En Banc

EN BANC
[G.R. No. L-15645. January 31, 1964.]
PAZ P. ARRIETA and VITALIADO ARRIETA, Plaintiffs-Appellees, v. NATIONAL RICE

AND CORN CORPORATION, Defendant-Appellant, MANILA UNDERWRITERS
INSURANCE CO., INC., Defendant-Appellee.
Teehankee & Carreon for Plaintiffs-Appellees.
The Government Corporate Counsel, for Defendant-Appellant.
Isidro A. Vera, for Defendant-Appellee.
SYLLABUS
1. OBLIGATIONS AND CONTRACTS; LIABILITY FOR NON-PERFORMANCE; FAILURE

TO PUT UP LETTER OF CREDIT WITHIN AGREED PERIOD. — One who assumes a
contractual obligation and fails to perform the same on account of his inability to meet certain
bank requirements, which inability he knew and was aware of when he entered into the contract,
should be held liable in damages for breach of contract.
2. OBLIGATIONS AND CONTRACTS; LIABILITY OF NON-PERFORMANCE. — Under

Article 1170 of the Civil Code, not only debtors guilty of fraud, negligence or default but also
every debtor, in general, who fails in the performance of his obligations is bound to indemnify
for the losses and damages caused thereby.
3. ID.; ID.; MEANING OF PHRASE "IN ANY MANNER CONTRAVENE THE TENOR" OF
THE OBLIGATION IN ART. 1170, CIVIL CODE. — The phrase "in any manner contravene
the tenor" of the obligation in Art. 1170, Civil Code, includes any illicit task which impairs the
strict and faithful fulfillment of the obligation, or every kind of defective performance.
4. ID.; ID.; WAIVER OF BREACH OF CONTRACT NOT PRESUMED. — Waivers are not
presumed, but must be clearly and convincingly shown, either by express stipulation or acts
admitting of no other reasonable explanation.
5. ID.; PAYMENT OF AWARD; PHILIPPINE CURRENCY. — In view of Republic Act 529

which specifically requires the discharge of obligations only "in any coin or currency which at
the time of payment is legal tender for public and private debt", the award of damages in U.S.
dollars made by the lower court in the case at bar is modified by converting it into Philippine
pesos at the rate of exchange prevailing at the time the obligation was incurred or when the
contract in question was executed.
DECISION
REGALA, J.:
1
This is an appeal of the defendant-appellant NARIC from the decision of the trial court
dated February 20, 1958, awarding to the plaintiffs-appellees the amount of
$286,000.00 as damages for breach of contract and dismissing the counterclaim and
third party complaint of the defendant-appellant NARIC.
In accordance with Section 13 of Republic Act No. 3452, "the National Rice and Corn
Administration (NARIC) is hereby abolished and all its assets, liabilities, functions,
powers which are not inconsistent with the provisions of this Act, and all personnel are
transferred" to the Rice and Corn Administration (RCA).
All references, therefore, to the NARIC in this decision must accordingly be adjusted
and read as RCA pursuant to the aforementioned law.
On May 19, 1952, plaintiff-appellee participated in the public bidding called by the
NARIC for the supply of 20,000 metric tons of Burmese rice. As her bid of $203.00 per
metric ton was the lowest, she was awarded the contract for the same. Accordingly, on
July 1, 1952, plaintiff-appellee Paz P. Arrieta and the appellant corporation entered into
a Contract of Sale of Rice, under the terms of which the former obligated herself to
deliver to the latter 20,000 metric tons of Burmese Rice at $203.00 per metric ton, CIF
Manila. In turn, the defendant Corporation committed itself to pay for the imported rice
"by means of an irrevocable, confirmed and assignable letter of credit in U.S. currency
in favor of the plaintiff-appellee and/or supplier in Burma, immediately." cralaw virtua1aw library
Despite the commitment to pay immediately "by means of an irrevocable, confirmed

and assignable Letter of Credit," however, it was only on July 30, 1952, or a full month
from the execution of the contract, that the defendant corporation, thru its general
manager, took the first step to open a letter of credit by forwarding to the Philippine
National Bank its Application for Commercial Letter of Credit. The application was
accompanied by a transmittal letter, the relevant paragraphs of which read: jgc:chanrobles.com.ph
"In view of the fact that we do not have sufficient deposit with your institution with
which to cover the amount required to be deposited as a condition for the opening of
letters of credit, we will appreciate it if this application could be considered a special
case.
"We understand that our supplier, Mrs. Paz P. Arrieta, has a deadline to meet which is
August 4, 1952, and in order to comply therewith, it is imperative that the L/C be
opened prior to that date. We would therefore request your full cooperation on this
matter."cralaw virtua1aw library
On the same day, July 30, 1952, Mrs. Paz P. Arrieta, thru counsel, advised the
appellant corporation of the extreme necessity for the immediate opening of the letter
of credit since she had by then made a tender to her supplier in Rangoon, Burma
"equivalent to 5% of the F.O.B. price of 20,000 tons at $180.70 and in compliance with
the regulations in Rangoon this 5% will be confiscated if the required letter of credit is
not received by them before August 4, 1952." cralaw virtua1aw library
On August 4, 1952, the Philippine National Bank informed the appellant corporation
that its application, "for a letter of credit for $3,614,000.00 in favor of Thiri Setkya has
been approved by the Board of Directors with the condition that 50% marginal cash
2
deposit be paid and that drafts are to be paid upon presentment" (Exh. J-pl.; Exh. 10-
def., p. 19, Folder of Exhibits) Furthermore, the Bank represented that it "will hold your
application in abeyance pending compliance with the above stated requirement." cralaw virtua1aw library
As it turned out, however, the appellant corporation was not in any financial position to
meet the condition. As a matter of fact, in a letter dated August 2, 1952, the NARIC
bluntly confessed to the appellee its dilemma: "In this connection, please be advised
that our application for the opening of the letter of credit has been presented to the
bank since July 30th but the latter requires that we first deposit 50% of the value of the
letter amounting to approximately $3,614,000.00 which we are not in a position to
meet." (Emphasis supplied. Exh. 9-Def.; Exh. 1-Pl., p. 18, Folder of Exhibits)
Consequently, the credit instrument applied for was opened only on September 8, 1952
"in favor of Thiri Setkya, Rangoon, Burma, and/or assignee for $3,614,000.00," (which
is more than two months from the execution of the contract) the party named by the
appellee as beneficiary of the letter of credit.
As a result of the delay, the allocation of appellee’s supplier in Rangoon was cancelled
and the 5% deposit, amounting to 524,000 kyats or approximately P200,000.00 was
forfeited. In this connection, it must be made of record that although the Burmese
authorities had set August 4, 1952 as the deadline for the remittance of the required
letter of credit, the cancellation of the allocation and the confiscation of the 5% deposit
were not effected until August 20, 1952, or, a full half month after the expiration of the
deadline. And yet, even with that 15-day grace, appellant corporation was unable to
make good its commitment to open the disputed letter of credit.
The appellee endeavored, but failed, to restore the cancelled Burmese rice allocation.
When the futility of reinstating the same became apparent, she offered to substitute
Thailand rice instead to the defendant NARIC, communicating at the same time that the
offer was "a solution which should be beneficial to the NARIC and to us at the same
time." (Exh. Y-Pl.; Exh. 25—Def., p. 38, Folder of Exhibits) This offer for substitution,
however, was rejected by the appellant in a resolution dated November 15, 1952.
On the foregoing, the appellee sent a letter to the appellant, demanding compensation
for the damages caused her in the sum of $286,000.00, U.S. currency, representing
unrealized profit. The demand having been rejected, she instituted this case now on
appeal.
At the instance of the NARIC, a counterclaim was filed and the Manila Underwriters
Insurance Company was brought to the suit as a third party defendant to hold it liable
on the performance bond it executed in favor of the Plaintiffs-Appellees.
We find for the appellee.
It is clear upon the records that the sole and principal reason for the cancellation of the
allocation contracted by the appellee herein in Rangoon, Burma was the failure of the
letter of credit to be opened within the contemplated period. This failure must,
therefore, be taken as the immediate cause for the consequent damage which resulted.
As it is then, the disposition of this case depends on a determination of who was
responsible for such failure. Stated differently, the issue is whether appellant’s failure to
3
open immediately the letter of credit in dispute amounted to a breach of the contract of
July 1, 1952 for which it may be held liable in damages.
Appellant corporation disclaims responsibility for the delay in the opening of the letter
of credit. On the contrary, it insists that the fault lies with the appellee. Appellant
contends that the disputed negotiable instrument was not promptly secured because
the appellee failed to seasonably furnish data necessary and required for opening the
same, namely," (1) the amount of the letter of credit, (2) the person, company or
corporation in whose favor it is to be opened, and (3) the place and bank where it may
be negotiated." Appellant would have this Court believe, therefore, that had these
information been forthwith furnished it, there would have been no delay in securing the
instrument.
Appellant’s explanation has neither force nor merit. In the first place, the explanation
reaches into an area of the proceedings into which We are not at liberty to encroach.
The explanation refers to a question of fact. Nothing in the record suggests any
arbitrary or abusive conduct on the part of the trial judge in the formulation of the
ruling. His conclusion on the matter is sufficiently borne out by the evidence presented.
We are denied, therefore, the prerogative to disturb that finding, consonant to the time
honored tradition of this Tribunal to hold trial judges better situated to make
conclusions on questions of fact. For the record, We quote hereunder the lower court’s
ruling on the point:jgc:chanrobles.com.ph
"The defense that the delay, if any in opening the letter of credit was due to the failure
of plaintiff to name the supplier, the amount and the bank is not tenable. Plaintiff stated
in Court that these facts were known to defendant even before the contract was
executed because these facts were necessarily revealed to the defendant before she
could qualify as a bidder. She stated too that she had given the necessary data
immediately after the execution of Exh. "A" (the contract of July 1, 1952) to Mr.
GABRIEL BELMONTE, General Manager of the NARIC, both orally and in writing and that
she also pressed for the opening of the letter of credit on these occasions. These
statements have not been controverted and defendant NARIC, notwithstanding its
previous intention to do so, failed to present Mr. Belmonte to testify or refute this. . . ."
virtua1aw library
cralaw
Secondly, from the correspondence and communications which form part of the record
of this case, it is clear that what singularly delayed the opening of the stipulated letter
of credit and which, in turn, caused the cancellation of the allocation in Burma, was the
inability of the appellant corporation to meet the condition imposed by the Bank for
granting the same.
We do not think the appellant corporation can refute the fact that had it been able to
put up the 50% marginal cash deposit demanded by the bank, then the letter of credit
would have been approved, opened and released as early as August 4, 1952. The letter
of the Philippine National Bank to the NARIC was plain and explicit that as of the said
date, appellant’s "application for a letter of credit . . . has been approved by the Board
of Directors with the condition that 50% marginal cash deposit be paid and that drafts
are to be paid upon presentment." (Emphasis supplied)
The liability of the appellant, however, stems not alone from this failure or inability to
satisfy the requirements of the bank. Its culpability arises from its willful and deliberate
4
assumption of contractual obligations even as it was well aware of its financial
incapacity to undertake the presentation. We base this judgment upon the letter which
accompanied the application filed by the appellant with the bank, a part of which letter
was quoted earlier in this decision. In the said accompanying correspondence, appellant
admitted and owned that it did "not have sufficient deposit with your institution (the
PNB) with which to cover the amount required to be deposited as a condition for the
opening of letters of credit. . . ." cralaw virtua1aw library
A number of logical inferences may be drawn from the aforementioned admission. First,
that the appellant knew the bank requirements for opening letters of credit; second,
that appellant also knew it could not meet those requirements. When, therefore,
despite this awareness that it was financially incompetent to open a letter of credit
immediately, appellant agreed in paragraph 8 of the contract to pay immediately "by
means of an irrevocable, confirmed and assignable letter of credit," it must be similarly
be held to have bound itself too answer far all and every consequences that would
result from the representation. As aptly observed by the trial court: jgc:chanrobles.com.ph
". . . Having called for bids for the importation of rice involving millions, $4,260,000.00
to be exact, it should have ascertained its ability and capacity to comply with the
inevitable requirements in cash to pay for such importation. Having announced the bid,
it must be deemed to have impliedly assured suppliers of its capacity and facility to
finance the importation within the required period, especially since it had imposed on
the supplier the 90-day period within which the shipment of the rice must be brought
into the Philippines. Having entered into the contract, it should have taken steps
immediately to arrange for the letter of credit for the large amount involved and
inquired into the possibility of its issuance." cralaw virtua1aw library
In relation to the aforequoted observation of the trial court, We would like to make
reference also to Article 1170 of the Civil Code which provides: jgc:chanrobles.com.ph
"Those who in the performance of their obligation are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable in
damages." cralaw virtua1aw library
Under this provision, not only debtors guilty of fraud, negligence or default in the
performance of obligations are decreed liable: in general, every debtor who fails in the
performance of his obligations is bound to indemnify for the losses and damages caused
thereby (De la Cruz v. Seminary of Manila, 18 Phil. 330; Municipality of Moncada v.
Cajuigan, 21 Phil. 184; De la Cavada v. Diaz, 37 Phil. 982; Maluenda & Co. v. Enriquez,
46 Phil. 916; Pasumil v. Chong, 49 Phil. 1003; Pando v. Gimenez, 54 Phil. 459; Acme
Films v. Theaters Supply, 63 Phil. 657.) The phrase "in any manner contravene the
tenor" of the obligation includes any illicit act which impairs the strict and faithful
fulfillment of the obligation, or every kind of defective performance. (IV Tolentino, Civil
Code of the Philippines, citing authorities, p. 103)
The NARIC would also have this Court hold that the subsequent offer to substitute
Thailand rice for the originally contracted Burmese rice amounted to a waiver by the
appellee of whatever rights she might have derived from the breach of the contract. We
disagree. Waivers are not presumed, but must be clearly and convincingly shown,
either by express stipulation or acts admitting no other reasonable explanation.
5
(Ramirez v. Court of Appeals, 98 Phil., 225; 52 O. G. 779). In the case at bar, no such
intent to waive has been established.
We have carefully examined and studied the oral and documentary evidence presented
in this case and upon which the lower court based its award. Under the contract, the
NARIC bound itself to buy 20,000 metric tons of Burmese rice at" $203.00 U. S. Dollars
per metric ton, all net shipped weight, and all in U. S. currency, C.I.F. Manila. . . ." On
the other hand, documentary and other evidence establish with equal certainty that the
plaintiff-appellee was able to secure the contracted commodity at the cost price of
$180.70 per metric ton from her supplier in Burma. Considering freights, insurance and
charges incident to its shipment here and the forfeiture of the 5% deposit, the award
granted by the lower court is fair and equitable. For a clearer view of the equity of the
damages awarded, We reproduce below the testimony of the appellee, adequately
supported by the evidence and record: jgc:chanrobles.com.ph
"Q. Will you please tell the court, how much is the damage you suffered?
"A Because the selling price of my rice is $203.00 per metric ton, and the cost price of
my rice is $180.00. We had to pay also $6.25 for shipping and about $164 for
insurance. So adding the cost of the rice, the freight, the insurance, the total would be
about $187.99 that would be $15.01 gross profit per metric ton, multiply by 20,000
equals $300,200, that is my supposed profit if I went through with the contract." cralaw virtua1aw library
The above testimony of the plaintiff was a general approximation of the actual figures
involved in the transaction. A precise and more exact demonstration of the equity of the
award herein is provided by Exhibit HH of the plaintiff and Exhibit 34 of the defendant,
hereunder quoted so far as germane: jgc:chanrobles.com.ph
"It is equally of record of now that as shown in her request, dated July 29, 1959, and
other communications subsequent thereto for the opening by your corporation of the
required letter of credit, Mrs. Arrieta was supposed to pay her supplier in Burma at the
rate of One Hundred Eighty Dollars and Seventy Cents ($180.70) in U.S. Currency, per
ton plus Eight Dollars ($8.00) in the same currency per ton for shipping and other
handling expenses, so that she is already assured of a net profit of Fourteen Dollars and
Thirty Cents ($14.30), U.S. Currency, per ton or a total of Two Hundred and Eighty Six
Thousand Dollars ($286,000.00), U.S. Currency, in the aforesaid transaction. . . ." cralaw virtua1aw library
Lastly, herein appellant filed a counterclaim asserting that it has suffered, likewise by
way of unrealized profit, damages in the total sum of $406,000 from the failure of the
projected contract to materialize. This counterclaim was supported by a cost study
made and submitted by the appellant itself and wherein it was illustrated how indeed,
had the importation pushed thru, NARIC would have realized in profit the amount
asserted in the counterclaim. And yet, the said amount of P406,000.00 was realizable
by the appellant despite a number of expenses which the appellee, under the contract,
did not have to incur. Thus, under the cost study submitted by the appellant, banking
and unloading charges were to be shouldered by it, including an Import License Fee of
2% and superintendence fee of $0.25 per metric ton. If the NARIC stood to profit over
P400,000.00 from the disputed transaction in spite of the above extra expenditures
from which the herein appellee was exempt, We are convinced of the fairness of the
judgment presently under appeal.
6
In the premises, however, a minor modification must be effected in the dispositive
portion of the decision appealed from insofar as it expresses the amount of damages in
U.S. currency and not in Philippine Peso. Republic Act 529 specifically requires the
discharge of obligations only "in any coin or currency which at the time of payment is
legal tender for public and private debts." In view of that law, therefore, the award
should be converted into and expressed in Philippine Peso.
This brings us to a consideration of what rate of exchange should apply in the

