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G.R. No. L-36821 June 22, 1978 Guzman Gaborro as administratrix of the estate of Alfredo G.

Gaborro) who had died during the pendency of the case.


JOSE P. DIZON, petitioner,
vs. A supplementary issue raised is whether or not Gaborro or the
ALFREDO G. GABORRO (Substituted by PACITA DE respondent administratrix of the estate should account for all the
GUZMAN GABORRO as Judicial Administratrix of the fruits produced trial income received by them from the lands
Estate of Alfredo G. Gaborro) and the DEVELOPMENT mentioned trial described in the aforesaid "Deed of Sale with
BANK OF THE PHILIPPINES, respondents. Assumption of Mortgage."

Leonardo Abola for petitioner. The antecedent facts established in the record are not disputed.
Petitioner Jose P. Dizon was the owner of the three (3) parcels of
Carlos J. Antiporda for respondents. land, subject matter of this litigation, situated in Mabalacat,
Pampanga with an aggregate area of 130.58 hectares, as evidenced
by Transfer Certificate of Title No. 15679. He constituted a first
mortgage lien in favor of the Develop. ment Bank of the
Philippines in order to secure a loan in the sum of P38,000.00 trial
GUERRERO, J.:
a second mortgage lien in favor of the Philippine National Bank to
cure his indebtedness to said bank in the amount of P93,831.91.
Petition for review on certiorari of the decision of the Court
Appeals 1 in CA-G.R. No. 46975-R entitled "Jose P. Dizon,
Petitioner Dizon having defaulted in the payment of his debt, the
Plaintiff-Appellant, vs. Alfredo G. Gaborro (substituted by Pacita
Development Bank of the Philippines foreclosed the mortgage
de Guzman Gaborro as Judicial Administratrix of the Estate of
extrajudicially pursuant to the provisions of Act No. 3135. On
Alfredo G, Gaborro) trial the Development Bank of the
May 26, 1959, the hinds were sold to the DBP for- P31,459.21,
Philippines, Defendants-Appellees," affirming with modification
which amount covered the loan, interest trial expenses, trial the
the decision of the Court of First Instance of Pampanga, Branch II
corresponding "Certificate of Sale," (Exhibit A-2, Exhibit 1b was
in Civil Case No. 2184.
executed in favor of the said On November 12, 1959, Dizon
himself executed the deed of sale (Exhibit Al over the properties in
The dispositive portion of the decision sought to be reviewed
favor of the DBP which deed was recorded in the Office of the
reads:
Register of Deeds on October 6, 1960.

IN VIEW OF THE FOREGOING, the judgment


Sometime prior to October 6, 1959 Alfredo G. Gaborro trial Jose
appealed therefrom is hereby affirmed with
P. Dizon met. Gaborro became interested in the lands of Dizon.
modification that the plaintiff-appellant has the
Dizon originally intended to lease to Gaborro the property which
right to refund or reimburse the defendant-
had been lying idle for some time. But as the mortgage was
appellees he sum of P131,831.91 with interest at
already foreclosed by the DPB trial the bank in fact purchased the
8% per annum from October 6, 1959 until full
lands at the foreclosure sale on May 26, 1959, they abandoned the
payment, said right to be exercised within one
projected lease. They then entered into the following contract on
year from the date this judgment becomes final,
October 6, 1959 captioned trial quoted, to wit:
with the understanding that, if he fails to do so
within the said period, then he is deemed to have
DEED OF SALE WITH ASSUMPTION
lost his right over the lands forever. With costs
against the appellant. 2
OF MORTGAGE
MODIFIED.
KNOW ALL MEN BY THESE PRESENTS:
The basic issue to be resolved in this case is whether the 'Deed of
Sale with Assumption of Mortgage', trial Option to Purchase Real This DEED OF SALE WITH ASSUMPTION OF MORTGAGE,
Estate". two instruments executed by trial between Petitioner Jose made trial executed at the City of Manila, Philippines, on this 6th
P. Dizon trial Alfredo G. Gaborro (defendant below) on the same day of October, 1959 by trial between
day, October 6, 1959 constitute in truth trial in fact an absolute
sale of the three parcels of land therein described or merely an JOSE P. DIZON, of legal age, Filipino, married to Norberta
equitable mortgage or conveyance thereof by way of security for Torres, with residence trial postal address at Mabalacat,
reimbursement, refund or repayment by petitioner Jose P. Dizon of Pampanga, hereinafter referred to as the VENDOR.
any trial all sums which may have been paid to the Development
Bank of the Philippines trial the Philippine National Bank by ALFREDO G. GABORRO, likewise of legal age, Filipino,
Alfredo G. Gaborro (later substituted herein by his wife Pacita de married to Pacita de Guzman, with residence trial postal address at
46, 7th St., Gilmore Avenue, Quezon City, hereinafter referred to EIGHT HUNDRED THIRTY ONE PESOS & 91 /100
as the VENDEE, (P131,831.91), Philippine Currency, under the terms trial
conditions herein below set forth;
W I T N E S S E T H: That
NOW, THEREFORE, for- trial in consideration of the above
WHEREAS, the VENDOR is the registered owner of three (3) premises trial the amount of ONE HUNDRED THIRTY ONE
parcels of land covered by Transfer Certificate of Title No. 15679 THOUSAND EIGHT HUNDRED THIRTY ONE PESOS &
of the land records of Pampanga. situated in the Municipality of 91/100 (P131,831.91), Philippine Currency, in hand paid in cash
Mabalacat, Province of Pampanga, trial more particularly by the VENDEE unto the VENDOR, receipt whereof is hereby
described trial bounded as follows: acknowledged by the VENDOR to his entire trial full satisfaction,
trial the assumption by the VENDEE of the entire mortgage
1. A parcel of land (Lot No. 188 of the Cadastral Survey of indebtedness, both with the Development Bank of the Philippines
Mabalacat), with the improvements thereon, situated in the trial the Philippine National Bank above mentioned, the VENDOR
Municipality of Mabalacat, Bounded on the NE by Lot No 187: on does by these presents, sell, transfer trial convey, as he had sold,
the SE., by Lots Nos. 183, 189, 191 trial 192; on the SW by Lot transferred, trial conveyed, by way of absolute sale, perpetually
No. 192 trial on the NW by the unimproved provincial road to trial forever, unto the VENDEE, his heirs, successors trial assigns.
Magalang. Containing an area of TWO HUNDRED AND above-described properties, with all the improvements thereon,
TWENTY ONE THOUSAND ONE HUNDRED SEVENTY free from all liens trial encumbrances of whatever nature. except
TWO SQUARE METERS (221,172), more or less. the pre- existing mortgage obligations with the Development Bank
of the Philippines trial the Philippine National Bank
aforementioned. The VENDOR does hereby warrant title,
2. A parcel of land (Lot No. 193 of the Cadastral Survey of
ownership trial possession over the properties herein sold trial
Mabalacat), with the improvements thereon, situated in the
conveyed, trial binds himself to defend the same from any trial all
Municipality of Mabalacat. Bounded on the NE., by a road trial
claimants.
Lots Nos. 569,570 trial 571; on the SE., by Lot No. 571 trial the
unimproved road to Magalang, on the SW by a road; trial on the
NE., by a road trial the Sapang Pritil Containing an area of NINE That the VENDEE, does by these presents, assume as he has
HUNDRED SEVENTY EIGHT THOUSAND SEVEN assumed, under the same terms trial conditions of the mortgage
HUNDRED AND SEVENTEEN SQUARE METERS (978,717), contracts dated ... and ... of the mortgage indebtedness of the
more or less. VENDOR in favor of the Development Bank of the Philippines
trial the Philippine National Bank, respectively, as if the aforesaid
documents were personally executed by the VENDEE trial states
3. A parcel of land (Lot No. 568 of the Cadastral Survey of
trial reiterates all the terms trial conditions stipulated in said both
Mabalacat), with the improvements thereon, situated in the
documents, making them to all intent trial purposes, parts hereof
Municipality of Mabalacat. Bounded on the NE., by Lot No. 570,
by reference.
on the SE SW trial NW by roads. Containing an area of ONE
HUNDRED FIVE THOUSAND NINE HUNDRED AND
TWENTY ONE SQUARE METERS (105,921), more or less, IN WITNESS WHEREOF, the VENDOR and the VENDEE
together with their instrumental witnesses, have signed this deed
of the place, date, month trial year first above written.
WHEREAS, the above-described properties are presently
mortgaged (first mortgage) to the Development Bank of the
Philippines (,formerly Rehabilitation Finance Corporation) to (Sgd.) JOSE P. DIZON (Sgd.) ALFREDO G. GABORRO
secure the payment of a loan, plus interest, of THIRTY EIGHT
THOUSAND PESOS ONLY (P38,000.00), Philippine currency, as Vendor Vendee
evidenced by a deed of mortgage for- P... dated ... which deed was
ratified trial acknowledged before Notary Public of Manila, Mr. ... Signed in the Presence of:
as Doc. No. Page No. Reg. No. Series of 196 ... ;
(Sgd.) (Illegible) (Sgd.) (Illegible)
WHEREAS, the aforesaid properties are likewise mortgage
(second mortgage) to the Philippine National Bank to secure the (Acknowledgment Omitted)
payment of a loan of NINETY THREE THOUSAND EIGHT
HUNDRED THIRTY ONE PESOS & 91/100 (P93,831.91), The second contract executed the same day, October 6, 1959 is
Philippine Currency, plus interest up to August 13, 1957, as called Option to Purchase Real Estate, trial is in the following
evidenced by deed of Mortgage for P............. dated................... wise trial manner:
which deed was ratified trial acknowledged before Notary Public
of Manila, Mr, I . I as Doc. No............ Page No.......... Reg. No.
OPTION TO PURCHASE REAL ESTATE
Series of 196........... ; WHEREAS, the VENDOR, has offered to
sell trial the VENDEE is willing to purchase the above-described
KNOW ALL MEN BY THESE PRESENTS:
properties for ONE HUNDRED THIRTY ONE THOUSAND
That 1, ALFREDO G. GABORRO, of legal age, Filipino, married CONFORME:
to Pacita de Guzman, with residence trial postal address at 46, 7th
St., Gilmore Ave., Quezon City, for- valuable consideration, do (Sgd.) JOSE P. DIZON
hereby give to JOSE P. DIZON, of legal age, Filipino, married to
Norberta Torres, resident of Mabalacat, Pampanga, his heirs, SIGNED IN THE PRESENCE OF:
successors and assigns, the option of repurchasing the following
described properties:
(Acknowledgment Omit)

TRANSFER CERTIFICATE OF TITLE


The sum of P131,813.91 which purports to be the consideration of
the sale was not actually paid by Alfredo G. Gaborro to the
NO. 15679, PROVINCE OF PAMPANGA petitioner. The said amount represents the aggregate debts of the
petitioner with the Development Bank of the Philippines trial the
1. A parcel of land (Lot No. 188 of Cadastral Survey of Mabalacat, Philippine National Bank.
Pampanga containing an area of (211,172) more or less.
After the execution of said contracts, Alfredo G. Gaborro took
2. A parcel of land (Lot No. 193 of the Cadastral Survey of possession of the three parcels of land in question.
Mabalacat, Pampanga), containing an area of (978,172) more or
less. On October 7, 1959, Gaborro wrote the Development Bank of the
Philippines a letter (Exh. J), as follows:
3. A parcel of land (Lot No. 568 of the Cadastral Survey of
Mabalacat, Pampanga containing an area of (105,921), more or Sir:
less. which I acquired from the said Jose P. Dizon by purchase by
virtue of that document entitled "Deed of Sale with Assumption of
This is with reference to your mortgage lien of P38,000.00 more
Mortgage" dated October 6, 1959, acknowledged by both of us
or less over the properties more particularly described in TCT No.
before Notary Public of Manila GREGORIO SUMBILIO as DOC.
15679 of the land records of Pampanga in the name of Jose P.
No. 342, Page No. 70, Reg. No. VII Series of 1959.
Dizon. In this connection, we have the honor to inform you that
pursuant to a Deed of Sale with Assumption of Mortgage executed
Said option shall be valid trial effective within the period on October 6, 1959 by Jose P. Dizon in my favor, copy of which is
comprises from January, 1965 to December 31, 1970, inclusive, hereto attached, the ownership of the same has been transferred to
upon payment of the amount of ONE HUNDRED THIRTY ONE me subject of course to your conformity to the assumption of
THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & mortgage. As a consequence of the foregoing document, the
91/100 (?131,831.91), Philippine Currency, plus an interest of obligation therefore of paying your goodselves the total amount of
eight per centum (8%) thereof, per annum. This is without indebtedness has shifted to me
prejudice at any time to the payment by Mr. Dizon of any partial
amount to be applied to the principal obligation, without any way
Considering that these agricultural properties have not been under
disturbing the possession and/or ownership of the above properties
cultivation for- quite a long time, I would therefore request that,
since only full payment can effect the necessary change.
on the premise that the assumption of mortgage would be
agreeable to you, that I be allowed to pay the outstanding
In the event that Mr. Jose P. Dizon may be able to find a purchaser obligation, under the same terms trial conditions as embodied in
for- the foregoing properties on or the fifth year from the date the the original contract of mortgage within ten (10) years to be
execution of this document, the GRANTEE, Mr. JOSE P. DIZON, divided in 10 equal annual amortizations. I am enclosing herewith
may do so provided that the aggregate amount which was Paid to a check in the amount of P3,609.95 representing 10% of the
Development Bank of the Philippines trial to the Philippine indebtedness of Jose P. Dizon to show my honest intention in
National Bank together with the interests thereon at the rate of 8% assuming the mortgage obligation to you ...
shall be refunded to the undersigned.
The Board of Governors of the DBP, in its Resolution No. 7066
Furthermore, in case Mr. Jose P. Dizon shall be able to find a dated October 21, 1959 approved the offer of Gaborro but said
purchaser for- the said properties, it shall be his duty to first notify Board required him to pay 20% of the purchase price as initial
the undersigned of the contemplated sale, naming the price trial payment, (Exh. D) Accordingly, on July 11, 1960, the DBP trial
the purchaser therefor, trial awarding the first preference in the Gaborro executed a conditional sale of the properties in
sale hereof to the undersigned. consideration of the sum of P36,090.95 (Exh. C) payable 20%
down trial the balance in 10 years in the yearly amortization plan
IN WITNESS WHEREOF, I have hereunto signed these presents at 8% per annum.
at the City of Manila, on this 6th day of October, 1959.
On January 7, 1960, Dizon assigned his right of redemption Lo
(Sgd.) ALFREDO G. GABORRO Gaborro in an instrument (Exh. 9) entitled:
ASSIGNMENT OF RIGHT OF REDEMPTION AND WHEREAS, the herein Assignor has still the right to redeem
the said properties from the said Development Bank of the
AND ASSUMPTION OF OBLIGATION Philippines within a period of one (1) year counted from the date
of foreclosure of the said mortgage.
KNOW ALL MEN BY THESE PRESENTS:
NOW, THEREFORE, for ......................................... trial other
This instrument, made trial executed by trial between JOSE P. valuable considerations, receipt whereof is hereby acknowledged
DIZON, married to Norberta P. Torres, Filipino, of legal age, with by the Assignor from the Assignee, The herein Assignor does
residence trial postal address at Mabalacat, Pampanga. hereinafter hereby transfer trial assign to the herein Assignee, his heirs,
referred to as the ASSIGNOR trial ALFREDO G. GABORRO, successors trial assigns the aforesaid right to redeem the
married to Pacita de Guzman, likewise of legal age, Filipino, with aforementioned properties above described.
residence trial postal address at 46, 7th Street, Gilmore Ave.,
Quezon City, hereinafter referred to as the ASSIGNEE, That with this document the herein Assignor relinquishes any and
all rights to the said properties including the improvements
WITNESSETH: existing thereon.

WHEREAS, the Assignor is the owner trial mortgagor of three (3) That the Assignee, by these presents, hereby assumes the
parcels agricultural land together with all the improvements obligation in favor of the d Development Bank of the Philippines,
existing thereon trial more particularly described trial bounded as as Paying whatever legal indebtedness the Assignor has with the d
follows: B in connection with the transaction regarding the hove mentioned
Properties subject to the file and conditions that the said Bank may
require and further recognizes the second mortgage in favor Of the
TRANSFER CERTIFICATE OF TITLE NO. 1567
Philippine National Bank.
PROVINCE OF PAMPANGA
IN WITNESS WHEREOF, the parties have hereunto set their
hands in the City of Manila, Philippines this --------- day of - - - - -
1. A parcel of land (Lot No. 188 of the Cadastral Survey of
-1959.
Mabalacat), with the improvements thereon, situated in the
Municipality of Mabalacat. Bounded on the NE by Lot No. 187:
(Sgd-) JOSE P. DIZON (Sgd.) ALFREDO G. GABORRO
on the SE. by Lots Nos. 183, 189, 191 trial 192; on the SW. by Lot
No. 192; trial on the NW by the unimproved provincial road to
Magalan. Containing an area of two hundred twenty-one thousand Assignor (Assignee)
one hundred trial seventy two square meters (221,172), more or
less. (Acknowledgment Omitted)

2. A parcel of land (Lot No. 193 of the Cadastral Survey of After the execution of the conditional e to him Gaborro made
Mabalacat), with the improvements thereon, situated in the several payments to the DBP and PNB. He introduced
Municipality of Mabalacat. Bounded on the NE. by a road trial improvements, cultivated the kinds raised sugarcane and other
Lots Nos. 569, 570 trial 571; on the SE. by Lot No. 571 trial the crops and appropriated the produce to himself. He will paid the
unimproved road to Magalan-, on the SW. by a road; trial on the land taxes thereon.
NW by a road trial the Sapang Pritil Containing an area of nine
hundred seventy eight thousand seven hundred and seven hundred On July 5, 1961, Jose P. Dizon through his lawyer, Atty. Leonardo
square meters (978,717), more or less. Abola, wrote a letter to Gaborro informing him that he is formally
offering reimburse Gaborro Of what he paid to the banks but
3. A parcel of Land (Lot No. 568 of the Cadastral Survey of without, however, tendering any cash, and demanding an
Mabalacat), with the improvements thereon, situated in the accounting of the income and of the pro contending that the
Municipality of Mabalacat, Bounded on the NE. by Lot No. 570; transaction they entered into was one of antichresis. Gaborro did
and on the SE., SW. and NW. by roads. Containing an area of one not accede to the demands of the petitioner, whereupon, on JULY
hundred five thousand nine hundred and twenty-one square meters 30, 1962, Jose P. Dizon instituted a complaint in the Court of First
(105,921), more or less. Instance of Pampanga, Gaborro, alleging that the documents Deed
of Sale With Assumption of Mortgage and the Option to Purchase
WHEREAS, the above described properties were mortgaged with Real Estate did not express the true intention and agreement bet.
the Rehabilitation Finance Corporation, now Development Bank between the parties. Petitioner Dizon, as Plaintiff below,
of the Philippines, which mortgage has been foreclosed on May contended that the two deeds constitute in fact a single transaction
26, 1959; that their real agreement was not an absolute e of the d of land but
merely an equitable mortgage or conveyance by way of security
for the reimbursement or refund by Dizon to Gaborro of any and
all sums which the latter may have paid on account of the
mortgage debts in favor of the DBP and the PNB. Plaintiff prayed mortgage liens were duly annotated on TCT 15679. This fact has
that defendant Gaborro be ordered to accept plaintiff's offer to been admitted by the plaintiff and defendant Gaborro.
reimburse him of what he paid to the banks; to surrender the
possession of the lands to plaintiff; to make an accounting of all 4. In respect to the foreclosure of the first mortgage referred to
the fruits, produce, harvest and other income which he had above, it was admit that the same was foreclosed on May 26,
received from the three (3) parcels of land; and to pay the plaintiff 1959, the second mortgage has not been admitted nor foreclosed.
for the loss of two barns and for damages.
5. That the Development Bank of the Philippines admits that the
In its answer, the DBP specifically denied the material averments first mortgage referred to above was foreclosed on May 26, 1959
of the complaint and stated that on October 6, 1959, the plaintiff under the provision,,; of Public Act No- 3135, as amended.
Dizon was no longer the owner of the land in question because the
DBP acquired them at the extrajudicial foreclosure sale held on 6. That subsequently the Development Bank and the defendant
May 26, 1959, and that the only right which plaintiff possessed Gaborro executed a document entitled Conditional Sale over the
was a mere right to redeem the lands under Act 3135 as amended. same parcels of land referred to in paragraph 3 of the complaint,
and copy thereof will be furnished by the Development Bank of
Defendant Alfredo G. Gaborro also answer, denying the material the Philippines and marked Exhibit C-Stipulation.
averments of the complaint, stating that the "Deed of Sale with
Assumption of Mortgage" expresses the true agreement of the 7. That on or before October 6, 1960, TCT No. 15679 of the
parties "fully, truthfully and religiously" but the Option to Register of D of Pampanga in the name of Jose P. Dizon covering
Purchase Real Estate" does not express the true intention of the the three parcels of land referred to in the complaint was cancelled
parties because it was made only to protect the reputation of the and in lieu thereof TCT NO. 24292 of the Register of Deeds of
plaintiff among his townmates, and even in the supposition that Pampanga was issued in the name of the Development Bank of the
said option is valid, the action is premature. He also filed a Philippines. This fact has been admitted by all the parties.
counterclaim for damages, which plaintiff denied.
8. That after the execution of the deed of conditional sale, certain
The issues having been joined, a pre-trial was held and the payments were made by the defendant Gaborro to the
following stipulation of facts admitted by the parties was approved Development Bank, the exact amount to be determined later and
by the Court in the following order dated February 22, 1963: receipts of payments to be also exhibited later. This fact has been
admitted by all the three parties.
ORDER
9. That since October 6, 1959, the defendant Gaborro has made
At today's initial trial the following were present: Mr. Leonardo several payments to the PNB in the amounts appearing on the
Abola, for the plaintiff; Mr. Carlos Antiporda, for the defendant receipts which will be shown later, such payments being made on
Alfredo Gaborro; and Mr. Virgillo Fugoso, for the Development account of the sum of P38,831.91. The payment was assumed by
Bank of the Philippines: said - defendant Gaborro. This fact has been admitted by plaintiff
and defendant Gaborro only.
The parties brave stipulated on the following facts:
10. That since the execution of Exhibits A and B-Stipulation, it,,
1. That Annex A attached to the complaint is marked Exhibit defendant Gaborro has been and still is in the actual possession f
A- Stipulation. The parties have admitted the due execution, the three parcels of land in question and he is actually cultivating
authenticity and genuineness of said Exhibit A-Stipulation. This the same and that the land taxes thereon have been paid by said
fact has been admitted by all the three parties. defendant Gaborro, the amounts of said taxes appearing on the
official receipts to be shown later. This fact has been admitted by
2. That the defendant Gaborro executed Annex B, which is marked plaintiff and defendant Gaborro only.
Exhibit B-Stipulation. This fact has been admitted only between
plaintiff and defendant Gaborro. 11. That since defendant Gaborro took
possession of the lands in question, he has been
3. That the three parcels of land referred to in paragraph 3 of the appropriating all the fruits produced and income
complaint, on or before October 6, 1959, were subject to a first of said lands without giving to the plaintiff any
mortgage lien in favor of the Development Bank of the share hereof. This fact has been admitted by
Philippines, formerly Rehabilitation Finance Corporation, to plaintiff and defendant Gaborro only.
secure payment of a loan obtained by the plaintiff Jose P. Dizon in
the original sum of P38,000.00 plus interest, which has been Let a copy of this order be served upon the
assumed by defendant Gaborro by virtue of a document, Exhibit plaintiff, defendant Gaborro and the
A-Stipulation, and also subject to a second mortgage lien in favor Development Bank of the Philippines with the
of the Philippine National Bank to secure the payment of a loan in understanding that, if, within fifteen (15) days,
the sum of P93,831.91 plus interest up to August 30, 1951, which none of the parties questions the correctness of
The facts set forth above. this stipulation of facts Petitioner's motion for reconsideration and/or rehearing having
shall be conclusive upon the parties interested in been denied by the Court of Appeals, hence the present petition for
this case. review on certiorari. The petitioner assigns the following errors, to
wit:
Set the trial on the controversial facts on April
18, 1963 at 13:00 clock in the morning. I. The Court of Appeals, like the lower court,
erred in not holding that upon established facts
Paragraphs 3 and 10 of the above quoted order were deleted in an and undisputed documentary evidence, the deed
order dated July 26, 1963. of sale with assumption of mortgage (Exhibit A-
Stipulation) constitutes an equitable mortgage or
The records disclose that during the pendency of the case in the conveyance to secure petitioner's obligation to
trial court, motions were filed by the plaintiff for the appointment reimburse or refund to defendant Alfredo
of a receiver of the properties but all were denied. plaintiff also Gaborro any and all sums to the extent of
reiterated the same motion before the appellate court which, P131,831.91, paid by said defendant in total or
however, dismissed the same, reserving to him the right to file in partial satisfaction of petitioner's mortgage debts
the trial court. Plaintiff did file but with the same result. certiorari to the DBP and the PNB. In this connection, the
proceedings were resorted to in the Court of Appeals in CA-G.R. Court of Appeals erred:
No. SP-01403 entitled "Jose P. Dizon vs. Hon. Felipe
Buencamino, et al." which the respondent court denied. (A) In not finding that the petitioner was the lawful owner of the
lands in question:
After trial the court held that the true agreement between Jose P.
Dizon, the plaintiff therein, and the defendant Alfredo G. Gaborro (B) In not finding that the deed of sale in question is not a real and
is that the defendant would assume and pay the indebtedness of unconditional sale; and
the plaintiff to the Development Bank of the Philippines and the
Philippine National Bank, and in consideration therefor, the (C) In not holding that the option to purchase real estate (Exhibit
defendant was given the possession and enjoyment of the B-Stipulation is conclusive evidence that the transaction in
properties in question until the plaintiff shall have reimbursed to question is in fact an equitable mortgage.
defendant fully the amount of P131,831.91 plus 8% interest per
annum. II. The Court of Appeals also erred in finding that the instrument
entitled 'Assignment of Right of Redemption and Assumption of
Accordingly, on March 14, 1970, the lower court rendered Obligation' is conclusive evidence that the real transaction
judgment, the dispositive part of which reads: Evidenced by the 'Deed of Sale with Assumption of Mortgage' is
not an equitable mortgage. In this connection the said court also
IN VIEW OF THE FOREGOING, the erred or at least committed a grave abuse of discretion:
documents entitled 'Deed of Sale with
Assumption of Mortgage'(Exhibit A-Stipulation) (A) In not finding that the said deed of assignment is in fact a
and 'Option to Purchase Real Estate' (Exhibit B- mere reiteration of the terms and condition of the deed of sale;
Stipulation) are hereby reformed to the extent
indicated above. However, since this action was (B) In finding that the price or consideration of The aforesaid
filed before the period allowed the plaintiff to assignment. of right of redemption consisted of 300 cavans of
redeem his property, the prematurity of this palay delivered by Mrs. Gaborro to the petitioner; and
action aside from not being principally alleged
in the complaint, deters this Court from ordering (C) In finding that defendant Gaborro purchased the lands in
further reliefs and remedies. The counterclaim of question by virtue of the aforementioned deed of assignment.
the defendant is dismissed.
III. The, Court of Appeals, like the trial court, also erred in not
The plaintiff's motion for new trial and for reconsideration and finding that the estate of Alfredo G. Gaborro is under obligation to
motion for admission of supplemental complaint having been render an accounting of all the produce, fruits and other income of
denied for lack of merit, on June 6, 1970, plaintiff appealed to the the lands in question from October 6, 1959, and to reconvey the
Court of Appeals, which. however, affirmed the decision with the said lands to the herein petitioner. In to connection, the said court
modification that the plaintiff-appellant has the right to refund or also erred:
reimburse the defendant-appellee the sum of P131,831.91 with
interest at 8% per annum from October 6, 1959 until full payment,
(A) In not holding that as a mortgagee in possession the Gaborro
said right to be exercised within one (1) year from the date the
estate has the obligation to either render an accounting of the
judgment becomes final, with the understanding that, if he fails to
produce or fruits of the lands, or to pay rentals for the occupation
do so within the said period, then he is deemed to have lost his
of said lands;
right over the lands forever.
(B) In not finding that the Gaborro estate has the obligations to A judgment debtor, whose property is levied on execution, may
reconvey the lands in controversy to the herein petitioner, upon transfer his right of redemption to any one whom he may desire.
payment of the balance due from him after deducting either the net The right to redeem land sold under execution within 12 months is
value of the produce or fruits of the Said lands or the rentals a property right and may be sold voluntarily by its owner and may
thereof, also be attached and sold under execution (Magno v. Viola and
Sotto, 61 Phil. 80).
(C) In not finding that further reliefs or remedies may be granted
the herein petitioner; and Upon foreclosure and sale, the purchaser is entitled to a certificate
of sale executed by the sheriff. (Section 27, Revised Rules of
(D) In not ordering the admission of herein petitioners Court) After the termination of the period of redemption and no
'Supplemental Complaint' dated April 30, 1970. redemption having been made, the purchaser is entitled to a deed
of conveyance and to the possession of the properties. (Section 35,
IV. The Court of Appeals finally erred in not reversing the decision Revised Rules of Court). The weight of authority is to the effect
of the trial court, and in not rendering judgment declaring that the that the purchaser of land sold at public auction under a writ of
deed of sale with assumption of mortgage (Exhibit A Stipulation) execution only has an inchoate right in the property, subject to be
is in fact an equitable mortgage; and in not ordering the Gaborro defeated and terminated within the period of 12 months from the
estate either to render an accounting of all the produce or fruits of date of sale, by a redemption on the part of the owner. Therefore,
the lands in question or to pay rentals for the occupation thereof, the judgment debtor in possession of the property is entitled to
from October 6, 1959; and in not ordering the estate of Alfredo G. remain therein during the period allowed for redemption. (Riosa v.
Gaborro to reconvey, transfer and assign unto the petitioner the Verzosa. 26 Phil, 86; 89; Gonzales v. Calimbas, 51 Phil. 355.)
aforementioned lands.
In the case before Us, after the extrajudicial foreclosure and sale
The two instruments sought to be reformed in this case ap pear to of his properties, petitioner Dizon retained the right to redeem the
stipulate rights and obligations between the parties thereto lands, the possession, use and enjoyment of the same during the
Pertaining to and involving parcels of land that had already beer period of redemption. And these are the only rights that Dizon
foreclosed and sold extrajudicially, and purchased by the mortgage could legally transfer, cede and convey unto respondent Gaborro
creditor, a degree party. It becomes, therefore, necessary to under the instrument captioned Deed of Sale with Assumption of
determine the legality of said rights and obligation arising from Mortgage (Exh. A-Stipulation), likewise the same rights that said
the foreclosure and e pro. proceedings only between the two respondent could acquire in consideration of the latter's promise to
contracting parties to the instruments executed between them but pay and assume the loan of petitioner Dizon with DBP and PNB.
also in the so far a agreement affects the rights of the degree panty,
the purchase Bank. Such an instrument cannot be legally considered a real and
unconditional sale of the parcels of land, firstly, because there was
Act 3135, Section 6 as amended by Act 4118, under which the absolutely no money consideration therefor, as admittedly
Properties were extrajudicially foreclosed and sold, provides that: stipulated the sum of P131,831.91 mentioned in the document as
the consideration "receipt of which was acknowledged" was not
actually paid; and secondly, because the properties had already
Sec. 6. In all cases in which an extrajudicial rule is made under the
been previously sold by the sheriff at the foreclosure sale, thereby
special power hereinbefore referred to, the debtor, his successors
divesting the petitioner of his full right as owner thereof to dispose
in interest or any judicial creditor or judgment creditor of e debtor,
and sell the lands.
or any person having a lien on the property subsequent to the
mortgage or deed of trust under which the property is sold, may
redeem the same at any time within the term or one year from and In legal consequence thereby, respondent Gaborro as transferee of
after the date of the sale; and such redemption shall be governed these certain limited rights or interests under Exh. A-Stipulation,
by the provisions of sections four hundred and sixty-four to four cannot grant to petitioner Dizon more that said rights, such ac the
hundred and sixty-six, inclusive, of the Code of Civil Procedure, option Co purchase the lands as stipulated in the document called
in so far as these are not consistent with the provisions of this Act. Option to Purchase Real Estate (Exhibit B-Stipulation), This is
necessarily so for the reason that respondent Gaborro did not
purchase or acquire the full title and ownership of the properties
Under the Revised Rules of Court, Rule 39, Section 33, the
by virtue of the Deed of Sale With Assumption of Mortgage (Exh.
judgment debtor remains in possession of the property foreclosed
A Stipulation), earlier executed between them which We have
and sold, during the period of redemption. If the judgment debtor
ruled out as an absolute sale. The only legal effect of this Option
is in possession of the property sold, he is entitled to retain it and
Deed is the grant to petitioner the right to recover the properties
receive the fruits, the purchaser not being entitled to such
upon reimbursing respondent Gaborro of the total sums of money
possession. (Riosa v. Verzosa, 26 Phil. 86; Velasco v. Rosenberg's
that the latter may have paid to DBP and PNB on account of the
Inc., 32 Phil. 72; Pabico v. Pauco 43 Phil. 572; Power v. PNB, 54
mortgage debts, the said right to be exercised within the stipulated
Phil. 54; Gorospe v. Gochangco L-12735, Oct. 30, 1959).
5 years period.
In the light of the foreclosure proceedings and sale of the accrued or been paid by the latter on the loans of Dizon with DBP
properties, a legal point of primary importance here, as well as and PNB, petitioner Dizon in turn is not entitled to an accounting
other relevant facts and circumstances, We agree with the findings of the fruits, harvests and other income received by respondent
of the trial and appellate courts that the true intention of the parties Gaborro from the lands, for certainly, petitioner cannot have both
is that respondent Gaborro would assume and pay the benefits and the two may be said to offset each other.
indebtedness of petitioner Dizon to DBP and PNB, and in
consideration therefor, respondent Gaborro was given the By virtue of the Option to Purchase Real Estate (Exh. B
possession, the enjoyment and use of the lands until petitioner can Stipulation) which on its face granted Dizon the option to
reimburse fully the respondent the amounts paid by the latter to purchase the properties which must be exercise within the period
DBP and PNB, to accomplish the following ends: (a) payment of from January, 1960 to December 31, 1965 but which We held to
the bank obligations; (b) make the lands productive for the benefit be simply the grant of the right to petitioner Dizon to recover his
of the possessor, respondent Gaborro, (c) assure the return of the properties within the said period, although already expired by
land to the original owner, petitioner Dizon, thus rendering equity reasons and circumstances beyond his control, petitioner is entitled
and fairness to all parties concerned. to a reconveyance of the properties within a reasonable period The
period of one year from the date of the finality of this judgment as
In view of all these considerations, the law and Jurisprudence, and laid down by the Court of Appeals for the exercise of such right by
the facts established. We find that the agreement between petitioner Dizon appears fair and reasonable and We approve the
petitioner Dizon and respondent Gaborro is one of those inanimate same.
contracts under Art. 1307 of the New Civil Code whereby
petitioner and respondent agreed "to give and to do" certain rights Since We are not informed of the status of Dizon's loan of
and obligations respecting the lands and the mortgage debts of P93,831.91 with the Philippine National Bank which appears to be
petitioner which would be acceptable to the bank. but partaking of on a subsisting basis, it is proper to indicate here how petitioner
the nature of the antichresis insofar as the principal parties, Dizon may exercise the right to a reconveyance of the properties
petitioner Dizon and respondent Gaborro, are concerned. as herein affirmed, as follows:

Mistake is a ground for the reformation of an instrument which (a) Dizon is granted the right to a reconveyance of the properties
there having been a meeting of the minds of The parties o a by reimbursing Gaborro (or his estate) whatever amounts) the
contract, their true intention is not expressed in the instrument latter has actually paid on account of the principal only, of Dizon's
purporting to embody the agreement, and one of the parries may loans of P38,000.00 and P93,831.91 which the DBP and PNB,
ask for such reformation to the end that such true intention may be respectively, exclusive of the interests that may have accrued
expressed. (Art. 1359, New Civil code). When a mutual mistake of thereon or may have been paid by Gaborro, on the basis of duly
the parties causes the failure of the instrument to disclose their real certified statements issued by said banks;
agreement, said instrument may be reformed. (Art. 1361, New
Civil Code.) It was a mistake for the parties to execute the Deed of (b) Any outstanding balance due on Dizon's original principal loan
Sale With Assumption of Mortgage and the Option to Purchase of P38,000.00 with the Development Bank of the Philippines
Real Estate and stand on the literal meaning of the file and assumed by Gaborro and on Dizon's original principal loan of
stipulations used therein. 93,831.91 with the PNB shag be deducted from the above-fixed
reconveyance price payable to Gaborro, in order to enable Dizon
The instruments must, therefore, be reformed in accordance with to pay off the said mortgage loans directly to the said banks, in
the intention and legal rights and obligations of the parties the accordance with file mutually agreed upon with them by Dizon;
petitioner, the respondent and the Banks. We agree with the
reformation decreed by the trial and appellate courts, but in the (c) In other words, the maximum reconveyance price that Dizon is
sense that petitioner Jose P. Dizon has the right to reacquire the obligated to pay is the total sum of ?131,831.91 (the sum total of
three parcels of land within the one-year period indicated below the principals of his two original loans with the DBP and PNB),
by refunding or reimbursing to respondent Alfredo G. Gaborro or and should the amounts due to the said banks exceed this total of
the Judicial Administratrix of his Estate whatever amount the latter P131,831.91 (because of delinquent interests and other charges),
has actually paid on account of the principal only, of the loans of nothing shall be due Gaborro by way of reimbursement and Dizon
Dizon with the DBP and PNB, excluding the interests and land will thereupon step into the shoes of Gaborro as owner-mortgagor
taxes that may have been paid or may have accrued, on duly of the properties and directly arrange with the banks for the
certified financial statements issued by the said banks. settlement of the amounts still due and payable to them, subject to
the right of Dizon to recover such amounts in excess of
On the issue of the accounting of the fruits, harvests and other P131,831.91 from Gaborro by writ of execution in this case; and
income received from the three parcels of land from October 6,
1959 up to the present, prayed and demanded by Dizon of Gaborro (d) As already stated, Dizon is not entitled to an accounting of the
or the Judicial Administratrix of the latter's estate, We hold that in fruits, harvests and other income received by Gaborro from the
fairness and equity and in the interests of justice that since We land while Gaborro in turn is not entitled to the payment of any
have ruled out the obligation of petitioner Dizon to reimburse interests on any amounts paid by him on account of the principal
respondent Gaborro of any interests and land taxes that have
loans to the banks nor reimbursement of any interests paid by him by the prosecution with regard his supposed responsibility as
to the banks. expert appraiser of jewels of the plaintiff entity but he was therein
acquitted; and (3) that said acquittal constituted a bar to the civil
WHEREFORE, the judgment appealed from is hereby affirmed case. By way of cross-complaint, the petitioner alleged (1) that the
with the modification that petitioner Dizon is granted the right chattel mortgage was entered into by E. Marco for and in behalf of
within one year from finality of this decision to a reconveyance of the Monte de Piedad without being duly authorized to do so by the
the properties in litigation upon payment and reimbursement to latter; (2) that the defendant was induced, through false
respondent estate of o G. Gaborro of the amounts actually paid by representation, to sign said chattel mortgage against his will; (3)
Gaborro or his estate on account of the principal only of Dizon's that the chattel mortgage was based upon all non-existing subject
original loans with the Development Bank of the Philippines and matter and non-existing consideration; and (4) that the chattel
Philippine National Bank in and up to the total amount of mortgage was null and void ab initio. By way of counterclaim, the
P131,831.91, under the terms and conditions set forth in the petitioner alleged (1) that the payments made by for him the
preceding paragraph with subparagraphs (a) to (d), which are account of the chattel mortgage amounting to P3,333.25 were
hereby incorporated by reference as an integral part of this made through deceit and without his consent and consisted of
judgment, and upon the exercise of such right, respondent estate P300 monthly deductions from his salary, printing job for plaintiff
shall forthwith execute the corresponding deed of reconveyance in done by him in his printing press, and reimbursement made from
favor of petitioner Dizon and deliver possession of the properties the pocket of E. Marco; (2) that he has received P356.25 a month
to him. Without pronouncement as to costs. as expert appraiser of the plaintiff and that he was separated
arbitrarily at the end of the month of May 1933, from notice and
Teehankee (Chairman), Makasiar, Muoz Palma and Fernandez, plaintiff failed to pay him his salary for the month of May, 1933
JJ., concur. and the month of June, 1933, in accordance with law; and (3) that
due to the malicious and systematic prosecution brought in
criminal case No. 49078 and in the present case, he suffered
G.R. No. L-47806 April 14, 1941
damages and losses both materially and in his reputation in the
amount of at least P15,000. Wherefore, petitioner, among others,
LEONCIO GABRIEL, petitioner,
prayed that the Monte de Piedad be ordered to return the unlawful
vs.
deductions from his monthly remuneration, to pay his salary for
MONTE DE PIEDAD Y CAJA DE AHARROS and THE
the months of May and June, 1933, and damages and losses he
COURT OF APPEALS, respondents.
suffered amounting to P15,000.

Vicente J. Francisco and Rody M. Jalandoni for petitioner.


The lower court rendered judgment in favor of the Monte de
Cavanna, Jazmines and Tianco for respondent.
Piedad against the herein petitioner. Petitioner brought the case on
appeal to the Court of Appeals, which affirmed the judgment of
LAUREL, J.: the lower court in a decision rendered May 29, 1940. Hence, this
petition for review by certiorari.
The herein petitioner was employed as appraiser of jewels in the
pawnshop of the Monte de Piedad from 1913 up to May, 1933. On Petitioner contends that the provisions of the chattel mortgage
December 13, 1932, he executed a chattel mortgage to secure the contract by which he guaranteed to pay the deficiencies amounting
payment of the deficiencies which resulted from his erroneous of P14,679.07 are contrary to law, morals and public policy, and
appraisal of the jewels pawned to the appellee, amounting to hence, the chattel mortgage contract is ineffective and the
P14,679.07, with six per cent (6%) interest from said date. In this principal obligation secured by it is void. A contract is to be judge
chattel mortgage, the appellant promised to pay to the appellee the by its character, and courts will look to the substances and not to
sum of P300 a month until the sum of P14,679.07, with interest is the mere form of the transaction. The freedom of contract is both a
fully paid. The document was registered on December 22, 1932 constitutional and statutory right and to uphold this right, courts
(statement, decision of Court of Appeals). To recover the should move with all the necessary caution and prudence in
aforementioned sum less what had been paid, amounting to holding contracts void. (People vs. Pomar, 46 Phil., 440;
P3,333.25 or the balance of P11,345.75, and in case of default to Ferrazzini vs. Gsell, 34 Phil., 697.) At any rate, courts should not
effectuate the chattel mortgage, an action was instituted against the rashly extend the rule which holds that a contract is void as against
petitioner by the respondent Monte de Piedad in the Court of First public policy. The term "public policy" is vague and uncertain in
Instance of Manila (civil case No. 50847). The petitioner meaning, floating and changeable in connotation. It may be said,
answered, denying generally and specifically all the specifications however, that, in general, a contract which is neither prohibited by
therein, and also denied under oath the genuiness of the execution law nor condemned by judicial decision, nor contrary to public
of the alleged chattel mortgage attached thereto. By way of special morals, contravenes no public policy. In the absence of express
defense, he alleged (1) that the chattel mortgage was a part of a legislation or constitutional prohibition, a court, in order to declare
scheme on the part of the management of the Monte de Piedad to a contract void as against public policy, must find that the contract
cover up supposed losses incurred in its pawnshop department; (2) as to the consideration or thing to be done, has a tendency to injure
that a criminal action had been instituted at the instance of the the public, is against the public good, or contravenes some
plaintiff against him wherein said chattel mortgage was presented established interests of society, or is inconsistent with sound
policy and good morals, or tends clearly to undermine the security criminal case No. 49078. The court's finding that the
of individual rights, whether of personal liability or of private transactions involved in the case at the bar commenced in
property. Examining the contract at bar, we are of the opinion that August, 1932, can not be considered erroneous simply
it does not in anyway militate against the public good. Neither because Exhibit F-32 of the plaintiff is allegedly dated
does it contravene the policy of the law nor the established August 20, 1931. Exhibit F-22 can not be given any
interests of society. probative value, it was undated during the hearing of the
case.
Petitioner also contends that the chattel mortgage in question is
void because it lacks consideration. A consideration, in the legal We do not find it necessary to discuss the last assignment of error.
sense of the word, is some right, interest, benefit, or advantage
conferred upon the promisor, to which he is otherwise not lawfully The petition is hereby dismissed and the judgment sought to be
entitled, or any detriment, prejudice, loss, or disadvantage suffered reviewed is affirmed, with costs against the petitioner. So ordered.
or undertaken by the promisee other than to such as he is at the
time of consent bound to suffer. We think that there is sufficient G.R. No. 61594 September 28, 1990
consideration in this contract, for accounting to the Court of
Appeals, "it has been satisfactorily established that it was executed
PAKISTAN INTERNATIONAL AIRLINES
voluntarily by the latter to guarantee the deficiencies resulting
CORPORATION, petitioner,
from his erroneous appraisals of the jewels." A preexisting
vs
admitted liability is a good consideration for a promise. The fact
HON. BLAS F. OPLE, in his capacity as Minister of Labor;
that the bargain is a hard one will not deprived it of validity. The
HON. VICENTE LEOGARDO, JR., in his capacity as Deputy
exception to this rule in modern legislation is where the
Minister; ETHELYNNE B. FARRALES and MARIA
inadequacy is so gross as to amount to fraud, oppression or undue
MOONYEEN MAMASIG, respondents.
influence, or when statutes require the consideration to be
adequate. We are not convinced that the instant case falls within
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for
the exception.
petitioner.
Another objection raised is that the requirement of section 5 of Act
Ledesma, Saludo & Associates for private respondents.
No. 1508 has not been complied with. We think that there is
substantial compliance with the requirements of the Chattel
Mortgage Law on this point. The wording of the affidavit under
discussion, as it appears from the record, is almost in the same
language of the statute. Likewise, it appears that it was signed by FELICIANO, J.:
E. Marco, who was Director-General of the Monte de Piedad at
the time of the execution of the contract of chattel mortgage. The On 2 December 1978, petitioner Pakistan International Airlines
Court of Appeals found that "the contention that director Marco Corporation ("PIA"), a foreign corporation licensed to do business
had no authority to enter into the agreement is without merit. It in the Philippines, executed in Manila two (2) separate contracts of
appears that there was confirmation of Exhibit A by the Consejo employment, one with private respondent Ethelynne B. Farrales
de Administracion of the Monte de Piedad." Statutory and the other with private respondent Ma. M.C. Mamasig. 1 The
requirements as to forms or words of the affidavits in chattel contracts, which became effective on 9 January 1979, provided in
mortgage contracts must be substantially, but need not be literally, pertinent portion as follows:
complied with.
5. DURATION OF EMPLOYMENT AND
The second assignment of error made by the petitioner is that the PENALTY
Court of Appeals erred in not holding that the acquittal of the
petitioner in criminal case No. 49078 of the Court of First Instance This agreement is for a period of three (3) years,
of Manila bars the action to enforce any civil liability under said but can be extended by the mutual consent of the
chattel mortgage. We do not need to dwell at length on this parties.
assignment of error, for we find no reason for distributing the
conclusion reached by the Court of Appeals on this point: xxx xxx xxx

The appellant claims that his acquittal in criminal case 6. TERMINATION


No. 49078 of the Court of First Instance of Manila is a
bar to the institution of the present case. The evidence of xxx xxx xxx
record does not bear out this contention. There is no
identity of subject matter between the two cases; nor is
Notwithstanding anything to contrary as herein
the instant case defendant upon the said criminal action.
provided, PIA reserves the right to terminate this
We agree with the trial court that the transactions
agreement at any time by giving the
involved in this case are different from those involved in
EMPLOYEE notice in writing in advance one of the employment contract to three (3) years was null and void as
month before the intended termination or in lieu violative of the provisions of the Labor Code and its implementing
thereof, by paying the EMPLOYEE wages rules and regulations on regular and casual employment; and that
equivalent to one month's salary. the dismissal, having been carried out without the requisite
clearance from the MOLE, was illegal and entitled private
xxx xxx xxx respondents to reinstatement with full backwages.

10. APPLICABLE LAW: On appeal, in an Order dated 12 August 1982, Hon. Vicente
Leogardo, Jr., Deputy Minister, MOLE, adopted the findings of
This agreement shall be construed and governed fact and conclusions of the Regional Director and affirmed the
under and by the laws of Pakistan, and only the latter's award save for the portion thereof giving PIA the option, in
Courts of Karachi, Pakistan shall have the lieu of reinstatement, "to pay each of the complainants [private
jurisdiction to consider any matter arising out of respondents] their salaries corresponding5 to the unexpired portion
or under this agreement. of the contract[s] [of employment] . . .".

Respondents then commenced training in Pakistan. After their In the instant Petition for Certiorari, petitioner PIA assails the
training period, they began discharging their job functions as flightaward of the Regional Director and the Order of the Deputy
attendants, with base station in Manila and flying assignments to Minister as having been rendered without jurisdiction; for having
different parts of the Middle East and Europe. been rendered without support in the evidence of record since,
allegedly, no hearing was conducted by the hearing officer, Atty.
Jose M. Pascual; and for having been issued in disregard and in
On 2 August 1980, roughly one (1) year and four (4) months prior
violation of petitioner's rights under the employment contracts
to the expiration of the contracts of employment, PIA through Mr.
with private respondents.
Oscar Benares, counsel for and official of the local branch of PIA,
sent separate letters both dated 1 August 1980 to private
respondents Farrales and Mamasig advising both that their 1. Petitioner's first contention is that the Regional Director,
services as flight stewardesses would be terminated "effective 1 MOLE, had no jurisdiction over the subject matter of the
September 1980, conformably to clause 6 (b) of the employment complaint initiated by private respondents for illegal dismissal,
agreement [they had) executed with [PIA]." 2 jurisdiction over the same being lodged in the Arbitration Branch
of the National Labor Relations Commission ("NLRC") It appears
to us beyond dispute, however, that both at the time the complaint
On 9 September 1980, private respondents Farrales and Mamasig
was initiated in September 1980 and at the time the Orders
jointly instituted a complaint, docketed as NCR-STF-95151-80,
assailed were rendered on January 1981 (by Regional Director
for illegal dismissal and non-payment of company benefits and
Francisco L. Estrella) and August 1982 (by Deputy Minister
bonuses, against PIA with the then Ministry of Labor and
Vicente Leogardo, Jr.), the Regional Director had jurisdiction over
Employment ("MOLE"). After several unfruitful attempts at
termination cases.
conciliation, the MOLE hearing officer Atty. Jose M. Pascual
ordered the parties to submit their position papers and evidence
supporting their respective positions. The PIA submitted its Art. 278 of the Labor Code, as it then existed, forbade the
3
position paper, but no evidence, and there claimed that both termination of the services of employees with at least one (1) year
private respondents were habitual absentees; that both were in the of service without prior clearance from the Department of Labor
habit of bringing in from abroad sizeable quantities of "personal and Employment:
effects"; and that PIA personnel at the Manila International Airport
had been discreetly warned by customs officials to advise private Art. 278. Miscellaneous Provisions . . .
respondents to discontinue that practice. PIA further claimed that
the services of both private respondents were terminated pursuant (b) With or without a collective agreement, no
to the provisions of the employment contract. employer may shut down his establishment or
dismiss or terminate the employment of
In his Order dated 22 January 1981, Regional Director Francisco employees with at least one year of service
L. Estrella ordered the reinstatement of private respondents with during the last two (2) years, whether such
full backwages or, in the alternative, the payment to them of the service is continuous or broken, without prior
amounts equivalent to their salaries for the remainder of the fixed written authority issued in accordance with such
three-year period of their employment contracts; the payment to rules and regulations as the Secretary may
private respondent Mamasig of an amount equivalent to the value promulgate . . . (emphasis supplied)
of a round trip ticket Manila-USA Manila; and payment of a bonus
to each of the private respondents equivalent to their one-month Rule XIV, Book No. 5 of the Rules and Regulations
salary. 4 The Order stated that private respondents had attained the Implementing the Labor Code, made clear that in case of
status of regular employees after they had rendered more than a a termination without the necessary clearance, the
year of continued service; that the stipulation limiting the period Regional Director was authorized to order the
reinstatement of the employee concerned and the was conducted, petitioner had ample opportunity to explain its
payment of backwages; necessarily, therefore, the side. Moreover, petitioner PIA was able to appeal his case to the
Regional Director must have been given jurisdiction over Ministry of Labor and Employment. 7
such termination cases:
There is another reason why petitioner's claim of denial of due
Sec. 2. Shutdown or dismissal without process must be rejected. At the time the complaint was filed by
clearance. Any shutdown or dismissal private respondents on 21 September 1980 and at the time the
without prior clearance shall be conclusively Regional Director issued his questioned order on 22 January 1981,
presumed to be termination of employment applicable regulation, as noted above, specified that a "dismissal
without a just cause. The Regional Director without prior clearance shall be conclusively presumed to be
shall, in such case order the immediate termination of employment without a cause", and the Regional
reinstatement of the employee and the payment Director was required in such case to" order the immediate
of his wages from the time of the shutdown or reinstatement of the employee and the payment of his wages from
dismissal until the time of reinstatement. the time of the shutdown or dismiss until . . . reinstatement." In
(emphasis supplied) other words, under the then applicable rule, the Regional Director
did not even have to require submission of position papers by the
Policy Instruction No. 14 issued by the Secretary of parties in view of the conclusive (juris et de jure) character of the
Labor, dated 23 April 1976, was similarly very explicit presumption created by such applicable law and regulation.
about the jurisdiction of the Regional Director over In Cebu Institute of Technology v. Minister of Labor and
termination of employment cases: Employment, 8 the Court pointed out that "under Rule 14, Section
2, of the Implementing Rules and Regulations, the termination of
Under PD 850, termination cases with or [an employee] which was without previous clearance from the
without CBA are now placed under the Ministry of Labor is conclusively presumed to be without [just]
original jurisdiction of the Regional Director. cause . . . [a presumption which] cannot be overturned by any
Preventive suspension cases, now made contrary proof however strong."
cognizable for the first time, are also placed
under the Regional Director. Before PD 850, 3. In its third contention, petitioner PIA invokes paragraphs 5 and
termination cases where there was a CBA were 6 of its contract of employment with private respondents Farrales
under the jurisdiction of the grievance and Mamasig, arguing that its relationship with them was
machinery and voluntary arbitration, while governed by the provisions of its contract rather than by the
termination cases where there was no CBA were general provisions of the Labor Code. 9
under the jurisdiction of the Conciliation
Section. Paragraph 5 of that contract set a term of three (3) years for that
relationship, extendible by agreement between the parties; while
In more details, the major innovations paragraph 6 provided that, notwithstanding any other provision in
introduced by PD 850 and its implementing the Contract, PIA had the right to terminate the employment
rules and regulations with respect to termination agreement at any time by giving one-month's notice to the
and preventive suspension cases are: employee or, in lieu of such notice, one-months salary.

