a subsequent one
which extinguishes the first, either by changing the object or principal conditions, or by
substituting the person of the debtor, or by subrogating a third person in the rights of the
creditor. Novation may:
[E]ither be extinctive or modificatory, much being dependent on the nature of the change and
the intention of the parties. Extinctive novation is never presumed; there must be an express
intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate
their intent to dissolve the old obligation as the moving consideration for the emergence of the
new one. Implied novation necessitates that the incompatibility between the old and new
obligation be total on every point such that the old obligation is completely superceded by the
new one. The test of incompatibility is whether they can stand together, each one having an
independent existence; if they cannot and are irreconcilable, the subsequent obligation would
also extinguish the first.
An extinctive novation would thus have the twin effects of, first, extinguishing an existing
obligation and, second, creating a new one in its stead. This kind of novation presupposes a
confluence of four essential requisites: (1) a previous valid obligation, (2) an agreement of all
parties concerned to a new contract, (3) the extinguishment of the old obligation, and (4) the
birth of a valid new obligation. Novation is merely modificatory where the change brought about
by any subsequent agreement is merely incidental to the main obligation (e.g., a change in
interest rates or an extension of time to pay; in this instance, the new agreement will not have
the effect of extinguishing the first but would merely supplement it or supplant some but not all
of its provisions.)
The obligation to pay a sum of money is not novated by an instrument that expressly Considering that when the Solid Bank check, which replaced the Prudential Bank check, was
recognizes the old, changes only the terms of payment, adds other obligations not incompatible presented for payment, the same was again dishonored; thus, the obligation which was
with the old ones or the new contract merely supplements the old one.13 secured by the Prudential Bank check was not extinguished and the Prudential Bank check
was not discharged. Thus, we found no reversible error committed by the CA in holding
petitioner liable as an accommodation indorser for the payment of the dishonored Prudential
In Nyco Sales Corporation v. BA Finance Corporation,14 we found untenable petitioner Nyco's
Bank check.
claim that novation took place when the dishonored BPI check it endorsed to BA Finance
Corporation was subsequently replaced by a Security Bank check,15 and said:
WHEREFORE, the petition is DENIED. The Decision dated September 29, 2005 and the
Resolution dated March 2, 2006, of the Court of Appeals in CA-G.R. CV No. 83104,
There are only two ways which indicate the presence of novation and thereby produce the
are AFFIRMED.
effect of extinguishing an obligation by another which substitutes the same. First, novation must
be explicitly stated and declared in unequivocal terms as novation is never presumed.
Secondly, the old and the new obligations must be incompatible on every point.1avvphi1 The SO ORDERED.
test of incompatibility is whether or not the two obligations can stand together, each one having
its independent existence. If they cannot, they are incompatible and the latter obligation
novates the first. In the instant case, there was no express agreement that BA Finance's
acceptance of the SBTC check will discharge Nyco from liability. Neither is there incompatibility
because both checks were given precisely to terminate a single obligation arising from Nyco's
sale of credit to BA Finance. As novation speaks of two distinct obligations, such is inapplicable
to this case.16

In this case, respondent’s acceptance of the Solid Bank check, which replaced the dishonored
Prudential Bank check, did not result to novation as there was no express agreement to
establish that petitioner was already discharged from his liability to pay respondent the amount
of ₱214,000.00 as payment for the 300 bags of rice. As we said, novation is never presumed,
there must be an express intention to novate. In fact, when the Solid Bank check was delivered
to respondent, the same was also indorsed by petitioner which shows petitioner’s recognition of
the existing obligation to respondent to pay ₱214,000.00 subject of the replaced Prudential
Bank check.

Moreover, respondent’s acceptance of the Solid Bank check did not result to any
incompatibility, since the two checks − Prudential and Solid Bank checks − were precisely for
the purpose of paying the amount of ₱214,000.00, i.e., the credit obtained from the purchase of
the 300 bags of rice from respondent. Indeed, there was no substantial change in the object or
principal condition of the obligation of petitioner as the indorser of the check to pay the amount
of ₱214,000.00. It would appear that respondent accepted the Solid Bank check to give
petitioner the chance to pay her obligation.

Petitioner also contends that the acceptance of the Solid Bank check, a non-negotiable check
being a crossed check, which replaced the dishonored Prudential Bank check, a negotiable
check, is a new obligation in lieu of the old obligation arising from the issuance of the Prudential
Bank check, since there was an essential change in the circumstance of each check.

Such argument deserves scant consideration.

Among the different types of checks issued by a drawer is the crossed check. 17 The Negotiable
Instruments Law is silent with respect to crossed checks,18 although the Code of
Commerce makes reference to such instruments.19We have taken judicial cognizance of the
practice that a check with two parallel lines in the upper left hand corner means that it could
only be deposited and could not be converted into cash.20 Thus, the effect of crossing a check
relates to the mode of payment, meaning that the drawer had intended the check for deposit
only by the rightful person, i.e., the payee named therein.21 The change in the mode of paying
the obligation was not a change in any of the objects or principal condition of the contract for
novation to take place.22
 G.R. No. 159097 July 5, 2010
METROPOLITAN BANK AND TRUST COMPANY, Petitioner,
vs.
RURAL BANK OF GERONA, INC. Respondent.
DECISION
BRION, J.:
Petitioner Metropolitan Bank and Trust Company (Metrobank) filed this Petition for Review on
Certiorari1 under Rule 45 of the Rules of Court to challenge the Court of Appeals (CA) decision
dated December 17, 20022 and the resolution dated July 14, 20033 in CA-G.R. CV No. 46777.
The CA decision set aside the July 7, 1994 decision4 of the Regional Trial Court (RTC) of
Tarlac, Branch 65, in Civil Case No. 6028 (a collection case filed by Metrobank against
respondent Rural Bank of Gerona, Inc. [RBG]), and ordered the remand of the case to include
the Central Bank of the Philippines5 (Central Bank) as a necessary party.
THE FACTUAL ANTECEDENTS
RBG is a rural banking corporation organized under Philippine laws and located in Gerona,
Tarlac. In the 1970s, the Central Bank and the RBG entered into an agreement providing that
RBG shall facilitate the loan applications of farmers-borrowers under the Central Bank-
International Bank for Reconstruction and Development’s (IBRD’s) 4th Rural Credit Project. The
agreement required RBG to open a separate bank account where the IBRD loan proceeds shall
be deposited. The RBG accordingly opened a special savings account with Metrobank’s Tarlac
Branch. As the depository bank of RBG, Metrobank was designated to receive the credit advice
released by the Central Bank representing the proceeds of the IBRD loan of the farmers-
borrowers; Metrobank, in turn, credited the proceeds to RBG’s special savings account for the
latter’s release to the farmers-borrowers.
On September 27, 1978, the Central Bank released a credit advice in Metrobank’s favor and
accordingly credited Metrobank’s demand deposit account in the amount of ₱178,652.00, for
the account of RBG. The amount, which was credited to RBG’s special savings account
represented the approved loan application of farmer-borrower Dominador de Jesus. RBG
withdrew the ₱178,652.00 from its account.
On the same date, the Central Bank approved the loan application of another farmer-borrower,
Basilio Panopio, for ₱189,052.00, and credited the amount to Metrobank’s demand deposit
account. Metrobank, in turn, credited RBG’s special savings account. Metrobank claims that the
RBG also withdrew the entire credited amount from its account.
On October 3, 1978, the Central Bank approved Ponciano Lagman’s loan application for
₱220,000.00. As with the two other IBRD loans, the amount was credited to Metrobank’s
demand deposit account, which amount Metrobank later credited in favor of RBG’s special
savings account. Of the ₱220,000.00, RBG only withdrew ₱75,375.00.
On November 3, 1978, more than a month after RBG had made the above withdrawals from its
account with Metrobank, the Central Bank issued debit advices, reversing all the approved
IBRD loans.6 The Central Bank implemented the reversal by debiting from Metrobank’s demand
deposit account the amount corresponding to all three IBRD loans.
Upon receipt of the November 3, 1978 debit advices, Metrobank, in turn, debited the following
amounts from RBG’s special savings account: ₱189,052.00, ₱115,000.00, and ₱8,000.41.
Metrobank, however, claimed that these amounts were insufficient to cover all the credit
advices that were reversed by the Central Bank. It demanded payment from RBG which could
make partial payments. As of October 17, 1979, Metrobank claimed that RBG had an
outstanding balance of ₱334,220.00. To collect this amount, it filed a complaint for collection of
sum of money against RBG before the RTC, docketed as Civil Case No. 6028. 7
In its July 7, 1994 decision,8 the RTC ruled for Metrobank, finding that legal subrogation had
ensued:
[Metrobank] had allowed releases of the amounts in the credit advices it credited in favor of
[RBG’s special savings account] which credit advices and deposits were under its supervision.
Being faulted in these acts or omissions, the Central Bank [sic] debited these amounts against
[Metrobank’s] demand [deposit] reserve; thus[, Metrobank’s] demand deposit reserves
diminished correspondingly, [Metrobank as of this time,] suffers prejudice in which case legal
subrogation has ensued.9
It thus ordered RBG to pay Metrobank the sum of ₱334,200.00, plus interest at 14% per annum
until the amount is fully paid.
On appeal, the CA noted that this was not a case of legal subrogation under Article 1302 of the
Civil Code. Nevertheless, the CA recognized that Metrobank had a right to be reimbursed of the
amount it had paid and failed to recover, as it suffered loss in an agreement that involved only
the Central Bank and the RBG. It clarified, however, that a determination still had to be made
on who should reimburse Metrobank. Noting that no evidence exists why the Central Bank
reversed the credit advices it had previously confirmed, the CA declared that the Central Bank
should be impleaded as a necessary party so it could shed light on the IBRD loan reversals.
Thus, the CA set aside the RTC decision, and remanded the case to the trial court for further
proceedings after the Central Bank is impleaded as a necessary party. 10 After the CA denied its
motion for reconsideration, Metrobank filed the present petition for review on certiorari.
THE PETITION FOR REVIEW ON CERTIORARI
Metrobank disagrees with the CA’s ruling to implead the Central Bank as a necessary party and
to remand the case to the RTC for further proceedings. It argues that the inclusion of the
Central Bank as party to the case is unnecessary since RBG has already admitted its liability
for the amount Metrobank failed to recover. In two letters,11RBG’s President/Manager made
proposals to Metrobank for the repayment of the amounts involved. Even assuming that no
legal subrogation took place, Metrobank claims that RBG’s letters more than sufficiently proved
its liability.
Metrobank additionally contends that a remand of the case would unduly delay the
proceedings. The transactions involved in this case took place in 1978, and the case was
commenced before the RTC more than 20 years ago. The RTC resolved the complaint for
collection in 1994, while the CA decided the appeal in 2002. To implead Central Bank, as a
necessary party in the case, means a return to square one and the restart of the entire
proceedings.
THE COURT’S RULING
The petition is impressed with merit.
A basic first step in resolving this case is to determine who the liable parties are on the IBRD
loans that the Central Bank extended. The Terms and Conditions of the IBRD 4th Rural Credit
Project12 (Project Terms and Conditions) executed by the Central Bank and the RBG shows
that the farmers-borrowers to whom credits have been extended, are primarily liable for the
payment of the borrowed amounts. The loans were extended through the RBG which also took
care of the collection and of the remittance of the collection to the Central Bank. RBG, however,
was not a mere conduit and collector.1avvphil While the farmers-borrowers were the principal
debtors, RBG assumed liability under the Project Terms and Conditions by solidarily binding
itself with the principal debtors to fulfill the obligation.1awphi1
How RBG profited from the transaction is not clear from the records and is not part of the
issues before us, but if it delays in remitting the amounts due, the Central Bank imposed a 14%
per annum penalty rate on RBG until the amount is actually remitted. The Central Bank was
further authorized to deduct the amount due from RBG’s demand deposit reserve should the
latter become delinquent in payment. On these points, paragraphs 5 and 6 of the Project Terms
and Conditions read:
5. Collection received representing repayments of borrowers shall be immediately remitted to
the Central Bank, otherwise[,] the Rural Bank/SLA shall be charged a penalty of fourteen
[percent] (14%) p.a. until date of remittance.
6. In case the rural bank becomes delinquent in the payment of amortizations due[,] the Central
Bank is authorized to deduct the corresponding amount from the rural bank’s demand deposit
reserve13 at any time to cover any delinquency. [Emphasis supplied.]
Based on these arrangements, the Central Bank’s immediate recourse, therefore should have
been against the farmers-borrowers and the RBG; thus, it erred when it deducted the amounts
covered by the debit advices from Metrobank’s demand deposit account. Under the Project
Terms and Conditions, Metrobank had no responsibility over the proceeds of the IBRD loans
other than serving as a conduit for their transfer from the Central Bank to the RBG once credit
advice has been issued. Thus, we agree with the CA’s conclusion that the agreement governed
only the parties involved – the Central Bank and the RBG. Metrobank was simply an outsider to
the agreement. Our disagreement with the appellate court is in its conclusion that no legal
subrogation took place; the present case, in fact, exemplifies the circumstance contemplated
under paragraph 2, of Article 1302 of the Civil Code which provides:
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the debtor’s
knowledge;
(2) When a third person, not interested in the obligation, pays with the express or
tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of confusion as to
the latter’s share. [Emphasis supplied.]
As discussed, Metrobank was a third party to the Central Bank-RBG agreement, had no
interest except as a conduit, and was not legally answerable for the IBRD loans. Despite this, it
was Metrobank’s demand deposit account, instead of RBG’s, which the Central Bank
proceeded against, on the assumption perhaps that this was the most convenient means of
recovering the cancelled loans. That Metrobank’s payment was involuntarily made does not
change the reality that it was Metrobank which effectively answered for RBG’s obligations.
Was there express or tacit approval by RBG of the payment enforced against Metrobank? After
Metrobank received the Central Bank’s debit advices in November 1978, it (Metrobank)
accordingly debited the amounts it could from RBG’s special savings account without any
objection from RBG.14 RBG’s President and Manager, Dr. Aquiles Abellar, even wrote
Metrobank, on August 14, 1979, with proposals regarding possible means of settling the
amounts debited by Central Bank from Metrobank’s demand deposit account. 15 These
instances are all indicative of RBG’s approval of Metrobank’s payment of the IBRD loans. That
RBG’s tacit approval came after payment had been made does not completely negate the legal
subrogation that had taken place.
Article 1303 of the Civil Code states that subrogation transfers to the person subrogated the
credit with all the rights thereto appertaining, either against the debtor or against third persons.
As the entity against which the collection was enforced, Metrobank was subrogated to the
rights of Central Bank and has a cause of action to recover from RBG the amounts it paid to the
Central Bank, plus 14% per annum interest.
Under this situation, impleading the Central Bank as a party is completely unnecessary. We
note that the CA erroneously believed that the Central Bank’s presence is necessary "in order x
x x to shed light on the matter of reversals made by it concerning the loan applications of the
end users and to have a complete determination or settlement of the claim."16 In so far as
Metrobank is concerned, however, the Central Bank’s presence and the reasons for its
reversals of the IBRD loans are immaterial after subrogation has taken place; Metrobank’s
interest is simply to collect the amounts it paid the Central Bank. Whatever cause of action
RBG may have against the Central Bank for the unexplained reversals and any undue
deductions is for RBG to ventilate as a third-party claim; if it has not done so at this point, then
the matter should be dealt with in a separate case that should not in any way further delay the
disposition of the present case that had been pending before the courts since 1980.
While we would like to fully and finally resolve this case, certain factual matters prevent us from
doing so. Metrobank contends in its petition that it credited RBG’s special savings account with
three amounts corresponding to the three credit advices issued by the Central Bank: the
₱178,652.00 for Dominador de Jesus; the ₱189,052.00 for Basilio Panopio; and the
₱220,000.00 for Ponciano Lagman. Metrobank claims that all of the three credit advices were
subsequently reversed by the Central Bank, evidenced by three debit advices. The records,
however, contained only the credit and debit advices for the amounts set aside for de Jesus
and Lagman;17 nothing in the findings of fact by the RTC and the CA referred to the amount set
aside for Panopio.
Thus, what were sufficiently proven as credited and later on debited from Metrobank’s demand
deposit account were only the amounts of ₱178,652.00 and ₱189,052.00. With these amounts
combined, RBG’s liability would amount to ₱398,652.00 – the same amount RBG
acknowledged as due to Metrobank in its August 14, 1979 letter. 18Significantly, Metrobank
likewise quoted this amount in its July 11, 197919 and July 26, 197920 demand letters to RBG
and its Statement of Account dated December 23, 1982. 21
RBG asserts that it made partial payments amounting to ₱145,197.40, 22 but neither the RTC
nor the CA made a conclusive finding as to the accuracy of this claim. Although Metrobank
admitted that RBG indeed made partial payments, it never mentioned the actual amount paid;
neither did it state that the ₱145,197.40 was part of the ₱312,052.41 that, it admitted, it debited
from RBG’s special savings account.
Deducting ₱312,052.41 (representing the amounts debited from RBG’s special savings
account, as admitted by Metrobank) from ₱398,652.00 amount due to Metrobank from RBG,
the difference would only be ₱86,599.59. We are, therefore, at a loss on how Metrobank
computed the amount of ₱334,220.00 it claims as the balance of RBG’s loan. As this Court is
not a trier of facts, we deem it proper to remand this factual issue to the RTC for determination
and computation of the actual amount RBG owes to Metrobank, plus the corresponding interest
and penalties.

