G.R. No.

109125 December 2, 1994

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT
CORPORATION, respondents.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent.
VITUG, J.:
Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04
December 1991, in CA-G.R. SP No. 26345 setting aside and declaring without force
and effect the orders of execution of the trial court, dated 30 August 1991 and 27
September 1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific
Performance was filed by Ang Yu Asuncion and Keh Tiong, et al.,
against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the
Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058,
alleging, among others, that plaintiffs are tenants or lessees of
residential and commercial spaces owned by defendants described as
Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied
said spaces since 1935 and have been religiously paying the rental and
complying with all the conditions of the lease contract; that on several
occasions before October 9, 1986, defendants informed plaintiffs that
they are offering to sell the premises and are giving them priority to
acquire the same; that during the negotiations, Bobby Cu Unjieng
offered a price of P6-million while plaintiffs made a counter offer of P5million; that plaintiffs thereafter asked the defendants to put their offer
in writing to which request defendants acceded; that in reply to
defendant's letter, plaintiffs wrote them on October 24, 1986 asking
that they specify the terms and conditions of the offer to sell; that
when plaintiffs did not receive any reply, they sent another letter dated
January 28, 1987 with the same request; that since defendants failed
to specify the terms and conditions of the offer to sell and because of
information received that defendants were about to sell the property,
plaintiffs were compelled to file the complaint to compel defendants to
sell the property to them.
Defendants filed their answer denying the material allegations of the
complaint and interposing a special defense of lack of cause of action.
After the issues were joined, defendants filed a motion for summary
judgment which was granted by the lower court. The trial court found
that defendants' offer to sell was never accepted by the plaintiffs for
the reason that the parties did not agree upon the terms and
conditions of the proposed sale, hence, there was no contract of sale at
all. Nonetheless, the lower court ruled that should the defendants
subsequently offer their property for sale at a price of P11-million or

below, plaintiffs will have the right of first refusal. Thus the dispositive
portion of the decision states:
WHEREFORE, judgment is hereby rendered in favor of the
defendants and against the plaintiffs summarily
dismissing the complaint subject to the aforementioned
condition that if the defendants subsequently decide to
offer their property for sale for a purchase price of Eleven
Million Pesos or lower, then the plaintiffs has the option to
purchase the property or of first refusal, otherwise,
defendants need not offer the property to the plaintiffs if
the purchase price is higher than Eleven Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on September 21,
1990 (penned by Justice Segundino G. Chua and concurred in by
Justices Vicente V. Mendoza and Fernando A. Santiago), this Court
affirmed with modification the lower court's judgment, holding:
In resume, there was no meeting of the minds between
the parties concerning the sale of the property. Absent
such requirement, the claim for specific performance will
not lie. Appellants' demand for actual, moral and
exemplary damages will likewise fail as there exists no
justifiable ground for its award. Summary judgment for
defendants was properly granted. Courts may render
summary judgment when there is no genuine issue as to
any material fact and the moving party is entitled to a
judgment as a matter of law (Garcia vs. Court of Appeals,
176 SCRA 815). All requisites obtaining, the decision of
the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the
judgment appealed from is hereby AFFIRMED, but subject
to the following modification: The court a quo in the
aforestated decision gave the plaintiffs-appellants the
right of first refusal only if the property is sold for a
purchase price of Eleven Million pesos or lower; however,
considering the mercurial and uncertain forces in our
market economy today. We find no reason not to grant the
same right of first refusal to herein appellants in the event
that the subject property is sold for a price in excess of
Eleven Million pesos. No pronouncement as to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court by
petition for review on certiorari. The Supreme Court denied the appeal
on May 6, 1991 "for insufficiency in form and substances" (Annex H,
Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was pending
consideration by this Court, the Cu Unjieng spouses executed a Deed

of Sale (Annex D, Petition) transferring the property in question to

herein petitioner Buen Realty and Development Corporation, subject to
the following terms and conditions:
1. That for and in consideration of the sum of FIFTEEN
MILLION PESOS (P15,000,000.00), receipt of which in full
is hereby acknowledged, the VENDORS hereby sells,
transfers and conveys for and in favor of the VENDEE, his
heirs, executors, administrators or assigns, the abovedescribed property with all the improvements found
therein including all the rights and interest in the said
property free from all liens and encumbrances of
whatever nature, except the pending ejectment
proceeding;
2. That the VENDEE shall pay the Documentary Stamp
Tax, registration fees for the transfer of title in his favor
and other expenses incidental to the sale of abovedescribed property including capital gains tax and
accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of the
Cu Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816
was issued in the name of petitioner on December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject property
wrote a letter to the lessees demanding that the latter vacate the
premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that
petitioner brought the property subject to the notice of lis
pendens regarding Civil Case No. 87-41058 annotated on TCT No.
105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the
Decision in Civil Case No. 87-41058 as modified by the Court of
Appeals in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order (Annex A,
Petition) quoted as follows:
Presented before the Court is a Motion for Execution filed
by plaintiff represented by Atty. Antonio Albano. Both
defendants Bobby Cu Unjieng and Rose Cu Unjieng
represented by Atty. Vicente Sison and Atty. Anacleto
Magno respectively were duly notified in today's
consideration of the motion as evidenced by the rubber
stamp and signatures upon the copy of the Motion for
Execution.
The gist of the motion is that the Decision of the Court
dated September 21, 1990 as modified by the Court of
Appeals in its decision in CA G.R. CV-21123, and elevated
to the Supreme Court upon the petition for review and
that the same was denied by the highest tribunal in its

resolution dated May 6, 1991 in G.R. No.

L-97276, had now become final and executory. As a
consequence, there was an Entry of Judgment by the
Supreme Court as of June 6, 1991, stating that the
aforesaid modified decision had already become final and
executory.
It is the observation of the Court that this property in
dispute was the subject of theNotice of Lis Pendens and
that the modified decision of this Court promulgated by
the Court of Appeals which had become final to the effect
that should the defendants decide to offer the property
for sale for a price of P11 Million or lower, and considering
the mercurial and uncertain forces in our market economy
today, the same right of first refusal to herein
plaintiffs/appellants in the event that the subject property
is sold for a price in excess of Eleven Million pesos or
more.
WHEREFORE, defendants are hereby ordered to execute
the necessary Deed of Sale of the property in litigation in
favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur
Go for the consideration of P15 Million pesos in
recognition of plaintiffs' right of first refusal and that a
new Transfer Certificate of Title be issued in favor of the
buyer.
All previous transactions involving the same property
notwithstanding the issuance of another title to Buen
Realty Corporation, is hereby set aside as having been
executed in bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order, the
dispositive portion of which reads:
WHEREFORE, let there be Writ of Execution issue in the
above-entitled case directing the Deputy Sheriff Ramon
Enriquez of this Court to implement said Writ of Execution
ordering the defendants among others to comply with the
aforesaid Order of this Court within a period of one (1)
week from receipt of this Order and for defendants to
execute the necessary Deed of Sale of the property in
litigation in favor of the plaintiffs Ang Yu Asuncion, Keh
Tiong and Arthur Go for the consideration of
P15,000,000.00 and ordering the Register of Deeds of the
City of Manila, to cancel and set aside the title already
issued in favor of Buen Realty Corporation which was
previously executed between the latter and defendants
and to register the new title in favor of the aforesaid
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go.
SO ORDERED.