conversion here decreed. Should it be at the time of the breach, at the time the
obligation was incurred or at the rate of exchange prevailing on the promulgation of this
decision.
In the case of Engel v. Velasco & Co., 47 Phil. 115, We ruled that in an action for
recovery of damages for breach of contract, even if the obligation assumed by the
defendant was to pay the plaintiff a sum of money expressed in American currency, the
indemnity to be allowed should be expressed in Philippine currency at the rate of
exchange at the time of the judgment rather than at the rate of exchange prevailing on
the date of defendant’s breach. This ruling, however, can either be applied nor
extended to the case at bar for the same was laid down when there was no law against
stipulating foreign currencies in Philippine contracts. But now we have Republic Act No.
529 which expressly declares such stipulations as contrary to public policy, void and of
no effect. And, as We already pronounced in the case of Eastboard Navigation, Ltd., v.
Juan Ysmael & Co., Inc., G.R. No. L-9090, September 10, 1957, if there is any
agreement to pay an obligation in the currency other than Philippine legal tender, the
same is null and void as contrary to public policy (Republic Act 529), and the most that
could be demanded is to pay said obligation in Philippine currency "to be measured in
the prevailing rate of exchange at the time the obligation was incurred (Sec. 1, Idem.)"
UPON ALL THE FOREGOING, the decision appealed from is hereby affirmed, with the
sole modification that the award should be converted into the Philippine peso at the
rate of exchange prevailing at the time the obligation was incurred or on July 1, 1952
when the contract was executed. The appellee insurance company, in the light of this
judgment, is relieved of any liability under this suit. No pronouncement as to costs.
Bengzon, C.J., Padilla, Concepcion, Paredes, Dizon, and Makalintal, JJ., concur.
Reyes, J.B.L., J., reserves his vote.
Barrera, J., took no part.
Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-27796 March 25, 1976
7
ST. PAUL FIRE & MARINE INSURANCE CO., plaintiff-appellant,
vs.
MACONDRAY & CO., INC., BARBER STEAMSHIP LINES, INC., WILHELM WILHELMSEN
MANILA PORT SERVICE and/or MANILA RAILROAD COMPANY, defendants-appellees.
Chuidian Law Office for appellant.
Salcedo, Del Rosario Bito & Mesa for appellee Macondray & Co., Inc., Barber Steamship Lines, Inc.
and Wilhelm Wilhelmsen
Macaranas & Abrenica for appellee Manila Port Service and/or Manila Railroad Company.
ANTONIO, J.:
Certified to this Court by the Court of Appeals in its Resolution of May 8, 1967, on the ground that
1
the appeal involves purely questions of law, thus: (a) whether or not, in case of loss or damage, the
liability of the carrier to the consignee is limited to the C.I.F. value of the goods which were lost or
damaged, and (b) whether the insurer who has paid the claim in dollars to the consignee should be
reimbursed in its peso equivalent on the date of discharge of the cargo or on the date of the
decision.
According to the records, on June 29, 1960, Winthrop Products, Inc., of New York, New York,
U.S.A., shipped aboard the SS "Tai Ping", owned and operated by Wilhelm Wilhelmsen 218 cartons
and drums of drugs and medicine, with the freight prepaid, which were consigned to Winthrop-
Stearns Inc., Manila, Philippines. Barber Steamship Lines, Inc., agent of Wilhelm Wilhelmsen issued
Bill of Lading No. 34, in the name of Winthrop Products, Inc. as shipper, with arrival notice in Manila
to consignee Winthrop-Stearns, Inc., Manila, Philippines. The shipment was insured by the shipper
against loss and/or damage with the St. Paul Fire & Marine Insurance Company under its insurance
Special Policy No. OC-173766 dated June 23, 1960 (Exhibit "S").
On August 7, 1960, the SS "Tai Ping" arrived at the Port of Manila and discharged its aforesaid
shipment into the custody of Manila Port Service, the arrastre contractor for the Port of Manila. The
said shipment was discharged complete and in good order with the exception of one (1) drum and
several cartons which were in bad order condition. Because consignee failed to receive the whole
shipment and as several cartons of medicine were received in bad order condition, the consignee
filed the corresponding claim in the amount of Fl,109.67 representing the C.I.F. value of the
damaged drum and cartons of medicine with the carrier, herein defendants- appellees (Exhibits "G"
and "H") and the Manila Port Service (Exhibits "I" & "J" However, both refused to pay such claim.
consequently, the consignee filed its claim with the insurer, St. Paul Fire & Marine insurance Co.
(Exhibit "N"), and the insurance company, on the basis of such claim, paid to the consignee the
insured value of the lost and damaged goods, including other expenses in connection therewith, in
the total amount of $1,134.46 U.S. currency (Exhibit "U").
On August 5, 1961, as subrogee of the rights of the shipper and/or consignee, the insurer, St. Paul
Fire & Marine Insurance Co., instituted with the Court of First Instance of Manila the present
action against the defendants for the recovery of said amount of $1,134.46, plus costs.
2
On August 23, 1961, the defendants Manila Port Service and Manila Railroad Company resisted the
action, contending, among others, that the whole cargo was delivered to the consignee in the same
8
condition in which it was received from the carrying vessel; that their rights, duties and obligations as
arrastre contractor at the Port of Manila are governed by and subject to the terms, conditions and
limitations contained in the Management Contract between the Bureau of Customs and Manila Port
Service, and their liability is limited to the invoice value of the goods, but in no case more than
P500.00 per package, pursuant to paragraph 15 of the said Management Contract; and that they are
not the agents of the carrying vessel in the receipt and delivery of cargoes in the Port of Manila.
On September 7, 1961, the defendants Macondray & Co., Inc., Barber Steamship Lines, Inc. and
Wilhelm Wilhelmsen also contested the claim alleging, among others, that the carrier's liability for the
shipment ceased upon discharge thereof from the ship's tackle; that they and their co-defendant
Manila Port Service are not the agents of the vessel; that the said 218 packages were discharged
from the vessel SS "Tai Ping" into the custody of defendant Manila Port Service as operator of the
arrastre service for the Port of Manila; that if any damage was sustained by the shipment while it
was under the control of the vessel, such damage was caused by insufficiency of packing, force
majeure and/or perils of the sea; and that they, in good faith and for the purpose only of avoiding
litigation without admitting liability to the consignee, offered to settle the latter's claim in full by paying
the C.I.F. value of 27 lbs. caramel 4.13 kilos methyl salicylate and 12 pieces pharmaceutical vials of
the shipment, but their offer was declined by the consignee and/or the plaintiff.
After due trial, the lower court, on March 10, 1965 rendered judgment ordering defendants
Macondray & Co., Inc., Barber Steamship Lines, Inc. and Wilhelm Wilhelmsen to pay to the plaintiff,
jointly and severally, the sum of P300.00, with legal interest thereon from the filing of the complaint
until fully paid, and defendants Manila Railroad Company and Manila Port Service to pay to plaintiff,
jointly and severally, the sum of P809.67, with legal interest thereon from the filing of the complaint
until fully paid, the costs to be borne by all the said defendants. 3
On April 12, 1965, plaintiff, contending that it should recover the amount of $1,134.46, or its
equivalent in pesos at the rate of P3.90, instead of P2.00, for every US$1.00, filed a motion for
reconsideration, but this was denied by the lower court on May 5, 1965. Hence, the present appeal.
Plaintiff-appellant argues that, as subrogee of the consignee, it should be entitled to recover from the
defendants-appellees the amount of $1,134.46 which it actually paid to the consignee (Exhibits "N" &
"U") and which represents the value of the lost and damaged shipment as well as other legitimate
expenses such as the duties and cost of survey of said shipment, and that the exchange rate on the
date of the judgment, which was P3.90 for every US$1.00, should have been applied by the lower
court.
Defendants-appellees countered that their liability is limited to the C.I.F. value of the goods, pursuant
to contract of sea carriage embodied in the bill of lading that the consignee's (Winthrop-Stearns Inc.)
claim against the carrier (Macondray & Co., Inc., Barber Steamship Lines, Inc., Wilhelm Wilhelmsen
and the arrastre operators (Manila Port Service and Manila Railroad Company) was only for the sum
of Pl,109.67 (Exhibits "G", "H", "I" & "J"), representing the C.I.F. value of the loss and damage
sustained by the shipment which was the amount awarded by the lower court to the plaintiff-
appellant; defendants appellees are not insurers of the goods and as such they should not be made
4
to pay the insured value therefor; the obligation of the defendants-appellees was established as of
the date of discharge, hence the rate of exchange should be based on the rate existing on that date,
i.e., August 7, 1960, and not the value of the currency at the time the lower court rendered its
5
decision on March 10, 1965.
The appeal is without merit.
9
The purpose of the bill of lading is to provide for the rights and liabilities of the parties in reference to
the contract to carry. The stipulation in the bill of lading limiting the common carrier's liability to the
6
value of the goods appearing in the bill, unless the shipper or owner declares a greater value, is
valid and binding. This limitation of the carrier's liability is sanctioned by the freedom of the
7
contracting parties to establish such stipulations, clauses, terms, or conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs and public policy. A 8
stipulation fixing or limiting the sum that may be recovered from the carrier on the loss or
deterioration of the goods is valid, provided it is (a) reasonable and just under the
circumstances, and (b) has been fairly and freely agreed upon. In the case at bar, the liabilities of
9 10
the defendants- appellees with respect to the lost or damaged shipments are expressly limited to the
C.I.F. value of the goods as per contract of sea carriage embodied in the bill of lading, which reads:
Whenever the value of the goods is less than $500 per package or other freight unit,
their value in the calculation and adjustment of claims for which the Carrier may be
liable shall for the purpose of avoiding uncertainties and difficulties in fixing value be
deemed to be the invoice value, plus frieght and insurance if paid, irrespective of
whether any other value is greater or less.
The limitation of liability and other provisions herein shall inure not only to the benefit
of the carrier, its agents, servants and employees, but also to the benefit of any
independent contractor performing services including stevedoring in connection with
the goods covered hereunder. (Paragraph 17, emphasis supplied.)
It is not pretended that those conditions are unreasonable or were not freely and fairly agreed upon.
The shipper and consignee are, therefore, bound by such stipulations since it is expressly stated in
the bill of lading that in "accepting this Bill of Lading, the shipper, owner and consignee of the goods,
and the holder of the Bill of Lading agree to be bound by all its stipulations, exceptions and
conditions, whether written, stamped or printed, as fully as if they were all signed by such shipper,
owner, consignee or holder. It is obviously for this reason that the consignee filed its claim against
the defendants-appellees on the basis of the C.I.F. value of the lost or damaged goods in the
aggregate amount of Pl,109.67 (Exhibits "G", "H", "I", and "J"). 11
The plaintiff-appellant, as insurer, after paying the claim of the insured for damages under the
insurance, is subrogated merely to the rights of the assured. As subrogee, it can recover only the
amount that is recoverable by the latter. Since the right of the assured, in case of loss or damage to
the goods, is limited or restricted by the provisions in the bill of lading, a suit by the insurer as
subrogee necessarily is subject to like limitations and restrictions.
The insurer after paying the claim of the insured for damages under the insurance is
subrogated merely to the rights of the insured and therefore can necessarily recover
only that to what was recoverable by the insured. 12
Upon payment for a total loss of goods insured, the insurance is only subrogated to
such rights of action as the assured has against 3rd persons who caused or are
responsible for the loss. The right of action against another person, the equitable
interest in which passes to the insurer, being only that which the assured has, it
follows that if the assured has no such right of action, none passes to the insurer,
and if the assured's right of action is limited or restricted by lawful contract between
him and the person sought to be made responsible for the loss, a suit by the insurer,
in the Tight of the assured, is subject to like limitations or restrictions.
13
10
Equally untenable is the contention of the plaintiff-appellant that because of extraordinary inflation, it
should be reimbursed for its dollar payments at the rate of — exchange on the date of the judgment
and not on the date of the loss or damage. The obligation of the carrier to pay for the damage
commenced on the date it failed to deliver the shipment in good condition to the consignee.
The C.I.F. Manila value of the goods which were lost or damaged, according to the claim of the
consignee dated September 26, 1960 is $226.37 (for the pilferage, Exhibit "G") and $324.33
(shortlanded, Exhibit "H") or P456.14 and P653.53, respectively, in Philippine Currency. The peso
equivalent was based by the consignee on the exchange rate of P2.015 to $1.00 which was the rate
existing at that time. We find, therefore, that the trial court committed no error in adopting the
aforesaid rate of exchange.
WHEREFORE, the appealed decision is hereby affirmed, with costs against the plaintiff-appellant.
Barredo, Aquino, Concepcion, Jr. and and Martin, JJ., concur.
Justice Enrique M. Fernando (Chairman), is on leave.
Justice Ruperto G. Martin was designated to sit in the Second Division.
VOL. 238, DECEMBER 2, 1994 593

Palanca vs. Court of Appeals
G.R. No. 106685. December 2, 1994. *
SIMPLICIO A. PALANCA, petitioner, vs. COURT OF APPEALS (SPECIAL FORMER