1. The Regional Director is now required to rule A contract freely entered into should, of course, be respected, as
on every application for clearance, whether there PIA argues, since a contract is the law between the parties. 10 The
is opposition or not, within ten days from receipt principle of party autonomy in contracts is not, however, an
thereof. absolute principle. The rule in Article 1306, of our Civil Code is
that the contracting parties may establish such stipulations as they
xxx xxx xxx may deem convenient, "provided they are not contrary to law,
morals, good customs, public order or public policy." Thus,
counter-balancing the principle of autonomy of contracting parties
(Emphasis supplied)
is the equally general rule that provisions of applicable law,
especially provisions relating to matters affected with public
2. The second contention of petitioner PIA is that, even if the
policy, are deemed written into the contract. 11 Put a little
Regional Director had jurisdiction, still his order was null and void
differently, the governing principle is that parties may not contract
because it had been issued in violation of petitioner's right to
away applicable provisions of law especially peremptory
procedural due process . 6 This claim, however, cannot be given
provisions dealing with matters heavily impressed with public
serious consideration. Petitioner was ordered by the Regional
interest. The law relating to labor and employment is clearly such
Director to submit not only its position paper but also such
an area and parties are not at liberty to insulate themselves and
evidence in its favor as it might have. Petitioner opted to rely
their relationships from the impact of labor laws and regulations
solely upon its position paper; we must assume it had no evidence
by simply contracting with each other. It is thus necessary to
to sustain its assertions. Thus, even if no formal or oral hearing
appraise the contractual provisions invoked by petitioner PIA in
terms of their consistency with applicable Philippine law and anathema Would such an agreement come within the scope of
regulations. Article 280 which admittedly was enacted "to prevent the
circumvention of the right of the employee to be secured in . . .
As noted earlier, both the Labor Arbiter and the Deputy Minister, (his) employment?"
MOLE, in effect held that paragraph 5 of that employment
contract was inconsistent with Articles 280 and 281 of the Labor As it is evident from even only the three examples already given
Code as they existed at the time the contract of employment was that Article 280 of the Labor Code, under a narrow and literal
entered into, and hence refused to give effect to said paragraph 5. interpretation, not only fails to exhaust the gamut of employment
These Articles read as follows: contracts to which the lack of a fixed period would be an anomaly,
but would also appear to restrict, without reasonable distinctions,
Art. 280. Security of Tenure. In cases of regular employment, the right of an employee to freely stipulate with his employer the
the employer shall not terminate the services of an employee duration of his engagement, it logically follows that such a literal
except for a just cause or when authorized by this Title An interpretation should be eschewed or avoided. The law must be
employee who is unjustly dismissed from work shall be entitled to given reasonable interpretation, to preclude absurdity in its
reinstatement without loss of seniority rights and to his backwages application. Outlawing the whole concept of term employment and
computed from the time his compensation was withheld from him subverting to boot the principle of freedom of contract to remedy
up to the time his reinstatement. the evil of employers" using it as a means to prevent their
employees from obtaining security of tenure is like cutting off the
Art. 281. Regular and Casual Employment. The provisions of nose to spite the face or, more relevantly, curing a headache by
written agreement to the contrary notwithstanding and regardless lopping off the head.
of the oral agreements of the parties, an employment shall be
deemed to be regular where the employee has been engaged to xxx xxx xxx
perform activities which are usually necessary or desirable in the
usual business or trade of the employer, except where the Accordingly, and since the entire purpose behind the development
employment has been fixed for a specific project or undertaking of legislation culminating in the present Article 280 of the Labor
the completion or termination of which has been determined at the Code clearly appears to have been, as already observed, to prevent
time of the engagement of the employee or where the work or circumvention of the employee's right to be secure in his tenure,
services to be performed is seasonal in nature and the employment the clause in said article indiscriminately and completely ruling
is for the duration of the season. out all written or oral agreements conflicting with the concept of
regular employment as defined therein should be construed to
An employment shall be deemed to be casual if it is not covered refer to the substantive evil that the Code itself has singled out:
by the preceding paragraph: provided, that, any employee who has agreements entered into precisely to circumvent security of tenure.
rendered at least one year of service, whether such service is It should have no application to instances where a fixed period of
continuous or broken, shall be considered as regular employment was agreed upon knowingly and voluntarily by the
employee with respect to the activity in which he is employed and parties, without any force, duress or improper pressure being
his employment shall continue while such actually exists. brought to bear upon the employee and absent any other
(Emphasis supplied) circumstances vitiating his consent, or where it satisfactorily
appears that the employer and employee dealt with each other on
12
In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al., the more or less equal terms with no moral dominance whatever being
Court had occasion to examine in detail the question of whether exercised by the former over the latter. Unless thus limited in its
employment for a fixed term has been outlawed under the above purview, the law would be made to apply to purposes other than
quoted provisions of the Labor Code. After an extensive those explicitly stated by its framers; it thus becomes pointless and
examination of the history and development of Articles 280 and arbitrary, unjust in its effects and apt to lead to absurd and
281, the Court reached the conclusion that a contract providing for unintended consequences. (emphasis supplied)
employment with a fixed period was not necessarily unlawful:
It is apparent from Brent School that the critical consideration is
There can of course be no quarrel with the proposition that where the presence or absence of a substantial indication that the period
from the circumstances it is apparent that periods have been specified in an employment agreement was designed to
imposed to preclude acquisition of tenurial security by the circumvent the security of tenure of regular employees which is
employee, they should be struck down or disregarded as contrary provided for in Articles 280 and 281 of the Labor Code. This
to public policy, morals, etc. But where no such intent to indication must ordinarily rest upon some aspect of the agreement
circumvent the law is shown, or stated otherwise, where the reason other than the mere specification of a fixed term of the
for the law does not exist e.g. where it is indeed the employee ernployment agreement, or upon evidence aliunde of the intent to
himself who insists upon a period or where the nature of the evade.
engagement is such that, without being seasonal or for a specific
project, a definite date of termination is a sine qua non would an Examining the provisions of paragraphs 5 and 6 of the
agreement fixing a period be essentially evil or illicit, therefore employment agreement between petitioner PIA and private
respondents, we consider that those provisions must be read MOLE, had not committed any grave abuse of discretion nor any
together and when so read, the fixed period of three (3) years act without or in excess of jurisdiction in ordering their
specified in paragraph 5 will be seen to have been effectively reinstatement with backwages. Private respondents are entitled to
neutralized by the provisions of paragraph 6 of that agreement. three (3) years backwages without qualification or deduction.
Paragraph 6 in effect took back from the employee the fixed three Should their reinstatement to their former or other substantially
(3)-year period ostensibly granted by paragraph 5 by rendering equivalent positions not be feasible in view of the length of time
such period in effect a facultative one at the option of the which has gone by since their services were unlawfully
employer PIA. For petitioner PIA claims to be authorized to terminated, petitioner should be required to pay separation pay to
shorten that term, at any time and for any cause satisfactory to private respondents amounting to one (1) month's salary for every
itself, to a one-month period, or even less by simply paying the year of service rendered by them, including the three (3) years
employee a month's salary. Because the net effect of paragraphs 5 service putatively rendered.
and 6 of the agreement here involved is to render the employment
of private respondents Farrales and Mamasig basically ACCORDINGLY, the Petition for certiorari is hereby
employment at the pleasure of petitioner PIA, the Court considers DISMISSED for lack of merit, and the Order dated 12 August
that paragraphs 5 and 6 were intended to prevent any security of 1982 of public respondent is hereby AFFIRMED, except that (1)
tenure from accruing in favor of private respondents even during private respondents are entitled to three (3) years backwages,
the limited period of three (3) years, 13 and thus to escape without deduction or qualification; and (2) should reinstatement of
completely the thrust of Articles 280 and 281 of the Labor Code. private respondents to their former positions or to substantially
equivalent positions not be feasible, then petitioner shall, in lieu
Petitioner PIA cannot take refuge in paragraph 10 of its thereof, pay to private respondents separation pay amounting to
employment agreement which specifies, firstly, the law of one (1)-month's salary for every year of service actually rendered
Pakistan as the applicable law of the agreement and, secondly, lays by them and for the three (3) years putative service by private
the venue for settlement of any dispute arising out of or in respondents. The Temporary Restraining Order issued on 13
connection with the agreement "only [in] courts of Karachi September 1982 is hereby LIFTED. Costs against petitioner.
Pakistan". The first clause of paragraph 10 cannot be invoked to
prevent the application of Philippine labor laws and regulations to SO ORDERED.
the subject matter of this case, i.e., the employer-employee
relationship between petitioner PIA and private respondents. We G.R. No. L-15127 May 30, 1961
have already pointed out that the relationship is much affected
EMETERIO CUI, plaintiff-appellant,
with public interest and that the otherwise applicable Philippine vs.
laws and regulations cannot be rendered illusory by the parties ARELLANO UNIVERSITY, defendant-appellee.
agreeing upon some other law to govern their relationship. Neither
G.A.S. Sipin, Jr., for plaintiff-appellant.
may petitioner invoke the second clause of paragraph 10,
E. Voltaire Garcia for defendant-appellee.
specifying the Karachi courts as the sole venue for the settlement
of dispute; between the contracting parties. Even a cursory CONCEPCION, J.:
scrutiny of the relevant circumstances of this case will show the Appeal by plaintiff Emeterio Cui from a decision of the Court of
multiple and substantive contacts between Philippine law and First Instance of Manila, absolving defendant Arellano University
Philippine courts, on the one hand, and the relationship between from plaintiff's complaint, with costs against the plaintiff, and
the parties, upon the other: the contract was not only executed in dismissing defendant's counter claim, for insufficiency of proof
thereon.
the Philippines, it was also performed here, at least partially;
private respondents are Philippine citizens and respondents, while In the language of the decision appealed from:
petitioner, although a foreign corporation, is licensed to do The essential facts of this case are short and undisputed.
business (and actually doing business) and hence resident in the As established by the agreement of facts Exhibits X and
Philippines; lastly, private respondents were based in the by the respective oral and documentary evidence
Philippines in between their assigned flights to the Middle East introduced by the parties, it appears conclusive that
and Europe. All the above contacts point to the Philippine courts plaintiff, before the school year 1948-1949 took up
preparatory law course in the defendant University. After
and administrative agencies as a proper forum for the resolution of
finishing his preparatory law course plaintiff enrolled in
contractual disputes between the parties. Under these
the College of Law of the defendant from the school year
circumstances, paragraph 10 of the employment agreement cannot 1948-1949. Plaintiff finished his law studies in the
be given effect so as to oust Philippine agencies and courts of the defendant university up to and including the first
jurisdiction vested upon them by Philippine law. Finally, and in semester of the fourth year. During all the school years in
any event, the petitioner PIA did not undertake to plead and prove which plaintiff was studying law in defendant law
the contents of Pakistan law on the matter; it must therefore be college, Francisco R. Capistrano, brother of the mother of
presumed that the applicable provisions of the law of Pakistan are plaintiff, was the dean of the College of Law and legal
the same as the applicable provisions of Philippine law. 14 counsel of the defendant university. Plaintiff enrolled for
the last semester of his law studies in the defendant
We conclude that private respondents Farrales and Mamasig were university but failed to pay his tuition fees because his
illegally dismissed and that public respondent Deputy Minister, uncle Dean Francisco R. Capistrano having severed his
connection with defendant and having accepted the since their credentials would not be released unless they
deanship and chancellorship of the College of Law of would pay the fees corresponding to the period of the
Abad Santos University, plaintiff left the defendant's law scholarships. Where the Bureau believes that the right of
college and enrolled for the last semester of his fourth the student to transfer is being denied on this ground, it
year law in the college of law of the Abad Santos reserves the right to authorize such transfer.
University graduating from the college of law of the latter that defendant herein received a copy of this memorandum; that
university. Plaintiff, during all the time he was studying plaintiff asked the Bureau of Private Schools to pass upon the
law in defendant university was awarded scholarship issue on his right to secure the transcript of his record in defendant
grants, for scholastic merit, so that his semestral tuition University, without being required to refund the sum of P1,033.87;
fees were returned to him after the ends of semester and that the Bureau of Private Schools upheld the position taken by the
when his scholarship grants were awarded to him. The plaintiff and so advised the defendant; and that, this
whole amount of tuition fees paid by plaintiff to notwithstanding, the latter refused to issue said transcript of
defendant and refunded to him by the latter from the first records, unless said refund were made, and even recommended to
semester up to and including the first semester of his last said Bureau that it issue a written order directing the defendant to
year in the college of law or the fourth year, is in total release said transcript of record, "so that the case may be presented
P1,033.87. After graduating in law from Abad Santos to the court for judicial action." As above stated, plaintiff was,
University he applied to take the bar examination. To accordingly, constrained to pay, and did pay under protest, said
secure permission to take the bar he needed the sum of P1,033.87, in order that he could take the bar examination
transcripts of his records in defendant Arellano in 1953. Subsequently, he brought this action for the recovery of
University. Plaintiff petitioned the latter to issue to him said amount, aside from P2,000 as moral damages, P500 as
the needed transcripts. The defendant refused until after exemplary damages, P2,000 as attorney's fees, and P500 as
he had paid back the P1,033 87 which defendant refunded expenses of litigation.
to him as above stated. As he could not take the bar
In its answer, defendant reiterated the stand it took, vis-a-vis the
examination without those transcripts, plaintiff paid to
Bureau of Private Schools, namely, that the provisions of its
defendant the said sum under protest. This is the sum
contract with plaintiff are valid and binding and that the
which plaintiff seeks to recover from defendant in this
memorandum above-referred to is null and void. It, likewise, set
case.
up a counterclaim for P10,000.00 as damages, and P3,000 as
Before defendant awarded to plaintiff the scholarship attorney's fees.
grants as above stated, he was made to sign the following
The issue in this case is whether the above quoted provision of the
contract covenant and agreement:
contract between plaintiff and the defendant, whereby the former
"In consideration of the scholarship granted to me by the waived his right to transfer to another school without refunding to
University, I hereby waive my right to transfer to another the latter the equivalent of his scholarships in cash, is valid or not.
school without having refunded to the University The lower court resolved this question in the affirmative, upon the
(defendant) the equivalent of my scholarship cash. ground that the aforementioned memorandum of the Director of
Private Schools is not a law; that the provisions thereof are
(Sgd.) Emeterio Cui".
advisory, not mandatory in nature; and that, although the
It is admitted that, on August 16, 1949, the Director of Private contractual provision "may be unethical, yet it was more unethical
Schools issued Memorandum No. 38, series of 1949, on the for plaintiff to quit studying with the defendant without good
subject of "Scholarship," addressed to "All heads of private reasons and simply because he wanted to follow the example of
schools, colleges and universities," reading: his uncle." Moreover, defendant maintains in its brief that the
aforementioned memorandum of the Director of Private Schools is
1. School catalogs and prospectuses submitted to this,
null and void because said officer had no authority to issue it, and
Bureau show that some schools offer full or partial
because it had been neither approved by the corresponding
scholarships to deserving students for excellence in
department head nor published in the official gazette.
scholarship or for leadership in extra-curricular activities.
Such inducements to poor but gifted students should be We do not deem it necessary or advisable to consider as the lower
encouraged. But to stipulate the condition that such court did, the question whether plaintiff had sufficient reasons or
scholarships are good only if the students concerned not to transfer from defendant University to the Abad Santos
continue in the same school nullifies the principle of University. The nature of the issue before us, and its far reaching
merit in the award of these scholarships. effects, transcend personal equations and demand a determination
of the case from a high impersonal plane. Neither do we deem it
2. When students are given full or partial scholarships, it
essential to pass upon the validity of said Memorandum No. 38,
is understood that such scholarships are merited and
for, regardless of the same, we are of the opinion that the
earned. The amount in tuition and other fees
stipulation in question is contrary to public policy and, hence, null
corresponding to these scholarships should not be
and void. The aforesaid memorandum merely incorporates a sound
subsequently charged to the recipient students when they
principle of public policy. As the Director of Private Schools
decide to quit school or to transfer to another institution.
correctly pointed, out in his letter, Exhibit B, to the defendant,
Scholarships should not be offered merely to attract and
keep students in a school. There is one more point that merits refutation and that is
whether or not the contract entered into between Cui and
3. Several complaints have actually been received from
Arellano University on September 10, 1951 was void as
students who have enjoyed scholarships, full or partial, to
against public policy. In the case of Zeigel vs. Illinois
the effect that they could not transfer to other schools
Trust and Savings Bank, 245 Ill. 180, 19 Ann. Case 127,
the court said: 'In determining a public policy of the state, rate from September 1, 1954, date of the institution of this case, as
courts are limited to a consideration of the Constitution, well as the costs, and dismissing defendant's counterclaim. It is so
the judicial decisions, the statutes, and the practice of ordered.
government officers.' It might take more than a
government bureau or office to lay down or establish a G.R. No. L-10551 March 3, 1917
public policy, as alleged in your communication, but
courts consider the practices of government officials as
IGNACIO ARROYO, plaintiff-appellant,
one of the four factors in determining a public policy of
the state. It has been consistently held in America that vs.
under the principles relating to the doctrine of public ALFRED BERWIN, defendant-appellee.
policy, as applied to the law of contracts, courts of justice
will not recognize or uphold a transaction which its J. M. Arroyo for appellant.
object, operation, or tendency is calculated to be No appearance for appellee.
prejudicial to the public welfare, to sound morality or to
civic honesty (Ritter vs. Mutual Life Ins. Co., 169 U.S. CARSON, J.:
139; Heding vs. Gallaghere 64 L.R.A. 811; Veazy vs.
Allen, 173 N.Y. 359). If Arellano University understood
clearly the real essence of scholarships and the motives The complaint filed in this action is as follows:
which prompted this office to issue Memorandum No. 38,
s. 1949, it should have not entered into a contract of 1. That both the plaintiff and the defendant are residents
waiver with Cui on September 10, 1951, which is a direct of the municipality of Iloilo, Province of Iloilo,
violation of our Memorandum and an open challenge to Philippine Islands.
the authority of the Director of Private Schools because
the contract was repugnant to sound morality and civic 2. That the defendant is a procurador judicial in the law
honesty. And finally, in Gabriel vs. Monte de Piedad, Off. office of the Attorney John Bordman, and is duly
Gazette Supp. Dec. 6, 1941, p. 67 we read: 'In order to authorized by the court to practice in justice of the peaces
declare a contract void as against public policy, a court
courts of the Province of Iloilo.
must find that the contract as to consideration or the thing
to be done, contravenes some established interest of
society, or is inconsistent with sound policy and good 3. That the defendant, as such procurador judicial,
morals or tends clearly to undermine the security of represented Marcela Juanesa in the justice of the peace
individual rights. The policy enunciated in Memorandum court of Iloilo in proceeding for theft prosecuted by the
No. 38, s. 1949 is sound policy. Scholarship are awarded plaintiff Ignacio Arroyo; that said cause was decided by
in recognition of merit not to keep outstanding students the said justice of the peace against the accused, and the
in school to bolster its prestige. In the understanding of latter appealed to the Court of First Instance of Iloilo.
that university scholarships award is a business
scheme designed to increase the business potential of an 4. That on August 14, 1914, which was the day set for the
education institution. Thus conceived it is not only
hearing of the appeal of the said cause against Marcela
inconsistent with sound policy but also good morals. But
Juaneza for theft, Case No. 3120, the defendant requested
what is morals? Manresa has this definition. It is good
customs; those generally accepted principles of morality the plaintiff to agree to dismiss the said criminal
which have received some kind of social and practical proceeding, and, on August 14, 1914, stipulated with the
confirmation. The practice of awarding scholarships to plaintiff in the presence of Roque Samson, among other
attract students and keep them in school is not good things, that his client Marcela Juaneza would recognize
customs nor has it received some kind of social and the plaintiff's ownership in the land situated on Calle San
practical confirmation except in some private institutions Juan, suburb of Molo, municipality of Iloilo, Province of
as in Arellano University. The University of the Iloilo, where his said client ordered the cane cut, which
Philippines which implements Section 5 of Article XIV land and which cut cane are referred to in the cause for
of the Constitution with reference to the giving of free theft above-mentioned; and the defendant furthermore
scholarships to gifted children, does not require scholars agreed that the plaintiff should obtain a Torrens title to
to reimburse the corresponding value of the scholarships the said land during the next term of the court for the trial
if they transfer to other schools. So also with the leading of cadastral cases, and that the defendant's client, Marcela
colleges and universities of the United States after which
Juaneza, would not oppose the application for registration
our educational practices or policies are patterned. In
to be filed by the said applicant; provided that the
these institutions scholarships are granted not to attract
and to keep brilliant students in school for their plaintiff would ask the prosecuting attorney to dismiss the
propaganda mine but to reward merit or help gifted said proceedings filed against Marcela Juaneza and
students in whom society has an established interest or a Alejandro Castro for the crime of theft.
first lien. (Emphasis supplied.)
WHEREFORE, the decision appealed from is hereby reversed and 5. That the plaintiff on his part complied with the
another one shall be entered sentencing the defendant to pay to the agreement, and requested the prosecuting attorney to
plaintiff the sum of P1,033.87, with interest thereon at the legal dismiss the above-mentioned criminal cause; that the
latter petitioned the court and the court did dismiss the Torres, Moreland, Trent and Araullo, JJ., concur.
said cause; that in exchange the defendant does not wish
to comply with the above-mentioned agreement; that the G.R. No. L-19638 June 20, 1966
plaintiff delivered to the defendant for the signature of
the said Marcela Juaneza a written agreement stating that FILIPINAS COMPAIA DE SEGUROS, ET AL., petitioners
the defendant's said client recognized the plaintiff's and appellees,
ownership in the described land and that she would not vs.
oppose the plaintiff's application for registration; and that HON. FRANCISCO Y. MANDANAS, in his capacity as
up to the present time, the defendant has not returned to Insurance Commissioner, respondent and appellant.
the plaintiff the said written agreement, notwithstanding AGRICULTURAL FIRE INSURANCE & SURETY CO.,
the plaintiff's many demands. INC., ET AL., intervenors and appellees.

Therefore, the plaintiff prays the court to render judgment Jalandoni and Jamir for petitioner and appellees.
ordering the defendant to comply with the agreement by Office of the Solicitor General Arturo A. Alafriz, 1st Assistant
causing the latter's said client Marcela Juaneza to sign the Solicitor General Esmeraldo Umali and Solicitor Comrade T.
document in which she recognizes the plaintiff's Limcaoco for intervenors and appellees.
ownership of the land on which she ordered the cane cut
and states that she will not oppose the plaintiff's
CONCEPCION, C.J.:
application for the registration of the said land, and,
further, by awarding to the plaintiff the costs of the
This is a special civil action for a declaratory relief Thirty-nine
present suit, as well as any other relief that justice and
(39) non-life insurance companies instituted it, in the Court of
equity require.
First Instance of Manila, to secure a declaration of legality of
Article 22 of the Constitution of the Philippine Rating Bureau, of
The trial judge dismissed this complaint on the ground of the
which they are members, inasmuch as respondent Insurance
illegality of the consideration of the alleged contract, and without
Commissioner assails its validity upon the ground that it
stopping to consider any other objection to the complaint than that
constitutes an illegal or undue restraint of trade. Subsequently to
indicated by the court below, we are of opinion that the order
the filing of the petition, twenty (20) other non-life insurance
appealed from must be affirmed.
companies, likewise, members of said Bureau, were allowed to
intervene in support of the petition. After appropriate proceedings,
An agreement by the owner of stolen goods to stifle the said court rendered judgment declaring that the aforementioned
prosecution of the person charged with the theft, for a pecuniary or Article 22 is neither contrary to law nor against public policy, and
other valuable consideration, is manifestly contrary to public that, accordingly, petitioners herein, as well as the intervenors and
policy and the due administration of justice. In the interest of the other members of the aforementioned Bureau, may lawfully
public it is of the utmost importance that criminals should be observe and enforce said Article, and are bound to comply with
prosecuted, and that all criminal proceedings should be instituted the provisions thereof, without special pronouncement as to costs.
and maintained in the form and manner prescribed by law; and to Hence this appeal by respondent Insurance Commissioner, who
permit an offender to escape the penalties prescribed by law by the insists that the Article in question constitutes an illegal or undue
purchase of immunity from private individuals would result in a restraint of trade and, hence, null and void.
manifest perversion of justice.
The record discloses that on March 11, 1960, respondent wrote to
Article 1255 of the Civil Code provides that: said Bureau, a communication expressing his doubts of the
validity of said Article 22, reading:
The contracting parties may make the agreement and
establish the clauses and conditions which they may xxx xxx xxx
dream advisable, provided they are not in contravention
of law, morals, or public order.
In respect to the classes of insurance specified in the
Objects of the Bureau1 and for Philippine business only,
Article 1275 provides that: the members of this Bureau agree not to represent nor to
effect reinsurance with, nor to accept reinsurance from,
Contracts without consideration or with an illicit one any Company, Body, or Underwriter licensed to do
have no effect whatsoever. A consideration is illicit when business in the Philippines not a Member in good
it is contrary to law and good morals. standing of this Bureau.

The order entered in the court below should, therefore, be and requesting that said provision, be, accordingly, repealed. On
affirmed, with the costs of the instance against the appellant. So April 11, 1960, respondent wrote another letter to the Bureau
ordered. inquiring on the action taken on the subject-matter of his previous
communication. In reply thereto, the Bureau advised respondent
that the suggestion to delete said Article 22 was still under Phil. 77.) (See also, Del Castillo vs. Richmond, 45 Phil.
consideration by a committee of said Bureau. Soon thereafter, or 483.)
on May 9, 1961, the latter was advised by respondent that, being
an illegal agreement or combination in restraint of trade, said The issue in the case at bar hinges, therefore, on the purpose or
Article should not be given force and effect; that failure to comply effect of the disputed provision. The only evidence on this point is
with this requirement would compel respondent to suspend the the uncontradicted testimony of Salvador Estrada, Chairman of the
license issued to the Bureau; and that the latter should circularize Bureau when it was first organized and when he took the witness
all of its members on this matter and advise them that "violation of stand. Briefly stated, he declared that the purpose of Article 22 is
this requirement by any member of the Bureau" would also to maintain a high degree or standard of ethical practice, so that
compel respondent "to suspend the certificate of authority of the insurance companies may earn and maintain the respect of the
company concerned to do business in the Philippines". Thereupon, public, because the intense competition between the great number
or on May 16, 1961, the present action was commenced. of non-life insurance companies operating in the Philippines is
conducive to unethical practices, oftentimes taking the form of
Briefly, appellant maintains that, since, in the aforementioned underrating; that to achieve this purpose it is highly desirable to
Article 22, members of the Bureau "agree not to represent nor to have cooperative action between said companies in the
effect reinsurance with, nor to accept reinsurance from any compilation of their total experience in the business, so that the
company, body, or underwriter, licensed to do business in the Bureau could determine more accurately the proper rate of
Philippines not a member in good standing of the Bureau", said premium to be charged from the insured; that, several years ago,
provision is illegal as a combination in restraint of trade. As early the very Insurance Commissioner had indicated to the Bureau the
as August 10, 1916, this Court had had occasion to declare that the necessity of doing something to combat underrating, for,
test on whether a given agreement constitutes an unlawful otherwise, he would urge the amendment of the law so that
machination or a combination in restraint of trade appropriate measures could be taken therefor by his office; that
much of the work of the Bureau has to do with rate-making and
... is, whether, under the particular circumstances of the policy-wording; that rate-making is actually dependent very much
case and the nature of the particular contract involved in on statistics; that, unlike life insurance companies, which have
it, the contract is, or is not, unreasonable. (Ferrazini vs. tables of mortality to guide them in the fixing of rates, non-life
Gsell, 34 Phil. 697, 712-13.) insurance companies have, as yet, no such guides; that,
accordingly, non-life insurance companies need an adequate
This view was reiterated in Ollendorf vs. Abrahamson (38 Phil. record of losses and premium collections that will enable them to
585) and Red Line Transportation Co. vs. Bachrach Motor Co. (67 determine the amount of risk involved in each type of risk and,
Phil. 77), in the following language: hence, to determine the rates or premiums that should be charged
in insuring every type of risk; that this information cannot be
compiled without full cooperation on the part of the companies
...The general tendency, we believe, of modern authority,
concerned, which cannot be expected from non-members of the
is to make the test whether the restraint is reasonably
Bureau, over which the latter has no control; and that, in addition
necessary for the protection of the contracting parties. If
to submitting information about their respective experience, said
the contract is reasonably necessary to protect the interest
Bureau members must, likewise, share in the rather appreciable
of the parties, it will be upheld.
expenses entailed in compiling the aforementioned data and in
analyzing the same.1wph1.t
xxx xxx xxx
We find nothing unlawful, or immoral, or unreasonable, or
...we adopt the modern rule that the validity of restraints
contrary to public policy either in the objectives thus sought to be
upon trade or employment is to be determined by
attained by the Bureau, or in the means availed of to achieve said
the intrinsic reasonableness of the restriction in each
objectives, or in the consequences of the accomplishment thereof.
case, rather than by any fixed rule, and that
The purpose of said Article 22 is not to eliminate competition, but
such restrictions may be upheld when not contrary to the
to promote ethical practices among non-life insurance companies,
public welfare and not greater than is necessary to afford
although, incidentally it may discourage, and hence,
a fair and reasonable protection to the party in whose
eliminate unfair competition, through underrating, which in itself
favor it is imposed. (Ollendorf vs. Abrahamson, 38 Phil.
is eventually injurious to the public. Indeed, in the words of Mr.
585.)
Justice Brandeis:

...The test of validity is whether under the particular


... the legality of an agreement or regulation cannot be
circumstances of the case and considering the nature of
determined by so simple a test, as whether it restrains
the particular contract involved, public interest and
competition. Every agreement concerning trade, every
welfare are not involved and the restraint is not only
regulation of trade, restrains. To bind, to restrain, is of
reasonably necessary for the protection of the contracting
their very essence. The true test of legality is whether the
parties but will not affect the public interest or service.
restraint imposed is such as merely regulates and
(Red Line Transportation Co. vs. Bachrach Motor Co., 67
promotes competition, or whether it is such as may
suppress or even destroy competition. To determine that matter of rate-fixing is not decisive insofar as the public is
question the court must ordinarily consider the facts concerned, for no insurance company in the Philippines may
peculiar to the business to which the restraint is applied; charge a rate of premium that has not been approved by the
its condition before and after the restraint was imposed; Insurance Commissioner.
the nature of the restraint, and its effect, actual or
probable. (Board of Trade of Chicago vs. U.S., 246 U.S. In fact, respondent's Circular No. 54, dated February 261 1954,
231, 62 L. ed. 683 [1918].) provides:

Thus, in Sugar Institute, Inc. vs. U.S. (297 U.S. 553), the Federal II. Non-life Insurance company or Group Association of
Supreme Court added: such companies.

The restrictions imposed by the Sherman Act are not Every non-life insurance company or group or association
mechanical or artificial. We have repeatedly said that of such companies doing business in the Philippines shall
they set up the essential standard of file with the Insurance Commissioner for approval
reasonableness. Standard Oil Co. vs. United States, 221 general basic schedules showing the premium rates on
U.S. 1, 55 L. ed. 619, 31 S. Ct. 502, 34 L.R.A. (N.S.) all classes of risk except marine, as distinguished from
834, Ann. Cas. 1912D, 734; United States vs. American inland marine insurable by such insurance company or
Tobacco Co., 221 U.S. 106, 55 L. ed. 663, 31 S. Ct. 632. association of insurance companies in this country.
They are aimed at contracts and combinations which "by
reason of intent or the inherent nature of the xxx xxx xxx
contemplated acts, prejudice the public interests
by unduly restraining competition or unduly obstructing
An insurance company or group of such companies may
the course of trade." Nash vs. United States, 229 U.S.
satisfy its obligation to make such filings by becoming a
373, 376, 57 L. ed. 1232, 1235, 33 S. Ct. 780; United
member of or subscriber to a rating organization which
States vs. American Linseed Oil Co., 262 U.S. 371, 388,
makes such filing and by authorizing the insurance
389, 67 L. ed. 1035, 1040, 1041, 43 S. Ct. 607. Designed
commissioner to accept such filings of the rating
to frustrate unreasonable restraints, they do not prevent
organization on such company's or group's behalf.
the adoption of reasonable means to protect interstate
commerce from destructive or injurious practices and to
III. Requiring Previous Application to and Approval by
promote competition upon a sound basis. Voluntary
the Insurance Commissioner before any Change in the
action to end abuses and to foster fair competitive
Rates Schedules filed with Him Shall Take Effect.
opportunities in the public interest may be more effective
than legal processes. And cooperative endeavor may
appropriately have wider objectives than merely the No change in the schedules filed in compliance with the
removal of evils which are infractions of positive law. requirements of the next preceding paragraph shall be
made except upon application duly filed with and
approved by the Insurance Commissioner. Said
Hence, the City Fiscal of Manila refused to prosecute criminally in
application shall state the changes proposed and the date
Manila Fire Insurance Association for following a policy
of their effectivity; all changes finally approved by the
analogous to that incorporated in the provision disputed in this
Insurance Commissioner shall be incorporated in the old
case and the action of said official was sustained by the Secretary
schedules or otherwise indicated as new in the new
of Justice, upon the ground that:
schedules.
... combinations among insurance companies or their
IV. Empowering the Insurance Commissioner to
agents to fix and control rates of insurance do not
Investigate All Non-Life Insurance Rates.
constitute indictable conspiracies, provided no unlawful
means are used in accomplishing their purpose (41 C.J.
161; Aetna Ins. Co. vs. Commonwealth, 106 Ky. 864, 51 The Insurance Commissioner shall have power to
SW 624; Queen Ins. Co. vs. State, 86 Tex. 250, 24 SW examine any or all rates established by non-life insurance
397; I Joyce on Insurance, par. 329-a). companies or group or association of such insurance
companies in the country. Should any rate appear, in the
opinion of the Insurance Commissioner, unreasonably
Indeed, Mr. Estrada's testimony shows that the limitation upon
high or not adequate to the financial safety or soundness
reinsurance contained in the aforementioned Article 22 does not
to the company charging the same, or pre-judicial to
affect the public at all, for, whether there is reinsurance or not, the
policy-holders, the Commissioner shall, in such case,
liability of the insurer in favor of the insured is the same. Besides,
hold a hearing and/or conduct an investigation. Should
there are sufficient foreign reinsurance companies operating in the
the result of such hearing and/or investigation show that
Philippines from which non-members of the Bureau may secure
the rate is unreasonably high or low that it is not
reinsurance. What is more, whatever the Bureau may do in the
adequate to the financial safety and soundness of the
company charging the same, or is prejudicial to policy- of Article 22. It was not until March 11, 1960, that it assailed its
holders, the Insurance Commissioner shall direct a validity.
revision of the said rate in accordance with his findings.
Any insurance company or group or association of Respondent's contention is anchored mainly on Paramount
insurance companies may be required to publish the Famous Lasky Corp. vs. U.S., 282 U.S. 30, but the same is not in
schedule of rates which may have been revised in point, not only because it refers to the conditions under which
accordance herewith. movie film producers and distributors determine the terms under
which theaters or exhibitors may be allowed to run movie films
The decision of the Insurance Commissioner shall be appealable thereby placing the exhibitors under the control of the producers
within thirty days after it has been rendered to the Secretary of or distributors and giving the exhibitors, in effect, no choice as to
Finance. what films and whose films they will show but, also, because
there is, in the film industry, no agency or officer with powers or
V. Prohibiting Non-life Insurance Companies and their functions comparable to those in the Insurance Commissioner, as
Agents from Insuring Any Property in this Country at a regards the regulation of the business concerned and of the
Rate Different from that in the Schedules; Unethical transactions involved therein.
Practices.
Wherefore, the decision appealed from should be, as it is hereby
No insurance company shall engage or participate in the affirmed, without costs. It is so ordered.
insurance of any property located in the Philippines ...
unless the schedule of rates under which such property is [G. R. No. 126800. November 29, 1999]
insured has been filed and approved in accordance with
the provisions of this Circular. ... . (Emphasis ours.) NATALIA P. BUSTAMANTE, petitioner vs. SPOUSES
RODITO F. ROSEL and NORMA A.
On the same date, the Constitution of the Bureau, containing a ROSEL, respondents.
provision substantially identical to the one now under
consideration, was approved. Article 2 of said Constitution reads: R ES OLUTION

2. OBJECTS PARDO, J. :

The objects of the Bureau shall be: The case before the Court is a petition for review on
certiorari[1] to annul the decision of the Court of Appeals,
[2]
a. To establish rates in respect of Fire, Earthquake, Riot reversing and setting aside the decision of the Regional Trial
and Civil Commotion, Automobile and Workmen's Court,[3], dated November 10, 1992, Judge Teodoro P. Regino.
Compensation, and whenever applicable, Marine 3 Quezon City, Branch 84, in an action for specific performance
Insurance business. with consignation.

xxx xxx xxx On March 8, 1987, at Quezon City, Norma Rosel entered into
a loan agreement with petitioner Natalia Bustamante and her late
c. To file the rates referred to above, tariff rules, and all husband Ismael C. Bustamante, under the following terms and
other conditions or data which may in any way affect conditions:
premium rates with the Office of the Insurance
Commissioner on behalf of members for approval. 1. That the borrowers are the registered owners of a parcel of land,
(Emphasis ours.) evidenced by TRANSFER CERTIFICATE OF TITLE No. 80667,
containing an area of FOUR HUNDRED TWENTY THREE (423)
In compliance with the aforementioned Circular No. 54, in April, SQUARE Meters, more or less, situated along Congressional
1954, the Bureau applied for the license required therein, and Avenue.
submitted with its application a copy of said Constitution. On
April 28, 1954, respondent's office issued to the Bureau the license 2. That the borrowers were desirous to borrow the sum of ONE
applied for, certifying not only that it had complied with the HUNDRED THOUSAND (P100,000.00) PESOS from the
requirements of Circular No. 54, but, also, that the license LENDER, for a period of two (2) years, counted from March 1,
empowered it "to engage in the making of rates or policy 1987, with an interest of EIGHTEEN (18%) PERCENT per
conditions to be used by insurance companies in the Philippines". annum, and to guaranty the payment thereof, they are putting as a
Subsequently, thereafter, the Bureau applied for and was granted collateral SEVENTY (70) SQUARE METERS portion, inclusive
yearly the requisite license to operate in accordance with the of the apartment therein, of the aforestated parcel of land,
provisions of its Constitution. During all this time, respondent's however, in the event the borrowers fail to pay, the lender has the
office did not question, but impliedly acknowledged, the legality option to buy or purchase the collateral for a total consideration of
TWO HUNDRED THOUSAND (P200,000.00) PESOS, inclusive 2. Ordering the defendants to pay the loan of P100,000.00 with
of the borrowed amount and interest therein; interest thereon at 18% per annum commencing on March 2, 1989,
up to and until August 10, 1990, when defendants deposited the
3. That the lender do hereby manifest her agreement and amount with the Office of the City Treasurer under Official
conformity to the preceding paragraph, while the borrowers do Receipt No. 0116548 (Exhibit 2); and
[4]
hereby confess receipt of the borrowed amount.
3. To pay Attorneys Fees in the amount of P 5,000.00, plus costs of
When the loan was about to mature on March 1, 1989, suit.
respondents proposed to buy at the pre-set price of P200,000.00,
the seventy (70) square meters parcel of land covered by TCT No. SO ORDERED.
80667, given as collateral to guarantee payment of the loan.
Petitioner, however, refused to sell and requested for extension of Quezon City, Philippines, November 10, 1992.
time to pay the loan and offered to sell to respondents another
residential lot located at Road 20, Project 8, Quezon City, with the TEODORO P. REGINO
principal loan plus interest to be used as down
payment. Respondents refused to extend the payment of the loan
Judge[11]
and to accept the lot in Road 20 as it was occupied by squatters
and petitioner and her husband were not the owners thereof but
On November 16, 1992, respondents appealed from the
were mere land developers entitled to subdivision shares or
decision to the Court of Appeals.[12] On July 8, 1996, the Court of
commission if and when they developed at least one half of the
Appeals rendered decision reversing the ruling of the Regional
subdivision area.[5]
Trial Court. The dispositive portion of the Court of Appeals
decision reads:
Hence, on March 1, 1989, petitioner tendered payment of the
loan to respondents which the latter refused to accept, insisting on
IN VIEW OF THE FOREGOING, the judgment appeal (sic) from
petitioners signing a prepared deed of absolute sale of the
is REVERSED and SET ASIDE and a new one entered in favor
collateral.
of the plaintiffs ordering the defendants to accept the amount
of P 47,000.00 deposited with the Clerk of Court of Regional Trial
On February 28, 1990, respondents filed with the Regional
Court of Quezon City under Official Receipt No. 0719847, and for
Trial Court, Quezon City, Branch 84, a complaint for specific
defendants to execute the necessary Deed of Sale in favor of the
performance with consignation against petitioner and her spouse.[6]
plaintiffs over the 70 SQUARE METER portion and the apartment
standing thereon being occupied by the plaintiffs and covered by
Nevertheless, on March 4, 1990, respondents sent a demand TCT No. 80667 within fifteen (15) days from finality
letter asking petitioner to sell the collateral pursuant to the option hereof. Defendants, in turn, are allowed to withdraw the amount
to buy embodied in the loan agreement. of P153,000.00 deposited by them under Official Receipt No.
0116548 of the City Treasurers Office of Quezon City. All other
On the other hand, on March 5, 1990, petitioner filed in the claims and counterclaims are DISMISSED, for lack of sufficient
Regional Trial Court, Quezon City a petition for consignation, and basis. No costs.
deposited the amount of P153,000.00 with the City Treasurer of
Quezon City on August 10, 1990.[7] SO ORDERED.[13]

When petitioner refused to sell the collateral and barangay Hence, this petition.[14]
conciliation failed, respondents consigned the amount
of P47,500.00 with the trial court.[8] In arriving at the amount
On January 20, 1997, we required respondents to comment
deposited, respondents considered the principal loan of
on the petition within ten (10) days from notice. [15] On February
P100,000.00 and 18% interest per annum thereon, which
27, 1997, respondents filed their comment.[16]
amounted to P52,500.00.[9] The principal loan and the interest
taken together amounted to P152,500.00, leaving a balance of P
On February 9, 1998, we resolved to deny the petition on the
47,500.00.[10]
ground that there was no reversible error on the part of respondent
court in ordering the execution of the necessary deed of sale in
After due trial, on November 10, 1992, the trial court
conformity the with the parties stipulated agreement. The contract
rendered decision holding:
is the law between the parties thereof (Syjuco v. Court of
Appeals, 172 SCRA 111, 118, citing Phil. American General
WHEREFORE, premises considered, judgment is hereby rendered Insurance v. Mutuc, 61 SCRA 22; Herrera v. Petrophil
as follows: Corporation, 146 SCRA 360).[17]

1. Denying the plaintiffs prayer for the defendants execution of the


Deed of Sale to Convey the collateral in plaintiffs favor;
On March 17, 1998, petitioner filed with this Court a motion The elements of pactum commissorium are as follows: (1) there
for reconsideration of the denial alleging that the real intention of should be a property mortgaged by way of security for the
the parties to the loan was to put up the collateral as guarantee payment of the principal obligation, and (2) there should be a
similar to an equitable mortgage according to Article 1602 of the stipulation for automatic appropriation by the creditor of the thing
Civil Code.[18] mortgaged in case of non-payment of the principal obligation
within the stipulated period.[23]
On April 21, 1998, respondents filed an opposition to
petitioners motion for reconsideration. They contend that the In Nakpil vs. Intermediate Appellate Court,[24] we said:
agreement between the parties was not a sale with right of re-
purchase, but a loan with interest at 18% per annum for a period of The arrangement entered into between the parties,
two years and if petitioner fails to pay, the respondent was given whereby Pulong Maulap was to be considered sold to him
the right to purchase the property or apartment for P200,000.00, (respondent) xxx in case petitioner fails to reimburse Valdes, must
which is not contrary to law, morals, good customs, public order then be construed as tantamount to pactum commissorium which is
or public policy. [19] expressly prohibited by Art. 2088 of the Civil Code. For, there was
to be automatic appropriation of the property by Valdes in the
Upon due consideration of petitioners motion, we now event of failure of petitioner to pay the value of the
resolve to grant the motion for reconsideration. advances. Thus, contrary to respondents manifestation, all the
elements of a pactum commissorium were present: there was a
The questions presented are whether petitioner failed to pay creditor-debtor relationship between the parties; the property was
the loan at its maturity date and whether the stipulation in the loan used as security for the loan; and there was automatic
contract was valid and enforceable. appropriation by respondent of Pulong Maulap in case of default
of petitioner.
We rule that petitioner did not fail to pay the loan.
A significant task in contract interpretation is the
The loan was due for payment on March 1, 1989. On said ascertainment of the intention of the parties and looking into the
date, petitioner tendered payment to settle the loan which words used by the parties to project that intention. In this case, the
respondents refused to accept, insisting that petitioner sell to them intent to appropriate the property given as collateral in favor of the
the collateral of the loan. creditor appears to be evident, for the debtor is obliged to dispose
of the collateral at the pre-agreed consideration amounting to
practically the same amount as the loan. In effect, the creditor
When respondents refused to accept payment, petitioner
acquires the collateral in the event of non payment of the loan.
consigned the amount with the trial court.
This is within the concept of pactum commissorium. Such
stipulation is void.[25]
We note the eagerness of respondents to acquire the property
given as collateral to guarantee the loan. The sale of the collateral
All persons in need of money are liable to enter into
is an obligation with a suspensive condition. [20] It is dependent
contractual relationships whatever the condition if only to alleviate
upon the happening of an event, without which the obligation to
their financial burden albeit temporarily. Hence, courts are duty
sell does not arise. Since the event did not occur, respondents do
bound to exercise caution in the interpretation and resolution of
not have the right to demand fulfillment of petitioners obligation,
contracts lest the lenders devour the borrowers like vultures do
especially where the same would not only be disadvantageous to
with their prey.
petitioner but would also unjustly enrich respondents considering
the inadequate consideration (P200,000.00) for a 70 square meter
property situated at Congressional Avenue, Quezon City. WHEREFORE, we GRANT petitioners motion for
reconsideration and SET ASIDE the Courts resolution of February
9, 1998. We REVERSE the decision of the Court of Appeals in
Respondents argue that contracts have the force of law
CA-G. R. CV No. 40193. In lieu thereof, we hereby DISMISS the
between the contracting parties and must be complied with in
complaint in Civil Case No. Q-90-4813.
good faith.[21] There are, however, certain exceptions to the rule,
specifically Article 1306 of the Civil Code, which provides:
No costs.
Article 1306. The contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem SO ORDERED.
convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy. G.R. No. 103590 January 29, 1993

A scrutiny of the stipulation of the parties reveals a subtle GOVERNMENT SERVICE INSURANCE
intention of the creditor to acquire the property given as security SYSTEM, petitioner,
for the loan. This is embraced in the concept of pactum vs.
commissorium, which is proscribed by law.[22]
HON. COURT OF APPEALS, THE PROVINCIAL SHERIFF 1. Ordering defendant Queen's Row to pay
OF CAVITE and VICTOR G. VALENCIA, respondents. plaintiff the sum of FOUR HUNDRED FORTY
EIGHT THOUSAND THREE HUNDRED
Romana P. Valencia for petitioner. SEVENTY FOUR and 01/100 Pesos
(P448,374.01), for the first cause of action; the
Franco B. Loyola for private respondents. sum of TWO HUNDRED FOUR THOUSAND
EIGHT HUNDRED TWENTY ONE and 32/100
Pesos (P204,821.32), for the second cause of
action; the sum of ONE HUNDRED TWO
THOUSAND EIGHT HUNDRED SIXTY SIX
DAVIDE, JR., J.:
and 37/100 (P102,866.37) Pesos under the third
cause of action and ordering the said defendant
In this petition for review on certiorari under Rule 45 of the Rules to return to plaintiff the amount of TEN
of Court, petitioner would have Us annul and set aside, for being THOUSAND PESOS (P10,000.00) posted as
inconsistent with law and jurisprudence, the Resolution 1 of the performance bond, the same amounts to be
Court of Appeals (Special Eleventh Division) of 15 January 1992 recovered by plaintiff shall bear legal rate of
in CA-G.R. SP No. 24021 which reversed its previous interest from the date of demands on February
Decision 2 of 28 June 1991. This decision set aside the 7 June 10, 1974, September 13, 1976 and February 3,
1990, 10 September 1990 and 5 December 1990 Orders of Branch 1977, for the first, second and third causes of
19 of the Regional Trial Court (RTC) of the Fourth Judicial action, respectively;
Region, sitting at Bacoor, Cavite, in Civil Case No. BCV 78-33
entitled "Victor G. Valencia versus Queen's Row Subdivision, Inc.
2. Sentencing defendant Queen's Row to pay
and the Government Service Insurance System."
attorney's fees in favor of the plaintiff in the sum
equal to twenty (20%) percent of the said
As disclosed by the pleadings, the salient facts surrounding the amounts ordered recovered and payable to said
instant controversy are as follows: plaintiff;

Several years back, the Queen's Row Subdivision, Inc. (QRSI) 3. Requiring the defendant GSIS to hold
entered into a construction project agreement with the whatever amounts it has granted to, retained and
Government Service Insurance System (GSIS) by virtue of which obtained for defendant Queen's Row, and to
the latter agreed to extend a financing loan to the former for the deliver the same to plaintiff by way of payment
construction and development of a residential subdivision, to the aforecited amount ordered recovered by
comprising some four thousand four hundred ninety-three (4,493) plaintiff, the same to be credited as payment
housing units, situated at Molino, Bacoor, Cavite; these units were made by defendant Queen's Row. It is distinctly
to be sold to GSIS members in accordance with the System's made clear that defendant GSIS shall not be
housing program. personally liable for the said obligation of co-
defendant Queen's Row, except as herein above-
Pursuant to said project agreement, QRSI entered into a ordered; however, pending payment of the said
construction contract with private respondent Valencia involving claim of plaintiff, defendants are ordered to
various phases of land development in the said subdivision. Upon respect and satisfy the contractor's lien in favor
accomplishing and completing his undertaking under the contract, of the plaintiff as provided for by law.
Valencia demanded payment from QRSI. Despite repeated
demands, however, QRSI refused to pay. Valencia then filed the 4. Defendant Queen's Row is hereby ordered to
complaint in the aforementioned Civil Case No. BCV-78-33, an pay the costs.
action for a sum of money with prayer for the issuance of a writ of
preliminary attachment. During the trial of the case, Valencia, after
5. All other claims and counterclaims are hereby
manifesting that he was not seeking any relief against the personal
ordered dismissed.
funds of petitioner GSIS, proceeded to present his evidence. No
evidence was offered by both the petitioner and QRSI.
SO ORDERED. 3
On 2 March 1982, the trial court rendered its decision, the
On 25 March 1982, Valencia filed a motion for execution pending
dispositive portion of which reads:
appeal. Actually, no motion for reconsideration or notice of appeal
was filed by both QRSI and the petitioner. Although the motion
WHEREFORE, premises considered, the Court
was granted by the trial court, the writs issued as a consequence
hereby renders judgment in favor of the plaintiff
thereof was returned unsatisfied. Thereupon private respondent
and against the defendants, as follows:
Valencia filed a Motion for Examination of Debtors of the
Judgment Debtor. With the permission of the trial judge, a certain
Mr. Valeriano M. Espiritu, a plaintiff in a separate collection suit . . . Considering that the facts cited are not
against both the petitioner and QRSI, 4 was joined as movant with properly shown in the record, the court cannot
Valencia. Acting on said motion, the trial court ordered Mr. see any plausible reason to reverse or otherwise
Armando Diaz, Assistant General Manager for Loans and sustain the motion of defendant GSIS.
Investments of the GSIS, to appear and testify in accordance with
Sections 38 to 40, Rule 39 of the Rules of Court. WHEREFORE, finding no merit in the motion
for reconsideration filed by defendant GSIS, the
On 10 November 1982, respondent Valencia filed a petition to cite same is hereby denied. 6
petitioner in contempt of court for the latter's failure to comply
with the writ of execution. On 15 November 1982, the trial court On 9 June 1986, the trial court again issued an alias writ of
issued an order directing the petitioner to comply with the writ of execution. Consequently, notices of garnishment were served by
execution and instructing Mr. Diaz to appear on 26 November the Sheriff upon the petitioner and the Philippine National Bank
1982 under pain of contempt should he fail to do so. On 23 (PNB).
November 1982, petitioner filed an Urgent Motion for
Reconsideration of the 15 November 1982 Order. Pending On 13 June 1986, petitioner filed a motion for the reconsideration
resolution of this motion, petitioner partially paid respondent of the 22 May 1986 Order and on 16 June 1986, it filed a Notice
Valencia on 26 November 1982 the amount of ONE HUNDRED of Appeal Ad Cautelam from the Orders of 5 July 1985 and 22
FIFTY FOUR THOUSAND FOUR HUNDRED SEVENTY SIX May 1986. It thereafter filed its motion to quash the alias writ of
and 14/100 PESOS (P154,476.14) out of the retained funds held execution.
for the account of QRSI.
In its Order of 10 July 1986, the trial court denied the aforesaid
Thereafter, on 20 October 1983, another alias writ of execution motion for reconsideration.
was issued by the trial court.
The petitioner thus filed on 18 September 1986 with the Court of
On 5 December 1983, respondent Sheriff served upon the Appeals a petition for certiorari and prohibition to set aside the
petitioner a notice of garnishment upon all monies and credits aforesaid Orders of 5 July 1985, 22 May 1986 and 10 July 1986,
belonging to QRSI which were under the control and possession as well as the alias writ of execution of 9 June 1986 and the Notice
of the petitioner. An answer to the Sheriff's notice was submitted of Garnishment of 10 June 1986. The case was docketed as CA-
by the latter stating that the GSIS is not a debtor of QRSI; that it G.R. SP No. 09956.
has no credits, monies or interests belonging to QRSI in its
possession or control; and that it is in fact the biggest creditor of
In its Decision promulgated on 17 April 1986, the Court of
QRSI whose outstanding account as of 9 December 1983 stood at
Appeals dismissed the aforesaid petition principally on the ground
FIFTY EIGHT MILLION TWO HUNDRED SIXTY ONE
that the trial court's Decision of 2 March 1982 "has long become
THOUSAND SEVEN HUNDRED SEVENTY THREE and
final" as neither QRSI nor the herein petitioner had moved for its
19/100 PESOS (P58,261,773.19).
reconsideration or appealed therefrom
within the reglementary period. It considered as "inexcusable"
In its 5 July 1985 Order, the trial court ruled that the petitioner was petitioner's contention that it did not need to appeal the decision
holding funds for QRSI; it thus directed the petitioner to pay both because according to the trial court, "defendant GSIS shall not be
Valencia and Valeriano Espiritu the amount adjudged and covered personally liable for the obligation of QRSI" because the
by the writs of execution after deducting the payments previously following portion of the trial court's decision:
made. The dispositive portion of the Order reads:
3. Requiring defendant GSIS to hold whatever
. . . WHEREFORE, premises considered, this amounts it has granted to, retained and obtained
Court holds that defendant GSIS holding funds for defendant Queen's Row, and to deliver same
for defendant QRSI has more than sufficient to plaintiff by way of payment of the aforecited
funds to pay the obligation of said Queen's Row amount ordered recovered by plaintiff, the same
Subdivision, Inc. with the plaintiffs. to be credited as payment made by the defendant
Consequently, the defendant GSIS is ordered to Queen's Row. It is distinctly made clear that
pay to plaintiffs the judgment rendered and defendant GSIS shall not be personally liable for
covered by writs of execution after deducting the said obligation of co-defendant Queen's
the payments previously made . . . . 5 Row, except, as herein above-ordered; however,
pending payment of the said claim of plaintiff,
Petitioner's motion for reconsideration of the said order was defendants are ordered to respect and satisfy the
denied by the trial court in its Order of 22 May 1986 on the contractor's lien in favor of the plaintiff as
ground that, inter alia, the claim that QRSI is obligated to the provided for by law. 7
GSIS was not established by evidence during the trial of the case.
The Order reads in part: constitutes:
. . . a final or definitive judgment on the merits The argument of the petitioner that a separate
from which the party adversely affected can action should be filed by the private respondent
make an appeal. Said decision imposes an against GSIS was correctly rejected because the
obligation on GSIS which GSIS has acquiesced GSIS was a party to the case from the very start.
to do by its failure to appeal therefrom. 8 As pointed out by the respondent, the legal
compensation invoked by the GSIS whereby
and that: there would be compensation as between GSIS
and Queen's Row was waived by the fact that
Consequently, when GSIS conformed to the GSIS made partial payments to Valencia. 10
decision and allowed it to attain finality, it in
effect admitted that indeed it has in its The motion to reconsider this Resolution was denied with finality
possession or control credits, monies, and in the Resolution of 15 January 1990.
interests belonging to QRSI and therefore it
obliged itself to pay the latter's obligation to Thereafter, respondent Valencia moved for the issuance of an alias
Valencia as in fact, it did make a partial payment writ of execution for the amount of FIVE MILLION SEVEN
thereto in the amount of P154,476.14 (Annexes HUNDRED FIFTY NINE THOUSAND SIX HUNDRED
"A" and "B", p. 141, Ibid) on November 26, SEVENTY SEVEN and 97/100 PESOS (P5,759,677.97). An
1982. opposition thereto was filed by the petitioner contesting only the
amount due and payable, particularly the interests imposed
And as pointed out by the private respondent in therein. On 7 June 1990, the trial court issued an order the
its Comment to the petition, the challenged dispositive portion of which reads:
decision has not only become final and
executory but has in fact been partially executed WHEREFORE, premises considered, this court
by virtue of the payment on November 26, 1982 hereby orders GSIS to deposit in court or pay
by GSIS pursuant to a writ of execution issued plaintiff the amounts of the principal at twelve
against it out of its retentions. The fact of (12%) per cent simple interest per annum and
payment meanwhile also constitutes as (sic) a attorney's fees less payment already made within
waiver of the legal compensation being invoked five (5) days from receipt hereof, otherwise, the
by petitioner Clerk of Court is directed to issue the
GSIS. 9 corresponding alias writ of execution for the
said amounts. GSIS is ordered, therefore, to pay
Unsatisfied with the said decision, petitioner came to this Court by the following amounts:
way of a petition for review under Rule 45 of the Rules of Court;
the case was docketed as G.R. No. 87980. In the Resolution of 27 a) P448,374.01 with simple interest from February 10, 1974 or
November 1989, this Court denied the petition because o the 195.166 months up to May 15, 1990. At one percent (15) (sic) a
petitioner's failure to show that the appellate court's decision is not month, the interest would be:
supported by substantial evidence and that the conclusions therein
are contrary to law and jurisprudence. This Court stated: P448,374.01 x .01 x 195.166 months = P 875,073.