WHEREFORE, we GRANT the petition for review on certiorari, and REVERSE the decision and
the resolution of the Court of Appeals, in CA-G.R. CV No. 46777, promulgated on December
17, 2002 and July 14, 2003, respectively. We AFFIRM the decision of the Regional Trial Court,
Branch 65, Tarlac, promulgated on July 7, 1994, insofar as it found respondent liable to the
petitioner Metropolitan Bank and Trust Company, but order the REMAND of the case to the trial
court to determine the actual amounts due to the petitioner. Costs against respondent Rural
Bank of Gerona, Inc.

SO ORDERED.
 G.R. No. L-29981 April 30, 1971
EUSEBIO S. MILLAR, petitioner,
vs.
THE HON. COURT OF APPEALS and ANTONIO P. GABRIEL, respondents.
CASTRO, J.:
On February 11, 1956, Eusebio S. Millar (hereinafter referred to as the petitioner) obtained a
favorable judgment from the Court of First Instance of Manila, in civil case 27116, condemning
Antonio P. Gabriel (hereinafter referred to as the respondent) to pay him the sum of P1,746.98
with interest at 12% per annum from the date of the filing of the complaint, the sum of P400 as
attorney's fees, and the costs of suit. From the said judgment, the respondent appealed to the
Court of Appeals which, however, dismissed the appeal on January 11, 1957.
Subsequently, on February 15, 1957, after remand by the Court of Appeals of the case, the
petitioner moved ex parte in the court of origin for the issuance of the corresponding writ of
execution to enforce the judgment. Acting upon the motion, the lower court issued the writ of
execution applied for, on the basis of which the sheriff of Manila seized the respondent's Willy's
Ford jeep (with motor no. B-192297 and plate no. 7225, Manila, 1956).
The respondent, however, pleaded with the petitioner to release the jeep under an arrangement
whereby the respondent, to secure the payment of the judgement debt, agreed to mortgage the
vehicle in favor of the petitioner. The petitioner agreed to the arrangement; thus, the parties, on
February 22, 1957, executed a chattel mortgage on the jeep, stipulating, inter alia, that
This mortgage is given as security for the payment to the said EUSEBIO S.
MILLAR, mortgagee, of the judgment and other incidental expenses in Civil
Case No. 27116 of the Court of First Instance of Manila against Antonio P.
Gabriel, MORTGAGOR, in the amount of ONE THOUSAND SEVEN
HUNDRED (P1,700.00) PESOS, Philippine currency, which MORTGAGOR
agrees to pay as follows:
March 31, 1957 — EIGHT HUNDRED FIFTY (P850) PESOS;
April 30, 1957 — EIGHT HUNDRED FIFTY (P850.00) PESOS.
Upon failure of the respondent to pay the first installment due on March 31, 1957, the petitioner
obtained an alias writ of execution. This writ which the sheriff served on the respondent only on
May 30, 1957 — after the lapse of the entire period stipulated in the chattel mortgage for the
respondent to comply with his obligation — was returned unsatisfied.
So on July 17, 1957 and on various dates thereafter, the lower court, at the instance of the
petitioner, issued several alias writs, which writs the sheriff also returned unsatisfied. On
September 20, 1961, the petitioner obtained a fifth alias writ of execution. Pursuant to this last
writ, the sheriff levied on certain personal properties belonging to the respondent, and then
scheduled them for execution sale.
However, on November 10, 1961, the respondent filed an urgent motion for the suspension of
the execution sale on the ground of payment of the judgment obligation. The lower court, on
November 11, 1961, ordered the suspension of the execution sole to afford the respondent the
opportunity to prove his allegation of payment of the judgment debt, and set the matter for
hearing on November 25, 1961. After hearing, the lower court, on January 25, 1962, issued an
order the dispositive portion of which reads:
IN VIEW WHEREOF, execution reiterated for P1,700.00 plus costs of
execution.
The lower court ruled that novation had taken place, and that the parties had executed the
chattel mortgage only "to secure or get better security for the judgment.
The respondent duly appealed the aforesaid order to the Court of Appeals, which set aside the
order of execution in a decision rendered on October 17, 1968, holding that the subsequent
agreement of the parties impliedly novated the judgment obligation in civil case 27116.
The appellate court stated that the following circumstances sufficiently demonstrate the
incompatibility between the judgment debt and the obligation embodied in the deed of chattel
mortgage, warranting a conclusion of implied novation:
1. Whereas the judgment orders the respondent to pay the petitioner the sum of P1,746.98 with
interest at 12% per annum from the filing of the complaint, plus the amount of P400 and the
costs of suit, the deed of chattel mortgage limits the principal obligation of the respondent to
P1,700;
2. Whereas the judgment mentions no specific mode of payment of the amount due to the
petitioner, the deed of chattel mortgage stipulates payment of the sum of P1,700 in two equal
installments;
3. Whereas the judgment makes no mention of damages, the deed of chattel mortgage
obligates the respondent to pay liquidated damages in the amount of P300 in case of default on
his part; and
4. Whereas the judgment debt was unsecured, the chattel mortgage, which may be foreclosed
extrajudicially in case of default, secured the obligation.
On November 26, 1968, the petitioner moved for reconsideration of the appellate court's
decision, which motion the Court of Appeals denied in its resolution of December 7, 1968.
Hence, the present petition for certiorari to review the decision of the Court of Appeals, seeking
reversal of the appellate court's decision and affirmance of the order of the lower court.
Resolution of the controversy posed by the petition at bar hinges entirely on a determination of
whether or not the subsequent agreement of the parties as embodied in the deed of chattel
mortgage impliedly novated the judgment obligation in civil case 27116. The Court of Appeals,
in arriving at the conclusion that implied novation has taken place, took into account the four
circumstances heretofore already adverted to as indicative of the incompatibility between the
judgment debt and the principal obligation under the deed of chattel mortgage.
1. Anent the first circumstance, the petitioner argues that this does not constitute a
circumstance in implying novation of the judgment debt, stating that in the interim — from the
time of the rendition of the judgment in civil case 27116 to the time of the execution of the deed
of chattel mortgage — the respondent made partial payments, necessarily resulting in the
lesser sum stated in the deed of chattel mortgage. He adds that on record appears the
admission by both parties of the partial payments made before the execution of the deed of
chattel mortgage. The erroneous conclusion arrived at by the Court of Appeals, the petitioner
argues, creates the wrong impression that the execution of the deed of chattel mortgage
provided the consideration or the reason for the reduced judgment indebtedness.
Where the new obligation merely reiterates or ratifies the old obligation, although the former
effects but minor alterations or slight modifications with respect to the cause or object or
conditions of he latter, such changes do not effectuate any substantial incompatibility between
the two obligations Only those essential and principal changes introduced by the new obligation
producing an alteration or modification of the essence of the old obligation result in implied
novation. In the case at bar, the mere reduction of the amount due in no sense constitutes a
sufficient indictum of incompatibility, especially in the light of (a) the explanation by the
petitioner that the reduced indebtedness was the result of the partial payments made by the
respondent before the execution of the chattel mortgage agreement and (b) the latter's
admissions bearing thereon.
At best, the deed of chattel mortgage simply specified exactly how much the respondent still
owed the petitioner by virtue of the judgment in civil case 27116. The parties apparently in their
desire to avoid any future confusion as to the amounts already paid and as to the sum still due,
decoded to state with specificity in the deed of chattel mortgage only the balance of the
judgment debt properly collectible from the respondent. All told, therefore, the first circumstance
fails to satisfy the test of substantial and complete incompatibility between the judgment debt
an the pecuniary liability of the respondent under the chattel mortgage agreement.
stipulation for the payment of the obligation under the terms of the deed of chattel mortgage
serves only to provide an express and specific method for its extinguishment — payment in two
equal installments. The chattel mortgage simply gave the respondent a method and more time
to enable him to fully satisfy the judgment indebtedness.1 The chattel mortgage agreement in
no manner introduced any substantial modification or alteration of the judgment. Instead of
extinguishing the obligation of the respondent arising from the judgment, the deed of chattel
mortgage expressly ratified and confirmed the existence of the same, amplifying only the mode
and period for compliance by the respondent.
The Court of Appeals also considered the terms of the deed of chattel mortgage incompatible
with the judgment because the chattel mortgage secured the obligation under the deed,
whereas the obligation under the judgment was unsecured. The petitioner argues that the deed
of chattel agreement clearly shows that the parties agreed upon the chattel mortgage solely to
secure, not the payment of the reduced amount as fixed in the aforesaid deed, but the payment
of the judgment obligation and other incidental expenses in civil case 27116.
The unmistakable terms of the deed of chattel mortgage reveal that the parties constituted the
chattel mortgage purposely to secure the satisfaction of the then existing liability of the
respondent arising from the judgment against him in civil case 27116. As a security for the
payment of the judgment obligation, the chattel mortgage agreement effectuated no substantial
alteration in the liability of the respondent.

2. The petitioner also alleges that the third circumstance, considered by the Court of Appeals
as indicative of incompatibility, is directly contrary to the admissions of the respondent and is
without any factual basis. The appellate court pointed out that while the judgment made no
mention of payment of damages, the deed of chattel mortgage stipulated the payment of
liquidated damages in the amount of P300 in case of default on the part of the respondent.
The defense of implied novation requires clear and convincing proof of complete incompatibility
between the two obligations.2 The law requires no specific form for an effective novation by
implication. The test is whether the two obligations can stand together. If they cannot,
incompatibility arises, and the second obligation novates the first. If they can stand together, no
incompatibility results and novation does not take place.

However, the petitioner contends that the respondent himself in his brief filed with the Court of
Appeals admitted his obligation, under the deed of chattel mortgage, to pay the amount of P300
by way of attorney's fees and not as liquidated damages. Similarly, the judgment makes
mention of the payment of the sum of P400 as attorney's fees and omits any reference to
liquidated damages.
We do not see any substantial incompatibility between the two obligations as to warrant a
finding of an implied novation. Nor do we find satisfactory proof showing that the parties, by
explicit terms, intended the full discharge of the respondent's liability under the judgment by the
obligation assumed under the terms of the deed of chattel mortgage so as to justify a finding of
express novation.

The discrepancy between the amount of P400 and tile sum of P300 fixed as attorney's fees in
the judgment and the deed of chattel mortgage, respectively, is explained by the petitioner,
thus: the partial payments made by the respondent before the execution of the chattel
mortgage agreement were applied in satisfaction of part of the judgment debt and of part of the
attorney's fee fixed in the judgment, thereby reducing both amounts.
ACCORDINGLY, the decision of the Court of Appeals of October 17, 1968 is set aside, and the
order of the Court of First Instance of Manila of January 25, 1962 is affirmed, at respondent
Antonio Gabriel's cost.

At all events, in the absence of clear and convincing proof showing that the parties, in
stipulating the payment of P300 as attorney's fees in the deed of chattel mortgage, intended the
same as an obligation for the payment of liquidated damages in case of default on the part of
the respondent, we find it difficult to agree with the conclusion reached by the Court of Appeals.

3. As to the second and fourth circumstances relied upon by the Court of Appeals in holding
that the montage obligation superseded, through implied novation, the judgment debt, the
petitioner points out that the appellate court considered said circumstances in a way not in
accordance with law or accepted jurisprudence. The appellate court stated that while the
judgment specified no mode for the payment of the judgment debt, the deed of chattel
mortgage provided for the payment of the amount fixed therein in two equal installments.