ELEVENTH DIVISION), and EDGARDO S. SANICAS, represented by his
Attorney-in-Fact, JOSE S. SANICAS, respondents.
Obligations; Contracts; Statutes; Cuenco Law (Uniform Currency Act [R.A.
529]); Extraordinary Inflation; The autonomy of parties to provide escalator clauses
may be limited by law; A contractual stipulation providing for an upward adjustment
in the purchase price the moment there is a deterioration of the Philippine peso vis-
a-vis the U.S. dollar violates R.A. No. 529.—In the case at bench, the clear
understanding of the parties is that there should be an upward adjustment of the
purchase price the moment there is a deterioration of the Philippine peso vis-a-
vis the U.S. dollar. This is the “monetary fluctuation” contemplated by them as
would justify the adjustment. Under this scenario, it is an idle task to determine
whether the contract has been visited by an “extraordinary inflation” as to trigger
the operation of Article 1250. While the contract may contain an “escalator clause”
providing that in the occurrence of certain events, the contract price shall be
increased to a fixed percentage of the base price (“Escalator” price adjustment
clauses, 63 ALR 2d 1337 [1959]), still the autonomy of the parties to provide such
escalator clauses may be limited by law. The petition should be dismissed on the
ground that the stipulation of the
_______________
EN BANC.
*
594
59 SUPREME COURT REPORTS
11
4 ANNOTATED
parties is in violation of R.A. No. 529, as amended, entitled “An Act to Assure
Uniform Value To Philippine Coin and Currency,” otherwise known as the Cuenco
Law.
Same; Same; Same; Same; R.A. 529 prohibits in all domestic contracts: (1)
giving the obligee the right to require payment in a specified currency other than
Philippine currency; and (2) giving the obligee the right to require payment “in an
amount of money of the Philippines measured thereby.”—Often lost sight of is the
fact that the said law prohibits two things in all domestic contracts: (1) giving the
obligee the right to require payment in a specified currency other than Philippine
currency; and (2) giving the obligee the right to require payment “in an amount of
money of the Philippines measured thereby.” When the parties stipulated that “x x
x in the event of monetary fluctuation (meaning any change in the rate of exchange
of the Philippine peso to the U.S. dollar), the unpaid balance account of the herein
vendee on the aforesaid subdivision lot shall be increased proportionately on the
basis of the present value of P6.72 to US$1.00,” the obligee was given the right to
demand payment of the balance of the purchase price “in an amount of money of
the Philippines measured” by a foreign coin or currency.
Same; Same; Same; Same; Congress passed R.A. 529, having in mind the
preservation of the value of the Philippine peso.—Congress passed Republic Act No.
529, having in mind the preservation of the value of the Philippine peso. A currency
has value because people are willing to accept it in exchange for goods and
services and in payment for debts. Thus, despite the fact that money has no value
as a commodity, it has value to those willing to use it as a medium of exchange
(Cargill, Money, The Financial System and Monetary Policy 18 [2nd ed., 1983];
Grubel, The International Monetary System 185 [3rd ed.]). If goods and services are
available in return for a definite medium of exchange, the value of all goods and
services necessarily will be measured in terms of that medium. But these functions
of money are not capable of performance if there is no confidence in the currency
(Nusbaum, Money in the Law 3-4 [1939 ed.]). If instead of the Philippine currency,
the people would use a foreign currency as the mode of payment or as basis for
measuring the amount of money to be paid in Philippine currency, such usage
would adversely affect the confidence of the public on the Philippine monetary
system.
Same; Same; Same; Same; The liberalization of the foreign exchange
regulations did not repeal or in any way amend R.A. 529.—The liberalization of the
foreign exchange regulations on receipts and disbursements of residents arising
from both non-trade and trade
595
VOL. 238, DECEMBER 2, 1994 595
transactions (Resolution of the Monetary Board dated August 7, 1992; Central
Bank Circulars No. 1353, Series of 1992; No. 1318 dated January 3, 1992; No. 1338
dated April 28, 1992; No. 1348 dated July 28, 1992) did not repeal or in any way
amend R.A. No. 529. In essence, the said Circulars of the Central Bank merely
allowed the free sale and purchase of foreign exchange outside the banking system
and other transactions involving foreign currency previously subject to Central Bank
control.
12
Statutes; Statutory Construction; A Central Bank Circular cannot repeal a law,
as it is only a law that can repeal another law.—Besides, a Central Bank Circular
cannot repeal a law. Only a law can repeal another law. Article 7 of the Civil Code of
the Philippines provides: “Laws are repealed only by subsequent ones and their
violation or nonobservance shall not be excused by disuse, or custom or practice to
the contrary.”
PETITION for review on certiorari of a decision and a resolution of the Court
of Appeals.
The facts are stated in the opinion of the Court.
Benjamin C. Santos and Estrella, Remitio & Associates for petitioner.
Rodolfo V. Gumban for private respondent.
QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules
of Court to set aside the Decision of the Court of Appeals in CA-G.R. CV No.
20245 and its Resolution dated August 12, 1992 denying the motion for
reconsideration of said decision.
We deny the petition.
I
On January 22, 1977, petitioner, as vendor, and Jose S. Sanicas, as vendee,
entered into a Contract to Sell on Installment of a parcel of land covered by
TCT No. T-6771766. Under the terms of the contract, private respondent
agreed to pay petitioner the amount of P9,851.00 as downpayment and the
balance of P88,659.00 in 120 monthly installments with 14% interest per
596
6 ANNOTATED
annum on the outstanding balance. Jose S. Sanicas further agreed to pay the
annual real property taxes, and that should he fail to pay the said taxes, he
would have to pay a yearly surcharge or penalty of 50% of the taxes due
plus 12% compounded interest per annum.
Respondent Edgardo S. Sanicas later assumed the account of his brother
Jose and he designated the latter as his authorized representative in dealing
with petitioner.
Paragraph 11 of the contract contained the following provision:
“That it is further agreed and understood by the VENDEE that in the event of
monetary fluctuation, the unpaid balance account of the herein VENDEE on the
aforecited subdivision lot shall be increased proportionately on the basis of the
present value of P6.72 to $1.00 US dollar” (Rollo, p. 2).
Following demands from petitioner for the updating of the account, private
respondent requested a detailed statement. When petitioner failed to furnish
him with the statement, private respondent hired an accountant to compute
his obligations under the contract. Thereafter, he tendered the amount of
P44,955.87 in cash upon petitioner, which amount included interest at 12%
per annum.
13
Petitioner, however, refused to receive the amount tendered, prompting
private respondent to make a judicial consignment of the amount on May 29,
1987.
Private respondent then filed with the trial court a complaint for
reconveyance with preliminary injunction, praying that petitioner be
restrained from cancelling private respondent’s rights under the contract and
from ejecting him from the property. Private respondent further prayed that
the trial court order petitioner to accept the amount earlier consigned, and
subsequently, to declare as fully paid the purchase price of the parcel of
land.
Petitioner justified his refusal to accept the amount of P44,955.87 by
asserting that private respondent’s actual liability was P155,630.40, relying
on the escalator clause in paragraph 11 of the contract.
Applying Article 1250 of the New Civil Code, the trial court ruled that for
an agreement providing for the adjustment of the
597
VOL. 238, DECEMBER 2, 1994 597
purchase price in case of a diminution of the value of the peso to come into
effect, there should be an “extraordinary inflation or deflation.” It was the
position of the trial court that inasmuch as there was no extraordinary
inflation or deflation, paragraph 11 of the contract should not be taken into
account in the computation of the amount payable under the contract (Rollo,
pp. 45-46).
Furthermore, the trial court ruled that it was unconscionable to peg the
unpaid balance in the event of monetary fluctuation at 100.398% aside from
the agreed interest rate of 14% (Rollo, p. 48).
Accordingly, the trial court, in its Decision dated June 17, 1988, disposed
as follows:
“WHEREFORE, judgment is hereby rendered ordering the defendant to execute a
deed of conveyance in favor of plaintiff covering Lot No. 8, Blk. 1, TCT No. T-77176
considering the payment made by plaintiff of the balance of the purchase price in
the sum of Forty Four Thousand Nine Hundred Seventy Nine Pesos and Eighty Seven
Centavos (P44,979.87) thru judicial consignation effected on May 29, 1987 per
Official Receipt No. 4016228 issued by the Provincial Treasurer of Negros
Occidental.
Without pronouncement as to attorney’s fees and costs” (Rollo, p. 48).
Petitioner appealed to the Court of Appeals.
The Court of Appeals modified the judgment of the trial court. Based on
the trial court’s record, the appellate court ruled that the amount payable by
private respondent was P70,688.17, broken down as follows:
“P45,186.04 Balance on the principal;
P22,604.63 Interest thereon from
January 24, 1983 to April 2, 1987
plus, balance on interest; and
P2,897.00 Land taxes from 1977 to 1986”
14
(Rollo, p. 38).
The Court of Appeals concurred with the trial court’s ruling that paragraph 11
of the contract cannot come into effect absent an actual extraordinary
inflation or deflation.
598
8 ANNOTATED
II
Not pleased with the judgment of the appellate court, petitioner comes to
this Court raising the sole issue of “whether or not petitioner is entitled to a
proportionate increase in payment on the balance of the purchase price for a
piece of real property bought on installment, pursuant to paragraph 11 of the
subject Contract To Sell on Installment” (Rollo, p. 2).
III
We cannot grant the petition but not on the grounds relied upon by the trial
court and the Court of Appeals that there should be an “extraordinary
inflation” before a stipulation for an upward adjustment of the purchase price
can be enforced.
The specific provision of law applied by the two lower courts is Article
1250 of the Civil Code of the Philippines, which provides:
“In case extraordinary 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.”
In the case at bench, the clear understanding of the parties is that there
should be an upward adjustment of the purchase price the moment there is
a deterioration of the Philippine peso vis-a-vis the U.S. dollar. This is the
“monetary fluctuation” contemplated by them as would justify the
adjustment. Under this scenario, it is an idle task to determine whether the
contract has been visited by an “extraordinary inflation” as to trigger the
operation of Article 1250.
While the contract may contain an “escalator clause” providing that in the
occurrence of certain events, the contract price shall be increased to a fixed
percentage of the base price (“Escalator” price adjustment clauses, 63 ALR
2d 1337 [1959]), still the autonomy of the parties to provide such escalator
clauses may be limited by law.
The petition should be dismissed on the ground that the stipulation of the
parties is in violation of R.A. No. 529, as amended, entitled “An Act to Assure
Uniform Value To Philippine Coin and Currency,” otherwise known as the
Cuenco Law.
599
VOL. 238, DECEMBER 2, 1994 599
Section 1 of R.A. No. 529, as amended, provides in pertinent part:
15
“Every provision contained in, or made with respect to, any domestic obligation, to
wit, any obligation contracted in the Philippines which provisions purport 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. x x x” (Italics supplied).
Often lost sight of is the fact that the said law prohibits two things in all
domestic contracts: (1) giving the obligee the right to require payment in a
specified currency other than Philippine currency; and (2) giving the obligee
the right to require payment “in an amount of money of the Philippines
measured thereby.”
When the parties stipulated that “xxx in the event of monetary fluctuation
(meaning any change in the rate of exchange of the Philippine peso to the
U.S. dollar), the unpaid balance account of the herein vendee on the
aforesaid subdivision lot shall be increased proportionately on the basis of
the present value of P6.72 to US$1.00,” the obligee was given the right to
demand payment of the balance of the purchase price “in an amount of
money of the Philippines measured” by a foreign coin or currency.
Republic Act No. 529 mandates that the money of obligation or payment
to be stipulated in all contracts entered into in the Philippines shall be in
Philippine currency. The authority to legislate on the money of obligation or
payment in all transactions entered into in the Philippines is beyond dispute.
The whereas clause of R.A. No. 529 reads as follows:
“WHEREAS, the value of Philippine coin and currency affects public interest and is
subject to regulation by the Congress of the Philippines;
“WHEREAS, it has been disclosed that the provisions of certain obligations
contracted in the Philippines purport to give the obligee the right to require
payment in gold or in a particular kind of coin or currency or in an amount in money
of the Philippines measured thereby, thus obstructing the power of the Congress to
regulate the value of the money of the Philippines and contravening the policy of
the
600
0 ANNOTATED
Congress, here declared, to maintain at all times the equal and stable power of
every peso coined or issued by the Philippines, in the markets and in the payment
of debts.”
Congress passed Republic Act No. 529, having in mind the preservation of
the value of the Philippine peso. A currency has value because people are
willing to accept it in exchange for goods and services and in payment for
debts. Thus, despite the fact that money has no value as a commodity, it has
value to those willing to use it as a medium of exchange (Cargill, Money, The
Financial System and Monetary Policy 18 [2nd ed., 1983]; Grubel, The
International Monetary System 185 [3rd ed.]). If goods and services are
available in return for a definite medium of exchange, the value of all goods
16
and services necessarily will be measured in terms of that medium. But
these functions of money are not capable of performance if there is no
confidence in the currency (Nusbaum, Money in the Law 3-4 [1939 ed.]). If
instead of the Philippine currency, the people would use a foreign currency
as the mode of payment or as basis for measuring the amount of money to
be paid in Philippine currency, such usage would adversely affect the
confidence of the public on the Philippine monetary system.
The contract in question is a sale of a parcel of land in the Philippines
payable in Philippine pesos. While the balance of the purchase price is
payable in Philippine currency measured by a foreign currency, no foreign
currency was directly involved in the transaction. The obligation should
therefore be paid in the same amounts of Philippine currency as stipulated in
the contract without any adjustment based on the prevailing exchange rate
of the U.S. dollar to the Philippine peso. The transaction does not involve a
loan in a foreign currency stipulated to be payable in Philippine currency but
measured by a foreign currency, in which case the rate of exchange
prevailing at the stipulated date of payment shall prevail (Lily San
Buenaventura v. Court of Appeals, 181 SCRA 197 [1990]).
The liberalization of the foreign exchange regulations on receipts and
disbursements of residents arising from both non-trade and trade
transactions (Resolution of the Monetary Board dated August 7, 1992;
Central Bank Circulars No. 1353, Series of 1992; No. 1318 dated January 3,
1992; No. 1338 dated April 28,
601
VOL. 238, DECEMBER 2, 1994 601
1992; No. 1348 dated July 28, 1992) did not repeal or in any way amend R.A.
No. 529. In essence, the said Circulars of the Central Bank merely allowed
the free sale and purchase of foreign exchange outside the banking system
and other transactions involving foreign currency previously subject to
Central Bank control.
While foreign exchange controls are tools in the maintenance of the value
of the Philippine currency, such controls are not the only means of
maintaining that value. The requirements in R.A. No. 529 that the money of
obligation or payment in all domestic transactions must be in Philippine
currency are also measures to maintain such value.
Besides, a Central Bank Circular cannot repeal a law. Only a law can
repeal another law. Article 7 of the Civil Code of the Philippines provides:
“Laws are repealed only by subsequent ones and their violation or non-observance
shall not be excused by disuse, or custom or practice to the contrary.”
WHEREFORE, the petition is denied.
SO ORDERED.
Narvasa (C.J.), Bidin, Regalado, Davide,
Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan and Mendoza, JJ., concur.
Feliciano, J., On official leave.
Padilla, J., In the result.
17
Petition denied.
VOL. 284, JANUARY 23, 1998 643

Papa vs. A.U. Valencia and Co., Inc.
G.R. No. 105188. January 23, 1998. *
MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte,

petitioner, vs. A.U. VALENCIA and CO., INC., FELIX PEÑARROYO, SPS. ARSENIO
B. REYES & AMANDA SANTOS, and DELFIN JAO, respondents.
Negotiable Instruments; Checks; Presumptions; After more than ten (10) years
from the payment in part by cash and in part by check, the presumption is that the
check had been encashed.—It is an undisputed fact that respondents Valencia and
Peñarroyo had given petitioner Myron C. Papa the amounts of Five Thousand Pesos
(P5,000.00) in cash on 24 May 1973, and Forty Thousand Pesos (P40,000.00) in
check on 15 June 1973, in payment of the purchase price of the subject lot.
Petitioner himself admits having received said amounts, and having issued receipts
therefor. Petitioner’s assertion that he never encashed the aforesaid check is not
substantiated and is at odds with his statement in his answer that “he can no longer
recall the transaction which is supposed to have happened 10 years ago.” After
more than ten (10) years from the payment in part by cash and in part by check,
the presumption is that the check had been encashed. As already stated, he even
waived the presentation of oral evidence.
Same; Same; Failure of a payee to encash a check for more than ten (10) years
undoubtedly resulted in the impairment of the check through his unreasonable and
unexplained delay.—Granting that petitioner had never encashed the check, his
failure to do so for more than ten (10) years undoubtedly resulted in the impairment
of the check through his unreasonable and unexplained delay.
Same; Same; Obligations; The acceptance of a check implies an undertaking of
due diligence in presenting it for payment, and if he from whom it is received
sustains loss by want of such diligence, it will be held to operate as actual payment
of the debt or obligation for which it was given.—While it is true that the delivery of
a check produces the effect of payment only when it is cashed, pursuant to Art.
1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the
creditor’s unreasonable delay in presentment. The
___________________
FIRST DIVISION.
*
644
4 ANNOTATED
acceptance of a check implies an undertaking of due diligence in presenting it
for payment, and if he from whom it is received sustains loss by want of such
diligence, it will be held to operate as actual payment of the debt or obligation for
18
which it was given. It has, likewise, been held that if no presentment is made at all,
the drawer cannot be held liable irrespective of loss or injury unless presentment is
otherwise excused. This is in harmony with Article 1249 of the Civil Code under
which payment by way of check or other negotiable instrument is conditioned on its
being cashed, except when through the fault of the creditor, the instrument is
impaired. The payee of a check would be a creditor under this provision and if its
non-payment is caused by his negligence, payment will be deemed effected and the
obligation for which the check was given as conditional payment will be discharged.
Actions; Parties; Settlement of Estates; An executor or administrator may sue
or be sued without joining the party for whose benefit the action is presented or
defended.—The estate of Angela M. Butte is not an indispensable party. Under
Section 3 of Rule 3 of the Rules of Court, an executor or administrator may sue or
be sued without joining the party for whose benefit the action is presented or
defended.
PETITION for review on certiorari of a decision of the Court of Appeals.

Quijano & Padilla for petitioner.
Padilla, Jimenez, Kintanar & Asuncion Law Offices for private
respondent Delfin Jao.
KAPUNAN, J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court,