On the same day, September 27, 1991 the corresponding writ of

execution (Annex C, Petition) was issued. 1
On 04 December 1991, the appellate court, on appeal to it by private respondent,
set aside and declared without force and effect the above questioned orders of the
court a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be
held bound by the writ of execution by virtue of the notice of lis pendens, carried
over on TCT No. 195816 issued in the name of Buen Realty, at the time of the
latter's purchase of the property on 15 November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption of such
arrangements as the right of first refusal, a purchase option and a contract to sell.
For ready reference, we might point out some fundamental precepts that may find
some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil
Code). The obligation is constituted upon the concurrence of the essential elements
thereof, viz: (a) The vinculum juris or juridical tie which is the efficient cause
established by the various sources of obligations (law, contracts, quasi-contracts,
delicts and quasi-delicts); (b) the object which is the prestation or conduct; required
to be observed (to give, to do or not to do); and (c) the subject-persons who, viewed
from the demandability of the obligation, are the active (obligee) and the passive
(obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a
meeting of minds between two persons whereby one binds himself, with respect to
the other, to give something or to render some service (Art. 1305, Civil Code). A
contract undergoes various stages that include its negotiation or preparation, its
perfection and, finally, its consummation. Negotiation covers the period from the
time the prospective contracting parties indicate interest in the contract to the time
the contract is concluded (perfected). The perfection of the contract takes place
upon the concurrence of the essential elements thereof. A contract which
is consensual as to perfection is so established upon a mere meeting of minds, i.e.,
the concurrence of offer and acceptance, on the object and on the cause thereof. A
contract which requires, in addition to the above, the delivery of the object of the
agreement, as in a pledge or commodatum, is commonly referred to as
a real contract. In a solemn contract, compliance with certain formalities prescribed
by law, such as in a donation of real property, is essential in order to make the act
valid, the prescribed form being thereby an essential element thereof. The stage
ofconsummation begins when the parties perform their respective undertakings
under the contract culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation,
serve as a binding juridical relation. In sales, particularly, to which the topic for
discussion about the case at bench belongs, the contract is perfected when a
person, called the seller, obligates himself, for a price certain, to deliver and to
transfer ownership of a thing or right to another, called the buyer, over which the
latter agrees. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a

determinate thing, and the other to pay therefor a price certain in

money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where
invariably the ownership of the thing sold is retained until the fulfillment of a
positive suspensive condition (normally, the full payment of the purchase price), the
breach of the condition will prevent the obligation to convey title from acquiring an
obligatory force. 2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that,
although denominated a "Deed of Conditional Sale," a sale is still absolute where
the contract is devoid of any proviso that title is reserved or the right to unilaterally
rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be
transferred to the buyer upon actual or constructive delivery (e.g., by the execution
of a public document) of the property sold. Where the condition is imposed upon the
perfection of the contract itself, the failure of the condition would prevent such
perfection. 3 If the condition is imposed on the obligation of a party which is not
fulfilled, the other party may either waive the condition or refuse to proceed with
the sale (Art. 1545, Civil Code). 4
An unconditional mutual promise to buy and sell, as long as the object is made
determinate and the price is fixed, can be obligatory on the parties, and compliance
therewith may accordingly be exacted. 5
An accepted unilateral promise which specifies the thing to be sold and the price to
be paid, when coupled with a valuable consideration distinct and separate from the
price, is what may properly be termed a perfected contract of option. This contract
is legally binding, and in sales, it conforms with the second paragraph of Article
1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing for
a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price. (1451a) 6
Observe, however, that the option is not the contract of sale itself. 7 The optionee
has the right, but not the obligation, to buy. Once the option is exercised timely, i.e.,
the offer is accepted before a breach of the option, a bilateral promise to sell and to
buy ensues and both parties are then reciprocally bound to comply with their
respective undertakings. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect
promise (policitacion) is merely an offer. Public advertisements or solicitations and
the like are ordinarily construed as mere invitations to make offers or only as
proposals. These relations, until a contract is perfected, are not considered binding
commitments. Thus, at any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. The offer, at this stage, may be
withdrawn; the withdrawal is effective immediately after its manifestation, such as
by its mailing and not necessarily when the offeree learns of the withdrawal
(Laudico vs. Arias, 43 Phil. 270). Where a period is given to the offeree within which
to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the
offeror is still free and has the right to withdraw the offer before its acceptance, or,

if an acceptance has been made, before the offeror's coming to know of such fact,
by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also
Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a
unilateral promise to sell under Art. 1479, modifying the previous decision in South
Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural
Bank of Paraaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA
368). The right to withdraw, however, must not be exercised whimsically or
arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the
Civil Code which ordains that "every person must, in the exercise of his rights and in
the performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith."
(2) If the period has a separate consideration, a contract of "option" is
deemed perfected, and it would be a breach of that contract to withdraw the offer
during the agreed period. The option, however, is an independent contract by itself,
and it is to be distinguished from the projected main agreement (subject matter of
the option) which is obviously yet to be concluded. If, in fact, the optionerofferor withdraws the offer before its acceptance(exercise of the option) by the
optionee-offeree, the latter may not sue for specific performance on the proposed
contract ("object" of the option) since it has failed to reach its own stage of
perfection. The optioner-offeror, however, renders himself liable for damages for
breach of the option. In these cases, care should be taken of the real nature of
the consideration given, for if, in fact, it has been intended to be part of the
consideration for the main contract with a right of withdrawal on the part of the
optionee, the main contract could be deemed perfected; a similar instance would be
an "earnest money" in a contract of sale that can evidence its perfection (Art. 1482,
Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative juridical
relation. Needless to point out, it cannot be deemed a perfected contract of sale
under Article 1458 of the Civil Code. Neither can the right of first refusal,
understood in its normal concept, per se be brought within the purview of an option
under the second paragraph of Article 1479, aforequoted, or possibly of an offer
under Article 1319 9 of the same Code. An option or an offer would require, among
other things, 10 a clear certainty on both the object and the cause or consideration of
the envisioned contract. In a right of first refusal, while the object might be made
determinate, the exercise of the right, however, would be dependent not only on
the grantor's eventual intention to enter into a binding juridical relation with another
but also on terms, including the price, that obviously are yet to be later firmed up.
Prior thereto, it can at best be so described as merely belonging to a class of
preparatory juridical relations governed not by contracts (since the essential
elements to establish the vinculum juris would still be indefinite and inconclusive)
but by, among other laws of general application, the pertinent scattered provisions
of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a final
judgment, like here, its breach cannot justify correspondingly an issuance of a writ
of execution under a judgment that merely recognizes its existence, nor would it
sanction an action for specific performance without thereby negating the
indispensable element of consensuality in the perfection of contracts. 11 It is not to
say, however, that the right of first refusal would be inconsequential for, such as
already intimated above, an unjustified disregard thereof, given, for instance, the
circumstances expressed in Article 19 12 of the Civil Code, can warrant a recovery for
damages.