A careful review of the petition shows that it has b) P204,821.32 with simple interest from September 13, 1976 or
no merit. The decision of the respondent 164.066 months up to May 15 1990. At one percent (1%) a month,
Regional Trial Court had long become final the interest would be:
before the appeal to the Court of Appeals was
made. P204,821.32 x .01 x 164.066 mos. = P336,041.62 (sic).

The Argument that Queen's Row owes GSIS c) P102,866.33 with simple interest from Feb. 3, 1977 or 159.4
certain sums of money was rejected by the two months up to May 15, 1990. At one percent (1%) a month, the
courts below because it was never raised during interest would be:
the trial and no evidence was presented on the
matter. The respondent court correctly applied
P102,866.33 x .01 x 159.4 mos. = P163,968.40 (sic).
PD 1594 on government infrastructure contracts
regarding progress payments and the
S U M M AR Y
withholding of retention money everytime a
certain percentage of the work is completed. The
housing units were constructed by the Principal Interest Total
respondent and they have been sold by the GSIS
to its members.
P448,374.01 P875,073.60 sought to be executed. The said judgment contains the following
P204,821.32 P336,041.62 (sic) significant restricting and limiting clauses, namely:
P102,866.37 P163,968.40 (sic)
(1) That the judgment for money resulting from the violated
P756,061.70 P1,375,083.62 = contract between respondent Victor G. Valencia and Queen's Row
P2,131,145.32 Subdivision, Inc. ordered the latter to pay the former specific
Attorney's fees (20%) 426,229.06 amounts stated in the judgment with "legal rate of interest from the
Performance Bond 10,000.00 date of demands on February 10, 1974, September 13, 1976 and
February 3, 1977 . . . ."
TOTAL P2,567,374.06
(2) The Government Service Insurance System is requiring to
This Order shall be without prejudice to whatever resolution that "hold whatever amounts it has granted to, retained and obtained
may be rendered by this Court on the issue of proper rate of for defendant Queen's Row Subdivision, Inc. and deliver same to
interest. plaintiff by way of payment to the aforecited amount ordered
recovered by the plaintiff, the same to be credited as payment
SO ORDERED. 11 made by defendant Queen's Row. It is distinctly made clear that
defendant GSIS shall not be personally liable for the said
The rate of interest was later fixed in the Supplemental Order of obligation of co-defendant Queen's Row, except as herein above
10 September 1990 which directed the petitioner to pay the total ordered; . . . . . . .
amount of P11,363,304.27 arrived at by compounding interests
ranging from twelve percent (12%) to twenty-one percent It does not appear anywhere that the petitioner is in any manner
(21%) per annum allegedly in accordance with Central Bank contractually related to the private respondent, Victor G. Valencia.
Circulars Nos. 416, 494, 586 and 705 which fixed the maximum The petitioner, under the decision, is ordered to pay, not because it
legal rate of interest at twelve percent (12%), seventeen percent is principally and directly liable to the private respondent under
(17%), nineteen percent (19%) and twenty-one percent (21%) per the contracts between Queen's Row Subdivision, Inc. and
annum, respectively less the sum of P2,567,374.06. 12 respondent Victor G. Valencia, but because it had granted, retained
and obtained funds for Queen's Row Subdivision, Inc. It is ordered
Its motion for reconsideration of the said supplemental order to pay such funds and to deliver the same to respondent Victor G.
having been denied by the trial court in the Order of 5 December Valencia which shall be credited as payment for the amounts
1990, petitioner commenced before the respondent Court of recovered by the said private respondent. Strictly speaking, the
Appeals a petition or certiorari and prohibition to seek the petitioner has no standing questioning (sic) the rate of interest to
nullification of the Orders of 7 June 1990, 10 September 1990 and be applied on the principals because only Queen's Row
5 December 1990. The petition was docketed as CA-G.R. SP No. Subdivision may, since it is the latter's obligation that is being
24021. On 28 June 1991, respondent Court promulgated its liquidated and paid for in this manner. The petitioner is not a
decision 13therein in favor of the petitioner: debtor of Queen's Row Subdivision, Inc. and the decision sought
to be executed does not say so. It is simply being ordered to pay
The Court, therefore, finds grave abuse of discretion n the trial the funds it holds for Queen's Row Subdivision, Inc. in order that
court's orders requiring the petitioner to the payment (sic) of the latter's indebtedness in favor of Victor G. Valencia may be paid
millions of pesos, in favor of the private respondent, Victor G. fully, or partially.
Valencia, without regard to the amount or amounts that it actually
holds, if any, in favor of Queen's Row Subdivision, Inc. To do But while the petitioner is ordered to pay whatever amount
otherwise would violate the very judgment sought to be executed. Queen's Row is adjudged to pay, the judgment protects the
petitioner by saying that it shall not be personally liable for the
WHEREFORE, the orders of June 7, 1990, September 10, 1990 payment of the obligation of Queen's Row Subdivision, Inc.,
and December 5, 1990 are hereby SET ASIDE. The case is beyond whatever funds it holds for Queen's Row Subdivision, Inc.
remanded for proceedings appropriate to determining how much The judgment specifically limits the petitioner's liability to the
funds the petitioner holds in favor of Queen's Row Subdivision, extent of the amounts 'it has granted to be retained and obtained
Inc., under paragraph 3 of the decision of March 3, [should be 2] for defendant Queen's Row . . . . . . Therefore, there should be a
1982, beyond which amount, the petitioner cannot be held preliminary inquiry into how much the petitioner holds for
liable. 14 Queen's Row Subdivision, Inc.

The above decision is anchored on the following disquisitions: The orders brought up for review simply order the petitioner to
pay the principal amounts plus the computed interest without
regard to the amount that the petitioner holds, retains or is granted
The merit in this petition flows from the language of the now
in favor of Queen's Row Subdivision, Inc. Beyond this amount,
long-final decision of March 3, [should be 2] 1982. The orders
the trial court would be ordering the payment of the petitioner's
above-cited and complained of have evidently disregarded,
"personal" money, money that belongs to its thousands of
ignored, and held inexistent, he clear language of the decision
members, thousands of small-salaried government employees. 4. THE RESPONDENT COURT OF APPEALS MANIFESTLY
Their interests need protection also. The petitioner can, OVERLOOKED CERTAIN RELEVANT FACTS NOT
theretofore, be ordered to pay the obligations of Queen's Row DISPUTED BY THE PARTIES AND, WHICH IF PROPERLY
Subdivision, Inc. to the limit of what it holds, retains or has CONSIDERED, WOULD JUSTIFY A DIFFERENT
granted, in favor of Queen's Row Subdivision. Beyond this, it CONCLUSION. 18
cannot be made to pay because that would be violative of the very
judgment sought to be executed. There is ni basis, therefore, for Petitioner claims that res judicata does not apply in this case as the
orders that would compel it to pay without regard to the amounts reliefs sought in CA-G.R. SP No. 24021 are distinct from those
that it holds in favor of Queen's Row Subdivision, Inc., under prayed for in G.R. No. 87980. It avers that while the former
paragraph 3 of the decision of March 3, [should be 2] 1982. There questions the rate of interest imposed, the latter involves the issue
must be a previous inquiry into how much these funds amount to. of whether the petitioner is a creditor or a debtor of QRSI and the
This has not been made. 15 question of the sufficiency of the retained money in its possession.
In CA-G.R. SP No. 24021, petitioner assailed the trial court's
On 12 July 1991, respondent Valencia sought the reconsideration Orders of 7 June 1990, 10 September 1990 and 5 December 1990
of the above-quoted decision claiming that the petition filed before because they vary the terms of the very decision sought to be
the appellate court (CA-G.R. SP No. 24021) is barred by a prior enforced, particularly with respect to the rate of interest to be
judgment and estoppel. The prior judgment alluded to is the applied.
decision of the Court of Appeals in CA-G.R. SP No. 09956 and
the resolution of this Court in G.R. No. 87980, while the estoppel Petitioner argues further that the partial payment of the sum of
is based on the partial payment made by the petitioner. P2,567,374.06 in favor of respondent Valencia does not ipso
facto estop it from asserting that it can only be held liable for the
On 15 January 1992, the respondent Court promulgated the aggregate amount of P3,373,391.77, the total amount retained by it
questioned resolution 16 reconsidering its 28 June 1991 Decision in favor of QRSI.
and dismissing the Petition for Certiorari and Prohibition, thus:
On 25 May 1992, after the private respondent had filed his
WHEREFORE, the motion for reconsideration is hereby granted, Comment 19 and the petitioner had submitted its Reply, 20We
the decision reconsidered, and the petition for certiorari and resolved to give due course to the instant petition and required the
prohibition dismissed for lack of merit. parties to submit their respective Memoranda 21which they
subsequently complied with.
17
SO ORDERED.
The main issue in this petition is whether or not respondent Court
The Court of Appeals agreed with the private respondent's claim of Appeals committed reversible error when it made a
of res judicata or bar by prior judgment. It further observed that sudden volte-face by reversing its own Decision of 28 June 1991
after making a partial payment in compliance with the trial court's on the grounds of res judicata and estoppel. This in turn brings Us
Order of 7 June 1990 which set the interest at twelve percent to the issue of whether or not the trial court acted without or in
(12%) per annum, petitioner can no longer assert that the interest excess of jurisdiction, or with grave abuse of discretion when it
should be at six percent (6%) per annum. ordered the petitioner to pay interests at various rates ranging from
twelve percent (12%) to twenty-one percent (21%), pursuant to
Dissatisfied with the respondent Court's findings, petitioner took various circulars of the Central Bank, and attorney's fees.
this present recourse and assigns the following errors:
We find merit in this petition. We rule for the petitioner.
1. THE RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT THE PRESENT PETITION IS BARRED BY Respondent Court erred in declaring, in the challenged resolution,
PRIOR JUDGMENT AND ESTOPPEL. that the judgments in CA-G.R. SP No. 09956 and G.R. No. 87980
bar, because of res judicata, CA-G.R. SP No. 24021, as these three
2. THE RESPONDENT COURT OF APPEALS ERRED IN (3) cases involve the same parties. In its own language, it avers:
REVERSING ITS OWN DECISION PROMULGATED ON
JUNE 28, 1991. The petitioner's comment on the motion for
reconsideration does not deny the grounds stated
3. THE RESPONDENT COURT OF APPEALS ERRED WHEN in the motion for reconsideration. It is, therefore,
IT FAILED TO RULE THAT PETITIONER CAN ONLY BE clear that the Court cannot tread over grounds
HELD TO PAY THE OBLIGATIONS OF QUEEN'S ROW that had already been covered in a previous
SUBDIVISION, INC. TO RESPONDENT VALENCIA OUT OF litigation between the same parties, especially
RETENTIONS AND ONLY AT A SIX PERCENT (6%) SIMPLE where the Highest Court of the land has made a
INTEREST RATE PER ANNUM. final, binding and lasting ruling. . . . 22
After taking pains to read the records of G.R. No. 87980 and the 3. Requiring defendant GSIS to hold whatever
decision of the Court of Appeals in CA-G.R. SP No. 09956 amounts it has granted to, retained and obtained
challenged therein, We agree with the petitioner that these rulings for defendant Queen's Row, and to deliver same
do not bar CA-G.R. SP No. 24021 because said prior judgments to plaintiff by way of payment to the aforecited
did not involve and did not rule on the rates of interest chargeable amount ordered recovered by plaintiff, the same
against the petitioner for the purpose of executing judgment. All to be credited as payment made by defendant
that was ruled upon therein was that the trial court's judgment of 2 Queen's Row. It is distinctly made clear that
March 1982 is already final and executory since no motion for defendant GSIS shall not be personally liable for
reconsideration or appeal was interposed within the reglementary the said obligation of co-defendant Queen's
period, that petitioner is holding more than enough funds for QRSI Row, except, as herein above-ordered; however,
to pay for the latter's obligation to Valencia and Espiritu and that pending payment of the said claim of plaintiff,
the petitioner's defense of legal compensation was deemed waived defendants are ordered to respect and satisfy the
by the partial payment made on 26 November 1982. These matters contractor's lien in favor of the plaintiff as
are not sought to be relitigated in CA-G.R. SP No. 24021. As We provided for by law. 26
see it, the latter merely seeks for a correct and proper executor of
the Decision of 2 March 1982. Petitioner no longer questions the It is clear from this disposition that the petitioner's liability is
finality of the decision for as a matter of fact, it had already limited to the holding of whatever amount it "has granted to,
partially satisfied the portion thereof directed against it. The retained and obtained for defendant Queen's Row" and the
application then of the doctrine of res judicata is not called for. It "delivery" thereof to Valencia "by way of payment to the
is entirely irrelevant. Besides, the identity of parties which the aforecited amount ordered recovered by" Valencia. Beyond such
respondent Court relied upon to justify the application of the amount, 27 petitioner is no longer liable. It is precisely for this
doctrine is only one of three (3) identities prescribed by the fourth reason that the trial court explicitly incorporated a proviso that
requisite of res judicata. These four (4) requisites are (1) the petitioner "shall not be personally liable for the said obligation of
presence of a final former judgment, (2) the former judgment is by co-defendant Queen's Row, except, as herein above-ordered."
a court having jurisdiction over the subject matter and the parties, Petitioner was not ordered to pay interest on the amount it was to
(3) the former judgment is a judgment on the merits and (4) there hold and deliver to Valencia or to pay attorney's fees. The trial
is, between the first and the second actions identity of parties, of court cannot, therefore, without committing grave abuse of
subject matter and of causes of action. 23 Since a cause of action discretion, direct the petitioner to pay interest and attorney's fees.
gives rise to issues, it logically follows that there must be identicalTo do so would be to vary the tenor of the judgment against the
issues. As heretofore stated, the issue raised in CA-G.R. SP No. latter and increase its liability, thereby rendering nugatory the
24021 is not identical with any of the issues posed and resolved in above proviso. Such imposition would mean, as in this case, the
CA-G.R. SP No. 09956 and G.R. No. 87980. delivery of money to Valencia in excess of that belonging to QRSI
which the petitioner has been retaining. It is a settled general
The general rule is that an order of execution of a final judgment is principle that a writ of execution must conform substantially to
not appealable. It is, however, recognized that this rule is subject every essential particular of the judgment promulgated. Execution
to two (2) exceptions, viz., (1) when the order of execution varies not in harmony with the judgment is bereft of validity. It must
or tends to vary the tenor of the judgment, and (2) when the terms conform, more particularly, to that ordained or decreed in the
of the judgment are not clear enough that there remains room for dispositive portion of the decision. 28
their interpretation by the trial court. In such instances, the
aggrieved party may appeal from the order of execution thus And even if We are to assume, for the sake of argument, that the
issued 24 or avail of any other proceeding appropriate and allowed amount held or retained by the petitioner for delivery to Valencia
under the Rules of Court such as the special civil action is more than enough to cover the sums adjudged against QRSI, the
of certiorari under Rule 65 of the Rules of Court. 25 In the instant imposition of interest ranging from twelve percent (12%) to
case, petitioner is of the honest opinion that the Orders of the trial twenty-one percent (21%) per annum on said sum pursuant to the
court dated 7 June 1990 and 10 September 1990 upon which shall quoted Central Bank circulars, is not justified and warranted.
be based the subsequent alias writ of execution, fixing the rates of
interest on the judgment amounts from twelve percent (12%) to While it is true that with respect to the amounts adjudged against
twenty-one percent (21%) on the basis of various circulars of the QRSI, enumerated in the first paragraph of the dispositive portion
Central Bank, vary the tenor of the judgment. Hence, it could seek of the Decision of 2 March 1982, the trial court imposed thereon
remedy therefrom either by ordinary appeal, or by certiorari under the "legal rate of interest from the date of demands on February
Rule 65 of the Rules of Court; it chose the latter, the propriety of 10, 1974, September 13, 1976 and February 3, 1977, for the first,
which is not challenged by the adverse party. The circumstances second and third causes of action, respectively," We agree with the
surrounding the issuance of the orders justify such choice. We petitioner that such legal rate refers to the legal rate provided for
agree with the petitioner that indeed, the said orders vary the tenor in Article 2209 of the Civil Code, which is six percent (6%) per
of the dispositive portion of the 2 March 1982 Decision with annum.
respect to the petitioner's specific liability thereunder, the rate of
interest and, it may be added, attorney's fees. As against the
Central Bank Circular No. 416, which prescribes interest at twelve
petitioner, the dispositive portion merely provides:
percent (12%) per annum, does not apply in this case. We have
held in a number of cases 29 that the said circular applies only to is SET ASIDE and its Decision therein of 28 June 1991 is hereby
interest for loans or forbearances of any money, goods or credits REINSTATED and AFFIRMED.
or judgments in cases involving loans or forbearances of any
money, goods or credits. Any other monetary judgment which This decision shall be immediately executory.
does not involve or which has nothing to do with loans or
forbearances of any money, goods or credit does not fall within its Costs against the private respondent.
coverage for such imposition is not within the ambit of the
authority granted to the Central Bank. The instant case does not
[G.R. No. 148599. March 14, 2005]
involve loans or forbearances of money, goods or credits.
PROFESSIONAL ACADEMIC PLANS, INC., FRANCISCO
COLAYCO and BENJAMIN DINO, petitioners, vs.
Neither are Central Bank Circulars Nos. 494, 586, 705 and 783 DINNAH L. CRISOSTOMO, respondent.
applicable. The first prescribed ceilings on the rates of interest on
DECISION
loans and yields on purchases of instruments by banks and non-
bank financial intermediaries. The second superseded the first CALLEJO, SR., J.:
while the third amended the latter by increasing the ceiling to a Before us is a petition for review of the Decision [1] of the
maximum of twenty-one percent (21%) per annum; the fourth Court of Appeals (CA) affirming the decision of the Regional Trial
fixed the effective rate of interest, including commissions, Court in Civil Case No. 93-197, and its Resolution denying the
premiums, fees and other charges on loans or forbearances of motion for reconsideration thereof filed by petitioner Professional
money, goods or credit with a maturity of 730 days or less not Academic Plans, Inc. (PAPI).
exceeding sixteen percent (16%) per annum, for secured loans, The Antecedents
and not exceeding eighteen percent (18%) per annum for Respondent Dinnah L. Crisostomo was the PAPI District
unsecured loans. Beyond 730 days, the interest rate is not subject Manager for Metro Manila. As such officer, she did not receive
to any ceiling. any salary but was entitled to a franchise commission equivalent
to 10% of the payments on remittances of clients whose contracts
or agreements had been negotiated by her, for and in behalf of
Accordingly, the respondent Court's Decision of 28 June 1991, the
PAPI. She was later promoted as Regional Manager.
dispositive portion of which provides that:
On May 17, 1988, petitioner PAPI wrote Col. Noe S.
Andaya, the President of the Armed Forces of the Philippines
WHEREFORE, the orders of June 7, 1990, Savings and Loan Association, Inc. (AFPSLAI) offering an
September 10, 1990 and December 5, 1990 are Academic Assistance Program for its members, their children and
hereby SET ASIDE. The case is remanded for dependents.
proceedings appropriate to determining how
Noel Rueda, a sales consultant of petitioner PAPI, initiated
much funds the petitioner holds in favor of negotiations for the sale of pre-need educational plans under the
Queen's Row Subdivision, Inc., under paragraph said program with the AFPSLAI. However, before an agreement
3 of the decision of March 3, [should be 2] 1982, was reached, Ruedas services were terminated. Respondent
beyond which amount, the petitioner cannot be Crisostomo, as the district manager and the immediate supervisor
held liable. of Rueda, continued the negotiation of the account together with
Guillermo R. Macariola, the Assistant Vice-President for Sales.
[2]
is in accord with the law and jurisprudence. Thus, the respondent The AFPSLAI agreed to the proposal.
Court erred in reversing itself via its challenged Resolution of 15 On November 9, 1988, the AFPSLAI and PAPI executed a
January 1992. Memorandum of Agreement (MOA)[3] in connection with
scholarship funding agreements to be entered into by PAPI and the
The private respondent's claim that the petitioner is estopped from AFPSLAI members. These agreements shall then embody the
questioning the twelve percent (12%) interest because it had made provisions of the Professional Academic Program Agreement. The
parties agreed that all support services would be provided by PAPI
some payments is untenable. The petitioner is an instrumentality
and that any amendments and/or modifications to the MOA would
of the Government which functions as an administrative body. Its
be effective only upon approval of the parties thereto.
officials are public officials. The general rule is that the
Government is not estopped by errors, mistakes or omissions of its By then, Rueda was no longer connected with the petitioner
corporation, hence, was disqualified to receive the franchise
officials or agents. 30 This is especially true in the case of the
commission. Thus, the said commission was offered to Macariola
petitioner because of the fiduciary character of its management
who, however, declined and waived his right thereto in favor of
which is "rendered more strict by the fact that the funds under its respondent Crisostomo, Ruedas immediate supervisor. The
administration are partly contributed by the thousands upon Executive Committee of petitioner PAPI agreed to give the
thousands of employees and workers in all the branches and franchise commission to respondent Crisostomo.[4]
instrumentalities of the government." 31
Initially, respondent Crisostomo received the 10% franchise
commission from December 1988 until April 1989. Later, upon the
WHEREFORE, the instant petition is GRANTED. The Resolution instance of petitioner Benjamin Dino, then Assistant Vice-
of respondent Court of 15 January 1992 in CA-G.R. SP No. 24021 President for Marketing, respondent Crisostomos franchise
commission was reduced to 5% to support the operational
expenses of PAPI. After a few months, the said commission was submitted a letter[14] on August 13, 1992 where she made the
again reduced to 4%. Two months later, petitioner PAPI asked for following proposal:
another .25% reduction; hence, respondent Crisostomos franchise Option 1: That I am willing to settle for a P5 Million amount
commission was further reduced to 3.75%. Finally, in January settlement and an immediate irrevocable resignation from your
1991, petitioner PAPI again asked for a final reduction of the good company,
commission to 2% to which respondent Crisostomo agreed, on the
Option 2: That the 2% franchise fee/commission be retained even
condition that it be reduced into writing.[5]
if and when the undersigned is no longer connected with
Thus, on February 7, 1991, petitioner Dino, and Angelito B. Professional Group, Inc. for as long as the AFPSLAI is still doing
Cruz, Vice-President for Finance and Administration, signed a business with the Professional Group. This is considered as the
Memorandum which reads as follows: royalty fee.[15]
This will confirm your company franchise on all AFPSLAI However, in a Letter[16] dated August 17, 1992, petitioner
business with Professional Academic Plans, Inc. under the Colayco informed the respondent that her settlement proposal was
following terms and conditions: totally unacceptable and that she was being placed under
1. Your franchise commission shall remain at 2% preventive suspension in order to abort any untoward reaction
excluding Entrance and Service Fees of the first resulting from the denial of her request, which may be detrimental
year premium for as long as you are connected to the companys interest. Worse, she was advised not to come back
with the company at whatever capacity. after the suspension. Thus, her services in the company were
2. This franchise is not transferable. terminated.
For your guidance. On January 21, 1993, respondent Crisostomo filed a
complaint for sum of money and damages against petitioners
(Sgd.) (Sgd.)
PAPI, Colayco and Dino. She alleged therein that as of October 2,
BENJAMIN S. DINO ANGELITO B. CRUZ[6] 1992, petitioner PAPIs sales of pre-need plans to the AFPSLAI
Crisostomo received her 2% commission until October 1991. amounted to P9,193,367.20; that she was entitled to 2% of such
[7]
In the meantime, Col. Victor M. Punzalan succeeded Col. Noe amount or the sum of P183,867.34 as franchise commission; and
S. Andaya as President of the AFPSLAI. [8] In a Letter dated that notwithstanding the said franchise, petitioner PAPI refused to
December 16, 1991, Col. Punzalan informed PAPI of the give her the said commissions. She, likewise, prayed for the grant
AFPSLAIs decision to review the 1988 MOA. of moral and exemplary damages, plus attorneys fees.[17]
As an aftermath of the negotiation, petitioner PAPI and the The petitioners averred in their answer to the complaint that
AFPSLAI executed a MOA in April 1992, amending their prior Crisostomo was not entitled to the franchise commission because
MOA.[9] she did not participate in the execution of the 1988 MOA. They
The AFPSLAI resumed its remittances of the installment pointed out that under the December 1989 company guidelines, a
payments of its members to petitioner PAPI in June 1992. [10] This franchise holder shall be maintained only when 100 new paid
time, however, Crisostomo was not paid her commission. In an plans are completed on a month-to-month basis. They argued that
Inter-Office Memorandum[11]dated June 1, 1992, respondent since respondent Crisostomo was unable to meet this requirement
Crisostomos franchise commission on sales transacted with the for the period of November 1991 to May 1992, her franchise was
AFPSLAI was terminated, for the following reasons: (1) the new terminated. The petitioners also claimed that the AFPSLAI did not
AFPSLAI management cancelled the old MOA in October 1991 resume payments in 1992 but entered into a new MOA after it
due to various anomalies and the misrepresentation committed by undertook new negotiations. They maintained that under the new
PAPIs sales force; (2) the new MOA is largely due to MOA, no one is entitled to a franchise, much less respondent
managements effort; hence, no franchise would be granted to any Crisostomo.[18]
sales associates; and (3) the franchise guidelines as per the The petitioners adduced testimonial evidence to show that
Memorandum dated November 1988 prescribed that in order to respondent Crisostomo had no participation whatsoever in the
maintain her franchise, 100 new paid plans should be completed negotiations which culminated in the execution of the two MOAs
on a month to month basis and respondent Crisostomo was not between petitioner PAPI and the AFPSLAI. Petitioner Dino
able to meet these parameters for the period of November 1991 to testified that before respondent Crisostomo became the regional
May 1992. manager, she was not an employee of PAPI. According to him,
Nonetheless, respondent Crisostomo insisted on the release after the termination of Ruedas employment for cause, the
of her 2% franchise commission.[12] She first approached her franchise commission should revert back to petitioner PAPI as a
immediate supervisor, Mrs. Editha Bayoneta, the Senior Assistant rule. While the Executive Committee agreed to award the
Vice-President, but to no avail. She then went to petitioner Dino, commission, it agreed to give respondent Crisostomo only a 5%
who allegedly threatened her with termination if she persisted with commission, which was reduced to 2% until June 1992 under the
her demand. Unfazed, she sought a dialogue with the President 1992 MOA. Moreover, Crisostomo had no participation
himself, petitioner Francisco Colayco. They, however, failed to whatsoever in the negotiations of the two agreements.
arrive at a settlement.[13] On July 6, 1992, respondent Crisostomo After due proceedings, the trial court rendered a Decision on
sent a demand letter to petitioner PAPI. The latter informed her November 20, 1997, the dispositive portion of which reads:
that it could not accede to her demand for the reasons stated in the Premises considered, judgment is hereby rendered in favor of the
Inter-Office Memorandum dated June 1, 1992. plaintiff and as against defendants. Wherefore, defendants are
Thereafter, Crisostomo again approached Colayco who hereby ordered to release to plaintiff:
advised her to make a formal proposal. She complied and 1. the sum of one hundred eighty-three thousand eight
hundred sixty-seven thousand and twenty-five
centavos (P183,867.25) which constitutes her COMMISSION UNDER THE NEW
commission from the AFPSLAI contract as of MEMORANDUM OF AGREEMENT UNDER
October 1992, and the sum equivalent to 2% of WHICH SHE HAD NO PARTICIPATION
all future remittances by AFPSLAI to defendant WHATSOEVER IN THE NEGOTIATION AND
PAPI; EXECUTION;
2. moral damages in the amount of P200,000.00; C) WHETHER OR NOT PETITIONERS, IN
3. exemplary [damages] of P50,000.00; DENYING RESPONDENT'S CLAIM, HAVE
COMMITTED ACTS THAT RENDER THEM
4. attorneys fees of P50,000.00;
LEGALLY LIABLE FOR MORAL AND
5. cost of suit. EXEMPLARY DAMAGES AND ATTORNEY'S
SO ORDERED.[19] FEES AND COST OF SUIT.[25]
The petitioners appealed the decision to the CA which Primarily, the petitioners assert that the respondent is not
rendered judgment[20] on August 31, 2000 affirming in toto the entitled to a franchise commission. They aver that the respondent
decision of the trial court. did not participate in initiating, conceptualizing, and negotiating
The Ruling of the Court of Appeals the first MOA with the AFPSLAI, except that she was present
during its signing. The franchise commission for the AFPSLAI
According to the CA, the letter of Col. Punzalan did not account under the old MOA should have been granted to Noel
indicate any intention to abrogate the first MOA. At most, it Rueda, who initiated and conceptualized the transaction. The
merely suspended the acceptance of the application for pre-need petitioners maintain that the franchise commission was only
plans while a thorough review of the terms and conditions of the awarded to the respondent because those who were entitled to it
first MOA was being made. The CA held that the second MOA did
were disqualified to be franchise holders Rueda was disqualified
not disclose any incompatibility with the first MOA that would for being no longer connected with the petitioner company, while
amount to an implied extinguishment of the latter; nor did the new Macariola was disqualified for being an employee.[26]
MOA use any word suggesting the cancellation of the first. The
CA then ruled that what was executed in 1992 was a mere Assuming that the respondent was entitled to the franchise
modification of the first MOA.[21] commission under the old MOA, the petitioners argue that such
privilege was already extinguished, considering that the old MOA
The CA further held that the fact that military and political was cancelled by the AFPSLAI thru the Letter dated December 16,
support intervened in facilitating the revival of the AFPSLAI 1991. They maintain that in writing the said letter, Col. Punzalan
account did not diminish the respondents right to the franchise intended to abrogate the old MOA and not merely suspend the
commission, considering that it was awarded to her by the same, otherwise, the intention to enter into a new agreement
executive committee for successfully initiating the deal with the mutually beneficial to both parties would not have been mentioned
AFPSLAI in 1988.[22] therein.[27] They conclude that since there has already been an
The CA ruled that the requirement of completing 100 new express cancellation of the old MOA, there is no longer a need to
plans monthly as a condition for a franchisee to be entitled to the delve into the issue of whether the new MOA declared in
commission was superseded by the Memorandum dated February unequivocal terms that the old MOA was being cancelled, or
7, 1991, which reduced the commission to 2% from the earlier whether the new MOA is incompatible with the old one.[28]
10%. Respondent Crisostomo was entitled to receive such reduced The petitioners point out that the respondent had no
commission as long as she was connected with the petitioner participation whatsoever in the negotiation or execution of the new
corporation in whatever capacity. Moreover, assuming that such MOA. Considering this and the fact that the old MOA had been
condition was still in effect, its non-fulfillment from November duly cancelled, the respondent, therefore, had no right to the
1991 to May 1992 could not be imputed to the respondent since it franchise commission on the AFPSLAI account under the new
was brought about by Col. Punzalans order to suspend the MOA.[29]
acceptance of plan applications pending a review of the first
MOA.[23] The petitioners assert that the award of moral and exemplary
damages and attorneys fees has no basis since they did not act in
The CA found that the award of moral and exemplary bad faith in denying the respondents claim.[30]
damages, attorneys fees and the costs of the suit, in favor of the
respondent, was fully supported by the evidence on record and In her Comment on the petition, the respondent counters that
was justified, in light of the petitioner corporations wanton regardless of the execution of the new MOA and her non-
disregard of respondents claim for her franchise commission.[24] participation in its negotiation and execution, her right to the
commissions from all sales emanating from the AFPSLAI
On June 13, 2001, the CA denied the petitioners motion for transactions subsists as long as she remained connected with PAPI.
reconsideration for lack of merit. Hence, they filed this petition for She asserts that the petitioners are now in estoppel to question the
review on certiorari. grant of her commission since it was granted through the
The Present Petition petitioner corporations authority and it was reduced into writing.
[31]
The petitioners submit the following issues for our
consideration: In their Reply, the petitioners stress that the respondents
A) WHETHER OR NOT THE OLD MEMORANDUM entitlement to the commission was not absolute. It was subject to
OF AGREEMENT HAD BEEN CANCELLED certain conditions, i.e., the fact that the respondent must be
AND RESCINDED BY AFPSLAI; connected with the company in order to be entitled to it, and that
B) WHETHER OR NOT RESPONDENT IS the old MOA must remain effective, since it was the basis for the
ENTITLED TO THE FRANCHISE FEE OR grant of the commission. With its cancellation, the right of
respondent to the commission, likewise, ceased to exist. Without IMPLEMENTATION IMPLEMENTATION
the new MOA, there would no longer be any applications for
academic plans from the AFPSLAI and, consequently, no Assistance by PAPI to Putting up of an
commission to be earned.[32] AFPSLAI in terms of support extension office near the
services AFPSLAI building at the
The Ruling of the Court expense of PAPI
Creation of a Committee to
Rule 45 of the Rules of Court provides that only legal issues supervise the initial Support and services by
may be raised. Factual issues are beyond the province of the implementation of the program PAPI in the
Supreme Court in a petition for review, for it is not the Courts implementation of the
function to weigh the evidence all over again. [33] While the Court program
may, in exceptional cases, resolve factual issues, the petitioners
herein failed to establish any such exceptional circumstances. PAYMENT and COLLECTION PAYMENT and
Moreover, it is doctrinal that findings of facts of the CA upholding st
Financing of the 1 annual COLLECTION
those of the trial court are binding upon the Supreme Court.[34] payment by AFPSLAI in the Financing in the form of
Even after a review of the factual issues raised by the form of educational loan to the a 5-year loan in favor of
petitioners, we find and so rule that the CA was correct in member the member equivalent to
declaring that the first MOA had not been cancelled, but was AFPSLAI as the authorized the Gross Contract Price
merely modified by the second MOA. collecting agent of monthly (GCP) of the plan
A reading of the letter of Col. Punzalan to the petitioner installments of the members Schedule of drawing out
corporation indicates that it merely signified the suspension of the Remittance of collections to the the loan proceeds within
acceptance of new applications under the first MOA, until such PAPI from the 2nd year until the 5 years
time that a thorough study was undertaken, and a new agreement plan is fully paid - 20% of GCP upon
mutually beneficial to both parties was entered into. By his letter, Direct payment to PAPI of the submission of the
Col. Punzalan did not unilaterally cancel or rescind the first MOA. st
1 year assistance granted by complete documentation
Indeed, the petitioners failed to adduce a morsel of evidence to AFPSLAI to the member by PAPI and upon
prove that AFPSLAI had agreed to such cancellation or rescission approval of the loan
of the first MOA. It bears stressing that abandonment of contract - 80% of the GCP to be
rights requires proof of actual intent to abandon. [35] drawn out in 48 equal
Once a contract is entered into, no party can renounce it monthly installments to
unilaterally or without the consent of the other.[36] This is the start upon receipt by
essence of the principle of mutuality of contracts entombed in AFPSLAI of the
Article 1308[37] of the Civil Code. To effectuate abandonment of a 13thmonthly amortization
contract, mutual assent is always required. [38] The mere fact that of the member
one has made a poor bargain may not be a ground for setting aside
the agreement.[39]
BENEFITS TO AFPSLAI BENEFITS TO
As can be gleaned from the second MOA, the parties merely AFPSLAI
47.5% of the net Initial Cash
made substantial modifications to the first MOA, and agreed that
Brought-In of all the 1st year 53.5% out of the 20% of
only those provisions inconsistent with those of the second were
assistance the GCP as service fee
considered rescinded, modified and/or superseded.[40]
5% of all total collections from and discount
As graphically shown below, the parties agreed to continue
with the implementation of the Academic Assistance Program the 2nd year up to the 5th year 5% out of the 80% of
the GCP as service fee
under the acronym LOVES (Loans to Offset Very Expensive
Schooling) and to continue implementing the same. The rights and IN CASE OF NON-PAYMENT IN CASE OF NON-
obligations of the parties under the first MOA were maintained PAYMENT
AFPSLAI to become the
albeit with modifications, to wit: receiver of the contract in case of AFPSLAI to
1988 MOA 1992 MOA failure to pay 3 monthly automatically become the
IN GENERAL IN GENERAL amortizations receiver of the contract in
AFPSLAI to acquire all case of failure to pay the
Agreement between PAPI and Agreement between monthly amortization(s),
AFPSLAI to implement the AFPSLAI and the PAPI interests from the contract in
case the 1styear assistance is not with dispositive right
terms and conditions of the to implement the terms over the plan
Academic Assistance Program and conditions of the fully paid by the member
Benefits to accrue directly to Loans to Offset Very
the member and the designated Expensive Schooling IN CASE OF
heirs (LOVES) Program CANCELLATION
Benefits to accrue Due to fraud, forgery or
directly to the member misrepresentation of
and the designated heirs PAPI personnel
- AFPSLAI to act on it and
notify PAPI
- Members loan to be On the issue of damages, we rule for the petitioners. Moral
deducted from the damages are recoverable for breach of contract where the breach
amounts due to PAPI, or was wanton, reckless, malicious or in bad faith, oppressive or
to be billed to PAPI, in abusive.[42] However, moral damages are improperly awarded,
case the former is absent a specific finding and pronouncement from the trial court
insufficient that petitioners acted in such manner.[43] In the instant case, despite
the trial courts award of moral damages, it did not make any
- no rebate on the service pronouncement as to the basis of such award. Therefore, the award
fee and discount of moral damages must be deleted.
Due to death of either As a consequence, the award for exemplary damages is also
the member or vacated. Exemplary damages are not recoverable as a matter of
beneficiary right, and although such damages need not be proved, the plaintiff
- the plan shall be deemed must first show that he is entitled to moral, temperate or
fully paid for compensatory damages before a court can favorably consider an
- to be acted upon by award of exemplary damages.[44] In this case, there was no finding
PAPI that the respondent is entitled to any such damages; hence, no
- outstanding accounts to exemplary damages may be awarded. Finally, we also vacate the
be deducted from award of attorneys fees since the trial court did not make any
AFPSLAIs future finding that any of the instances enumerated in Art. 2208 of the
releases or to be billed to Civil Code exists.
PAPI subject to certain WHEREFORE, the decision of the Court of Appeals is
conditions. AFFIRMED with MODIFICATION. The awards for moral and
exemplary damages and attorneys fees are DELETED. No
pronouncement as to costs.
MISCELLANEOUS MISCELLANEOUS
SO ORDERED.
AFPSLAI to be free from any AFPSLAI to be free
legal implication that may arise from any liability arising
G.R. No. L-11318 October 26, 1918
as to the agreement between the between the member
member and PAPI and PAPI
THE MANILA RAILROAD CO., plaintiff-appellant,
Effectivity of the MOA Effectivity of the MOA
immediately upon signing immediately upon vs.
signing LA COMPAIA TRANSATLANTICA, defendant-appellee.
Amendments and modifications
and
to become effective only upon Amendments and
THE ATLANTIC GULF & PACIFIC CO., defendant-appellant.
approval of the parties modifications to become
effective only upon
approval of the parties William A. Kincaid & Thomas L. Hartigan for plaintiff-appellant.
Prior inconsistent Lawrence, Ross & Block for defendant-appellant Atlantic, Gulf &
agreements deemed Pacific Co.
rescinded, modified, or Gilbert, Cohn & Fisher for defendant-appellee Compaia
superseded. Transatlantica.
The fact that the respondent did not participate in the
negotiations of the new MOA is of no moment. As culled from the
petitioners testimonial evidence, the franchise commission was
awarded as an incentive to the one who initiated and successfully STREET, J.:
negotiated the AFPSLAI account within a certain period. [41] The
franchise commission was granted subject to two conditions only: In March 1914, the steamship Alicante, belonging to
(1) that the respondent must remain connected with the company, the Compaia Transatlantica de Barcelona, arrived at Manila with
and (2) that it is not transferable. At the time the new MOA was
two locomotive boilers aboard, the property of The Manila
executed, the respondent was still connected with the petitioner
Railroad Company. The equipment of the ship for discharging
corporation; hence, she was still entitled to her commission. Even
with the modification of the first MOA by the second one, the heavy cargo was not sufficiently strong to handle these boilers,
respondent had the right to continue receiving her franchise and it was therefore necessary for the Steamship Company to
commission from the petitioner corporation. procure assistance in the port of Manila.
We agree with the respondent that the petitioners are now in
estoppel to question her entitlement to the franchise commission The Atlantic, Gulf and Pacific Company (hereafter called the
under the old MOA. It must be noted that from December 1988 Atlantic Company) was accordingly employed by the Steamship
until October 1991 the respondent was continuously receiving her Company, as having probably the best equipment for this purpose
franchise commission from the petitioner corporation. It was only of any contracting company in the city. The service to be
when the remittances for AFPSLAI were suspended that the performed by the Atlantic Company consisted in bringing it s
respondent stopped receiving her commission. floating crane alongside the Alicante, lifting the boilers our of the
ship's hold, and transferring them to a barge which would be the jar received in the first accident. The foreman was therefore
placed ready to receive them. guilty of negligence in attempting to hoist the boiler the second
time under the conditions that had thus developed. It should be
Upon the arrival of the Alicante, the Atlantic company sent out its noted that the operation was at all its states entirely under Leyden's
crane in charge of one Leyden. In preparing to hoist the first boiler control; and, although in the first lift he utilized the ship's tackle to
the sling was unfortunately adjusted near the middle of the boiler, aid in hoisting the boiler, everything was done under his
and it was thus raised nearly in an horizontal position. The boiler immediate supervision. There is no evidence tending to show that
was too long to clear the hatch in this position, and after one end the first fall of the boiler might have been due to any hidden defect
of the boiler had emerged on one side of the hatch, the other still in the lifting apparatus; and if it had not been for the additional
remained below on the other side. When the boiler had been gotten strain caused by one end of the boiler catching under the hatch, the
into this position and was being hoisted still further, a river near operation would doubtless have been accomplished without
the head of the boiler was caught under the edge of the hatch. The difficulty. The accident is therefore to be attributed to the failure of
weight on the crane was thus increased by a strain estimated at Leyden to exercise the degree of care which an ordinarily
fifteen tons with the result that the cable of the sling parted and thecompetent and prudent person would have exhibited under the
boiler fell to the bottom of the ship's hold. The sling was again circumstances which then confronted him. This conclusion of fact
adjusted to the boiler but instead of being placed near the middle it cannot be refuted; and, indeed, no attempt is here made by the
was now slung nearer one of the ends, as should have been done at appellant to reverse this finding of the trial court.
first. The boiler was gain lifted; but as it was being brought up, the
bolt at the end of the derrick book broke, and again the boiler fell. Three questions are involved in the case, namely: (1) Is the
steamship company liable to the plaintiff by reason of having
The crane was repaired and the boiler discharged, but it was found delivered the boiler in question in a damaged condition? (2) Is the
to be so badly damaged that it had to be reshipped to England atlantic company liable to be made to respond to the steamship
where it was rebuilt, and afterwards was returned to Manila. The company for the amount the latter may be required to pay to the
Railroad Company's damage by reason of the cost of repairs, plaintiff for the damage done? Is the Atlantic company directly
expenses and loss of the use of the boiler proved to be P23,343.29; liable to the plaintiff, as the trial court held?
and as to the amount of the damage so resulting there is practically
no dispute. To recover these damages the present action was It will be observed that the contractual relation existed between
instituted by the Railroad Company against the Steamship the railroad company and the steamship company; and the duties
Company. the latter caused the Atlantic Company to be brought in of the latter with respect to the carrying and delivery of the boilers
as a codefendant, and insisted that whatever liability existed are to be discovered by considering the terms and legal effect of
should be fixed upon the Atlantic Company as an independent that contract. A contractual relation also existed between the
contractor who had undertaken to discharge the boilers and had Steamship company and the atlantic company; and the duties
become responsible for such damage as had been done. owing by the latter to the former with respect to the lifting and the
transferring of the boiler are likewise to be discovered by
The judge of the Court of First Instance gave judgment in favor of considering the terms and legal effect of the contract between
the plaintiff against the Atlantic Company, but the absolved the these parties. On the other hand, no contractual relation existed
Steamship Company from the complaint. The plaintiff has directly between the Railroad Company and the Atlantic
appealed from the action of the court in failing to give judgment Company.
against the Steamship company, while the Atlantic company has
appealed from the judgment against it. We are all agreed, that, under the contract for transportation from
England to Manila, the Steamship company is liable to the
The mishap was undoubtedly due, as the lower court found, to the plaintiff for the injury done to the boiler while it was being
negligence of one Leyden, the foreman in charge; and we may add discharged from the ship. The obligation to transport the boiler
that the evidence tends to show that his negligence was of a type necessarily involves the duty to convey and deliver it in a proper
which may without exaggeration be denominated gross. The sling condition according to its nature, and conformably with good
was in the first place improperly adjusted, and the attention of faith, custom, and the law (art. 1258, Civ. Code). The contract to
Leyden was at once called to this by the man in charge of the convey import the duty to convey and deliver safely and securely
stevedores. Nevertheless he proceeded and, instead of lowering with reference to the degree of care which, under the
the boiler when it was seen that it could not readily pass through circumstances, are required by law and custom applicable to the
the hatch, he attempted to force it through; and the ship's tackle case. The duty to carry and to carry safely is all one.
was brought into use to assist in this maneuver. The second fall
was, it appears, caused by the weakening of the bolt at the head of Such being the contract of the Steamship Company, said company
the derrick boom, due to the shock incident to the first accident. is necessarily liable, under articles 1103 and 1104 of the Civil
This defect was possibly such as not to be patent to external Code, for the consequences of the omission of the care necessary
observation but we are of the opinion that a person of sufficient to the proper performance of this obligation. The contact to
skill to be trusted with the operation of machinery of this character transport and deliver at the port of Manila a locomotive boiler,
should be trusted with the operation of machinery of this character which was received by it in proper condition, is not complied with
should have known that the crane had possibly been weakened by
the delivery at the port of destination of a mass of iron the utility undoubtedly a larger element of truth in the more reasonable
of which had been destroyed. statement by the vice-president of the company. According to this
witness the contract combined two features, namely, an
Nor does the Steamship Company escape liability by reason of the undertaking on the part of the Atlantic Company to use all due
fact that it employed a competent independent contractor to care, combined with a reservation concerning the company's
discharge the boilers. The law applicable to this feature of the case liability for damage.
will be more fully discussed further on in this opinion. At this
point we merely observe that in the performance of this service the The Atlantic Company offered in evidence, a number of letters
Atlantic company, and it has never yet been held that the failure to which had been written by it at different times, extending over a
comply with a contractual obligation can be excused by showing period of years, in response to inquiries made by other firms and
that such delinquency was due to the negligence of one to whom person in Manila concerning the terms upon which the Atlantic
the contracting party had committed the performance of the Company was not accustomed to assume the risk incident to such
contract. work and required the parties for whom the service might be
rendered either to carry the risk or insure against it. One such
Coming to the question of the liability of the Atlantic Company to letter, dated nearly four years prior to the occurrence such letter,
respond to the Steamship Company for the damages which the dated nearly four years prior to the occurrences which gave rise to
latter will be compelled to pay to the plaintiff, we observe that the this lawsuit, was addressed to the Compaia Transatlantica de
defense of the Atlantic company comprises two contentions, to- Barcelona one of the defendants in this case. It was stated in this
wit, first, that by the terms of the engagement in accordance with communication that the company's derrick would be subject to
which the Atlantic company agreed to render the service, all risk inspection prior to making the lift but that the Atlantic Company
incident to the discharge of the boilers was assumed by the would not assume responsibility for damage that might occur
steamship company, and secondly, that the atlantic company either to ship or cargo from any whatsoever. The steamship
should be absolved under the last paragraph of article 1903 of the company rejected the services of the Atlantic company in that
civil code, inasmuch as it had used due care in the selection of the instance as being too onerous.
employee whose negligent act caused the damage in question.
The letters directed to this parties, it may observed, would not,
At the hearing in first instance the Atlantic Company introduced generally speaking, be admissible as against the plaintiff for the
four witnesses to prove that at the time said company agreed to lift purpose of proving that a similar reservation was inserted in the
the boilers out of the Alicante, as upon other later occasions, the contract with it on this occasion; but if knowledge of such custom
steamship company not be responsible for damage. The vice- is brought home to the steamship company, the fact that such
president of the atlantic company testified that hew as present reservation was commonly made is of some probative force.
upon the occasion when the agent of the Steamship company Reference to a number of these letters will show that no particular
made arrangements for the discharge of the boilers and he heard formula was used by the Atlantic Company in defining its
the conversation between the president and said agent. According exemption, and the tenor of these various communications differs
to this witness the substance of the agreement was that, while the materially. We think, however, that some of the letters are of value
Atlantic Company would use all due care in getting the boilers as an aid in interpreting the reservation which the Atlantic
out, no responsibility was assumed for damage done either to ship Company may have intended to make. We therefore quote from
or cargo. The intermediary who acted as agent for the Steamship some of these letters as follows:
Company in arranging for the performance of this service stoutly
denied that any such terms were announced by the officials or We will use our best endeavors to carry out the work
anybody else connected with the Atlantic Company at any time successfully and will ask you to inspect our plant but we
while the arrangements were pending. wish it distinctly understood that we cannot assume
responsibility for damage which may occur . . . while the
In the conflict of the evidence, we recognize that, by a lift is being made. (To Rear Admiral, U.S.N., Oct. 4,
preponderance of the evidence, some reservation or other was 1909.)
made as to the responsibility of the Atlantic Company; was made
to the responsibility of the atlantic company and though the agent Our quotation is based on the understanding that we
who acted on behalf of the steamship company possibly never assume no responsibility from any accident which may
communicated this reservation to his principal, the latter should happen during our operations. We always insert this
nevertheless be held bound thereby. It thus becomes necessary to clause as precautionary measure, but we have never had
discover what the exact terms of this supposed reservation were. to avail ourselves of it as yet and do not expect to now.
(To "El Varadero de Manila," Nov. 1, 1913.)
We think that we must put aside at once the words of studies
precision with which the president of the Atlantic company could As is customary in these cases, we will use all precaution
exclude the possibility of any liability attaching to his company, as necessary to handle the gun in a proper manner. Our
though we may accept his statement as showing that the excepted equipment has been tested and will be again, before
risk contemplated breakage of the lifting equipment. There is making the lift, but we do not assume any responsibility
for damage to the gun ship, or cargo. (To Warner, Barnes defendant company for negligence of its servants by which the
& Co., June 7, 1909.) baggage of the passenger was lost. Said the court: Ordinarily this
language would seem to be broad enough to cover every possible
The idea expressed in these letters is, we think entirely consonant contingency, including the negligent act of the defendant's
with the interpretation which the vice-president of the company servants. To so hold, however, would run counter to the
placed upon the contract which was made with the steamship established law of England and the United States on that subject.
company upon this occasion, that is, the company recognized its The court then quoted the following proposition from the decision
duty to exercise due supervisory care; and the exemption from of the King's Bench Division in Price & Co. vs. Union Lighterage
liability, whatever may have been its precise words had reference Co. ([1903], 1 K. B. D., 750, 754):
to disasters which might result from some inherent hidden defect
in the lifting apparatus or other unforeseen occurrence not directly "An exemption in general words not expressly relating to
attributable to negligence of the company in the lifting operations. negligence, even though the words are wide enough to
Neither party could have supposed for a moment that it was include loss by negligence or default of carriers' servants'
intended to absolve the Atlantic Company from its duty to use due must be construed as limiting the liability of the carrier as
care in the work. assurer, and not as relieving from the duty of the
exercising reasonable skill and care."
It is not pretended that negligence on the part of the Atlantic
Company or its employees was expressly included in the excepted Even admitting that, generally speaking, a person may stipulate
risk, and we are of the opinion that the contract should not be against liability for the consequences of negligence, at least in
understood as covering such an exemption. It is a rudimentary those cases where the negligence is not gross or willful, the
principle that the contractor is responsible for the work executed contract conferring such exemption must be so clear as to leave no
by persons whom he employees in its performance, and this room for the operation of the ordinary rules of liability
expressed in the Civil Code in the form of a positive rule of law consecrated by experience and sanctioned by the express
(art. 1596). It is also expressly declared by law that liability arising provisions of law.
from negligence is demandable in the fulfillment of all kinds of
obligations (art. 1103, Civil Code). Every contract for the If the exemption should be understood in the scene that counsel
presentation of service therefore has annexed to it, as an for the Atlantic Company now insists it should bear, that is, as an
inseparable implicit obligation, the duty to exercise due care in the absolute exemption from all responsibility for negligence, it is
accomplishment of the work; and no reservation whereby the evident that the agreement was a most inequitable and unfair one,
person rendering the services seeks to escape from the and hence it is one that the steamship company can not be lightly
consequences of a violation of this obligations can viewed with assumed to have made. Understood in that sense it is the
favor. equivalent of licensing the Atlantic Company to perform its tasks
in any manner and fashion that it might please, and to hold it
Contracts against liability for negligence are not favored harmless from the consequences.
by law. In some instances, such as common carriers, they
are prohibited as against public policy. In all cases such It is true that, in these days insurance can usually be obtained in
contracts should be construed strictly, with every the principal ports of commerce by parties circumstanced as was
intendment against the party seeking its protection. (Crew the steamship company in the case now before us. But the best
vs. Bradstreet Company, 134 Pa. St., 161; 7 L. R. A., 661; insurance against disasters of this kind is found in the exercise of
19 Am. St. Rep., 681.) due care; and the chief incentive to the exercise of care is a feeling
of responsibility on the part of him who undertakes the work.
The strictness with which contracts conferring such an unusual Naturally the courts are little inclined to aid tin the efforts of
exemption are construed is illustrated in Bryan vs. Eastern & contractors to evade this responsibility.
Australian S. S. Co. (28 Phil. Rep., 310). The decision in that case
is not precisely applicable to the case at bar, since the court was There may have been in the minds of the officials of the Atlantic
there applying the law of a foreign jurisdiction, and the question at Company an idea that the promise to use due care in the lifting
issue involved a doctrine peculiar to contracts of common carriers. operations was not accompanied by a legal obligation, such
Nevertheless the case is instructive as illustrating the universal promise being intended merely for its moral effect as an assurance
attitude of courts upon the right of a contracting party to stipulate to the steamship company that the latter might rely upon
against the consequences of his own negligence. It there appeared competence and diligence of the employees of the Atlantic
that the plaintiff had purchased from the defendant company a Company to accomplish the work in a proper way. The contract
ticket for the transportation of himself and baggage from can not be permitted to operate in this one-sided manner. The two
Hongkong to Manila By the terms of the contract printed in legible features of the engagement, namely, the promise to use due care
type upon the back of the ticket it was provided that the company and the exemption from liability for damage should be so
could not hold itself responsible for any loss or damage to construed as to give some legal effect to both. The result is, as
luggage, under any circumstances whatsoever, unless it had been already indicated, that the Atlantic Company was bound by its
paid for as freight. It was held that this limitation upon the liability undertaking to use due care and that he exemption was intended to
of the defendant company did not relieve it from liability of the
cover accidents use to hidden defects in the apparatus or other thus clearly set forth by Manresa in his commentary on
unforeseeable occurrences not having their origin in the immediate article 1093:
personal negligence of the party in charge of the operations.
"We see with reference to such obligations,
We now proceed to consider the contention that the Atlantic that culpa, or negligence, may be understood in
Company under the last paragraph of article 1903 of the Civil two different senses, either
Code, which declares that the liability there referred to shall cease as culpa, substantive and independent, which of
when the persons mentioned therein prove that they employed all itself constitutes the source of an obligation
the diligence of a good father of a family to avoid the damage. In between two person not formerly bound by any
this connection the conclusion of fact must be conceded in favor other obligation; or as an incident in the
of the Atlantic Company that it had used proper care in the performance of an obligation which already
selection of Leyden and that , so far as the company was aware, he existed, and which increases the liability arising
was a person to whom might properly be committed the task of from the already existing obligation."
discharging the boilers. The answer to the contention, however is
the obligation of the Atlantic Company was created by contract, Justice Tracey, the author of the opinion from which we have
and article 1903 is not applicable to negligence arising in the quoted, proceeds to observe that Manresa, in commenting on
course of the performance of a contractual obligation. Article 1903 articles 1101 and 1104, has described these two species of
is exclusively concerned with cases where the negligence arises in negligence as contractual and extra-contractual, the latter being
the absence of agreement. the culpa aquiliana of the Roman law. "This terminology is
unreservedly accepted by Sanchez Roman (Derecho Civil, fourth
In discussing the liability of the Steamship Company to the section, chapter XI, article II, No. 12), and the principle stated is
plaintiff Railroad Company we have already shown that a party is supported by decisions of the supreme court of Spain,. among
bound to the full performance of his contractual engagements them those of November 29, 11896 (80 Jurisprudencia Civil, No.
under articles 1101 et seq. of the Civil Code, and other special 151), and June 27, 1894 (75 Jurisprudencia Civil, No. 182.)"
provisions of the Code relative to contractual obligations; and if he
falls short of complete performance by reason of his own The principle that negligence in the performance of a contract is
negligence or that of any person to whom he may commit the not governed by article of the Civil Code but rather by article 1104
work, he is liable for the damages resulting therefrom. What was of the same Code was directly applied by this court in the case of
there said is also applicable with reference to the liability of the Baer Senior & Co.'s successors vs. Compaa Maritima (6 Phil.
Atlantic Company upon its contract with the Steamship Company, Rep., 215); and the same idea has been impliedly if not expressly
and the same need not be here repeated. It is desirable, however, in recognized in other cases (N. T. Hashim & Co. vs. Rocha & Co.,
this connection, to bring out somewhat more fully the distinction 18 Phil. Rep., 315; Tan Chiong Sian vs. Inchausti & Co., 22 Phil.
between negligence in the performance of a contractual obligation Rep., 152).
(culpa contractual) and neligence considered as an independent
source of obligation between parties not previously bound (culpa What has been said suffices in our opinion to demonstrate that the
aquiliana). Atlantic Company is liable to the Steamship Company for the
damages brought upon the latter by the failure of the Atlantic
This distinction is well established in legal jurisprudence and is company to use due care in discharging the boiler, regardless of
fully recognized in the provisions of the Civil Code. As illustrative the fact that the damage was caused by the negligence of an
of this, we quote the following passage from the opinion of this employee who was qualified for the work and who had been
Court in the well-known case of Rakes vs. Atlantic, Gulf & Pacific chosen by the Atlantic Company with due care.
Co. (7 Phil. Rep., 359, 365), and in this quotation we reproduce
the first paragraph of here presenting a more correct English This brings us to the last question here to be answered, which is,
version of said passage. Can the Atlantic Company be held directly liable to the Railroad
Company? In other words, can the judgement entered in the trial
The acts to which these articles are applicable are court directly in favor of the plaintiff against the Atlantic
understood to be those not growing out of preexisting Company be sustained? To answer this it is necessary to examine
duties of the parties to one another. But where relations carefully the legal relations existing between the Atlantic
already formed give arise to duties, whether springing Company and the Railroad Company with reference to this affair;
form contract or quasi-contract, then breaches of those and we shall for a moment ignore the existence of the contract
duties are subject to articles 1101, 1103, and 1104 of the between the steamship company and the atlantic company, to
same code. A typical application of this distinction may which the railroad company was not a party.
be found in the consequences of a railway accident due to
defective machinery supplied by the employer. His Having regard then to the bare fact that the Atlantic Company
liability to his employee would arise out of the contract undertook to remove the boiler from the ship's hold and for this
for passage, while that of the injured by-stander would purpose took the property into its power and control, there arose a
originate in the negligent act itself. This distinction is duty to the owner to use due care in the performance of that
service and to avoid damaging was obviously in existence before to an action, be he a common carrier or whatever he is, if through
the negligent act may, if we still ignore the existence of the his neglect they are lost or come to any damage: . . . . " Behind
express contract, be considered as an act done in violation of this these expressions was an unbroken line of ancient English
duty. precedents holding persons liable for damage inflicted by reason
of a misfeasance in carrying out an undertaking. The principle
The duty thus to use due care is an implied obligation, of a quasi determined by the court in the case cited is expressed in the
contractual nature, since it is created by implication of liability syllabus in these words: 'If a man undertakes to carry goods safely
with which we are here confronted is somewhat similar to that and securely, he is responsible for any damage they may sustain in
which is revealed in the case of the depositary, or commodatary, the carriage through his neglect, though he was not a common
whose legal duty with respect to the property committed to their carrier and was to have nothing for the carriage." Though not
care is defined by law even in the absence of express contract; and stated in so many words, this decision recognizes that from the
it can not be doubted that a person who takes possession of the mere fact that a person takes the property of another into his
property of another for the purpose of moving or conveying it possession and control there arises an obligation in the nature of
from one place to another, or for the purpose of performing any an assumpsit that he will use due care with respect thereto. This
other service in connection therewith (locatio operis faciendi), must be considered a principle of universal jurisprudence, for it is
owes to the owner a positive duty to refrain from damaging it, to consonant with justice and common sense and as we have already
the same extent as if an agreement for the performance of such seen harmonizes with the doctrine above deduced from the
service had been expressly made with the owner. The obligation as provisions of the Civil Code.
if an agreement made with the owner. The obligation here is really
a species of contract re, and it has its source and explanation in The conclusion must therefore be that if there had been no contract
vital fact, that the active party has taken upon himself to do of any sort between the Atlantic company and the Steamship
something with or to the property and has taken it into his power Company, an action could have been maintained by the Railroad
and control for the purpose of performing such service. (Compare Company, as owner, against the Atlantic Company to recover the
art. 1889, Civil Code.) damages sustained by the former. Such damages would have been
demandable under article 1103 of the Civil Code and the action
In the passage which we have already from the decision in the would not have been subject to the qualification expressed in the
Rakes case this Court recognized the fact that the violation of a last paragraph of article 1903.
quasi-contractual duty is subject to articles 1101, 1103, 1104 of the
Civil Code, and not within the purview of article 1903. Manresa The circumstance that a contract was made between the Atlantic
also, in the paragraph reproduced above is of the opinion that Company and the Steamship company introduces, however, an
negligence, considered a substantive and independent source of important, and in our opinion controlling factor into this branch of
liability, does not include cases where the parties are previously the case. It cannot be denied that the Steamship company has
bound by any other obligation. Again, it is instructive in this possession of this boiler in the capacity of carrier and that as such
connection to refer to the contents of article 1103 of the Civil it was authorized to make a contract with Atlantic Company to
Code, where it is demandable in the fulfillment of all kinds of discharge the same from the ship. Indeed, it appears in evidence
obligations. These words evidently comprehend both forms of that even before the contract of affreightment was made the
positive obligations, whether arising from express contract or from Railroad Company was informed that it would necessary for
implied contract (quasi contract). steamship company to procure the services of some contractor in
the port of Manila to handle the discharge, as the ship's tackle was
In this connection it is instructive to recall celebrate case of Coggs inadequate to handle heavy cargo. It is therefore to be assumed
vs. Bernard (2 Ld. Raym, 909), decided in the court of the King's that the Railroad Company had in fact assented to the employment
Bench of England in the year of 1803. The action was brought by of a contractor to perform this service.
the owner of certain casks of brandy to recover damages from a
person who had undertaken to transport them from one place to Now, it cannot be admitted that a person who contract to do a
another. It was alleged that in so doing the defendant so service like that rendered by the Atlantic company in this case
negligently and improvidently put then down that one of the casks incurs a double responsibility upon entering upon performance,
was staved and the brandy lost. The complaint did not allege that namely, a responsibility to the party with whom he contracted, and
the defendant was a common carrier or that he was to be paid for another entirely different responsibility to the owner, based on an
his services. It was therefore considered that the compliant did not implied contract. The two liabilities can not in our opinion coexist.
state facts sufficient to support an action for breach of any express It is a general rule that an implied conract never arises where an
contract. This made it necessary for the court to go back to express contract has been made.
fundamental principles and to place liability on the ground of a
violation of the legal duty incident to the mere fact of carriage. If double responsibility existed in such case as this, it would result
Said Powell, J.: "An action indeed will not lie for not doing the that a person who had limited his liability by express stipulation
thing, for want of a sufficient consideration; but yet if the bailee might find himself liable to the owner without regard to the
will take the goods into his custody, he shall be answerable for limitation which he had seen fit to impose by contract. There
them; for the taking of the goods into his custody is his own act." appears to be no possibility of reconciling the conflict that would
S9 Gould, J.: ". . . any man that undertakes to carry goods in liable be developed in attempting to give effect to those inconsistent
liabilities. The contract which was in fact made, in our opinion, originally owned by private respondent Victor U. Bartolomes
determine not only the character and extent of the liability of the deceased mother, Encarnacion Bartolome, under Transfer
Atlantic company but also the person or entity by whom the Certificate of Title No. B-37615 of the Register of Deeds of Metro
obligation is eligible. It is of course quite clear that if the Atlantic Manila, District III. This lot was in front of one of the textile
company had refused to carry out its agreement to discharge the plants of petitioner and, as such, was seen by the latter as a
cargo, the plaintiff could have enforced specific performance and potential warehouse site.
could not have recovered damages for non-performance. (Art.
1257, Civil Code; Donaldson, Sim & Co. vs. Smith, Bell & Co., 2 On March 16, 1988, petitioner entered into a Contract of Lease
Phil. Rep., 766; Uy Tam and Uy Yet vs. Leonard, 30 Phil. Rep., with Option to Buy with Encarnacion Bartolome, whereby
471.) In view of the preceding discussion it is equally obvious petitioner was given the option to lease or lease with purchase the
that, for lack of privity with the contract, the Railroad Company subject land, which option must be exercised within a period of
can have no right of action to recover damages from the Atlantic two years counted from the signing of the Contract. In turn,
Company for the wrongful act which constituted the violation of petitioner undertook to pay P3,000.00 a month as consideration for
said contract. The rights of the plaintiff can only be made effective the reservation of its option. Within the two-year period, petitioner
through the Compaia Trasatlantica de Barcelona with whom the shall serve formal written notice upon the lessor Encarnacion
contract of affreightment was made. Bartolome of its desire to exercise its option. The contract also
provided that in case petitioner chose to lease the property, it may
The judgment entered in the Court of First Instance must, take actual possession of the premises. In such an event, the lease
therefore be reversed not only with respect to the judgment shall be for a period of six years, renewable for another six years,
entered in favor of the plaintiff directly against the Atlantic and the monthly rental fee shall be P15,000.00 for the first six
company but also with respect to the absolution of the steamship years and P18,000.00 for the next six years, in case of renewal.
company and the further failure of the court to enter judgment in
favor of the latter against the Atlantic Company. The Compaa Petitioner regularly paid the monthly P3,000.00 provided for by
Transatlantic de Barcelona should be and is hereby adjudged to the Contract to Encarnacion until her death in January 1990.
pay to the Manila Railroad Company the sum of twenty nine Thereafter, petitioner coursed its payment to private respondent
thousand three hundred forty three pesos and twenty nine centavos Victor Bartolome, being the sole heir of Encarnacion. Victor,
(P23,343.29) with interest from May 11, 1914, until paid; and however, refused to accept these payments. iska
when this judgment is satisfied, the Compaia Transatlantic de
Barcelona is declared to be entitled to recover the same amount Meanwhile, on January 10, 1990, Victor executed an Affidavit of
from the Atlantic & Pacific Gulf Company, against whom Self-Adjudication over all the properties of Encarnacion, including
judgment is to this end hereby rendered in favor of the Compaia the subject lot. Accordingly, respondent Register of Deeds
Transatlantica de Barcelona. No express adjudication of costs of cancelled Transfer Certificate of Title No. B-37615 and issued
either instance will be made. So ordered. Transfer Certificate of Title No. V-14249 in the name of Victor
Bartolome.