petitioner Myron C. Papa seeks to reverse and set aside 1) the Decision
dated 27 January 1992 of the Court of Appeals which affirmed with
modification the decision of the trial court; and 2) the Resolution dated 22
April 1992 of
645
VOL. 284, JANUARY 23, 1998 645
the same court, which denied petitioner’s motion for reconsideration of the
above decision.
The antecedent facts of this case are as follows:
Sometime in June 1982, herein private respondents A.U. Valencia and Co.,
Inc. (hereinafter referred to as respondent Valencia, for brevity) and Felix
Peñarroyo (hereinafter called respondent Peñarroyo), filed with the Regional
Trial Court of Pasig, Branch 151, a complaint for specific performance against
herein petitioner Myron C. Papa, in his capacity as administrator of the
Testate Estate of one Angela M. Butte.
The complaint alleged that on 15 June 1973, petitioner Myron C. Papa,
acting as attorney-in-fact of Angela M. Butte, sold to respondent Peñarroyo,
through respondent Valencia, a parcel of land, consisting of 286.60 square
meters, located at corner Retiro and Cadiz Streets, La Loma, Quezon City,
and covered by Transfer Certificate of Title No. 28993 of the Register of
Deeds of Quezon City; that prior to the alleged sale, the said property,
19
together with several other parcels of land likewise owned by Angela M.
Butte, had been mortgaged by her to the Associated Banking Corporation
(now Associated Citizens Bank); that after the alleged sale, but before the
title to the subject property had been released, Angela M. Butte passed
away; that despite representations made by herein respondents to the bank
to release the title to the property sold to respondent Peñarroyo, the bank
refused to release it unless and until all the mortgaged properties of the late
Angela M. Butte were also redeemed; that in order to protect his rights and
interests over the property, respondent Peñarroyo caused the annotation on
the title of an adverse claim as evidenced by Entry No. P.E.-6118/T-28993,
inscribed on 18 January 1977.
The complaint further alleged that it was only upon the release of the title
to the property, sometime in April 1977, that respondents Valencia and
Peñarroyo discovered that the mortgage rights of the bank had been
assigned to one Tomas L. Parpana (now deceased), as special administrator
of the Estate of Ramon Papa, Jr., on 12 April 1977; that since then, herein
petitioner had been collecting monthly rentals in the
646
6 ANNOTATED
amount of P800.00 from the tenants of the property, knowing that said
property had already been sold to private respondents on 15 June 1973; that
despite repeated demands from said respondents, petitioner refused and
failed to deliver the title to the property. Thereupon, respondents Valencia
and Peñarroyo filed a complaint for specific performance, praying that
petitioner be ordered to deliver to respondent Peñarroyo the title to the
subject property (TCT 28993); to turn over to the latter the sum of
P72,000.00 as accrued rentals as of April 1982, and the monthly rental of
P800.00 until the property is delivered to respondent Peñarroyo; to pay
respondents the sum of P20,000.00 as attorney’s fees; and to pay the costs
of the suit.
In his Answer, petitioner admitted that the lot had been mortgaged to the
Associated Banking Corporation (now Associated Citizens Bank). He
contended, however, that the complaint did not state a cause of action; that
the real property in interest was the Testate Estate of Angela M. Butte, which
should have been joined as a party defendant; that the case amounted to a
claim against the Estate of Angela M. Butte and should have been filed in
Special Proceedings No. A-17910 before the Probate Court in Quezon City;
and that, if as alleged in the complaint, the property had been assigned to
Tomas L. Parpana, as special administrator of the Estate of Ramon Papa, Jr.,
said estate should be impleaded. Petitioner, likewise, claimed that he could
not recall in detail the transaction which allegedly occurred in 1973; that he
did not have TCT No. 28993 in his possession; that he could not be held
personally liable as he signed the deed merely as attorney-in-fact of said
Angela M. Butte. Finally, petitioner asseverated that as a result of the filing
20
of the case, he was compelled to hire the services of counsel for a fee of
P20,000.00, for which respondents should be held liable.
Upon his motion, herein private respondent Delfin Jao was allowed to
intervene in the case. Making common cause with respondents Valencia and
Peñarroyo, respondent Jao alleged that the subject lot which had been sold
to respondent Peñarroyo through respondent Valencia was in turn sold to
him on
647
VOL. 284, JANUARY 23, 1998 647
20 August 1973 for the sum of P71,500.00, upon his paying earnest money
in the amount of P5,000.00. He, therefore, prayed that judgment be
rendered in favor of respondents Valencia and Peñarroyo; and, that after the
delivery of the title to said respondents, the latter in turn be ordered to
execute in his favor the appropriate deed of conveyance covering the
property in question and to turn over to him the rentals which aforesaid
respondents sought to collect from petitioner Myron C. Papa.
Respondent Jao, likewise, averred that as a result of petitioner’s refusal to
deliver the title to the property to respondents Valencia and Peñarroyo, who
in turn failed to deliver the said title to him, he suffered mental anguish and
serious anxiety for which he sought payment of moral damages; and,
additionally, the payment of attorney’s fees and costs.
For his part, petitioner, as administrator of the Testate Estate of Angela M.
Butte, filed a third-party complaint against herein private respondents,
spouses Arsenio B. Reyes and Amanda Santos (respondent Reyes spouses,
for short). He averred, among others, that the late Angela M. Butte was the
owner of the subject property; that due to non-payment of real estate tax
said property was sold at public auction by the City Treasurer of Quezon City
to the respondent Reyes spouses on 21 January 1980 for the sum of
P14,000.00; that the one-year period of redemption had expired; that
respondents Valencia and Peñarroyo had sued petitioner Papa as
administrator of the estate of Angela M. Butte, for the delivery of the title to
the property; that the same aforenamed respondents had acknowledged that
the price paid by them was insufficient, and that they were willing to add a
reasonable amount or a minimum of P55,000.00 to the price upon delivery of
the property, considering that the same was estimated to be worth
P143,000.00; that petitioner was willing to reimburse respondent Reyes
spouses whatever amount they might have paid for taxes and other charges,
since the subject property was still registered in the name of the late Angela
M. Butte; that it was inequitable to allow respondent Reyes spouses to
acquire property estimated to be worth P143,000.00, for a
648
8 ANNOTATED
21
measly sum of P14,000.00. Petitioner prayed that judgment be rendered
cancelling the tax sale to respondent Reyes spouses; restoring the subject
property to him upon payment by him to said respondent Reyes spouses of
the amount of P14,000.00, plus legal interest; and, ordering respondents
Valencia and Peñarroyo to pay him at least P55,000.00 plus everything they
might have to pay the Reyes spouses in recovering the property.
Respondent Reyes spouses in their Answer raised the defense of
prescription of petitioner’s right to redeem the property.
At the trial, only respondent Peñarroyo testified. All the other parties only
submitted documentary proof.
On 29 June 1987, the trial court rendered a decision, the dispositive
portion of which reads:
WHEREUPON, judgment is hereby rendered as follows:
1. 1)Allowing defendant to redeem from third-party defendants and ordering the

latter to allow the former to redeem the property in question, by paying the
sum of P14,000.00 plus legal interest of 12% thereon from January 21, 1980;
2. 2)Ordering defendant to execute a Deed of Absolute Sale in favor of plaintiff
Felix Peñarroyo covering the property in question and to deliver peaceful
possession and enjoyment of the said property to the said plaintiff, free from
any liens and encumbrances; Should this not be possible, for any reason not
attributable to defendant, said defendant is ordered to pay to plaintiff Felix
Peñarroyo the sum of P45,000.00 plus legal interest of 12% from June 15,
1973;
3. 3)Ordering plaintiff Felix Peñarroyo to execute and deliver to intervenor a
deed of absolute sale over the same property, upon the latter’s payment to
the former of the balance of the purchase price of P71,500.00;
Should this not be possible, plaintiff Felix Peñarroyo is ordered to pay
intervenor the sum of P5,000.00 plus legal interest of 12% from August 23,
1973; and
4. 4)Ordering defendant to pay plaintiffs the amount of P5,000.00 for and as
attorney’s fees and litigation expenses.
649
VOL. 284, JANUARY 23, 1998 649
SO ORDERED. 1
Petitioner appealed the aforesaid decision of the trial court to the Court of
Appeals, alleging among others that the sale was never “consummated” as
he did not encash the check (in the amount of P40,000.00) given by
respondents Valencia and Peñarroyo in payment of the full purchase price of
the subject lot. He maintained that what said respondents had actually paid
was only the amount of P5,000.00 (in cash) as earnest money.
Respondent Reyes spouses, likewise, appealed the above decision.
However, their appeal was dismissed because of failure to file their
appellants’ brief.
22
On 27 January 1992, the Court of Appeals rendered a decision, affirming
with modification the trial court’s decision, thus:
WHEREFORE, the second paragraph of the dispositive portion of the appealed
decision is MODIFIED, by ordering the defendant-appellant to deliver to plaintiff-
appellees the owner’s duplicate of TCT No. 28993 of Angela M. Butte and the
peaceful possession and enjoyment of the lot in question or, if the owner’s duplicate
certificate cannot be produced, to authorize the Register of Deeds to cancel it and
issue a certificate of title in the name of Felix Peñarroyo. In all other respects, the
decision appealed from is AFFIRMED. Costs against defendant-appellant Myron C.
Papa.
SO ORDERED. 2
In affirming the trial court’s decision, respondent court held that contrary to
petitioner’s claim that he did not encash the aforesaid check, and therefore,
the sale was not consummated, there was no evidence at all that petitioner
did not, in fact, encash said check. On the other hand, respondent Peñarroyo
testified in court that petitioner Papa had received the amount of P45,000.00
and issued receipts therefor. According to respondent court, the presumption
is that the check was
____________________
Rollo, pp. 70-71.

1
Rollo, pp. 41-42.

2
650
0 ANNOTATED
encashed, especially since the payment by check was not denied by
defendant-appellant (herein petitioner) who, in his Answer, merely alleged
that he “can no longer recall the transaction which is supposed to have
happened 10 years ago.” 3
On petitioner’s claim that he cannot be held personally liable as he had

acted merely as attorney-in-fact of the owner, Angela M. Butte, respondent
court held that such contention is without merit. This action was not brought
against him in his personal capacity, but in his capacity as the administrator
of the Testate Estate of Angela M. Butte. 4
On petitioner’s contention that the estate of Angela M. Butte should have

been joined in the action as the real party in interest, respondent court held
that pursuant to Rule 3, Section 3 of the Rules of Court, the estate of Angela
M. Butte does not have to be joined in the action. Likewise, the estate of
Ramon Papa, Jr., is not an indispensable party under Rule 3, Section 7 of the
same Rules. For the fact is that Ramon Papa, Jr., or his estate, was not a
party to the Deed of Absolute Sale, and it is basic law that contracts bind
only those who are parties thereto. 5
Respondent court observed that the conditions under which the mortgage
rights of the bank were assigned are not clear. In any case, any obligation
which the estate of Angela M. Butte might have to the estate of Ramon Papa,
23
Jr. is strictly between them. Respondents Valencia and Peñarroyo are not
bound by any such obligation.
Petitioner filed a motion for reconsideration of the above decision, which
motion was denied by respondent Court of Appeals.
Hence, this petition wherein petitioner raises the following issues:
___________________
Id., at 40.
3
Id., at 41.
4
Id., at 40-41.
5
651
VOL. 284, JANUARY 23, 1998 651
1.I.THE CONCLUSION OR FINDING OF THE COURT OF APPEALS THAT THE

SALE IN QUESTION WAS CONSUMMATED IS GROUNDED ON
SPECULATION OR CONJECTURE, AND IS CONTRARY TO THE
APPLICABLE LEGAL PRINCIPLE.
2.II.THE COURT OF APPEALS, IN MODIFYING THE DECISION OF THE TRIAL
COURT, ERRED BECAUSE IT, IN EFFECT, CANCELLED OR NULLIFIED AN
ASSIGNMENT OF THE SUBJECT PROPERTY IN FAVOR OF THE ESTATE
OF RAMON PAPA, JR. WHICH IS NOT A PARTY IN THIS CASE.
3. III.THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ESTATE
OF ANGELA M. BUTTE AND THE ESTATE OF RAMON PAPA, JR. ARE
INDISPENSABLE PARTIES IN THIS CASE. 6
Petitioner argues that respondent Court of Appeals erred in concluding that

the alleged sale of the subject property had been consummated. He
contends that such a conclusion is based on the erroneous presumption that
the check (in the amount of P40,000.00) had been cashed, citing Art. 1249 of
the Civil Code, which provides, in part, that payment by checks shall produce
the effect of payment only when they have been cashed or when through the
fault of the creditor they have been impaired. Petitioner insists that he never
7
cashed said check; and, such being the case, its delivery never produced the
effect of payment. Petitioner, while admitting that he had issued receipts for
the payments, asserts that said
______________
Id., at 23-24.
6
Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it
7
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.
652
24
2 ANNOTATED
receipts, particularly the receipt of PCIB Check No. 761025 in the amount of
P40,000.00, do not prove payment. He avers that there must be a showing
that said check had been encashed. If, according to petitioner, the check had
been encashed, respondent Peñarroyo should have presented PCIB Check
No. 761025 duly stamped received by the payee, or at least its microfilm
copy.
Petitioner finally avers that, in fact, the consideration for the sale was still
in the hands of respondents Valencia and Peñarroyo, as evidenced by a
letter addressed to him in which said respondents wrote, in part:
x x x. Please be informed that I had been authorized by Dr. Ramon Papa, Jr., heir of
Mrs. Angela M. Butte to pay you the aforementioned amount of P75,000.00 for the
release and cancellation of subject property’s mortgage. The money is with me and
if it is alright with you, I would like to tender the payment as soon as possible. x x x.
8
We find no merit in petitioner’s arguments.

It is an undisputed fact that respondents Valencia and Peñarroyo had
given petitioner Myron C. Papa the amounts of Five Thousand Pesos
(P5,000.00) in cash on 24 May 1973, and Forty Thousand Pesos (P40,000.00)
in check on 15 June 1973, in payment of the purchase price of the subject
lot. Petitioner himself admits having received said amounts, and having 9
issued receipts therefor. Petitioner’s assertion that he never encashed the

10
aforesaid check is not substantiated and is at odds with his statement in his
answer that “he can no longer recall the transaction which is supposed to
have happened 10 years ago.” After more than ten (10) years from the
payment in part by cash and in part by check, the presumption is that the
check had been encashed. As already stated, he even waived the
presentation of oral evidence.
__________________
Rollo, p. 26.
8
Id., at 132.
9
Id., at 25.
10
653
VOL. 284, JANUARY 23, 1998 653
Granting that petitioner had never encashed the check, his failure to do so
for more than ten (10) years undoubtedly resulted in the impairment of the
check through his unreasonable and unexplained delay.
While it is true that the delivery of a check produces the effect of payment
only when it is cashed, pursuant to Art. 1249 of the Civil Code, the rule is
otherwise if the debtor is prejudiced by the creditor’s unreasonable delay in
presentment. The acceptance of a check implies an undertaking of due
diligence in presenting it for payment, and if he from whom it is received
sustains loss by want of such diligence, it will be held to operate as actual
25
payment of the debt or obligation for which it was given. It has, likewise,
11
been held that if no presentment is made at all, the drawer cannot be held
liable irrespective of loss or injury unless presentment is otherwise excused.
12
This is in harmony with Article 1249 of the Civil Code under which payment
by way of check or other negotiable instrument is conditioned on its being
cashed, except when through the fault of the creditor, the instrument is
impaired. The payee of a check would be a creditor under this provision and
if its non-payment is caused by his negligence, payment will be deemed
effected and the obligation for which the check was given as conditional
payment will be discharged. 13
Considering that respondents Valencia and Peñarroyo had fulfilled their

part of the contract of sale by delivering the payment of the purchase price,
said respondents, therefore, had the right to compel petitioner to deliver to
them the owner’s duplicate of TCT No. 28993 of Angela M. Butte and the
peaceful possession and enjoyment of the lot in question.
With regard to the alleged assignment of mortgage rights, respondent
Court of Appeals has found that the conditions under which said mortgage
rights of the bank were assigned
__________________
60 AM. JUR. 2d, Sec. 59.

11
Campos and Lopez-Campos, Negotiable Instruments Law, 4th Edition (1990), p. 561

12
citing Rodriguez vs. Hardouin, 15 La. App. 112, 131 So. 593.

Id., at 560 citing Gabon vs. Balagot, 53 O.G. No. 11, 3504.
13
654
4 ANNOTATED
are not clear. Indeed, a perusal of the original records of the case would
show that there is nothing there that could shed light on the transactions
leading to the said assignment of rights; nor is there any evidence on record
of the conditions under which said mortgage rights were assigned. What is
certain is that despite the said assignment of mortgage rights, the title to the
subject property has remained in the name of the late Angela M. Butte. This 14
much is admitted by petitioner himself in his answer to respondents’

complaint as well as in the third-party complaint that petitioner filed against
respondent-spouses Arsenio B. Reyes and Amanda
Santos. Assuming arguendo that the mortgage rights of the Associated
15
Citizens Bank had been assigned to the estate of Ramon Papa, Jr., and
granting that the assigned mortgage rights validly exist and constitute a lien
on the property, the estate may file the appropriate action to enforce such
lien. The cause of action for specific performance which respondents
Valencia and Peñarroyo have against petitioner is different from the cause of
action which the estate of Ramon Papa, Jr. may have to enforce whatever
rights or liens it has on the property by reason of its being an alleged
assignee of the bank’s rights of mortgage.
26
Finally, the estate of Angela M. Butte is not an indispensable party. Under
Section 3 of Rule 3 of the Rules of Court, an executor or administrator may
sue or be sued without joining the party for whose benefit the action is
presented or defended, thus:
Sec. 3. Representative parties.—A trustee of an express trust, a guardian, executor
or administrator, or a party authorized by statute, may sue or be sued without
joining the party for whose benefit the action is presented or defended; but the
court may, at any stage of the proceedings, order such beneficiary to be made a
party. An agent acting in his own name and for the benefit of an undisclosed
principal may sue or be sued without joining the princi-
__________________
Rollo, p. 41.
14
Original Records, p. 162.

15
655
VOL. 284, JANUARY 23, 1998 655
pal except when the contract involves things belonging to the principal. 16
Neither is the estate of Ramon Papa, Jr. an indispensable party without

whom, no final determination of the action can be had. Whatever prior and
subsisting mortgage rights the estate of Ramon Papa, Jr. has over the
property may still be enforced regardless of the change in ownership thereof.
WHEREFORE, the petition for review is hereby DENIED and the Decision of
the Court of Appeals, dated 27 January 1992 is AFFIRMED.
SO ORDERED.
Davide, Jr. (Chairman), Bellosillo and Vitug, JJ., concur.
Petition denied; Decision affirmed.
G.R. No. 123855. November 20, 2000. *
NEREO J. PACULDO, petitioner, vs. BONIFACIO C. REGALADO, respondent.

Civil Law; Obligations; Right to specify which among his various obligations to
the same creditor is to be satisfied first rests with the debtor.—The right to specify
which among his various obligations to the same creditor is to be satisfied first rests
with the debtor, as provided by law.
Same; Same; No payment is to be made to a debt that is not yet due and the
payment has to be applied first to the debt most onerous to the debtor. —Under the
law, if the debtor did not declare at the time he made the payment to which of his
debts with the creditor the payment is to be applied, the law provided the guideline
—no payment is to be made to a debt that is not yet due and the payment has to be
applied first to the debt most onerous to the debtor.
Same; Same; Contracts; Though an offer may be made, the acceptance of
such offer must be unconditional and unbounded in order that concurrence can give
rise to a perfected contract.—There was no clear assent by petitioner to the change
27
in the manner of application of payment. The petitioner’s silence as regards the
application of payment by respondent cannot mean that he consented thereto.
There was no meeting of the minds. Though an offer may be made, the acceptance
of such offer must be unconditional and unbeunded in order that concurrence can
give rise to a perfected contract. Hence, petitioner could not be in estoppel.
PETITION for review on certiorari of a decision of the Court of Appeals.