On this point, we see no substantial incompatibility between the mortgage obligation and the
judgment liability of the respondent sufficient to justify a conclusion of implied novation. The
 G.R. No. L-26115 November 29, 1971
CARLOS SANDICO, SR., and TEOPISTO P. TIMBOL, petitioners,
vs.
THE HONORABLE MINERVA R. INOCENCIO PIGUING, Judge of the Court of First
Instance of Pampanga, and DESIDERIO PARAS, respondents.
CASTRO, J.:
On April 16, 1960 the spouses Carlos Sandico and Enrica Timbol, and Teopisto P. Timbol,
administrator of the estate of the late Sixta Paras, obtained a judgment in their favor against
Desiderio Paras (hereinafter referred to as the respondent) in civil case 1554, an action for
easement and damages in the Court of First Instance of Pampanga. On appeal, the Court of
Appeals affirmed and modified the judgment, as follows:
IN VIEW WHEREOF, judgment affirmed and modified; as a consequence, defendant
is condemned to recognize the easement which is held binding as to him; he is
sentenced to pay plaintiffs the sums of P5,000.00 actual, and P500.00 exemplary
damages, and P500.00 attorney's fees; plus costs in both instances. 1
Thereafter, upon remand to the court a quo of civil case 1554, the Sandicos and Timbol
(hereinafter referred to as the petitioners) moved for the issuance of a writ of execution to
enforce the appellate court's judgment which had acquired finality. Acting upon the motion, the
court a quo issued a writ of execution on July 22, 1964. This writ the provincial sheriff served
upon the respondent on August 22, 1964.
Meanwhile the petitioners and the respondent reached a settlement, finally agreeing to the
reduction of the money judgment from P6,000 to P4,000. Thus, the respondent, on August 5,
1964, paid the petitioners the sum of P3,000; he made another payment in the amount of
P1,000 as evidenced by a receipt issued by the petitioners' counsel. This receipt is hereunder
reproduced in full:
P1,000.00
RECEIVED from Mr. Desiderio Paras the sum of ONE THOUSAND PESOS
(P1,000.00), Philippine Currency, in full satisfaction of the money judgment rendered
against him in Civil Case No. 1554 of the Court of First Instance of Pampanga, it
being understood that the portion of the final judgment rendered in the said case
ordering him to reconstruct the irrigation canal in question shall be complied with by
him immediately.
City of Angeles, August 31, 1964.
(SGD.) DALMACIO P. TIMBOL
Counsel for Plaintiffs
in Civil Case No. 1554
I AGREE:
(SGD.) DESIDERIO PARAS
Subsequently, the petitioners sent the respondent a letter dated November 5, 1964 demanding
compliance by the latter with the portion of the judgment in civil case 1554 relative to the
reconstruction and reopening of the irrigation canal.
On February 12, 1965 the provincial sheriff returned the writ of execution issued on July 22,
1964 unsatisfied.
Upon failure and refusal of the respondent to rebuild and reopen the irrigation canal, the
petitioners, on March 3, 1965, filed with the court a quo, with Judge Minerva R. Inocencio
Piguing (hereinafter referred to as the respondent judge) presiding, a motion to declare the said
private respondent in contempt of court, pursuant to provisions of section 9, Rule 39 of the
Rules of Court. Opposing the motion, the respondent alleged recognition by him of the
existence of the easement and compliance with the appellate court's judgment, stating that he
had dug a canal in its former place, measuring about one and-a-half feet deep, for the
petitioners' use.
On September 8, 1965 the respondent judge issued an order denying the petitioners' motion to
declare the respondents in contempt of court, ruling that.
... it appears from the dispositive part of the decision that the defendant was only
ordered to recognize the easement which is held binding as to him and to pay the
plaintiffs the sums P5,000.00 of actual, and P500.00 exemplary damages.
Apparently, it is clear from the dispositive part of the decision that there is
nothing to show that the defendant was ordered to reconstruct the canal.
On September 16, 1965 the petitioners moved for issuance of an alias writ of execution to
enforce the judgement of the Court of Appeals. This motion the respondent judge granted in an
order dated September 25, 1965. On November 3, 1965. the respondent moved to set aside
the said alias writ, alleging full satisfaction of the judgment per agreement of the parties when
the petitioner received the sum of P4,000 in August, 1964 as evidenced by the receipt dated
August 31, 1964.
The respondent judge then issued an order dated November 11, 1965 directing the provincial
sheriff to suspend the execution of the alias writ until further orders. On February 3, 1966 the
respondent judge issued an order calling, and directing the quashal of the alias writ of
execution. The respondent judge stated in her order that the agreement of the parties "novated"
the money judgment provided for in the decision of the Court of Appeals, ruling that the said
decision.
... which is sought now to be executed by this Court, has already been fully
satisfied as to the money judgment and nothing more is left to be executed
from the aforesaid Decision as it does not allege (aside from money
judgment) any other condition except for the defendants to recognize the
easement therein.
With their subsequent motion for reconsideration denied by the respondent judge, the
petitioners, on May 27, 1966, filed with this Court the present petition2 for certiorari seeking to
set aside (1) the order of the respondent judge dated September 8, 1965 denying their motion
to declare the respondent in contempt of court in civil case 1554, and (2) the orders of the
respondent judge dated February 3, 1966 and March 30, 1966 granting the respondent's
motion to set aside the alias writ of execution issued in the same civil case, on the ground that
the respondent judge acted in excess of jurisdiction or with grave abuse of discretion.
Here tendered for resolution are the following issues:
(1) Whether the respondent judge correctly constructed the judgment of the Court of Appeals
as not requiring the respondent to reconstruct and reopen the irrigation canal, and
consequently, whether the said respondent judge acted in excess of jurisdiction or with grave
abuse of discretion in denying the petitioners' motion to declare the respondent in contempt of
court for failing and refusing to comply with the appellate court's judgment; and
(2) Whether the payment by the respondent to the petioners of the amount of P4,000
extinguished the money judgment, and, consequently, whether the respondent judge acted in
excess of jurisdiction or with grave abuse of discretion in ordering the recall and quashal of
the alias writ of execution.
1. Anent the first issue, the petitioners argue that although the dispositive portion of the
appellate court's judgment omitted any directive to the respondent to reconstruct and reopen
the irrigation canal, the Court of Appeals' order requiring recognition of the easement on the
part of the said respondent suffices to make him aware of his obligation under the judgment.
The only way of recognizing the easement, the petitioners continue, consists in performing
positive act — the reconstruction and restoration of the irrigation canal to its former condition.
Moreover, to understand the full intendment of the dispositive portion of the judgment directing
the respondent "to recognize the easement" necessitates reference to a statement in the
decision of the Court of Appeals that reads:
... the result of this must be to justify the conclusion prayed for by the plaintiffs that
the easement should be held to be existing and binding upon defendant and he
should be held to have acted without authority in closing the canal which should be
ordered reopened.
On the other hand, the respondent alleges that there is no ambiguity in the phraseology of the
portion of the Court of Appeals' judgment condemning to recognize the easement. Said
decision requires him only to "recognize" the easement and in compliance therewith, he gives
the petitioners permission to reconstruct and reopen the irrigation canal themselves. Neither
the decision a quo nor that of the appellate court orders him to reconstruct and reopen the
irrigation canal.
The agreement reached by the petitioners and the respondent in August, 1964 relative to the
judgment of the appellate court which had acquired finality and the interpretation by the parties
themselves of the said judgment, specifically its dispositive portion, as embodied in the receipt
dated August 31, 1964, constitute the considerations of prime importance in the resolution of
the first question. No doubt exists that the parties entered into the agreement, fully aware of the
judgment of the appellate court ordering the respondent to comply with two obligations, to wit,
payment of a sum of money and recognition of the easement. The receipt evidencing the
agreement, aside from providing for the reduction of the money judgment, provides for the
reconstruction of the irrigation canal. Such constitutes the interpretation accorded by the parties
to that part of the dispositive portion of the appellate court's judgment condemning the
respondent to recognize the easement. This stipulation — one wherein the respondent clearly
recognizes his obligation "to reconstruct the irrigation canal" — embodied in precise and clear
terms in the receipt binds the said respondent, a signatory to the said receipt, and requires from
him full compliance. We thus fail to perceive any reason to sustain the contention of the
respondent that he has no obligation at all to reconstruct and reopen the irrigation canal, a
position utterly inconsistent with his agreement with the petitioners as embodied in the receipt
dated August 31, 1964.
The record, however, shows that the respondent exerted efforts to reconstruct the portion of the
irrigation canal running through his land by digging a canal about one meter wide and about
one-and-a-half feet deep. This partial reconstruction of the irrigation canal the petitioners admit.
Still, the petitioners demand the reconstruction of the irrigation canal to its former condition —
measuring four meters wide, five feet deep, and one-hundred and twenty-eight meters long —
contending that the rebuilt canal serves no useful purpose because the water passing through it
overflows, which overflow ultimately causes the destruction of the canal itself. Nonetheless, we
believe that need to give full force and effect to the existence of the easement demands that
the respondent reconstruct the irrigation canal to its condition before he closed and destroyed
the same. After all, the respondent himself in his answer dated June 16, 1959 filed with the
court a quo admitted the original dimensions of the irrigation canal as four meters wide and
one-hundred and twenty-eight meters long. The respondent's attempt, to rebuild the irrigation
canal, partially and not in conformity with the dimensions of the original one, does not constitute
satisfactory and substantial compliance with his obligation to recognize the easement per the
appellate court's judgment and to reconstruct the irrigation canal pursuant to his agreement
with the petitioners in August, 1964.
Due to the respondent's failure and refusal to reconstruct and reopen the irrigation canal, the
petitioners sought to declare him in contempt of court, under the provisions of section 9 of Rule
39 of the Rules of Court. The respondent judge, however, believing that the appellate court's
judgement required the respondent merely to recognize the equipment without doing any
positive act of reconstruction and reopening of the irrigation canal, dismissed the petition
motion to declare the respondent in contempt of court. In doing so, the petitioners allege, the
respondent judge acted in excess of jurisdiction or with grave abuse of discretion. The
petitioners thus ask us now to annul the order of the respondent judge denying their motion to
declared the respondent in contempt of court or, by way of native, to declare the respondent in
contempt of court and to punish him accordingly.
The petitioners predicate their stand mainly upon the provisions of section 9 of Rule 39 of the
Rules of Court. Said section reads:
Sec. 9. Writ of execution of special judgment. — When judgment requires the
performance of any other act than the payment of money, or the sale or delivery of
real or personal property, a certified copy of the judgment shall be attached the writ of
execution and shall be served by the officer upon the party against whom the same is
rendered, or upon any of person required thereby, or by law, to obey the same, and
party or person may be punished forcontempt if he disobeys such judgment.
Section 9 applies to specific acts other than those cover by section 10 of the same rule. Section
10 pertinently provides:
See. 10. Judgment for an acts; vesting title. — If a judgment directs a party to execute
a conveyance of land, or to deliver deeds or other documents, or to perform any other
specific act, and the party fails to comply within the time specified, the court may direct
the act to be done at the cost of disobedient party by some other person appointed by
the court and the act when so done shall have like effect as if done by the party. ...
Section 9 refers to a judgment directing the performance of a specific act which the said
judgment requires the party or person to personally do because of his personal qualifications
and circumstances. Section 10 refers to a judgment requiring the execution of a conveyance of
land or the delivery of deeds or other documents or the performance of any other specific act
susceptible of execution by some other person or in some other way provided by law with the
same effect. Under section 10, the court may designate some other person to do the act
ordained to be done by the judgment, the reasonable cost of its performance chargeable to the
disobedient party. The act, when so done, shall have the same effect as if performed by the
party himself. In such an instance, the disobedient party incurs no liability for contempt.3 Under
section 9, the court may resort to proceedings for contempt in order to enforce obedience to a
judgment which requires the personal performance of a specific act other than the payment of
money, or the sale or delivery of real or personal property.
An examination of the case at bar makes it apparent that the same falls within the
contemplation of section 10, and not of section 9 as the petitioners contend. The reconstruction
and reopening of the irrigation canal may be done by same other person designated by the
court, at the cost of the respondent. In fact, the respondent in his attempt to rebuild the
irrigation canal, contracted the services of one Gerardo Salenga. Accordingly, in conformity with
the appellate court's judgment as further mutually interpreted by the parties themselves, the
court a quo, because of the failure and refusal of the respondent to restore the irrigation canal
to its former condition and to reopen it, should have appointed some other person to do the
reconstruction, charging the expenses therefor to the said respondent.
2. As to the second question, which relates to the money judgment, the petitioners vehemently
insist on their right to recover an additional sum of P2,000 — the alleged unsatisfied portion of
the appellate court's judgement requiring the respondent to pay to the petitioners the total
amount of P6,000 corresponding to damages and attorney's fees. The petitioners allege that
their agreement with the respondent in August, 1964, reducing the amount due from the
respondent, constitutes neither waiver of their claim for the sum of P2,000 nor novation of the
money judgment provided for in the Court of Appeals' decision. They state that their agreement
with the respondent reduced the amount of the money judgment, subject to the condition that
the latter reconstruct and reopen the irrigation canal immediately. This, they argue, does not
constitute alteration of the appellate court's judgment.
For his part, the respondent contends that his payment of the sum of P4,000, received and
acknowledged by the petitioners through their counsel as "in full satisfaction of the money
judgment" in civil case 1554, extinguished his pecuniary liability. Thus, when the petitioners,
notwithstanding the admitted payment of the judgment debt in the lesser amount of P4,000, still
sought to enforce the money judgment for the full amount of P6,000 through an alias writ of
execution, the court a quo, in recalling and quashing the alias writ previously issued, acted
correctly andwithin its authority.
Parenthetically, the petitioner's application for the issuance of the alias writ of execution dated
September 16, 1965, the alias writ of execution dated September 29, 1965, and the levy on
execution and the notice of sheriff's sale, both dated October 21, 1965, all refer to the amount
of P6,000 and make no mention whatsoever of the true status of the judgement debt. On this
point the respondent charges the petitioners with concealing from the court a quo the true
amount, if any, still due from him. And in effect, he alleges, the petitioners apparently seek the
payment of the judgment debt twice. The petitioners, however, emphasize that they demand
payment of only the balance of P2,000. To rebut the respondents charge of concealment, they
state that they informed the court a quo that the respondent already paid them the sum of
P4,000. Furthermore, they allege that another lawyer, a former associate of their counsel,
prepared their motion for the issuance of the alias writ of execution, received the alias writ and
delivered the same to the sheriff. Impliedly, therefore, they attribute the inconsistency regarding
the amount still allegedly due from the respondent to the former associate of their counsel.
Reverting to the second question, the appellate court's judgment obliges the respondent to do
two things: (1) to recognize the easement, and (2) to pay the petitioners the sums of P5,000
actual and P500 exemplary damages and P500 attorney's fees, or a total of P6,000. The full
satisfaction of the said judgment requires specific performance and payment of a sum of money
by the respondent.
We adjudge the respondent's judgment debt as having been fully satisfied. We see no valid
objection to the petitioners and the respondent entering into an agreement regarding the
monetary obligation of the latter under the judgment of the Court of Appeals, reducing the same
from P6,000 to P4,000. The payment by the respondent of the lesser amount of P4,000,
accepted by the petitioners without any protest or objection and acknowledged by them as "in
full satisfaction of the money judgment" in civil case 1554, completely extinguished the
judgment debt and released the respondent from his pecuniary liability.
Both the petitioners and the respondent take exception to the respondent judge's ruling that
their agreement of August, 1964 to reduce the judgment debt, as evidenced by the receipt
hereinbefore adverted to, "novated" the money judgment rendered by the appellate court.
Novation results in two stipulations — one to extinguish an existing obligation, the other to
substitute a new one in its place.4 Fundamental it is that novation effects a substitution or
modification of an obligation by another or an extinguishment of one obligation in the creation of
another. In the case at hand, we fail to see what new or modified obligation arose out of the
payment by the respondent of the reduced amount of P4,000 and substitute the monetary
liability for P6,000 of the said respondent under the appellate court's judgment. Additionally, to
sustain novation necessitates that the same be so declared in unequivocal terms — clearly and
unmistakably shown by the express agreement of the parties or by acts of equivalent import —
or that there is complete and substantial incompatibility between the two obligations. 5
Neither do we appreciate the petitioners' stand that, according to their agreement with the
respondent, their assent to the reduction of the money judgment was subject to the condition
that the respondent reconstruct and reopen the portion of the irrigation canal passing through
his land immediately. The petitioners even state that the receipt of August 31, 1964 embodies
this condition.
The terms of the receipt dated August 31, 1964, we find clear and definite. The receipt neither
expressly nor impliedly declares that the reduction of the money judgment was conditioned on
the respondent's reconstruction and reopening of the irrigation canal. The receipt merely
embodies the recognition by the respondent of his obligation to reconstruct the irrigation canal.
And the receipt simply requires the respondent to comply with such obligation "immediately."
The obligation of the respondent remains as a portion of the Court of Appeals' judgment. In
fact, the petitioners themselves, in their letter dated November 5, 1964, sent to the respondent,
demanding that the latter reconstruct the irrigation canal immediately, referred to the same not
as a condition but as "the portion of the judgment" in civil case 1594.
Consequently, the respondent judge, when she granted the motion of the respondent to set
aside the alias writ of execution and issued the order dated February 3, 1966 recalling and
quashing the said alias writ, acted correctly. Courts have jurisdiction to entertain motions to
quash previously issued writs of execution because courts have the inherent power, for the
advancement of justice, to correct the errors of their ministerial officers and to control their own
processes. However, this power, well circumscribed, to quash the writ, may be exercised only
in certain situations, as when it appears that (a) the writ has been improvidently issued, or (b)
the writ is defective in substance, or (c) the writ has been issued against the wrong party, or (d)
the judgment debt has been paid or otherwise satisfied, or (e) the writ has been issued without
authority, or (f) there has been a change in the situation of the parties which renders such
execution inequitable, or (g) the controversy has never been submitted to the judgment of the
court, and, therefore, no judgment at all has ever been rendered thereon. 6 In the instant case,
the payment of the judgment debt by the respondent, although in a reduced amount but
accepted by the petitioners as "in full satisfaction of the money judgment," warrants the quashal
of the alias writ.
ACCORDINGLY, judgment is hereby rendered, (1) declaring that the respondent judge did not
act in excess of jurisdiction or with grave abuse of discretion in issuing the order dated
February 3, 1966 (granting the respondent's motion to set aside the alias writ of execution, and
recalling and guashing the said alias writ) and the order dated March 30, 1966 (denying the
petitioners' motion for reconsideration, of the order dated February 3, 1966) ; and (2)
remanding the case to the court a quo with instructions that the respondent court (a) conduct
an ocular inspection of the irrigation canal passing through the respondent's land to determine
whether or not the said canal has been rebuilt in accordance with its original dimensions; (b) in
the event that the said canal fails to meet the measurements of the original one, order the
respondent to reconstruct the same to its former condition; and (3) in the event of the
respondent's further refusal or failure to do so, appoint some other person to reconstruct the
canal in accordance with its original dimensions, at the cost of the said respondent, pursuant to
section 10 of Rule 39 of the Rules of Court. Without pronouncement as to costs.
 G.R. Nos. L-62845-46 November 25, 1983 4. The parties waive all their respective claims and
counterclaims in favor of each other;
NATIONAL POWER CORPORATION, petitioner,
vs. 5. The parties agree to faithfully comply with the
JUDGE ABELARDO M. DAYRIT, Court of First Instance of Manila, Branch 39, and foregoing agreement.
DANIEL R. ROXAS, doing business as United Veterans Security Agency and Foreign
Boats Watchmen, respondents.
PRAYER

ABAD SANTOS, J.:ñé+.£ªwph!1

WHEREFORE, it is respectfully prayed that the Hon. Court approve the
following compromise agreement.'
This is a petition to set aside the Order, dated September 22, 1982, of the respondent judge.
The prayer is premised on the allegation that the questioned Order was issued with grave
Examining the foregoing agreement, the Court finds that the same is in
abuse of discretion.
accordance with law and not against morals and public policy.

In Civil Case No. 133528 of the defunct Court of First Instance of Manila, DANIEL E. ROXAS,
CONFORMABLY, the Court hereby renders judgment in accordance with
doing business under the name and style of United Veterans Security Agency and Foreign
the terms and conditions thereof, enjoining the parties to strictly comply
Boats Watchmen, sued the NATIONAL POWER CORPORATION (NPC) and two of its officers
with the terms and conditions of the compromise agreement, without
in Iligan City. The purpose of the suit was to compel the NPC to restore the contract of Roxas
pronouncement as to cost. (Rollo, pp. 33-34.)
for security services which the former had terminated.