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely
accorded a "right of first refusal" in favor of petitioners. The consequence of such a
declaration entails no more than what has heretofore been said. In fine, if, as it is
here so conveyed to us, petitioners are aggrieved by the failure of private
respondents to honor the right of first refusal, the remedy is not a writ of execution
on the judgment, since there is none to execute, but an action for damages in a
proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development Corporation,
the alleged purchaser of the property, has acted in good faith or bad faith and
whether or not it should, in any case, be considered bound to respect the
registration of the lis pendens in Civil Case No. 87-41058 are matters that must be
independently addressed in appropriate proceedings. Buen Realty, not having been
impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of
execution issued by respondent Judge, let alone ousted from the ownership and
possession of the property, without first being duly afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has erred in
holding that the writ of execution varies the terms of the judgment in Civil Case No.
87-41058, later affirmed in CA-G.R. CV-21123. The Court of Appeals, in this regard,
has observed:
Finally, the questioned writ of execution is in variance with the decision
of the trial court as modified by this Court. As already stated, there was
nothing in said decision 13 that decreed the execution of a deed of sale
between the Cu Unjiengs and respondent lessees, or the fixing of the
price of the sale, or the cancellation of title in the name of petitioner
(Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs.
IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA,
122 SCRA 885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could
not have decreed at the time the execution of any deed of sale between the Cu
Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the
questioned Orders, dated 30 August 1991 and 27 September 1991, of the court a
quo. Costs against petitioners.
SO ORDERED.
Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason,
Puno and Mendoza, JJ., concur.
Kapunan, J., took no part.
Feliciano, J., is on leave.
EN BANC
[G.R. No. L-27454. April 30, 1970.]
ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO
GONZALES, Defendant-Appellee.
Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.

Sulpicio E. Platon, for Defendant-Appellee.

SYLLABUS
1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-PERFORMANCE; FIXING
OF PERIOD BEFORE FILING OF COMPLAINT FOR NON-PERFORMANCE, ACADEMIC.
Where the time for compliance had expired and there was breach of contract by
non-performance, it was academic for the plaintiff to have first petitioned the court
to fix a period for the performance of the contract before filing his complaint.
2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE CIVIL CODE OF
THE PHILIPPINES. Where the defendant virtually admitted non-performance of the
contract by returning the typewriter that he was obliged to repair in a non-working
condition, with essential parts missing, Article 1197 of the Civil Code of the
Philippines cannot be invoked. The fixing of a period would thus be a mere formality
and would serve no purpose than to delay.
3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR. Where the defendantappellee contravened the tenor of his obligation because he not only did not repair
the typewriter but returned it "in shambles, he is liable for the cost of the labor or
service expended in the repair of the typewriter, which is in the amount of P58.75,
because the obligation or contract was to repair it. In addition, he is likewise liable
under Art. 1170 of the Code, for the cost of the missing parts, in the amount of
P31.10, for in his obligation to repair the typewriter he was bound, but failed or
neglected, to return it in the same condition it was when he received it.
4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEYS FEES NOT RECOVERABLE;
NOT ALLEGED OR PROVED IN INSTANT CASE. Claims for damages and attorneys
fees must be pleaded, and the existence of the actual basis thereof must be proved.
As no findings of fact were made on the claims for damages and attorneys fees,
there is no factual basis upon which to make an award therefor.
5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST INSTANCE TO SUPREME
COURT; ONLY QUESTIONS OF LAW REVIEWABLE. Where the appellant directly
appeals from the decision of the trial court to the Supreme Court on questions of
law, he is bound by the judgment of the court a quo on its findings of fact.
DECISION
REYES, J.B.L., J.:
This is a direct appeal by the party who prevailed in a suit for breach of oral contract
and recovery of damages but was unsatisfied with the decision rendered by the
Court of First Instance of Manila, in its Civil Case No. 65138, because it awarded him
only P31.10 out of his total claim of P690 00 for actual, temperate and moral
damages and attorneys fees.
The appealed judgment, which is brief, is hereunder quoted in
full:jgc:chanrobles.com.ph
"In the early part of July, 1963, the plaintiff delivered to the defendant, who is a
typewriter repairer, a portable typewriter for routine cleaning and servicing. The
defendant was not able to finish the job after some time despite repeated reminders
made by the plaintiff. The defendant merely gave assurances, but failed to comply
with the same. In October, 1963, the defendant asked from the plaintiff the sum of
P6.00 for the purchase of spare parts, which amount the plaintiff gave to the
defendant. On October 26, 1963, after getting exasperated with the delay of the

repair of the typewriter, the plaintiff went to the house of the defendant and asked
for the return of the typewriter. The defendant delivered the typewriter in a wrapped
package. On reaching home, the plaintiff examined the typewriter returned to him
by the defendant and found out that the same was in shambles, with the interior
cover and some parts and screws missing. On October 29, 1963. the plaintiff sent a
letter to the defendant formally demanding the return of the missing parts, the
interior cover and the sum of P6.00 (Exhibit D). The following day, the defendant
returned to the plaintiff some of the missing parts, the interior cover and the P6.00.
"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business
Machines, and the repair job cost him a total of P89.85, including labor and
materials (Exhibit C).
"On August 23, 1965, the plaintiff commenced this action before the City Court of
Manila, demanding from the defendant the payment of P90.00 as actual and
compensatory damages, P100.00 for temperate damages, P500.00 for moral
damages, and P500.00 as attorneys fees.
"In his answer as well as in his testimony given before this court, the defendant
made no denials of the facts narrated above, except the claim of the plaintiff that
the typewriter was delivered to the defendant through a certain Julio Bocalin, which
the defendant denied allegedly because the typewriter was delivered to him
personally by the plaintiff.
"The repair done on the typewriter by Freixas Business Machines with the total cost
of P89.85 should not, however, be fully chargeable against the defendant. The
repair invoice, Exhibit C, shows that the missing parts had a total value of only
P31.10.
"WHEREFORE, judgment is hereby rendered ordering the defendant to pay the
plaintiff the sum of P31.10, and the costs of suit.
"SO ORDERED."cralaw virtua1aw library
The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves,
is that it awarded only the value of the missing parts of the typewriter, instead of
the whole cost of labor and materials that went into the repair of the machine, as
provided for in Article 1167 of the Civil Code, reading as
follows:jgc:chanrobles.com.ph
"ART. 1167. If a person obliged to do something fails to do it, the same shall be
executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the
obligation. Furthermore it may be decreed that what has been poorly done he
undone."cralaw virtua1aw library
On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is
that he is not liable at all, not even for the sum of P31.10, because his contract with
plaintiff-appellant did not contain a period, so that plaintiff-appellant should have
first filed a petition for the court to fix the period, under Article 1197 of the Civil
Code, within which the defendant appellee was to comply with the contract before
said defendant-appellee could be held liable for breach of contract.
Because the plaintiff appealed directly to the Supreme Court and the appellee did
not interpose any appeal, the facts, as found by the trial court, are now conclusive
and non-reviewable. 1
The appealed judgment states that the "plaintiff delivered to the defendant . . . a
portable typewriter for routine cleaning and servicing" ; that the defendant was not
able to finish the job after some time despite repeated reminders made by the
plaintiff" ; that the "defendant merely gave assurances, but failed to comply with
the same" ; and that "after getting exasperated with the delay of the repair of the