Diosdado P. Peralta for petitioner.
Atienza, Madrid, Buenaventura and Rodriguez for private respondent.
_______________
FIRST DIVISION.
*
135
VOL. 345, NOVEMBER 20, 2000 135
Paculdo vs. Regalado
PARDO, J.:
The case before the Court is an appeal via certiorari seeking to set aside the
decision of the Court of Appeals which affirmed that of the Regional Trial
1
Court, Quezon City, and the Metropolitan Trial Court, Quezon City ordering
the ejectment of petitioner from the property subject of the controversy.
The facts are as follows:
On December 27, 1990, petitioner Nereo J. Paculdo (hereafter Nereo) and
respondent Bonifacio C. Regalado (hereafter Bonifacio) entered into a
contract of lease over a 16,478 square meter parcel of land with a wet
market building, located along Don Mariano Marcos Avenue, Fairview Park,
Quezon City. The contract was for twenty five (25) years, commencing on
January 1, 1991 and ending on December 31, 2015. For the first five (5)
years of the contract beginning December 27, 1990, Nereo would pay a
monthly rental of P450,000.00, payable within the first five (5) days of each
month at Bonifacio’s office, with a 2% penalty for every month of late
payment.
Aside from the above lease, petitioner leased eleven (11) other property
from respondent, ten (10) of which were located within the Fairview
compound, while the eleventh was located along Quirino Highway, Quezon
City. Petitioner also purchased from respondent eight (8) units of heavy
equipment and vehicles in the aggregate amount of P1,020,000.00.
On account of petitioner’s failure to pay P361,895.55 in rental for the
2
month of May, 1992, and the monthly rental of P450,000.00 for the months
of June and July 1992, on July 6, 1992, respondent
_______________
28
In CA-G.R. SP No. 34634, promulgated on February 10, 1995, Reyes, R.T., J., ponente,
1
Herrera, O.M. and Gutierrez, A.S., JJ., concurring, Rollo, pp. 138-148.

This represents the balance of the rental payment due from petitioner, computed as follows:
2
Partial payment of P255,104.45 made on July 24, 1992; P90,000.00 on July 28, 1992; and
P3,674.67 or a sum total of P188,779.12 from where the 2% stipulated penalty interest must first
be satisfied, leaving an amount of P88,104.45 to be applied and deducted from the P450,000.00
rental due for the month of May, 1992.
136
6 ANNOTATED
sent a demand letter to petitioner demanding payment of the back rentals,
and if no payment was made within fifteen (15) days from receipt of the
letter, it would cause the cancellation of the lease contract. Another demand
3
letter followed this on July 17, 1992, reiterating the demand for payment and
for petitioner to vacate the subject premises. 4
Without the knowledge of petitioner, on August 3, 1992, respondent

mortgaged the land subject of the lease contract, including the
improvements which petitioner introduced into the land amounting to
P35,000,000.00, to Monte de Piedad Savings Bank, as security for a loan in
the amount of P20,000,000.00. 5
On August 12, 1992, and on subsequent dates thereafter, respondent

refused to accept petitioner’s daily rental payments. 6
On August 20, 1992, petitioner filed with the Regional Trial Court, Quezon
City an action for injunction and damages seeking to enjoin respondent from
disturbing his possession of the property subject of the lease contract. On 7
the same day, respondent filed with the Metropolitan Trial Court, Quezon
City a complaint for ejectment against petitioner. Attached to the complaint
were the two (2) demand letters dated July 6 and July 17, 1992. 8
On August 25, 1992, five (5) days after the filing of the ejectment
complaint, respondent moved to withdraw the complaint on the ground that
certain details had been omitted in the complaint and must be re-computed.
On April 22, 1993, respondent re-filed the ejectment complaint with the
Metropolitan Trial Court, Quezon City. Computed from August 1992 until
March 31, 1993, the monthly reasonable compensation that petitioner was
liable for was in the total sum of P3,924,000.00. 9
_______________
Complaint, Annex “C,” RTC Record, Vol. I, p. 13.

3
Complaint, Annex “D,” RTC Record, Vol. I, p. 14.

4
Petition for Review, CA Rollo, pp. 2-24, at p. 5.

5
Answer, RTC Record, Vol. I, pp. 35-45.

6
Ibid., p. 40.
7
Originally raffled to Branch 33 (later transferred to Branch 36) and docketed as Civil Case No.
8
7089, Answer, RTC Record, Vol. I, p. 41.

Complaint, RTC Record, Vol. I, pp. 1-7, at p. 5.
9
137
VOL. 345, NOVEMBER 20, 2000 137
29
On January 31, 1994, the Metropolitan Trial Court, Quezon City rendered a
decision in favor of respondent, the dispositive portion of which reads:
“WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant, as follows:
“1. Ordering the defendant and all persons claiming right under him to vacate
the leased premises located at Don Mariano Marcos Avenue, Fairview Park, Quezon
City, Metro-Manila covered by Transfer Certificate of Title RT-6883 of the Registry of
Deeds of Quezon City;
“2. Ordering the defendant to pay the sum of P527,119.27 representing the
unpaid monthly rentals as of June 30, 1992 plus 2% interest thereon;
“3. Ordering the defendant to pay the sum of P450,000.00 a month plus 2%
interest thereon starting July 1992 and every month thereafter until the defendant
and all persons claiming right under him shall have actually vacated the premises
and surrender possession thereof to the plaintiff;
“4. Ordering the defendant to pay the sum of P5,000,000.00 as and for
attorney’s fees; and
“5. Ordering the defendant to pay the costs of suit.
“SO ORDERED.” 10
In time, petitioner appealed to the Regional Trial Court, Quezon City, Branch
220. 11
On February 19, 1994, respondent, with the support of fifty (50) armed
security guards forcibly entered the property and took possession of the wet
market building. 12
On July 6, 1994, the Regional Trial Court, Quezon City, Branch 220
rendered a decision affirming in toto the decision of the Metropolitan Trial
Court, to wit:
_______________
Decision, Civil Case No. MTC XXXVI-7089, Petition, Annex “D,” Rollo, pp. 98-102.
10
Docketed as Civil Case No. Q-94-20813.

11
Petition for Review, CA Rollo, pp. 2-24, at p. 7.

12
138
8 ANNOTATED
“WHEREFORE, the appealed decision dated January 31, 1994, for being in
accordance with the evidence presented and the law on the matter, is hereby
affirmed in toto.
“Let a writ of execution issue against defendant and his surety, to answer for the
decision of the lower court.” 13
On the same day, the Regional Trial Court issued a writ of

execution whereupon, petitioner vacated the subject premises voluntarily.
14
By July 12, 1994, petitioner had completely turned over possession of subject
property to respondent.
Meanwhile, on July 21, 1994, petitioner filed a petition for review with the
Court of Appeals. He alleged that he had paid the amount of P11,478,121.85
15
30
for security deposit and rentals on the wet market building, but respondent,
without his consent, applied portions of the payment to his other obligations.
The vouchers and receipts indicated that the payments made were for
rentals. Thus, at the time of payment petitioner had declared as to which
obligation the payment must be applied.
On February 10, 1995, the Court of Appeals promulgated its decision
finding that petitioner impliedly consented to respondent’s application of
payment to his other obligations and, thus, dismissed the petition for lack of
merit. 16
On March 3, 1995, petitioner filed a motion for reconsideration; however, 17
on February 9, 1996 the Court of Appeals denied the motion. 18
Hence, this appeal. 19
At issue is whether petitioner was truly in arrears in the payment of

rentals on the subject property at the time of the filing of the complaint for
ejectment.
_______________
Ibid., pp. 25-33.

13
Ibid., pp. 34-35.

14
Docketed as CA-G.R. SP No. 34634, CA Rollo, pp. 2-24.

15
Petition, Annex “D,” Rollo, pp. 138-148.

16
Petition, Annex “E,” Rollo, pp. 149-182.

17
Resolution, Rollo, pp. 193-194.

18
Petition filed on March 19, 1996, Rollo, pp. 8-62. On June 18, 1997, we gave due course to
19
the petition, Rollo, p. 281.

139
VOL. 345, NOVEMBER 20, 2000 139
As found by the Metropolitan Trial Court and Regional Trial Court, petitioner
made a total payment of P10,949,447.18, to respondent as of July 2, 1992.
If the payment made by respondent applied to petitioner’s other
obligations is set aside, and the amount petitioner paid be applied purely to
the rentals on the Fairview wet market building, there would be an excess
payment of P1,049,447.18 as of July 2, 1992. The computation in such case
would be as follows:
Amount paid as of July 2, 1992 P10,949,447.18
Less:
Monthly rent from January 1991-July 1992
P450,000.00 x 19 months P8,550,000.00
Less:
Security deposit P1,350,000.00
_______________
Excess amount paid P1,049,447.18
In the letter dated November 19, 1991, respondent proposed that
petitioner’s security deposit for the Quirino lot, in the amount of
P643,276.48, be applied as partial payment for his account under the subject
31
lot as well as to real estate taxes on the Quirino lot. Petitioner interposed no
20
objection, as evidenced by his signature signifying his conformity thereto.

In an earlier letter, dated July 15, 1991 respondent informed petitioner
21
that the payment was to be applied not only to petitioner’s accounts under
both the subject land and the Quirino lot but also to heavy equipment bought
by the latter from respondent. Petitioner claimed that the amount applied as
payment for the heavy equipment was critical because it was equivalent to
more than two (2) months rental of the subject property, which was the basis
for the ejectment case in the Metropolitan Trial Court.
The controversy stemmed from the fact that unlike the November 19,
1991 letter, which bore a conformity portion with peti-
_______________
Rollo, p. 185.
20
Rollo, p. 183.
21
140
0 ANNOTATED
tioner’s signature, the July 15, 1991 letter did not contain the signature of
petitioner.
In nevertheless concluding that petitioner gave his consent thereto, the
Court of Appeals upheld both the lower court’s and trial court’s findings that
petitioner received the second letter and its attachment and he raised no
objection thereto.
In other words, would petitioner’s failure to object to the letter of July 15,
1991 and its proposed application of payments amount to consent to such
application?
Petitioner submits that his silence is not consent but is in fact a rejection.
The right to specify which among his various obligations to the same
creditor is to be satisfied first rests with the debtor, as provided by law, to
22
wit:
“Article 1252. He who has various debts of the same kind in favor of one and the
same creditor, may declare at the time of making the payment, to which of them
the same must be applied. Unless the parties so stipulate, or when the application
of payment is made by the party for whose benefit the term has been constituted,
application shall not be made as to debts which are not yet due.
If the debtor accepts from the creditor a receipt in which an application of the
payment is made, the former cannot complain of the same, unless there is a cause
for invalidating the contract.”
23
At the time petitioner made the payments, he made it clear to respondent

that they were to be applied to his rental obligations on the Fairview wet
market property. Though he entered into various contracts and obligations
with respondent, including a lease contract over eleven (11) property in
Quezon City and sale of eight (8) heavy equipment, all the payments made,
32
about P11,000,000.00, were to be applied to rental and security deposit on
the Fairview wet market property.
_______________
People’s Surety and Insurance Co., Inc. v. Gabriel and Sons Transportation Co., Inc., 9 SCRA
22
573, 118 Phil. 1418 [1963].

Civil Code.
23
141
VOL. 345, NOVEMBER 20, 2000 141
Respondent Regalado argues that assuming that petitioner expressed at the
time of payment which among his obligations were to be satisfied first,
petitioner is estopped by his assent to the application made by the
respondent. This assent is inferred from the silence of petitioner on the July
15, 1991 letter containing a statement of the application of payments,
24
which was different from the application made by petitioner. A big chunk of
the amount paid by petitioner went into the satisfaction of an obligation
which was not yet due and demandable—the payment of the eight (8) heavy
equipment amounting to about P1,020,000.00.
The statement of account prepared by respondent was not the receipt
contemplated under the law. The receipt is the evidence of payment
executed at the time of payment, and not the statement of account
executed several days thereafter.
There was no clear assent by petitioner to the change in the manner of
application of payment. The petitioner’s silence as regards the application of
payment by respondent cannot mean that he consented thereto. There was
no meeting of the minds. Though an offer may be made, the acceptance of
such offer must be unconditional and unbounded in order that concurrence
can give rise to a perfected contract. Hence, petitioner could not be in
25
estoppel.
Assuming arguendo that, as alleged by respondent, petitioner did not, at
the time the payments were made, choose the obligation to be satisfied first,
respondent may exercise the right to apply the payments to the other
obligations of petitioner. But this is subject to the condition that the
petitioner must give his consent. Petitioner’s silence is not tantamount to
consent. The consent must be clear and definite.
Under the law, if the debtor did not declare at the time he made the
payment to which of his debts with the creditor the payment is to be applied,
the law provided the guideline—no payment is to be
______________
Supra, Note 21.
24
Maria Cristina Fertilizer Corp. v. Court of Appeals, 273 SCRA 152, 339 Phil. 349 [1997].
25
142
2 ANNOTATED
33
made to a debt that is not yet due and the payment has to be applied first
26
to the debt most onerous to the debtor. 27
In the instant case, the purchase price of the eight (8) heavy equipment
was not yet due at the time the payment was made, for there was no date
set for such payment. Neither was there a demand by the creditor to make
the obligation to pay the purchase price due and demandable. Hence, the 28
application made by respondent is contrary to the provisions of the law.

The lease over the Fairview wet market property is the most onerous
among all the obligations of petitioner to respondent. It was established that
the wet market is a going-concern and that petitioner has invested about
P35,000,000.00, in the form of improvements, on the property. Hence,
petitioner would stand to lose more if the lease would be rescinded, than if
the contract of sale of heavy equipment would not proceed.
The decision of the Court of Appeals was based on a misapprehension of
the facts and the law on the application of payment. Hence, the ejectment
case subject of the instant petition must be dismissed, without prejudice to
the determination and settlement of the money claims of the parties inter
se.
WHEREFORE, the Court GRANTS the petition. The Court REVERSES and
SETS ASIDE the decision of the Court of Appeals in CA-G.R.SP No. 34634.
ACCORDINGLY, the Court REVERSES the decision of the Regional Trial
Court, Quezon City, Branch 220 in Civil Case No. 9420813, and dismisses the
complaint filed with the Metropolitan Trial Court, Quezon City, Branch 36 in
Civil Case No. MTC XXXVI-7089.
No costs.
_______________
Article 1252, Civil Code.

26
Article 1254, Civil Code; Espina v. Court of Appeals, G.R. No. 116805, June 22, 2000, 334
27
SCRA 186.
Rose Packing Co., Inc. v. Court of Appeals, 167 SCRA 309, 318 [1988].
28
143
VOL. 345, NOVEMBER 20, 2000 143
JG Summit Holdings, Inc. vs. Court of Appeals
SO ORDERED.
Davide, Jr. (C.J., Chairman), Puno, Kapunan and YnaresSantiago, JJ.,
concur.
Judgment of Regional Trial Court of Quezon City, Br. 220 reversed,
complaint and Metropolitan Trial Court of Quezon City, Br. 36 dismissed.
14 SUPREME COURT REPORTS ANNOTATED
34
Development Bank of the Philippines vs. Court of
Appeals
G.R. No. 118342. January 5, 1998. *
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS

and LYDIA CUBA, respondents.
G.R. No. 118367. January 5, 1998. *
LYDIA P. CUBA, petitioner, vs. COURT OF APPEALS, DEVELOPMENT BANK OF