The judgment was not implemented for reasons which have no relevance here.
After several incidents, the litigants entered into a Compromise Agreement on October 14,
1981, and they asked the Court to approve it. Accordingly, a Decision was rendered on October
30, 1981, which reads as follows: têñ.£îhqw⣠On May 14, 1982, the NPC executed another contract for security services with Josette L.
Roxas whose relationship to Daniel is not shown. At any rate Daniel has owned the contract.
The NPC refused to implement the new contract for which reason Daniel filed a Motion for
In order to abbreviate the proceedings in this case, the parties, instead of
Execution in the aforesaid civil case which had been re-numbered R-82-10787. The Motion
going into trial, submitted a compromise agreement, as
reads: têñ.£îhqwâ£
follows: têñ.£îhqwâ£

PLAINTIFF, by counsel, respectfully shows:

The parties, DANIEL E. ROXAS, etc. and NATIONAL
POWER CORPORATION, ET AL., represented by its
President Mr. Gabriel Y. Itchon with due and proper
authority under NP Board Resolution No. 81-224,
assisted by their respective counsel, to this Honorable
Court respectfully submit the following compromise
agreement:
1. The defendant National Power Corporation shall
pay to plaintiff the sum of P7,277.45, representing the
amount due to plaintiff for the services of one of
plaintiff's supervisors;
2. The defendant shall pay plaintiff the value of the line
materials which were stolen but recovered, by
plaintiff's agency which value is to be determined after
a joint inventory by the representatives of both parties;
3. The parties shall continue with the contract of
security services under the same terms and conditions
as the previous contract effective upon the signing
thereof;
PRAYER têñ.£îhqwâ£
1. On October 30, 1981, this Honorable Court rendered its decision based
on compromise agreement submitted by the parties, under which it was
provided, among others, that — têñ.£îhqwâ£
3. The parties shall continue with the contract of
security services under the same terms and conditions
as the previous contract effective upon the signing
thereof;
2. To date, after more than about eight (8) months since the decision of this
Honorable Court, defendant National Power Corporation, through bad faith
by reason of excuses made one after another, has yet to comply with the
aforesaid terms of the decision. It has not reinstated the contract with the
plaintiff in gross violation of the terms of the said compromise agreement
which this Honorable Court approved, 'enjoining the parties to strictly
comply with the terms and conditions of the compromise agreement,
3. Hence, plaintiff is compelled to seek the assistance of this Honorable
Court for the execution of its decision.
 WHEREFORE, it is respectfully prayed that this Honorable Court order the SO ORDERED.1äwphï1.ñët
issuance of the writ of execution for the enforcement of the aforesaid
portion of its decision. (Rollo, pp. 35-36.)

Acting on the Motion, the respondent judge issued the following Order: têñ.£îhqwâ£

Acting on the motion for execution dated July 14, 1982, visibly over the
objection and/or opposition to the motion for execution dated July 19,
1982, the Court, considering that the decision of October 30, 1981 was
based on a Compromise Agreement entered into by and between the
parties which decidedly, become final and executory, is inclined to grant
said action.

CONFORMABLY, let the corresponding writ of execution be issued to be

served by the Deputy Sheriff assigned to this branch. (Rollo, p. 54.)

The NPC assails the Order on the ground that it directs execution of a contract which had been
novated by that of May 14, 1982. Upon the other hand, Roxas claims that said contract was
executed precisely to implement the compromise agreement for which reason there was no
novation.

We sustain the private respondent. Article I of the May 14, 1982, agreement supports his
contention. Said article reads: têñ.£îhqwâ£

ARTICLE I

DOCUMENTS COMPRISING THE CONTRACT

The letter proposal dated September 5, 1981; CORPORATION'S counter-

proposal dated September 11, 1981; Board Resolution No. 81-244 dated
September 28, 1981; the Compromise Agreement and Court Decision
dated October 30, 1981 in Civil Case No. 133528 CFI-Manila; other
subsequent letters and the performance bond of AGENCY to be flied in
favor of CORPORATION in the manner hereinafter provided, are hereby
expressly made integral parts of this contract by reference. (Rollo, pp. 59-
60.)

It is elementary that novation is never presumed; it must be explicitly stated or there must be
manifest incompatibility between the old and the new obligations in every aspect. Thus the Civil
Code provides: têñ.£îhqwâ£

Art. 1292. In order that an obligation may be extinguished by another which

substitutes the same, it is imperative that it be so declared in unequivocal
terms, or that the old and the new obligations be on every point
incompatible with each other.

In the case at bar there is nothing in the May 14, 1982, agreement which supports the
petitioner's contention. There is neither explicit novation nor incompatibility on every point
between the "old" and the "new" agreements.

WHEREFORE, the petition is denied for lack of merit with costs against the petitioner.
 G.R. No. L-41117 December 29, 1986 On July 10, 1975, respondent judge denied the motion for execution on the ground that the
parties had novated the award by their subsequent letter-agreement. Petitioners moved for
reconsideration but respondent judge, likewise, denied the same in his Order dated July 24,
INTEGRATED CONSTRUCTION SERVICES, INC., and ENGINEERING CONSTRUCTION,
1975.
INC., petitioners,
vs.
THE HONORABLE LORENZO RELOVA, as Judge of the Court of First Instance of Manila, Hence, this Petition for Mandamus, alleging that respondent judge unlawfully refused to comply
and METROPOLITAN WATERWORKS & SEWERAGE SYSTEM, respondents. with his mandatory duty-to order the execution of the unsatisfied portion of the final and
executory award.
PARAS, J.:
In a Resolution dated October 17, 1975, the Supreme Court dismissed the Petition for lack of
1 merit. (p. 107, Rollo )and denied petitioners' Motion for Reconsideration of the same. (p. 131,
This is a petition for mandamus as a special civil action and/or, in the alternative, an appeal
Rollo)
from orders of the Court of First Instance of Manila under Republic Act 5440 in Civil Case No.
80390 entitled "Integrated Construction Services, Inc. and Engineering Construction, Inc.,
plaintiffs, versus National Waterworks and Sewerage Authority (now Metropolitan Waterworks At the hearing on petitioners' Second Motion for Reconsideration, however, respondent MWSS
& Sewerage System), defendant." Petitioners complied with the requisites for both remedies. asserted new matters, (p. 186, Rollo) arguing that: the delay in effecting payment was caused
by an unforeseen circumstance the declaration of martial law, thus, placing MWSS under the
management of the Secretary of National Defense, which impelled MWSS to refer the matter of
The facts are not in dispute:
payment to the Auditor General and/or the Secretary of National Defense; and that the 15-day
period was merely intended to pressure MWSS officials to process the voucher. Petitioners,
Petitioners on July 17, 1970 sued the respondent Metropolitan Waterworks and Sewerage however, vehemently deny these matters which are not supported by the records.
System (MWSS), formerly the National Waterworks and Sewerage Authority (NAWASA), in the
Court of First Instance of Manila for breach of contract, docketed as Civil Case No. 80390 in
We agree with the petitioners.
that Court. Meanwhile, the parties submitted the case to arbitration.

While the tenor of the subsequent letter-agreement in a sense novates the judgment award
The Arbitration Board, after extensive hearings, rendered its decision-award on August 11,
there being a shortening of the period within which to pay (Kabangkalan Sugar Co. vs.
1972. Respondent Judge confirmed the Award on September 9, 1972 and the same has long
Pacheco, 55 Phil. 555), the suspensive and conditional nature of the said agreement (making
since become final and executory.
the novation conditional) is expressly acknowledged and stipulated in the 14th whereas clause
of MWSS' Resolution No. 132-72, (p. 23, Rollo) which states:
The decision-award ordered MWSS to pay petitioners P15,518,383.61-less P2,329,433.41, to
be set aside as a trust fund to pay creditors of the joint venture in connection with the projector
WHEREAS, all the foregoing benefits and advantages secured by the MWSS out of
a net award of P13,188,950.20 with interest thereon from the filing of the complaint until fully
said conferences were accepted by the Joint Venture provided that the remaining net
paid.
amount payable to the Joint Venture will be paid by the MWSS within fifteen (15)
days after the official release of this resolution and a written CONFORME to be
Subsequently, however, petitioners agreed to give MWSS some discounts in consideration of signed by the Joint Venture; (Emphasis supplied)
an early payment of the award. Thus, on September 21, 1972, MWSS adopted Board
Resolution No. 132-72, embodying the terms and conditions of their agreement. On October 2,
MWSS' failure to pay within the stipulated period removed the very cause and reason for the
1972, MWSS sent a letter-agreement to petitioners, quoting Board Resolution No. 13272,
agreement, rendering some ineffective. Petitioners, therefore, were remitted to their original
granting MWSS some discounts from the amount payable under the decision award (consisting
rights under the judgment award.
of certain reductions in interests, in the net principal award and in the trust fund), provided that
MWSS would pay the judgment, less the said discounts, within fifteen days therefrom or up to
October 17, 1972. The placing of MWSS under the control and management of the Secretary of National Defense
thru Letter of Instruction No. 2, dated September 22, 1972 was not an unforeseen supervening
factor because when MWSS forwarded the letter-agreement to the petitioners on October 2,
Upon MWSS' request, the petitioners signed their "Conforme" to the said letter-agreement, and
1972, the MWSS was already aware of LOI No. 2.
extended the period to pay the judgment less the discounts aforesaid to October 31, 1972.
MWSS, however, paid only on December 22, 1972, the amount stated in the decision but less
the reductions provided for in the October 2, 1972 letter-agreement. MWSS' contention that the stipulated period was intended to pressure MWSS officials to
process the voucher is untenable. As aforestated, it is apparent from the terms of the
agreement that the 15-day period was intended to be a suspensive condition. MWSS,
Three years thereafter, or on June, 1975, after the last balance of the trust fund had been
admittedly, was aware of this, as shown by the internal memorandum of a responsible MWSS
released and used to satisfy creditors' claims, the petitioners filed a motion for execution in said
official, stating that necessary steps should be taken to effect payment within 15 days, for
civil case against MWSS for the balance due under the decision-award. Respondent MWSS
otherwise, MWSS would forego the advantages of the discount. " (p. 426, Rollo)
opposed execution setting forth the defenses of payment and estoppel. (p. 174, Rollo)
As to whether or not petitioners are now in estoppel to question the subsequent agreement,
suffice it to state that petitioners never acknowledged full payment; on the contrary, petitioners
refused MWSS' request for a conforme or quitclaim. (p. 125, Rollo)

Accordingly, the award is still subject to execution by mere motion, which may be availed of as
a matter of right any time within (5) years from entry of final judgment in accordance with
Section 5, Rule 39 of the Rules of Court.

WHEREFORE, We hereby set aside the assailed orders, and issue the writ of mandamus
directing the present Regional Trial Judge of the Branch that handled this case originally to
grant the writ of execution for the balance due under the award.

SO ORDERED.
 G.R. No. L-47369 June 30, 1987 from the Creditor or upon receipt of Court order or as soon as it becomes liable to
make payment of any sum under the terms of the above-mentioned Bond, its
renewals, extensions, modifications or substitutions, whether the said sum or sums or
JOSEPH COCHINGYAN, JR. and JOSE K. VILLANUEVA, petitioners,
part thereof, have been actually paid or not.
vs.
R & B SURETY AND INSURANCE COMPANY, INC., respondent.
We authorize the SURETY COMPANY, to accept in any case and at its entire
discretion, from any of us, payments on account of the pending obligations, and to
FELICIANO, J.:
grant extension to any of us, to liquidate said obligations, without necessity of
previous knowledge of [or] consent from the other obligors.
This case was certified to us by the Court of Appeals in its resolution dated 11 November 1977
as one involving only questions of law and, therefore, falling within the exclusive appellate
xxx xxx xxx
jurisdiction of this Court under Section 17, Republic Act 296, as amended.

(e) INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY. — Any

In November 1963, Pacific Agricultural Suppliers, Inc. (PAGRICO) applied for and was granted
payment or disbursement made by the SURETY COMPANY on account of the
an increase in its line of credit from P400,000.00 to P800,000.00 (the "Principal Obligation"),
above-mentioned Bonds, its renewals, extensions or substitutions, either in the belief
with the Philippine National Bank (PNB). To secure PNB's approval, PAGRICO had to give a
that the SURETY COMPANY was obligate[d] to make such payment or in the belief
good and sufficient bond in the amount of P400,000.00, representing the increment in its line of
that said payment was necessary in order to avoid greater losses or obligations for
credit, to secure its faithful compliance with the terms and conditions under which its line of
which the SURETY COMPANY might be liable by virtue of the terms of the above-
credit was increased. In compliance with this requirement, PAGRICO submitted Surety Bond
mentioned Bond, its renewals, extensions or substitutions, shall be final and will not
No. 4765, issued by the respondent R & B Surety and Insurance Co., Inc. (R & B Surety") in the
be disputed by the undersigned, who jointly and severally bind themselves to
specified amount in favor of the PNB. Under the terms of the Surety Bond, PAGRICO and R &
indemnify the SURETY COMPANY of any and all such payments as stated in the
B Surety bound themselves jointly and severally to comply with the "terms and conditions of the
preceding clauses.
advance line [of credit] established by the [PNB]." PNB had the right under the Surety Bond to
proceed directly against R & B Surety "without the necessity of first exhausting the assets" of
the principal obligor, PAGRICO. The Surety Bond also provided that R & B Surety's liability was xxx xxx xxx
not to be limited to the principal sum of P400,000.00, but would also include "accrued interest"
on the said amount "plus all expenses, charges or other legal costs incident to collection of the
When PAGRICO failed to comply with its Principal Obligation to the PNB, the PNB demanded
obligation [of R & B Surety]" under the Surety Bond.
payment from R & B Surety of the sum of P400,000.00, the full amount of the Principal
Obligation. R & B Surety made a series of payments to PNB by virtue of that demand totalling
In consideration of R & B Surety's issuance of the Surety Bond, two Identical indemnity P70,000.00 evidenced by detailed vouchers and receipts.
agreements were entered into with R & B Surety: (a) one agreement dated 23 December 1963
was executed by the Catholic Church Mart (CCM) and by petitioner Joseph Cochingyan, Jr, the
R & B Surety in turn sent formal demand letters to petitioners Joseph Cochingyan, Jr. and Jose
latter signed not only as President of CCM but also in his personal and individual capacity; and
K. Villanueva for reimbursement of the payments made by it to the PNB and for a discharge of
(b) another agreement dated 24 December 1963 was executed by PAGRICO, Pacific Copra
its liability to the PNB under the Surety Bond. When petitioners failed to heed its demands, R &
Export Inc. (PACOCO), Jose K. Villanueva and Liu Tua Ben Mr. Villanueva signed both as
B Surety brought suit against Joseph Cochingyan, Jr., Jose K. Villanueva and Liu Tua Ben in
Manager of PAGRICO and in his personal and individual capacity; Mr. Liu signed both as
the Court of First Instance of Manila, praying principally that judgment be rendered:
President of PACOCO and in his individual and personal capacity.