typewriter", the plaintiff went to the house of the defendant and asked for its return,
which was done. The inferences derivable from these findings of fact are that the
appellant and the appellee had a perfected contract for cleaning and servicing a
typewriter; that they intended that the defendant was to finish it at some future
time although such time was not specified; and that such time had passed without
the work having been accomplished, far the defendant returned the typewriter
cannibalized and unrepaired, which in itself is a breach of his obligation, without
demanding that he should be given more time to finish the job, or compensation for
the work he had already done. The time for compliance having evidently expired,
and there being a breach of contract by non-performance, it was academic for the
plaintiff to have first petitioned the court to fix a period for the performance of the
contract before filing his complaint in this case. Defendant cannot invoke Article
1197 of the Civil Code for he virtually admitted non-performance by returning the
typewriter that he was obliged to repair in a non-working condition, with essential
parts missing. The fixing of a period would thus be a mere formality and would
serve no purpose than to delay (cf. Tiglao. Et. Al. V. Manila Railroad Co. 98 Phil. 18l).
It is clear that the defendant-appellee contravened the tenor of his obligation
because he not only did not repair the typewriter but returned it "in shambles",
according to the appealed decision. For such contravention, as appellant contends,
he is liable under Article 1167 of the Civil Code. jam quot, for the cost of executing
the obligation in a proper manner. The cost of the execution of the obligation in this
case should be the cost of the labor or service expended in the repair of the
typewriter, which is in the amount of P58.75. because the obligation or contract was
to repair it.
In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code,
for the cost of the missing parts, in the amount of P31.10, for in his obligation to
repair the typewriter he was bound, but failed or neglected, to return it in the same
condition it was when he received it.
Appellants claims for moral and temperate damages and attorneys fees were,
however, correctly rejected by the trial court, for these were not alleged in his
complaint (Record on Appeal, pages 1-5). Claims for damages and attorneys fees
must be pleaded, and the existence of the actual basis thereof must be proved. 2
The appealed judgment thus made no findings on these claims, nor on the fraud or
malice charged to the appellee. As no findings of fact were made on the claims for
damages and attorneys fees, there is no factual basis upon which to make an
award therefor. Appellant is bound by such judgment of the court, a quo, by reason
of his having resorted directly to the Supreme Court on questions of law.
IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified,
by ordering the defendant-appellee to pay, as he is hereby ordered to pay, the
plaintiff-appellant the sum of P89.85, with interest at the legal rate from the filing of
the complaint. Costs in all instances against appellee Fructuoso Gonzales.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee and
Villamor, JJ., concur.
Barredo, J., did not take part.
[G.R. No. 115129. February 12, 1997]
IGNACIO BARZAGA, petitioner, vs. COURT OF APPEALS and ANGELITO
ALVIAR, respondents.
DECISION
BELLOSILLO, J.:

The Fates ordained that Christmas 1990 be bleak for Ignacio Barzaga and his
family. On the nineteenth of December Ignacio's wife succumbed to a debilitating
ailment after prolonged pain and suffering. Forewarned by her attending physicians
of her impending death, she expressed her wish to be laid to rest before Christmas
day to spare her family from keeping lonely vigil over her remains while the whole
of Christendom celebrate the Nativity of their Redeemer.
Drained to the bone from the tragedy that befell his family yet preoccupied with
overseeing the wake for his departed wife, Ignacio Barzaga set out to arrange for
her interment on the twenty-fourth of December in obedience semper fidelis to her
dying wish. But her final entreaty, unfortunately, could not be carried out. Dire
events conspired to block his plans that forthwith gave him and his family their
gloomiest Christmas ever.
This is Barzaga's story. On 21 December 1990, at about three o`clock in the
afternoon, he went to the hardware store of respondent Angelito Alviar to inquire
about the availability of certain materials to be used in the construction of a niche
for his wife. He also asked if the materials could be delivered at once. Marina
Boncales, Alviar's storekeeper, replied that she had yet to verify if the store had
pending deliveries that afternoon because if there were then all subsequent
purchases would have to be delivered the following day. With that reply petitioner
left.
At seven o' clock the following morning, 22 December, Barzaga returned to
Alviar's hardware store to follow up his purchase of construction materials. He told
the store employees that the materials he was buying would have to be delivered at
the Memorial Cemetery in Dasmarias, Cavite, by eight o'clock that morning since
his hired workers were already at the burial site and time was of the
essence. Marina Boncales agreed to deliver the items at the designated time,
date and place. With this assurance, Barzaga purchased the materials and paid in
full the amount of P2,110.00. Thereafter he joined his workers at the cemetery,
which was only a kilometer away, to await the delivery.
The construction materials did not arrive at eight o'clock as promised. At nine o'
clock, the delivery was still nowhere in sight. Barzaga returned to the hardware
store to inquire about the delay. Boncales assured him that although the delivery
truck was not yet around it had already left the garage and that as soon as it
arrived the materials would be brought over to the cemetery in no time at all. That
left petitioner no choice but to rejoin his workers at the memorial park and wait for
the materials.
By ten o'clock, there was still no delivery. This prompted petitioner to return to
the store to inquire about the materials. But he received the same answer from
respondent's employees who even cajoled him to go back to the burial place as
they would just follow with his construction materials.
After hours of waiting - which seemed interminable to him - Barzaga became
extremely upset. He decided to dismiss his laborers for the day. He proceeded to
the police station, which was just nearby, and lodged a complaint against Alviar. He
had his complaint entered in the police blotter. When he returned again to the
store he saw the delivery truck already there but the materials he purchased were
not yet ready for loading. Distressed that Alviar's employees were not the least
concerned, despite his impassioned pleas, Barzaga decided to cancel his
transaction with the store and look for construction materials elsewhere.