THE PHILIPPINES and AGRIPINA P. CAPERAL, respondents.
Contracts; Loans; Mortgages; Assignments; An assignment to guarantee an
obligation is in effect a mortgage.—In People’s Bank & Trust Co. vs. Odom, this
Court had the occasion to rule that an assignment to guarantee an obligation is in
effect a mortgage.
Same; Same; Same; Same; Novations; There is no novation where the
obligation to pay a sum of money remained, and the assignment merely served as
security for the loans covered by the promissory notes.—We find no merit in DBP’s
contention that the assignment novated the promissory notes in that the obligation
to pay a sum of money the loans (under the promissory notes) was substituted by
the assignment of the rights over the fishpond (under the deed of assignment). As
correctly pointed out by CUBA, the said assignment merely complemented or
supplemented the notes; both could stand together. The former was only an
accessory to the latter. Contrary to DBP’s submission, the obligation to pay a sum of
money remained, and the assignment merely served as security for the loans
covered by the promissory notes. Significantly, both the deeds of assignment and
the promissory notes were executed on the same dates the loans were granted.
Also, the last paragraph of the assignment stated: “The assignor further reiterates
and states all terms, covenants, and conditions stipulated in the promissory note or
notes covering the proceeds of this loan, making said promissory note or notes, to
all intent and purposes, an integral part hereof.”
Same; Same; Same; Same; Cession; There is no payment by cession under
Article 1255 of the Civil Code where there is only one creditor.—Neither did the
assignment amount to payment by cession
______________________
FIRST DIVISION.
*
15
VOL. 284, JANUARY 5, 1998 15
Development Bank of the Philippines vs. Court
of Appeals
under Article 1255 of the Civil Code for the plain and simple reason that there
was only one creditor, the DBP. Article 1255 contemplates the existence of two or
more creditors and involves the assignment of all the debtor’s property.
Same; Same; Same; Same; Dation; An assignment which is essentially a
mortgage cannot constitute dation in payment under Article 1245 of the Civil Code.
—Nor did the assignment constitute dation in payment under Article 1245 of the
Civil Code, which reads: “Dation in payment, whereby property is alienated to the
creditor in satisfaction of a debt in money, shall be governed by the law on sales.” It
bears stressing that the assignment, being in its essence a mortgage, was but a
security and not a satisfaction of indebtedness.
35
Same; Same; Same; Same; Pactum Commissorium; Elements.—The elements
of pactum commissorium are as follows: (1) there should be a property mortgaged
by way of security for the payment of the principal obligation, and (2) there should
be a stipulation for automatic appropriation by the creditor of the thing mortgaged
in case of non-payment of the principal obligation within the stipulated period.
Same; Same; Same; Same; Same; A condition in a deed of assignment
providing for the appointment of the assignee as attorney-in-fact with authority,
among other things, to sell or otherwise dispose of real rights, in case of default by
the assignor, and to apply the proceeds to the payment of the loan does not
constitute pactum commissorium.—Condition No. 12 did not provide that the
ownership over the leasehold rights would automatically pass to DBP upon CUBA’s
failure to pay the loan on time. It merely provided for the appointment of DBP as
attorney-in-fact with authority, among other things, to sell or otherwise dispose of
the said real rights, in case of default by CUBA, and to apply the proceeds to the
payment of the loan. This provision is a standard condition in mortgage contracts
and is in conformity with Article 2087 of the Civil Code, which authorizes the
mortgagee to foreclose the mortgage and alienate the mortgaged property for the
payment of the principal obligation.
Same; Same; Same; Same; An assignment to guarantee an obligation is
virtually a mortgage and not an absolute conveyance of title which confers
ownership on the assignee.—DBP cannot take refuge in condition No. 12 of the deed
of assignment to justify its act
16
ANNOTATED
Development Bank of the Philippines vs. Court
of Appeals
of appropriating the leasehold rights. As stated earlier, condition No. 12 did not
provide that CUBA’s default would operate to vest in DBP ownership of the said
rights. Besides, an assignment to guarantee an obligation, as in the present case, is
virtually a mortgage and not an absolute conveyance of title which confers
ownership on the assignee.
Same; Same; Same; Same; Estoppel; Estoppel cannot give validity to an act
that is prohibited by law or against public policy.—The fact that CUBA offered and
agreed to repurchase her leasehold rights from DBP did not estop her from
questioning DBP’s act of appropriation. Estoppel is unavailing in this case. As held
by this Court in some cases, estoppel cannot give validity to an act that is
prohibited by law or against public policy. Hence, the appropriation of the leasehold
rights, being contrary to Article 2088 of the Civil Code and to public policy, cannot
be deemed validated by estoppel.
Damages; A court cannot rely on speculations, conjectures, or guesswork as to
the fact and amount of damages, but must depend upon competent proof that they
have been suffered by the injured party and on the best obtainable evidence of the
actual amount thereof.—Actual or compensatory damages cannot be presumed, but
must be proved with reasonable degree of certainty. A court cannot rely on
speculations, conjectures, or guesswork as to the fact and amount of damages, but
must depend upon competent proof that they have been suffered by the injured
party and on the best obtainable evidence of the actual amount thereof. It must
36
point out specific facts which could afford a basis for measuring whatever
compensatory or actual damages are borne.
PETITIONS for review of a decision of the Court of Appeals.

Office of the Legal Counsel for petitioner DBP.
J.C. Calida & Associates for petitioner Lydia P. Cuba.
Virgilio C. Leynes for Agripina Caperal.
17
VOL. 284, JANUARY 5, 1998 17
Appeals
DAVIDE, JR., J.:
These two consolidated cases stemmed from a complaint filed against the
1
Development Bank of the Philippines (hereafter DBP) and Agripina Caperal

filed by Lydia Cuba (hereafter CUBA) on 21 May 1985 with the Regional Trial
Court of Pangasinan, Branch 54. The said complaint sought (1) the
declaration of nullity of DBP’s appropriation of CUBA’s rights, title, and
interests over a 44-hectare fishpond located in Bolinao, Pangasinan, for
being violative of Article 2088 of the Civil Code; (2) the annulment of the
Deed of Conditional Sale executed in her favor by DBP; (3) the annulment of
DBP’s sale of the subject fishpond to Caperal; (4) the restoration of her
rights, title, and interests over the fishpond; and (5) the recovery of
damages, attorney’s fees, and expenses of litigation.
After the joinder of issues following the filing by the parties of their
respective pleadings, the trial court conducted a pre-trial where CUBA and
DBP agreed on the following facts, which were embodied in the pre-trial
order: 2
1.1.Plaintiff Lydia P. Cuba is a grantee of a Fishpond Lease Agreement

No. 2083 (new) dated May 13, 1974 from the Government;
2.2.Plaintiff Lydia P. Cuba obtained loans from the Development Bank of
the Philippines in the amounts of P109,000.00; P109,000.00; and
P98,700.00 under the terms stated in the Promissory Notes dated
September 6, 1974; August 11, 1975; and April 4, 1977;
3.3.As security for said loans, plaintiff Lydia P. Cuba executed two Deeds
of Assignment of her Leasehold Rights;
4.Plaintiff failed to pay her loan on the scheduled dates thereof in

accordance with the terms of the Promissory Notes;
_____________________
Original Record (OR), 1-7.

1
OR, 168-170.
2
37
18
Appeals
1.5.Without foreclosure proceedings, whether judicial or extra-judicial,

defendant DBP appropriated the Leasehold Rights of plaintiff Lydia
Cuba over the fishpond in question;
2.6.After defendant DBP has appropriated the Leasehold Rights of
plaintiff Lydia Cuba over the fishpond in question, defendant DBP, in
turn, executed a Deed of Conditional Sale of the Leasehold Rights in
favor of plaintiff Lydia Cuba over the same fishpond in question;
3.7.In the negotiation for repurchase, plaintiff Lydia Cuba ad-dressed two
letters to the Manager DBP, Dagupan City dated November 6, 1979
and December 20, 1979. DBP thereafter accepted the offer to
repurchase in a letter addressed to plaintiff dated February 1, 1982;
4.8.After the Deed of Conditional Sale was executed in favor of plaintiff
Lydia Cuba, a new Fishpond Lease Agreement No. 2083-A dated
March 24, 1980 was issued by the Ministry of Agriculture and Food in
favor of plaintiff Lydia Cuba only, excluding her husband;
5.9.Plaintiff Lydia Cuba failed to pay the amortizations stipulated in the
Deed of Conditional Sale;
6.10.After plaintiff Lydia Cuba failed to pay the amortization as stated in
Deed of Conditional Sale, she entered with the DBP a temporary
arrangement whereby in consideration for the deferment of the
Notarial Rescission of Deed of Conditional Sale, plaintiff Lydia Cuba
promised to make certain payments as stated in Temporary
Arrangement dated February 23, 1982;
7.11.Defendant DBP thereafter sent a Notice of Rescission thru Notarial
Act dated March 13, 1984, and which was received by plaintiff Lydia
Cuba;
8.12.After the Notice of Rescission, defendant DBP took possession of
the Leasehold Rights of the fishpond in question;
9.13.That after defendant DBP took possession of the Leasehold Rights
over the fishpond in question, DBP advertised in the SUNDAY PUNCH
the public bidding dated June 24, 1984, to dispose of the property;
10. 14.That the DBP thereafter executed a Deed of Conditional Sale
in favor of defendant Agripina Caperal on August 16, 1984;
11. 15.Thereafter, defendant Caperal was awarded Fishpond Lease
Agreement No. 2083-A on December 28, 1984 by the Ministry of
Agriculture and Food.
19
VOL. 284, JANUARY 5, 1998 19
Appeals
38
Defendant Caperal admitted only the facts stated in paragraphs 14 and 15 of
the pre-trial order. 3
Trial was thereafter had on other matters.

The principal issue presented was whether the act of DBP in appropriating
to itself CUBA’s leasehold rights over the fishpond in question without
foreclosure proceedings was contrary to Article 2088 of the Civil Code and,
therefore, invalid. CUBA insisted on an affirmative resolution. DBP stressed
that it merely exercised its contractual right under the Assignments of
Leasehold Rights, which was not a contract of mortgage. Defendant Caperal
sided with DBP.
The trial court resolved the issue in favor of CUBA by declaring that DBP’s
taking possession and ownership of the property without foreclosure was
plainly violative of Article 2088 of the Civil Code which provides as follows:
ART. 2088. The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and void.
It disagreed with DBP’s stand that the Assignments of Leasehold Rights were
not contracts of mortgage because (1) they were given as security for loans,
(2) although the “fishpond land” in question is still a public land, CUBA’s
leasehold rights and interest thereon are alienable rights which can be the
proper subject of a mortgage; and (3) the intention of the contracting parties
to treat the Assignment of Leasehold Rights as a mortgage was obvious and
unmistakable; hence, upon CUBA’s default, DBP’s only right was to foreclose
the Assignment in accordance with law.
The trial court also declared invalid condition No. 12 of the Assignment of
Leasehold Rights for being a clear case of pactum commissorium expressly
prohibited and declared null and void by Article 2088 of the Civil Code. It
then concluded that since DBP never acquired lawful ownership of CUBA’s
___________________
See OR, 169.
3
20
Appeals
leasehold rights, all acts of ownership and possession by the said bank were
void. Accordingly, the Deed of Conditional Sale in favor of CUBA, the notarial
rescission of such sale, and the Deed of Conditional Sale in favor of
defendant Caperal, as well as the Assignment of Leasehold Rights executed
by Caperal in favor of DBP, were also void and ineffective.
As to damages, the trial court found “ample evidence on record” that in
1984 the representatives of DBP ejected CUBA and her caretakers not only
from the fishpond area but also from the adjoining big house; and that when
CUBA’s son and caretaker went there on 15 September 1985, they found the
said house unoccupied and destroyed and CUBA’s personal belongings,
machineries, equipment, tools, and other articles used in fishpond operation
which were kept in the house were missing. The missing items were valued
39
at about P550,000. It further found that when CUBA and her men were
ejected by DBP for the first time in 1979, CUBA had stocked the fishpond
with 250,000 pieces of bangus fish (milkfish), all of which died because the
DBP representatives prevented CUBA’s men from feeding the fish. At the
conservative price of P3.00 per fish, the gross value would have been
P690,000, and after deducting 25% of said value as reasonable allowance for
the cost of feeds, CUBA suffered a loss of P517,500. It then set the aggregate
of the actual damages sustained by CUBA at P1,067,500.
The trial court further found that DBP was guilty of gross bad faith in
falsely representing to the Bureau of Fisheries that it had foreclosed its
mortgage on CUBA’s leasehold rights. Such representation induced the said
Bureau to terminate CUBA’s leasehold rights and to approve the Deed of
Conditional Sale in favor of CUBA. And considering that by reason of her
unlawful ejectment by DBP, CUBA “suffered moral shock, degradation, social
humiliation, and serious anxieties for which she became sick and had to be
hospitalized” the trial court found her entitled to moral and exemplary
damages. The trial court also held that CUBA was entitled to P100,000
attorney’s fees in view of the considerable
21
VOL. 284, JANUARY 5, 1998 21
Appeals
expenses she incurred for lawyers’ fees and in view of the finding that she
was entitled to exemplary damages.
In its decision of 31 January 1990, the trial court disposed as follows:
4
WHEREFORE, judgment is hereby rendered in favor of plaintiff:
1. 1.DECLARING null and void and without any legal effect the act of defendant
Development Bank of the Philippines in appropriating for its own interest,
without any judicial or extra-judicial foreclosure, plaintiff’s leasehold rights
and interest over the fishpond land in question under her Fishpond Lease
Agreement No. 2083 (new);
2. 2.DECLARING the Deed of Conditional Sale dated February 21, 1980 by and
between the defendant Development Bank of the Philippines and plaintiff
(Exh. E and Exh. 1) and the acts of notarial rescission of the Development
Bank of the Philippines relative to said sale (Exhs. 16 and 26) as void and
ineffective;
3. 3.DECLARING the Deed of Conditional Sale dated August 16, 1984 by and
between the Development Bank of the Philippines and defendant Agripina
Caperal (Exh. F and Exh. 21), the Fishpond Lease Agreement No. 2083-A
dated December 28, 1984 of defendant Agripina Caperal (Exh. 23) and the
Assignment of Leasehold Rights dated February 12, 1985 executed by
defendant Agripina Caperal in favor of the defendant Development Bank of
the Philippines (Exh. 24) as void ab initio;
4. 4.ORDERING defendant Development Bank of the Philippines and defendant
Agripina Caperal, jointly and severally, to restore to plaintiff the latter’s
leasehold rights and interests and right of possession over the fishpond land
40
in question, without prejudice to the right of defendant Development Bank
of the Philippines to foreclose the securities given by plaintiff;
5. 5.ORDERING defendant Development Bank of the Philippines to pay to
plaintiff the following amounts:
1. a)The sum of ONE MILLION SIXTY-SEVEN THOUSAND FIVE HUNDRED PESOS

(P1,067,500.00), as and for actual damages;
___________________
Per Judge Artemio R. Corpus. OR, 686-705.

4
22
Appeals
1. b)The sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS as moral

damages;
2. c)The sum of FIFTY THOUSAND (P50,000.00) PESOS, as and for exemplary
damages;
3. d)And the sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS, as and
for attorney’s fees;
1. 6.And ORDERING defendant Development Bank of the Philippines to

reimburse and pay to defendant Agripina Caperal the sum of ONE MILLION
FIVE HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED TEN PESOS AND
SEVENTY-FIVE CENTAVOS (P1,532,610.75) representing the amounts paid by
defendant Agripina Caperal to defendant Development Bank of the
Philippines under their Deed of Conditional Sale.
CUBA and DBP interposed separate appeals from the decision to the Court of
Appeals. The former sought an increase in the amount of damages, while the
latter questioned the findings of fact and law of the lower court.
In its decision of 25 May 1994, the Court of Appeals ruled that (1) the trial
5
court erred in declaring that the deed of assignment was null and void and
that defendant Caperal could not validly acquire the leasehold rights from
DBP; (2) contrary to the claim of DBP, the assignment was not a cession
under Article 1255 of the Civil Code because DBP appeared to be the sole
creditor to CUBA—cession presupposes plurality of debts and creditors; (3)
the deeds of assignment represented the voluntary act of CUBA in assigning
her property rights in payment of her debts, which amounted to a novation
of the promissory notes executed by CUBA in favor of DBP; (4) CUBA was
estopped from questioning the assignment of the leasehold rights, since she
agreed to repurchase the said rights under a deed of conditional sale; and
(5) condition No. 12 of the deed of assignment was an express authority
from CUBA for DBP to sell whatever right she had over
______________________
41
Per Manuel C. Herrera, J., with Artemon D. Luna and Alfredo J. Lagamon, JJ., concurring. Rollo,
5
G.R. No. 118342, 21-41; Rollo, G.R. No. 118367, 33-53.

23
VOL. 284, JANUARY 5, 1998 23
Appeals
the fishpond. It also ruled that CUBA was not entitled to loss of profits for
lack of evidence, but agreed with the trial court as to the actual damages of
P1,067,500. It, however, deleted the amount of exemplary damages and
reduced the award of moral damages from P100,000 to P50,000 and
attorney’s fees, from P100,000 to P50,000.
The Court of Appeals thus declared as valid the following: (1) the act of
DBP in appropriating Cuba’s leasehold rights and interest under Fishpond
Lease Agreement No. 2083; (2) the deeds of assignment executed by Cuba
in favor of DBP; (3) the deed of conditional sale between CUBA and DBP; and
(4) the deed of conditional sale between DBP and Caperal, the Fishpond
Lease Agreement in favor of Caperal, and the assignment of leasehold rights
executed by Caperal in favor of DBP. It then ordered DBP to turn over
possession of the property to Caperal as lawful holder of the leasehold rights
and to pay CUBA the following amounts: (a) P1,067,500 as actual damages;
P50,000 as moral damages; and P50,000 as attorney’s fees.
Since their motions for reconsideration were denied, DBP and CUBA filed
6
separate petitions for review.

In its petition (G.R. No. 118342), DBP assails the award of actual and
moral damages and attorney’s fees in favor of CUBA.
Upon the other hand, in her petition (G.R. No. 118367), CUBA contends
that the Court of Appeals erred (1) in not holding that the questioned deed of
assignment was a pactum commissorium contrary to Article 2088 of the Civil
Code; (b) in holding that the deed of assignment effected a novation of the
promissory notes; (c) in holding that CUBA was estopped from questioning
the validity of the deed of assignment when she agreed to repurchase her
leasehold rights under a deed of conditional sale; and (d) in reducing the
amounts of moral damages and attorney’s fees, in deleting the award of
exemplary damages, and in not increasing the amount of damages.
____________________
Rollo, G.R. No. 118342, 43; Rollo, G.R. No. 118367f, 55.