b. Ordering defendants to pay jointly and severally, unto the plaintiff, the sum of
Under both indemnity agreements, the indemnitors bound themselves jointly and severally to R
P20,412.20 representing the unpaid premiums for Surety Bond No. 4765 from 1965
& B Surety to pay an annual premium of P5,103.05 and "for the faithful compliance of the terms
up to 1968, and the additional amount of P5,103.05 yearly until the Surety Bond No.
and conditions set forth in said SURETY BOND for a period beginning ... until the same is
4765 is discharged, with interest thereon at the rate of 12% per annum; [and]
CANCELLED and/or DISCHARGED." The Indemnity Agreements further provided:

c. Ordering the defendants to pay jointly and severally, unto the plaintiff the sum of
(b) INDEMNITY: — TO indemnify the SURETY COMPANY for any damage,
P400,000.00 representing the total amount of the Surety Bond No. 4765 with interest
prejudice, loss, costs, payments, advances and expenses of whatever kind and
thereon at the rate of 12% per annum on the amount of P70,000.00 which had been
nature, including [of] attorney's fees, which the CORPORATION may, at any time,
paid to the Phil. National Bank already, the interest to begin from the month of
become liable for, sustain or incur as consequence of having executed the above
September, 1966;
mentioned Bond, its renewals, extensions or substitutions and said attorney's fees
[shall] not be less than twenty [20%] per cent of the total amount claimed by the
CORPORATION in each action, the same to be due, demandable and payable, xxx xxx xxx
irrespective of whether the case is settled judicially or extrajudicially and whether the
amount has been actually paid or not;
Petitioner Joseph Cochingyan, Jr. in his answer maintained that the Indemnity Agreement he
executed in favor of R & B Surety: (i) did not express the true intent of the parties thereto in that
(c) MATURITY OF OUR OBLIGATIONS AS CONTRACTED HEREWITH: — The he had been asked by R & B Surety to execute the Indemnity Agreement merely in order to
said indemnities will be paid to the CORPORATION as soon as demand is received make it appear that R & B Surety had complied with the requirements of the PNB that credit
lines be secured; (ii) was executed so that R & B Surety could show that it was complying with
the regulations of the Insurance Commission concerning bonding companies; (iii) that R & B
Surety had assured him that the execution of the agreement was a mere formality and that he
was to be considered a stranger to the transaction between the PNB and R & B Surety; and (iv)
that R & B Surety was estopped from enforcing the Indemnity Agreement as against him.
Petitioner Jose K. Villanueva claimed in his answer that. (i) he had executed the Indemnity
Agreement in favor of R & B Surety only "for accommodation purposes" and that it did not
express their true intention; (ii) that the Principal Obligation of PAGRICO to the PNB secured by
the Surety Bond had already been assumed by CCM by virtue of a Trust Agreement entered
into with the PNB, where CCM represented by Joseph Cochingyan, Jr. undertook to pay the
Principal Obligation of PAGRICO to the PNB; (iii) that his obligation under the Indemnity
Agreement was thereby extinguished by novation arising from the change of debtor under the
Principal Obligation; and (iv) that the filing of the complaint was premature, considering that R &
B Surety filed the case against him as indemnitor although the PNB had not yet proceeded
against R & B Surety to enforce the latter's liability under the Surety Bond.
Petitioner Cochingyan, however, did not present any evidence at all to support his asserted
defenses. Petitioner Villanueva did not submit any evidence either on his "accommodation"
defense. The trial court was therefore constrained to decide the case on the basis alone of the
terms of the Trust Agreement and other documents submitted in evidence.
In due time, the Court of First Instance of Manila, Branch 24 1 rendered a decision in favor of R
& B Surety, the dispositive portion of which reads as follows;
Premises considered, judgment is hereby rendered: (a) ordering the defendants
Joseph Cochingyan, Jr. and Jose K. Villanueva to pay, jointly and severally, unto the
plaintiff the sum of 400,000,00, representing the total amount of their liability on
Surety Bond No. 4765, and interest at the rate of 6% per annum on the following
amounts:
On P14,000.00 from September 27, 1966;
On P4,000.00 from November 28, 1966;
On P4,000.00 from December 14, 1966;
On P4,000.00 from January 19, 1967;
On P8,000.00 from February 13, 1967;
On P4,000.00 from March 6, 1967;
On P8,000.00 from June 24, 1967;
On P8,000. 00 from September 14, 1967;
On P8,000.00 from November 28, 1967; and
On P8,000. 00 from February 26, 1968
until full payment; (b) ordering said defendants to pay, jointly and severally, unto the
plaintiff the sum of P20,412.00 as the unpaid premiums for Surety Bond No. 4765,
with legal interest thereon from the filing of plaintiff's complaint on August 1, 1968
until fully paid, and the further sum of P4,000.00 as and for attorney's fees and
expenses of litigation which this Court deems just and equitable.
There being no showing the summons was duly served upon the defendant Liu Tua
Ben who has filed no answer in this case, plaintiff's complaint is hereby dismissed as
against defendant Liu Tua Ben without prejudice.
Costs against the defendants Joseph Cochingyan, Jr. and Jose K. Villanueva.
Not satisfied with the decision of the trial court, the petitioners took this appeal to the Court of
Appeals which, as already noted, certified the case to us as one raising only questions of law.
The issues we must confront in this appeal are:
1. whether or not the Trust Agreement had extinguished, by novation, the obligation of R & B
Surety to the PNB under the Surety Bond which, in turn, extinguished the obligations of the
petitioners under the Indemnity Agreements;
2. whether the Trust Agreement extended the term of the Surety Bond so as to release
petitioners from their obligation as indemnitors thereof as they did not give their consent to the
execution of the Trust Agreement; and
3. whether or not the filing of this complaint was premature since the PNB had not yet filed a
suit against R & B Surety for the forfeiture of its Surety Bond.
We address these issues seriatim.
1. The Trust Agreement referred to by both petitioners in their separate briefs, was executed on
28 December 1965 (two years after the Surety Bond and the Indemnity Agreements were
executed) between: (1) Jose and Susana Cochingyan, Sr., doing business under the name and
style of the Catholic Church Mart, represented by Joseph Cochingyan, Jr., as Trustor[s]; (2)
Tomas Besa, a PNB official, as Trustee; and (3) the PNB as beneficiary. The Trust Agreement
provided, in pertinent part, as follows:
WHEREAS, the TRUSTOR has guaranteed a bond in the amount of P400,000.00
issued by the R & B Surety and Insurance Co. (R & B) at the instance of Pacific
Agricultural Suppliers, Inc. (PAGRICO) on December 21, 1963, in favor of the
BENEFICIARY in connection with the application of PAGRICO for an advance line of
P400,000.00 to P800,000.00;
WHEREAS, the TRUSTOR has also guaranteed a bond issued by the Consolacion
Insurance & Surety Co., Inc. (CONSOLACION) in the amount of P900,000.00 in favor
of the BENEFICIARY to secure certain credit facilities extended by the
BENEFICIARY to the Pacific Copra Export Co., Inc. (PACOCO);
WHEREAS, the PAGRICO and the PACOCO have defaulted in the payment of their
respective obligations in favor of the BENEFICIARY guaranteed by the bonds issued
by the R & B and the CONSOLACION, respectively, and by reason of said default,
 the BENEFICIARY has demanded compliance by the R & B and the
CONSOLACION of their respective obligations under the aforesaid bonds;
WHEREAS, the TRUSTOR is, therefore, bound to comply with his obligation under
the indemnity agreements aforementioned executed by him in favor of R & B and the
CONSOLACION, respectively and in order to forestall impending suits by the
BENEFICIARY against said companies, he is willing as he hereby agrees to pay the
obligations of said companies in favor of the BENEFICIARY in the total amount of
P1,300,000 without interest from the net profits arising from the procurement of
reparations consumer goods made thru the allocation of WARVETS; . . .
l. TRUSTOR hereby constitutes and appoints Atty. TOMAS BESA as TRUSTEE for
the purpose of paying to the BENEFICIARY Philippine National Bank in the manner
stated hereunder, the obligations of the R & B under the R & B Bond No. G-4765 for
P400,000.00 dated December 23, 1963, and of the CONSOLACION under The
Consolacion Bond No. G-5938 of June 3, 1964 for P900,000.00 or the total amount
of P1,300,000.00 without interest from the net profits arising from the procurement of
reparations consumer goods under the Memorandum of Settlement and Deeds of
Assignment of February 2, 1959 through the allocation of WARVETS;
xxx xxx xxx
6. THE BENEFICIARY agrees to hold in abeyance any action to enforce its claims
against R & B and CONSOLACION, subject of the bond mentioned above. In the
meantime that this TRUST AGREEMENT is being implemented, the BENEFICIARY
hereby agrees to forthwith reinstate the R & B and the CONSOLACION as among
the companies duly accredited to do business with the BENEFICIARY and its
branches, unless said companies have been blacklisted for reasons other than those
relating to the obligations subject of the herein TRUST AGREEMENT;
xxx xxx xxx
9. This agreement shall not in any manner release the R & B and CONSOLACION
from their respective liabilities under the bonds mentioned above. (emphasis
supplied)
There is no question that the Surety Bond has not been cancelled or fully discharged 2 by
payment of the Principal Obligation. Unless, therefore, the Surety Bond has been extinguished
by another means, it must still subsist. And so must the supporting Indemnity Agreements. 3
We are unable to sustain petitioners' claim that the Surety Bond and their respective obligations
under the Indemnity Agreements were extinguished by novation brought about by the
subsequent execution of the Trust Agreement.
Novation is the extinguishment of an obligation by the substitution or change of the obligation
by a subsequent one which terminates it, either by changing its object or principal conditions, or
by substituting a new debtor in place of the old one, or by subrogating a third person to the
rights of the creditor. 4 Novation through a change of the object or principal conditions of an
existing obligation is referred to as objective (or real) novation. Novation by the change of either
the person of the debtor or of the creditor is described as subjective (or personal) novation.
Novation may also be both objective and subjective (mixed) at the same time. In both objective
and subjective novation, a dual purpose is achieved-an obligation is extinguished and a new
one is created in lieu thereof.5
If objective novation is to take place, it is imperative that the new obligation expressly declare
that the old obligation is thereby extinguished, or that the new obligation be on every point
incompatible with the old one. 6 Novation is never presumed: it must be established either by
the discharge of the old debt by the express terms of the new agreement, or by the acts of the
parties whose intention to dissolve the old obligation as a consideration of the emergence of
the new one must be clearly discernible. 7
Again, if subjective novation by a change in the person of the debtor is to occur, it is not enough
that the juridical relation between the parties to the original contract is extended to a third
person. It is essential that the old debtor be released from the obligation, and the third person
or new debtor take his place in the new relation. If the old debtor is not released, no novation
occurs and the third person who has assumed the obligation of the debtor becomes merely a
co-debtor or surety or a co-surety. 8
Applying the above principles to the instant case, it is at once evident that the Trust Agreement
does not expressly terminate the obligation of R & B Surety under the Surety Bond. On the
contrary, the Trust Agreement expressly provides for the continuing subsistence of that
obligation by stipulating that "[the Trust Agreement] shall not in any manner release" R & B
Surety from its obligation under the Surety Bond.
Neither can the petitioners anchor their defense on implied novation. Absent an unequivocal
declaration of extinguishment of a pre-existing obligation, a showing of complete incompatibility
between the old and the new obligation (and nothing else) would sustain a finding of novation
by implication. 9 But where, as in this case, the parties to the new obligation expressly
recognize the continuing existence and validity of the old one, where, in other words, the
parties expressly negated the lapsing of the old obligation, there can be no novation. The issue
of implied novation is not reached at all.
What the trust agreement did was, at most, merely to bring in another person or persons-the
Trustor[s]-to assume the same obligation that R & B Surety was bound to perform under the
Surety Bond. It is not unusual in business for a stranger to a contract to assume obligations
thereunder; a contract of suretyship or guarantee is the classical example. The precise legal
effect is the increase of the number of persons liable to the obligee, and not the extinguishment
of the liability of the first debtor. 10 Thus, in Magdalena Estates vs. Rodriguez, 11 we held that:
[t]he mere fact that the creditor receives a guaranty or accepts payments from a third
person who has agreed to assume the obligation, when there is no agreement that
the first debtor shall be released from responsibility, does not constitute a novation,
and the creditor can still enforce the obligation against the original debtor.
In the present case, we note that the Trustor under the Trust Agreement, the CCM, was already
previously bound to R & B Surety under its Indemnity Agreement. Under the Trust Agreement,
the Trustor also became directly liable to the PNB. So far as the PNB was concerned, the effect
of the Trust Agreement was that where there had been only two, there would now
be three obligors directly and solidarily bound in favor of the PNB: PAGRICO, R & B Surety and
the Trustor. And the PNB could proceed against any of the three, in any order or sequence.
Clearly, PNB never intended to release, and never did release, R & B Surety. Thus, R & B
Surety, which was not a party to the Trust Agreement, could not have intended to release any
of its own indemnitors simply because one of those indemnitors, the Trustor under the Trust
Agreement, became also directly liable to the PNB.
2. We turn to the contention of petitioner Jose K. Villanueva that his obligation as indemnitor
under the 24 December 1963 Indemnity Agreement with R & B Surety was extinguished when
the PNB agreed in the Trust Agreement "to hold in abeyance any action to enforce its claims
against R & B Surety .
The Indemnity Agreement speaks of the several indemnitors "apply[ing] jointly and severally (in
solidum) to the R & B Surety] — to become SURETY upon a SURETY BOND demanded by
and in favor of [PNB] in the sum of [P400,000.00] for the faithful compliance of the terms and
conditions set forth in said SURETY BOND — ." This part of the Agreement suggests that the
indemnitors (including the petitioners) would become co-sureties on the Security Bond in favor
of PNB. The record, however, is bereft of any indication that the petitioners-indemnitors ever in
fact became co-sureties of R & B Surety vis-a-vis the PNB. The petitioners, so far as the record
goes, remained simply indemnitors bound to R & B Surety but not to PNB, such that PNB could
not have directly demanded payment of the Principal Obligation from the petitioners. Thus, we
do not see how Article 2079 of the Civil Code-which provides in part that "[a]n extension
granted to the debtor by the creditor without the consent of the guarantor extinguishes the
guaranty" could apply in the instant case.
The petitioner-indemnitors are, as, it were, second-tier parties so far as the PNB was
concerned and any extension of time granted by PNB to any of the first-tier obligators
(PAGRICO, R &B Surety and the trustors[s]) could not prejudice the second-tier parties.
There is no other reason why petitioner Villanueva's contention must fail. PNB's undertaking
under the Trust Agreement "to hold in abeyance any action to enforce its claims" against R & B
Surety did not extend the maturity of R & B Surety's obligation under the Surety Bond. The
Principal Obligation had in fact already matured, along with that of R &B Surety, by the time the
Trust Agreement was entered into. Petitioner's Obligation had in fact already matured, for those
obligations were to amture "as soon as [R & B Surety] became liable to make payment of any
sum under the terms of the [Surety Bond] — whether the said sum or sums or part thereof have
been actually paid or not." Thus, the situation was that precisely envisaged in Article 2079:
The petitioners lose sight of the fact that the Indemnity Agreements are contracts of
indemnification not only against actual loss but against liability as well. 14 While in a contract of
indemnity against loss as indemnitor will not be liable until the person to be indemnified makes
payment or sustains loss, in a contract of indemnity against liability, as in this case,
the indemnitor's liability arises as soon as the liability of the person to be indemnified has arisen
without regard to whether or not he has suffered actual loss. 15 Accordingly, R & B Surety was
entitled to proceed against petitioners not only for the partial payments already made but for the
full amount owed by PAGRICO to the PNB.
Summarizing, we hold that :
(1) The Surety Bond was not novated by the Trust Agreement. Both agreements can co-exist.
The Trust Agreement merely furnished to PNB another party obligor to the Principal Obligation
in addition to PAGRICO and R & B Surety.
(2) The undertaking of the PNB to 'hold in abeyance any action to enforce its claim" against R &
B Surety did not amount to an "extension granted to the debtor" without petitioner's consent so
as to release petitioner's from their undertaking as indemnitors of R & B Surety under the
INdemnity Agreements; and
(3) Petitioner's are indemnitors of R & B Surety against both payments to and liability for
payments to the PNB. The present suit is therefore not premature despite the fact that the PNB
has not instituted any action against R & B Surety for the collection of its matured obligation
under the Surety Bond.

[t]he mere failure on the part of the creditor to demand payment after the debt has WHEREFORE, the petitioner's appeal is DENIED for the lack of merit and the decision of the
become due does not of itself constitute any extension of the referred to trial court is AFFIRMED in toto. Costs against the petitioners.
herein.(emphasis supplied)
SO ORDERED.
The theory behind Article 2079 is that an extension of time given to the principal debtor by the
creditor without the surety of his right to pay the creditor and to be immediately subrogated to
the creditor's remedies against the principal debtor upon the original maturity date. The surety
is said to be entitled to protect himself against the principal debtor upon the orginal maturity
date. The surety is said to be entitled to protect himself against the contingency of the principal
debtor or the indemnitors becoming insolvent during the extended period. The underlying
rationale is not present in the instant case. As this Court has held,

merely delay or negligence in proceeding against the principal will not discharge a
surety unless there is between the creditor and the principal debtor a valid and
binding agreement therefor, one which tends to prejudice [the surety] or to deprive it
of the power of obtaining indemnity by presenting a legal objection for the time, to the
prosecution of an action on the original security.12

In the instant case, there was nothing to prevent the petitioners from tendering payment, if they
were so minded, to PNB of the matured obligation on behalf of R & B Surety and thereupon
becoming subrogated to such remedies as R & B Surety may have against PAGRICO.