On March 14, 1990, petitioner served upon Victor, via registered


[G.R. No. 118248. April 5, 2000] mail, notice that it was exercising its option to lease the property,
tendering the amount of P15,000.00 as rent for the month of
DKC HOLDINGS CORPORATION, petitioner, vs. COURT March. Again, Victor refused to accept the tendered rental fee and
OF APPEALS, VICTOR U. BARTOLOME and REGISTER to surrender possession of the property to petitioner.
OF DEEDS FOR METRO MANILA, DISTRICT
III, respondents. francis Petitioner thus opened Savings Account No. 1-04-02558-I-1 with
the China Banking Corporation, Cubao Branch, in the name of
DECISION Victor Bartolome and deposited therein the P15,000.00 rental fee
for March as well as P6,000.00 reservation fees for the months of
YNARES_SANTIAGO, J.: February and March.

This is a petition for review on certiorari seeking the reversal of Petitioner also tried to register and annotate the Contract on the
the December 5, 1994 Decision of the Court of Appeals in CA- title of Victor to the property. Although respondent Register of
G.R. CV No. 40849 entitled "DKC Holdings Corporation vs. Deeds accepted the required fees, he nevertheless refused to
Victor U. Bartolome, et al.",[1]affirming in toto the January 4, 1993 register or annotate the same or even enter it in the day book or
Decision of the Regional Trial Court of Valenzuela, Branch 172, primary register.
[2]
which dismissed Civil Case No. 3337-V-90 and ordered
petitioner to pay P30,000.00 as attorneys fees. Thus, on April 23, 1990, petitioner filed a complaint for specific
performance and damages against Victor and the Register of
The subject of the controversy is a 14,021 square meter parcel of Deeds,[3] docketed as Civil Case No. 3337-V-90 which was raffled
land located in Malinta, Valenzuela, Metro Manila which was off to Branch 171 of the Regional Trial Court of Valenzuela.
Petitioner prayed for the surrender and delivery of possession of (C) nigel
the subject land in accordance with the Contract terms; the
surrender of title for registration and annotation thereon of the THIRD ASSIGNMENT OF ERROR
Contract; and the payment of P500,000.00 as actual damages,
P500,000.00 as moral damages, P500,000.00 as exemplary THE HONORABLE COURT OF APPEALS ERRED IN
damages and P300,000.00 as attorneys fees. RULING THAT THE CONTRACT WAS ONE-SIDED AND
ONEROUS IN FAVOR OF DKC.
Meanwhile, on May 8, 1990, a Motion for Intervention with
Motion to Dismiss[4] was filed by one Andres Lanozo, who (D)
claimed that he was and has been a tenant-tiller of the subject
property, which was agricultural riceland, for forty-five years. He
FOURTH ASSIGNMENT OF ERROR
questioned the jurisdiction of the lower court over the property
and invoked the Comprehensive Agrarian Reform Law to protect
THE HONORABLE COURT OF APPEALS ERRED IN
his rights that would be affected by the dispute between the
RULING THAT THE EXISTENCE OF A REGISTERED
original parties to the case. ella
TENANCY WAS FATAL TO THE VALIDITY OF THE
CONTRACT.
On May 18, 1990, the lower court issued an Order[5] referring the
case to the Department of Agrarian Reform for preliminary
(E)
determination and certification as to whether it was proper for trial
by said court.
FIFTH ASSIGNMENT OF ERROR
On July 4, 1990, the lower court issued another Order[6] referring
the case to Branch 172 of the RTC of Valenzuela which was THE HONORABLE COURT OF APPEALS ERRED IN
designated to hear cases involving agrarian land, after the RULING THAT PLAINTIFF-APPELLANT WAS LIABLE TO
Department of Agrarian Reform issued a letter-certification stating DEFENDANT-APPELLEE FOR ATTORNEYS FEES.[8]
that referral to it for preliminary determination is no longer
required. The issue to be resolved in this case is whether or not the Contract
of Lease with Option to Buy entered into by the late Encarnacion
On July 16, 1990, the lower court issued an Order denying the Bartolome with petitioner was terminated upon her death or
Motion to Intervene,[7] holding that Lanozos rights may well be whether it binds her sole heir, Victor, even after her demise.
ventilated in another proceeding in due time.
Both the lower court and the Court of Appeals held that the said
After trial on the merits, the RTC of Valenzuela, branch 172 contract was terminated upon the death of Encarnacion Bartolome
rendered its Decision on January 4, 1993, dismissing the and did not bind Victor because he was not a party thereto.
Complaint and ordering petitioner to pay Victor P30,000.00 as
attorneys fees. On appeal to the CA, the Decision was affirmed in Article 1311 of the Civil Code provides, as follows-
toto.
"ART. 1311. Contracts take effect only between
Hence, the instant Petition assigning the following errors: the parties, their assigns and heirs, except in case
where the rights and obligations arising from the
(A) contract are not transmissible by their nature, or
by stipulation or by provision of law. The heir is
not liable beyond the value of the property he
FIRST ASSIGNMENT OF ERROR
received from the decedent. brnado
THE HONORABLE COURT OF APPEALS ERRED IN
x x x x x x x x x."
RULING THAT THE PROVISION ON THE NOTICE TO
EXERCISE OPTION WAS NOT TRANSMISSIBLE.
The general rule, therefore, is that heirs are bound by contracts
entered into by their predecessors-in-interest except when the
(B)
rights and obligations arising therefrom are not transmissible by
(1) their nature, (2) stipulation or (3) provision of law.
SECOND ASSIGNMENT OF ERROR
In the case at bar, there is neither contractual stipulation nor legal
THE HONORABLE COURT OF APPEALS ERRED IN
provision making the rights and obligations under the contract
RULING THAT THE NOTICE OF OPTION MUST BE SERVED
intransmissible. More importantly, the nature of the rights and
BY DKC UPON ENCARNACION BARTOLOME
obligations therein are, by their nature, transmissible.
PERSONALLY.
The nature of intransmissible rights as explained by Arturo It is futile for Victor to insist that he is not a party to the contract
Tolentino, an eminent civilist, is as follows: because of the clear provision of Article 1311 of the Civil Code.
Indeed, being an heir of Encarnacion, there is privity of interest
"Among contracts which are intransmissible are between him and his deceased mother. He only succeeds to what
those which are purely personal, either by rights his mother had and what is valid and binding against her is
[14]
provision of law, such as in cases of partnerships also valid and binding as against him. This is clear
and agency, or by the very nature of the from Paraaque Kings Enterprises vs. Court of Appeals,[15]where
obligations arising therefrom, such as those this Court rejected a similar defense-alonzo
requiring special personal qualifications of the
obligor. It may also be stated that contracts for With respect to the contention of respondent
the payment of money debts are not transmitted Raymundo that he is not privy to the lease
to the heirs of a party, but constitute a charge contract, not being the lessor nor the lessee
against his estate. Thus, where the client in a referred to therein, he could thus not have
contract for professional services of a lawyer violated its provisions, but he is nevertheless a
died, leaving minor heirs, and the lawyer, proper party. Clearly, he stepped into the shoes
instead of presenting his claim for professional of the owner-lessor of the land as, by virtue of
services under the contract to the probate court, his purchase, he assumed all the obligations of
substituted the minors as parties for his client, it the lessor under the lease contract. Moreover, he
was held that the contract could not be enforced received benefits in the form of rental payments.
against the minors; the lawyer was limited to a Furthermore, the complaint, as well as the
recovery on the basis of quantum meruit."[9] petition, prayed for the annulment of the sale of
the properties to him. Both pleadings also
In American jurisprudence, "(W)here acts stipulated in a contract alleged collusion between him and respondent
require the exercise of special knowledge, genius, skill, taste, Santos which defeated the exercise by petitioner
ability, experience, judgment, discretion, integrity, or other of its right of first refusal.
personal qualification of one or both parties, the agreement is of a
personal nature, and terminates on the death of the party who is In order then to accord complete relief to
required to render such service."[10] marinella petitioner, respondent Raymundo was a
necessary, if not indispensable, party to the case.
It has also been held that a good measure for determining whether A favorable judgment for the petitioner will
a contract terminates upon the death of one of the parties is necessarily affect the rights of respondent
whether it is of such a character that it may be performed by the Raymundo as the buyer of the property over
promissors personal representative. Contracts to perform personal which petitioner would like to assert its right of
acts which cannot be as well performed by others are discharged first option to buy.
by the death of the promissor. Conversely, where the service or act
is of such a character that it may as well be performed by another, In the case at bar, the subject matter of the contract is likewise a
or where the contract, by its terms, shows that performance by lease, which is a property right. The death of a party does not
others was contemplated, death does not terminate the contract or excuse nonperformance of a contract which involves a property
excuse nonperformance.[11] right, and the rights and obligations thereunder pass to the
personal representatives of the deceased. Similarly,
In the case at bar, there is no personal act required from the late nonperformance is not excused by the death of the party when the
Encarnacion Bartolome. Rather, the obligation of Encarnacion in other party has a property interest in the subject matter of the
the contract to deliver possession of the subject property to contract.[16]
petitioner upon the exercise by the latter of its option to lease the
same may very well be performed by her heir Victor. Under both Article 1311 of the Civil Code and jurisprudence,
therefore, Victor is bound by the subject Contract of Lease with
As early as 1903, it was held that "(H)e who contracts does so for Option to Buy.
himself and his heirs."[12] In 1952, it was ruled that if the
predecessor was duty-bound to reconvey land to another, and at That being resolved, we now rule on the issue of whether
his death the reconveyance had not been made, the heirs can be petitioner had complied with its obligations under the contract and
compelled to execute the proper deed for reconveyance. This was with the requisites to exercise its option. The payment by
grounded upon the principle that heirs cannot escape the legal petitioner of the reservation fees during the two-year period within
consequence of a transaction entered into by their predecessor-in- which it had the option to lease or purchase the property is not
interest because they have inherited the property subject to the disputed. In fact, the payment of such reservation fees, except
liability affecting their common ancestor.[13] those for February and March, 1990 were admitted by Victor.
[17]
This is clear from the transcripts, to wit-
"ATTY. MOJADO: Valenzuela in Civil Case No. 3337-V-90 are both SET ASIDE and
a new one rendered ordering private respondent Victor Bartolome
One request, Your Honor. The last payment which was allegedly to:
made in January 1990 just indicate in that stipulation that it was
issued November of 1989 and postdated Janaury 1990 and then we (a) surrender and deliver possession of that parcel of land covered
will admit all. rodp;fo by Transfer Certificate of Title No. V-14249 by way of lease to
petitioner and to perform all obligations of his predecessor-in-
COURT: interest, Encarnacion Bartolome, under the subject Contract of
Lease with Option to Buy;
All reservation fee?
(b) surrender and deliver his copy of Transfer Certificate of Title
ATTY. MOJADO: No. V-14249 to respondent Register of Deeds for registration and
annotation thereon of the subject Contract of Lease with Option to
Buy;
Yes, Your Honor.

(c) pay costs of suit. Sc


COURT:

Respondent Register of Deeds is, accordingly, ordered to register


All as part of the lease?
and annotate the subject Contract of Lease with Option to Buy at
the back of Transfer Certificate of Title No. V-14249 upon
ATTY. MOJADO:
submission by petitioner of a copy thereof to his office.

Reservation fee, Your Honor. There was no payment with respect


SO ORDERED.
to payment of rentals."[18]
G.R. No. L-9188 December 4, 1914
Petitioner also paid the P15,000.00 monthly rental fee on the
subject property by depositing the same in China Bank Savings
GUTIERREZ HERMANOS, plaintiff-appellee,
Account No. 1-04-02558-I-1, in the name of Victor as the sole heir
[19] vs.
of Encarnacion Bartolome, for the months of March to July 30,
ENGRACIO ORENSE, defendant-appellant.
1990, or a total of five (5) months, despite the refusal of Victor to
[20]
turn over the subject property.
William A. Kincaid, Thos. L. Hartigan, and Ceferino M. Villareal
for appellant.
Likewise, petitioner complied with its duty to inform the other
Rafael de la Sierra for appellee.
party of its intention to exercise its option to lease through its
[21]
letter dated Match 12, 1990, well within the two-year period for
it to exercise its option. Considering that at that time Encarnacion
Bartolome had already passed away, it was legitimate for
petitioner to have addressed its letter to her heir. TORRES, J.:

It appears, therefore, that the exercise by petitioner of its option to Appeal through bill of exceptions filed by counsel for the
lease the subject property was made in accordance with the appellant from the judgment on April 14, 1913, by the Honorable
contractual provisions. Concomitantly, private respondent Victor P. M. Moir, judge, wherein he sentenced the defendant to make
Bartolome has the obligation to surrender possession of and lease immediate delivery of the property in question, through a public
the premises to petitioner for a period of six (6) years, pursuant to instrument, by transferring and conveying to the plaintiff all his
the Contract of Lease with Option to Buy. micks rights in the property described in the complaint and to pay it the
sum of P780, as damages, and the costs of the suit.
Coming now to the issue of tenancy, we find that this is not for
this Court to pass upon in the present petition. We note that the On March 5, 1913, counsel for Gutierrez Hermanos filed a
Motion to Intervene and to Dismiss of the alleged tenant, Andres complaint, afterwards amended, in the Court of First Instance of
Lanozo, was denied by the lower court and that such denial was Albay against Engacio Orense, in which he set forth that on and
never made the subject of an appeal. As the lower court stated in before February 14, 1907, the defendant Orense had been the
its Order, the alleged right of the tenant may well be ventilated in owner of a parcel of land, with the buildings and improvements
another proceeding in due time. thereon, situated in the pueblo of Guinobatan, Albay, the location,
area and boundaries of which were specified in the complaint; that
WHEREFORE, in view of the foregoing, the instant Petition for the said property has up to date been recorded in the new property
Review is GRANTED. The Decision of the Court of Appeals in registry in the name of the said Orense, according to certificate
CA-G.R. CV No. 40849 and that of the Regional Trial Court of No. 5, with the boundaries therein given; that, on February 14,
1907, Jose Duran, a nephew of the defendant, with the latter's in the other form of action for the collection of P3,000, the value
knowledge and consent, executed before a notary a public of the realty.
instrument whereby he sold and conveyed to the plaintiff
company, for P1,500, the aforementioned property, the vendor As the second special defense, he alleged that the defendant was
Duran reserving to himself the right to repurchase it for the same the lawful owner of the property claimed in the complaint, as his
price within a period of four years from the date of the said ownership was recorded in the property registry, and that, since his
instrument; that the plaintiff company had not entered into title had been registered under the proceedings in rem prescribed
possession of the purchased property, owing to its continued by Act No. 496, it was conclusive against the plaintiff and the
occupancy by the defendant and his nephew, Jose Duran, by virtue pretended rights alleged to have been acquired by Jose Duran prior
of a contract of lease executed by the plaintiff to Duran, which to such registration could not now prevail; that the defendant had
contract was in force up to February 14, 1911; that the said not executed any written power of attorney nor given any verbal
instrument of sale of the property, executed by Jose Duran, was authority to Jose Duran in order that the latter might, in his name
publicly and freely confirmed and ratified by the defendant and representation, sell the said property to the plaintiff company;
Orense; that, in order to perfect the title to the said property, but that the defendant's knowledge of the said sale was acquired long
that the defendant Orense refused to do so, without any justifiable after the execution of the contract of sale between Duran and
cause or reason, wherefore he should be compelled to execute the Gutierrez Hermanos, and that prior thereto the defendant did not
said deed by an express order of the court, for Jose Duran is intentionally and deliberately perform any act such as might have
notoriously insolvent and cannot reimburse the plaintiff company induced the plaintiff to believe that Duran was empowered and
for the price of the sale which he received, nor pay any sum authorized by the defendant and which would warrant him in
whatever for the losses and damages occasioned by the said sale, acting to his own detriment, under the influence of that belief.
aside from the fact that the plaintiff had suffered damage by losing Counsel therefore prayed that the defendant be absolved from the
the present value of the property, which was worth P3,000; that, complaint and that the plaintiff be sentenced to pay the costs and
unless such deed of final conveyance were executed in behalf of to hold his peace forever.
the plaintiff company, it would be injured by the fraud perpetrated
by the vendor, Duran, in connivance with the defendant; that the After the hearing of the case and an examination of the evidence
latter had been occupying the said property since February 14, introduced by both parties, the court rendered the judgment
1911, and refused to pay the rental thereof, notwithstanding the aforementioned, to which counsel for the defendant excepted and
demand made upon him for its payment at the rate of P30 per moved for a new trial. This motion was denied, an exception was
month, the just and reasonable value for the occupancy of the said taken by the defendant and, upon presentation of the proper bill of
property, the possession of which the defendant likewise refused exceptions, the same was approved, certified and forwarded to the
to deliver to the plaintiff company, in spite of the continuous clerk of his court.
demands made upon him, the defendant, with bad faith and to the
prejudice of the firm of Gutierrez Hermanos, claiming to have
This suit involves the validity and efficacy of the sale under right
rights of ownership and possession in the said property. Therefore
of redemption of a parcel of land and a masonry house with
it was prayed that judgment be rendered by holding that the land
the nipa roof erected thereon, effected by Jose Duran, a nephew of
and improvements in question belong legitimately and exclusively
the owner of the property, Engracio Orense, for the sum of P1,500
to the plaintiff, and ordering the defendant to execute in the
by means of a notarial instrument executed and ratified on
plaintiff's behalf the said instrument of transfer and conveyance of
February 14, 1907.
the property and of all the right, interest, title and share which the
defendant has therein; that the defendant be sentenced to pay P30
After the lapse of the four years stipulated for the redemption, the
per month for damages and rental of the property from February
defendant refused to deliver the property to the purchaser, the firm
14, 1911, and that, in case these remedies were not granted to the
of Gutierrez Hermanos, and to pay the rental thereof at the rate of
plaintiff, the defendant be sentenced to pay to it the sum of P3,000
P30 per month for its use and occupation since February 14, 1911,
as damages, together with interest thereon since the date of the
when the period for its repurchase terminated. His refusal was
institution of this suit, and to pay the costs and other legal
based on the allegations that he had been and was then the owner
expenses.
of the said property, which was registered in his name in the
property registry; that he had not executed any written power of
The demurrer filed to the amended complaint was overruled, with
attorney to Jose Duran, nor had he given the latter any verbal
exception on the part of the defendant, whose counsel made a
authorization to sell the said property to the plaintiff firm in his
general denial of the allegations contained in the complaint,
name; and that, prior to the execution of the deed of sale, the
excepting those that were admitted, and specifically denied
defendant performed no act such as might have induced the
paragraph 4 thereof to the effect that on February 14, 1907, Jose
plaintiff to believe that Jose Duran was empowered and authorized
Duran executed the deed of sale of the property in favor of the
by the defendant to effect the said sale.
plaintiff with the defendant's knowledge and consent.1awphil.net
The plaintiff firm, therefore, charged Jose Duran, in the Court of
As the first special defense, counsel for the defendant alleged that
First Instance of the said province, with estafa, for having
the facts set forth in the complaint with respect to the execution of
represented himself in the said deed of sale to be the absolute
the deed did not constitute a cause of action, nor did those alleged
owner of the aforesaid land and improvements, whereas in reality remedies all defects which the contract may have contained from
they did not belong to him, but to the defendant Orense. However, the moment of its execution.
at the trial of the case Engracio Orense, called as a witness, being
interrogated by the fiscal as to whether he and consented to The sale of the said property made by Duran to Gutierrez
Duran's selling the said property under right of redemption to the Hermanos was indeed null and void in the beginning, but
firm of Gutierrez Hermanos, replied that he had. In view of this afterwards became perfectly valid and cured of the defect of
statement by the defendant, the court acquitted Jose Duran of the nullity it bore at its execution by the confirmation solemnly made
charge of estafa. by the said owner upon his stating under oath to the judge that he
himself consented to his nephew Jose Duran's making the said
As a result of the acquittal of Jose Duran, based on the explicit sale. Moreover, pursuant to article 1309 of the Code, the right of
testimony of his uncle, Engacio Orense, the owner of the property, action for nullification that could have been brought became
to the effect that he had consented to his nephew Duran's selling legally extinguished from the moment the contract was validly
the property under right of repurchase to Gutierrez Hermanos, confirmed and ratified, and, in the present case, it is
counsel for this firm filed a complainant praying, among other unquestionable that the defendant did confirm the said contract of
remedies, that the defendant Orense be compelled to execute a sale and consent to its execution.
deed for the transfer and conveyance to the plaintiff company of
all the right, title and interest with Orense had in the property sold, On the testimony given by Engacio Orense at the trial of Duran for
and to pay to the same the rental of the property due from estafa, the latter was acquitted, and it would not be just that the
February 14, 1911.itc-alf said testimony, expressive of his consent to the sale of his
property, which determined the acquittal of his nephew, Jose
Notwithstanding the allegations of the defendant, the record in this Duran, who then acted as his business manager, and which
case shows that he did give his consent in order that his nephew, testimony wiped out the deception that in the beginning appeared
Jose Duran, might sell the property in question to Gutierrez to have been practiced by the said Duran, should not now serve in
Hermanos, and that he did thereafter confirm and ratify the sale by passing upon the conduct of Engracio Orense in relation to the
means of a public instrument executed before a notary. firm of Gutierrez Hermanos in order to prove his consent to the
sale of his property, for, had it not been for the consent admitted
It having been proven at the trial that he gave his consent to the by the defendant Orense, the plaintiff would have been the victim
said sale, it follows that the defendant conferred verbal, or at least of estafa.
implied, power of agency upon his nephew Duran, who accepted it
in the same way by selling the said property. The principal must If the defendant Orense acknowledged and admitted under oath
therefore fulfill all the obligations contracted by the agent, who that he had consented to Jose Duran's selling the property in
acted within the scope of his authority. (Civil Code, arts. 1709, litigation to Gutierrez Hermanos, it is not just nor is it permissible
1710 and 1727.) for him afterward to deny that admission, to the prejudice of the
purchaser, who gave P1,500 for the said property.
Even should it be held that the said consent was granted
subsequently to the sale, it is unquestionable that the defendant, The contract of sale of the said property contained in the notarial
the owner of the property, approved the action of his nephew, who instrument of February 14, 1907, is alleged to be invalid, null and
in this case acted as the manager of his uncle's business, and void under the provisions of paragraph 5 of section 335 of the
Orense'r ratification produced the effect of an express Code of Civil Procedure, because the authority which Orense may
authorization to make the said sale. (Civil Code, arts. 1888 and have given to Duran to make the said contract of sale is not shown
1892.) to have been in writing and signed by Orense, but the record
discloses satisfactory and conclusive proof that the defendant
Article 1259 of the Civil Code prescribes: "No one can contract in Orense gave his consent to the contract of sale executed in a
the name of another without being authorized by him or without public instrument by his nephew Jose Duran. Such consent was
his legal representation according to law. proven in a criminal action by the sworn testimony of the principal
and presented in this civil suit by other sworn testimony of the
A contract executed in the name of another by one who same principal and by other evidence to which the defendant made
has neither his authorization nor legal representation shall no objection. Therefore the principal is bound to abide by the
be void, unless it should be ratified by the person in consequences of his agency as though it had actually been given in
whose name it was executed before being revoked by the writing (Conlu vs. Araneta and Guanko, 15 Phil. Rep., 387;
other contracting party. Gallemit vs. Tabiliran, 20 Phil. Rep., 241; Kuenzle & Streiff vs.
Jiongco, 22 Phil. Rep., 110.)
The sworn statement made by the defendant, Orense, while
testifying as a witness at the trial of Duran for estafa, virtually The repeated and successive statements made by the defendant
confirms and ratifies the sale of his property effected by his Orense in two actions, wherein he affirmed that he had given his
nephew, Duran, and, pursuant to article 1313 of the Civil Code, consent to the sale of his property, meet the requirements of the
law and legally excuse the lack of written authority, and, as they
are a full ratification of the acts executed by his nephew Jose and Angel Encarnacion acquired their respective shares of the land
Duran, they produce the effects of an express power of agency. thru purchase from the original heirs, Jesus, Caridad, Lourdes and
Dolores surnamed Singson one hand and from Asuncion
The judgment appealed from in harmony with the law and the Florentino on the other.
merits of the case, and the errors assigned thereto have been duly
refuted by the foregoing considerations, so it should be affirmed. After due notice and publication, the Court set the application for
hearing. No Opposition whatsoever was filed except that of the
The judgment appealed from is hereby affirmed, with the costs Director of Lands which was later withdrawn, thereby leaving the
against the appellant. option unopposed. Thereupon, an order of general default was
withdrawn against the whole world. Upon application of the asets
G.R. No. L-27696 September 30, 1977 the Clerk Of court was commission will and to have the evidence
of the agents and or to submit the for the Court's for resolution.
MIGUEL FLORENTINO, ROSARIO ENCARNACION de
FLORENTINO, MANUEL ARCE, JOSE FLORENTINO, The crucial point in controversy in this registration case is
VICTORINO FLORENTINO, ANTONIO FLORENTINO, centered in the stipulation marked Exhibit O-1 embodied in the
REMEDION ENCARNACION and SEVERINA deed of extrajudicial partition (Exhibit O) dated August 24, 1947
ENCARNACION, petitioners-appellants, which states:
vs.
SALVADOR ENCARNACION, SR., SALVADOR Los productos de esta parcela de terreno situada en el Barrio
ENCARNACION, JR., and ANGEL Lubong Dacquel Cabugao Ilocos Sur, se destination para costear
ENCARNACION, oppositors to encumbrance-petitioners- los tos de procesio de la Tercera Caida celebration y sermon de
appelles. Siete Palbras Seis Estaciones de Cuaresma, procesion del Nino
Jesus, tilaracion y conservacion de los mismos, construction le
Jose F. Singson and Miguel Florentino for appellants. union camarin en conde se depositan los carros mesas y otras
cosas que seven para lot leiracion de Siete Palabras y otras cosas
mas Lo que sobra de lihos productos despues de descontados
Pedro Singson for appellees.
todos los gastos se repartira nosotros los herederos.

In his testimony during the trial, applicant Miguel Florentino


asked the court to include the said stipulation (Exhibit O-1) as an
GUERRERO, J.:
encumbrance on the land sought to be registered, and cause the
entry of the same on the face of the title that will finally be issued.
Appeal from the decision of the Court of First Instance of Ilocos Opposing its entry on the title as an encumbrance,
Sur, acting as a land registration court, in Land Registration case petitionersappellee Salvador Encamacion, Sr., Salvador
No. N-310. Encarnaciori, Jr. and Angel Encarriacion filed on October 3, 1966
a manifestation seeking to withdraw their application on their
On May 22, 1964, the petitioners-appellants Miguel Florentino, respective shares of the land sought to be registered. The
Remedios Encarnacion de Florentino, Manuel Arce, Jose withdrawal was opposed by the petitioners-appellants.
Florentino, Victorino Florentino, Antonio Florentino, Remedior,
Encarnacion and Severina Encamacion, and the Petitiners- The Court after hearing the motion for withdrawal and the
appellees Salvador Encamacion, Sr., Salvador Encamacion, Jr. and opposition thereto issued on November 17, 1966 an order and for
Angel Encarnacion filed with the Court of First Instance of ilocos the purpose of ascertaining and implifying the issues therein stated
Sur an application for the registration under Act 496 of a parcel of that all the applicants admit the truth of the following;
agricultural land located at Barrio Lubong Dacquel Cabugao
Ilocos Sur.
(1) That just after the death of Encarnacion FIorentino in 1941
up to last year and as had always been the case since time
The application alleged among other things that the applicants are immomorial the products of the land made subiect matter of this
the common and pro-indiviso owners in fee simple of the said land land has been used in answering for the payment for the
with the improvements existing thereon; that to the best of their religious functions specified in the Deed Extrajudicial Partition
knowledge and belief, there is no mortgage, lien or encumbrance belated August 24, 1947:
of any kind whatever affecting said land, nor any other person
having any estate or interest thereon, legal or equitable, remainder,
(2) That this arrangement about the products answering for the
reservation or in expectancy; that said applicants had acquired the
comment of experisence for religions functions as mentioned
aforesaid land thru and by inheritance from their predecessors in
above was not registered in the office of the Register of Deeds
interest, lately from their aunt, Doa Encarnacion Florentino who
under Act No 3344, Act 496 or and, other system of registration;
died in Vigan, Ilocos Sur in 1941, and for which the said land was
adjudicated to them by virtue of the deed of extrajudicial partition
dated August 24, 1947; that applicants Salvador Encarnacion, Jr.
(3) That all the herein applicants know of the existence of his made no oral or written grant at all (Art. 748) as in fact they are
arrangement as specified in the Deed of Extra judicial Partition even opposed to it," 1 held in the Positive portion, as follows:
of A adjust 24, 1947;
In view of all these, therefore, and insofar as the question of
(4) That the Deed of Extrajudicial Partition of August 24, 194-, encumbrance is concerned, let the religious expenses as herein
not signed by Angel Encarnacion or Salvador Encarnacion, Jr,. specified be made and entered on the undivided shares, interests
and participations of all the applicants in this case, except that of
The court denied the petitioners-appellee motion to withdraw for Salvador Encarnacion, Sr., Salvador Encarnacion, Jr. and Angel
lack of merit, and rendered a decision under date of November Encarnacion.
29, 1966 confirming the title of the property in favor of the f
appoints with their respective shares as follows: On January 3, 1967, petitioners-appellants filed their Reply to the
Opposition reiterating their previous arguments, and also attacking
Spouses Miguel Florentino and Rosario Encarnacion de the junction of the registration court to pass upon the validity or
Florentino, both of legal age, Filipinos, and residents of Vigan, invalidity of the agreement Exhibit O-1, alleging that such is
Ilocos Sur, consisting of an undivided 31/297 and 8.25/297 specified only in an ordinary action and not proper in a land
portions, respectively; registration proceeding.

Manuel Arce, of legal age, Filipino, married to Remedios Pichay The Motion for Reconsideration and of New Trial was denied on
and resident of Vigan, Ilocos Sur, consisting of an undivided January 14, 1967 for lack of merit, but the court modified its
66/297 portion; earlier decision of November 29, 1966, to wit:

Salvador Encarnacion, Jr., of legal age, Filipino, married to This Court believes, and so holds, that the contention of the
Angelita Nagar and resident of Vigan, Ilocos Sur, consisting of movants (proponents of the encumbrance) is without merit
an undivided 66/297; Jose Florentino, of legal age, Filipino, because the arrangement, stipulation or grant as embodied in
married to Salvacion Florendo and resident of 16 South Ninth Exhibit O (Escritura de Particion Extrajudicial), by whatever name
Diliman, Quezon City, consisting of an undivided 33/297 it may be (called, whether donation, usufruct or ellemosynary gift,
portion; can be revoked as in fact the oppositors Salvador Encarnacion, Sr.,
who is the only one of the three oppositors who is a party to said
Angel Encarnacion, of legal age, Filipino, single and resident of Exhibit O (the two others, Salvador Encarnacion, Jr. and Angel
1514 Milagros St., Sta. Cruz, Manila, consisting of an undivided Encarnacion no parties to it) did revoke it as shown by acts
33/297 portion; accompanying his refusal to have the same appear as an
encumbrance on the title to be issued. In fact, legally, the same can
also be ignored or discararded by will the three oppositors. The
Victorino Florentino, of legal age, Filipino, married to Mercedes
reasons are: First, if the said stipulation is pour bodies in Exhibit
L. Encarnacion and resident of Vigan, Ilocos Sur, consisting of
O-1 is to be viewed as a stipulation pour autrui the same cannot
an undivided 17.5/297 portion;
now be enforced because the Church in whose favor it was made
has not communicated its acceptance to the oppositors before the
Antonio Florentino, of legal age, Filipino, single and resident of
latter revoked it. Says the 2nd par. of Art. 1311 of the New Civil
Vigan, Ilocos Sur, consisting of an undivided 17.5/297;
Code:

Salvador Encarnacion, Sr., of legal age, Filipino, married to


"If a contract should contain some stipulation in favor of a third
Dolores Singson, consisting of an undivided 8.25/297;
person he may demand its fulfillment provided he communicated
his acceptance to the obligor before its revocation. A mere
Remedios Encarnacion, of legal age, Filipino, single and resident incidental benefit or interest of a person is not sufficient. The
of Vigan, Ilocos Sur, consisting of an undivided 8.25/297 contracting parties must have clearly and deliberately conferred a
portion; and favor upon a third person." No evide nee has ever been submitted
by the Church to show its clear acceptance of the grant before its
Severina Encarnacion, of legal age, Filipino, single and resident revocation by the oppositor Salvador Encarnacion, Sr. (or of the
of Vigan, Ilocos Sur, consisting of 8.25/297 undivided portion. two other oppositors, Salvador Encarnacion, Jr. and Angel
Encarnacion, who didn't even make any giant, in the first place),
The court, after ruling "that the contention of the proponents of and so not even the movants who have officiously taken into
encumbrance is without merit bemuse, taking the self-imposed themselves the right to enforce the grant cannot now maintain any
arrangement in favor of the Church as a pure and simple donation, action to compel compliance with it. (Bank of the P.I. v.
the same is void for the that the donee here has riot accepted the Concepcion y Hijos, Inc., 53 Phil. 806). Second, the Church in
donation (Art. 745, Civil Code) and for the further that, in the case whose favor the stipulation or grant had apparently been made
of Salvador Encarnacion, Jr. and Angel Encarnacion, they had ought to be the proper party to compel the herein three oppositors
to abide with the stipulation. But it has not made any appearance
nor registered its opposition to the application even before Oct. 18, If a contract should contain a stipulation in favor of a third person,
1965 when an order of general default was issued. Third, the he may demand its fulfillment provided he communicated his
movants are not, in the contemplation of Section 2, Rule 3 of the acceptance to the obligor before its revocation. A mere incidental
Rules of Court, the real party in interest to raise the present issue; benefit or interest of a person is not sufficient. The contracting
and Fourth, the movants having once alleged in their application parties must have clearly and deliberately conferred a favor upon a
for registration that the land is without encumbrance (par. 3 third person.
thereof), cannot now be alloted by the rules of pleading to
contradict said allegation of theirs. (McDaniel v. Apacible, 44 Phil.The second paragraph of Article 1311 above-quoted states the law
248) on stipulations pour autrui. Consent the nature and purpose of the
motion (Exh. O-1), We hold that said stipulation is a station pour
SO ORDERED. 2 autrui. A stipulation pour autrui is a stipulation in favor of a third
person conferring a clear and deliberate favor upon him, and
After Motions for Reconsideration were denied by the court, the which stipulation is merely a part of a contract entered into by the
petitioners- appellants appealed directly to this Court pursuant to parties, neither of whom acted as agent of the third person, and
Rule 4 1, Rules of Court, raising the following assign of error: such third person and demand its fulfillment provoked that he
communicates his to the obligor before it is revoked. 3 The
I. The lower court erred in concluding that the stipulation requisites are: (1) that the stipulation in favor of a third person
embodied in Exhibit O on religious expenses is just an should be a part, not the whole, of the contract; (2) that the
arrangement stipulation, or grant revocable at the unilateral option favorable stipulation should not be conditioned or compensated by
of the coowners. any kind of obligation whatever; and (3) neither of the contracting
bears the legal represented or authorization of third person.
II. The lower court erred in finding and concluding that the
encumbrance or religious expenses embodied in Exhibit O, the To constitute a valid stipulation pour autrui it must be the purpose
extrajudicial partition between the co-heirs, is binding only on the and intent of the stipulating parties to benefit the third and it is not
appoints Miguel Florentino, Rosario Encarnacion de Florentino, sufficient that the third person may be incidentally benefited by
Manuel Arce, Jose Florentino, Antonio Florentino, Victorino the stipulation. The fairest test to determine whether the interest of
Florentino, Remedios Encarnacion and Severina Encarnacion. third person in a contract is a stipulation pour autrui or merely an
incidental interest, is to rely upon the intention of the parties as
disclosed by their contract. In applying this test, it meters not
III. The lower court as a registration court erred in passing upon
whether the stipulation is in the nature of a gift or whether there is
the merits of the encumbrance (Exhibit O-1) as the sanie was
an obligation owing from the promisee to the third person. That no
never put to issue and as the question involved is an adjudication
such obsorption exists may in some degree assist in determining
of rights of the parties.
whether the parties intended to benefit a third person.4
We find the first and second assignments of error impressed with
In the case at bar, the determining point is whether the co-owners
merit and, therefore, tenable. The stipulation embodied in Exhibit
intended to benefit the Church when in their extrajudicial partition
O-1 on religious expenses is not revocable at the unilateral option
of several parcels of land inherited by them from Doa
of the co-owners and neither is it binding only on the petitioners-
Encarnacion Florendo they agreed that with respect to the land
appellants Miguel Florentino, Rosario Encarnacion de Florentino
situated in Barrio Lubong Dacquel Cabugao Ilocos Sur, the fruits
Manuel Arce, Jose Florentino, Victorino Florentino Antonio
thereof shall serve to defray the religious expenses specified in
Florentino, Remedios Encarnacion and Severina E It is also
Exhibit O-1. The evidence on record shows that the true intent of
binding on the oppositors-appellees Angel Encarnacion,
the parties is to confer a direct and material benefit upon the
Church. The fruits of the aforesaid land were used thenceforth to
The stipulation (Exhibit 411) in pan of an extrajudicial partition
defray the expenses of the Church in the preparation and
(Exh. O) duly agreed and signed by the parties, hence the sanie
celebration of the Holy Week, an annual Church function. Suffice
must bind the contracting parties thereto and its validity or
it to say that were it not for Exhibit O-1, the Church would have
compliance cannot be left to the with of one of them (Art. 1308,
necessarily expended for this religious occasion, the annual
N.C.C.). Under Art 1311 of the New Civil Code, this stipulation
relisgious procession during the Holy Wock and also for the repair
takes effect between the parties, their assign and heirs. The article
and preservation of all the statutes, for the celebration of the Seven
provides:
Last Word.