In the afternoon of that day, petitioner was able to buy from another store. But
since darkness was already setting in and his workers had left, he made up his mind
to start his project the following morning, 23 December. But he knew that the niche
would not be finish in time for the scheduled burial the following day. His laborers
had to take a break on Christmas Day and they could only resume in the morning of
the twenty-sixth. The niche was completed in the afternoon and Barzaga's wife was
finally laid to rest. However, it was two-and-a-half (2-1/2) days behind schedule.
On 21 January 1991, tormented perhaps by his inability to fulfill his wife's dying
wish, Barzaga wrote private respondent Alviar demanding recompense for the
damage he suffered. Alviar did not respond. Consequently, petitioner sued him
before the Regional Trial Court. [1]
Resisting petitioner's claim, private respondent contended that legal delay could
not be validly ascribed to him because no specific time of delivery was agreed upon
between them. He pointed out that the invoices evidencing the sale did not contain
any stipulation as to the exact time of delivery and that assuming that the
materials were not delivered within the period desired by petitioner, the delivery
truck suffered a flat tire on the way to the store to pick up the materials. Besides,
his men were ready to make the delivery by ten-thirty in the morning of 22
December but petitioner refused to accept them. According to Alviar, it was this
obstinate refusal of petitioner to accept delivery that caused the delay in the
construction of the niche and the consequent failure of the family to inter their
loved one on the twenty-fourth of December, and that, if at all, it was petitioner and
no other who brought about all his personal woes.
Upholding the proposition that respondent incurred in delay in the delivery of
the construction materials resulting in undue prejudice to petitioner, the trial court
ordered respondent Alviar to pay petitioner (a) P2,110.00 as refund for the purchase
price of the materials with interest per annum computed at the legal rate from the
date of the filing of the complaint, (b)P5,000.00 as temperate damages,
(c) P20,000.00 as moral damages, (d) P5,000.00 as litigation expenses, and
(e) P5,000.00 as attorney's fees.
On appeal, respondent Court of Appeals reversed the lower court and ruled that
there was no contractual commitment as to the exact time of delivery since this was
not indicated in the invoice receipts covering the sale. [2]
The arrangement to deliver the materials merely implied that delivery should be
made within a reasonable time but that the conclusion that since petitioner's
workers were already at the graveyard the delivery had to be made at that precise
moment, is non-sequitur. The Court of Appeals also held that assuming that there
was delay, petitioner still had sufficient time to construct the tomb and hold his
wife's burial as she wished.
We sustain the trial court. An assiduous scrutiny of the record convinces us that
respondent Angelito Alviar was negligent and incurred in delay in the performance
of his contractual obligation. This sufficiently entitles petitioner Ignacio Barzaga to
be indemnified for the damage he suffered as a consequence of delay or a
contractual breach. The law expressly provides that those who in the performance
of their obligation are guilty of fraud, negligence, or delay and those who in any
manner contravene the tenor thereof, are liable for damages. [3]
Contrary to the appellate court's factual determination, there was a specific
time agreed upon for the delivery of the materials to the cemetery. Petitioner went

to private respondent's store on 21 December precisely to inquire if the materials

he intended to purchase could be delivered immediately. But he was told by the
storekeeper that if there were still deliveries to be made that afternoon his order
would be delivered the following day. With this in mind Barzaga decided to buy the
construction materials the following morning after he was assured of immediate
delivery according to his time frame. The argument that the invoices never
indicated a specific delivery time must fall in the face of the positive verbal
commitment of respondent's storekeeper. Consequently it was no longer necessary
to indicate in the invoices the exact time the purchased items were to be brought to
the cemetery. In fact, storekeeper Boncales admitted that it was her custom not to
indicate the time of delivery whenever she prepared invoices. [4]
Private respondent invokes fortuitous event as his handy excuse for that "bit of
delay" in the delivery of petitioner's purchases. He maintains that Barzaga should
have allowed his delivery men a little more time to bring the construction materials
over to the cemetery since a few hours more would not really matter and
considering that his truck had a flat tire. Besides, according to him, Barzaga still had
sufficient time to build the tomb for his wife.
This is a gratuitous assertion that borders on callousness. Private respondent
had no right to manipulate petitioner's timetable and substitute it with his
own. Petitioner had a deadline to meet. A few hours of delay was no piddling
matter to him who in his bereavement had yet to attend to other pressing family
concerns. Despite this, respondent's employees still made light of his earnest
importunings for an immediate delivery. As petitioner bitterly declared in court " x x
x they (respondent's employees) were making a fool out of me." [5]
We also find unacceptable respondent's justification that his truck had a flat tire,
for this event, if indeed it happened, was forseeable according to the trial court, and
as such should have been reasonably guarded against. The nature of private
respondent's business requires that he should be ready at all times to meet
contingencies of this kind. One piece of testimony by respondent's witness Marina
Boncales has caught our attention - that the delivery truck arrived a little late than
usual because it came from a delivery of materials in Langcaan, Dasmarias,
Cavite.[6] Significantly, this information was withheld by Boncales from petitioner
when the latter was negotiating with her for the purchase of construction
materials. Consequently, it is not unreasonable to suppose that had she told
petitioner of this fact and that the delivery of the materials would consequently be
delayed, petitioner would not have bought the materials from respondent's
hardware store but elsewhere which could meet his time requirement. The
deliberate suppression of this information by itself manifests a certain degree of bad
faith on the part of respondent's storekeeper.
The appellate court appears to have belittled petitioner's submission that under
the prevailing circumstances time was of the essence in the delivery of the
materials to the grave site. However, we find petitioner's assertion to be anchored
on solid ground. The niche had to be constructed at the very least on the twentysecond of December considering that it would take about two (2) days to finish the
job if the interment was to take place on the twenty-fourth of the
month. Respondent's delay in the delivery of the construction materials wasted so
much time that construction of the tomb could start only on the twenty-third. It
could not be ready for the scheduled burial of petitioner's wife. This undoubtedly
prolonged the wake, in addition to the fact that work at the cemetery had to be put
off on Christmas day.