3. The last issue can be disposed of quicjly, Clauses (b) and (c) of the Indemnity Agreements
(quoted above) allow R & B Surety to recover from petitioners even before R & B Surety shall
have paid the PNB. We have previously held similar indemnity clauses to be enforceable and
not violative of any public policy. 13
 G.R. No. L-68477 October 29, 1987
SPOUSES ANICETO BALILA and EDITHA S. DE GUZ MAN, SPOUSES ASTERIO DE
GUZMAN and ERLINDA CONCEPCION and ENCARNACION OCAMPO VDA. DE
CONCEPCION, petitioners,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT, HONORABLE FLORANTE S.
ABASOLO, in his capacity as Judge, Regional Trial Court, First Judicial Region, Branch
L, Villasis, Pangasinan, GUADALUPE C. VDA. DE DEL CASTILLO and WALDO DEL
CASTILLO, respondents.
PARAS, J.:
This is a Petition for Review on certiorari of (1) the decision 1 of the Intermediate Appellate
Court (IAC) affirming in toto the order 2 dated April 26, 1983 in Civil Case No. U-3501 of the trial
court which ordered the consolidation of ownership in favor of private respondent Guadalupe C.
Vda. del Castillo over two (2) parcels of land including the improvements thereon, situated in
Villasis, Pangasinan namely, Lot No. 965, with an area of 648 square meters covered by TCT
No. 93407 and Lot No. 16 with an area of 910 square meters covered by TCT No. 101794 and
(2) the Order of the Intermediate Appellate Court (IAC) dated July 25, 1984 denying petitioners'
Motion for Reconsideration.
The petition at bar began as an amicable settlement between petitioners and private
respondents as defendants and plaintiffs in Civil Case No. U-3501, which was approved by the
trial court and made as the basis of its Decision 3dated December 11, 1980 ordering the parties
to comply strictly with the terms and conditions embodied in said amicable settlement. The
salient points therein show that defendants admitted "having sold under a pacto de retrosale
the parcels of land 4 described in the complaint in the amount of P84,000.00" and that they
"hereby promise to pay the said amount within the period of four (4) months but not later than
May 15,1981." 5
On December 30, 1981 or more than seven months after the last day for making payments,
defendants redeemed from plaintiff Guadalupe (one of the private respondents herein) Lot No.
52 with an area of 294 sq.m. covered by TCT 101352 which was one of the three parcels of
land described in the complaint by paying the amount of P20,000.00.
On August 4, 1982, plaintiff filed a motion for a hearing on the consolidation of title over the
remaining two (2) parcels of land namely Lot 965 and Lot 16 alleging that the court's decision
dated December 11, 1980 remained unenforced for no payment of the total obligation due from
defendants. Defendants opposed said motion alleging that they had made partial payments of
their obligation through plaintiff's attorney in fact and son, Waldo del Castillo, as well as to the
Sheriff. On April 26, 1983, the lower court issued the questioned order affirming consolidation.
On June 8, 1983, while the Order of the lower court had not yet been enforced, defendants paid
plaintiff Guadalupe Vda. del Castillo by tendering the amount of P28,800.00 to her son Waldo
del Castillo (one of the private respondents herein) thus leaving an unpaid balance of
P35,200.00. A Certification dated June 8, 1983, (Annex D, Rollo, page 31) and signed by
Waldo shows that defendants were given a period of 45 days from date or up to July 23, 1983
within which to pay the balance. Said Certification supported defendants' motion for
reconsideration and supplemental motion for reconsideration of the Order reconsolidation of
title, which motions were both denied by the lower court, prompting defendants to file a petition
for certiorari, prohibition and mandamus with pre injunction petition with the Intermediate
Appellate Court to seeking to annul and set aside the assailed Order dated April 26, 1983 and
the Order denying their motion for reconsideration. After due consideration of the records of the
case, the appellate tribunal sustained the lower court, hence the present petition for certiorari,
defendants relying on the following arguments:,
(1) The appellate court erred in not declaring that the contract between the
petitioners and private respondent Guadalupe is one of equitable mortgage
and not a pacto de retro sale,
(2) The appellate court erred in not declaring that the decision dated 11,
1980, based upon the agreement of the parties was novated upon
subsequent mutual agreements of the said parties.
Petitioners contend that despite the rendition of the said decision by the appellate court, private
respondent Guadalupe Vda. de del Castillo, represented by her son Waldo del Castillo as for
attorney-in-fact, accepted payments from petitioners and gave petitioners several extensions of
time to pay their remaining obligations thus:
5.A. On July 8, 1984, private respondents accepted the amounts of
P6,130.00 from petitioners- and gave petitioners up to August 30, 1984 to
pay the latter's balance of P23,870.00; (Certification Annex "J" Petition);
5.B. On September 9, 1984, private respondents accepted the amount of
P1,100.00 from petitioners and gave petitioners up to October 30, 1984 to
pay the latter's balance of P21,624.00 (Certification Annex "L" Petition);
5.C. On October 30, 1984, private respondents accepted the amount of
P2,500.00 from petitioners and gave petitioners up to November 15, 1984
to pay the latter's balance of P19,124.00 (Receipt, Annex "N" Reply);
5.D. On November 13, 1984, private respondents accepted the amount of
P3,124.00 from petitioners and gave petitioners up to December 30, 1984
to pay the latter's balance of P16,000.00 and private respondent promised
to deliver TCT Nos. 146360 and 146361 already in-the name of private
respondent Guadalupe Vda. de del Castillo, covering lots 965 and 16,
respectively, in favor of petitioners (Receipt, Annex "O," Reply);
5.E. On November 23, 1984, private respondents accepted the amount of
P6,000.00 from petitioners and gave petitioners up to December 30, 1984
to pay the latter's balance of P10,000.00 and private respondents
proposed to deliver TCT Nos. 146360 and 146361, covering Lots 965 and
16, respectively, and promised to reconvey said lots in favor of petitioners
(Receipt, Annex "P," Reply).
(Memo for Petitioners, pp. 175-176, Rollo)
Petitioners likewise allege that private respondents Guadalupe Vda. de del Castillo and son
Waldo, were nowhere to be found on December 30, 1984, the last day for petitioners to pay
their balance of P10,000.00 and for private respondents to reconvey the lands in question (Lots
965 and 16) in favor of petitioners and to deliver TCT Nos. 146360 and 146361 already in the
name of private respondent Guadalupe Vda. de del Castillo, covering said lots respectively.
This incident compelled petitioners to deposit said amount with the Regional Trial Court as per
receipt OR No. 9764172 (Annex "Q") accompanied by a motion to deposit (Annex "R") which
motion was granted as per Order dated January 9, 1985 (Annex "S"). The aforementioned titles
over the two parcels of lands are subject to Notice of Lis Pendens dated August 15, 1983
(Annex "T").
On the other hand, some of the private respondents do not deny they received the amounts
stated in Annexes "D," "F," "J," "L," N," and "P". They aver however that the amicable
settlement entered into by and between the parties duly assisted by their counsel was, with
respect to Guadalupe, signed by her personally and that at no time thereafter did she ever
appoint Waldo del Castillo who is one of her children to receive for her any sum of money to be
paid by the petitioners for the settlement of their obligations arising out of their amicable
settlement. Guadalupe also questions the inclusion as private respondent of Waldo del Castillo
in this Court and the inclusion of the alleged receipts of payments as these receipts were never
offered in evidence before the 'trial court or the appellate court nor were the same admitted in
evidence by said courts.
Petitioners' contentions deserve Our consideration.
The root of all the issues raised before Us is that judgment by compromise rendered by the
lower court based on the terms of the amicable settlement of the contending parties. Such
agreement not being contrary to law, good morals or public policy was approved by the lower
court and therefore binds the parties who are enjoined to comply therewith.
However, the records show that petitioners made partial payments to private respondent Waldo
del Castillo after May 15, 1981 or the last day for making payments, redeeming Lot No. 52 as
earlier stated. (Annex "A," Petition).
There is no question that petitioners tendered several payments to Waldo del Castillo even
after redeeming lot No. 52. A total of these payments reveals that petitioners share. fulIy paid
the amount stated in the judgment by com promise. The only issue is whether Waldo del
Castillo was a person duly authorized by his mother Guadalupe Vda. de del Castillo, as her
attorney-in-fact to represent her in transactions involving the properties in question. We believe
that he was so authorized in the same way that the appellate court took cognizance of such fact
as embodied in its assailed decision. reading as follows:
It may be mentioned that on May 25,1981, Guadalupe Vda. de Del Castillo,
represented by her attorney in fact Waldo Castillo, filed a complaint for
consolidation of ownership against the same petitioners herein before the
Court of First Instance of Pangasinan, docketed as Civil Case No. U-3650,
the allegations of which are Identical to the complaint filed in Civil Case No.
U-3501 of the same court. This case U-3650 was, however, dismissed in
an Order dated May 27, 1983, in view of the order of consolidation issued
in Civil Case No. U-350 1. (p. 37, Rollo) (Underscoring supplied)
The fact therefore remains that the amount of P84,000.00 payable on or before May 15, 1981
decreed by the trial court in its judgment by compromise was novated and amended by the
subsequent mutual agreements and actions of petitioners and private respondents. Petitioners
paid the aforestated amount on an insatalment basis and they were given by private
respondents no less than eight extensions of time pay their obligation. These transactions took
place during the pendency of the motion for reconsideration of the Order of the trial court dated
April 26, 1983 in Civil Case No. U-3501, during the pendency of the petition for certiorari in AC-
G.R. SP-01307 before the Intermediate Appellate Court and after the filing of the petition before
us. This answers the claim of the respondents on the failure of the petitioners to present
evidences or proofs of payment in the lower court and the appellate court. We have touched on
this issue, similarly, in the case of de los Santos vs. Rodriguez 6 wherein We ruled that:
As early as Molina vs. De la Riva 7 the principle has been laid down that,
when, after judgment has become final, facts and circumstances transpire
which render its execution impossible or unjust, the interested party may
ask the court to modify or alter the judgment to harmonize the same with
justice and the facts.
For this reason, in Amor vs. Judge Jose, 8 we used the following language:
The Court cannot refuse to issue a writ of execution
upon a final and executory judgment, or quash it, or
order its stay, for, as a general rule, parties will not be
allowed, after final judgment, to object to the execution
by raising new issues of fact or of law, except when
there had been a change in the situation of the parties
which makes such execution in- equitable; or when it
appears that the controversy has never been
submitted to the judgment of the court, or when it
appears that the writ of execution has been
improvidently issued, or that it is defective in
substance, or issued against the wrong party or that
judgment debt has been paid or otherwise satisfied or
when the writ has been issued without authority.
(emphasis supplied)
Likewise in the case of Dormitorio vs. Fernandez, 9 We held:
What was done by respondent Judge in setting aside the writ of execution
in Civil Case No. 5111 finds support in the applicable authorities. There is
this relevant excerpt in Barretto v. Lopez 10 this Court speaking through
the then Chief Justice Paras: "Allegating that the respondent judge of the
municipal court had acted in excess of her jurisdiction and with grave
abuse of discretion in issuing the writ of execution of December 15, 1947,
the petitioner has filed the present petition for certiorari and prohibition for
the purpose of having said writ of execution annulled. Said petition is
meritorious. The agreement filed by the parties in the ejectment case
created as between them new rights and obligations which naturally
superseded the judgment of the municipal court." In Santos v. Acuna, 11 it
was contended that a lower court decision was novated by the subsequent
agreement of the parties. Implicit in this Court's ruling is that such a plea
would merit approval if indeed that was what the parties intended. ...
WHEREFORE, finding merit in the petition, the same is hereby given DUE COURSE and the
assailed decision, SET ASIDE. Private respondents are hereby ordered to reconvey and deliver
lot No. 965 and Lot No. 16 as covered by TCT Nos. 146360 and 146361 respectively in favor of
petitioners. Should private respondents fail to do so, the Clerk of Court of the Regional Trial
Court concerned is ordered to execute the necessary deed of reconveyance, conformably with
the provisions of the Rules of Court. The local Register of Property is ordered to register said
deed of reconveyance. Private respondents are hereby authorized to withdraw the balance in
the amount of P10,000 consigned by petitioners on January 9, 1985 with the trial court as per
OR No. 9764172 (Annex "O") a full payment of petitioners' obligation.
This decision is immediately executory and no motion for extension of the period within which to
file a motion for reconsideration will be granted.
SO ORDERED.
 G.R. No. L-29280 August 11, 1988
PEOPLE'S BANK AND TRUST COMPANY, plaintiff-appellee,
vs.
SYVEL'S INCORPORATED, ANTONIO Y. SYYAP and ANGEL Y SYYAP, defendants-
appellants.
PARAS, J.:
This is an appeal from the decision dated May 16, 1968 rendered by the Court of First Instance
of Manila, Branch XII in Civil Case No. 68095, the decretal portion of which states:
IN VIEW OF THE FOREGOING, judgment is rendered sentencing all the defendants
to pay the plaintiff jointly and severally the sum of P601,633.01 with interest thereon
at the rate of 11% per annum from June 17, 1967, until the whole amount is paid,
plus 10% of the total amount due for attorney's fees and the costs of suit. Should the
defendants fail to pay the same to the plaintiff, then it is ordered that all the effects,
materials and stocks covered by the chattel mortgages be sold at public auction in
conformity with the Provisions of Sec. 14 of the Chattel Mortgage Law, and the
proceeds thereof applied to satisfy the judgment herein rendered. The counterclaim
of the defendants, upon the evidence presented and in the light of the authorities
above cited, is dismissed for lack of merit.
SO ORDERED
(pp. 89-90, Record on Appeal; p. 15, Rollo)
The facts of the case based on the statement of facts, made by the trial court in its decision as
cited in the briefs of both parties are as follows:
This is an action for foreclosure of chattel mortgage executed in favor of the plaintiff
by the defendant Syvel's Incorporated on its stocks of goods, personal properties and
other materials owned by it and located at its stores or warehouses at No. 406,
Escolta, Manila; Nos. 764-766 Rizal Avenue, Manila; Nos. 10-11 Cartimar Avenue,
Pasay City; No. 886 Nicanor Reyes, Sr. (formerly Morayta), Manila; as evidenced by
Annex"A."The chattel mortgage was duly registered in the corresponding registry of
deeds of Manila and Pasay City. The chattel mortgage was in connection with a
credit commercial line in the amount of P900,000.00 granted the said defendant
corporation, the expiry date of which was May 20, 1966. On May 20, 1965,
defendants Antonio V. Syyap and Angel Y. Syyap executed an undertaking in favor
of the plaintiff whereby they both agreed to guarantee absolutely and unconditionally
and without the benefit of excussion the full and prompt payment of any
indebtedness to be incurred on account of the said credit line. Against the credit line
granted the defendant Syvel's Incorporated the latter drew advances in the form of
promissory notes which are attached to the complaint as Annexes "C" to "l." In view
of the failure of the defendant corporation to make payment in accordance with the
terms and conditions agreed upon in the Commercial Credit Agreement the plaintiff
started to foreclose extrajudicially the chattel mortgage. However, because of an
attempt to have the matter settled, the extra-judicial foreclosure was not pushed thru.
As no payment had been paid, this case was even tually filed in this Court.
On petition of the plaintiff based on the affidavits executed by Mr. Leopoldo R.
Rivera, Assistant Vice President of the plaintiff bank and Atty. Eduardo J. Berenguer
on January 12, 1967, to the effect, among others, that the defendants are disposing
of their properties with intent to defraud their creditors, particularly the plaintiff herein,
a preliminary writ of attachment was issued. As a consequence of the issuance of the
writ of attachment, the defendants, in their answer to the complaint set up a
compulsory counterclaim for damages.
After the filing of this case in this court and during its pendency defendant Antonio v.
Syyap proposed to have the case settled amicably and to that end a conference was
held in which Mr. Antonio de las Alas, Jr., Vice President of the Bank, plaintiff,
defendant Antonio V. Syyap and Atty. Mendoza were present. Mr. Syyap requested
that the plaintiff dismiss this case because he did not want to have the goodwill of
Syvel's Incorporated impaired, and offered to execute a real estate mortgage on his
real property located in Bacoor, Cavite. Mr. De las Alas consented, and so the Real
Estate Mortgage, marked as Exhibit A, was executed by the defendant Antonio V.
Syyap and his wife Margarita Bengco Syyap on June 22, 1967. In that deed of
mortgage, defendant Syyap admitted that as of June 16, 1967, the indebtedness of
Syvel's Incorporated was P601,633.01, the breakdown of which is as follows:
P568,577.76 as principal and P33,055.25 as interest. Complying with the promise of
the plaintiff thru its Vice President to ask for the dismissal of this case, a motion to
dismiss this case without prejudice was prepared, Exhibit C, but the defendants did
not want to agree if the dismissal would mean also the dismissal of their counterclaim
Against the plaintiff. Hence, trial proceeded.
As regards the liabilities of the defendants, there is no dispute that a credit line to the
maximum amount of P900,000.00 was granted to the defendant corporation on the
guaranty of the merchandise or stocks in goods of the said corporation which were
covered by chattel mortgage duly registered as required by law. There is likewise no
dispute that the defendants Syyap guaranteed absolutely and unconditionally and
without the benefit of excussion the full and prompt payment of any indebtedness
incurred by the defendant corporation under the credit line granted it by the plaintiff.
As of June 16, 1967, its indebtedness was in the total amount of P601,633.01. This
was admitted by defendant Antonio V. Syyap in the deed of real estate mortgage
executed by him. No part of the amount has been paid by either of the defendants.
Hence their liabilities cannot be questioned. (pp. 3-6, Brief for Appellee; p. 26, Rollo)
In their brief, appellants assign the following errors:
I
The lower court erred in not holding that the obligation secured by the Chattel
Mortgage sought to be foreclosed in the above-entitled case was novated by the
subsequent execution between appellee and appellant Antonio V, Syyap of a real
estate mortgage as additional collateral to the obligation secured by said chattel
mortgage.
II
The lower court erred in not dismissing the above-entitled case and in finding
appellants liable under the complaint.
III
The lower court erred in not holding that the writ of preliminary attachment is devoid
of any legal and factual basis whatsoever.
 IV
The lower court erred in dismissing appellants'counterclaim and in not holding
appellee liable to appellants for the consequent damages arising out of a wrongful
attachment. (pp. 1-2, Brief for the Appellants, p. 25, Rollo)
Appellants admit that they are indebted to the appellee bank in the amount of P601,633.01,
breakdown of which is as follows: P568,577.76 as principal and P33,055.25 as interest. After
the filing of the case and during its pendency, defendant Antonio V. Syyap proposed to have
the case amicably settled and for that purpose a conference was held in which Mr. Antonio de
las Alas, Jr., Vice President of plaintiff People's Bank and Trust Company, defendant Antonio
V. Syyap and Atty. Mendoza were present. Mr. Syyap requested that the plaintiff dismiss this
case as he did not want to have the goodwill of Syvel's Incorporated impaired, and offered to
execute a real estate mortgage on his real property located in Bacoor, Cavite. Mr. de las Alas
consented, and so the Real Estate Mortgage (Exhibit "A") was executed by defendant Antonio
Syyap and his wife Margarita Bengco Syyap on June 22, 1967. Defendants did not agree with
plaintiffs motion to dismiss which included the dismissal of their counterclaim and filed instead
their own motion to dismiss (Record on Appeal, pp. 68-72) on the ground that by the execution
of said real estate mortgage, the obligation secured by the chattel mortgage subject of this case
was novated, and therefore, appellee's cause of action thereon was extinguished.
In an Order dated September 23, 1967, the motion was denied for not being well founded
(record on Appeal, p. 78).
Appellants contention is without merit.
Novation takes place when the object or principal condition of an obligation is changed or
altered. It is elementary that novation is never presumed; it must be explicitly stated or there
must be manifest incompatibility between the old and the new obligations in every aspect (Goni
v. CA, 144 SCRA 223 [1986]; National Power Corp. v. Dayrit, 125 SCRA 849 [1983]).
In the case at bar, there is nothing in the Real Estate Mortgage which supports
appellants'submission. The contract on its face does not show the existence of an explicit
novation nor incompatibility on every point between the "old and the "new" agreements as the
second contract evidently indicates that the same was executed as new additional security to
the chattel mortgage previously entered into by the parties.
Moreover, records show that in the real estate mortgage, appellants agreed that the chattel
mortgage "shall remain in full force and shall not be impaired by this (real estate) mortgage."
The pertinent provision of the contract is quoted as follows:
That the chattel mortgage executed by Syvel's Inc. (Doc. No. 439, Book No. I, Series
of 1965, Notary Public Jose C. Merris, Manila); real estate mortgage executed by
Angel V. Syyap and Rita V. Syyap (Doc. No. 441, Page No. 90, Book No. I, Series of
1965, Notary Public Jose C. Merris, Manila) shall remain in full force and shall not be
impaired by this mortgage (par. 5, Exhibit"A," Emphasis ours).
In the determination of the legality of the writ of attachment by the Court of First Instance of
Manila, it is a well established rule that the grant or denial of a writ of attachment rests upon the
sound discretion of the court. Records are bereft of any evidence that grave abuse of discretion
was committed by respondent judge in the issuance of the writ of attachment.
Appellants contend that the affidavits of Messrs. Rivera and Berenguer on which the lower
court based the issuance of the writ of preliminary attachment relied on the reports of credit
investigators sent to the field and not on the personal knowledge of the affiants. Such
contention deserves scant consideration. Evidence adduced during the trial strongly shows that
the witnesses have personal knowledge of the facts stated in their affidavits in support of the
application for the writ. They testified that Syvel's Inc. had disposed of all the articles covered
by the chattel mortgage but had not remitted the proceeds to appellee bank; that the Syvel's
Stores at the Escolta, Rizal Avenue and Morayta Street were no longer operated by appellants
and that the latter were disposing of their properties to defraud appellee bank. Such testimonies
and circumstances were given full credit by the trial court in its decision (Brief for Appellee, p.
14). Hence, the attachment sought on the ground of actual removal of property is justified
where there is physical removal thereof by the debtor, as shown by the records (McTaggert v.
Putnam Corset Co., 8 N.Y. S 800 cited in Moran, Comments on the Rules of Court, 1970 Ed.,
Vol. 3, p. 7).
Besides, the actuations of appellants were clearly seen by the witnesses who "saw a Fiat
Bantam Car-Fiat Car, a small car and about three or four persons hurrying; they were carrying
goods coming from the back portion of this store of Syvels at the Escolta, between 5:30 and
6:00 o'clock in the evening." (Record on Appeal, pp. 45-46). Therefore, "the act of debtor
(appellant) in taking his stock of goods from the rear of his store at night, is sufficient to support
an attachment upon the ground of the fraudulent concealment of property for the purpose of
delaying and defrauding creditors." (4 Am. Jur., 841 cited in Francisco, Revised Rules of Court,
Second Edition, 1985, p. 24).
In any case, intent to defraud may be and usually is inferred from the facts and circumstances
of the case; it can rarely be proved by direct evidence. It may be gleaned also from the
statements and conduct of the debtor, and in this connection, the principle may be applied that
every person is presumed to intend the natural consequences of his acts (Francisco, Revised
Rules of Court, supra, pp. 24-25), In fact the trial court is impressed "that not only has the
plaintiff acted in perfect good faith but also on facts sufficient in themselves to convince an
ordinary man that the defendants were obviously trying to spirit away a port;.on of the stocks of
Syvel's Incorporated in order to render ineffectual at least partially anyjudgment that may be
rendered in favor of the plaintiff." (Decision; Civil Case No. 68095; Record on Appeal, pp. 88-
89).
Appellants having failed to adduce evidence of bad faith or malice on the part of appellee in the
procurement of the writ of preliminary attachment, the claim of the former for damages is
evidently negated. In fact, the allegations in the appellee's complaint more than justify the
issuance of the writ of attachment.
PREMISES CONSIDERED, this appeal is DISMISSED for lack of merit and the judgment
appealed from is AFFIRMED.
SO ORDERED.