Art. 1311. Contracts take effect only between the parties, their
We find that the trial court erred in holding that the stipulation,
assigns and heirs, except in cases where the rights and obligations
arrangement or grant (Exhibit O-1) is revocable at the option of
arising from the contract are not transmissible by their nature, or
the co-owners. While a stipulation in favor of a third person has no
by stipulation or by provision of law. The heir is not liable beyond
binding effect in itself before its acceptance by the party favored,
the value of the property he received from the decedent.
the law does not provide when the third person must make his
acceptance. As a rule, there is no time at such third person has
after the time until the stipulation is revoked. Here, We find that
the Church accepted the stipulation in its favor before it is sought Deed of Real Mortgage executed by them on March 8, 1962
to be revoked by some of the co-owners, namely the petitioners- involving their shares of the subject land that, "This parcel of land
appellants herein. It is not disputed that from the time of the with is encumbered as evidenced by the document No. 420, page 94,
of Doa Encarnacion Florentino in 1941, as had always been the Book 1, series 1947, executed by the heirs of the late Encarnacion
case since time immemorial up to a year before the firing of their Florentino, on August 26, 1947, before M. Francisco Ante, Notwy
application in May 1964, the Church had been enjoying the Public of Vigan, Ilocos Sur, in its page 10 of the said document of
benefits of the stipulation. The enjoyment of benefits flowing partition, and also by other documents."
therefrom for almost seventeen years without question from any
quarters can only be construed as an implied acceptance by the The annotation of Exhibit O-1 on the face of the title to be issued
Church of the stipulation pour autrui before its revocation. in this case is merely a guarantee of the continued enforcement
and fulfillment of the beneficial stipulation. It is error for the
The acceptance does not have to be in any lower court to rule that the petitioners-appellants are not the real
particular form, even when the stipulation is for parties in interest, but the Church. That one of the parties to a
the third person an act of liberality or generosity contract pour autrui is entitled to bring an action for its
on the part of the promisor or promise. 5 enforcement or to prevent its breach is too clear to need any
extensive discussion. Upon the other hand, that the contract
It need not be made expressly and formally. involved contained a stipulation pour autrui amplifies this settled
Notification of acceptance, other than such as is rule only in the sense that the third person for whose benefit the
involved in the making of demand, is contract was entered into may also demand its fulfillment
unnecessary. 6 provoked he had communicated his acceptance thereof to the
obligor before the stipulation in his favor is revoked. 11
A trust constituted between two contracting
parties for the benefit of a third person is not Petitioners-appellants' third assignment of error is not well-taken.
subject to the rules governing donation of real Firstly, the otherwise rigid rule that the jurisdiction of the Land
property. The beneficiary of a trust may demand Registration Court, being special and limited in character and
performance of the obligation without having proceedings thereon summary in nature, does not extend to cases
formally accepted the benefit of the this in a involving issues properly litigable in other independent suits or
public document, upon mere acquiescence in the ordinary civil actions, has time and again been relaxed in special
formation of the trust and acceptance under the and exceptional circumstances. (See Government of the Phil.
second paragraph of Art. 1257 of the Civil Islands v. Serafica, 61 Phil. 93 (1934); Caoibes v. Sison, 102 Phil.
Code. 7 19 (1957); Luna v. Santos, 102 Phil. 588 (1957); Cruz v. Tan, 93
Phil. 348 (1953); Gurbax Singh Pabla & Co. v. Reyes, 92 Phil. 177
Hence, the stipulation (Exhibit O-1) cannot now be revoked by (1952). From these cases, it may be gleaned and gathered that the
any of the stipulators at their own option. This must be so because peculiarity of the exceptions is based not only on the fact that
of Article 1257, Civil Code and the cardinal rule of contracts that Land Registration Courts are likewise the same Courts of First
it has the force of law between the parties. 8 Thus, this Court ruled Instance, but also the following premises (1) Mutual consent of the
in Garcia v. Rita Legarda, Inc., 9 "Article 1309 is a virtual parties or their acquired in submitting the at aforesaid
reproduction of Article 1256 of the Civil Code, so phrased to determination by the court in the registration; (2) Full opportunity
emphasize that the contract must bind both parties, based on the given to the parties in the presentation of their respective skies of
principles (1) that obligation arising from contracts have the force the issues and of the evidence in support thereto; (3) Consideration
of law between the contracting parties; and (2) that there must be by the court that the evidence already of record is sufficient and
mutuality between the parties based on their principle equality, to adequate for rendering a decision upon these issues. 12 In the case
which is repugnant to have one party bound by the contract at bar, the records clearly show that the second and third premism
leaving the other free therefrom." enumerated abow are fully mt. With regards to first premise, the
petioners-appellants cannot claim that the issues anent Exhibit O-1
were not put in issue because this is contrary to their stand before
Consequently, Salvador Encarnacion, Sr. must bear with Exhibit
the lower court where they took the initial step in praying for the
O-1, being a signatory to the Deed of Extrajudicial Partition
court's determination of the merits of Exhibit O-1 as an
embodying such beneficial stipualtion. Likewise, with regards to
encumbrance to be annotated on the title to be issued by such
Salvador, Jr. and Angel Encarnacion, they too are bound to the
court. On the other hand, the petitioners-appellees who had the
agreement. Being subsequent purchasers, they are privies or
right to invoke the limited jurisdiction of the registration court
successors in interest; it is axiomatic that contracts are enforceable
failed to do so but met the issues head-on.
against the parties and their privies. 10 Furthermore, they are
shown to have given their conformity to such agreement when
they kept their peace in 1962 and 1963, having already bought Secondly, for this very special reason, We win uphold the
their respective shares of the subject land but did not question the actuation of the lower court in determining the conflicting interests
enforcement of the agreement as against them. They are also of the parties in the registration proceedings before it. This case
shown to have knowledge of Exhibit O-1 as they had admitted in a has been languishing in our courts for thirteen tong years. To
require that it be remanded to the lower court for another
proceeding under its general jurisdiction is not in consonance with Company replied with an offer to pay P2,000.00, by way of
our avowed policy of speedy justice. It would not be amiss to note compromise. The Insured rejected the same and made a counter-
that if this case be remanded to the lower court, and should appeal offer for P4,000.00, but the Company did not accept it. Hence, on
again be made, the name issues will once more be raised before us September 18, 1962, the Insured and Carlito's parents, namely,
hence, Our decision to resolve at once the issues in the instant Melecio Coquia and Maria Espanueva hereinafter referred to as
petition. the Coquias filed a complaint against the Company to collect
the proceeds of the aforementioned policy. In its answer, the
IN VIEW OF THE FOREGOING, the decision of the Court of Company admitted the existence thereof, but pleaded lack of cause
First Instance of Ilocos Sur in Land Registration Case No. N-310 of action on the part of the plaintiffs.
is affirmed but modified to allow the annotation of Exhibit O-1 as
an encumbrance on the face of the title to be finally issued in favor After appropriate proceedings, the trial court rendered a decision
of all the applications (herein appellants and herein appellees) in sentencing the Company to pay to the plaintiffs the sum of
the registration proceedings below. P4,000.00 and the costs. Hence, this appeal by the Company,
which contends that plaintiffs have no cause of action because: 1)
No pronouncement as to cost. the Coquias have no contractual relation with the Company; and
2) the Insured has not complied with the provisions of the policy
SO ORDERED. concerning arbitration.

G.R. No. L-23276 November 29, 1968 As regards the first defense, it should be noted that, although, in
general, only parties to a contract may bring an action based
thereon, this rule is subject to exceptions, one of which is found in
MELECIO COQUIA, MARIA ESPANUEVA and MANILA
the second paragraph of Article 1311 of the Civil Code of the
YELLOW TAXICAB CO., INC., plaintiffs-appellees,
Philippines, reading:
vs.
FIELDMEN'S INSURANCE CO., INC., defendant-appellant.
If a contract should contain some stipulation in favor of a
third person, he may demand its fulfillment provided he
Antonio de Venecia for plaintiffs-appellees.
communicated his acceptance to the obligor before its
Rufino Javier for defendant-appellant.
revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have
CONCEPCION, C.J.:
clearly and deliberately conferred a favor upon a third
person.2
This is an appeal from a decision of the Court of First Instance of
Manila, certified to us by the Court of Appeals, only questions of
This is but the restatement of a well-known principle concerning
law being involved therein. Indeed, the pertinent facts have been
contracts pour autrui, the enforcement of which may be demanded
stipulated and/or, admitted by the parties at the hearing of the case
by a third party for whose benefit it was made, although not a
in the trial court, to dispense with the presentation of evidence
party to the contract, before the stipulation in his favor has been
therein.
revoked by the contracting parties. Does the policy in question
belong to such class of contracts pour autrui?
It appears that on December 1, 1961, appellant Fieldmen's
Insurance Company, Inc. hereinafter referred to as the
In this connection, said policy provides, inter alia:
Company issued, in favor of the Manila Yellow Taxicab Co.,
Inc. hereinafter referred to as the Insured a common carrier
Section I Liability to Passengers. 1. The Company
accident insurance policy, covering the period from December 1,
will, subject to the Limits of Liability and under the
1961 to December 1, 1962. It was stipulated in said policy that:
Terms of this Policy, indemnify the Insured in the event
of accident caused by or arising out of the use of Motor
The Company will, subject to the Limits of Liability and
Vehicle against all sums which the Insured will become
under the Terms of this Policy, indemnify the Insured in
legally liable to pay in respect of: Death or bodily injury
the event of accident caused by or arising out of the use
to any fare-paying passenger including the Driver ... who
of Motor Vehicle against all sums which the Insured will
is riding in the Motor Vehicle insured at the time of
become legally liable to pay in respect of: Death or
accident or injury.
bodily injury to any fare-paying passenger including the
Driver, Conductor and/or Inspector who is riding in the
Section II Liability to the Public
Motor Vehicle insured at the time of accident or injury. 1

xxx xxx xxx


While the policy was in force, or on February 10, 1962, a taxicab
of the Insured, driven by Carlito Coquia, met a vehicular accident
at Mangaldan, Pangasinan, in consequence of which Carlito died. 3. In terms of and subject to the limitations of and for the
The Insured filed therefor a claim for P5,000.00 to which the purposes of this Section, the Company will indemnify
any authorized Driver who is driving the Motor case of disagreement between the arbitrators, to the
Vehicle.... decision of an umpire who shall have been appointed in
writing by the arbitrators before entering on the reference
Conditions and the costs of and incident to the reference shall be
dealt with in the Award. And it is hereby expressly
xxx xxx xxx stipulated and declared that it shall be a condition
precedent to any right of action or suit upon this Policy
that the award by such arbitrator, arbitrators or umpire of
7. In the event of death of any person entitled to
the amount of the Company's liability hereunder if
indemnity under this Policy, the Company will, in respect
disputed shall be first obtained.
of the liability incurred by such person, indemnify his
personal representatives in terms of and subject to the
limitations of this Policy, provided, that such The record shows, however, that none of the parties to the contract
representatives shall, as though they were the Insured, invoked this section, or made any reference to arbitration, during
observe, fulfill and be subject to the Terms of this Policy the negotiations preceding the institution of the present case. In
insofar as they can apply. fact, counsel for both parties stipulated, in the trial court, that none
of them had, at any time during said negotiations, even suggested
the settlement of the issue between them by arbitration, as
8. The Company may, at its option, make indemnity
provided in said section. Their aforementioned acts or omissions
payable directly to the claimants or heirs of claimants,
had the effect of a waiver of their respective right to demand an
with or without securing the consent of or prior
arbitration. Thus, in Kahnweiler vs. Phenix Ins. Co. of
notification to the Insured, it being the true intention of
Brooklyn,5 it was held:
this Policy to protect, to the extent herein specified and
subject always to the Terms Of this Policy, the liabilities
of the Insured towards the passengers of the Motor Another well-settled rule for interpretation of all
Vehicle and the Public. contracts is that the court will lean to that interpretation
of a contract which will make it reasonable and just. Bish.
Cont. Sec. 400. Applying these rules to the tenth clause of
Pursuant to these stipulations, the Company "will indemnify any
this policy, its proper interpretation seems quite clear.
authorized Driver who is driving the Motor Vehicle" of the
When there is a difference between the company and the
Insured and, in the event of death of said driver, the Company
insured as to the amount of the loss the policy declares:
shall, likewise, "indemnify his personal representatives." In fact,
"The same shall then be submitted to competent and
the Company "may, at its option, make indemnity
impartial arbitrators, one to be selected by each party ...".
payable directly to the claimants or heirs of claimants ... it being
It will be observed that the obligation to procure or
the true intention of this Policy to protect ... the liabilities of the
demand an arbitration is not, by this clause, in terms
Insured towards the passengers of the Motor Vehicle and the
imposed on either party. It is not said that either the
Public" in other words, third parties.
company or the insured shall take the initiative in setting
the arbitration on foot. The company has no more right to
Thus, the policy under consideration is typical of contracts pour
say the insured must do it than the insured has to say the
autrui, this character being made more manifest by the fact that
company must do it. The contract in this respect is neither
the deceased driver paid fifty percent (50%) of the corresponding
unilateral nor self-executing. To procure a reference to
premiums, which were deducted from his weekly commissions.
arbitrators, the joint and concurrent action of both parties
Under these conditions, it is clear that the Coquias who,
to the contract is indispensable. The right it gives and the
admittedly, are the sole heirs of the deceased have a direct
obligation it creates to refer the differences between the
cause of action against the Company,3 and, since they could have
parties to arbitrators are mutual. One party to the contract
maintained this action by themselves, without the assistance of the
cannot bring about an arbitration. Each party is entitled to
Insured, it goes without saying that they could and did properly
demand a reference, but neither can compel it, and
join the latter in filing the complaint herein.4
neither has the right to insist that the other shall first
demand it, and shall forfeit any right by not doing so. If
The second defense set up by the Company is based upon Section the company demands it, and the insured refuses to
17 of the policy reading: arbitrate, his right of action is suspended until he consents
to an arbitration; and if the insured demands an
If any difference or dispute shall arise with respect to the arbitration, and the company refuses to accede to the
amount of the Company's liability under this Policy, the demand, the insured may maintain a suit on the policy,
same shall be referred to the decision of a single notwithstanding the language of the twelfth section of the
arbitrator to be agreed upon by both parties or failing policy, and, where neither party demands an arbitration,
such agreement of a single arbitrator, to the decision of both parties thereby waive it.6
two arbitrators, one to be appointed in writing by each of
the parties within one calendar month after having been
required in writing so to do by either of the parties and in
To the same effect was the decision of the Supreme Court of DIZON, J.:
Minnesota in Independent School Dist. No. 35, St. Louis County
vs. A. Hedenberg & Co., Inc.7 from which we quote: This is a direct appeal on a question of law taken by Pastor B.
Constantino from an order of the Court of First Instance of Rizal
This rule is not new in our state. In Meyer v. Berlandi, 53 denying his motion for the admission of his amended complaint in
Minn. 59, 54 N.W. 937, decided in 1893, this court held Civil Case No. 5924, entitled "Pastor B. Constantine vs. Herminia
that the parties to a construction contract, having Espiritu."
proceeded throughout the entire course of their dealings
with each other in entire disregard of the provision of the Appellant's complaint alleged, inter alia, that he had, by a
contract regarding the mode of determining by arbitration fictitious deed of absolute sale annexed thereto, conveyed to
the value of the extras, thereby waived such provision. appellee on October 30, 1953, for a consideration of P8,000.00,
the two-storey house and four (4) subdivision lots covered by
xxx xxx xxx Transfer Certificate of Title No. 20174 issued by the Register of
Deeds of Rizal, on October 25, 1950 in the name of Pastor B.
The test for determining whether there has been a waiver Constantino, married to Honorata Geukeko with the understanding
in a particular case is stated by the author of an that appellee would hold the properties in trust for their
exhaustive annotation in 117 A.L.R. p. 304, as follows: illegitimate son, Pastor Constantino, Jr., still unborn at the time of
"Any conduct of the parties inconsistent with the notion the conveyance; that thereafter appellee mortgaged said properties
that they treated the arbitration provision as in effect, or to the Republic Savings Bank of Manila twice to secure payment
any conduct which might be reasonably construed as of two loans, one of P3,000.00 and the other of P2,000.00, and
showing that they did not intend to avail themselves of that thereafter she offered them for sale. The complaint then
such provision, may amount to a waiver thereof and estop prayed for the issuance of a writ of preliminary injunction
the party charged with such conduct from claiming its restraining appellee and her agents or representatives from further
benefits". alienating or disposing of the properties, and for judgment
ordering her to execute a deed of absolute sale of said properties in
xxx xxx xxx favor of Pastor B. Constantino, Jr., the beneficiary (who, at the
filing of said complaint, was about five years of age), and to pay
attorney's fees in the sum of P2,000.00.
The decisive facts here are that both parties from the
inception of their dispute proceeded in entire disregard of
the provisions of the contract relating to arbitration and As a result of the conveyance mentioned heretofore, TCT No.
that neither at any stage of such dispute, either before or 20714 in the name of plaintiff was partially cancelled and in lieu
after commencement of the action, demanded arbitration, thereof, TCT No. 32744 was issued by the Register of Deeds of
either by oral or written demand, pleading, or otherwise. Rizal in the name of appellee Herminia Espiritu.
Their conduct was as effective a rejection of the right to
arbitrate as if, in the best Coolidge tradition, they had On December 16, 1959, appellee moved to dismiss the complaint
said, "We do not choose to arbitrate". As arbitration under on the ground that it stated no cause of action because Pastor
the express provisions of article 40 was "at the choice of Constantino, Jr., the beneficiary of the alleged trust, was not
either party," and was chosen by neither, a waiver by both included as party-plaintiff, and on the further ground that
of the right to arbitration followed as a matter of law. appellant's cause of action was unenforceable under the Statute of
Frauds.
WHEREFORE, the decision appealed from should be as it is
hereby affirmed in toto, with costs against the herein defendant- In his opposition to said motion to dismiss, appellant argued that
appellant, Fieldmen's Insurance Co., Inc. It is so ordered. the Statute of Frauds does not apply to trustee and cestui que trust
as in the case of appellee and her illegitimate child, and that for
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, this reason appellant would not be barred from proving by parol
Fernando and Capistrano, JJ., concur. evidence an implied trust existing under Article 1453 of the Civil
Code. On the other hand, in her rejoinder to appellant's opposition,
appellee argued that what the former was invoking in his
G.R. No. L-22404 May 31, 1971
complaint (Paragraph V, Complaint) was an implied trust under
Article 1453 of the Civil Code and not an express trust under
PASTOR B. CONSTANTINO, plaintiff-appellant,
Section 3, Rule 3 of the Revised Rules of Court. Finding the
vs.
grounds alleged in the motion to dismiss to be meritorious, the
HERMINIA ESPIRITU, defendant-appellee.
trial court dismissed the complaint, with costs.

David Guevara for plaintiff-appellant.


Immediately after receiving notice of said order of dismissal,
appellant filed a motion for the admission of an amended
complaint, attaching thereto a copy hereof, the amendment
consisting mainly of the inclusion of the minor, Pastor of the estate of her deceased husband, Manuel Gay Yulingco, as
Constantino, Jr. as co-plaintiff. The amended complaint further well as the heirs of said decedent, to execute in due form a
prayed for the appointment of appellant as said minor's contract, with appropriate description of the real property
guardian ad litem. An opposition thereto was filed on the ground involved, in conformity with the terms of an agreement dated
that the amendment aforesaid was not an inclusion but a September 3, 1927, executed by the deceased Manuel Gay
substitution of the party plaintiff. As the latter had no interest Yulingco, in life, and Enrique Echaus, one of the plaintiffs in the
whatsoever in the subject matter of the case, it was argued that the case (Exhibit A). To this action the defendants interposed a general
substitution was not allowed in this jurisdiction. Appellant's answer and cross-complaint, in the latter of which they sought a
answer to appellee's opposition alleged that, as the ground relied decree annulling the contract Exhibit A as excessively onerous and
upon in the said opposition was purely technical, even the illegal. Upon hearing the cause the trial court absolved the
substitution of the party plaintiff should be allowed under Section plaintiffs from the cross-complaint and gave judgment in favor of
2, Rule 17 of the Rules of Court. Thereafter the lower court issued the plaintiffs upon the complaint, requiring the defendants, within
the appealed order denying appellant's motion for the admission of thirty days from the date of the finality of the decision, to execute
his amended complaint. Hence, the instant direct appeal. before a notary public and deliver to the plaintiffs a contract
similar in terms to that indicated in the Exhibit A but containing, in
The original as well as the amended complaint mentioned above addition, a description of the real property involved, in such form
allege that the sale made by appellant Constantino in favor of as would enable the plaintiffs to procure said contract to be
appellee of the properties described in said pleadings was subject inscribed on the certificate of title corresponding to said property,
to the agreement that the vendee would hold them in trust for their with costs against the defendants. From this judgment the
at that time already conceived but unborn illegitimate child; that defendants appealed.
the vendee violated this agreement, firstly, by subjecting them to
two different contracts of mortgage, and later by trying to sell xxx xxx xxx
them, this being not only in violation of the aforesaid agreement
but prejudicial to the cestui que trust; that the action was The contract in question, Exhibit A, on which this action is based,
commenced to compel the vendee to comply with their agreement was executed by Manuel Gay Yulingco and Enrique Echaus, and
by executing the corresponding deed of conveyance in favor of although the contract binds Yulingco to pay to Adoracion Rosales
their minor son, and to desist from further doing any act de Echaus, the wife of Enrique Echaus, the sum of fifty centavos
prejudicial to the interests of the latter. for each picul of sugar that may be produced upon the two
haciendas covered by the contract during the fourteen years
It appears then that, upon the facts alleged by appellant, the beginning with the crop for 1927-1928, nevertheless this action is
contract between him and appellee was a contract pour autrui, not instituted by the nominal beneficiary, Adoracion Rosales de
although couched in the form of a deed of absolute sale, and that Echaus, directly for the purpose of obtaining the benefit which
appellant's action was, in effect, one for specific performance. said contract purports to confer upon her. The purpose of the
That one of the parties to a contract is entitled to bring an action action is to compel the defendants to execute a contract pursuant
for its enforcement or to prevent its breach is too clear to need any to the tenor of the contract Exhibit A, but containing an adequate
extensive discussion. Upon the other hand, that the contract description of the property contained in the two haciendas, for the
involved contained a stipulation pour autrui amplifies this settled purpose of enabling Echaus to procure the annotation of said
rule only in the sense that the third person for whose benefit the contract on the Torrens certificates of title. It is therefore evident
contract was entered into may also demand its fulfillment provided that, technically speaking, the proper person to bring this action is
he had communicated his acceptance thereof to the obligor before Enrique Echaus, the person with whom the contract was made by
the stipulation in his favor is revoked. Yulingco. It is, nevertheless, equally obvious that the wife of
Enrique Echaus is a party in interest, and she is certainly a proper,
It appearing that the amended complaint submitted by appellant to if not an entirely necessary party to the action. It results that there
the lower court impleaded the beneficiary under the contract as a is really no improper joinder of parties plaintiff.
party co-plaintiff, it seems clear that the three parties concerned
therewith would, as a result, be before the court and the latter's Whether the contract of sale entered into between appellant and
adjudication would be complete and binding upon them. appellee was as claimed and the amended complaint subject
to the agreement that appellee would hold the properties in
The ruling in the case of Echaus vs. Gan, 55 Phil. 527 involving trust for their unborn child is a question of fact that appellee may
facts similar to the ones before us is of obvious application to the raise in her answer for the lower court to determine after trial. On
latter. We quote the following pertinent portions of our decision in the other hand, the contention that the contract in question is not
said case: enforceable by action by reason of the provisions of the Statute of
Frauds does not appear to be indubitable, it being clear upon the
This action was instituted in the Court of First Instance of facts alleged in the amended complaint that the contract between
Occidental Negros by Adoracion Rosales de Echaus, assisted by the parties had already been partially performed by the execution
her husband Enrique Echaus, for the purpose of obtaining a of the deed of sale, the action brought below being only for the
judicial order requiring the defendant Maria Gan, as administratrix enforcement of another phase thereof, namely, the execution by
appellee of a deed of conveyance in favor of beneficiary themselves to voluntarily and peacefully vacate the premises
thereunder. which they were occupying as lessees (Units 1352 and 1354,
respectively) which are the subject of the condemnation and
WHEREFORE, the appealed order is hereby set aside and the case demolition order and to surrender possession thereof to the
is remanded to the lower court for further proceedings in defendant Philippine Holding, Inc. within sixty (60) days from
accordance with law. written notice, subject to the proviso that should defendant
decided to sell the subject property or portion thereof, "plaintiff
G.R. No. 79518 January 13, 1989 and Rebecca C. Young have the right of first refusal thereof."
(Rollo, p. 49).
REBECCA C. YOUNG assisted by her husband ANTONIO
GO, petitioner, On September 17, 1981, Philippine Holding, Inc. had previously
vs. sold the above said property described in the compromise
COURT OF APPEALS, PH CREDIT CORP., PHIL. agreement by way of dacion in payment to PH Credit Corporation
HOLDING, INC. FRANCISCO VILLAROMAN, FONG (Rollo, p. 49).
YOOK LU, ELLEN YEE FONG and THE REGISTER OF
DEEDS OF MANILA, respondents. On November 9, 1982, the property was subdivided into two
parcels, one 244.09 sq.m. in area covering Units 1350, 1352 and
Diego O. Untalan for petitioner. 1354 (TCT No. 152439) and the other 241.71 sq.m. in area
covering Units 1356, 1358 and 1360 (TCT No. 152440) and both
titles were placed in the name of PH Credit Corporation.
Esteban B. Bautista for respondents Fong Yook Lu and Ellen Yee
Fong.
On December 8, 1982, PH Credit Corporation sold the property
covered by TCT 152439 to the Blessed Land Development
Janette Borres for respondents.
Corporation represented by its President Antonio T. S. Young; and
on September 16, 1983, PH Credit Corporation sold the property
covered by TCT 152440 embracing Units 1356, 1358 and 1360 to
spouses Fong Yook Lu and Ellen Yee Fong (Rollo, p. 15).
PARAS, J.:
Thereafter, petitioner Rebecca C. Young and her co-plaintiffs, the
This is a petition for review on certiorari seeking to set aside the spouses Chui Wan and Felisa Tan Yu filed in the Regional Trial
decision of the Court of Appeals 1 in CA-G.R. No. 1002, entitled Court of Manila, Civil Case No. 84-22676 for the annulment of
Spouses Chui Wan and Felisa Tan Yu and Rebecca Young vs. PH the sale in favor of herein respondent spouses, Fong Yook Lu and
Credit Corporation et al., which affirmed the decision of the Ellen Yee Fong and for specific performance and damages against
Regional Trial Court of Manila, Branch XXXII, earlier dismissing the PH Credit Corporation and Philippine Holding, Incorporated.
the complaint of petitioners for Annulment of Sale, Specific
Performance and Damages, against respondents.
Plaintiff spouses Chui Wan and Felisa Tan Yu alleged that
defendant corporation and Francisco Villaroman, sold the property
The facts of the case are as follows: without affording them (the plaintiffs-spouses) the right of first
refusal to purchase that portion of the property which they are
Defendant Philippine Holding, Inc. is the former owner of a piece renting.
of land located at Soler St., Sta. Cruz, Manila, and a two storey
building erected thereon, consisting of six units; Unit 1350 which Plaintiff Rebecca C. Young, now petitioner, also claimed the right
is vacant, Unit 1352 occupied by Antonio Young, Unit 1354 by of first refusal purportedly granted to her under the aforestated
Rebecca C. Young, Unit 1356 by Chui Wan and Felisa Tan Yu, proviso of the abovesaid compromise agreement and prayed that
Unit 1358 by Fong Yook Lu and Ellen Yee Fong and Unit 1360 by the sale be annulled and that they be allowed to exercise her right
the Guan Heng Hardware (Rollo, pp. 14-15). of first refusal to purchase subject property (Rollo, p. 50).

The owner Philippine Holding, Inc. secured an order from the City The lower court decided in favor of the defendants and against the
Engineer of Manila to demolish the building. Antonio Young, then plaintiffs, thus dismissing the complaint together with defendants'
a tenant of said Unit 1352, filed an action to annul the City counterclaims (Rollo, p. 15)
Engineer's demolition Order (Civil Case No. 123883)
entitled Antonio S. Young vs. Philippine Holding, Inc. before the
On the other hand, the claim of Rebecca C. Young was similarly
then Court of First Instance of Manila, Branch XXX. As an
rejected by the trial court on the following grounds: (1) that she
incident in said case, the parties submitted a Compromise
was not a party in the Civil Case No. 123883, wherein subject
Agreement to the Court on September 24, 1981. Paragraph 3 of
compromise agreement was submitted and approved by the trial
said agreement provides that plaintiff (Antonio S. Young) and
court apart from the fact that she did not even affix her signature
Rebecca Young and all persons claiming rights under them bind
to the said compromise agreement; (2) that Rebecca Young had
failed to present any evidence to show that she had demanded mentioned in the exhibits (J.M. Tuason & Co., Inc. v. Aguirre, 7
from the defendants-owners, observance of her right of first SCRA 112 [1963]). It was reiterated later that a compromise
refusal before the said owners sold units 1356, 1358 and 1360; (3) agreement cannot bind persons who are not parties thereto
that even assuming that her supposed right of first refusal is a (Guerrero v. C.A., 29 SCRA 791 [1969]).
stipulation for the benefit of a third person, she did not inform the
obligor of her acceptance as required by the second paragraph of The pertinent portion of the Compromise Agreement reads:
Article 1311 of the Civil Code.
Plaintiff Antonio T.S. Young and the Defendant
Chui Wan and Felisa Tan Yu and Rebecca C. Young, assisted by HOLDING hereby agree to implead in this
her husband, appealed to the Court of Appeals which dismissed action as necessary party- plaintiff, plaintiff's
the same on August 7, 1987, for lack of merit. daughter Rebecca C. Young who is the
recognized lawful lessee of the premises known
Hence this petition, which was brought to this Court only by and identified as 1354 Soller St., Sta. Cruz,
Rebecca Young, assisted by her husband Antonio Go. Manila and whose written conformity appears
hereunder. (Rollo, p. 18)
On October 2, 1987, respondents Fong Yook Lu, moved to strike
out or dismiss outright the instant petition (Rollo, p. 35). In the From the terms of this agreement, the conditions are very clear,
resolution of November 4, 1987, the Second Division of this Court such as: (1) that Rebecca C. Young shall be impleaded in the
required the petitioner to comment on said motion (Rollo, p. 37), action and (2) that she shall signify her written conformity thereto.
which comment was filed on December 17, 1987 (Rollo, p. 38).
Thereafter, in the resolution of January 20, 1988, respondents were For unknown reasons, the above conditions were not complied
required to file a reply thereto (Rollo, p. 42) which was filed on with. The parties did not make any move to implead Rebecca as
January 11, 1988 (Rollo, p. 43). On March 24, 1988, petitioner necessary party in the case. Neither did her written conformity
filed a rejoinder to reply (Rollo, p. 46) in compliance with the appear in said agreement. While there is the printed name of
resolution of February 29, 1988 (Rollo, p.45). Rebecca C. Young appearing at the end of the joint motion for
approval of the Compromise Agreement, she did not affix her
In the resolution of May 11, 1988, the petition was given due signature above her printed name, nor on the left margin of each
course and the parties were required to submit simultaneously and every page thereof.
their respective memoranda (Rollo, p. 47). Respondents filed their
memorandum on June 29, 1988 (Rollo, p. 48), while petitioner's In fact, on cross-examination, she admitted that she was not a
memorandum was filed on July 14, 1988 (Rollo, p. 64). party to the case and that she did not sign the aforesaid joint
motion because it was not presented to her (Rollo, p. 18).
Petitioner raised the following assignments of
error: More than that, by the aforesaid actuations of the parties and
petitioner's apparent lack of interest, the intention is evident, not to
1. The lower court erred in holding that Rebecca include the latter either in the onerous, or in the beneficient
C. Young cannot enforce the stipulation in her provisions of said agreement.
favor in the compromise agreement as she is not
party therein. Petitioner further argued that the stipulation giving her the right of
first refusal is a stipulation pour autrui or a stipulation in favor of
2. The lower court erred in holding that even if a third person under Article 1311 of the Civil Code.
par. 3 of the compromise agreement is construed
as a stipulation pour autrui Rebecca Young The requisites of a stipulation pour autrui or a stipulation in favor
cannot enforce it because she did not of a third person are the following:
communicate her acceptance thereof to the
obligor. (Rollo, p. 7) (1) there must be a stipulation in favor of a third
person.
The petition is devoid of merit.
(2) the stipulation must be a part, not the whole
The main issue in this case is whether or not petitioner can enforce of the contract.
a compromise agreement to which she was not a party. This issue
has already been squarely settled by this Court in the negative (3) the contracting parties must have clearly and
in J.M. Tuason & Co., Inc. v. Cadampog (7 SCRA 808 deliberately conferred a favor upon a third
[1963])where it was ruled that appellant is not entitled to enforce a person, not a mere incidental benefit or interest.
compromise agreement to which he was not a party and that as to
its effect and scope, it has been determined in the sense that its
effectivity if at all, is limited to the parties thereto and those
(4) the third person must have communicated his Five (5) months later, a second Memorandum of Agreement was
acceptance to the obligor before its revocation. executed between Maris Trading and Aurora Guiang, with
Federico Guiang signing as witness. This second agreement in
(5) neither of the contracting parties bears the essential part read: 1
legal representation or authorization of the third
party. (Florentino v. Encarnacion, Sr., 79 SCRA That the First Party [Maris Trading] has dug,
193 [1977]). drilled and tapped water source for Marmont
Resort, located at Bo. Barretto, Olongapo City in
Assuming that petitioner is correct in claiming that this is a accordance with their agreement executed on
stipulation pour autrui it is unrebutted that she did not May 2, 1975 and notarized before Isagani M.
communicate her acceptance whether expressly or impliedly. She Jungco, Notary Public and entered as Doc. No.
insists however, that the stipulation has not yet been revoked, so 166; Page No. 135; Book No. XV; Series of
that her present claim or demand is still timely. 1975.

As correctly observed by the Court of Appeals, the above That the First Party has erected, built and drilled
argument is pointless, considering that the sale of subject property for the water source of Marmont Resort on the
to some other person or entity constitutes in effect a revocation of land owned by the Second Party [Aurora
the grant of the right of first refusal to Rebecca C. Young. Guiang] at the corner of J. Montelibano Street
and Maquinaya Drive (Provincial Road) with the
PREMISES CONSIDERED, the petition is DENIED for lack of latter's permission.
merit, and the decision of the Court of Appeals is AFFIRMED.
That for and in consideration of the sum of
SO ORDERED. P1,500.00 the Second Party hereby Sell,
Transfer and Cede all possessory rights, interest
and claims over that portion of the lot wherein
G.R. No. 79734 December 8, 1988
the water source of Marmont Resort is located
unto and in favor of Maris Trading.
MARMONT RESORT HOTEL ENTERPRISES, petitioner,
vs.
After some time, the water supply of the Marmont Resort Hotel
FEDERICO GUIANG, AURORA GUIANG, and COURT OF
became inadequate to meet the hotel's water requirements.
APPEALS, respondents.
Petitioner Marmont secured the services of another contractor (the
name of which was not disclosed), which suggested that in
Isagani M. Jungco for petitioner.
addition to the existing water pump, a submersible pump be
installed to increase the pressure and improve the flow of water to
the hotel. Accordingly, Juan Montelibano, Jr., manager of the
Marmont Resort Hotel, sought permission from the Guiang
FELICIANO, J.: spouses to inspect the water pump which had been installed on the
portion of the land previously occupied by the spouses and to
The present Petition for Review seeks to set aside the Decision make the necessary additional installations thereon. No such
dated 9 December 1986 of the Court of Appeals in CA-G.R. CV permission, however, was granted.
03299. The appellate court affirmed a Decision dated 31 May
1983 of Branch 83 of the Regional Trial Court of Olongapo City On 13 May 1980, petitioner Marmont filed a Complaint 2 against
dismissing the complaint in Civil Case No. 2896-C filed by the Guiang spouses for damages resulting from their refusal to
petitioner company against private respondent spouses. allow representatives of petitioner and the second contractor firm
entry into the water facility site. The claimed damages were
On 2 May 1975, a Memorandum of Agreement was executed broken down as follows: (a) P10,000.00 representing the amount
between Maris Trading and petitioner Marmont Resort Hotel advanced in payment to the second contractor; (b) P40,000.00
Enterprises, Inc. ("Marmont"), a corporation engaged in the hotel representing the total project cost of the installation made by
and resort business with office and establishment at Olongapo Maris Trading: (c) P50,000.00 representing additional expenses
City. Under the agreement, Maris Trading undertook to drill for incurred and incidental losses resulting from failure of the original
water and to provide all equipment necessary to install and pump to cope with the water requirements of the Marmont Resort
complete a water supply facility to service the Marmont Resort Hotel; and (d) P10,000.00 for Attorney's fees.
Hotel in Olongapo, for a stipulated fee of P40,000.00. In
fulfillment of its contract, Maris Trading drilled a well and In their Answer, 3 the Guiang spouses (defendants below) denied
installed a water pump on a portion of a parcel of land situated in having had any previous knowledge of the first Memorandum of
Olongapo City, then occupied by respondent spouses Federico and Agreement and asserted that the second Memorandum of
Aurora Guiang. Agreement was invalid for not having been executed in
accordance with law. The spouses added a counterclaim for Further, it was alleged that the land upon which the hotel's water
damages in the amount of P200,000.00. supply facility was installed-and which the Guiang spouses
occupied-formed part of the public domain and was then still the
On 2 October 1980, at the pre-trial conference, the parties agreed subject of a Miscellaneous Sales Application submitted by
on the following stipulation of facts and issues embodied in a Pre- Federico Guiang. The Motion to Dismiss, however, was denied by
Trial Order: 4 the trial court.

III No evidence having been adduced by the Guiang spouses on their


behalf, the case was submitted for derision. On 31 May 1983, the
In addition to the admission made elsewhere in their respective trial court rendered a decision, 6 dismissing the complaint. The
pleadings, the parties entered into the following stipulation of trial court found that Aurora Guiang had validly alienated her
facts: rights over the disputed portion of land to Maris Trading, but held
that the evidence failed to show that Maris Trading, in turn, had
transferred such rights to petitioner Marmont.
1. Plaintiff is a corporation duly organized and existing under the
laws of the Philippines with office at Montelibano Street, Barrio
Barretto, Olongapo City; Petitioner Marmont appealed to the Court of Appeals which
affirmed the decision of the trial court and dismissed the appeal
for lack of merit. 7 The appellate court, citing Section 55, Rule 132
2. The contract referred to in paragraph 2 of the complaint
of the Revised Rules of Court, held that the first and second
between the plaintiff and Maris Trading is contained in a
Memoranda of Agreement could not legally be considered by the
document captioned Memorandum Agreement executed on May 2,
court as included in the body of evidence of the case, as neither
1975, a xerox copy of which is Annex 'A' of plaintiffs complaint;
document had been formally offered in evidence by either party. It
also held that, in any event, neither document showed that
3. On October 7, 1975, the Maris Trading represented by Ceferino
Marmont had in fact acquired from Maris Trading whatever rights
Cabral and defendant Aurora Guiang entered into a memorandum
the latter had over the land in dispute.
agreement;
In the instant Petition for Review, petitioner assigns the following
4. The portion sold under Annex 'A' is still a part of the public
errors: 8
domain.
1. The Court of Appeals erred in not considering the Memorandum
IV
of Agreement of May 2, 1975 and 7 October 1975 as the same
were already admitted in the pre-trial order; and
The plaintiff marked the following exhibits in evidence:
2. The Court of Appeals erred in deciding that ownership belongs
Exhibit 'A'-Memorandum Agreement dated May 2, 1975 to Maris Trading hence, private respondent Guiang can prohibit
Marmont Resort from entering the land.
Exhibit 'B-Memorandum Agreement dated October 7, 1975
We find for the petitioner.
V
Both the trial and appellate courts held that the first and second
The issues left to be ventilated during the trial are the following: Memoranda of Agreement are not properly considered as forming
part of the record of this case, because neither had been formally
1. Whether defendants has actually prohibited the plaintiff [from) presented and offered in evidence at the trial of Civil Case No.
making repairs, [on] the pump constructed by Maris Trading for 2896-C. The record shows, however, as noted earlier, that at the
the plaintiff under the agreement Exhibit 'A,' if so; pre-trial conference held on 2 October 1980, both petitioner
Marmont and respondent spouses had agreed upon a stipulation of
2. Whether defendants [have] the right to prohibit the Maris facts and issues recognizing the existence of those same two (2)
Trading from performing the repairs and if not agreements. Such stipulation of facts constitutes a judicial
admission, the veracity of which requires no further proof and
3. Whether defendants are liable for damages under the human which may be controverted only upon a clear showing that such
relations provision of the Civil Code. stipulation had been entered into through "palpable mistake." On
this point, Section 2, Rule 129 of the Revised Rules of Court
On I January 1980, the Guiang spouses moved to dismiss the provides:
Complaint. 5 The spouses there assailed the validity of the second
Memorandum of Agreement, alleging that the subject matter Section 2. Judicial Admissions.--Admission made by the parties in
thereof involved conjugal property alienated by Aurora Guiang the pleadings, or in the course of the trial or other proceedings do
without the marital consent of her husband, Federico Guiang. not require proof and cannot be contradicted unless previously
shown to have been made through palpable mistake. (emphasis A closer scrutiny of the second and third paragraphs of the second
supplied) Memorandum of Agreement discloses that the first Memorandum
of Agreement, including the obligations imposed thereunder upon
There has been no showing and respondent spouses do not claim Maris Trading, had been acknowledged therein:
that "palpable mistake" had intervened here, in respect of the
formulation of the facts stipulated by the parties at the pre-trial That the First Party (i.e., Maris Trading) has dug, drilled and
conference. Absent any such showing, that stipulation of facts is tapped water source for Marmont Resort, located at Bo. Barretto,
incontrovertible, 9 and may be relied upon by the Olongapo City in accordance with their agreement executed on
courts. 10 Respondent spouses are estopped from raising as an May 2, 1975 and notarized before Isagani M. Jungco, Notary
issue in this case the existence and admissibility in evidence of Public and entered as Doc. No. 166; Page No. 135; Book No. XV;
both the first and second Memoranda of Agreement which, having Series of 1975.
been marked as exhibits during pre-trial, properly form part of the
record of this case, even though not formally offered in evidence That the First Party has erected, built and drilled for the water
after trial. 11 source of Marmont Resort on the land owned by the Second
Party [respondent spouses] at the corner of J. Montelibano Street
We consider briefly respondent spouses' argument that the second and Maquinaya Drive (Provincial Road) with the latter's
Memorandum of Agreement was invalid for having been executed permission;... (Emphasis supplied)
by Aurora Guiang without the marital consent of Federico,
contrary to Articles 165 and 172 of the Civil Code. The above paragraphs establish, among other things, that
construction work had been performed by Maris Trading on the
Article 165 and 172 state the general principle under our civil law, land occupied by respondent spouses; that such construction work
that the wife may not validly bind the conjugal partnership without had been performed in accordance with terms and conditions
the consent of the husband, who is legally the administrator of the stipulated in the first Memorandum of Agreement and that the
conjugal partnership. In this particular case, however, as noted purpose of the work was to build a water supply facility for
earlier, the second Memorandum of Agreement, although petitioner Marmont. The same excerpts also show that the work so
ostensibly contracted solely by Aurora Guiang with Maris Trading, performed was with the knowledge and consent of the Guiang
was also signed by her husband Federico, as one of the witnesses spouses, who were then occupying the land.
thereto. This circumstance indicates not only that Federico was
present during the execution of the agreement but also that he had, It is clear from the foregoing stipulations that petitioner Marmont
in fact, given his consent to the execution thereof by his wife was to benefit from the second Memorandum of Agreement. In
Aurora. Otherwise, he should not have appended his signature to fact, said stipulations appear to have been designed precisely to
the document as witness. Respondent spouses cannot now disown benefit petitioner and, thus, partake of the nature of
the second Memorandum of Agreement as their effective consent stipulations pour autrui, contemplated in Article 1311 of the Civil
thereto is sufficiently manifested in the document itself. Code.

That the land in dispute was, at the time of execution of the second
A stipulation pour autrui is a stipulation in favor of a third person
Memorandum of Agreement, public land, is of no consequence conferring a clear and deliberate favor upon him, which stipulation
here. Pending approval of Federico's Miscellaneous Sales is found in a contract entered into by parties neither of whom
Application over said land, respondent spouses enjoyed acted as agent of the beneficiary. 12 We believe and so hold that the
possessory and other rights over the same which could validly be purpose and intent of the stipulating parties (Maris Trading and
assigned or transferred in favor of third persons. In this case, respondent spouses) to benefit the third person (petitioner
respondent spouses chose to transfer such rights (over the portion Marmont) is sufficiently clear in the second Memorandum of
upon which the water pump was installed) to Maris Trading, as Agreement. Marmont was not of course a party to that second
evidenced by the fourth paragraph of the second Memorandum of Agreement but, as correctly pointed out by the trial court and the
Agreement, quoted earlier. Furthermore, assuming (though only appellate court, the respondent spouses could not have prevented
for the sake of argument) that the alienation to Maris Trading was Maris Trading from entering the property possessory rights over
legally objectionable, respondent spouses are not the proper which had thus been acquired by Maris Trading. That respondent t
parties to raise the issue of invalidity, they and Maris Trading spouses remained in physical possession of that particular bit of
being in pari delicto. Only the government may raise that issue. land, is of no moment; they did so simply upon the sufferance of
Maris Trading. Had Maris Trading, and not the respondent
Finally, respondent spouses allege that dismissal of the complaint spouses, been in physical possession, we believe that Marmont
by the trial court was not improper as petitioner Marmont was not would have been similarly entitled to compel Maris Trading to
privy to the second Memorandum of Agreement, and that give it (Marmont) access to the site involved. The two (2) courts
accordingly, petitioner had no valid cause of action against below failed to take adequate account of the fact that the sole
respondents. purpose of Maris Trading in acquiring possessory rights over that
specific portion of the land where well and pump and piping had
been installed, was to supply the water requirements of petitioner's
hotel. That said purpose was known by respondent spouses, is credit card issued by Philippine Commercial Credit Card Inc.
made explicit by the second Memorandum of Agreement. Maris (BANKARD). This card was accepted by the waiter who
Trading itself had no need for a water supply facility; neither did immediately proceeded to the restaurant's cashier for card
the respondent spouses. The water facility was intended solely for verification. Ten minutes later, however, the waiter returned and
Marmont Resort Hotel. The interest of Marmont cannot therefore audibly informed private respondent that his credit card had
be regarded as merely "incidental ." 13 Finally, even if it be expired.[1] Private respondent remonstrated that said credit card
assumed (for purposes of argument merely) that the second had yet to expire on September 1990, as embossed on its face.
[2]
Memorandum of Agreement did not constitute a stipulation pour The waiter was unmoved, thus, private respondent and two of
autrui, still respondent spouses, in the circumstances of this case, his guests approached the restaurant's cashier who again passed
must be regarded as having acted contrary to the principles of the credit card over the verification computer. The same
honesty, good faith and fair dealing embodied in Articles 19 and information was produced, i.e., CARD EXPIRED. Private
21 of the Civil Code when they refused petitioner Marmont access respondent and his guests returned to their table and at this
to the water facility to inspect and repair the same and to increase juncture, Professor Lirag, another guest, uttered the following
its capacity and thereby to benefit from it. In so doing, respondent remarks: "Clody [referring to Clodualdo de Jesus], may problema
spouses forced petitioner Marmont to locate an alternative source ba? Baka kailangang maghugas na kami ng
of water for its hotel which of course involved expenditure of pinggan?"[3] Thereupon, private respondent left the restaurant and
money and perhaps loss of hotel revenues. We believe they should got his BPI Express Credit Card from his car and offered it to pay
respond in damages. their bill. This was accepted and honored by the cashier after
verification.[4] Petitioner and his companions left afterwards.
The evidence on record, however, appears insufficient for
determination of the amount of damages for which respondent The incident triggered the filing of a suit for damages by
spouses should be liable. For this reason, the Court is compelled to private respondent. Following a full-dress trial, judgment was
remand this case to the trial court for determination of such rendered directing the petitioner and BANKARD to pay jointly
damages in appropriate further proceedings. and severally the private respondent: (a) moral damages in the
amount of P250,000.00; (b) exemplary damages in the amount of
WHEREFORE, the Petition for Review on certiorari is hereby P100,000.00; and (c) attorney's fees and litigation expenses in the
GRANTED. The Decision dated 9 December 1986 of the Court of amount of P50,000.00.
Appeals in C.A. G.R. CV No. 03299, as well as the Decision
dated 31 May 1983 of the Regional Trial Court of Olongapo City Both the petitioner and BANKARD appealed to the
in Civil Case No. 2896-C, are REVERSED. This case is respondent Court of Appeals which rendered a decision, thus:
REMANDED to the trial court for determination, in further
proceedings consistent with this decision, of the amount of "WHEREFORE, the decision appealed from is hereby
petitioner is entitled to receive from respondent spouses. MODIFIED by:

No pronouncement as to costs. 1. Finding appellant MANDARIN solely responsible for damages


in favor of appellee;
SO ORDERED.
2. Absolving appellant BANKARD of any responsibility for
[G.R. No. 119850. June 20, 1996] damages;

MANDARIN VILLA, INC., petitioner, vs. COURT OF 3. Reducing moral damages awarded to appellee to TWENTY
APPEALS and CLODUALDO DE FIVE THOUSAND and 00/100 (P25,000.00) PESOS;
JESUS, respondents.
4. Reducing exemplary damages awarded to appellee to TEN
R ES OLUTION THOUSAND and 00/100 (P10,000.00) PESOS;

FRANCISCO, J.: 5. Reversing and setting aside the award of P50,000.00 for
attorney's fees as well as interest awarded; and
With ample evidentiary support are the following antecedent
facts: 6. AFFIRMING the dismissal of all counterclaims and cross-
claims.
In the evening of October 19, 1989, private respondent,
Clodualdo de Jesus, a practicing lawyer and businessman, hosted a Costs against appellant Mandarin.
dinner for his friends at the petitioner's restaurant the Mandarin
Villa Seafoods Village, Greenhills, Mandaluyong City. After SO ORDERED."[5]
dinner the waiter handed to him the bill in the amount of
P2,658.50. Private respondent offered to pay the bill through his
Mandarin Villa, thus, interposed this present petition, faulting it. Further, petitioner asseverates that it only followed the
the respondent court with six (6) assigned errors which may be guidelines and instructions issued by BANKARD in dishonoring
reduced to the following issues, to wit: (1) whether or not the aforementioned credit card. The argument is untenable.
petitioner is bound to accept payment by means of credit card; (2)
whether or not petitioner is negligent under the circumstances The test for determining the existence of negligence in a
obtaining in this case; and (3) if negligent, whether or not such particular case may be stated as follows: Did the defendant in
negligence is the proximate cause of the private respondent's doing the alleged negligent act use the reasonable care and caution
damage. which an ordinary prudent person would have used in the same
situation? If not, then he is guilty of negligence. [11] The Point of
Petitioner contends that it cannot be faulted for its cashier's Sale (POS) Guidelines which outlined the steps that petitioner
refusal to accept private respondent's BANKARD credit card, the must follow under the circumstances provides:
same not being a legal tender. It argues that private respondent's
offer to pay by means of credit card partook of the nature of a "x x x x x x x x x
proposal to novate an existing obligation for which petitioner, as
creditor, must first give its consent otherwise there will be no "CARD EXPIRED
binding contract between them. Petitioner cannot seek refuge
behind this averment.
a. Check expiry date on card.