This case is clearly one of non-performance of a reciprocal obligation. [7] In their

contract of purchase and sale, petitioner had already complied fully with what was
required of him as purchaser, i.e., the payment of the purchase price
of P2,110.00. It was incumbent upon respondent to immediately fulfill his obligation
to deliver the goods otherwise delay would attach.
We therefore sustain the award of moral damages. It cannot be denied that
petitioner and his family suffered wounded feelings, mental anguish and serious
anxiety while keeping watch on Christmas day over the remains of their loved one
who could not be laid to rest on the date she herself had chosen. There is no
gainsaying the inexpressible pain and sorrow Ignacio Barzaga and his family bore at
that moment caused no less by the ineptitude, cavalier behavior and bad faith of
respondent and his employees in the performance of an obligation voluntarily
entered into.
We also affirm the grant of exemplary damages. The lackadaisical and feckless
attitude of the employees of respondent over which he exercised supervisory
authority indicates gross negligence in the fulfillment of his business
obligations. Respondent Alviar and his employees should have exercised fairness
and good judgment in dealing with petitioner who was then grieving over the loss of
his wife. Instead of commiserating with him, respondent and his employees
contributed to petitioner's anguish by causing him to bear the agony resulting from
his inability to fulfill his wife's dying wish.
We delete however the award of temperate damages. Under Art. 2224 of the
Civil Code, temperate damages are more than nominal but less than compensatory,
and may be recovered when the court finds that some pecuniary loss has been
suffered but the amount cannot, from the nature of the case, be proved with
certainty. In this case, the trial court found that plaintiff suffered damages in the
form of wages for the hired workers for 22 December 1990 and expenses incurred
during the extra two (2) days of the wake. The record however does not show that
petitioner presented proof of the actual amount of expenses he incurred which
seems to be the reason the trial court awarded to him temperate damages
instead. This is an erroneous application of the concept of temperate
damages. While petitioner may have indeed suffered pecuniary losses, these by
their very nature could be established with certainty by means of payment
receipts. As such, the claim falls unequivocally within the realm of actual or
compensatory damages. Petitioner's failure to prove actual expenditure
consequently conduces to a failure of his claim. For in determining actual damages,
the court cannot rely on mere assertions, speculations, conjectures or guesswork
but must depend on competent proof and on the best evidence obtainable
regarding the actual amount of loss. [8]
We affirm the award of attorney's fees and litigation expenses. Award of
damages, attorney's fees and litigation costs is left to the sound discretion of the
court, and if such discretion be well exercised, as in this case, it will not be disturbed
on appeal.[9]
WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE
except insofar as it GRANTED on a motion for reconsideration the refund by private
respondent of the amount of P2,110.00 paid by petitioner for the construction
materials. Consequently, except for the award of P5,000.00 as temperate damages
which we delete, the decision of the Regional Trial Court granting petitioner
(a) P2,110.00 as refund for the value of materials with interest computed at the
legal rate per annum from the date of the filing of the case; (b)P20,000.00 as moral

damages; (c) P10,000.00 as exemplary damages; (d) P5,000.00 as litigation

expenses; and (4) P5,000.00 as attorney's fees, is AFFIRMED. No costs.
SO ORDERED.
Padilla, (Chairman), Vitug, Kapunan, and Hermosisima, Jr., JJ., concur.

[G.R. No. 117190. January 2, 1997]

JACINTO TANGUILIG doing business under the name and style J.M.T.
ENGINEERING AND GENERAL MERCHANDISING, petitioner, vs. COURT
OF APPEALS and VICENTE HERCE JR., respondents.
DECISION
BELLOSILLO, J.:
This case involves the proper interpretation of the contract entered into
between the parties.
Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the
name and style J. M. T. Engineering and General Merchandising proposed to
respondent Vicente Herce Jr. to construct a windmill system for him. After some
negotiations they agreed on the construction of the windmill for a consideration
of P60,000.00 with a one-year guaranty from the date of completion and
acceptance by respondent Herce Jr. of the project. Pursuant to the agreement
respondent paid petitioner a down payment of P30,000.00 and an installment
payment of P15,000.00, leaving a balance of P15,000.00.
On 14 March 1988, due to the refusal and failure of respondent to pay the
balance, petitioner filed a complaint to collect the amount. In his Answer before
the trial court respondent denied the claim saying that he had already paid this
amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the
deep well to which the windmill system was to be connected. According to
respondent, since the deep well formed part of the system the payment he
tendered to SPGMI should be credited to his account by petitioner. Moreover,
assuming that he owed petitioner a balance of P15,000.00, this should be offset by
the defects in the windmill system which caused the structure to collapse after a
strong wind hit their place.[1]
Petitioner denied that the construction of a deep well was included in the
agreement to build the windmill system, for the contract price of P60,000.00 was
solely for the windmill assembly and its installation, exclusive of other incidental
materials needed for the project. He also disowned any obligation to repair or
reconstruct the system and insisted that he delivered it in good and working
condition to respondent who accepted the same without protest. Besides, its
collapse was attributable to a typhoon, a force majeure, which relieved him of any
liability.
In finding for plaintiff, the trial court held that the construction of the
deep well was not part of the windmill project as evidenced clearly by the

letter proposals submitted by petitioner to respondent. [2] It noted that "[i]f the
intention of the parties is to include the construction of the deep well in the project,
the same should be stated in the proposals. In the absence of such an agreement,
it could be safely concluded that the construction of the deep well is not a part of
the project undertaken by the plaintiff." [3] With respect to the repair of the windmill,
the trial court found that "there is no clear and convincing proof that the windmill
system fell down due to the defect of the construction." [4]
The Court of Appeals reversed the trial court. It ruled that the construction of
the deep well was included in the agreement of the parties because the term "deep
well" was mentioned in both proposals. It also gave credence to the testimony of
respondent's witness Guillermo Pili, the proprietor of SPGMI which installed the deep
well, that petitioner Tanguilig told him that the cost of constructing the deep well
would be deducted from the contract price of P60,000.00. Upon these premises the
appellate court concluded that respondent's payment of P15,000.00 to SPGMI
should be applied to his remaining balance with petitioner thus effectively
extinguishing his contractual obligation. However, it rejected petitioner's claim
of force majeure and ordered the latter to reconstruct the windmill in accordance
with the stipulated one-year guaranty.
His motion for reconsideration having been denied by the Court of Appeals,
petitioner now seeks relief from this Court. He raises two issues: firstly, whether
the agreement to construct the windmill system included the installation of a deep
well and, secondly, whether petitioner is under obligation to reconstruct the
windmill after it collapsed.
We reverse the appellate court on the first issue but sustain it on the second.
The preponderance of evidence supports the finding of the trial court that the
installation of a deep well was not included in the proposals of petitioner to
construct a windmill system for respondent. There were in fact two (2)
proposals: one dated 19 May 1987 which pegged the contract price at P87,000.00
(Exh. "1"). This was rejected by respondent. The other was submitted three days
later, i.e., on 22 May 1987 which contained more specifications but proposed a
lower contract price of P60,000.00 (Exh. "A"). The latter proposal was accepted by
respondent and the construction immediately followed. The pertinent portions of
the first letter-proposal (Exh. "1") are reproduced hereunder In connection with your Windmill System and Installation, we would like to quote to
you as follows:
One (1) Set - Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity, 14
feet in diameter, with 20 pieces blade, Tower 40 feet high, including mechanism
which is not advisable to operate during extra-intensity wind. Excluding cylinder
pump.
UNIT CONTRACT PRICE P87,000.00
The second letter-proposal (Exh. "A") provides as follows:
In connection with your Windmill system Supply of Labor Materials and Installation,
operated water pump, we would like to quote to you as follows -