It is clear, therefore, that a novation was not intended. The real estate mortgage was evidently
taken as additional security for the performance of the contract (Bank of P.I. v. Herrige, 47 Phil.
57).
 G.R. No. L-22958 January 30, 1971
ESTRELLA BENIPAYO RODRIGUEZ, MANUEL D. BENIPAYO, DONATO BENIPAYO, JR.,
JAIME D. BENIPAYO, MAXIMA BENIPAYO MORALES, AURORA BENIPAYO DE LEON,
FRANCISCO D. BENIPAYO, ALEJANDRO D. BENIPAYO, TERESITA BENIPAYO DE LOS
SANTOS, LYDIA BENIPAYO CLEMENTE, and JULIA C. MERCADO, petitioners,
vs.
HON. JUAN O. REYES, in his capacity as Presiding Judge of the Manila Court of First
Instance, Branch XXI, ALBERTO D. BENIPAYO, DR. JOSE N. DUALAN and VICENTE
SAYSON, JR., respondents.
REYES, J.B.L., J.:
Petition for certiorari, with a prayer for the issuance of a writ of preliminary injunction, filed by
some1 of the children of the deceased spouses, Donato Benipayo, Jr., and Pura Disonglo,
seeking to have this Court set aside the order issued on 28 April 1964 by the Hon. Juan O.
Reyes in Civil Case No. 52188 of the Court of First Instance of Manila, entitled "Estrella
Benipayo-Rodriguez, et al. vs. Alberto D. Benipayo," approving the sheriff's sales of properties
owned in common by the plaintiffs and defendant aforesaid, subject to the condition that the
vendors should clear the titles thereof from any encumbrance in favor of the Development Bank
of the Philippines.lâwphî1.ñèt The petition further sought to compel the respondent judge to
cause a re-bidding of the properties involved, at public auction, or to approve the sales
aforementioned without the condition imposed upon the vendors.
Upon the filing of a bond in the amount of P20,000.00 this Court ordered the issuance of a writ
of preliminary injunction on 25 June 1964.2
It appears that on 13 November 1962, petitioners filed with the respondent court a complaint
against their brother, respondent Alberto D. Benipayo, for the partition of the properties held by
them in common as heirs of the late spouses, Donato D. Benipayo and Pura Disonglo (Civil
Case No. 52188). After respondent Benipayo had answered the complaint, the court set the
case for a pre-trial conference, and in the course thereof the parties agreed to have the
properties in litigation sold at public auction to the highest bidder. Pursuant to an order issued
by the respondent judge, the parties submitted to the court a list of the properties to be sold,
among which were some lots in Albay, and the following parcels of land, with their
improvements, that were at the time mortgaged to the Development Bank of the Philippines:
1. Lot No. 6-A, Block 2124, with an area of 314.70 square meters, evidenced by TCT
No. 48978, Manila;
2. Lot No. 6-B-2, Block No. 2124, with an area of 389.90 square meters, evidenced
by TCT No. 48979, Manila;
3. The improvements erected on the above two lots denominated as No. 664
Misericordia, Manila.
The above improvements and two lots are mortgaged with the Development Bank of
the Philippines with an outstanding mortgage capital of about P50,000.00.
The respondent judge first directed the sale at public auction of properties located in Albay.
After the consummation of the sale and the approval thereof, His Honor ordered the sale of the
two Manila lots and improvements described above. Pursuant to the order, the sheriff of the
City of Manila scheduled the auction sale on 30 March 1964 at 10:00 o'clock A.M. Notice
thereof was duly posted and published, with the following warning:
NOTE: According to information furnished by the plaintiffs' counsel, Atty. Gonzalo D.
David, the real properties described above are mortgaged with (sic) the Development
Bank of the Philippines, under which there is allegedly an outstanding balance in the
sum of P37,121.76.
Prospective buyers and bidders are hereby enjoined to investigate for themselves the
titles to the real properties described above, as well as the encumbrances thereon, if
any there be.
On the date set for the sale, petitioners moved for its postponement on the ground that they
were not in a position to actively participate therein, but upon objection of respondent
Benipayo's counsel, His honor denied the motion and the sale was held as scheduled.
Herein respondent, Jose N. Dualan, successfully bid at the auction sale the sum of P235,000.0
for Lot No. 6-B-2, Block No. 2124, covered by Transfer Certificate of Title No. 48979, issued by
the Office of the Register of Deeds of Manila; while respondent Vicente Sayson's bid of
P173,000.00 was the highest for Lot No. 6-A of Block No. 2124, covered by Transfer Certificate
of Title No. 48978 issued by the same office.3
After the sheriff had filed his return with the respondent judge, petitioners moved for the
approval of the sale, deducting from the total amount of P408,000.00 the sheriff's percentage,
and the expenses incurred by petitioners for the publication of the notice of sale. Commenting
on the aforesaid motion, respondents Benipayo and Dualan prayed that the respondent judge
order (1) the payment of the mortgage debt in favor of the Development Bank of the Philippines
in the amount of P37,121.96 from the proceeds of the auction sale; (2) the issuance by the
sheriff of Manila of a certificate of sale in favor of Dualan of the property sold to him free from all
liens and encumbrances; and (3) the payment to respondent Benipayo of 1/12 of the proceeds
of the sale after deducting therefrom the payment to the Development Bank of the Philippines.
After hearing the arguments of the parties on the motion, the respondent judge apparently
entertained some doubts as to whether there had been a meeting of minds on the question of
who was to discharge the mortgage obligation in favor of the Development Bank, so he
suggested that the properties be subjected to another "bidding" "with a clear-cut understanding
that the 12 heirs shall assume all obligations and that they should not be paid by the
buyers."4 The suggestion was not accepted by the buyers; and the respondent judge, on 28
April 1964, issued the order complained of, the dispositive portion of which reads as follows:
WHEREFORE, the Manila Sheriff's Report dated March 30, 1964, and the Quezon
City Sheriff's Report dated April 6, 1964, are hereby approved, subject to the following
conditions:
1. That the vendors or the owners of the properties sold shall clear said properties of
all encumbrances that were incurred in them long before the auction sales;
2. That since the taxes on said real estates are not encumbrances incurred by the
owners of the properties, but are proper charges attached and against the properties
themselves, the real estate taxes shall be borne by the owner or owners of the said
properties on the date when said taxes become due for payment.
Petitioners' motion for reconsideration of the above-quoted order having been denied, the
present petition for certiorari was filed by them.
After the respondents had filed their answer to the petition and the parties had submitted their
respective memorandum, the petitioners, jointly with respondents Vicente Sayson and Alberto
Benipayo, submitted a compromise agreement, on 8 May 1970, cancelling the sale to
respondent Vicente Sayson of the property (TCT No. 48978) previously bidded for by him, upon
the consideration that the amount paid to the Sheriff by Sayson be returned to the latter. As
respondent Jose Dualan interposed no objection to the approval of the said compromise
agreement, this Court rendered, on 30 June 1970, a partial decision, approving the
compromise agreement and ordering the compliance with its provisions by the parties thereto,
and, as prayed for, dismissed this case as against Vicente Sayson, leaving only Jose N.
Dualan, purchaser of the property covered by TCT No. 48979 of the City of Manila, as party
respondent.
The petitioners seek to apply the doctrine of caveat emptor to the successful bidder Dualan,
and contend that under said rule Dualan bought at his own peril and, having purchased the
property with knowledge of the encumbrance he should assume payment of the indebtedness
secured thereby.
We find the stand of petitioners-appellants to be unmeritorious and untenable. The maxim
"caveat emptor" applies only to execution sales, and this was not one such. 5 The mere fact that
the purchaser of an immovable has notice that the required realty is encumbered with a
mortgage does not render him liable for the payment of the debt guaranteed by the mortgage,
in the absence of stipulation or condition that he is to assume payment of the mortgage debt.
The reason is plain: the mortgage is merely an encumbrance on the property, entitling the
mortgagee to have the property foreclosed, i.e., sold, in case the principal obligor does not pay
the mortgage debt, and apply the proceeds of the sale to the satisfaction of his credit. Mortgage
is merely an accessory undertaking for the convenience and security of the mortgage creditor,
and exists independently of the obligation to pay the debt secured by it. The mortgagee, if he is
so minded, can waive the mortgage security and proceed to collect the principal debt by
personal action against the original mortgagor.
By buying the property covered by TCT No. 48979 with notice that it was mortgaged,
respondent Dualan only undertook either to pay or else allow the land's being sold if the
mortgage creditor could not or did no obtain payment from the principal debtor when the debt
matured. 6 Nothing else. Certainly the buyer did not obligate himself to replace the debtor in the
principal obligation, and he could not do so in law without the creditor's consent. Our Civil
Code, Article 1293, explicitly provides:
ART. 1293. Novation which consists in substituting a new debtor in the place of the
original one, may be made even with out the knowledge or against the will of the
latter, but not without the consent of the creditor. Payment by the new debtor gives
him the rights mentioned in articles 1236 and 1237.
The obligation to discharge the mortgage indebtedness, therefore, remained on the shoulders
of the original debtors and their heirs, petitioners herein, since the record is devoid of any
evidence of contrary intent. This Court has so ruled in Bank of the Philippine Islands vs.
Concepcion e Hijos, Inc., 53 Phil. 806, from which We quote:
But the plaintiff argues that in American jurisprudence, the purchaser of mortgaged
property who assumes the payment of the mortgage debt, may for that reason alone
be sued for the debt by the creditor and that that rule is applicable in this jurisdiction.
Aside from the fact we are not here dealing with a mere assumption of the debt, but
with a subrogation, it may be noted that this court has already held that the American
doctrine in this respect is not in harmony with the spirit of our legislation and has not
been adopted in this country. In the case of E. C. McCullough & Co. vs. Veloso and
Serna (46 Phil., 1), the court, speaking through its present Chief Justice, said:
The effects of a transfer of a mortgaged property to a third person are well
determined by the Civil Code. According to article 1879 7 of this Code, the
creditor may demand of the third person in possession of the property
mortgaged payment of such part of the debt, as is secured by the property
in his possession, in the manner and form established by the law. The
Mortgage Law in force at the promulgation of the Civil Code and referred to
in the latter, exacted, among other conditions, also the circumstance that
after judicial or notarial demand, the original debtor had failed to make
payment of the debt at maturity. (Art. 135 of the Mortgage Law of the
Philippines of 1889.) According to this, the obligation of the new possessor
to pay the debt originated only from the right of the creditor to demand
payment of him, it being necessary that a demand for payment should
have previously been made upon the debtor and the latter should have
failed to pay. And even if these requirements were complied with, still the
third possessor might abandon the property mortgaged, and in that case it
is considered to be in the possession of the debtor. (Art. 136 of the same
law.) This clearly shows that the spirit of the Civil Code is to let the
obligation of the debtor to pay the debt stand although the property
mortgaged to secure the payment of said debt may have been transferred
to a third person. While the Mortgage Law of 1893 eliminated these
provisions, it contained nothing indicating any change in the spirit of the
law in this respect. Article 129 of this law, which provides for the
substitution of the debtor by the third person in possession of the property,
for the purposes of the giving of notice, does not show this change and has
reference to a case where the action is directed only against the property
burdened with the mortgage. (Art. 168 of the Regulation )
Upon the other hand, the orders complained of, in so far as they require the vendors-heirs to
clear the title to the land sold to respondent Dualan, when the latter bid for it with full knowledge
that the same was subject to a valid and subsisting mortgage, is plainly erroneous. In
submitting his bid, Dualan is presumed to know, and in fact did know, that the property was
subject to a mortgage lien; that such encumbrance would make him, as purchaser, eventually
liable to discharge mortgage by paying or settling with the mortgage creditor, should the original
mortgagors fail to satisfy the debt. Normally, therefore, he would have taken this eventuality into
account in making his bid, and offer a lower amount for the lot than if it were not encumbered. If
he intended his bid to be understood as conditioned upon the property being conveyed to him
free from encumbrance, it was his duty to have so stated in his bid, or at least before depositing
the purchase price. He did not do so, and the bid must be understood and taken to conform to
the normal practice of the buyer's taking the mortgaged property subject to the mortgage.
Consequently, he may not demand that the vendors should discharge the encumbrance
aforesaid.
Thus, the questioned order of the trial court ordering the vendors-heirs to clear the property of
all its encumbrances is not in accordance with law.
The second and fourth grounds for the petition for certiorari are that the minds of the parties
allegedly never met, so that the court should have ordered a re-bidding. The claim that there
was no meeting of the minds is not only inconsistent with petitioners' own argument on the
main issue, but is belied by their conduct. The fact is that an offer to sell was advertised, a
bidding was conducted, and the winning bidder deposited the price. A rebidding would have
been proper had all the parties agreed to it, but they did not. Instead, the petitioners authorized
their lawyer to negotiate for the redemption of the property, thereby implying that they have
accepted the validity of the sale and that their questioning it now is but an afterthought.