We note that Mandarin Villa Seafood Village is affiliated


b. If unexpired, refer to CB.
with BANKARD. In fact, an "Agreement"[6] entered into by
petitioner and BANKARD dated June 23, 1989, provides inter
b.1. If valid, honor up to maximum of SPL only.
alia:

b.2. If in CB as Lost, do procedures 2a to 2e.,


"The MERCHANT shall honor validly issued PCCCI credit cards
presented by their corresponding holders in the purchase of goods
and/or services supplied by it provided that the card expiration b.3. If in CB as Suspended/Cancelled, do not honor card.
date has not elapsed and the card number does not appear on the
[12]
latest cancellation bulletin of lost, suspended and cancelled PCCCI c. If expired, do not honor card."
credit cards and, no signs of tampering, alterations or irregularities
appear on the face of the credit card."[7] A cursory reading of said rule reveals that whenever the
words CARD EXPIRED flashes on the screen of the verification
While private respondent may not be a party to the said machine, petitioner should check the credit card's expiry date
agreement, the above-quoted stipulation conferred a favor upon embossed on the card itself. If unexpired, petitioner should honor
the private respondent, a holder of credit card validly issued by the card provided it is not invalid, cancelled or otherwise
BANKARD. This stipulation is a stipulation pour autri and under suspended. But if expired, petitioner should not honor the card. In
Article 1311 of the Civil Code private respondent may demand its this case, private respondent's BANKARD credit card has an
[13]
fulfillment provided he communicated his acceptance to the embossed expiry date of September 1990. Clearly, it has not yet
petitioner before its revocation. In this case, private respondent's expired on October 19,1989, when the same was wrongfully
[8]

offer to pay by means of his BANKARD credit card constitutes dishonored by the petitioner. Hence, petitioner did not use the
not only an acceptance of the said stipulation but also an explicit reasonable care and caution which an ordinary prudent person
communication of his acceptance to the obligor. would have used in the same situation and as such petitioner is
guilty of negligence. In this connection, we quote with approval
In addition, the record shows that petitioner posted a logo the following observations of the respondent Court.
inside Mandarin Villa Seafood Village stating that "Bankard is
accepted here."[9] This representation is conclusive upon the "Mandarin argues that based on the POS Guidelines
petitioner which it cannot deny or disprove as against the private (supra), it has three options in case the verification machine
respondent, the party relying thereon. Petitioner, therefore, cannot flashes 'CARD EXPIRED.' It chose to exercise option (c) by not
disclaim its obligation to accept private respondent's BANKARD honoring appellee's credit card.However, appellant apparently
credit card without violating the equitable principle of estoppel. [10] intentionally glossed over option '(a) Check expiry date on card"
(id.) which would have shown without any shadow of doubt that
Anent the second issue, petitioner insists that it is not the expiry date embossed on the BANKARD was 'SEP 90.'
negligent. In support thereof, petitioner cites its good faith in (Exhibit "D".) A cursory look at the appellee's BANKARD would
checking, not just once but twice, the validity of the also reveal that appellee had been as of that date a cardholder
aforementioned credit card prior to its dishonor. It argues that since 1982, a fact which would have entitled the customer the
since the verification machine flashed an information that the courtesy of better treatment."[14]
credit card has expired, petitioner could not be expected to honor
the same much less be adjudged negligent for dishonoring
Petitioner, however, argues that private respondent's own contract with a view to carrying their original agreement into
negligence in not bringing with him sufficient cash was the effect. This new contract was executed in the form of a deed of
proximate cause of his damage. It likewise sought exculpation by conveyance and bears date of August 16, 1906. The stipulated
contending that the remark of Professor Lirag [15] is a supervening price was fixed at P4,000, and the area of the land enclosed in the
event and at the same time the proximate cause of private boundaries defined in the contract was stated to be 452 hectares
respondent's injury. and a fraction.

We find this contention also devoid of merit. While it is true The second contract was not immediately carried into effect for
that private respondent did not have sufficient cash on hand when the reason that the Torrens certificate was not yet obtainable and in
he hosted a dinner at petitioner's restaurant, this fact alone does fact said certificate was not issued until the period of performance
not constitute negligence on his part. Neither can it be claimed that contemplated in the contract had expired. Accordingly, upon
the same was the proximate cause of private respondent's October 3, 1908, the parties entered into still another agreement,
damage. We take judicial notice[16] of the current practice among superseding the old, by which Teodorica Endencia agreed upon
major establishments, petitioner included, to accept payment by receiving the Torrens title to the land in question, to deliver the
means of credit cards in lieu of cash. Thus, petitioner accepted same to the Hongkong and Shanghai Bank in Manila, to be
private respondent's BPI Express Credit Card after verifying its forwarded to the Crocker National Bank in San Francisco, where it
validity,[17] a fact which all the more refutes petitioner's imputation was to be delivered to the plaintiff upon payment of a balance of
of negligence on the private respondent. P3,100.

Neither can we conclude that the remark of Professor Lirag The Torrens certificate was in time issued to Teodorica Endencia,
was a supervening event and the proximate cause of private but in the course of the proceedings relative to the registration of
respondent's injury. The humiliation and embarrassment of the the land, it was found by official survey that the area of the tract
private respondent was brought about not by such a remark of inclosed in the boundaries stated in the contract was about 1.248
Professor Lirag but by the fact of dishonor by the petitioner of hectares of 452 hectares as stated in the contract. In view of this
private respondent's valid BANKARD credit card. If at all, the development Teodorica Endencia became reluctant to transfer the
remark of Professor Lirag served only to aggravate the whole tract to the purchaser, asserting that she never intended to
embarrassment then felt by private respondent, albeit silently sell so large an amount of land and that she had been misinformed
within himself. as to its area.

WHEREFORE, the instant petition is hereby DISMISSED. This attitude of hers led to litigation in which Daywalt finally
succeeded, upon appeal to the Supreme Court, in obtaining a
SO ORDERED. decree for specific performance; and Teodorica Endencia was
ordered to convey the entire tract of land to Daywalt pursuant to
G.R. No. L-13505 February 4, 1919 the contract of October 3, 1908, which contract was declared to be
in full force and effect. This decree appears to have become finally
effective in the early part of the year 1914.1
GEO. W. DAYWALT, plaintiff-appellant,
vs.
LA CORPORACION DE LOS PADRES AGUSTINOS The defendant, La Corporacion de los Padres Recoletos, is a
RECOLETOS, ET AL., defendants-appellees. religious corporation, with its domicile in the city of Manila. Said
corporation was formerly the owner of a large tract of land, known
as the San Jose Estate, on the island of Mindoro, which was sold
C. C. Cohn and Thos. D. Aitken for appellant.
to the Government of the Philippine Islands in the year 1909. The
Crossfield & O'Brien for appellee.
same corporation was at this time also the owner of another estate
on the same island immediately adjacent to the land which
STREET, J.:
Teodorica Endencia had sold to Geo. W. Daywalt; and for many
years the Recoletos Fathers had maintained large herds of cattle on
In the year 1902, Teodorica Endencia, an unmarried woman, the farms referred to. Their representative, charged with
resident in the Province of Mindoro, executed a contract whereby management of these farms, was father Isidoro Sanz, himself a
she obligated herself to convey to Geo. W. Daywalt, a tract of land members of the order. Father Sanz had long been well acquainted
situated in the barrio of Mangarin, municipality of Bulalacao, now with Teodorica Endencia and exerted over her an influence and
San Jose, in said province. It was agreed that a deed should be ascendency due to his religious character as well as to the personal
executed as soon as the title to the land should be perfected by friendship which existed between them. Teodorica appears to be a
proceedings in the Court of Land Registration and a Torrens woman of little personal force, easily subject to influence, and
certificate should be produced therefore in the name of Teodorica upon all the important matters of business was accustomed to
Endencia. A decree recognizing the right of Teodorica as owner seek, and was given, the advice of father Sanz and other members
was entered in said court in August 1906, but the Torrens of his order with whom she came in contact.
certificate was not issued until later. The parties, however, met
immediately upon the entering of this decree and made a new
Father Sanz was fully aware of the existence of the contract of As to the rate of the compensation, the plaintiff contends
1902 by which Teodorica Endencia agreed to sell her land to the that the defendant corporation maintained at leas one
plaintiff as well as of the later important developments connected thousand head of cattle on the land and that the pasturage
with the history of that contract and the contract substituted was of the value of forty centavos per head monthly, or
successively for it; and in particular Father Sanz, as well as other P4,800 annually, for the whole tract. The court can not
members of the defendant corporation, knew of the existence of accept this view. It is rather improbable that 1,248
the contract of October 3, 1908, which, as we have already seen hectares of wild Mindoro land would furnish sufficient
finally fixed the rights of the parties to the property in question. pasturage for one thousand head of cattle during the
When the Torrens certificate was finally issued in 1909 in favor of entire year, and, considering the locality, the rate of forty
Teodorica Endencia, she delivered it for safekeeping to the centavos per head monthly seems too high. The evidence
defendant corporation, and it was then taken to Manila where it shows that after having recovered possession of the land
remained in the custody and under the control of P. Juan Labarga the plaintiff rented it to the defendant corporation for fifty
the procurador and chief official of the defendant corporation, centavos per hectares annually, the tenant to pay the taxes
until the deliver thereof to the plaintiff was made compulsory by on the land, and this appears to be a reasonable rent.
reason of the decree of the Supreme Court in 1914. There is no reason to suppose that the land was worth
more for grazing purposes during the period from 1909 to
When the defendant corporation sold the San Jose Estate, it was 1913, than it was at the later period. Upon this basis the
necessary to bring the cattle off of that property; and, in the first plaintiff is entitled to damages in the sum of p2,497, and
half of 1909, some 2,368 head were removed to the estate of the is under no obligation to reimburse the defendants for the
corporation immediately adjacent to the property which the land taxes paid by either of them during the period the
plaintiff had purchased from Teodorica Endencia. As Teodorica land was occupied by the defendant corporation. It may
still retained possession of said property Father Sanz entered into be mentioned in this connection that the Lontok tract
an arrangement with her whereby large numbers of cattle adjoining the land in question and containing over three
belonging to the defendant corporation were pastured upon said thousand hectares appears to have been leased for only
land during a period extending from June 1, 1909, to May 1, 1914. P1,000 a year, plus the taxes.

Under the first cause stated in the complaint in the present action From this it will be seen that the trial court estimated the rental
the plaintiff seeks to recover from the defendant corporation the value of the land for grazing purposes at 50 centavos per hectare
sum of P24,000, as damages for the use and occupation of the land per annum, and roughly adopted the period of four years as the
in question by reason of the pasturing of cattle thereon during the time for which compensation at that rate should be made. As the
period stated. The trial court came to the conclusion that the court had already found that the defendant was liable for these
defendant corporation was liable for damages by reason of the use damages from June, 1, 1909, to May 1, 1914, or a period of four
and occupation of the premises in the manner stated; and fixed the years and eleven months, there seems some ground for the
amount to be recovered at P2,497. The plaintiff appealed and has contention made in the appellant's first assignment of error that the
assigned error to this part of the judgment of the court below, court's computation was erroneous, even accepting the rule upon
insisting that damages should have been awarded in a much larger which the damages were assessed, as it is manifest that at the rate
sum and at least to the full extent of P24,000, the amount claimed of 50 centavos per hectare per annum, the damages for four years
in the complaint. and eleven months would be P3,090.

As the defendant did not appeal, the property of allowing damages Notwithstanding this circumstance, we are of the opinion that the
for the use and occupation of the land to the extent o P2,497, the damages assessed are sufficient to compensate the plaintiff for the
amount awarded, is not now in question an the only thing here to use and occupation of the land during the whole time it was used.
be considered, in connection with this branch of the case, is There is evidence in the record strongly tending to show that the
whether the damages allowed under this head should be increased. wrongful use of the land by the defendant was not continuous
The trial court rightly ignored the fact that the defendant throughout the year but was confined mostly to the reason when
corporation had paid Teodorica Endencia of ruse and occupation the forage obtainable on the land of the defendant corporation was
of the same land during the period in question at the rate of P425 not sufficient to maintain its cattle, for which reason it became
per annum, inasmuch as the final decree of this court in the action necessary to allow them to go over to pasture on the land in
for specific performance is conclusive against her right, and as the question; and it is not clear that the whole of the land was used for
defendant corporation had notice of the rights of the plaintiff under pasturage at any time. Considerations of this character probably
this contract of purchase, it can not be permitted that the led the trial court to adopt four years as roughly being the period
corporation should escape liability in this action by proving during which compensation should be allowed. But whether this
payment of rent to a person other than the true owner. was advertently done or not, we see no sufficient reason, in the
uncertainty of the record with reference to the number of the cattle
With reference to the rate of which compensation should be grazed and the period when the land was used, for substituting our
estimated the trial court came to the following conclusion: guess for the estimate made by the trial court.
In the second cause of action stated in the complaint the plaintiff added that when one considers the hardship that the ultimate
seeks to recover from the defendant corporation the sum of performance of that contract entailed on the vendor, and the doubt
P500,000, as damages, on the ground that said corporation, for its in which the issue was involved to the extent that the decision
own selfish purposes, unlawfully induced Teodorica Endencia to of the Court of the First Instance was unfavorable to the plaintiff
refrain from the performance of her contract for the sale of the and the Supreme Court itself was divided the attitude of the
land in question and to withhold delivery to the plaintiff of the defendant corporation, as exhibited in the conduct of
Torrens title, and further, maliciously and without reasonable its procurador, Juan Labarga, and other members of the order of
cause, maintained her in her defense to the action of specific the Recollect Fathers, is not difficult to understand. To our mind a
performance which was finally decided in favor of the plaintiff in fair conclusion on this feature of the case is that father Juan
this court. The cause of action here stated is based on liability Labarga and his associates believed in good faith that the contract
derived from the wrongful interference of the defendant in the cold not be enforced and that Teodorica would be wronged if it
performance of the contract between the plaintiff and Teodorica should be carried into effect. Any advice or assistance which they
Endencia; and the large damages laid in the complaint were, may have given was, therefore, prompted by no mean or improper
according to the proof submitted by the plaintiff, incurred as a motive. It is not, in our opinion, to be denied that Teodorica would
result of a combination of circumstances of the following nature: have surrendered the documents of title and given possession of
In 1911, it appears, the plaintiff, as the owner of the land which he the land but for the influence and promptings of members of the
had bought from Teodorica Endencia entered into a contract defendants corporation. But we do not credit the idea that they
(Exhibit C) with S. B. Wakefield, of San Francisco, for the sale were in any degree influenced to the giving of such advice by the
and disposal of said lands to a sugar growing and milling desire to secure to themselves the paltry privilege of grazing their
enterprise, the successful launching of which depended on the cattle upon the land in question to the prejudice of the just rights
ability of Daywalt to get possession of the land and the Torrens of the plaintiff.
certificate of title. In order to accomplish this end, the plaintiff
returned to the Philippine Islands, communicated his arrangement The attorney for the plaintiff maintains that, by interfering in the
to the defendant,, and made repeated efforts to secure the performance of the contract in question and obstructing the
registered title for delivery in compliance with said agreement plaintiff in his efforts to secure the certificate of tittle to the land,
with Wakefield. Teodorica Endencia seems to have yielded her the defendant corporation made itself a co-participant with
consent to the consummation of her contract, but the Torrens title Teodorica Endencia in the breach of said contract; and inasmuch
was then in the possession of Padre Juan Labarga in Manila, who as father Juan Labarga, at the time of said unlawful intervention
refused to deliver the document. Teodorica also was in the end between the contracting parties, was fully aware of the existence
contract with the plaintiff, with the result that the plaintiff was of the contract (Exhibit C) which the plaintiff had made with S. B.
kept out of possession until the Wakefield project for the Wakefield, of San Francisco, it is insisted that the defendant
establishment of a large sugar growing and milling enterprise fell corporation is liable for the loss consequent upon the failure of the
through. In the light of what has happened in recent years in the project outlined in said contract.
sugar industry, we feel justified in saying that the project above
referred to, if carried into effect, must inevitably have proved a In this connection reliance is placed by the plaintiff upon certain
great success. American and English decisions in which it is held that a person
who is a stranger to contract may, by an unjustifiable interference
The determination of the issue presented in this second cause of in the performance thereof, render himself liable for the damages
action requires a consideration of two points. The first is whether a consequent upon non-performance. It is said that the doctrine of
person who is not a party to a contract for the sale of land makes these cases was recognized by this court in Gilchrist vs. Cuddy (29
himself liable for damages to the vendee, beyond the value of the Phil. Rep., 542); and we have been earnestly pressed to extend the
use and occupation, by colluding with the vendor and maintaining rule there enunciated to the situation here presente.
him in the effort to resist an action for specific performance. The
second is whether the damages which the plaintiff seeks to recover Somewhat more than half a century ago the English Court of the
under this head are too remote and speculative to be the subject of Queen's Bench saw its way clear to permit an action for damages
recovery. to be maintained against a stranger to a contract wrongfully
interfering in its performance. The leading case on this subject is
As preliminary to a consideration of the first of these questions, Lumley vs. Gye ([1853], 2 El. & Bl., 216). It there appeared that
we deem it well it dispose of the contention that the members of the plaintiff, as manager of a theatre, had entered into a contract
the defendants corporation, in advising and prompting Teodorica with Miss Johanna Wagner, an opera singer,, whereby she bound
Endencia not to comply with the contract of sale, were actuated by herself for a period to sing in the plaintiff's theatre and nowhere
improper and malicious motives. The trial court found that this else. The defendant, knowing of the existence of this contract, and,
contention was not sustained, observing that while it was true that as the declaration alleged, "maliciously intending to injure the
the circumstances pointed to an entire sympathy on the part of the plaintiff," enticed and produced Miss Wagner to leave the
defendant corporation with the efforts of Teodorica Endencia to plaintiff's employment. It was held that the plaintiff was entitled to
defeat the plaintiff's claim to the land, the fact that its officials may recover damages. The right which was here recognized had its
have advised her not to carry the contract into effect would not origin in a rule, long familiar to the courts of the common law, to
constitute actionable interference with such contract. It may be the effect that any person who entices a servant from his
employment is liable in damages to the master. The master's stranger to a contract can be held liable upon its is rejected, and in
interest in the service rendered by his employee is here considered these jurisdictions the doctrine, if accepted at all, is limited to the
as a distinct subject of juridical right. It being thus accepted that it situation where the contract is strictly for personal service.
is a legal wrong to break up a relation of personal service, the (Boyson vs. Thorn, 98 Cal., 578; Chambers &
question now arose whether it is illegal for one person to interfere Marshall vs. Baldwin 91 Ky., 121; Bourlier vs. Macauley, 91 Ky.,
with any contract relation subsisting between others. Prior to the 135; Glencoe Land & Gravel Co. vs. Hudson Bros. Com. Co., 138
decision of Lumley vs. Gye [supra] it had been supposed that the Mo., 439.)
liability here under consideration was limited to the cases of the
enticement of menial servants, apprentices, and others to whom It should be observed in this connection that, according to the
the English Statutes of Laborers were applicable. But in the case English and American authorities, no question can be made as to
cited the majority of the judges concurred in the opinion that the the liability to one who interferes with a contract existing between
principle extended to all cases of hiring. This doctrine was others by means which, under known legal cannons, can be
followed by the Court of Appeal in Bowen vs. Hall ([1881], 6 Q. denominated an unlawful means. Thus, if performance is
B., Div., 333); and in Temperton vs. Russell ([1893], Q. B., 715), it prevented by force, intimidation, coercion, or threats, or by false
was held that the right of action for maliciously procuring a breach or defamatory statements, or by nuisance or riot, the person using
of contract is not confined to contracts for personal services, but such unlawful means is, under all the authorities, liable for the
extends to contracts in general. In that case the contract which the damage which ensues. And in jurisdictions where the doctrine of
defendant had procured to be breached was a contract for the Lumley vs. Gye [supra] is rejected, no liability can arise from a
supply of building material. meddlesome and malicious interference with a contract relation
unless some such unlawful means as those just indicated are used.
Malice in some form is generally supposed to be an essential (See cases last above cited.)
ingredient in cases of interference with contract relations. But
upon the authorities it is enough if the wrong-doer, having This brings us to the decision made by this court in
knowledge of the existence of the contract relations, in bad faith Gilchrist vs. Cuddy (29 Phil. Rep., 542). It there appeared that one
sets about to break it up. Whether his motive is to benefit himself Cuddy, the owner of a cinematographic film, let it under a rental
or gratify his spite by working mischief to the employer is contract to the plaintiff Gilchrist for a specified period of time. In
immaterial. Malice in the sense of ill-will or spite is not essential. violation of the terms of this agreement, Cuddy proceeded to turn
over the film also under a rental contract, to the defendants Espejo
Upon the question as to what constitutes legal justification, a good and Zaldarriaga. Gilchrist thereupon restored to the Court of First
illustration was put in the leading case. If a party enters into Instance and produced an injunction restraining the defendants
contract to go for another upon a journey to a remote and from exhibiting the film in question in their theater during the
unhealthful climate, and a third person, with a bona fide purpose period specified in the contract of Cuddy with Gilchrist. Upon
of benefiting the one who is under contract to go, dissuades him appeal to this court it was in effect held that the injunction was not
from the step, no action will lie. But if the advice is not improperly granted, although the defendants did not, at the time
disinterested and the persuasion is used for "the indirect purpose their contract was made, know the identity of the plaintiff as the
of benefiting the defendant at the expense of the plaintiff," the person holding the prior contract but did know of the existence of
intermedler is liable if his advice is taken and the contract broken. a contract in favor of someone. It was also said arguendo, that the
defendants would have been liable in damages under article 1902
The doctrine embodied in the cases just cited has sometimes been of the Civil Code, if the action had been brought by the plaintiff to
found useful, in the complicated relations of modern industry, as a recover damages. The force of the opinion is, we think, somewhat
means of restraining the activities of labor unions and industrial weakened by the criticism contain in the concurring opinion,
societies when improperly engaged in the promotion of strikes. An where it is said that the question of breach of contract by
illustration of the application of the doctrine in question in a case inducement was not really involved in the case. Taking the
of this kind is found in South Wales Miners decision upon the point which was rally decided, it is authority for
Federation vs. Glamorgan Coal Co. ([1905]), A. C., 239). It there the proposition that one who buys something which he knows has
appeared that certain miners employed in the plaintiff's collieries, been sold to some other person can be restrained from using that
acting under the order of the executive council of the defendant thing to the prejudice of the person having the prior and better
federation, violated their contract with the plaintiff by abstaining right.
from work on certain days. The federation and council acted
without any actual malice or ill-will towards the plaintiff, and the Translated into terms applicable to the case at bar, the decision in
only object of the order in question was that the price of coal Gilchrist vs. Cuddy (29 Phil. Rep., 542), indicates that the
might thereby be kept up, a factor which affected the miner's wage defendant corporation, having notice of the sale of the land in
scale. It was held that no sufficient justification was shown and question to Daywalt, might have been enjoined by the latter from
that the federation was liable. using the property for grazing its cattle thereon. That the defendant
corporation is also liable in this action for the damage resulting to
In the United States, the rule established in England by the plaintiff from the wrongful use and occupation of the property
Lumley vs. Gye [supra] and subsequent cases is commonly has also been already determined. But it will be observed that in
accepted, though in a few of the States the broad idea that a order to sustain this liability it is not necessary to resort to any
subtle exegesis relative to the liability of a stranger to a contract liable in damages for the nonperformance of the contract than the
for unlawful interference in the performance thereof. It is enough party in whose behalf he intermeddles. To hold the stranger liable
that defendant use the property with notice that the plaintiff had a for damages in excess of those that could be recovered against the
prior and better right. immediate party to the contract would lead to results at once
grotesque and unjust. In the case at bar, as Teodorica Endencia
Article 1902 of the Civil Code declares that any person who by an was the party directly bound by the contract, it is obvious that the
act or omission, characterized by fault or negligence, causes liability of the defendant corporation, even admitting that it has
damage to another shall be liable for the damage so done. Ignoring made itself coparticipant in the breach of the contract, can in no
so much of this article as relates to liability for negligence, we take even exceed hers. This leads us to consider at this point the extent
the rule to be that a person is liable for damage done to another by of the liability of Teodorica Endencia to the plaintiff by reason of
any culpable act; and by "culpable act" we mean any act which is her failure to surrender the certificate of title and to place the
blameworthy when judged by accepted legal standards. The idea plaintiff in possession.
thus expressed is undoubtedly broad enough to include any
rational conception of liability for the tortious acts likely to be It should in the first place be noted that the liability of Teodorica
developed in any society. Thus considered, it cannot be said that Endencia for damages resulting from the breach of her contract
the doctrine of Lumley vs. Gye [supra] and related cases is with Daywalt was a proper subject for adjudication in the action
repugnant to the principles of the civil law. for specific performance which Daywalt instituted against her in
1909 and which was litigated by him to a successful conclusion in
Nevertheless, it must be admitted that the codes and jurisprudence this court, but without obtaining any special adjudication with
of the civil law furnish a somewhat uncongenial field in which to reference to damages. Indemnification for damages resulting from
propagate the idea that a stranger to a contract may sued for the the breach of a contract is a right inseparably annexed to every
breach thereof. Article 1257 of the Civil Code declares that action for the fulfillment of the obligation (art. 1124, Civil Code);
contracts are binding only between the parties and their privies. In and its is clear that if damages are not sought or recovered in the
conformity with this it has been held that a stranger to a contract action to enforce performance they cannot be recovered in an
has no right of action for the nonfulfillment of the contract except independent action. As to Teodorica Endencia, therefore, it should
in the case especially contemplated in the second paragraph of the be considered that the right of action to recover damages for the
same article. (Uy Tam and Uy Yet vs. Leonard, 30 Phil. Rep., 471.) breach of the contract in question was exhausted in the prior suit.
As observed by this court in Manila Railroad Co. vs. Compaia However, her attorneys have not seen fit to interpose the defense
Transatlantica, R. G. No. 11318 (38 Phil. Rep., 875), a contract, of res judicata in her behalf; and as the defendant corporation was
when effectually entered into between certain parties, determines not a party to that action, and such defense could not in any event
not only the character and extent of the liability of the contracting be of any avail to it, we proceed to consider the question of the
parties but also the person or entity by whom the obligation is liability of Teodorica Endencia for damages without refernce to
exigible. The same idea should apparently be applicable with this point.
respect to the person against whom the obligation of the contract
may be enforced; for it is evident that there must be a certain The most that can be said with refernce to the conduct of
mutuality in the obligation, and if the stranger to a contract is not Teodorica Endencia is that she refused to carry out a contract for
permitted to sue to enforce it, he cannot consistently be held liable the sale of certain land and resisted to the last an action for
upon it. specific performance in court. The result was that the plaintiff was
prevented during a period of several years from exerting that
If the two antagonistic ideas which we have just brought into control over the property which he was entitled to exert and was
juxtaposition are capable of reconciliation, the process must be meanwhile unable to dispose of the property advantageously. Now,
accomplished by distinguishing clearly between the right of action what is the measure of damages for the wrongful detention of real
arising from the improper interference with the contract by a property by the vender after the time has come for him to place the
stranger thereto, considered as an independent act generate of civil purchaser in possession?
liability, and the right of action ex contractu against a party to the
contract resulting from the breach thereof. However, we do not The damages ordinarily and normally recoverable against a vendor
propose here to pursue the matter further, inasmuch as, for reasons for failure to deliver land which he has contracted to deliver is the
presently to be stated, we are of the opinion that neither the value of the use and occupation of the land for the time during
doctrine of Lumley vs. Gye [supra] nor the application made of it which it is wrongfully withheld. And of course where the
by this court in Gilchrist vs. Cuddy (29 Phil. Rep., 542), affords purchaser has not paid the purchaser money, a deduction may be
any basis for the recovery of the damages which the plaintiff is made in respect to the interest on the money which constitutes the
supposed to have suffered by reason of his inability to comply purchase price. Substantially the same rule holds with respect to
with the terms of the Wakefield contract. the liability of a landlord who fails to put his tenant in possession
pursuant to contract of lease. The measure of damages is the value
Whatever may be the character of the liability which a stranger to of the leasehold interest, or use and occupation, less the stipulated
a contract may incur by advising or assisting one of the parties to rent, where this has not been paid. The rule that the measure of
evade performance, there is one proposition upon which all must damages for the wrongful detention of land is normally to be
agree. This is, that the stranger cannot become more extensively found in the value of use and occupation is, we believe, one of the
things that may be considered certain in the law (39 cyc., 1630; 24 returned, or that the new shaft could not be manufactured at
Cyc., 1052 Sedgewick on Damages, Ninth ed., sec. 185.) Greenwich until the broken one arrived to serve as a model. There
almost as wellsettled, indeed, as the rule that the measure of was delay beyond the two days in delivering the broken shaft at
damages for the wrongful detention of money is to be found in the Greenwich, and a corresponding delay in starting the mill. No
interest. explanation of the delay was offered by the carriers. The suit was
brought to recover damages for the lost profits of the mill, cause
We recognize the possibility that more extensive damages may be by the delay in delivering the broken shaft. It was held that the
recovered where, at the time of the creation of the contractual plaintiff could not recover.
obligation, the vendor, or lessor, is aware of the use to which the
purchaser or lessee desires to put the property which is the subject The discussion contained in the opinion of the court in that case
of the contract, and the contract is made with the eyes of the leads to the conclusion that the damages recoverable in case of the
vendor or lessor open to the possibility of the damage which may breach of a contract are two sorts, namely, (1) the ordinary,
result to the other party from his own failure to give possession. natural, and in a sense necessary damage; and (2) special damages.
The case before us is not this character, inasmuch as at the time
when the rights of the parties under the contract were determined, Ordinary damages is found in all breaches of contract where the
nothing was known to any to them about the San Francisco are no special circumstances to distinguish the case specially from
capitalist who would be willing to back the project portrayed in other contracts. The consideration paid for an unperformed
Exhibit C. promise is an instance of this sort of damage. In all such cases the
damages recoverable are such as naturally and generally would
The extent of the liability for the breach of a contract must be result from such a breach, "according to the usual course of
determined in the light of the situation in existence at the time the things." In case involving only ordinary damage no discussion is
contract is made; and the damages ordinarily recoverable are in all ever indulged as to whether that damage was contemplated or not.
events limited to such as might be reasonable are in all events This is conclusively presumed from the immediateness and
limited to such as might be reasonably foreseen in the light of the inevitableness of the damage, and the recovery of such damage
facts then known to the contracting parties. Where the purchaser follows as a necessary legal consequence of the breach. Ordinary
desires to protect himself, in the contingency of the failure of the damage is assumed as a matter of law to be within the
vendor promptly to give possession, from the possibility of contemplation of the parties.
incurring other damages than such as the incident to the normal
value of the use and occupation, he should cause to be inserted in Special damage, on the other hand, is such as follows less directly
the contract a clause providing for stipulated amount to the paid from the breach than ordinary damage. It is only found in case
upon failure of the vendor to give possession; and not case has where some external condition, apart from the actual terms to the
been called to our attention where, in the absence of such a contract exists or intervenes, as it were, to give a turn to affairs
stipulation, damages have been held to be recoverable by the and to increase damage in a way that the promisor, without actual
purchaser in excess of the normal value of use and occupation. On notice of that external condition, could not reasonably be expected
the contrary, the most fundamental conceptions of the law relative to foresee. Concerning this sort of damage, Hadley vs. Baxendale
to the assessment of damages are inconsistent with such idea. (1854) [supra] lays down the definite and just rule that before such
damage can be recovered the plaintiff must show that the
The principles governing this branch of the law were profoundly particular condition which made the damage a possible and likely
considered in the case Hadley vs. Baxendale (9 Exch., 341), consequence of the breach was known to the defendant at the time
decided in the English Court of Exchequer in 1854; and a few the contract was made.
words relative to the principles governing will here be found
instructive. The decision in that case is considered a leading The statement that special damages may be recovered where the
authority in the jurisprudence of the common law. The plaintiffs in likelihood of such damages flowing from the breach of the
that case were proprietors of a mill in Gloucester, which was contract is contemplated and foreseen by the parties needs to be
propelled by steam, and which was engaged in grinding and supplemented by a proposition which, though not enunciated in
supplying meal and flour to customers. The shaft of the engine got Hadley vs. Baxendale, is yet clearly to be drawn from subsequent
broken, and it became necessarily that the broken shaft be sent to cases. This is that where the damage which a plaintiff seeks to
an engineer or foundry man at Greenwich, to serve as a model for recover as special damage is so far speculative as to be in
casting or manufacturing another that would fit into the machinery. contemplation of law remote, notification of the special conditions
The broken shaft could be delivered at Greenwich on the second which make that damage possible cannot render the defendant
day after its receipts by the carrier it. It was delivered to the liable therefor. To bring damages which would ordinarily be
defendants, who were common carriers engaged in that business treated as remote within the category of recoverable special
between these points, and who had told plaintiffs it would be damages, it is necessary that the condition should be made the
delivered at Greenwich on the second day after its delivery to subject of contract in such sense as to become an express or
them, if delivered at a given hour. The carriers were informed that implied term of the engagement. Horne vs. Midland R. Co. (L. R.,
the mill was stopped, but were not informed of the special purpose 8 C. P., 131) is a case where the damage which was sought to be
for which the broken shaft was desired to forwarded, They were recovered as special damage was really remote, and some of the
not told the mill would remain idle until the new shaft would be judges rightly places the disallowance of the damage on the
ground that to make such damage recoverable, it must so far have premises located at Nos. 930, 930-Int., 924-B and 924-C, Soler
been within the contemplation of the parties as to form at least an Street, Binondo, Manila. Tek Hua used the areas to store its
implied term of the contract. But others proceeded on the idea that textiles. The contracts each had a one-year term. They provided
the notice given to the defendant was not sufficiently full and that should the lessee continue to occupy the premises after the
definite. The result was the same in either view. The facts in that term, the lease shall be on a month-to-month basis.
case were as follows: The plaintiffs, shoe manufacturers at K, When the contracts expired, the parties did not renew the
were under contract to supply by a certain day shoes to a firm in contracts, but Tek Hua continued to occupy the premises. In 1976,
London for the French government. They delivered the shoes to a Tek Hua Trading Co. was dissolved. Later, the original members
carrier in sufficient time for the goods to reach London at the time of Tek Hua Trading Co. including Manuel C. Tiong, formed Tek
stipulated in the contract and informed the railroad agent that the Hua Enterprising Corp., herein respondent corporation.
shoes would be thrown back upon their hands if they did not reach So Pek Giok, managing partner of Tek Hua Trading, died in 1986.
the destination in time. The defendants negligently failed to So Pek Giok's grandson, petitioner So Ping Bun, occupied the
forward the good in due season. The sale was therefore lost, and warehouse for his own textile business, Trendsetter Marketing.
the market having fallen, the plaintiffs had to sell at a loss. On August 1, 1989, lessor DCCSI sent letters addressed to Tek
Hua Enterprises, informing the latter of the 25% increase in rent
In the preceding discussion we have considered the plaintiff's right effective September 1, 1989. The rent increase was later on
reduced to 20% effective January 1, 1990, upon other lessees'
chiefly against Teodorica Endencia; and what has been said
demand. Again on December 1, 1990, the lessor implemented a
suffices in our opinion to demonstrate that the damages laid under
30% rent increase. Enclosed in these letters were new lease
the second cause of action in the complaint could not be recovered contracts for signing. DCCSI warned that failure of the lessee to
from her, first, because the damages laid under the second cause of accomplish the contracts shall be deemed as lack of interest on the
action in the complaint could not be recovered from her, first, lessee's part, and agreement to the termination of the lease. Private
because the damages in question are special damages which were respondents did not answer any of these letters. Still, the lease
not within contemplation of the parties when the contract was contracts were not rescinded.
made, and secondly, because said damages are too remote to be On March 1, 1991, private respondent Tiong sent a letter to
the subject of recovery. This conclusion is also necessarily fatal to petitioner which reads as follows:
the right of the plaintiff to recover such damages from the March 1, 1991
defendant corporation, for, as already suggested, by advising
Mr. So Ping Bun
Teodorica not to perform the contract, said corporation could in no
event render itself more extensively liable than the principle in the 930 Soler Street
contract. Binondo, Manila
Dear Mr. So,
Our conclusion is that the judgment of the trial court should be Due to my closed (sic) business associate (sic) for three decades
affirmed, and it is so ordered, with costs against the appellant. with your late grandfather Mr. So Pek Giok and late father, Mr. So
Chong Bon, I allowed you temporarily to use the warehouse of
G.R. No. 120554 September 21, 1999 Tek Hua Enterprising Corp. for several years to generate your
personal business.
SO PING BUN, petitioner,
vs. Since I decided to go back into textile business, I need a
COURT OF APPEALS, TEK HUA ENTERPRISES CORP. warehouse immediately for my stocks. Therefore, please be
and MANUEL C. TIONG, respondents. advised to vacate all your stocks in Tek Hua Enterprising Corp.
Warehouse. You are hereby given 14 days to vacate the premises
unless you have good reasons that you have the right to stay.
QUISUMBING, J.: Otherwise, I will be constrained to take measure to protect my
This petition for certiorari challenges the Decision 1 of the Court interest.
of Appeals dated October 10, 1994, and the Resolution 2 dated Please give this urgent matter your preferential attention to avoid
June 5, 1995, in CA-G.R. CV No. 38784. The appellate court inconvenience on your part.
affirmed the decision of the Regional Trial Court of Manila,
Very truly yours,
Branch 35, except for the award of attorney's fees, as follows:
(Sgd) Manuel C. Tiong
WHEREFORE, foregoing considered, the
appeal of respondent-appellant So Ping Bun for MANUEL C. TIONG
lack of merit is DISMISSED. The appealed President 4
decision dated April 20, 1992 of the court a Petitioner refused to vacate. On March 4, 1992, petitioner
quo is modified by reducing the attorney's fees requested formal contracts of lease with DCCSI in favor
awarded to plaintiff Tek Hua Enterprising Trendsetter Marketing. So Ping Bun claimed that after the death of
Corporation from P500,000.00 to P200,000.00. 3 his grandfather, So Pek Giok, he had been occupying the premises
The facts are as follows: for his textile business and religiously paid rent. DCCSI acceded
In 1963, Tek Hua Trading Co, through its managing partner, So to petitioner's request. The lease contracts in favor of Trendsetter
Pek Giok, entered into lease agreements with lessor Dee C. Chuan were executed.
& Sons Inc. (DCCSI). Subjects of four (4) lease contracts were
In the suit for injunction, private respondents pressed for the existence of contract; and (3) interference of the third person is
nullification of the lease contracts between DCCSI and petitioner. without legal justification or excuse. 8
They also claimed damages. A duty which the law of torts is concerned with is respect for the
After trial, the trial court ruled: property of others, and a cause of action ex delicto may be
WHEREFORE, judgment is rendered: predicated upon an unlawful interference by one person of the
enjoyment by the other of his private
1. Annulling the four Contracts of Lease (Exhibits A, A-1 to A-3,
property. 9 This may pertain to a situation where a third person
inclusive) all dated March 11, 1991, between defendant So Ping
induces a party to renege on or violate his undertaking under a
Bun, doing business under the name and style of "Trendsetter
contract. In the case before us, petitioner's Trendsetter Marketing
Marketing", and defendant Dee C. Chuan & Sons, Inc. over the
asked DCCSI to execute lease contracts in its favor, and as a result
premises located at Nos. 924-B, 924-C, 930 and 930, Int.,
petitioner deprived respondent corporation of the latter's property
respectively, Soler Street, Binondo Manila;
right. Clearly, and as correctly viewed by the appellate court, the
2. Making permanent the writ of preliminary injunction issued by three elements of tort interference above-mentioned are present in
this Court on June 21, 1991; the instant case.
3. Ordering defendant So Ping Bun to pay the aggrieved party, Authorities debate on whether interference may be justified where
plaintiff Tek Hua Enterprising Corporation, the sum of the defendant acts for the sole purpose of furthering his own
P500,000.00, for attorney's fees; financial or economic interest. 10 One view is that, as a general
4. Dismissing the complaint, insofar as plaintiff Manuel C. Tiong rule, justification for interfering with the business relations of
is concerned, and the respective counterclaims of the defendant; another exists where the actor's motive is to benefit himself. Such
5. Ordering defendant So Ping Bun to pay the costs of this lawsuit; justification does not exist where his sole motive is to cause harm
to the other. Added to this, some authorities believe that it is not
This judgment is without prejudice to the rights of plaintiff Tek necessary that the interferer's interest outweigh that of the party
Hua Enterprising Corporation and defendant Dee C. Chuan & whose rights are invaded, and that an individual acts under an
Sons, Inc. to negotiate for the renewal of their lease contracts over economic interest that is substantial, not merely de minimis, such
the premises located at Nos. 930, 930-Int., 924-B and 924-C Soler that wrongful and malicious motives are negatived, for he acts in
Street, Binondo, Manila, under such terms and conditions as they self-protection. 11 Moreover justification for protecting one's
agree upon, provided they are not contrary to law, public policy, financial position should not be made to depend on a comparison
public order, and morals. of his economic interest in the subject matter with that of
SO ORDERED. 5 others. 12 It is sufficient if the impetus of his conduct lies in a
Petitioner's motion for reconsideration of the above decision was proper business interest rather than in wrongful motives. 13
denied. As early as Gilchrist vs. Cuddy, 14 we held that where there was no
On appeal by So Ping Bun, the Court of Appeals upheld the trial malice in the interference of a contract, and the impulse behind
court. On motion for reconsideration, the appellate court modified one's conduct lies in a proper business interest rather than in
the decision by reducing the award of attorney's fees from five wrongful motives, a party cannot be a malicious interferer. Where
hundred thousand (P500,000.00) pesos to two hundred thousand the alleged interferer is financially interested, and such interest
(P200,000.00) pesos. motivates his conduct, it cannot be said that he is an officious or
Petitioner is now before the Court raising the following issues: malicious intermeddler. 15
I. WHETHER THE APPELLATE COURT ERRED IN In the instant case, it is clear that petitioner So Ping Bun prevailed
AFFIRMING THE TRIAL COURT'S DECISION FINDING SO upon DCCSI to lease the warehouse to his enterprise at the
PING BUN GUILTY OF TORTUOUS INTERFERENCE OF expense of respondent corporation. Though petitioner took interest
CONTRACT? in the property of respondent corporation and benefited from it,
nothing on record imputes deliberate wrongful motives or malice
II. WHETHER THE APPELLATE COURT ERRED IN on him.
AWARDING ATTORNEY'S FEES OF P200,000.00 IN FAVOR
OF PRIVATE RESPONDENTS. Sec. 1314 of the Civil Code categorically provides also that, "Any
third person who induces another to violate his contract shall be
The foregoing issues involve, essentially, the correct interpretation liable for damages to the other contracting party." Petitioner argues
of the applicable law on tortuous conduct, particularly unlawful that damage is an essential element of tort interference, and since
interference with contract. We have to begin, obviously, with the trial court and the appellate court ruled that private
certain fundamental principles on torts and damages. respondents were not entitled to actual, moral or exemplary
Damage is the loss, hurt, or harm which results from injury, and damages, it follows that he ought to be absolved of any liability,
damages are the recompense or compensation awarded for the including attorney's fees.
damage suffered. 6 One becomes liable in an action for damages It is true that the lower courts did not award damages, but this was
for a nontrespassory invasion of another's interest in the private only because the extent of damages was not quantifiable. We had a
use and enjoyment of asset if (a) the other has property rights and similar situation in Gilchrist, where it was difficult or impossible
privileges with respect to the use or enjoyment interfered with, (b) to determine the extent of damage and there was nothing on record
the invasion is substantial, (c) the defendant's conduct is a legal to serve as basis thereof. In that case we refrained from awarding
cause of the invasion, and (d) the invasion is either intentional and damages. We believe the same conclusion applies in this case.
unreasonable or unintentional and actionable under general
negligence rules. 7 While we do not encourage tort interferers seeking their economic
interest to intrude into existing contracts at the expense of others,
The elements of tort interference are: (1) existence of a valid however, we find that the conduct herein complained of did not
contract; (2) knowledge on the part of the third person of the
transcend the limits forbidding an obligatory award for damages in of land located at Tacurong, Sultan Kudarat. A few months after
the absence of any malice. The business desire is there to make the sale, private respondent Menandro Lapuz filed a complaint for
some gain to the detriment of the contracting parties. Lack of torts and damages against petitioner before the Regional Trial
malice, however, precludes damages. But it does not relieve Court (RTC) of Sultan Kudarat.
petitioner of the legal liability for entering into contracts and
causing breach of existing ones. The respondent appellate court
In the complaint, private respondent, as then plaintiff,
correctly confirmed the permanent injunction and nullificatiowe
claimed that he entered into a contract of lease with the late Bai
said, "It is not sound policy to place in penalty on the right to
litigate. To compel the defeated party to pay the fees of counsel for Tonina Sepi Mengelen Guiabar over three parcels of land (the
his successful opponent would throw wide open the door of property) in Sultan Kudarat, Maguindanao beginning 1964. One of
temptation to the opposing party and his counsel to swell the fees the provisions agreed upon was for private respondent to put up
to undue proportions." 20 commercial buildings which would, in turn, be leased to new
Considering that the respondent corporation's lease contract, at the tenants. The rentals to be paid by those tenants would answer for
time when the cause of action accrued, ran only on a month-to- the rent private respondent was obligated to pay Bai Tonina Sepi
month basis whence before it was on a yearly basis, we find even for the lease of the land. In 1974, the lease contract ended but
the reduced amount of attorney's fees ordered by the Court of since the construction of the commercial buildings had yet to be
Appeals still exorbitant in the light of prevailing completed, the lease contract was allegedly renewed.
jurisprudence. 21Consequently, the amount of two hundred
thousand (P200,000.00) awarded by respondent appellate court When Bai Tonina Sepi died, private respondent started
should be reduced to one hundred thousand (P100,000.00) pesos remitting his rent to the court-appointed administrator of her
as the reasonable award or attorney's fees in favor of private estate. But when the administrator advised him to stop collecting
respondent corporation. rentals from the tenants of the buildings he constructed, he
WHEREFORE, the petition is hereby DENIED. The assailed discovered that petitioner, representing himself as the new owner
Decision and Resolution of the Court of Appeals in CA-G.R. CV of the property, had been collecting rentals from the tenants. He
No. 38784 are hereby AFFIRMED, with MODIFICATION that thus filed a complaint against the latter, accusing petitioner of
the award of attorney's fees is reduced from two hundred thousand
inducing the heirs of Bai Tonina Sepi to sell the property to him,
(P200,000.00) to one hundred thousand (P100,000.00) pesos. No
thereby violating his leasehold rights over it.
pronouncement as to costs.1wphi1.nt
n of the lease contracts between DCCSI and Trendsetter
In his answer to the complaint, petitioner denied that he
Marketing, without awarding damages. The injunction saved the
respondents from further damage or injury caused by petitioner's induced the heirs of Bai Tonina to sell the property to him,
interference. contending that the heirs were in dire need of money to pay off the
obligations of the deceased. He also denied interfering with
Lastly, the recovery of attorney's fees in the concept of actual or
private respondents leasehold rights as there was no lease contract
compensatory damages, is allowed under the circumstances
provided for in Article 2208 of the Civil Code. 16 One such covering the property when he purchased it; that his personal
occasion is when the defendant's act or omission has compelled investigation and inquiry revealed no claims or encumbrances on
the plaintiff to litigate with third persons or to incur expenses to the subject lots.
protect his interest. 17 But we have consistently held that the award
of considerable damages should have clear factual and legal Petitioner claimed that before he bought the property, he
bases. 18 In connection with attorney's fees, the award should be went to Atty. Benjamin Fajardo, the lawyer who allegedly
commensurate to the benefits that would have been derived from a notarized the lease contract between private respondent and Bai
favorable judgment. Settled is the rule that fairness of the award of
Tonina Sepi, to verify if the parties indeed renewed the lease
damages by the trial court calls for appellate review such that the contract after it expired in 1974. Petitioner averred that Atty.
award if far too excessive can be reduced. 19 This ruling applies Fajardo showed him four copies of the lease renewal but these
with equal force on the award of attorney's fees. In a long line of
were all unsigned. To refute the existence of a lease contract,
cases
petitioner presented in court a certification from the Office of the
SO ORDERED. Clerk of Court confirming that no record of any lease contract
notarized by Atty. Fajardo had been entered into their files.
[G.R. No. 119107. March 18, 2005] Petitioner added that he only learned of the alleged lease contract
when he was informed that private respondent was collecting rent
JOSE V. LAGON, petitioner, vs. HONORABLE COURT OF from the tenants of the building.
APPEALS and MENANDRO V. LAPUZ, respondents.
Finding the complaint for tortuous interference to be
DECISION unwarranted, petitioner filed his counterclaim and prayed for the
payment of actual and moral damages.
CORONA, J.:
On July 29, 1986, the court a quo found for private
On June 23, 1982, petitioner Jose Lagon purchased from the respondent (plaintiff below):
estate of Bai Tonina Sepi, through an intestate court, [1] two parcels
ACCORDINGLY, judgment is hereby rendered in favor of the from May 24, 1982 up to June 27, 1986, in the total amount of
plaintiff: Nine Hundred Thousand Pesos (P900,000.00); all of which will
continue to bear interests at a legal rate of 12% per annum until
1. Declaring the Contract of Lease executed by Bai Tonina the whole amounts are fully paid by the defendants to the
Sepi Mangelen Guiabar in favor of the plaintiff on November plaintiffs;
6, 1974 (Exh. A and A-1) over Lot No. 6395, Pls-73. Lot No
6396. Pls.-73. Lot No. 6399. 3ls-73, and Lot no.9777-A. For failure of the defendant to deposit with this Court all the
CSD-11-000076-D (Lot No. 3-A. 40124), all situated along rentals he had collected from the thirteen (13) tenants or
Ledesma St., Tacurong, Sultan Kudarat, which document was occupants of the commercial buildings in question, the
notarized by Atty. Benjamin S. Fajardo, Sr. and entered into plaintiff is hereby restored to the possession of his
his notarial register as Doc. No. 619. Page No. 24. Book No. commercial buildings for a period of seventy-three (73)
II. Series of 1974, to be authentic and genuine and as such months which is the equivalent of the total period for which
valid and binding for a period of ten (10) years specified he was prevented from collecting the rentals from the tenants
thereon from November 1, 1974 up to October 31, 1984; or occupants of his commercial buildings from October 1,
1978 up to October 31, 1984, and for this purpose a Writ of
2. Declaring the plaintiff as the lawful owner of the Preliminary Injunction is hereby issued, but the plaintiff is
commercial buildings found on the aforesaid lots and he is likewise ordered to pay to the defendant the monthly rental
entitled to their possession and the collection (of rentals) of of Seven Hundred Pesos (P700.00) every end of the month
the said commercial buildings within the period covered by for the entire period of seventy three (73) months. This
this Contract of Lease in his favor; portion of the judgment should be considered as a mere
alternative should the defendant fail to pay the amount of
3. Ordering the defendant to pay to the plaintiff the following: Five Hundred Five Pesos and Fifty Six Centavos
(P506,805.56) hereinabove specified;
a) Rentals of the commercial buildings on the lots covered by the
Contract of Lease in favor of the plaintiff for the period from Dismissing the counterclaim interposed by the defendant for
October 1, 1978 up to October 31, 1984, including accrued lack of merit;
interests in the total amount of Five Hundred Six Thousand Eight
Hundred Five Pesos and Fifty Six Centavos (P506, 850.56), the With costs against the defendant.[2]
same to continue to bear interest at the legal rate of 12% per
annum until the whole amount is fully paid by the defendant to the Petitioner appealed the judgment to the Court of Appeals.
[3]
plaintiff; In a decision dated January 31, 1995,[4] the appellate court
modified the assailed judgment of the trial court as follows:
b) Moral damages in the amount of One Million Sixty Two
Thousand Five Hundred Pesos (P1,062,500.00); a) The award for moral damages,
compensatory damages, exemplary damages, temperate or
c) Actual or compensatory damages in the amount of Three moderate damages, and nominal damages as well as
Hundred Twelve Thousand Five Hundred Pesos (P312, 500.00); expenses of litigation in the amount of P62,500.00 and
interests under paragraph 3-a(a), (b), (c), (d), (e), (f), (g), (h),
d) Exemplary or corrective damages in the amount of One Hundred and (i) are deleted;
Eighty Thousand Five Hundred Pesos (P187,500.00)
b) The award for attorneys fees is reduced
e) Temperate or moderate damages in the amount of Sixty Two to P30,000.00;
Thousand Five Hundred Pesos (P62,500.00);
c) Paragraphs 1,2,5 and 6 are AFFIRMED;
f) Nominal damages in the amount of Sixty Two Thousand Five
Hundred Pesos (P62,500.00); d) Additionally, the defendant is hereby
ordered to pay to the plaintiff by way of actual damages the
g) Attorneys fees in the amount of One Hundred Twenty Five sum of P178,425.00 representing the amount of rentals he
Thousand Pesos (P125,000.00); collected from the period of October 1978 to August 1983,
and minus the amount of P42,700.00 representing rentals due
the defendant computed at P700.00 per month for the period
h) Expenses of litigation in the amount of Sixty Two Thousand Five
from August 1978 to August 1983, with interest thereon at
Hundred Pesos (P62,500.00);
the rate until the same is fully paid;
i) Interest on the moral damages, actual or compensatory damages
e) Paragraph 4 is deleted.[5]
temperate or moderate damages, nominal damages, attorneys fees
and expenses of litigation in the amounts as specified hereinabove
Before the appellate court, petitioner disclaimed knowledge thereof, however, only proved its due execution and delivery but
of any lease contract between the late Bai Tonina Sepi and private not the veracity of its contents. Nonetheless, after undergoing the
respondent. On the other hand, private respondent insisted that it rigid scrutiny of petitioners counsel and after the trial court
was impossible for petitioner not to know about the contract since declared it to be valid and subsisting, the notarized copy of the
the latter was aware that he was collecting rentals from the tenants lease contract presented in court appeared to be incontestable
of the building. While the appellate court disbelieved the proof that private respondent and the late Bai Tonina Sepi actually
contentions of both parties, it nevertheless held that, for petitioner renewed their lease contract. Settled is the rule that until overcome
to become liable for damages, he must have known of the lease by clear, strong and convincing evidence, a notarized document
contract and must have also acted with malice or bad faith when continues to be prima facie evidence of the facts that gave rise to
he bought the subject parcels of land. its execution and delivery.[11]

Via this petition for review, petitioner cites the following The second element, on the other hand, requires that there be
reasons why the Court should rule in his favor: knowledge on the part of the interferer that the contract exists.
Knowledge of the subsistence of the contract is an essential
1. The Honorable Court of Appeals seriously erred in holding element to state a cause of action for tortuous interference. [12] A
that petitioner is liable for interference of contractual relation defendant in such a case cannot be made liable for interfering with
under Article 1314 of the New Civil Code; a contract he is unaware of.[13] While it is not necessary to prove
actual knowledge, he must nonetheless be aware of the facts
2. The Honorable Court of Appeals erred in not holding that which, if followed by a reasonable inquiry, will lead to a complete
private respondent is precluded from recovering, if at all, disclosure of the contractual relations and rights of the parties in
because of laches; the contract.[14]

3. The Honorable Court of Appeals erred in holding petitioner In this case, petitioner claims that he had no knowledge of
liable for actual damages and attorneys fees, and; the lease contract. His sellers (the heirs of Bai Tonina Sepi)
likewise allegedly did not inform him of any existing lease
contract.
4. The Honorable Court of Appeals erred in dismissing
petitioners counterclaims.[6]
After a careful perusal of the records, we find the contention
of petitioner meritorious. He conducted his own personal
Article 1314 of the Civil Code provides that any third person
investigation and inquiry, and unearthed no suspicious
who induces another to violate his contract shall be liable for
circumstance that would have made a cautious man probe deeper
damages to the other contracting party. The tort recognized in that
and watch out for any conflicting claim over the property. An
provision is known as interference with contractual relations.
[7] examination of the entire propertys title bore no indication of the
The interference is penalized because it violates the property
leasehold interest of private respondent. Even the registry of
rights of a party in a contract to reap the benefits that should result
property had no record of the same.[15]
therefrom.[8]

Assuming ex gratia argumenti that petitioner knew of the


The core issue here is whether the purchase by petitioner of
contract, such knowledge alone was not sufficient to make him
the subject property, during the supposed existence of private
liable for tortuous interference. Which brings us to the third
respondents lease contract with the late Bai Tonina Sepi,
element. According to our ruling in So Ping Bun, petitioner may
constituted tortuous interference for which petitioner should be
be held liable only when there was no legal justification or excuse
held liable for damages.
for his action[16] or when his conduct was stirred by a wrongful
motive. To sustain a case for tortuous interference, the defendant
The Court, in the case of So Ping Bun v. Court of Appeals,
[9] must have acted with malice[17] or must have been driven by purely
laid down the elements of tortuous interference with contractual
impious reasons to injure the plaintiff. In other words, his act of
relations: (a) existence of a valid contract; (b) knowledge on the
interference cannot be justified.[18]
part of the third person of the existence of the contract and (c)
interference of the third person without legal justification or
Furthermore, the records do not support the allegation of
excuse. In that case, petitioner So Ping Bun occupied the premises
private respondent that petitioner induced the heirs of Bai Tonina
which the corporation of his grandfather was leasing from private
Sepi to sell the property to him. The word induce refers to
respondent, without the knowledge and permission of the
situations where a person causes another to choose one course of
corporation. The corporation, prevented from using the premises
conduct by persuasion or intimidation.[19] The records show that
for its business, sued So Ping Bun for tortuous interference.
the decision of the heirs of the late Bai Tonina Sepi to sell the
property was completely of their own volition and that petitioner
As regards the first element, the existence of a valid contract
did absolutely nothing to influence their judgment. Private
must be duly established. To prove this, private respondent
respondent himself did not proffer any evidence to support his
presented in court a notarized copy of the purported lease renewal.
[10] claim. In short, even assuming that private respondent was able to
While the contract appeared as duly notarized, the notarization
prove the renewal of his lease contract with Bai Tonina Sepi, the under the circumstances. According to Article 2208 of the Civil
fact was that he was unable to prove malice or bad faith on the Code, attorneys fees may be awarded only when it has been
part of petitioner in purchasing the property. Therefore, the claim stipulated upon or under the instances provided therein.
[26]
of tortuous interference was never established. Likewise, being in the concept of actual damages, the award for
attorneys fees must have clear, factual and legal bases [27] which, in
In So Ping Bun, the Court discussed whether interference can this case, do not exist.
be justified at all if the interferer acts for the sole purpose of
furthering a personal financial interest, but without malice or bad Regarding the dismissal of petitioners counterclaim for
faith. As the Court explained it: actual and moral damages, the appellate court affirmed the
assailed order of the trial court because it found no basis to grant
x x x, as a general rule, justification for interfering with the the amount of damages prayed for by petitioner. We find no reason
business relations of another exists where the actors motive is to to reverse the trial court and the Court of Appeals. Actual damages
benefit himself. Such justification does not exist where the actors are those awarded in satisfaction of, or in recompense for, loss or
motive is to cause harm to the other. Added to this, some injury sustained. To be recoverable, they must not only be capable
authorities believe that it is not necessary that the interferers of proof but must actually be proved with a reasonable degree of
interest outweigh that of the party whose rights are invaded, and certainty.[28] Petitioner was unable to prove that he suffered loss or
that an individual acts under an economic interest that is injury, hence, his claim for actual damages must fail. Moreover,
substantial, not merely de minimis, such that wrongful and petitioners prayer for moral damages was not warranted as moral
malicious motives are negatived, for he acts in self-protection. damages should result from the wrongful act of a person. The
Moreover, justification for protecting ones financial position worries and anxieties suffered by a party hailed to court litigation
should not be made to depend on a comparison of his economic are not compensable.[29]
interest in the subject matter with that of the others. It is sufficient
if the impetus of his conduct lies in a proper business interest With the foregoing discussion, we no longer deem it
rather than in wrongful motives.[20] necessary to delve into the issue of laches.