6
24
Appeals
We agree with CUBA that the assignment of leasehold rights was a mortgage
contract.
It is undisputed that CUBA obtained from DBP three separate loans
totalling P335,000, each of which was covered by a promissory note. In all of
these notes, there was a provision that: “In the event of foreclosure of
42
the mortgage securing this notes, I/We further bind myself/ourselves, jointly
and severally, to pay the deficiency, if any.” 7
Simultaneous with the execution of the notes was the execution of

“Assignments of Leasehold Rights” where CUBA assigned her leasehold
8
rights and interest on a 44-hectare fishpond, together with the

improvements thereon. As pointed out by CUBA, the deeds of assignment
constantly referred to the assignor (CUBA) as “borrower”; the assigned
rights, as mortgaged properties; and the instrument itself, as mortgage
contract. Moreover, under condition No. 22 of the deed, it was provided that
“failure to comply with the terms and condition of any of the loans shall
cause all other loans to become due and demandable and all mortgages
shall be foreclosed.” And, condition No. 33 provided that if “foreclosure is
actually accomplished, the usual 10% attorney’s fees and 10% liquidated
damages of the total obligation shall be imposed.” There is, therefore, no
shred of doubt that a mortgage was intended.
Besides, in their stipulation of facts the parties admitted that the
assignment was by way of security for the payment of the loans; thus:
3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of
Assignment of her Leasehold Rights.
In People’s Bank & Trust Co. vs. Odom, this Court had the occasion to rule
9
that an assignment to guarantee an obligation is in effect a mortgage.

______________________
Exhibits “B,” “C,” and “D”; OR, 37-39.

7
Exhibits “B-1,” “C-1,” and “D-1.”

8
64 Phil. 126, 132 [1937].

9
25
VOL. 284, JANUARY 5, 1998 25
Appeals
We find no merit in DBP’s contention that the assignment novated the
promissory notes in that the obligation to pay a sum of money the loans
(under the promissory notes) was substituted by the assignment of the rights
over the fishpond (under the deed of assignment). As correctly pointed out
by CUBA, the said assignment merely complemented or supplemented the
notes; both could stand together. The former was only an accessory to the
latter. Contrary to DBP’s submission, the obligation to pay a sum of money
remained, and the assignment merely served as security for the loans
covered by the promissory notes. Significantly, both the deeds of assignment
and the promissory notes were executed on the same dates the loans were
granted. Also, the last paragraph of the assignment stated: “The assignor
further reiterates and states all terms, covenants, and conditions stipulated
in the promissory note or notes covering the proceeds of this loan, making
said promissory note or notes, to all intent and purposes, an integral
part hereof.”
Neither did the assignment amount to payment by cession under Article
1255 of the Civil Code for the plain and simple reason that there was only
43
one creditor, the DBP. Article 1255 contemplates the existence of two or
more creditors and involves the assignment of all the debtor’s property.
Nor did the assignment constitute dation in payment under Article 1245 of
the Civil Code, which reads: “Dation in payment, whereby property is
alienated to the creditor in satisfaction of a debt in money, shall be governed
by the law on sales.” It bears stressing that the assignment, being in its
essence a mortgage, was but a security and not a satisfaction of
indebtedness. 10
We do not, however, buy CUBA’s argument that condition No. 12 of the

deed of assignment constituted pactum commissorium. Said condition reads:
______________________
Philippine Bank of Commerce v. De Vera, 6 SCRA 1026, 1029 [1962].

10
26
Appeals
12. That effective upon the breach of any condition of this assignment, the Assignor
hereby appoints the Assignee his Attorney-in-fact with full power and authority to
take actual possession of the property above-described, together with all
improvements thereon, subject to the approval of the Secretary of Agriculture and
Natural Resources, to lease the same or any portion thereof and collect rentals, to
make repairs or improvements thereon and pay the same, to sell or otherwise
dispose of whatever rights the Assignor has or might have over said property and/or
its improvements and perform any other act which the Assignee may deem
convenient to protect its interest. All expenses advanced by the Assignee in
connection with purpose above indicated which shall bear the same rate of interest
aforementioned are also guaranteed by this Assignment. Any amount received from
rents, administration, sale or disposal of said property may be supplied by the
Assignee to the payment of repairs, improvements, taxes, assessments and other
incidental expenses and obligations and the balance, if any, to the payment of
interest and then on the capital of the indebtedness secured hereby. If after
disposal or sale of said property and upon application of total amounts received
there shall remain a deficiency, said Assignor hereby binds himself to pay the same
to the Assignee upon demand, together with all interest thereon until fully paid. The
power herein granted shall not be revoked as long as the Assignor is indebted to the
Assignee and all acts that may be executed by the Assignee by virtue of said power
are hereby ratified.
The elements of pactum commissorium are as follows: (1) there should be a
property mortgaged by way of security for the payment of the principal
obligation, and (2) there should be a stipulation for automatic appropriation
by the creditor of the thing mortgaged in case of non-payment of the
principal obligation within the stipulated period. 11
Condition No. 12 did not provide that the ownership over the leasehold
rights would automatically pass to DBP upon CUBA’s failure to pay the loan
on time. It merely provided for the appointment of DBP as attorney-in-fact
with authority,
_____________________
44
V TOLENTINO, ARTURO M., COMMENTARIES & JURISPRUDENCE ON THE CIVIL CODE OF THE
11
PHILIPPINES, 536-537 [1992] citing Uy Tong v. Court of Appeals, 161 SCRA 383 [1988].

27
VOL. 284, JANUARY 5, 1998 27
Appeals
among other things, to sell or otherwise dispose of the said real rights, in
case of default by CUBA, and to apply the proceeds to the payment of the
loan. This provision is a standard condition in mortgage contracts and is in
conformity with Article 2087 of the Civil Code, which authorizes the
mortgagee to foreclose the mortgage and alienate the mortgaged property
for the payment of the principal obligation.
DBP, however, exceeded the authority vested by condition No. 12 of the
deed of assignment. As admitted by it during the pre-trial, it had “[w]ithout
foreclosure proceedings, whether judicial or
extrajudicial, . . . appropriated the [l]easehold [r]ights of plaintiff Lydia Cuba
over the fishpond in question.” Its contention that it limited itself to mere
administration by posting caretakers is further belied by the deed of
conditional sale it executed in favor of CUBA. The deed stated:
WHEREAS, the Vendor [DBP] by virtue of a deed of assignment executed in its favor
by the herein vendees [Cuba spouses] the former acquired all the rights and
interest of the latter over the above-described property;
...
The title to the real estate property [sic] and all improvements thereon shall
remain in the name of the Vendor until after the purchase price, advances and
interest shall have been fully paid. (Emphasis supplied).
It is obvious from the above-quoted paragraphs that DBP had appropriated
and taken ownership of CUBA’s leasehold rights merely on the strength of
the deed of assignment.
DBP cannot take refuge in condition No. 12 of the deed of assignment to
justify its act of appropriating the leasehold rights. As stated earlier,
condition No. 12 did not provide that CUBA’s default would operate to vest in
DBP ownership of the said rights. Besides, an assignment to guarantee an
obligation, as in the present case, is virtually a mortgage and not an
absolute conveyance of title which confers ownership on the assignee. 12
____________________
Philippine Bank of Commerce v. De Vera, supra note 10.

12
28
Appeals
At any rate, DBP’s act of appropriating CUBA’s leasehold rights was violative
of Article 2088 of the Civil Code, which forbids a creditor from appropriating,
or disposing of, the thing given as security for the payment of a debt.
The fact that CUBA offered and agreed to repurchase her leasehold rights
from DBP did not estop her from questioning DBP’s act of appropriation.
45
Estoppel is unavailing in this case. As held by this Court in some
cases, estoppel cannot give validity to an act that is prohibited by law or
13
against public policy. Hence, the appropriation of the leasehold rights, being
contrary to Article 2088 of the Civil Code and to public policy, cannot be
deemed validated by estoppel.
Instead of taking ownership of the questioned real rights upon default by
CUBA, DBP should have foreclosed the mortgage, as has been stipulated in
condition No. 22 of the deed of assignment. But, as admitted by DBP, there
was no such forclosure. Yet, in its letter dated 26 October 1979, addressed to
the Minister of Agriculture and Natural Resources and coursed through the
Director of the Bureau of Fisheries and Aquatic Resources, DBP declared that
it “had foreclosed the mortgage and enforced the assignment of leasehold
rights on March 21, 1979 for failure of said spouses [Cuba spouses] to pay
their loan amortizations.” This only goes to show that DBP was aware of the
14
necessity of foreclosure proceedings.

In view of the false representation of DBP that it had already foreclosed
the mortgage, the Bureau of Fisheries cancelled CUBA’s original lease
permit, approved the deed of conditional sale, and issued a new permit in
favor of CUBA. Said acts which were predicated on such false representation,
as well as the subsequent acts emanating from DBP’s appropriation of the
leasehold rights, should therefore be set aside. To validate these acts would
open the floodgates to circumvention of Article 2088 of the Civil Code.
____________________
Eugenio v. Perdido, 97 Phil. 41, 44 [1955]; Republic v. Go Bon Lee, 1 SCRA 1166, 1170
13
[1961]; Hian v. Court of Tax Appeals, 59 SCRA 110, 124 [1974].

Exhibit “N-1-A”; OR, 454.
14
29
VOL. 284, JANUARY 5, 1998 29
Appeals
Even in cases where foreclosure proceedings were had, this Court had not
hesitated to nullify the consequent auction sale for failure to comply with the
requirements laid down by law, such as Act No. 3135, as amended. With 15
more reason that the sale of property given as security for the payment of a
debt be set aside if there was no prior foreclosure proceeding.
Hence, DBP should render an accounting of the income de-rived from the
operation of the fishpond in question and apply the said income in
accordance with condition No. 12 of the deed of assignment which provided:
“Any amount received from rents, administration, . . . may be applied to the
payment of repairs, improvements, taxes, assessment, and other incidental
expenses and obligations and the balance, if any, to the payment of interest
and then on the capital of the indebtedness . . . .”
We shall now take up the issue of damages.
Article 2199 provides:
46
Except as provided by law or by stipulation, one is entitled to an adequate
compensation only for such pecuniary loss suffered by him as he has duly proved.
Such compensation is referred to as actual or compensatory damages.
Actual or compensatory damages cannot be presumed, but must be proved
with reasonable degree of certainty. A court cannot rely on speculations,
16
conjectures, or guesswork as to the fact and amount of damages, but must

depend upon competent proof that they have been suffered by the injured
party and on the best obtainable evidence of the actual amount
__________________
Roxas v. Court of Appeals, 221 SCRA 729 [1993]; Sempio v. Court of Appeals, 263 SCRA

15
617 [1996].
Del Mundo v. Court of Appeals, 240 SCRA 348 [1995]; Luf-thansa German Airlines v. Court of
16
Appeals, 243 SCRA 600 [1995]; Development Bank of the Philippines v. Court of Appeals, 249

SCRA 331 [1995]; Del Rosario v. Court of Appeals, G.R. No. 118325, 29 January 1997.
30
Appeals
thereof. It must point out specific facts which could afford a basis for
17
measuring whatever compensatory or actual damages are borne. 18
In the present case, the trial court awarded in favor of CUBA P1,067,500
as actual damages consisting of P550,000 which represented the value of
the alleged lost articles of CUBA and P517,500 which represented the value
of the 230,000 pieces of bangus allegedly stocked in 1979 when DBP first
ejected CUBA from the fishpond and the adjoining house. This award was
affirmed by the Court of Appeals.
We find that the alleged loss of personal belongings and equipment was
not proved by clear evidence. Other than the testimony of CUBA and her
caretaker, there was no proof as to the existence of those items before DBP
took over the fishpond in question. As pointed out by DBP, there was no
“inventory of the alleged lost items before the loss which is normal in a
project which sometimes, if not most often, is left to the care of other
persons.” Neither was a single receipt or record of acquisition presented.
Curiously, in her complaint dated 17 May 1985, CUBA included “losses of
property” as among the damages resulting from DBP’s take-over of the
fishpond. Yet, it was only in September 1985 when her son and a caretaker
went to the fishpond and the adjoining house that she came to know of the
alleged loss of several articles. Such claim for “losses of property,” having
been made before knowledge of the alleged actual loss, was therefore
speculative. The alleged loss could have been a mere afterthought or
subterfuge to justify her claim for actual damages.
With regard to the award of P517,000 representing the value of the
alleged 230,000 pieces of bangus which died when
_____________________
47
Lufthansa German Airlines v. Court of Appeals, supra note 16; People v. Rosario, 246 SCRA
17
658 [1995]; Del Rosario v. Court of Appeals, supra note 16; Sumalpong v. Court of Appeals, G.R.

No. 123404, 26 February 1997.
Del Mundo v. Court of Appeals, supra note 16.
18
31
VOL. 284, JANUARY 5, 1998 31
Appeals
DBP took possession of the fishpond in March 1979, the same was not called
for. Such loss was not duly proved; besides, the claim therefor was delayed
unreasonably. From 1979 until after the filing of her complaint in court in
May 1985, CUBA did not bring to the attention of DBP the alleged loss. In
fact, in her letter dated 24 October 1979, she declared:
19
1. That from February to May 1978, I was then seriously ill in Manila and within the
same period I neglected the management and supervision of the cultivation and
harvest of the produce of the aforesaid fishpond thereby resulting to the irreparable
loss in the produce of the same in the amount of about P500,000.00 to my great
damage and prejudice due to fraudulent acts of some of my fishpond workers.
Nowhere in the said letter, which was written seven months after DBP took
possession of the fishpond, did CUBA intimate that upon DBP’s takeover
there was a total of 230,000 pieces of bangus, but all of which died because
of DBP’s representatives prevented her men from feeding the fish.
The award of actual damages should, therefore, be struck down for lack of
sufficient basis.
In view, however, of DBP’s act of appropriating CUBA’s leasehold rights
which was contrary to law and public policy, as well as its false
representation to the then Ministry of Agriculture and Natural Resources that
it had “foreclosed the mortgage,” an award of moral damages in the amount
of P50,000 is in order conformably with Article 2219(10), in relation to Article
21, of the Civil Code. Exemplary or corrective damages in the amount of
P25,000 should likewise be awarded by way of example or correction for the
public good. There being an award of exemplary damages, attorney’s fees
20
are also recoverable. 21
____________________
Exhibit 4, OR, 560.

19
Article 2229, Civil Code.

20
Article 2208(1), Civil Code.

21
32
Appeals
WHEREFORE, the 25 May 1994 Decision of the Court of Appeals in CA-G.R.
CV No. 26535 is hereby REVERSED, except as to the award of P50,000 as
moral damages, which is hereby sustained. The 31 January 1990 Decision of
the Regional Trial Court of Pangasinan, Branch 54, in Civil Case No. A-1574 is
MODIFIED setting aside the finding that condition No. 12 of the deed of
assignment constituted pactum commis-sorium and the award of actual
48
damages; and by reducing the amounts of moral damages from P100,000 to
P50,000; the exemplary damages, from P50,000 to P25,000; and the
attorney’s fees, from P100,000 to P20,000. The Development Bank of the
Philippines is hereby ordered to render an accounting of the income derived
from the operation of the fishpond in question.
Let this case be REMANDED to the trial court for the reception of the
income statement of DBP, as well as the statement of the account of Lydia P.
Cuba, and for the determination of each party’s financial obligation to one
another.
SO ORDERED.
Bellosillo, Vitug and Kapunan, JJ., concur.
Decision in CA-G.R. CV No. 26535 reversed; Decision in Civil Case No. A-
1574 modified.
Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-52733 July 23, 1985
PILAR DE GUZMAN, ROLANDO GESTUVO, and MINERVA GESTUVO, petitioners,

vs.
THE HON. COURT OF APPEALS, THE HON. JUDGE PEDRO JL. BAUTISTA, Presiding Judge
of the Court of First Instance of Rizal, Branch III, Pasay City, and LEONIDA P.
SINGH, respondents.
Barredo, Reyno & Tomacruz Law Office for petitioners.
Adriano T Bruno for private respondent.
CONCEPCION, JR., J.:
Petition for the reversal of the decision of the respondent appeal appellate court which dismissed the
petition to annul and set aside the orders of the Court of First Instance of Rizal, Pasay City Branch,
dismissing the petitioners' appeal in Civil Case No. 5247- P and to restrain the respondents from
enforcing the same. Acting upon the petition, the Court issued a temporary restraining order on May
16, 1980, restraining the respondents from enforcing and/or carrying out the decision in question. 1
The facts of record show that on February 17, 1971, the petitioners, as SELLER, and the private
respondent, as BUYER, executed a Contract to Sell covering two (2) parcels of land owned by the
petitioners located at Cementina Street, Pasay City and covered by TCT Nos. 11326 and 11327 of
49
the Register of Deeds of Pasay City. It was stipulated therein that the private respondent should pay
the balance of the purchase price of P133,640.00 on or before February 17, 1975. Two days before
the said date, or on February 15, 1975, the private respondent asked the petitioners to furnish her
with a statement of account of the balance due; copies of the certificates of title covering the two
parcels of land subject of the sale; and a copy of the power of attorney executed by Rolando
Gestuvo in favor of Pilar de Guzman. But, the petitioners denied the request. As a result, the private
respondent filed a complaint for specific performance with damages against the petitioners before
the Court of First Instance of Rizal. The case, however, was dismissed for failure to prosecute. But,
the private respondent subsequently refiled the case. The case was docketed in court as Civil Case
No. 5247-P. In her complaint, the private respondent charged that the petitioners, by refusing to
furnish her with copies of the documents requested, deliberately intended not to comply with their
obligations under the contract to sell, as a result of which the said petitioners committed a breach of
contract, and had also acted unfairly and in manifest bad faith for which they should be held liable for
damages. Answering the complaint, the petitioners claimed that the complaint failed to state a cause
of action; that the balance due was already pre-determined in the contract; that the petitioners have
no obligation to furnish the private respondent with copies of the documents requested; and that the
private respondent's failure to pay the balance of the purchase price on the date specified had
caused the contract to expire and become ineffective without necessity of notice or of any judicial
declaration to that effect.
On November 29, 1977, the trial court rendered a decision approving the compromise agreement
submitted by the parties wherein they agreed on the following:
1. That, not later than December 18, 1977, plaintiff will pay defendants the total
amount of TWO HUNDRED FORTY THOUSAND (P240,000.00) PESOS, Philippine
Currency and in case of failure to do so, she shall have only until January 27, 1978
within which to pay the total amount of TWO HUNDRED FIFTY THOUSAND
(P250,000.00) PESOS, Philippine Currency, which shall be treated as complete and
final payment of the consideration in the contract to sell, dated February 17, 1971.
(Annex "A", Complaint);
2. That, immediately upon receipt of either amounts within the periods so