The third ground relied upon in the petition for annulling the sale is the participation of Atty.
Ambrosio Padilla in the auction sale on behalf of respondent Dualan while still the counsel of
record for respondent Benipayo. The ground lacks merit, for the reason that petitioners have
not shown that they were in any way prejudiced, and they had, by their conduct, accepted the
validity of the sale.

FOR THE FOREGOING REASONS, the petition for certiorari is hereby granted and the orders
complained of are reversed and set aside in so far as they require petitioners to clear the
property sold from the mortgage in favor of the Development Bank. The writ of preliminary
injunction heretofore issued is made permanent. No costs.
 G.R. No. 213582 June 28, 2016
NYMPHA ODIAMAR,1 Petitioner
vs.
LINDA ODIAMAR VALEN CIA, Respondent
DECISION
PERLAS-BERNABE, J.:
Before the Court is a petition for review on certiorari2 assailing the Decision3 dated March 16,
2012 and the Resolution4 dated July 14, 2014 of the Court of Appeals (CA) in C.A. G.R. CV No.
93624, which affirmed the Decision5 dated May 5, 2009 of the Regional Trial Court of San Jose,
Camarines Sur, Branch 58 (RTC) in Civil Case No. T-962 ordering petitioner Nympha S.
Odiamar (petitioner) to pay respondent Linda Odiamar Valencia (respondent) the amount of
Pl,710,049.00 plus twelve percent (12%) interest, attorney's fees, litigation expenses, and the
costs of suit.
Facts
On August 20, 2003, respondent filed a complaint6 for sum of money and damages against
petitioner, alleging that the latter owed her P2,100,000.00. Petitioner purportedly issued China
Bank Check No. GH
7 respondent the sum of ₱2,000,000.00 as principal and since petitioner undertook to pay the
B 114 7212 (the check) for the said amount to guarantee the payment of the debt, but upon
presentment, the same was dishonored.8 Respondent lamented that petitioner refused to pay
despite repeated demands, and that had she invested the money loaned to petitioner or
deposited the same in a bank, it would have earned interest at the rate of 36% per annum or
three percent (3%) per month.9
For her part, petitioner sought the dismissal10 of the complaint on the ground that it was her
deceased parents who owed respondent money. Accordingly, respondent's claim should be
filed in the proceedings for the settlement of their estates. Petitioner averred that respondent
had, in fact, participated in the settlement proceedings and had issued a certification 11 stating
that it was petitioner's deceased parents who were indebted to respondent for P2,000,000.00.
She further maintained that as administratix of her parents' estates, she agreed to pay such
indebtedness on installment but respondent refused to accept her payments. 12
13
Respondent countered that petitioner personally borrowed almost half of the P2, 100,000.00
from her, as evidenced by the check which she issued after agreeing to settle the same in
installments.14 While respondent conceded that petitioner made several installment payments
from December 29, 2000 until May 31, 2003, she pointed out that the latter failed to make any
succeeding payments.15 Moreover, respondent denied participating in the proceedings for the
settlement of the estates of petitioner's parents, clarifying that petitioner was the one who
prepared the certification alluded to and that she (respondent) signed it on the belief that
petitioner would make good her promise to pay her (respondent).16
In an Order17 dated October 3, 2003, the RTC denied petitioner's motion to dismiss, thus
prompting her to file an answer. 18 She asserted that respondent merely persuaded her to issue
the check to guarantee her deceased parents' loan. She further claimed that the check was
blank when she issued it and that despite having no authority to fill up the same, respondent
wrote the amount and date thereon.19 She also maintained that from December 29, 2000 to
May 31, 2003, she made, in almost daily installments, payments to respondent ranging from
P500.00 to Pl0,000.00, and that while she tried to make succeeding payments, respondent
refused to accept the same, demanding, instead, the payment of the entire balance. 20 As
counterclaim, petitioner prayed that moral damages, attorney's fees, litigation expenses, and
exemplary and punitive damages be awarded to her.21
The RTC Ruling
In a Decision22 dated May 5, 2009, the RTC ruled in favor of respondent and ordered petitioner
to pay: (a)₱1,710,049.00 which represents the unpaid portion of the ₱2,100,000.00
debt; (b) twelve percent (12%) interest computed from the time judicial demand was made on
August 20, 2003 until fully paid; (c) ₱10,000.00 as attorney's fees; (d) litigation expenses
amounting to ₱19,662.78; and (e) the costs of suit.23
The RTC refused to give credence to petitioner's contention that it was her deceased parents
who borrowed money from respondent, observing that while the latter acknowledged that the
former's deceased parents owed her ₱700,000.00 out of the ₱2,100,000.00, petitioner likewise
admitted that she obtained personal loans from respondent. 24 Hence, according to the RTC,
petitioner cannot deny her liability to respondent. Further, by assuming the liability of her
deceased parents and agreeing to pay their debt in installments - which she in fact paid from
December 29, 2000 to May 31, 2003 in amounts of ₱500.00 to ₱10,000.00, and which
payments respondent did actually accept - a mixed novation took place and petitioner was
substituted in their place as debtor. Thus, the liabilities of the estates of petitioner's deceased
parents were extinguished and transferred to petitioner.25
Anent the sum due, the RTC surmised that petitioner and her deceased parents owed
same in installments, ₱100,000.00 was added as interest; hence, petitioner issued the check
for ₱2,100,000.00.26 Based on the receipts submitted by petitioner, the genuineness and due
execution of which were not put in issue, petitioner had paid a total of ₱389,95l.00 in
installments, leaving an unpaid balance of ₱l,710,049.00, subject to interest of twelve percent
(12%) per annumfrom the time judicial demand was made on August 20, 2003, in the absence
of any written stipulation on interest.27
Aggrieved, petitioner appealed28 to the CA, arguing that novation did not take place and no
interest was due respondent.29
The CA Ruling
In a Decision30 dated March 16, 2012, the CA affirmed the ruling of the RTC. 31 It agreed that
petitioner cannot deny her liability to respondent in view of her admission that she borrowed
money from the latter several times.32 The CA also found petitioner's claim that she issued a
blank check incredible, pointing out that petitioner testified in court that she personally wrote the
amount thereon after she and respondent agreed that the loans she and her deceased parents
obtained amounted to P2,100,000.00.33
Anent the issue of novation, the CA concurred with the RTC that novation took place insofar as
petitioner was substituted in place of petitioner's late parents, considering that petitioner
undertook to pay her deceased parents' debt. However, the CA opined that there was no
novation with respect to the object of the contract, following the rule that an obligation is not
novated by an instrument which expressly recognizes the old obligation and changes only the
terms of paying the same, as in this case where the parties merely modified the terms of
payment of the ₱2,100,000.00.34
Dissatisfied, petitioner moved for reconsideration,35 which was, however, denied in a ATTY. VILLEGAS:
Resolution36 dated July 14, 2014; hence, this petition.
Q When was the first time that the [petitioner] obtained cash advances from you?
The Issue Before the Court
A About 1996, sir and then she made several others and she kept on borrowing money from
The primary issue for the Court's resolution is whether or not petitioner should be held liable to me.
respondent for the entire debt in the amount of ₱2,100,000.00.
Q Do you mean to say that she obtained part of her loan while her father was still alive?
The Court's Ruling
A Yes, when he was still alive she already borrowed.
At the outset, it must be emphasized that the fact of petitioner's liability to respondent is well-
established. As correctly pointed out by the RTC and the CA, while respondent acknowledged
Q Are you telling us that this 2.1 Million Pesos was entirely borrowed from you by the
that petitioner's deceased parents owed her money, petitioner also admitted obtaining loans
[petitioner]?
from respondent, viz. :

A There were loans which were obtained by her father, some by her mother and since they
From [respondent's] recollection, the amount due from [petitioner's] parents is ₱700,000.00.
died already[,] when we summarized the amount that was the total amount that she owes me,
Aside from her parents' loans, however, [petitioner] herself admitted having obtained personal
sir.
loans from the respondent while her parents were still alive. She testified:

Q How much is the amount owe[d] to you by the [petitioner's] father?

ATTY. P ASA: You also know that [respondent] was also in [lending]?

A I could no longer recall, sir because that was already long time ago but it was part of the
[PETITIONER]: Yes, Madam.
summary that we made, sir.

Q: Because she was in lending you have borrowed money also? (sic)
Q Could it be P200,000.00?

A: Yes, Madam.
A More or less, that much, sir.

Q: Separate from your father?

Q What about the defendant's mother? How much was her obligation to you?

A: Yes, Madam.
A ₱500,000.00, more or less, but I cannot exactly recall.

xxxx
Q So, the defendant's parents owed you more than ₱700,000.00 is it not?

Q: You borrowed money from [respondent] separate from your father prior to his death?
A Yes, sir.

A: Yes, Madam.37
xxxx

Having admitted that she obtained loans from respondent without showing that the same had
COURT:
already been paid or otherwise extinguished, petitioner cannot now aver otherwise. It is settled
that judicial admissions made by the parties in the pleadings or in the course of the trial or.
Other proceedings in the same case are conclusive and do not require further evidence to Q Is it the impression of the Court that the x x x amount of ₱700,000.00 is not a personal
prove them.38 They are legally binding on the party making it, 39 except when it is shown that indebtedness of [petitioner] but that of her parents? Is that the impression xxx the Court is
they have been made through palpable mistake or that no such admission was actually getting?
made, 40 neither of which was shown to exist in this case. Accordingly, petitioner is bound by
her admission of liability and the only material question remaining is the extent of such liability.
A Yes, Your Honor.

Based on the records of this case, respondent, for her part, admitted that petitioner's deceased
parents owed her ₱700,000.00 of the ₱2,100,000.00 debt and that petitioner owed her xxxx
₱l,400,000.00 only:
ATTY. VILLEGAS:
Q Tell us, how much really to your recollection is the indebtedness of the [petitioner's] parents? It is fundamental that for monetary interest to be due, there must be an express written
agreement therefor.47 Article 1956 of the Civil Code provides that "[n]o interest shall be due
unless it bas been expressly stipulated in writing." In this relation, case law states that the
A To the best of my recollection, that is the amount. More or less [₱]700,000[.00] for both
lack of a written stipulation to pay interest on the loaned amount bars a creditor from charging
spouses, sir.41 (Emphases supplied)
monetary interest48 and the collection of interest without any stipulation therefor in writing is
prohibited by law.49
ATTY. PASA:
Here, respondent herself admitted that there was no written agreement that interest would be
Q Madam witness, during the last hearing you stated that the [petitioner's] parents were due on the sum loaned, only that there was an implicit understanding that the same would be
indebted [to] you for about ₱700,000.00? subject to interest since she also borrowed the same from banks which, as a matter of course,
charged interest. Respondent also testified on cross examination that the ₱2,100,000.00
corresponds only to the principal and does not include
A Yes, Madam.

interest, viz. :
Q How about the [petitioner], how much did she [owe] you?

[Atty. Villegas]: Now, are these loans interest bearing?

A More or less 1.4 [Million] Madam.42 (Emphasis supplied)

[Respondent]: Yes, sir, because the money I loaned to them I have also obtained as a loan
Applying the same principle on judicial admissions above, it is therefore incontrovertible that
from the bank.1âwphi1
petitioner's debt to respondent amounted to only ₱l,400,000.00 and not ₱2,100,000.00.
Thus, respondent only remains liable to petitioner for such amount. Considering that petitioner
had already paid ₱389,951.00 in installments as evidenced by the receipts submitted by Q: This 2.1 Million Pesos are included (sic) the interest that you charge[d] to the [petitioner's]
petitioner - the genuineness and due execution of which were not put in issue - the unpaid parents and to the petitioner, is it not?
balance of petitioner's ₱l,400,000.00 debt to respondent stands at ₱l,010,049.00. On the other
hand, the remaining ₱700,000.00 of the total ₱2,100,000.00 debt to respondent is properly for
A: That is the basis of the interest bearing, 2.1 Million Pesos at 3 percent per month.
the account of the estates of petitioner's deceased parents and, hence, should be claimed in
the relevant proceeding therefor.
Q: Are you telling us that when you summarized and computed the entire total obligations of
the [petitioner and her parents] you computed the interest and come out (sic) with 2.1 Million
At this juncture, the Court finds it apt to correct the mistaken notions that: (a) novation by
Pesos?
substitution of the debtor took place so as to release the estates of the petitioner's
deceased parents from their obligation, which, thus, rendered petitioner solely liable for the
entire ₱2,100,000.00 debt; and (b) the ₱100,000.00 of the ₱2,100,000.00 debt was in the A: Interest has not yet been included in the 2.1 Million Pesos.
nature of accrued monetary interests.
Q: This agreement of yours to pay interest is not in writing, is it not (sic)?
On the first matter, while it is observed that petitioner had indeed admitted that she agreed to
settle her late parents' debt, which was supposedly evinced by (a) the ₱2,100,000.00 check
A: It is not in writing, sir. 50
she issued therefor, and (b) several installment payments she made to respondent from
December 29, 2000 to May 31, 2003, there was no allegation, much less any proof to show,
that the estates of her deceased parents were released from liability thereby. In All told, having established that no novation took place and that no interest was actually due,
S.C. Megaworld Construction and Development Corporation v. Parada,43 the Court held that to and factoring in the payments already made for her account, petitioner is, thus, ordered to pay
constitute novation by substitution of debtor, the former debtor must be expressly respondent the amount of
released from the obligation and the third person or new debtor must assume the former's
place in the contractual relations.44 Moreover, the Court ruled that the "fact that the creditor
accepts payments from a third person, who has assumed the obligation, will result merely in ₱l,010,049.00, which is the remaining balance of her principal debt to the latter in the original
the addition of debtors and not novation."45 At its core, novation is never presumed, and amount of ₱l,400,000.00.
the animus novandi, whether totally or partially, must appear by express agreement of the
parties, or by their acts that are too clear and unequivocal to be mistaken. 46 Here, the intent to WHEREFORE, the petition is PARTLY GRANTED. The Decision dated March 16, 2012 and
novate was not satisfactorily proven by respondent. At best, petitioner only manifested her the Resolution dated July 14, 2014 of the Court of Appeals (CA) in C.A. G.R. CV No. 93624 are
desire to shoulder the debt of her parents, which, as above-discussed, does not amount to hereby AFFIRMED with MODIFICATION in that petitioner Nympha S. Odiamar is ORDERED to
novation. Thus, the courts a quo erred in holding petitioner liable for the debts obtained by her pay respondent Linda Odiamar Valencia the amount of ₱l,010,049.00, which is the remaining
deceased parents on account of novation by substitution of the debtor. balance of her principal debt to the latter in the original amount of Pl,400,000.00.

Similarly, both courts faultily concluded that the principal sum loaned by petitioner and her SO ORDERED.
deceased parents amounted to ₱2,000,000.00 and the ₱100,000.00 was added as interest
because petitioner undertook to pay the loan in installments.