One (1) set - Windmill assembly for 2 inches or 3 inches deep-well pump, 6 Stroke,
14 feet diameter, 1-lot blade materials, 40 feet Tower complete with standard
appurtenances up to Cylinder pump, shafting U.S. adjustable International Metal.
One (1) lot - Angle bar, G. I. pipe, Reducer Coupling, Elbow Gate valve, cross Tee
coupling.
One (1) lot - Float valve.
One (1) lot - Concreting materials foundation.
F. O. B. Laguna
Contract Price P60,000.00
Notably, nowhere in either proposal is the installation of a deep well mentioned,
even remotely. Neither is there an itemization or description of the materials to be
used in constructing the deep well. There is absolutely no mention in the two (2)
documents that a deep well pump is a component of the proposed windmill
system. The contract prices fixed in both proposals cover only the features
specifically described therein and no other. While the words "deep well" and "deep
well pump" are mentioned in both, these do not indicate that a deep well is part of
the windmill system. They merely describe the type of deep well pump for which
the proposed windmill would be suitable. As correctly pointed out by petitioner, the
words "deep well" preceded by the prepositions "for" and "suitable for" were
meant only to convey the idea that the proposed windmill would be appropriate for
a deep well pump with a diameter of 2 to 3 inches. For if the real intent of
petitioner was to include a deep well in the agreement to construct a windmill, he
would have used instead the conjunctions"and" or "with." Since the terms of the
instruments are clear and leave no doubt as to their meaning they should not be
disturbed.
Moreover, it is a cardinal rule in the interpretation of contracts
that the intention of
the
parties
shall
be
accorded
primordial
[5]
consideration and, in case of doubt, their contemporaneous and subsequent acts
shall be principally considered. [6] An examination of such contemporaneous and
subsequent acts of respondent as well as the attendant circumstances does not
persuade us to uphold him.
Respondent insists that petitioner verbally agreed that the contract price
of P60,000.00 covered the installation of a deep well pump. He contends that since
petitioner did not have the capacity to install the pump the latter agreed to have a
third party do the work the cost of which was to be deducted from the contract
price. To prove his point, he presented Guillermo Pili of SPGMI who declared that
petitioner Tanguilig approached him with a letter from respondent Herce Jr. asking
him to build a deep well pump as "part of the price/contract which Engineer (Herce)
had with Mr. Tanguilig."[7]
We are disinclined to accept the version of respondent. The claim of Pili that
Herce Jr. wrote him a letter is unsubstantiated. The alleged letter was never
presented in court by private respondent for reasons known only to him. But
granting
that
this
written
communication
existed,
it
could
not
have simply contained a request for Pili to install a deep well; it would have also
mentioned the party who would pay for the undertaking. It strains credulity that
respondent would keep silent on this matter and leave it all to petitioner Tanguilig to

verbally convey to Pili that the deep well was part of the windmill construction and
that its payment would come from the contract price of P60,000.00.
We find it also unusual that Pili would readily consent to build a deep well the
payment for which would come supposedly from the windmill contract price on the
mere representation of petitioner, whom he had never met before, without a written
commitment at least from the former. For if indeed the deep well were part of the
windmill project, the contract for its installation would have been strictly a matter
between petitioner and Pili himself with the former assuming the obligation to pay
the price. That it was respondent Herce Jr. himself who paid for the deep well by
handing over to Pili the amount of P15,000.00 clearly indicates that the contract for
the deep well was not part of the windmill project but a separate agreement
between respondent and Pili. Besides, if the price of P60,000.00 included the deep
well, the obligation of respondent was to pay the entire amount to petitioner
without prejudice to any action that Guillermo Pili or SPGMI may take, if any, against
the latter. Significantly, when asked why he tendered payment directly to Pili and
not to petitioner, respondent explained, rather lamely, that he did it "because he
has (sic) the money, so (he) just paid the money in his possession." [8]
Can respondent claim that Pili accepted his payment on behalf of
petitioner? No. While the law is clear that "payment shall be made to the
person in whose favor the obligation has been constituted, or his successor in
interest, or any person authorized to receive it,".[9] It does not appear from the
record that Pili and/or SPGMI was so authorized.
Respondent cannot claim the benefit of the law concerning "payments made by
a third person."[10] The Civil Code provisions do not apply in the instant case
because no creditor-debtor relationship between petitioner and Guillermo Pili and/or
SPGMI has been established regarding the construction of the deep
well. Specifically, witness Pili did not testify that he entered into a contract with
petitioner for the construction of respondent's deep well. If SPGMI was really
commissioned by petitioner to construct the deep well, an agreement particularly to
this effect should have been entered into.
The contemporaneous and subsequent acts of the parties concerned effectively
belie respondent's assertions. These circumstances only show that the
construction of the well by SPGMI was for the sole account of respondent and that
petitioner merely supervised the installation of the well because the windmill was to
be connected to it. There is no legal nor factual basis by which this Court can
impose upon petitioner an obligation he did not expressly assume nor ratify.
The second issue is not a novel one. In a long line of cases [11] this Court has
consistently held that in order for a party to claim exemption from liability by reason
of fortuitous event under Art. 1174 of the Civil Code the event should be the sole
and proximate cause of the loss or destruction of the object of the
contract. In Nakpil vs. Court of Appeals,[12] four (4) requisites must concur: (a) the
cause of the breach of the obligation must be independent of the will of the debtor;
(b) the event must be either unforeseeable or unavoidable; (c) the event must be
such as to render it impossible for the debtor to fulfill his obligation in a normal
manner; and, (d) the debtor must be free from any participation in or aggravation of
the injury to the creditor.
Petitioner failed to show that the collapse of the windmill was due solely to a
fortuitous event. Interestingly, the evidence does not disclose that there was
actually a typhoon on the day the windmill collapsed. Petitioner merely stated that

there was a "strong wind." But a strong wind in this case cannot be fortuitous
- unforeseeable nor unavoidable. On the contrary, a strong wind should be present
in places where windmills are constructed, otherwise the windmills will not turn.
The appellate court correctly observed that "given the newly-constructed
windmill system, the same would not have collapsed had there been no inherent
defect in it which could only be attributable to the appellee." [13] It emphasized that
respondent had in his favor the
presumption that
"things have happened according to the ordinary course of nature and the
ordinary habits of life."[14] This presumption has not been rebutted by petitioner.
Finally, petitioner's argument that private respondent was already in default in
the payment of his outstanding balance of P15,000.00 and hence should bear his
own loss, is untenable. In reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper manner with what is
incumbent upon him.[15] When the windmill failed to function properly it became
incumbent upon petitioner to institute the proper repairs in accordance with the
guaranty stated in the contract. Thus, respondent cannot be said to have incurred
in delay; instead, it is petitioner who should bear the expenses for the
reconstruction of the windmill. Article 1167 of the Civil Code is explicit on this point
that if a person obliged to do something fails to do it, the same shall be executed at
his cost.
WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE
JR. is directed to pay petitioner JACINTO M. TANGUILIG the balance of P15,000.00
with interest at the legal rate from the date of the filing of the complaint. In return,
petitioner is ordered to "reconstruct subject defective windmill system, in
accordance with the one-year guaranty" [16]and to complete the same within three
(3) months from the finality of this decision.
SO ORDERED.
Padilla, (Chairman), Vitug, Kapunan, and Hermosisima, JJ., concur.