The foregoing disquisition applies squarely to the case at bar. WHEREFORE, premises considered, the petition is hereby
In our view, petitioners purchase of the subject property was GRANTED. The assailed decision of the Court of Appeals is
merely an advancement of his financial or economic interests, hereby REVERSED and SET ASIDE.
absent any proof that he was enthused by improper motives. In the
very early case of Gilchrist v. Cuddy,[21] the Court declared that a No costs.
person is not a malicious interferer if his conduct is impelled by a
proper business interest. In other words, a financial or profit SO ORDERED.
motivation will not necessarily make a person an officious
interferer liable for damages as long as there is no malice or bad
G.R. No. 20732 September 26, 1924
faith involved.
C. W. ROSENSTOCK, as administrator of the estate of H. W.
ELSER, plaintiff-appellant,
In sum, we rule that, inasmuch as not all three elements to vs.
hold petitioner liable for tortuous interference are present, EDWIN BURKE, defendant-appellant.
petitioner cannot be made to answer for private respondents THE COOPER COMPANY, intervenor-appellee.
losses. Camus and Delgado for plaintiff-appellant.
Crossfield & O'Brien for defendant-appellant.
This case is one of damnun absque injuria or damage Hartigan & Welch for intervenor-appellee.
without injury. Injury is the legal invasion of a legal right while AVANCEA, J.:
damage is the hurt, loss or harm which results from the injury.
[22] The defendant Edwin Burke owned a motor yacht, known
In BPI Express Card Corporation v. Court of Appeals ,,[23] the as Bronzewing, which he acquired in Australia in the year 1920 for
Court turned down the claim for damages of a cardholder whose the purpose of selling it here. This yacht was purely for recreation
credit card had been cancelled by petitioner corporation after and as no purchaser presented himself, it had been moored for
several defaults in payment. We held there that there can be several months until the plaintiff H. W. Elser, at the beginning of
damage without injury where the loss or harm is not the result of a the year 1922, began negotiations with the defendant for the
violation of a legal duty. In that instance, the consequences must purchase thereof. At the time this yacht was mortgaged to the Asia
be borne by the injured person alone since the law affords no Banking Corporation to secure the payment of a debt of P100,000
remedy for damages resulting from an act which does not amount which was due and unpaid since one year prior thereto, contracted
to legal injury or wrong.[24] Indeed, lack of malice in the conduct by the defendant in favor of said bank of which Mr. Avery was
complained of precludes recovery of damages.[25] then the manager. The plan of the plaintiff was to organize a yacht
club and sell it afterwards the yacht for P120,000, of which
P20,000 was to be retained by him as commission and the
With respect to the attorneys fees awarded by the appellate
remaining P100,000 to be paid to the defendant. To this end, on
court to private respondent, we rule that it cannot be recovered
February 12, 1922, the defendant obtained from the plaintiff an (d) As security for the above, I am to deposit with you
option in writing in the following terms: P80,000, in stock of the J. K. Pickering Co., commercial
For the purpose expressed by you of organizing a yacht value P400,000, book value P600,000. Statement
club, I take pleasure in confirming my verbal offer to you covering this will be furnished you on request.
of the motor yacht Bronzewing, at a price of one hundred Yours very truly,
and twenty thousand pesos (P120,000). This offer is open
for thirty days from date. (Sgd.) H. W. ELSER
Proposition Accepted.
To carry out his plan, the plaintiff proposed to the defendant to
(Sgd.) E. BURKE
make a voyage on board the yacht to the south, with prominent
MANILA, April 3, 1922.
business men for the purpose, undoubtedly, of making an
advantageous sale. But as the yacht needed some repairs to make ASIA BKG. CORP.
it seaworthy for this voyage, and as, on the other hand, the Agreed to as above.
defendant said that he had no funds to make said repairs, the (Sgd.) W. G. AVERY
plaintiff paid almost all their amount. It has been stipulated that Mgr.
the plaintiff was not to pay anything for the use of the yacht. The Asia Bkg. Corp.
cost of those repairs was P6,972.21, which was already paid by the The defendant took this letter and went to the Asia Banking
plaintiff, plus P1,730.84 due to the Cooper Company which still Corporation and after holding an interview with Mr. Avery, both of
remains unpaid, plus P832.93, due to the plaintiff, which also them signed at the bottom of the letter of Mr. Elser, as appear
remains unpaid. Once the yacht was repaired, the plaintiff gave there. On the 5th of the same month of April the plaintiff sent the
receptions on board, and on March 6, 1922, made his pleasure defendant another letter, telling him that in view of the attitude of
voyage to the south, coming back on the 23d of the same month. Mr. Avery as to the loan of P20,000 in connection with the
The plaintiff never accepted the offer of the defendant for the installation of a new engine in the yacht, it was impossible for him
purchase of the yacht contained in the letter of option of February to take charge of the boat and he made delivery thereof to the
12, 1922. The plaintiff believed, in view of the result of that defendant. On the 8th of the same month of April the defendant
voyage, that it was convenient to replace the engine of the yacht answered the plaintiff that as he had accepted, with the consent of
with a new one which would cost P20,000. In this connection the the Asia Banking Corporation, through Mr. Avery, the offer for the
plaintiff had negotiated with Mr. Avery for another loan of purchase of the yacht made by the plaintiff in his letter of the 3d of
P20,000 with which to purchase this new engine. On the 31st of April (Exhibit 1), he made demand on him for the performance
that month of March the plaintiff wrote the defendant a letter thereof.
informing him, among other things, that after he had tried to
obtain from Mr. Avery said new loan of P20,000 for the purchase The plaintiff brings this action against the defendant to recover the
of the engine, and that he was not disposed to purchase the vessel sum of P6,139.28, the value of the repairs made on the yacht
for more than P70,000, Mr. Avery had told him that he was not in which he had paid for.
position to give one cent more. In this letter the plaintiff suggested The defendant alleges as a defense against this action that the
to the defendant that he should speak with Mr. Avery about the agreement he had with the plaintiff about these repairs was that the
matter. The defendant, after an interview with Mr. Avery held on letter was to pay for them for his own account in exchange of the
the same day, answered the plaintiff that he had arrived at an gratuitous use of the yacht, and prays that he be absolved from the
agreement with Mr. Avery about the sale of the yacht to the complaint. As a counterclaim he prays that the plaintiff be
plaintiff for P80,000 payable as follows: P5,000 each month compelled to pay him the sum of P832.93, one-half of the price of
during the first six months and P10,000 thereafter until full the canvas used in the repair of the yacht, which has not as yet
payment of the price, the yacht to be mortgaged to secure payment been paid by the plaintiff. Furthermore, alleging that the plaintiff
thereof. On the first of April next, the plaintiff informed the purchased the vessel in accordance with his letter of April 3, 1922,
defendant that he was not inclined to accept this proposition. On he prays as a cross-complaint that the plaintiff be compelled to
the morning of the 3d of the same month, the defendant called at comply with the terms of this contract and to pay damages in the
the office of the plaintiff to speak with him about the matter and as sum of P10,000.
a result of the interview held between them, the plaintiff in the The Cooper Company was admitted to intervene in this action and
presence of the defendant wrote a letter addressed to the latter claims in turn its credit of P1,730.84 for the repairs made on the
which is literally as follows: yacht, the amount of which has not as yet been paid.
MY DEAR MR. BURKE: The trial court rendered judgment sentencing the defendant to pay
In connection with the yacht Bronzewing, I am in position the plaintiff the sum of P6,139.28 with legal interest thereon at the
and am willing to entertain the purchase of it under the rate of 6 per cent from April 18, 1922, and to pay the intervenor,
following terms: the Cooper Company, the sum of P1,730.84 with legal interest at 6
(a) The purchase price to be P80,000, Philippine per cent from May 19, 1922. The plaintiff was sentenced to
currency. comply in all its parts with the contract for the purchase of the
yacht, according to the terms of his letter of April 3d (Exhibit 1).
(b) Initial payment of P10,000 to be made within sixty Both the plaintiff and the defendant appealed from this judgment.
(60) days.
The plaintiff appeals from the judgment in so far as it compels him
(c) Payment of the balance to be made in installments of to purchase the yacht upon the conditions stated in the letter of
P5,000 per month, with interest on deferred payments at April 3, 1922 (Exhibit 1). This appeal raises the question whether
9 per cent payable semiannually. or not this letter was a definite offer to purchase, and the same
having been accepted by the defendant with the consent of Mr.
Avery on behalf of the Asia Banking Corporation, whether or not But above all, there is in the record positive proof that in writing
it is a contract of sale valid and binding against the plaintiff. The this letter of the 3d of April the plaintiff had no intention to make
trial court solved this question in the affirmative. We are of the thereby a definite offer. This letter was written by his stenographer
opinion that this is an error. Mr. Parkins in his office and in the presence of the defendant who
As was seen, this letter begins as follows: "In connection with the has been there precisely for the purpose of speaking about this
yacht Bronzewing, I am in position and am willing to entertain the purchase. According to the plaintiff when he was dictating that
purchase of it under the following terms . . . ." The whole question part wherein he said that he was in position to entertain the
is reduced to determining what the intention of the plaintiff was in purchase of the yacht, the defendant interrupted him and suggested
using that language. the elimination of the word entertain and the substitution therefor
of a definite offer, but after a discussion between them, during
To convey the idea of a resolution to purchase, a man of ordinary
which the plaintiff clearly said that he was not in position to make
intelligence and common culture would use these clear and simple
a definite offer, the word entertain now appearing in the letter was
words, I offer to purchase, I want to purchase, I am in position to
preserved. The stenographer Mr. Parkins and another employee of
purchase. And the stronger is the reason why the plaintiff should
the plaintiff Mr. Guzman, who were present, corroborate this
have expressed his intention in the same way, because, according
statement of the plaintiff.
to the defendant, he was a prosperous and progressive merchant. It
must be presumed that a man in his transactions in good faith uses The lower court seems to have been impressed by the
the best means of expressing his mind that his intelligence and consideration that it was anomalous for the plaintiff to write that
culture permit so as to convey and exteriorize his will faithfully letter if his purpose was only to indicate to the defendant that he
and unequivocally. But the plaintiff instead of using in his letter wanted the latter to make a proposal which he (plaintiff) might
the expression, I want to purchase, I offer to purchase, I am in reject or accept. We see nothing anomalous in this. A proposition
position to purchase, or other similar language of easy and may be acceptable in itself, but its acceptance may depend on
unequivocal meaning, used this other, I am in position and am other circumstances; thus one may say that a determinate
willing to entertain the purchase of the yacht. The word proposition is acceptable, and yet he may not be in a position to
"entertain" applied to an act does not mean the resolution to accept the same at the moment.
perform said act, but simply a position to deliberate for deciding to The letter of the plaintiff not containing a definite offer but a mere
perform or not to perform said act. Taking into account only the invitation to an offer being made to him, the acceptance of the
literal and technical meaning of the word "entertain," it seems to defendant placed at the bottom of this letter has not other meaning
us clear that the letter of the plaintiff cannot be interpreted as a than that of accepting the proposition to make this offer, as must
definite offer to purchase the yacht, but simply a position to have been understood by the plaintiff.
deliberate whether or not he would purchase the yacht. It was but a The appeal of the defendant raises the question as to who must pay
mere invitation to a proposal being made to him, which might be the repairs made on the yacht. The lower court decided that it is
accepted by him or not. the defendant. We are of the opinion that this is also an error. The
Furthermore there are other circumstances which show that in plaintiff was the one who directly and personally ordered these
writing this letter it was really not the intention of the plaintiff to repairs. It was agreed between the plaintiff and the defendant that
make a definite offer. The plaintiff never thought of acquiring the the former was not to pay anything for the use of the yacht. This,
yacht for his personal use, but for the purpose of selling it to at the first glance, would make us believe that it was the plaintiff
another or to acquire it for another, thereby obtaining some gain who was to pay for the repairs in exchange for the use of the yacht
from the transaction, and it can be said that the only thing the in order that the profit should be reciprocal. But the plaintiff
plaintiff wanted in connection with this yacht was that the claims that his agreement was that he had to advance only the
defendant should procure its sale, naturally with some profit for amount of the repairs, and that the defendant was at last the one to
himself. For this reason the original idea of the plaintiff was to pay therefor. The defendant, in turn, claims that the agreement was
organize a yacht club that would afterwards acquire the yacht that the plaintiff was to pay for these repairs in exchange for the
through him, realizing some gain from the sale. This is clearly use of the yacht. Upon this contention there is, on the one hand,
stated in the letter containing the option that the defendant gave but the testimony of the plaintiff and, on the other, the testimony
him on February 12, 1922. This accounts for the fact that the of the defendant. But it having been the plaintiff who ordered and
plaintiff was not in a position to make a definite offer to purchase, made these repairs, and in view of the fact that he was not obliged
he being sure to be able to resell the yacht to another, and this to pay anything for the use of the yacht, his mere testimony
explains why he did not say in his letter of the 3d of April that he contradicted by that of the defendant, cannot be considered as a
was in position to purchase the yacht, but only to entertain this sufficient evidence to establish the latter's obligation. Furthermore
purchase. according to the defendant, nothing was agreed upon about the
On the other hand, the plaintiff thought it necessary to replace the kind of the repairs to be made on the yacht and there was no limit
engine of the yacht with a new one which was to cost P20,000 and to said repairs. It seems strange that the defendant should accept
has been negotiating with Mr. Avery a loan of P20,000 to make the liability for the amount of these repairs, leaving their extent
replacing. When the plaintiff wrote his letter of the 3rd of April, he entirely to the discretion of the plaintiff. And this discretion,
knew that Mr. Avery was not in position to grant this loan. according to the contention of the plaintiff, includes even that of
According to this, the resolution of the plaintiff to acquire the determining what repairs must be paid by the defendant, as
yacht depended upon him being able to replace the engine, and evidenced by the fact that the plaintiff has not claimed the amount
this, in turn, depended upon the plaintiff being successful in of any, such as the wireless telegraph that was installed in the
obtaining the P20,000 that the new engine was to cost. This yacht, and yet he claims as a part thereof the salaries of the
accounts also for the fact that the plaintiff was not in position to officers and the crew which do not represent any improvement on
make a definite offer. the vessel.
Our conclusion is that the letter of the plaintiff of April 3, 1922, On March 14, 1990, the respondent, through Senen Valero,
was not a definite offer and that the plaintiff is bound to pay the signed a letter-offer addressed to the petitioner [3] stating therein
amount of the repairs of the yacht in exchange for the use thereof. that petitioners resignation from all the positions in the SEADC
For all of the foregoing the judgment appealed from is reversed, group of companies had been accepted by the respondent, and that
the defendant is absolved from the complaint, the plaintiff is he was entitled to an incentive compensation in the amount
sentenced to pay to the Cooper Company the sum of P1,730.84 of P251,057.67, and proposing that the amount be satisfied, thus:
with interest and to the defendant the sum of P832.93, and the
plaintiff is declared to be under no obligation to purchase the yacht - The 1982 Mitsubishi Super saloon car assigned to you by the
upon the terms of his letter of April 3, 1922, without special
company shall be transferred to you at a value
pronouncement as to cost. So ordered.
of P220,000.00. (Although you have indicated a value
Malcolm, Villamor and Ostrand, JJ., concur. of P180,000.00, our survey in the market indicates
that P220,000.00 is a reasonable reflection of the value of the car.)
[G.R. No. 125761. April 30, 2003]
- The membership share of our subsidiary, Tradestar International,
SALVADOR P. MALBAROSA, petitioner, vs. HON. COURT Inc. in the Architectural Center, Inc. will be transferred to
OF APPEALS and S.E.A. DEVELOPMENT you. (Although we do not as yet have full information as to the
CORP. respondents. value of these shares, we have been informed that the shares have
traded recently in the vicinity of P60,000.00.)[4]
DECISION
The respondent required that if the petitioner agreed to the
CALLEJO, SR., J.: offer, he had to affix his conformity on the space provided therefor
and the date thereof on the right bottom portion of the letter, thus:
Philtectic Corporation and Commonwealth Insurance Co.,
Inc. were only two of the group of companies wholly-owned and Agreed:
controlled by respondent S.E.A. Development Corporation
(SEADC). The petitioner Salvador P. Malbarosa was the president SALVADOR P. MALBAROSA
and general manager of Philtectic Corporation, and an officer of
other corporations belonging to the SEADC group of Date: _____________________[5]
companies. The respondent assigned to the petitioner one of its
vehicles covered by Certificate of Registration No.
On March 16, 1990, Da Costa met with the petitioner and
04275865[1] described as a 1982 model Mitsubishi Gallant Super
handed to him the original copy of the March 14, 1990 Letter-offer
Saloon, with plate number PCA 180 for his use. He was also
for his consideration and conformity. The petitioner was dismayed
issued membership certificates in the Architectural Center, Inc.
when he read the letter and learned that he was being offered an
Louis Da Costa was the president of the respondent and
incentive compensation of only P251,057.67. He told Da Costa
Commonwealth Insurance Co., Inc., while Senen Valero was the
that he was entitled to no less than P395,000 as incentive
Vice-Chairman of the Board of Directors of the respondent and
compensation. The petitioner refused to sign the letter-offer on the
Vice-Chairman of the Board of Directors of Philtectic
space provided therefor. He received the original of the letter and
Corporation.
wrote on the duplicate copy of the letter-offer retained by Da
Costa, the words: Recd original for review purposes. [6] Despite the
Sometime in the first week of January 1990, the petitioner lapse of more than two weeks, the respondent had not received the
intimated to Senen Valero his desire to retire from the SEADC original of the March 14, 1990 Letter-offer of the respondent with
group of companies and requested that his 1989 incentive the conformity of the petitioner on the space provided
compensation as president of Philtectic Corporation be paid to therefor. The respondent decided to withdraw its March 14, 1990
him. On January 8, 1990, the petitioner sent a letter to Senen Offer. On April 3, 1996, the Board of Directors of the respondent
Valero tendering his resignation, effective February 28, 1990 from approved a resolution authorizing the Philtectic Corporation
all his positions in the SEADC group of companies, and reiterating and/or Senen Valero to demand from the petitioner for the return
therein his request for the payment of his incentive compensation of the car and to take such action against the petitioner including
for 1989.[2] the institution of an action in court against the petitioner for the
recovery of the motor vehicle.[7]
Louis Da Costa met with the petitioner on two occasions, one
of which was on February 5, 1990 to discuss the amount of the On April 4, 1990, Philtectic Corporation, through its counsel,
1989 incentive compensation petitioner was entitled to, and the wrote the petitioner withdrawing the March 14, 1990 Letter-offer
mode of payment thereof.Da Costa ventured that the petitioner of the respondent and demanding that the petitioner return the car
would be entitled to an incentive compensation in the amount of and his membership certificate in the Architectural Center, Inc.
around P395,000. within 24 hours from his receipt thereof. [8] The petitioner received
the original copy of the letter on the same day.
On April 7, 1990, the petitioner wrote the counsel of Agreed:
Philtectic Corporation informing the latter that he cannot comply
with said demand as he already accepted the March 14, 1990 (Sgd.)
Letter-offer of the respondent when he affixed on March 28, 1990
his signature on the original copy of the letter-offer.[9] The SALVADOR P. MALBAROSA
petitioner enclosed a xerox copy of the original copy of the March
14, 1990 Letter-offer of the respondent, bearing his signature on
Date: 3 28 - 90[15]
the space provided therefore dated March 28, 1990.[10]
The petitioner adduced evidence that on March 9, 1990, he
With the refusal of the petitioner to return the vehicle, the
had written Senen Valero that he was agreeable to an incentive
respondent, as plaintiff, filed a complaint against the petitioner, as
compensation of P218,000 to be settled by the respondent by
defendant, for recovery of personal property with replevin with
transferring the car to the petitioner valued at P180,000
damages and attorneys fees, thus:
and P38,000 worth of shares of the Architectural Center, Inc. on
the claim of Da Costa that respondent was
WHEREFORE, PREMISES CONSIDERED, it is respectfully almost bankrupt. However, the petitioner learned that the
prayed before this Honorable Court that: respondent was financially sound; hence, he had decided to
receive his incentive compensation of P395,000 in cash. [16] On
1. Before hearing and upon approval of plaintiffs bond, a writ be March 29, 1990, the petitioner called up the office of Louis Da
issued immediately for the seizure of the vehicle described in Costa to inform the latter of his acceptance of the letter-offer of
paragraph 3 hereof, wherever it may be found, and for its delivery the respondent. However, the petitioner was told by Liwayway
to plaintiff; Dinglasan, the telephone receptionist of Commonwealth Insurance
Co, that Da Costa was out of the office. The petitioner asked
2. After trial of the issues, judgment be rendered adjudging that Liwayway to inform Da Costa that he had called him up and
plaintiff has the right to the possession of the said motor vehicle, that he had already accepted the letter-offer. Liwayway promised
and, in the alternative, that defendant must deliver such motor to relay the message to Da Costa. Liwayway testified that she had
vehicle to plaintiff or pay to plaintiff the value thereof in case relayed the petitioners message to Da Costa and that the latter
delivery cannot be made; merely nodded his head.

3. After trial, hold the defendant liable to plaintiff for the use of After trial, the court a quo rendered its Decision[17] on July
the motor vehicle in the amount of P1,000.00 per day from date of 28, 1992, the dispositive portion of which reads as follows:
demand until the motor vehicle is returned to plaintiff.
WHEREFORE, in view of all the foregoing, judgment is rendered
4. After trial, hold the defendant liable to plaintiff for attorneys ordering the defendant:
fees and costs of litigation in the amount of P100,000.00.
1. To deliver the motor vehicle prescribed [sic] in the
Plaintiffs likewise prays for such other reliefs as are just and complaint to plaintiff SEADC, or pay its value
[11]
equitable under the circumstances. of P220,000 in case delivery cannot be made;

On April 30, 1990, the trial court issued an order for the 2. pay plaintiff SEADC P50,000 as and for attorneys fees; and
issuance of a writ of replevin.[12] Correspondingly, the writ of
replevin was issued on May 8, 1990.[13] 3. Cost of litigation.

On May 11, 1990, the Sheriff served the writ on the SO ORDERED.[18]
petitioner and was able to take possession of the vehicle in
question. On May 15, 1990, the petitioner was able to recover the The trial court stated that there existed no perfected contract
possession of the vehicle upon his filing of the counter-bond.[14] between the petitioner and the respondent on the latters March 14,
1990 Letter-offer for failure of the petitioner to effectively notify
In his Answer to the complaint, the petitioner, as defendant the respondent of his acceptance of said letter-offer before the
therein, alleged that he had already agreed on March 28, 1990 to respondent withdrew the same. The respondent filed a motion for
the March 14, 1990 Letter-offer of the respondent, the plaintiff the amendment of the decision of the trial court, praying that the
therein, and had notified thesaid plaintiff of his acceptance; hence, petitioner should be ordered to pay to the respondent reasonable
he had the right to the possession of the car. Philtectic Corporation rentals for the car. On October 10, 1992, the court a quo issued an
had no right to withdraw the offer of the respondent SEADC. The order, granting plaintiffs motion and amending the dispositive
petitioner testified that after conferring with his counsel, he had portion of its July 28, 1992 Decision:
decided to accept the offer of the respondent, and had affixed his
signature on the space below the word Agree in the March 14,
1990 Letter-offer, thus:
1. Ordering defendant to pay to plaintiff lease rentals For its part, the respondent contends that the issues raised by
for the use of the motor vehicle at the rate of the petitioner are factual. The jurisdiction of the Court under Rule
P1,000.00 per Day from May 8, 1990 up to the 45 of the Rules of Court, as amended, is limited to revising and
date of actual delivery to the plaintiff of the correcting errors of law of the CA. As concluded by the Court of
motor vehicle; and Appeals, there had been no acceptance by the petitioner of its
March 14, 1990 Letter-offer. The receipt by the petitioner of the
2. Ordering First Integrated Bonding & Insurance Co. original of the March 14, 1990 Letter-offer for review purposes
to make good on its obligations to plaintiff under amounted merely to a counter-offer of the petitioner. The findings
the Counterbond issued pursuant to this case. of the Court of Appeals are binding on the petitioner. The
petitioner adduced no proof that the respondent had granted him a
SO ORDERED.[19] period within which to accept its offer. The latter deemed its offer
as not accepted by the petitioner in light of petitioners
ambivalence and indecision on March 16, 1990 when he received
The petitioner appealed from the decision and the order of
the letter-offer of respondent.
the court a quo to the Court of Appeals.

We do not agree with the petitioner.


On February 8, 1996, the Court of Appeals rendered
its Decision,[20] affirming the decision of the trial court. The
dispositive portion of the decision reads: Under Article 1318 of the Civil Code, the essential requisites
of a contract are as follows:
WHEREFORE, the Decision dated July 28, 1992 and the Order
dated October 10, 1992 of the Regional Trial Court of Pasig Art. 1318. There is no contract unless the following requisites
(Branch 158) are hereby AFFIRMED with the MODIFICATION concur:
that the period of payment of rentals at the rate of P1,000.00 per
day shall be from the time this decision becomes final until actual (1) Consent of the contracting parties;
delivery of the motor vehicle to plaintiff-appellee is made.
(2) Object certain which is the subject matter of the contract;
Costs against the defendant-appellant.
(3) Cause of the obligation which is established.
[21]
SO ORDERED.
Under Article 1319 of the New Civil Code, the consent by a
The Court of Appeals stated that the petitioner had not party is manifested by the meeting of the offer and the acceptance
accepted the respondents March 14, 1990 Letter-offer before the upon the thing and the cause which are to constitute the
respondent withdrew said offer on April 4, 1990. contract. An offer may be reached at any time until it is accepted.
An offer that is not accepted does not give rise to a consent. The
[24]
The petitioner filed a petition for review on certiorari of the contract does not come into existence. To produce a contract,
decision of the Court of Appeals. there must be acceptance of the offer which may be express or
implied[25] but must not qualify the terms of the offer. The
acceptance must be absolute, unconditional and without variance
The petitioner raises two issues, namely: (a) whether or not
of any sort from the offer.[26]
there was a valid acceptance on his part of the March 14, 1990
Letter-offer of the respondent;[22] and (b) whether or not there was
an effective withdrawal by the respondent of said letter-offer. The acceptance of an offer must be made known to the
offeror.[27] Unless the offeror knows of the acceptance, there is no
meeting of the minds of the parties, no real concurrence of offer
The petition is dismissed.
and acceptance.[28] The offeror may withdraw its offer and revoke
the same before acceptance thereof by the offeree. The contract is
Anent the first issue, the petitioner posits that the respondent
perfected only from the time an acceptance of an offer is made
had given him a reasonable time from March 14, 1990 within
known to the offeror. If an offeror prescribes the exclusive manner
which to accept or reject its March 14, 1990 Letter-offer. He had
in which acceptance of his offer shall be indicated by the offeree,
already accepted the offer of the respondent when he affixed his
an acceptance of the offer in the manner prescribed will bind the
conformity thereto on the space provided therefor on March 28,
offeror. On the other hand, an attempt on the part of the offeree to
1990[23] and had sent to the respondent corporation on April 7,
accept the offer in a different manner does not bind the offeror as
1990 a copy of said March 14, 1990 Letter-offer bearing his
the absence of the meeting of the minds on the altered type of
conformity to the offer of the respondent; hence, the respondent
acceptance.[29] An offer made inter praesentes must be accepted
can no longer demand the return of the vehicle in question. He
immediately. If the parties intended that there should be an express
further avers that he had already impliedly accepted the offer when
acceptance, the contract will be perfected only upon knowledge by
after said respondents offer, he retained possession of the car.
the offeror of the express acceptance by the offeree of the
offer. An acceptance which is not made in the manner prescribed
by the offeror is not effective but constitutes a counter-offer which argued that a contract had already been perfected between the
the offeror may accept or reject. [30] The contract is not perfected if petitioner and the respondent.
the offeror revokes or withdraws its offer and the revocation or
withdrawal of the offeror is the first to reach the offeree. [31] The On the second issue, the petitioner avers that Philtectic
acceptance by the offeree of the offer after knowledge of the Corporation, although a wholly-owned and controlled subsidiary
revocation or withdrawal of the offer is inefficacious. The of the respondent, had no authority to withdraw the offer of the
termination of the contract when the negotiations of the parties respondent. The resolution of the respondent authorizing Philtectic
terminate and the offer and acceptance concur, is largely a Corporation to take such action against the petitioner including the
question of fact to be determined by the trial court.[32] institution of an action against him for the recovery of the subject
car does not authorize Philtectic Corporation to withdraw the
In this case, the respondent made its offer through its Vice- March 14, 1990 Letter-offer of the respondent. The withdrawal by
Chairman of the Board of Directors, Senen Valero. On March 16, Philtectic Corporation on April 4, 1990 of the offer of the
1990, Da Costa handed over the original of the March 14, 1990 respondent was ineffective insofar as the petitioner was
Letter-offer of the respondent to the petitioner. The respondent concerned. The respondent, for its part, asserts that the petitioner
required the petitioner to accept the offer by affixing his signature had failed to put in issue the matter of lack of authority of
on the space provided in said letter-offer and writing the date of Philtectic Corporation to withdraw for and in behalf of the
said acceptance, thus foreclosing an implied acceptance or any respondent its March 14, 1990 Letter-offer. It contends that the
other mode of acceptance by the petitioner. However, when the authority of Philtectic Corporation to take such action including
letter-offer of the respondent was delivered to the petitioner on the institution of an action against the petitioner for the recovery
March 16, 1990, he did not accept or reject the same for the reason of the car necessarily included the authority to withdraw the
that he needed time to decide whether to reject or accept the same. respondents offer. Even then, there was no need for the respondent
[33]
There was no contract perfected between the petitioner and the to withdraw its offer because the petitioner had already rejected
respondent corporation.[34] Although the petitioner claims that he the respondents offer on March 16, 1990 when the petitioner
had affixed his conformity to the letter-offer on March 28, 1990, received the original of the March 14, 1990 Letter-offer of the
the petitioner failed to transmit the said copy to the respondent. It respondent without the petitioner affixing his signature on the
was only on April 7, 1990 when the petitioner appended to his space therefor.
letter to the respondent a copy of the said March 14, 1990 Letter-
offer bearing his conformity that he notified the respondent of his We do not agree with the petitioner. Implicit in the authority
acceptance to said offer. But then, the respondent, through given to Philtectic Corporation to demand for and recover from
Philtectic Corporation, had already withdrawn its offer and had the petitioner the subject car and to institute the appropriate action
already notified the petitioner of said withdrawal via respondents against him to recover possession of the car is the authority to
letter dated April 4, 1990 which was delivered to the petitioner on withdraw the respondents March 14, 1990 Letter-offer. It cannot
the same day. Indubitably, there was no contract perfected by the be argued that respondent authorized Philtectic Corporation to
parties on the March 14, 1990 Letter-offer of the respondent. demand and sue for the recovery of the car and yet did not
authorize it to withdraw its March 14, 1990 Letter-offer to the
The petitioners plaint that he was not accorded by the petitioner. Besides, when he testified, Senen Valero stated that the
respondent reasonable time to accept or reject its offer does not April 4, 1990 letter of Philtectic Corporation to the petitioner was
persuade. It must be underscored that there was no time frame upon his instruction and conformably with the aforesaid resolution
fixed by the respondent for the petitioner to accept or reject its of the Board of Directors of the respondent:
offer. When the offeror has not fixed a period for the offeree to
accept the offer, and the offer is made to a person present, the Q Mr. Valero, after the Board passed this resolution.
acceptance must be made immediately.[35] In this case, the (sic) What action did you take, if any?
respondent made its offer to the petitioner when Da Costa handed
over on March 16, 1990 to the petitioner its March 14, 1990 A After that resolution was passed. (sic) I instructed our
Letter-offer but that the petitioner did not accept the offer. The lawyers to proceed with the demand letter for the
respondent, thus, had the option to withdraw or revoke the offer, recovery of the vehicle.
which the respondent did on April 4, 1990.
Q Do you know if that demand letter was every (sic)
Even if it is assumed that the petitioner was given a made by your lawyer?
reasonable period to accept or reject the offer of the respondent,
the evidence on record shows that from March 16, 1990 to April 3,
A Yes. I know that because I was the one who gave the
1990, the petitioner had more than two weeks which was more
instruction and before it was finally served on
than sufficient for the petitioner to accept the offer of the
Malbarosa, I was shown about the demand letter.
respondent. Although the petitioner avers that he had accepted the
offer of the respondent on March 28, 1990, however, he failed to
C/Pltf. - Your honor, or rather
transmit to the respondent the copy of the March 14, 1990 Letter-
offer bearing his conformity thereto. Unless and until the
respondent received said copy of the letter-offer, it cannot be
Mr. Valero, if I show you a copy of that letter, will you [G.R. No. 124242. January 21, 2005]
be able to identify the same?
SAN LORENZO DEVELOPMENT
A Yes, sir. CORPORATION, petitioner, vs. COURT OF
APPEALS, PABLO S. BABASANTA, SPS. MIGUEL
Q I am now showing to you a copy of the letter dated LU and PACITA ZAVALLA LU, respondents.
April 4, 1990, addressed to Mr. Salvador P.
Malbarosa and signed by Romulo, Mabanta, DECISION
Buenaventura, Sayoc and Delos Angeles by
_____. What relation, if any, does that demand TINGA, J.:
letter have with the demand letter that you are
talking about? From a coaptation of the records of this case, it appears that
respondents Miguel Lu and Pacita Zavalla, (hereinafter, the
A Its the same one I am referring to. Spouses Lu) owned two (2) parcels of land situated in Sta. Rosa,
Laguna covered by TCT No. T-39022 and TCT No. T-39023 both
C/Pltf. Your honor, we manifest that the letter has been measuring 15,808 square meters or a total of 3.1616 hectares.
previously marked as our exh. D.
On 20 August 1986, the Spouses Lu purportedly sold the two
Q Mr. Valero, on the first paragraph of this demand parcels of land to respondent Pablo Babasanta, (hereinafter,
letter, you stated that the letter is written in behalf Babasanta) for the price of fifteen pesos (P15.00) per square
of Philtectic Corporation. Do you have any meter. Babasanta made a downpayment of fifty thousand pesos
knowledge why it was written this way? (P50,000.00) as evidenced by a memorandum receipt issued by
Pacita Lu of the same date. Several other payments totaling two
A Yes. Because Philtectic, being the agent used here by hundred thousand pesos (P200,000.00) were made by Babasanta.
S.E.A. Development Corporation for the one
using the car, it was only deemed proper that Sometime in May 1989, Babasanta wrote a letter to Pacita Lu
Philtectic will be the one to send the demand to demand the execution of a final deed of sale in his favor so that
letter. he could effect full payment of the purchase price. In the same
letter, Babasanta notified the spouses about having received
Q In the second paragraph of that letter, Mr. Valero, you information that the spouses sold the same property to another
stated that there was an allusion made to the offer without his knowledge and consent. He demanded that the second
made on March 14, 1990. That the 1982 sale be cancelled and that a final deed of sale be issued in his
Mitsubishi Galant Super Saloon car with plate# favor.
M-PCA-189 assigned to you by the company, and
the membership share in the Architectural Center In response, Pacita Lu wrote a letter to Babasanta wherein
Inc., be transferred to you in settlement. You she acknowledged having agreed to sell the property to him at
previously stated about this March 14 letter. What fifteen pesos (P15.00) per square meter. She, however, reminded
relation, if any, does this second paragraph with Babasanta that when the balance of the purchase price became
the letter-offer that you previously stated. due, he requested for a reduction of the price and when she
refused, Babasanta backed out of the sale. Pacita added that she
C/Def. - Objection, your honor. This witness is returned the sum of fifty thousand pesos (P50,000.00) to
incompetent Babasanta through Eugenio Oya.

C/Pltf. - But he was the one who instructed, your honor. On 2 June 1989, respondent Babasanta, as plaintiff, filed
before the Regional Trial Court (RTC), Branch 31, of San Pedro,
Court - LET the witness answer. Laguna, a Complaint for Specific Performance and
Damages[1] against his co-respondents herein, the Spouses Lu.
Babasanta alleged that the lands covered by TCT No. T- 39022
Witness- (Stenographer reads back the previous
and T-39023 had been sold to him by the spouses at fifteen pesos
question asked by counsel for him to answer, and.)
(P15.00) per square meter. Despite his repeated demands for the
execution of a final deed of sale in his favor, respondents allegedly
A It is the same.[36]
refused.

IN LIGHT OF ALL THE FOREGOING, the petition is


In their Answer,[2] the Spouses Lu alleged that Pacita Lu
dismissed. The Decision of the Court of Appeals is AFFIRMED.
obtained loans from Babasanta and when the total advances of
Pacita reached fifty thousand pesos (P50,000.00), the latter and
SO ORDERED. Babasanta, without the knowledge and consent of Miguel Lu, had
verbally agreed to transform the transaction into a contract to sell upon his filing of a bond in the amount of fifty thousand pesos
the two parcels of land to Babasanta with the fifty thousand pesos (P50,000.00).
(P50,000.00) to be considered as the downpayment for the
property and the balance to be paid on or before 31 December SLDC in its Complaint-in-Intervention alleged that on 11
1987. Respondents Lu added that as of November 1987, total February 1989, the Spouses Lu executed in its favor an Option to
payments made by Babasanta amounted to only two hundred Buy the lots subject of the complaint. Accordingly, it paid an
thousand pesos (P200,000.00) and the latter allegedly failed to payoption money in the amount of three hundred sixteen thousand one
the balance of two hundred sixty thousand pesos (P260,000.00) hundred sixty pesos (P316,160.00) out of the total consideration
despite repeated demands. Babasanta had purportedly asked Pacita for the purchase of the two lots of one million two hundred sixty-
for a reduction of the price from fifteen pesos (P15.00) to twelve four thousand six hundred forty pesos (P1,264,640.00). After the
pesos (P12.00) per square meter and when the Spouses Lu refused Spouses Lu received a total amount of six hundred thirty-two
to grant Babasantas request, the latter rescinded the contract to sell
thousand three hundred twenty pesos (P632,320.00) they executed
and declared that the original loan transaction just be carried out in
on 3 May 1989 a Deed of Absolute Sale with Mortgage in its
that the spouses would be indebted to him in the amount of two favor. SLDC added that the certificates of title over the property
hundred thousand pesos (P200,000.00). Accordingly, on 6 July were delivered to it by the spouses clean and free from any
1989, they purchased Interbank Managers Check No. 05020269 in adverse claims and/or notice of lis pendens. SLDC further alleged
the amount of two hundred thousand pesos (P200,000.00) in the that it only learned of the filing of the complaint sometime in the
name of Babasanta to show that she was able and willing to pay early part of January 1990 which prompted it to file the motion to
the balance of her loan obligation. intervene without delay. Claiming that it was a buyer in good faith,
SLDC argued that it had no obligation to look beyond the titles
Babasanta later filed an Amended Complaint dated 17 submitted to it by the Spouses Lu particularly because Babasantas
January 1990[3] wherein he prayed for the issuance of a writ of claims were not annotated on the certificates of title at the time the
preliminary injunction with temporary restraining order and the lands were sold to it.
inclusion of the Register of Deeds of Calamba, Laguna as party
defendant. He contended that the issuance of a preliminary After a protracted trial, the RTC rendered its Decision on 30
injunction was necessary to restrain the transfer or conveyance by July 1993 upholding the sale of the property to SLDC. It ordered
the Spouses Lu of the subject property to other persons. the Spouses Lu to pay Babasanta the sum of two hundred thousand
pesos (P200,000.00) with legal interest plus the further sum of
The Spouses Lu filed their Opposition[4] to the amended fifty thousand pesos (P50,000.00) as and for attorneys fees. On the
complaint contending that it raised new matters which seriously complaint-in-intervention, the trial court ordered the Register of
affect their substantive rights under the original complaint. Deeds of Laguna, Calamba Branch to cancel the notice of lis
However, the trial court in its Order dated 17 January pendens annotated on the original of the TCT No. T-39022 (T-
1990[5] admitted the amended complaint. 7218) and No. T-39023 (T-7219).

On 19 January 1990, herein petitioner San Lorenzo Applying Article 1544 of the Civil Code, the trial court ruled
Development Corporation (SLDC) filed a Motion for that since both Babasanta and SLDC did not register the respective
Intervention[6] before the trial court. SLDC alleged that it had legal sales in their favor, ownership of the property should pertain to the
interest in the subject matter under litigation because on 3 May buyer who first acquired possession of the property. The trial court
1989, the two parcels of land involved, namely Lot 1764-A and equated the execution of a public instrument in favor of SLDC as
1764-B, had been sold to it in a Deed of Absolute Sale with sufficient delivery of the property to the latter. It concluded that
Mortgage.[7] It alleged that it was a buyer in good faith and for symbolic possession could be considered to have been first
value and therefore it had a better right over the property in transferred to SLDC and consequently ownership of the property
litigation. pertained to SLDC who purchased the property in good faith.

In his Opposition to SLDCs motion for intervention, Respondent Babasanta appealed the trial courts decision to
[8]
respondent Babasanta demurred and argued that the latter had the Court of Appeals alleging in the main that the trial court erred
no legal interest in the case because the two parcels of land in concluding that SLDC is a purchaser in good faith and in
involved herein had already been conveyed to him by the Spouses upholding the validity of the sale made by the Spouses Lu in favor
Lu and hence, the vendors were without legal capacity to transfer of SLDC.
or dispose of the two parcels of land to the intervenor.
Respondent spouses likewise filed an appeal to the Court of
Meanwhile, the trial court in its Order dated 21 March 1990 Appeals. They contended that the trial court erred in failing to
allowed SLDC to intervene. SLDC filed its Complaint-in- consider that the contract to sell between them and Babasanta had
Intervention on 19 April 1990.[9] Respondent Babasantas motion been novated when the latter abandoned the verbal contract of sale
for the issuance of a preliminary injunction was likewise granted and declared that the original loan transaction just be carried out.
by the trial court in its Order dated 11 January 1991[10] conditioned The Spouses Lu argued that since the properties involved were
conjugal, the trial court should have declared the verbal contract to
sell between Pacita Lu and Pablo Babasanta null and void ab LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN
initio for lack of knowledge and consent of Miguel Lu. They THE DISPUTED PROPERTY.
further averred that the trial court erred in not dismissing the
complaint filed by Babasanta; in awarding damages in his favor THE COURT OF APPEALS ERRED IN HOLDING THAT
and in refusing to grant the reliefs prayed for in their answer. NOTWITHSTANDING ITS FULL CONCURRENCE ON THE
FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED
On 4 October 1995, the Court of Appeals rendered AND SET ASIDE THE DECISION OF THE TRIAL COURT
its Decision[11] which set aside the judgment of the trial court. It UPHOLDING THE TITLE OF SAN LORENZO AS A BUYER
declared that the sale between Babasanta and the Spouses Lu was AND FIRST POSSESSOR IN GOOD FAITH. [15]
valid and subsisting and ordered the spouses to execute the
necessary deed of conveyance in favor of Babasanta, and the latter SLDC contended that the appellate court erred in concluding
to pay the balance of the purchase price in the amount of two that it had prior notice of Babasantas claim over the property
hundred sixty thousand pesos (P260,000.00). The appellate court merely on the basis of its having advanced the amount of two
ruled that the Absolute Deed of Sale with Mortgage in favor of hundred thousand pesos (P200,000.00) to Pacita Lu upon the
SLDC was null and void on the ground that SLDC was a latters representation that she needed the money to pay her
purchaser in bad faith. The Spouses Lu were further ordered to obligation to Babasanta. It argued that it had no reason to suspect
return all payments made by SLDC with legal interest and to pay that Pacita was not telling the truth that the money would be used
attorneys fees to Babasanta. to pay her indebtedness to Babasanta. At any rate, SLDC averred
that the amount of two hundred thousand pesos (P200,000.00)
SLDC and the Spouses Lu filed separate motions for which it advanced to Pacita Lu would be deducted from the
reconsideration with the appellate court.[12] However, in balance of the purchase price still due from it and should not be
a Manifestation dated 20 December 1995,[13] the Spouses Lu construed as notice of the prior sale of the land to Babasanta. It
informed the appellate court that they are no longer contesting the added that at no instance did Pacita Lu inform it that the lands had
decision dated 4 October 1995. been previously sold to Babasanta.