contemplated, defendants undertake to immediately execute the necessary legal
instruments to transfer to plaintiff the title to the parcels of land subject of the above-
mentioned Contract to Sell, free from liens and encumbrances but with the
understanding that all the expenses necessary for the issuance of a new Transfer
Certificate of Title in favor of plaintiff or her assigns including documentary stamp
taxes, science stamp taxes and legal research fund fees shall be for her sole and
exclusive account;
3. That defendants would temporarily desist from enforcing their right or possession
over the properties involved herein until January 27, 1978, but this shall not be
construed as an abandonment or waiver of its causes of action as embodied in her
Complaint in Civil Case No. 12446 entitled "Pilar de Guzman vs. Wilfredo C. Tan,
etc." for Ejectment pending before Branch IV of the Pasay City Court;
4. Should plaintiff fail to pay either of the amounts abovestated within the period
herein stipulated, the aforesaid Contract to Sell dated February 17, 1971 shall be
deemed rescinded and defendants would immediately enforce its right of possession
of the premises and plaintiff agrees to voluntarily surrender and vacate the same
without further notice or demand;
50
5. That payment of either amounts above-stated shall take place before the
Honorable Judge Pedro Jl. Bautista in the courtroom of the Court of First Instance of
Rizal, Branch III in Pasay City at 10:00 a.m. Friday, January 27, 1978 unless
payment has been earlier made, in which case plaintiff shall produce receipt of the
same at the same time and place, otherwise defendants shag immediately be
entitled to a Writ of Execution on its right of possession over the premises;
6. Lastly, that both parties waive and abandon, by reason hereof, their respective
claims and counterclaims as embodied in the Complaint and Answer. 2
On January 28, 1978, the petitioners filed a motion for the issuance of a writ of execution, claiming
that the private respondent had failed to abide by the terms of the compromise agreement and pay
the amount specified in their compromise agreement within the period stipulated. The private3
respondent opposed the motion, saying that she had complied with the terms and conditions of the
compromise agreement and asked the court to direct the petitioners to comply with the court's
decision and execute the necessary documents to effect the transfer of ownership of the two parcels
of land in question to her. 4
Acting upon the motions, the respondent judge issued an order on March 27, 1978, denying the
petitioners' motion for execution, and instead, directed the petitioners to immediately execute the
necessary documents, transferring to private respondent the title to the properties. He also ordered
the Clerk of Court to release to the petitioners the amount of P250,000.00, which had been
deposited by the private respondent, upon proper receipt therefor. 5
The petitioners filed a motion for the reconsideration of the order, but the trial court denied the
6
same in an order dated July 24, 1978. 7
Whereupon, the petitioners filed a notice of appeal, appeal bond, and a motion for extension of time
8
(20 days) within which to submit a record on appeal. On August 21, 1978, they filed a second
9
motion for extension of time (5 days) within which to file their record on appeal, and on August 26,
10
1978, they submitted their record on appeal.
On September 30, 1978, the private respondent filed a motion to dismiss the appeal on the grounds
that: (1) the orders appealed from are inappealable; and (2) that the record on appeal is defective as
it does not contain the material data showing that the appeal was perfected on time. The trial court
11
found merit in the motion and dismissed the appeal of the petitioners. As a result, the petitioners
12
filed a petition for certiorari with the respondent Court of Appeals to nullify the order of the trial court
which dismissed their appeal. On February 5, 1980, the said appellate court rendered judgment
sustaining the decision of the trial court. Hence, the present recourse.
13
Passing upon the propriety of the petitioners' appeal, the rule is that a judgment rendered in
accordance with a compromise agreement is not appealable. It is immediately executory unless a
motion is filed to set aside the compromise agreement on the ground of fraud, mistake or duress, in
which case an appeal may be taken from the order denying the motion. It is also a settled rule that
14
an order of execution of judgment is not appealable. However, where such order of execution in the
opinion of the defeated party varies the terms of the judgment and does not conform to the essence
thereof, or when the terms of the judgment are not clear and there is room for interpretation and the
interpretation given by the trial court as contained in its order of execution is wrong in the opinion of
the defeated party, the latter should be allowed to appeal from said order so that the Appellate
Tribunal may pass upon the legality and correctness of the said order. 15
51
In the instant case, the legality or enforceability of the compromise agreement or the decision of the
trial court approving the compromise agreement is not disputed. The parties both want the said
compromise agreement to be implemented. The petitioners question the ruling of the trial court that
the private respondent had complied with the terms of the compromise agreement. The issue raised,
albeit one of fact, is appealable.
As to the sufficiency of the record on appeal filed by the petitioners, the rule is that the submission of
a record on appeal, for purposes of appeal, is no longer required as the original record is elevated to
the appellate court, except in appeals in special proceedings in accordance with Rule 109 of the
Rules of Court and other cases wherein multiple appeals are allowed. Since the appeal of the
16
petitioners is not one of those mentioned above, the late filing or insufficiency of the record on
appeal filed by the petitioners is no longer a ground for dismissing their appeal.
On the merits of the case, We agree with the findings of the trial court that the private respondent
had substantially complied with the terms and conditions of the compromise agreement. Her failure
to deliver to the petitioners the full amount on January 27, 1978 was not her fault. The blame lies
with the petitioners. The record shows that the private respondent went to the sala of Judge Bautista
on the appointed day to make payment, as agreed upon in their compromise agreement. But, the
petitioners were not there to receive it. Only the petitioners' counsel appeared later, but, he informed
the private respondent that he had no authority to receive and accept payment. Instead, he invited
the private respondent and her companions to the house of the petitioners to effect payment. But,
the petitioners were not there either. They were informed that the petitioner Pilar de Guzman would
arrive late in the afternoon, possibly at around 4:00 o'clock. The private respondent was assured,
however, that she would be informed as soon as the petitioners arrived. The private respondent, in
her eagerness to settle her obligation, consented and waited for the call which did not come and
unwittingly let the period lapse. The next day, January 28, 1978, the private respondent went to the
office of the Clerk of the Court of First Instance of Rizal, Pasay City Branch, to deposit the balance of
the purchase price. But, it being a Saturday, the cashier was not there to receive it. So, on the next
working day, Monday, January 30, 1978, the private respondent deposited the amount of
P30,000.00 with the cashier of the Office of the Clerk of the Court of First Instance of Rizal, Pasay
City Branch, to complete the payment of the purchase price of P250,000.00. Since the deposit of the
balance of the purchase price was made in good faith and that the failure of the private respondent
to deposit the purchase price on the date specified was due to the petitioners who also make no
claim that they had sustained damages because of the two days delay, there was substantial
compliance with the terms and conditions of the compromise agreement.
WHEREFORE, the petition should be, as it is hereby DISMISSED. The temporary restraining order
heretofore issued is LIFTED and SET ASIDE. With costs against the petitioners.
SO ORDERED.
Makasiar (Chairman), Abad Santos, Escolin and Cuevas, JJ., concur.
Separate Opinions
52
AQUINO, J., dissenting:
I dissent. On November 29, 1977 the trial court rendered a decision approving a compromise
between Pilar de Guzman, Rolando Gestuvo and Minerva Gestuvo, as sellers, and Leonida P.
Singh, buyer. Singh agreed to pay de Guzman and the Gestuvos, now petitioners, P250,000 for two
lots located at Cementina Street, Pasay City at ten o'clock in the morning of January 27, 1978 in the
courtroom of Judge Bautista of Pasay City. In case no payment was made, then the petitioners
would be immediately entitled to a writ of execution for the possession of the said lots.
Singh did not pay the P250,000. Ben Restrivera, in behalf of Singh, on January 24, 1978 deposited
P220,000 with the clerk of court. Restrivera on January 27, 1978 tried to deliver to Antonio G.
Barredo, petitioners' counsel, P5,000 cash and P25,000 in postdated checks, or P30,000 to
complete the price of P250,000. Barredo refused to accept that payment. On January 30, 1978 (3
days after the deadline) Singh deposited with the clerk of court cash of P30,000.
On that same day, January 30, the petitioners filed a motion for execution. It was opposed by Singh.
Judge Bautista in his order of March 27, 1978 denied the motion and ordered the petitioners to
execute the corresponding deed of sale. He ordered the clerk of court to release the P250,000 to
them.
The petitioners filed a motion for reconsideration which the trial court denied in an order dated July
24, 1978, a copy of which was received by the petitioners on July 31, 1978. The next day, August 1,
the petitioners filed a notice of appeal and an appeal bond and asked for an extension of twenty
days within which to file their record on appeal. They asked for a second extension of five days. The
record on appeal was filed on August 26, 1978.
The trial court did not give due course to the appeal. The petitioners filed a petition for mandamus
with the Court of Appeals to compel the trial court to elevate their appeal. The Court of Appeals in its
decision dated February 5, 1980 sustained the trial court. The petitioners appealed to this Court.
The trial court erred in ordering the petitioners to execute the deed of sale. Singh did not comply with
the compromise agreement. She did not pay the P250,000 on January 27, 1978. The petitioners
were entitled to a writ of execution
The appeal should have been given due course. It was filed on time. The technicality that the
petitioners did not comply with the "material data" rule may be disregarded. That rule has been
relaxed in later cases. See Berkenkotter vs. Court of Appeals, L-36629, September 28, 1973, 53
SCRA 228 and later cases.
Instead of ordering the Pasay court to elevate the record of the case to the Intermediate Appellate
Court, we should now resolve the case or the merits of the appeal.
It is indubitable that Singh violated the compromise agreement. She lost the right to purchase the
two lots. The petitioners are entitled to possess them.
Separate Opinions
AQUINO, J., dissenting:
I dissent. On November 29, 1977 the trial court rendered a decision approving a compromise
between Pilar de Guzman, Rolando Gestuvo and Minerva Gestuvo, as sellers, and Leonida P.
53
Singh, buyer. Singh agreed to pay de Guzman and the Gestuvos, now petitioners, P250,000 for two
lots located at Cementina Street, Pasay City at ten o'clock in the morning of January 27, 1978 in the
courtroom of Judge Bautista of Pasay City. In case no payment was made, then the petitioners
would be immediately entitled to a writ of execution for the possession of the said lots.
Singh did not pay the P250,000. Ben Restrivera, in behalf of Singh, on January 24, 1978 deposited
P220,000 with the clerk of court. Restrivera on January 27, 1978 tried to deliver to Antonio G.
Barredo, petitioners' counsel, P5,000 cash and P25,000 in postdated checks, or P30,000 to
complete the price of P250,000. Barredo refused to accept that payment. On January 30, 1978 (3
days after the deadline) Singh deposited with the clerk of court cash of P30,000.
On that same day, January 30, the petitioners filed a motion for execution. It was opposed by Singh.
Judge Bautista in his order of March 27, 1978 denied the motion and ordered the petitioners to
execute the corresponding deed of sale. He ordered the clerk of court to release the P250,000 to
them.
The petitioners filed a motion for reconsideration which the trial court denied in an order dated July
24, 1978, a copy of which was received by the petitioners on July 31, 1978. The next day, August 1,
the petitioners filed a notice of appeal and an appeal bond and asked for an extension of twenty
days within which to file their record on appeal. They asked for a second extension of five days. The
record on appeal was filed on August 26, 1978.
The trial court did not give due course to the appeal. The petitioners filed a petition for mandamus
with the Court of Appeals to compel the trial court to elevate their appeal. The Court of Appeals in its
decision dated February 5, 1980 sustained the trial court. The petitioners appealed to this Court.
The trial court erred in ordering the petitioners to execute the deed of sale. Singh did not comply with
the compromise agreement. She did not pay the P250,000 on January 27, 1978. The petitioners
were entitled to a writ of execution
The appeal should have been given due course. It was filed on time. The technicality that the
petitioners did not comply with the "material data" rule may be disregarded. That rule has been
relaxed in later cases. See Berkenkotter vs. Court of Appeals, L-36629, September 28, 1973, 53
SCRA 228 and later cases.
Instead of ordering the Pasay court to elevate the record of the case to the Intermediate Appellate
Court, we should now resolve the case or the merits of the appeal.
It is indubitable that Singh violated the compromise agreement. She lost the right to purchase the
two lots. The petitioners are entitled to possess them.
54

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[G.R. No. L-15645. January 31, 1964.]

PAZ P. ARRIETA and VITALIADO ARRIETA, Plaintiffs-Appellees, v. NATIONAL RICE

Teehankee & Carreon for Plaintiffs-Appellees.

The Government Corporate Counsel, for Defendant-Appellant.

Isidro A. Vera, for Defendant-Appellee.

1. OBLIGATIONS AND CONTRACTS; LIABILITY FOR NON-PERFORMANCE; FAILURE

2. OBLIGATIONS AND CONTRACTS; LIABILITY OF NON-PERFORMANCE. — Under

5. ID.; PAYMENT OF AWARD; PHILIPPINE CURRENCY. — In view of Republic Act 529

Despite the commitment to pay immediately "by means of an irrevocable, confirmed

We find for the appellee.

This brings us to a consideration of what rate of exchange should apply in the

Bengzon, C.J., Padilla, Concepcion, Paredes, Dizon, and Makalintal, JJ., concur.

Reyes, J.B.L., J., reserves his vote.

Barrera, J., took no part.

Republic of the Philippines

G.R. No. L-27796 March 25, 1976

Chuidian Law Office for appellant.

decision on March 10, 1965.

The appeal is without merit.

Barredo, Aquino, Concepcion, Jr. and and Martin, JJ., concur.

Justice Enrique M. Fernando (Chairman), is on leave.

Justice Ruperto G. Martin was designated to sit in the Second Division.

VOL. 238, DECEMBER 2, 1994 593

SIMPLICIO A. PALANCA, petitioner, vs. COURT OF APPEALS (SPECIAL FORMER

VOL. 284, JANUARY 23, 1998 643

MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte,

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

In this petition for review on certiorari under Rule 45 of the Rules of Court,

1. 1)Allowing defendant to redeem from third-party defendants and ordering the

Rollo, pp. 70-71.

Rollo, pp. 41-42.

On petitioner’s claim that he cannot be held personally liable as he had

On petitioner’s contention that the estate of Angela M. Butte should have

1.I.THE CONCLUSION OR FINDING OF THE COURT OF APPEALS THAT THE

Petitioner argues that respondent Court of Appeals erred in concluding that

We find no merit in petitioner’s arguments.

issued receipts therefor. Petitioner’s assertion that he never encashed the

Considering that respondents Valencia and Peñarroyo had fulfilled their

60 AM. JUR. 2d, Sec. 59.

Campos and Lopez-Campos, Negotiable Instruments Law, 4th Edition (1990), p. 561

citing Rodriguez vs. Hardouin, 15 La. App. 112, 131 So. 593.

much is admitted by petitioner himself in his answer to respondents’

Original Records, p. 162.

Neither is the estate of Ramon Papa, Jr. an indispensable party without

G.R. No. 123855. November 20, 2000. *

NEREO J. PACULDO, petitioner, vs. BONIFACIO C. REGALADO, respondent.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Herrera, O.M. and Gutierrez, A.S., JJ., concurring, Rollo, pp. 138-148.

Without the knowledge of petitioner, on August 3, 1992, respondent

On August 12, 1992, and on subsequent dates thereafter, respondent

Complaint, Annex “C,” RTC Record, Vol. I, p. 13.

Complaint, Annex “D,” RTC Record, Vol. I, p. 14.

Petition for Review, CA Rollo, pp. 2-24, at p. 5.

Answer, RTC Record, Vol. I, pp. 35-45.

7089, Answer, RTC Record, Vol. I, p. 41.

Docketed as Civil Case No. Q-94-20813.

Petition for Review, CA Rollo, pp. 2-24, at p. 7.

On the same day, the Regional Trial Court issued a writ of

On March 3, 1995, petitioner filed a motion for reconsideration; however, 17

on February 9, 1996 the Court of Appeals denied the motion. 18