In its Resolution dated 11 March 1996,[14] the appellate court Moreover, SLDC stressed that after the execution of the sale
considered as withdrawn the motion for reconsideration filed byin its favor it immediately took possession of the property and
the Spouses Lu in view of their manifestation of 20 December asserted its rights as new owner as opposed to Babasanta who has
1995. The appellate court denied SLDCs motion for never exercised acts of ownership. Since the titles bore no adverse
reconsideration on the ground that no new or substantial claim, encumbrance, or lien at the time it was sold to it, SLDC
arguments were raised therein which would warrant modification argued that it had every reason to rely on the correctness of the
or reversal of the courts decision dated 4 October 1995. certificate of title and it was not obliged to go beyond the
certificate to determine the condition of the property. Invoking the
Hence, this petition. presumption of good faith, it added that the burden rests on
Babasanta to prove that it was aware of the prior sale to him but
SLDC assigns the following errors allegedly committed by the latter failed to do so. SLDC pointed out that the notice of lis
the appellate court: pendens was annotated only on 2 June 1989 long after the sale of
the property to it was consummated on 3 May 1989.
THE COURT OF APPEALS ERRED IN HOLDING THAT SAN
LORENZO WAS NOT A BUYER IN GOOD FAITH BECAUSE Meanwhile, in an Urgent Ex-Parte Manifestation dated 27
WHEN THE SELLER PACITA ZAVALLA LU OBTAINED August 1999, the Spouses Lu informed the Court that due to
FROM IT THE CASH ADVANCE OF P200,000.00, SAN financial constraints they have no more interest to pursue their
LORENZO WAS PUT ON INQUIRY OF A PRIOR rights in the instant case and submit themselves to the decision of
TRANSACTION ON THE PROPERTY. the Court of Appeals.[16]

THE COURT OF APPEALS ERRED IN FAILING TO On the other hand, respondent Babasanta argued that SLDC
APPRECIATE THE ESTABLISHED FACT THAT THE could not have acquired ownership of the property because it
ALLEGED FIRST BUYER, RESPONDENT BABASANTA, failed to comply with the requirement of registration of the sale in
WAS NOT IN POSSESSION OF THE DISPUTED PROPERTYgood faith. He emphasized that at the time SLDC registered the
WHEN SAN LORENZO BOUGHT AND TOOK POSSESSION sale in its favor on 30 June 1990, there was already a notice of lis
OF THE PROPERTY AND NO ADVERSE CLAIM, LIEN, pendens annotated on the titles of the property made as early as 2
ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON June 1989. Hence, petitioners registration of the sale did not
THE TITLES. confer upon it any right. Babasanta further asserted that petitioners
bad faith in the acquisition of the property is evident from the fact
that it failed to make necessary inquiry regarding the purpose of
THE COURT OF APPEALS ERRED IN FAILING TO
the issuance of the two hundred thousand pesos (P200,000.00)
APPRECIATE THE FACT THAT RESPONDENT BABASANTA
managers check in his favor.
HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN
The core issue presented for resolution in the instant petition sale, the vendor has lost and cannot recover ownership until and
is who between SLDC and Babasanta has a better right over the unless the contract is resolved or rescinded; whereas in a contract
two parcels of land subject of the instant case in view of the to sell, title is retained by the vendor until the full payment of the
successive transactions executed by the Spouses Lu. price, such payment being a positive suspensive condition and
failure of which is not a breach but an event that prevents the
To prove the perfection of the contract of sale in his favor, obligation of the vendor to convey title from becoming effective.
[23]
Babasanta presented a document signed by Pacita Lu
acknowledging receipt of the sum of fifty thousand pesos
(P50,000.00) as partial payment for 3.6 hectares of farm lot The perfected contract to sell imposed upon Babasanta the
situated at Barangay Pulong, Sta. Cruz, Sta. Rosa, Laguna. obligation to pay the balance of the purchase price. There being an
[17]
While the receipt signed by Pacita did not mention the price for obligation to pay the price, Babasanta should have made the
which the property was being sold, this deficiency was supplied by proper tender of payment and consignation of the price in court as
Pacita Lus letter dated 29 May 1989 [18] wherein she admitted that required by law. Mere sending of a letter by the vendee expressing
she agreed to sell the 3.6 hectares of land to Babasanta for fifteen the intention to pay without the accompanying payment is not
pesos (P15.00) per square meter. considered a valid tender of payment. [24]Consignation of the
amounts due in court is essential in order to extinguish Babasantas
An analysis of the facts obtaining in this case, as well as the obligation to pay the balance of the purchase price. Glaringly
evidence presented by the parties, irresistibly leads to the absent from the records is any indication that Babasanta even
conclusion that the agreement between Babasanta and the Spouses attempted to make the proper consignation of the amounts due,
Lu is a contract to sell and not a contract of sale. thus, the obligation on the part of the sellers to convey title never
acquired obligatory force.
Contracts, in general, are perfected by mere consent,
[19]
which is manifested by the meeting of the offer and the On the assumption that the transaction between the parties is
acceptance upon the thing which are to constitute the contract. The a contract of sale and not a contract to sell, Babasantas claim of
[20]
offer must be certain and the acceptance absolute. Moreover, ownership should nevertheless fail.
contracts shall be obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity Sale, being a consensual contract, is perfected by mere
are present.[21] consent[25] and from that moment, the parties may reciprocally
demand performance.[26] The essential elements of a contract of
The receipt signed by Pacita Lu merely states that she sale, to wit: (1) consent or meeting of the minds, that is, to transfer
accepted the sum of fifty thousand pesos (P50,000.00) from ownership in exchange for the price; (2) object certain which is the
Babasanta as partial payment of 3.6 hectares of farm lot situated in subject matter of the contract; (3) cause of the obligation which is
[27]
Sta. Rosa, Laguna. While there is no stipulation that the seller established.
reserves the ownership of the property until full payment of the
price which is a distinguishing feature of a contract to sell, the The perfection of a contract of sale should not, however, be
subsequent acts of the parties convince us that the Spouses Lu confused with its consummation. In relation to the acquisition and
never intended to transfer ownership to Babasanta except upon full transfer of ownership, it should be noted that sale is not a mode,
payment of the purchase price. but merely a title. A mode is the legal means by which dominion
or ownership is created, transferred or destroyed, but title is only
[28]
Babasantas letter dated 22 May 1989 was quite telling. He the legal basis by which to affect dominion or ownership. Under
stated therein that despite his repeated requests for the execution Article 712 of the Civil Code, ownership and other real rights over
of the final deed of sale in his favor so that he could effect full property are acquired and transmitted by law, by donation, by
payment of the price, Pacita Lu allegedly refused to do so. In testate and intestate succession, and in consequence of certain
effect, Babasanta himself recognized that ownership of the contracts, by tradition. Contracts only constitute titles or rights to
property would not be transferred to him until such time as he the transfer or acquisition of ownership, while delivery or tradition
[29]
shall have effected full payment of the price. Moreover, had the is the mode of accomplishing the same. Therefore, sale by itself
sellers intended to transfer title, they could have easily executed does not transfer or affect ownership; the most that sale does is to
the document of sale in its required form simultaneously with their create the obligation to transfer ownership. It is tradition or
acceptance of the partial payment, but they did not. Doubtlessly, delivery, as a consequence of sale, that actually transfers
the receipt signed by Pacita Lu should legally be considered as a ownership.
perfected contract to sell.
Explicitly, the law provides that the ownership of the thing
The distinction between a contract to sell and a contract of sold is acquired by the vendee from the moment it is delivered to
[30]
sale is quite germane. In a contract of sale, title passes to the him in any of the ways specified in Article 1497 to 1501. The
vendee upon the delivery of the thing sold; whereas in a contract word delivered should not be taken restrictively to mean transfer
to sell, by agreement the ownership is reserved in the vendor and of actual physical possession of the property. The law recognizes
is not to pass until the full payment of the price. [22] In a contract of
two principal modes of delivery, to wit: (1) actual delivery; and (2) Registry of Property, both made in good faith, shall be deemed the
legal or constructive delivery. owner.[38] Verily, the act of registration must be coupled with good
faith that is, the registrant must have no knowledge of the defect or
Actual delivery consists in placing the thing sold in the lack of title of his vendor or must not have been aware of facts
control and possession of the vendee. [31] Legal or constructive which should have put him upon such inquiry and investigation as
delivery, on the other hand, may be had through any of the might be necessary to acquaint him with the defects in the title of
[39]
following ways: the execution of a public instrument evidencing his vendor.
the sale;[32] symbolical tradition such as the delivery of the keys of
the place where the movable sold is being kept; [33] traditio longa Admittedly, SLDC registered the sale with the Registry of
manu or by mere consent or agreement if the movable sold cannot Deeds after it had acquired knowledge of Babasantas claim.
yet be transferred to the possession of the buyer at the time of the Babasanta, however, strongly argues that the registration of the
sale;[34] traditio brevi manu if the buyer already had possession of sale by SLDC was not sufficient to confer upon the latter any title
the object even before the sale;[35] and traditio constitutum to the property since the registration was attended by bad faith.
possessorium, where the seller remains in possession of the Specifically, he points out that at the time SLDC registered the
property in a different capacity.[36] sale on 30 June 1990, there was already a notice of lis pendenson
the file with the Register of Deeds, the same having been filed
Following the above disquisition, respondent Babasanta did one year before on 2 June 1989.
not acquire ownership by the mere execution of the receipt by
Pacita Lu acknowledging receipt of partial payment for the Did the registration of the sale after the annotation of the
property. For one, the agreement between Babasanta and the notice of lis pendens obliterate the effects of delivery and
Spouses Lu, though valid, was not embodied in a public possession in good faith which admittedly had occurred prior to
instrument. Hence, no constructive delivery of the lands could SLDCs knowledge of the transaction in favor of Babasanta?
have been effected. For another, Babasanta had not taken
possession of the property at any time after the perfection of the We do not hold so.
sale in his favor or exercised acts of dominion over it despite his
assertions that he was the rightful owner of the lands. Simply It must be stressed that as early as 11 February 1989, the
stated, there was no delivery to Babasanta, whether actual or Spouses Lu executed the Option to Buy in favor of SLDC upon
constructive, which is essential to transfer ownership of the receiving P316,160.00 as option money from SLDC. After SLDC
property. Thus, even on the assumption that the perfected contract had paid more than one half of the agreed purchase price
between the parties was a sale, ownership could not have passed to of P1,264,640.00, the Spouses Lu subsequently executed on 3
Babasanta in the absence of delivery, since in a contract of sale May 1989 a Deed of Absolute Sale in favor or SLDC. At the time
ownership is transferred to the vendee only upon the delivery of both deeds were executed, SLDC had no knowledge of the prior
the thing sold.[37] transaction of the Spouses Lu with Babasanta. Simply stated, from
the time of execution of the first deed up to the moment of transfer
However, it must be stressed that the juridical relationship and delivery of possession of the lands to SLDC, it had acted in
between the parties in a double sale is primarily governed by good faith and the subsequent annotation of lis pendens has no
Article 1544 which lays down the rules of preference between the effect at all on the consummated sale between SLDC and the
two purchasers of the same property. It provides: Spouses Lu.

Art. 1544. If the same thing should have been sold to different A purchaser in good faith is one who buys property of
vendees, the ownership shall be transferred to the person who may another without notice that some other person has a right to, or
have first taken possession thereof in good faith, if it should be interest in, such property and pays a full and fair price for the
movable property. same at the time of such purchase, or before he has notice of the
claim or interest of some other person in the property.[40] Following
Should it be immovable property, the ownership shall belong to the foregoing definition, we rule that SLDC qualifies as a buyer in
the person acquiring it who in good faith first recorded it in the good faith since there is no evidence extant in the records that it
Registry of Property. had knowledge of the prior transaction in favor of Babasanta. At
the time of the sale of the property to SLDC, the vendors were still
Should there be no inscription, the ownership shall pertain to the the registered owners of the property and were in fact in
person who in good faith was first in the possession; and, in the possession of the lands. Time and again, this Court has ruled that a
absence thereof, to the person who presents the oldest title, person dealing with the owner of registered land is not bound to
provided there is good faith. go beyond the certificate of title as he is charged with notice of
burdens on the property which are noted on the face of the register
[41]
The principle of primus tempore, potior jure (first in time, or on the certificate of title. In assailing knowledge of the
stronger in right) gains greater significance in case of double sale transaction between him and the Spouses Lu, Babasanta
of immovable property. When the thing sold twice is an apparently relies on the principle of constructive notice
immovable, the one who acquires it and first records it in the
incorporated in Section 52 of the Property Registration Decree In Abarquez, the first sale to the spouses Israel was notarized
(P.D. No. 1529) which reads, thus: and registered only after the second vendee, Abarquez, registered
their deed of sale with the Registry of Deeds, but the Israels were
Sec. 52. Constructive notice upon registration. Every conveyance, first in possession. This Court awarded the property to the Israels
mortgage, lease, lien, attachment, order, judgment, instrument or because registration of the property by Abarquez lacked the
entry affecting registered land shall, if registered, filed, or entered element of good faith. While the facts in the instant case
in the office of the Register of Deeds for the province or city substantially differ from that in Abarquez, we would not hesitate to
where the land to which it relates lies, be constructive notice to all rule in favor of SLDC on the basis of its prior possession of the
persons from the time of such registering, filing, or entering. property in good faith. Be it noted that delivery of the property to
SLDC was immediately effected after the execution of the deed in
However, the constructive notice operates as suchby the express its favor, at which time SLDC had no knowledge at all of the prior
wording of Section 52from the time of the registration of the transaction by the Spouses Lu in favor of Babasanta.
notice of lis pendens which in this case was effected only on 2
June 1989, at which time the sale in favor of SLDC had long been The law speaks not only of one criterion. The first criterion is
consummated insofar as the obligation of the Spouses Lu to priority of entry in the registry of property; there being no priority
transfer ownership over the property to SLDC is concerned. of such entry, the second is priority of possession; and, in the
absence of the two priorities, the third priority is of the date of
More fundamentally, given the superiority of the right of title, with good faith as the common critical element. Since SLDC
SLDC to the claim of Babasanta the annotation of the notice of lis acquired possession of the property in good faith in contrast to
pendens cannot help Babasantas position a bit and it is irrelevant Babasanta, who neither registered nor possessed the property at
to the good or bad faith characterization of SLDC as a purchaser. any time, SLDCs right is definitely superior to that of Babasantas.
A notice of lis pendens, as the Court held in Natao v. Esteban,
[42]
serves as a warning to a prospective purchaser or incumbrancer At any rate, the above discussion on the rules on double sale
that the particular property is in litigation; and that he should keepwould be purely academic for as earlier stated in this decision, the
his hands off the same, unless he intends to gamble on the results contract between Babasanta and the Spouses Lu is not a contract
of the litigation. Precisely, in this case SLDC has intervened in the of sale but merely a contract to sell. In Dichoso v. Roxas,[47] we
pending litigation to protect its rights. Obviously, SLDCs faith in had the occasion to rule that Article 1544 does not apply to a case
the merit of its cause has been vindicated with the Courts present where there was a sale to one party of the land itself while the
decision which is the ultimate denouement on the controversy. other contract was a mere promise to sell the land or at most an
actual assignment of the right to repurchase the same land.
The Court of Appeals has made capital of SLDCs Accordingly, there was no double sale of the same land in that
[43]

averment in its Complaint-in-Intervention[44] that at the instance of case.


Pacita Lu it issued a check for P200,000.00 payable to Babasanta
and the confirmatory testimony of Pacita Lu herself on cross- WHEREFORE, the instant petition is hereby GRANTED.
examination.[45] However, there is nothing in the said pleading and The decision of the Court of Appeals appealed from is
the testimony which explicitly relates the amount to the REVERSED and SET ASIDE and the decision of the Regional
transaction between the Spouses Lu and Babasanta for what they Trial Court, Branch 31, of San Pedro, Laguna is REINSTATED.
attest to is that the amount was supposed to pay off the advances No costs.
made by Babasanta to Pacita Lu. In any event, the incident took
place after the Spouses Lu had already executed the Deed of SO ORDERED.
Absolute Sale with Mortgage in favor of SLDC and therefore, as
previously explained, it has no effect on the legal position of [G.R. No. 147465. January 30, 2002]
SLDC.
METROPOLITAN MANILA DEVELOPMENT
Assuming ex gratia argumenti that SLDCs registration of the AUTHORITY, petitioner, vs. JANCOM
sale had been tainted by the prior notice of lis pendens and ENVIRONMENTAL CORPORATION and
assuming further for the same nonce that this is a case of double JANCOM INTERNATIONAL DEVELOPMENT
sale, still Babasantas claim could not prevail over that of SLDCs. PROJECTS PTY. LIMITED OF
In Abarquez v. Court of Appeals,[46] this Court had the occasion to AUSTRALIA, respondents.
rule that if a vendee in a double sale registers the sale after he has
acquired knowledge of a previous sale, the registration constitutes DECISION
a registration in bad faith and does not confer upon him any right.
If the registration is done in bad faith, it is as if there is no
MELO, J.:
registration at all, and the buyer who has taken possession first of
the property in good faith shall be preferred.
Before the Court is a petition for review on certiorari under
Rule 45 of the Rules of Civil Procedure filed by petitioner
Metropolitan Manila Development Authority (MMDA), seeking to
reverse and set aside the November 13, 2000 decision of the Court During the second bid conference, the bid proposals of First
of Appeals declaring valid and perfected the waste management Philippines for the Carmona site and JANCOM for the San
contract entered into by the Republic of the Philippines, Mateo site were found to be complete and
represented by the Secretary of National Resources and the responsive. Consequently, on February 12, 1997, JANCOM and
Executive Committee to oversee the build-operate-transfer First Philippines were declared the winning bidders, respectively,
implementation of solid waste management projects, and for the San Mateo and the Carmona projects.
JANCOM Environmental Corporation.
In a letter dated February 27, 1997, then MMDA Chairman
The pertinent facts are as follows: Prospero I. Oreta informed JANCOMs Chief Executive Officer
Jay Alparslan that the EXECOM had approved the PBAC
In 1994, then President Fidel V. Ramos issued Presidential recommendation to award to JANCOM the San Mateo Waste-to-
Memorandum Order No. 202 creating the Executive Committee Energy Project on the basis of the final Evaluation Report
(EXECOM) to oversee the BOT implementation of solid waste declaring JANCOM International Ltd., Pty., together with Asea
management projects, headed by the Chairman of the MMDA and Brown Boveri (ABB), as the sole complying (winning) bidder for
the Cabinet Officer for Regional Development-National Capital the San Mateo Waste Disposal site, subject to negotiation and
Region (CORD-NCR). The EXECOM was to oversee and develop mutual approval of the terms and conditions of the contract of
waste-to-energy projects for the waste disposal sites in San Mateo, award. The letter also notified Alparslan that the EXECOM had
Rizal and Carmona, Cavite under the build-operate-transfer (BOT) created a negotiating team composed of Secretary General
scheme. The terms of reference for the waste-to-energy projects Antonio Hidalgo of the Housing and Urban Development
provided that its proponents should have the capability to establish Coordinating Council, Director Ronald G. Fontamillas, General
municipal solid waste thermal plants using incineration Manager Roberto Nacianceno of MMDA, and Atty. Eduardo
technology. This type of technology was selected because of its Torres of the host local government unit to work out and finalize
alleged advantages of greatly reduced waste volume, prolongation the contract award. Chairman Oreta requested JANCOM to submit
of the service life of the disposal site, and generation of electricity. to the EXECOM the composition of its own negotiating team.

While eleven (11) proponents submitted their pre- Thereafter, after a series of meetings and consultations
qualification documents, most failed to comply with the between the negotiating teams of EXECOM and JANCOM, a
requirements under Section 5.4 of the Implementing Rules and draft BOT contract was prepared and presented to the Presidential
Regulations (IRR) of Republic Act No. 6957, otherwise known as Task Force on Solid Waste Management.
the Build-Operate-Transfer Law. On July 21, 1995, the Pre-
qualification, Bids and Awards Committee (PBAC) recommended On December 19, 1997, the BOT Contract for the waste-to-
the pre-qualification of three proponents, namely: i) JANCOM energy project was signed between JANCOM and the Philippine
International Pty. Ltd.; ii) First Philippine International W-E Government, represented by the Presidential Task Force on Solid
Managers; and iii) PACTECH Development Corporation. On July Waste Management through DENR Secretary Victor Ramos,
26, 1995, the EXECOM approved the recommendation of the CORD-NCR Chairman Dionisio dela Serna, and MMDA
PBAC. On July 27, 1995, MMDA forwarded to the Investment Chairman Prospero Oreta.
Coordinating Committee (ICC) Secretariat the pre-feasibility
study on the privatization of the Carmona and San Mateo landfill On March 5, 1998, the BOT contract was submitted to
sites. The project was later presented to the ICC-Technical Board President Ramos for approval but this was too close to the end of
(ICC-TB) and then endorsed to the ICC-Cabinet Committee (ICC- his term which expired without him signing the contract. President
CC). Ramos, however, endorsed the contract to incoming President
Joseph E. Estrada.
On May 2, 1996, the PBAC conducted a pre-bid conference
where it required the three pre-qualified bidders to submit, within With the change of administration, the composition of the
ninety (90) days, their bid proposals. On August 2, 1996, EXECOM also changed. Memorandum Order No. 19 appointed
JANCOM and First Philippines requested for an extension of time the Chairman of the Presidential Committee on Flagship Programs
to submit their bids. PACTECH, on the other hand, withdrew from and Project to be the EXECOM chairman. Too, Republic Act No.
the bidding. 8749, otherwise known as the Clean Air Act of 1999, was passed
by Congress. And due to the clamor of residents of Rizal province,
Subsequently, JANCOM entered into a partnership with Asea President Estrada had, in the interim, also ordered the closure of
Brown Boveri (ABB) to form JANCOM Environmental the San Mateo landfill. Due to these circumstances, the Greater
Corporation while First Philippines formed a partnership Manila Solid Waste Management Committee adopted a resolution
with OGDEN. Due to the change in the composition of the not to pursue the BOT contract with JANCOM. Subsequently, in a
proponents, particularly in their technology partners and letter dated November 4, 1999, Roberto Aventajado, Chairman of
contractors, the PBAC conducted a post pre-qualification the Presidential Committee on Flagship Programs and Project
evaluation. informed Mr. Jay Alparslan, Chairman of JANCOM, that due to
changes in policy and economic environment (Clean Air Act and
non-availability of the San Mateo landfill), the implementation of Instead of appealing the decision, MMDA filed a special
the BOT contract executed and signed between JANCOM and the civil action for certiorari with prayer for a temporary restraining
Philippine Government would no longer be pursued. The letter order with the Court of Appeals which was later docketed therein
stated that other alternative implementation arrangements for solid as CA-G.R. SP No. 59021. The appellate court not only required
waste management for Metro Manila would be considered instead. JANCOM to comment on the petition, it also granted MMDAs
prayer for a temporary restraining order. During the pendency of
JANCOM appealed to President Joseph Estrada the position the petition for certiorari, JANCOM moved for the execution of
taken by the EXECOM not to pursue the BOT Contract executed the RTC decision, which was opposed by MMDA. However, the
and signed between JANCOM and the Philippine Government, RTC granted the motion for execution on the ground that its
refuting the cited reasons for non-implementation. Despite the decision had become final since MMDA had not appealed the
pendency of the appeal, MMDA, on February 22, 2000, caused the same to the Court of Appeals. MMDA moved to declare
publication in a newspaper of an invitation to pre-qualify and to respondents and the RTC judge in contempt of court, alleging that
submit proposals for solid waste management projects for Metro the RTCs grant of execution was abuse of and interference with
Manila. JANCOM thus filed with the Regional Trial Court of judicial rules and processes.
Pasig a petition for certiorari to declare i) the resolution of the
Greater Metropolitan Manila Solid Waste Management Committee On November 13, 2001, the Court of Appeals dismissed the
disregarding the BOT Contract and ii) the acts of MMDA calling petition in CA-G.R. SP No. 59021 and a companion case, CA-
for bids and authorizing a new contract for Metro Manila waste G.R. SP No. 60303.
management, as illegal, unconstitutional, and void; and for
prohibition to enjoin the Greater Metropolitan Manila Solid Waste MMDAs motion for reconsideration of said decision having
Management Committee and MMDA from implementing the been denied, MMDA filed the instant petition, alleging that the
assailed resolution and disregarding the Award to, and the BOT Court of Appeals gravely erred in finding that:
contract with, JANCOM, and from making another award in its
place. On May 29, 2000, the trial court rendered a decision, the 1) There is a valid and binding contract between the
dispositive portion of which reads: Republic of the Philippines and JANCOM given
that: a) the contract does not bear the signature of
WHEREFORE, in view of the foregoing, the Court hereby renders the President of the Philippines; b) the conditions
judgment in favor of petitioners JANCOM ENVIRONMENTAL precedent specified in the contract were not
CORPORATION, and JANCOM INTERNATIONAL complied with; and c) there was no valid notice of
DEVELOPMENT PROJECTS PTY., LIMITED OF award.
AUSTRALIA, and against respondent GREATER
METROPOLITAN MANILA SOLID WASTE MANAGEMENT 2) The MMDA had not seasonably appealed the
COMM., and HON. ROBERTO N. AVENTAJADO, in his Decision of the lower court via a petition for
Capacity as Chairman of the said Committee, METRO MANILA certiorari.
DEVELOPMENT AUTHORITY and HON. JEJOMAR C.
BINAY, in his capacity as Chairman of said Authority, declaring
Before taking up the substantive issue in question, we shall
the Resolution of respondent Greater Metropolitan Manila Solid
first dispose of the question as to whether it is fatal to petitioners
Waste Management Committee disregarding petitioners BOT
cause, that rather than appealing the trial courts decision to the
Award Contract and calling for bids for and authorizing a new
Court of Appeals, it instead filed a petition for certiorari. While
contract for the Metro Manila waste management ILLEGAL and
petitioner claims that the trial courts decision never became final
VOID.
by virtue of its having appealed by certiorari to the Court of
Appeals, the trial court ruled that petitioners failure to file an
Moreover, respondents and their agents are hereby PROHIBITED appeal has made its decision final and executory. At bottom, the
and ENJOINED from implementing the aforesaid Resolution and question involves a determination of the propriety of petitioners
disregarding petitioners BOT Award Contract and from making choice of the remedy of certiorari in questioning the decision of
another award in its place. the trial court.

Let it be emphasized that this Court is not preventing or stopping Section 1, Rule 65 of the 1997 Rules of Civil Procedure
the government from implementing infrastructure projects as it is provides:
aware of the proscription under PD 1818. On the contrary, the
Court is paving the way for the necessary and modern solution to
Section 1. Petition for certiorari. When any tribunal, board or
the perennial garbage problem that has been the major headache of
officer exercising judicial or quasi-judicial functions has acted
the government and in the process would serve to attract more
without or in excess of its or his jurisdiction, or with grave abuse
investors in the country.
of discretion amounting to lack or excess of jurisdiction, and
there is no appeal, or any plain, speedy, and adequate remedy in
(Rollo,p. 159.) the ordinary course of law, a person aggrieved thereby may file a
verified petition in the proper court, alleging the facts with
certainty and praying that judgment be rendered annulling or appealable (Investments, Inc. vs. Court of Appeals, 147 SCRA 334
modifying the proceedings of such tribunal, board or officer, and [1987]).
granting such incidental reliefs as law and justice may require.
However, instead of appealing the decision, MMDA resorted
The petition shall be accompanied by a certified true copy of the to the extraordinary remedy of certiorari, as a mode of obtaining
judgment, order, or resolution subject thereof, copies of all reversal of the judgment. This cannot be done. The judgment was
pleadings and documents relevant and pertinent thereto, and a not in any sense null and void ab initio, incapable of producing
sworn certification of non-forum shopping as provided in the third any legal effects whatever, which could be resisted at any time and
paragraph of section 3, Rule 46. in any court it was attempted. It was a judgment which could or
may have suffered from some substantial error in procedure or in
Plain it is from a reading of the above provision findings of fact or of law, and on that account, it could have been
that certiorari will lie only where a court has acted without or in reversed or modified on appeal. But since it was not appealed, it
excess of jurisdiction or with grave abuse of discretion. If the became final and has thus gone beyond the reach of any court to
court has jurisdiction over the subject matter and of the person, its modify in any substantive aspect. The remedy to obtain reversal or
rulings upon all questions involved are within its jurisdiction, modification of the judgment on the merits is appeal. This is true
however irregular or erroneous these may be, they cannot be even if the error, or one of the errors, ascribed to the court
corrected by certiorari. Correction may be obtained only by an rendering the judgment is its lack of jurisdiction over the subject
appeal from the final decision. matter, or the exercise of power in excess thereof, or grave abuse
of discretion in the findings of fact or of law set out in the
Verily, Section 1, Rule 41 of the 1997 Rules of Civil decision. The existence and availability of the right of appeal
Procedure provides: proscribes a resort to certiorari, because one of the requirements
for availment of the latter remedy is precisely that there should be
no appeal (Mercado vs. CA, 162 SCRA 75 [1988]). As incisively
SEC. 1. Subject of appeal. An appeal may be taken from a
observed by the Court of Appeals:
judgment or final order that completely disposes of the case or of a
particular matter therein when declared by these Rules to be
appealable. The special civil action for certiorari is available only when there
is no appeal nor any plain, speedy and adequate remedy in the
ordinary course of law (Sec. 1, rule 65, id.)
xxx xxx xxx

Admittedly, appeal could have been taken from the assailed RTC
In all the above instances where the judgment or final order is not
decision. However, petitioners maintain that appeal is not a speedy
appealable, the aggrieved party may file an appropriate special
remedy because the RTC decision prohibiting them from
civil action under Rule 65.
conducting a bidding for a new waste disposal project has adverse
and serious effects on the citys garbage situation.
There can be no dispute that the trial courts May 29,
2000 decision was a final order or judgment which MMDA should
Nevertheless, the RTC decision is not immediately
have appealed, had it been so minded. In its decision, the trial
executory. Only judgments in actions for injunction, receivership,
court disposed of the main controversy by declaring the
accounting and support and such other judgments as are now or
Resolution of respondent Greater Metropolitan Manila Solid
may hereafter be declared to be immediately executory shall be
Waste Management Committee disregarding petitioners BOT
enforced after their rendition and shall not be stayed by an appeal
Award Contract and calling for bids for and authorizing a new
therefrom, unless otherwise ordered by the trial court (Sec. 4, rule
contract for the Metro Manila waste management ILLEGAL and
39, id.).
VOID. This ruling completely disposed of the controversy
between MMDA and JANCOM. In BA Finance Corporation vs.
CA (229 SCRA 5667 [1994]), we held that a final order or Since the RTC decision is not immediately executory, appeal
judgment is one which disposes of the whole subject matter or would have stayed its execution. Consequently, the adverse effects
terminates a particular proceeding or action, leaving nothing to be of said decision will not visit upon petitioners during the
done but to enforce by execution what has been determined. An appeal. In other words, appeal is a plain, speedy and adequate
order or judgment is deemed final when it finally disposes of the remedy in the ordinary course of the law.
pending action so that nothing more can be done with it in the trial
court. In other words, a final order is that which gives an end to But as no appeal was taken within the reglementary period, the
the litigation. A final order or judgment finally disposes of, RTC decision had become final and executory. Well-settled is the
adjudicates, or determines the rights, or some right or rights of the rule that the special civil action for certiorari may not be invoked
parties, either on the entire controversy or on some definite and as a substitute for the remedy of appeal (BF Corporation vs. Court
separate branch thereof, and concludes them until it is reversed or of Appeals, 288 SCRA 267). Therefore, the extraordinary remedy
set aside. Where no issue is left for future consideration, except of certiorari does not lie.
the fact of compliance or non-compliance with the terms of the
judgment or doer, such judgment or order is final and
Moreover, petitioners instituted the instant action without filing a some service. A contract undergoes three distinct stages
motion for reconsideration of the RTC decision. Doctrinal is the preparation or negotiation, its perfection, and finally, its
rule that certiorari will not lie unless a motion for reconsideration consummation. Negotiation begins from the time the prospective
is first filed before the respondent tribunal to allow it an contracting parties manifest their interest in the contract and ends
opportunity to correct its errors (Zapanta vs. NLRC, 292 SCRA at the moment of agreement of the parties. The perfection or birth
580). of the contract takes place when the parties agree upon the
essential elements of the contract. The last stage is
(Rollo, p. 47-48.) the consummation of the contract wherein the parties fulfill or
perform the terms agreed upon in the contract, culminating in the
Admittedly, there are instances where the extraordinary extinguishment thereof (Bugatti vs. CA, 343 SCRA 335
remedy of certiorari may be resorted to despite the availability of [2000]). Article 1315 of the Civil Code, provides that a contract is
an appeal. In Ruiz, Jr. vs. Court of Appeals (220 SCRA 490 perfected by mere consent. Consent, on the other hand, is
[1993]), we held: manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract (See
Article 1319, Civil Code). In the case at bar, the signing and
Considered extraordinary, [certiorari] is made available only
execution of the contract by the parties clearly show that, as
when there is no appeal, nor any plain, speedy or adequate remedy
between the parties, there was a concurrence of offer and
in the ordinary course of the law (Rule 65, Rules of Court, Section
acceptance with respect to the material details of the contract,
1). The long line of decisions denying the petition
thereby giving rise to the perfection of the contract. The execution
for certiorari, either before appeal was availed or specially in
and signing of the contract is not disputed by the parties. As the
instances where the appeal period has lapsed, far outnumbers the
Court of Appeals aptly held:
instances when certiorari was given due course. The few
significant exceptions were: when public welfare and the
advancement of public policy dictate; or when the broader [C]ontrary to petitioners insistence that there was no perfected
interests of justice so require, or when the writs issued are null . . . contract, the meeting of the offer and acceptance upon the thing
or when the questioned order amounts to an oppressive exercise of and the cause, which are to constitute the contract (Arts. 1315 and
judicial authority. 1319, New Civil Code), is borne out by the records.

In the instant case, however, MMDA has not sufficiently Admittedly, when petitioners accepted private respondents bid
established the existence of any fact or reason to justify its resortproposal (offer), there was, in effect, a meeting of the minds upon
to the extraordinary remedy of certiorari. Neither does the record the object (waste management project) and the cause (BOT
show that the instant case, indeed, falls under any of the scheme). Hence, the perfection of the contract. In City of Cebu vs.
exceptions aforementioned. Heirs of Candido Rubi (306 SCRA 108), the Supreme Court held
that the effect of an unqualified acceptance of the offer or proposal
of the bidder is to perfect a contract, upon notice of the award to
The Court thus holds that the Court of Appeals did not err in
the bidder.
declaring that the trial courts decision has become final due to the
failure of MMDA to perfect an appeal within the reglementary
period. (Rollo, p. 48-49.)

With the foregoing disquisition, it would appear In fact, in asserting that there is no valid and binding contract
unnecessarily to discuss and resolve the substantive issue posed between the parties, MMDA can only allege that there was no
before the Court. However, the procedural flaw notwithstanding, valid notice of award; that the contract does not bear the signature
the Court deems it judicious to take cognizance of the substantive of the President of the Philippines; and that the conditions
question, if only to put petitioners mind to rest. precedent specified in the contract were not complied with.

In its second assignment of errors, petitioner MMDA In asserting that the notice of award to JANCOM is not a
contends that there is no valid and binding contract between the proper notice of award, MMDA points to the Implementing Rules
Republic of the Philippines and respondents because: a) the BOT and Regulations of Republic Act No. 6957, otherwise known as
contract does not bear the signature of the President of the the BOT Law, which require that i) prior to the notice of award, an
Philippines; b) the conditions precedent specified in the contract Investment Coordinating Committee clearance must first be
were not complied with; and that c) there was no valid notice of obtained; and ii) the notice of award indicate the time within
award. which the awardee shall submit the prescribed performance
security, proof of commitment of equity contributions and
indications of financing resources.
These contentions hold no water.

Admittedly, the notice of award has not complied with these


Under Article 1305 of the Civil Code, [a] contract is a
requirements. However, the defect was cured by the subsequent
meeting of minds between two persons whereby one binds
execution of the contract entered into and signed by authorized
himself, with respect to the other, to give something or to render
representatives of the parties; hence, it may not be gainsaid that Order No. 292 is relied upon as authority for the proposition that
there is a perfected contract existing between the parties giving to presidential approval is necessary for the validity of the contract.
them certain rights and obligations (conditions precedents) in
accordance with the terms and conditions thereof.We borrow the The first argument conveniently overlooks the fact that then
words of the Court of Appeals: Secretary of Environment and Natural Resources Victor Ramos
was likewise a signatory to the contract. While dela Serna and
Petitioners belabor the point that there was no valid notice of Oreta may not have had any authority to sign, the Secretary of
award as to constitute acceptance of private respondents Environment and Natural Resources has such an authority. In fact,
offer. They maintain that former MMDA Chairman Oretas letter to the authority of the signatories to the contract was not denied by
JANCOM EC dated February 27, 1997 cannot be considered as a the Solicitor General. Moreover, as observed by the Court of
valid notice of award as it does not comply with the rules Appeals, [i]t was not alleged, much less shown, that those who
implementing Rep. Act No. 6957, as amended. The argument is signed in behalf of the Republic had acted beyond the scope of
untenable. their authority.

The fact that Chairman Oretas letter informed JANCOM EC that it In truth, the argument raised by MMDA does not focus on
was the sole complying (winning) bidder for the San the lack of authority of the signatories, but on the amount involved
Mateo project leads to no other conclusion than that the project as placing the contract beyond the authority of the signatories to
was being awarded to it. But assuming that said notice of award approve. Section 59 of Executive Order No. 292 reads:
did not comply with the legal requirements, private respondents
cannot be faulted therefore as it was the government Section 59. Contracts for Approval by the President. Contracts for
representatives duty to issue the proper notice. infrastructure projects, including contracts for the supply of
materials and equipment to be used in said projects, which involve
In any event, petitioners, as successors of those who previously amounts above the ceilings provided in the preceding section shall
acted for the government (Chairman Oreta, et al), are estopped be approved by the President: Provided, That the President may,
from assailing the validity of the notice of award issued by the when conditions so warrant, and upon recommendation of the
latter. As private respondents correctly observed, in negotiating on National Economic and Development Authority, revise the
the terms and conditions of the BOT contract and eventually aforesaid ceilings of approving authority.
signing said contract, the government had led private respondents
to believe that the notice of award given to them satisfied all the However, the Court of Appeals trenchantly observed in this
requirement of the law. connection:

While the government cannot be estopped by the erroneous acts of As regards the Presidents approval of infrastructure projects
its agents, nevertheless, petitioners may not now assail the validity required under Section 59 of Executive Order No. 292, said
of the subject notice of award to the prejudice of private section does not apply to the BOT contract in question. Sec.
respondents. Until the institution of the original action before the 59 should be correlated with Sec. 58 of Exec. Order No. 292.Said
RTC, invalidity of the notice of award was never invoked as a sections read:
ground for termination of the BOT contract. In fact, the reasons
cited for terminating the San Mateo project, per Chairman SECTION 58. Ceiling for Infrastructure Contracts. The following
Aventajados letter to JANCOM EC dated November 4, 1999, were shall be the ceilings for all civil works, construction and other
its purported non-implementability and non-viability on account of contracts for infrastructure projects, including supply contracts for
supervening events, e.g., passage of the Clean Air Act, etc. said projects, awarded through public bidding or through
negotiation, which may be approved by the Secretaries of Public
(Rollo, p. 49-50.) Works and Highways, Transportation and Communications, Local
Government with respect to Rural Road improvement Project and
MMDA also points to the absence of the Presidents signature governing boards of government-owned or controlled
as proof that the same has not yet been perfected. Not only that, corporations:
the authority of the signatories to bind the Republic has even been
put to question. Firstly, it is pointed out that Memorandum Order xxx xxx xxx
No. 202 creating the Executive Committee to oversee the BOT
implementation of solid waste management projects only charged Save as provided for above, the approval ceilings assigned to the
the officials thereof with the duty of recommending to the departments/agencies involved in national infrastructure and
President the specific project to be implemented under the BOT construction projects shall remain at the levels provided in existing
scheme for both San Mateo and Carmona sites. Hence, it is laws, rules and regulations.
concluded that the signatories, CORD-NCR Chairman Dionisio
dela Serna and MMDA Chairman Prospero Oreta, had no
Contrary to petitioners claim that all infrastructure contracts
authority to enter into any waste management project for and in
require the Presidents approval (Petition, p. 16), Sec. 59 provides
behalf of the Government. Secondly, Section 59 of Executive
that such approval is required only in infrastructure contracts
involving amounts exceeding the ceilings set in Sec. 18.2.1. The BOT COMPANY hereby undertakes to
58. Significantly, the infrastructure contracts treated in Sec. 58 provide the following within 2 months from
pertain only to those which may be approved by the Secretaries of execution of this Contract as an effective document:
Public Works and Highways, Transportation and Communications,
Local Government (with respect to Rural Road Improvement a) sufficient proof of the actual equity contributions
Project) and the governing boards of certain government-owned or from the proposed shareholders of the BOT
controlled corporations. Consequently, the BOT contract in COMPANY in a total amount not less than
question, which was approved by the DENR Secretary and the PHP500,000,000 in accordance with the BOT Law
EXCOM Chairman and Co-Chairman, is not covered by Exec. and the implementing rules and regulations;
Order No. 292.
b) sufficient proof of financial commitment from a
(Rollo, p. 51-52.) lending institution sufficient to cover total project
cost in accordance with the BOT Law and the
The provision pertinent to the authority of the Secretary of implementing rules and regulations;
Environment and Natural Resources would actually be Section 1
of Executive Order No. 380, Series of 1989 which provides that c) to support its obligation under this Contract, the BOT
The Secretaries of all Departments and Governing Boards of COMPANY shall submit a security bond to the
government-owned or controlled corporations [except the CLIENT in accordance with the form and amount
Secretaries of Public Works and Highways, Transportation and required under the BOT Law.
Communication, and Local Government with respect to Rural
Road Improvement projects] can enter into publicly bidded xxx
contracts regardless of amount (See also Section
515, Government Accounting and Auditing Manual Volume I).
18.2.3 Completion of Documentary Requirements as
Consequently, MMDA may not claim that the BOT contract is not
per Schedule 4 by the BOT Company
valid and binding due to the lack of presidential approval.
As clearly stated in Article 18, JANCOM undertook to
Significantly, the contract itself provides that the signature of
comply with the stated conditions within 2 months from execution
the President is necessary only for its effectivity (not perfection),
of the Contract as an effective document. Since the President of
pursuant to Article 19 of the contract, which reads:
the Philippines has not yet affixed his signature on the contract,
the same has not yet become an effective document. Thus, the
This contract shall become effective upon approval by the two-month period within which JANCOM should comply with the
President of the Republic of the Philippines pursuant to existing conditions has not yet started to run. It cannot thus be said that
laws subject to the condition, precedent in Article 18. This JANCOM has already failed to comply with the conditions
contract shall remain in full force and effect for twenty-five precedent mandated by the contract. By arguing that failure [of
(25) years subject to renewal for another twenty-five (25) years JANCOM] to comply with the conditions results in the failure of a
from the date of Effectivity. Such renewal will be subject to contract or prevents the judicial relation from coming into
mutual agreement of the parties and approval of the President of existence, MMDA reads into the contract something which is not
the Republic of the Philippines. contemplated by the parties. If the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the
(Rollo, p. 94.) literal meaning of its stipulations shall control (Art. 1370, Civil
Code).
Stated differently, while the twenty-five year effectivity
period of the contract has not yet started to run because of the We, therefore, hold that the Court of Appeals did not err
absence of the Presidents signature, the contract has, nonetheless, when it declared the existence of a valid and perfected contract
already been perfected. between the Republic of the Philippines and JANCOM. There
being a perfected contract, MMDA cannot revoke or renounce the
As to the contention that there is no perfected contract due to same without the consent of the other. From the moment of
JANCOMs failure to comply with several conditions precedent, perfection, the parties are bound not only to the fulfillment of what
the same is, likewise, unmeritorious. Article 18 of the BOT has been expressly stipulated but also to all the consequences
contract reads: which, according to their nature, may be in keeping with good
faith, usage, and law (Article 1315, Civil Code). The contract has
ARTICLE 18 the force of law between the parties and they are expected to abide
in good faith by their respective contractual commitments, not
CONDITIONS PRECEDENT weasel out of them. Just as nobody can be forced to enter into a
contract, in the same manner, once a contract is entered into, no
party can renounce it unilaterally or without the consent of the
xxx
other. It is a general principle of law that no one may be permitted
to change his mind or disavow and go back upon his own acts, or SO ORDERED.
to proceed contrary thereto, to the prejudice of the other
party.Nonetheless, it has to be repeated that although the contract G.R. No. L-25494 June 14, 1972
is a perfected one, it is still ineffective or unimplementable until
and unless it is approved by the President. NICOLAS SANCHEZ, plaintiff-appellee,
vs.
Moreover, if after a perfected and binding contract has been SEVERINA RIGOS, defendant-appellant.
executed between the parties, it occurs to one of them to allege
some defect therein as reason for annulling it, the alleged defect Santiago F. Bautista for plaintiff-appellee.
must be conclusively proven, since the validity and the fulfillment
of contracts cannot be left to the will of one of the contracting
Jesus G. Villamar for defendant-appellant.
parties. In the case at bar, the reasons cited by MMDA for not
pushing through with the subject contract were: 1) the passage of
the Clean Air Act, which allegedly bans incineration; 2) the
closure of the San Mateo landfill site; and 3) the costly tipping
fee. These reasons are bereft of merit CONCEPCION, C.J.:p

Once again, we make reference to the insightful declarations Appeal from a decision of the Court of First Instance of Nueva
of the Court of Appeals: Ecija to the Court of Appeals, which certified the case to Us, upon
the ground that it involves a question purely of law.
Sec. 20 of the Clean Air Act pertinently reads:
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez
and defendant Severina Rigos executed an instrument entitled
SECTION 20. Ban on Incineration. Incineration, hereby defined
"Option to Purchase," whereby Mrs. Rigos "agreed, promised and
as the burning of municipal, bio-chemical and hazardous
committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of
wastes, which process emits poisonous and toxic fumes, is hereby
land situated in the barrios of Abar and Sibot, municipality of San
prohibited: x x x.
Jose, province of Nueva Ecija, and more particularly described in
Transfer Certificate of Title No. NT-12528 of said province, within
Section 20 does not absolutely prohibit incineration as a mode of
two (2) years from said date with the understanding that said
waste disposal; rather only those burning processes which emit
option shall be deemed "terminated and elapsed," if "Sanchez shall
poisonous and toxic fumes are banned.
fail to exercise his right to buy the property" within the stipulated
period. Inasmuch as several tenders of payment of the sum of
As regards the projected closure of the San Mateo landfill vis--vis Pl,510.00, made by Sanchez within said period, were rejected by
the implementability of the contract, Art. 2.3 thereof expressly Mrs. Rigos, on March 12, 1963, the former deposited said amount
states that [i]n the event the project Site is not delivered x x x, the with the Court of First Instance of Nueva Ecija and commenced
Presidential task Force on Solid Waste Management (PTFSWM) against the latter the present action, for specific performance and
and the Client, shall provide within a reasonable period of time, a damages.
suitable alternative acceptable to the BOT COMPANY.
After the filing of defendant's answer admitting some
With respect to the alleged financial non-viability of the project allegations of the complaint, denying other allegations thereof, and
because the MMDA and the local government units cannot afford alleging, as special defense, that the contract between the parties
the tipping fees under the contract, this circumstance cannot, by "is a unilateral promise to sell, and the same being unsupported by
itself, abrogate the entire agreement. any valuable consideration, by force of the New Civil Code, is null
and void" on February 11, 1964, both parties, assisted by their
Doctrinal is the rule that neither the law nor the courts will respective counsel, jointly moved for a judgment on the pleadings.
extricate a party from an unwise or undesirable contract, or Accordingly, on February 28, 1964, the lower court rendered
stipulation for that matter, he or she entered into with full judgment for Sanchez, ordering Mrs. Rigos to accept the sum
awareness of its consequences (Opulencia vs. CA, 293 SCRA judicially consigned by him and to execute, in his favor, the
385).Indeed, the terms and conditions of the subject contract were requisite deed of conveyance. Mrs. Rigos was, likewise, sentenced
arrived at after due negotiations between the parties thereto. to pay P200.00, as attorney's fees, and other costs. Hence, this
appeal by Mrs. Rigos.
(Rollo, p. 54.)
This case admittedly hinges on the proper application of Article
WHEREFORE, premises considered, the petition is hereby 1479 of our Civil Code, which provides:
DISMISSED for lack of merit and the decision of the Court of
Appeals in CA-G.R. SP No. 59021 dated November 13, ART. 1479. A promise to buy and sell a
2001 AFFIRMED. No costs. determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell the truth of said averment in defendant's answer. Indeed as early as
a determinate thing for a price certain is binding March 14, 1908, it had been held, in Bauermann v. Casas, 3 that:
upon the promissor if the promise is supported
by a consideration distinct from the price. One who prays for judgment on the pleadings
without offering proof as to the truth of his own
In his complaint, plaintiff alleges that, by virtue of the option allegations, and without giving the opposing
under consideration, "defendant agreed and committed to sell" and party an opportunity to introduce evidence, must
"the plaintiff agreed and committed to buy" the land described in be understood to admit the truth of all the
the option, copy of which was annexed to said pleading as Annex material and relevant allegations of the
A thereof and is quoted on the margin. 1 Hence, plaintiff maintains opposing party, and to rest his motion for
that the promise contained in the contract is "reciprocally judgment on those allegations taken together
demandable," pursuant to the first paragraph of said Article 1479. with such of his own as are admitted in the
Although defendant had really "agreed, promised and committed" pleadings. (La Yebana Company vs. Sevilla, 9
herself to sell the land to the plaintiff, it is not true that the latter Phil. 210). (Emphasis supplied.)
had, in turn, "agreed and committed himself " to buy said property.
Said Annex A does not bear out plaintiff's allegation to this effect. This view was reiterated in Evangelista v. De la
What is more, since Annex A has been made "an integral part" of Rosa 4 and Mercy's Incorporated v. Herminia Verde. 5
his complaint, the provisions of said instrument form part "and
parcel" 2 of said pleading. Squarely in point is Southwestern Sugar & Molasses Co. v.
Atlantic Gulf & Pacific Co., 6 from which We quote:
The option did not impose upon plaintiff the obligation to
purchase defendant's property. Annex A is not a "contract to buy The main contention of appellant is that the
and sell." It merely granted plaintiff an "option" to buy. And both option granted to appellee to sell to it barge No.
parties so understood it, as indicated by the caption, "Option to 10 for the sum of P30,000 under the terms stated
Purchase," given by them to said instrument. Under the provisions above has no legal effect because it is not
thereof, the defendant "agreed, promised and committed" herself supported by any consideration and in support
to sell the land therein described to the plaintiff for P1,510.00, but thereof it invokes article 1479 of the new Civil
there is nothing in the contract to indicate that her aforementioned Code. The article provides:
agreement, promise and undertaking is supported by a
consideration "distinct from the price" stipulated for the sale of the
"ART. 1479. A promise to buy
land.
and sell a determinate thing
for a price certain is
Relying upon Article 1354 of our Civil Code, the lower reciprocally demandable.
court presumed the existence of said consideration, and this would
seem to be the main factor that influenced its decision in plaintiff's
An accepted unilateral
favor. It should be noted, however, that:
promise to buy or sell a
determinate thing for a price
(1) Article 1354 applies to contracts in general, whereas the certain is binding upon the
second paragraph of Article 1479 refers to "sales" in particular, promisor if the promise is
and, more specifically, to "an accepted unilateral promise to buy or supported by a consideration
to sell." In other words, Article 1479 is controlling in the case at distinct from the price."
bar.
On the other hand, Appellee contends that, even
(2) In order that said unilateral promise may be "binding upon the granting that the "offer of option" is not
promisor, Article 1479 requires the concurrence of a condition, supported by any consideration, that option
namely, that the promise be "supported by a consideration distinct became binding on appellant when the appellee
from the price." Accordingly, the promisee can not compel the gave notice to it of its acceptance, and that
promisor to comply with the promise, unless the former having accepted it within the period of option,
establishes the existence of said distinct consideration. In other the offer can no longer be withdrawn and in any
words, the promisee has the burden of proving such consideration. event such withdrawal is ineffective. In support
Plaintiff herein has not even alleged the existence thereof in his this contention, appellee invokes article 1324 of
complaint. the Civil Code which provides:

(3) Upon the other hand, defendant explicitly averred in her "ART. 1324. When the offerer
answer, and pleaded as a special defense, the absence of said has allowed the offeree a
consideration for her promise to sell and, by joining in the petition certain period to accept, the
for a judgment on the pleadings, plaintiff has impliedly admitted offer may be withdrawn any
time before acceptance by Furthermore, an option is unilateral: a promise
communicating such to sell at the price fixed whenever the offeree
withdrawal, except when the should decide to exercise his option within the
option is founded upon specified time. After accepting the promise
consideration as something and before he exercises his option, the holder of
paid or promised." the option is not bound to buy. He is free either
to buy or not to buy later. In this case, however,
There is no question that under article 1479 of the new Civil Code upon accepting herein petitioner's offer a
"an option to sell," or "a promise to buy or to sell," as used in said bilateral promise to sell and to buy ensued, and
article, to be valid must be "supported by a consideration distinct the respondent ipso facto assumed the obligation
from the price." This is clearly inferred from the context of said of a purchaser. He did not just get the right
article that a unilateral promise to buy or to sell, even if accepted, subsequently to buy or not to buy. It was not a
is only binding if supported by consideration. In other words, "an mere option then; it was a bilateral contract of
accepted unilateral promise can only have a binding effect if sale.
supported by a consideration which means that the option can still
be withdrawn, even if accepted, if the same is not supported by Lastly, even supposing that Exh. A granted an
any consideration. It is not disputed that the option is without option which is not binding for lack of
consideration. It can therefore be withdrawn notwithstanding the consideration, the authorities hold that:
acceptance of it by appellee.
"If the option is given without a consideration, it is a mere offer of
It is true that under article 1324 of the new Civil Code, the general a contract of sale, which is not binding until accepted. If, however,
rule regarding offer and acceptance is that, when the offerer gives acceptance is made before a withdrawal, it constitutes a binding
to the offeree a certain period to accept, "the offer may be contract of sale, even though the option was not supported by a
withdrawn at any time before acceptance" except when the option sufficient consideration. ... . (77 Corpus Juris Secundum, p. 652.
is founded upon consideration, but this general rule must be See also 27 Ruling Case Law 339 and cases cited.)
interpreted as modified by the provision of article 1479 above
referred to, which applies to "a promise to buy and "It can be taken for granted, as contended by the defendant, that
sell" specifically. As already stated, this rule requires that a the option contract was not valid for lack of consideration. But it
promise to sell to be valid must be supported by a consideration was, at least, an offer to sell, which was accepted by letter, and of
distinct from the price. the acceptance the offerer had knowledge before said offer was
withdrawn. The concurrence of both acts the offer and the
We are not oblivious of the existence of American authorities acceptance could at all events have generated a contract, if
which hold that an offer, once accepted, cannot be withdrawn, none there was before (arts. 1254 and 1262 of the Civil Code)."
regardless of whether it is supported or not by a consideration (12 (Zayco vs. Serra, 44 Phil. 331.)
Am. Jur. 528). These authorities, we note, uphold the general
rule applicable to offer and acceptance as contained in our new In other words, since there may be no valid contract without a
Civil Code. But we are prevented from applying them in view of cause or consideration, the promisor is not bound by his promise
the specific provision embodied in article 1479. While under the and may, accordingly, withdraw it. Pending notice of its
"offer of option" in question appellant has assumed a clear withdrawal, his accepted promise partakes, however, of the nature
obligation to sell its barge to appellee and the option has been of an offer to sell which, if accepted, results in a perfected contract
exercised in accordance with its terms, and there appears to be no of sale.
valid or justifiable reason for appellant to withdraw its offer, this
Court cannot adopt a different attitude because the law on the This view has the advantage of avoiding a conflict between
matter is clear. Our imperative duty is to apply it unless modified Articles 1324 on the general principles on contracts and
by Congress. 1479 on sales of the Civil Code, in line with the cardinal
rule of statutory construction that, in construing different
However, this Court itself, in the case of Atkins, Kroll and Co., provisions of one and the same law or code, such interpretation
Inc. v. Cua Hian Tek, 8 decided later that Southwestern Sugar & should be favored as will reconcile or harmonize said provisions
Molasses Co. v. Atlantic Gulf & Pacific Co., 9 saw no distinction and avoid a conflict between the same. Indeed, the presumption is
between Articles 1324 and 1479 of the Civil Code and applied the that, in the process of drafting the Code, its author has maintained
former where a unilateral promise to sell similar to the one sued a consistent philosophy or position. Moreover, the decision
upon here was involved, treating such promise as an option which, in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific
although not binding as a contract in itself for lack of a separate Co., 10 holding that Art. 1324 is modified by Art. 1479 of the Civil
consideration, nevertheless generated a bilateral contract of Code, in effect, considers the latter as an exception to the former,
purchase and sale upon acceptance. Speaking through Associate and exceptions are not favored, unless the intention to the contrary
Justice, later Chief Justice, Cesar Bengzon, this Court said: is clear, and it is not so, insofar as said two (2) articles are
concerned. What is more, the reference, in both the second
paragraph of Art. 1479 and Art. 1324, to an option or promise therewith, the view adhered to in the Southwestern Sugar &
supported by or founded upon a consideration, strongly suggests Molasses Co. case should be deemed abandoned or modified.
that the two (2) provisions intended to enforce or implement the
same principle. WHEREFORE, the decision appealed from is hereby affirmed,
with costs against defendant-appellant Severina Rigos. It is so
Upon mature deliberation, the Court is of the considered opinion ordered.
that it should, as it hereby reiterates the doctrine laid down in
the Atkins, Kroll & Co. case, and that, insofar as inconsistent

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