[G.R. No. 130547. October 3, 2000]

LEAH

ALESNA REYES, ROSE NAHDJA, JOHNNY, and minors LLOYD

and KRISTINE, all surnamed REYES, represented by their mother,
LEAH ALESNA REYES, petitioners, vs. SISTERS OF MERCY HOSPITAL,
SISTER ROSE PALACIO, DR. MARVIE BLANES, and DR. MARLYN
RICO,respondents.
DECISION

MENDOZA, J.:
This is a petition for review of the decision [1] of the Court of Appeals in CA-G.R.
CV No. 36551 affirming the decision of the Regional Trial Court, Branch IX, Cebu City
which dismissed a complaint for damages filed by petitioners against respondents.
The facts are as follows:

Petitioner Leah Alesna Reyes is the wife of the late Jorge Reyes. The other
petitioners, namely, Rose Nahdja, Johnny, Lloyd, and Kristine, all surnamed Reyes,
were their children.Five days before his death on January 8, 1987, Jorge had been
suffering from a recurring fever with chills. After he failed to get relief from some
home medication he was taking, which consisted of analgesic, antipyretic, and
antibiotics, he decided to see the doctor.
On January 8, 1987, he was taken to the Mercy Community Clinic by his wife. He
was attended to by respondent Dr. Marlyn Rico, resident physician and admitting
physician on duty, who gave Jorge a physical examination and took his medical
history. She noted that at the time of his admission, Jorge was conscious,
ambulatory, oriented, coherent, and with respiratory distress. [2] Typhoid fever was
then prevalent in the locality, as the clinic had been getting from 15 to 20 cases of
typhoid per month.[3] Suspecting that Jorge could be suffering from this disease, Dr.
Rico ordered a Widal Test, a standard test for typhoid fever, to be performed on
Jorge. Blood count, routine urinalysis, stool examination, and malarial smear were
also made.[4] After about an hour, the medical technician submitted the results of
the test from which Dr. Rico concluded that Jorge was positive for typhoid fever. As
her shift was only up to 5:00 p.m., Dr. Rico indorsed Jorge to respondent Dr. Marvie
Blanes.
Dr. Marvie Blanes attended to Jorge at around six in the evening. She also took
Jorges history and gave him a physical examination. Like Dr. Rico, her impression
was that Jorge had typhoid fever. Antibiotics being the accepted treatment for
typhoid fever, she ordered that a compatibility test with the antibiotic chloromycetin
be done on Jorge. Said test was administered by nurse Josephine Pagente who also
gave the patient a dose of triglobe. As she did not observe any adverse reaction by
the patient to chloromycetin, Dr. Blanes ordered the first five hundred milligrams of
said antibiotic to be administered on Jorge at around 9:00 p.m. A second dose was
administered on Jorge about three hours later just before midnight.
At around 1:00 a.m. of January 9, 1987, Dr. Blanes was called as Jorges
temperature rose to 41C. The patient also experienced chills and exhibited
respiratory distress, nausea, vomiting, and convulsions. Dr. Blanes put him under
oxygen, used a suction machine, and administered hydrocortisone, temporarily
easing the patients convulsions. When he regained consciousness, the patient was
asked by Dr. Blanes whether he had a previous heart ailment or had suffered from
chest pains in the past. Jorge replied he did not.[5] After about 15 minutes, however,
Jorge again started to vomit, showed restlessness, and his convulsions returned. Dr.
Blanes re-applied the emergency measures taken before and, in addition, valium
was administered. Jorge, however, did not respond to the treatment and slipped into
cyanosis, a bluish or purplish discoloration of the skin or mucous membrane due to
deficient oxygenation of the blood. At around 2:00 a.m., Jorge died. He was forty
years old. The cause of his death was Ventricular Arrythemia Secondary to
Hyperpyrexia and typhoid fever.
On June 3, 1987, petitioners filed before the Regional Trial Court of Cebu City a
complaint[6]for damages against respondents Sisters of Mercy, Sister Rose Palacio,
Dr. Marvie Blanes, Dr. Marlyn Rico, and nurse Josephine Pagente. On September 24,
1987, petitioners amended their complaint to implead respondent Mercy
Community Clinic as additional defendant and to drop the name of Josephine
Pagente as defendant since she was no longer connected with respondent
hospital. Their principal contention was that Jorge did not die of typhoid fever.
[7]
Instead, his death was due to the wrongful administration of chloromycetin. They
contended that had respondent doctors exercised due care and diligence, they

would not have recommended and rushed the performance of the Widal Test, hastily
concluded that Jorge was suffering from typhoid fever, and administered
chloromycetin without first conducting sufficient tests on the patients compatibility
with said drug. They charged respondent clinic and its directress, Sister Rose
Palacio, with negligence in failing to provide adequate facilities and in hiring
negligent doctors and nurses. [8]
Respondents denied the charges. During the pre-trial conference, the parties
agreed to limit the issues on the following: (1) whether the death of Jorge Reyes was
due to or caused by the negligence, carelessness, imprudence, and lack of skill or
foresight on the part of defendants; (2) whether respondent Mercy Community
Clinic was negligent in the hiring of its employees; and (3) whether either party was
entitled to damages. The case was then heard by the trial court during which, in
addition to the testimonies of the parties, the testimonies of doctors as expert
witnesses were presented.
Petitioners offered the testimony of Dr. Apolinar Vacalares, Chief Pathologist at
the Northern Mindanao Training Hospital, Cagayan de Oro City. On January 9, 1987,
Dr. Vacalares performed an autopsy on Jorge Reyes to determine the cause of his
death. However, he did not open the skull to examine the brain. His
findings[9] showed that the gastro-intestinal tract was normal and without any
ulceration or enlargement of the nodules. Dr. Vacalares testified that Jorge did not
die of typhoid fever. He also stated that he had not seen a patient die of typhoid
fever within five days from the onset of the disease.
For their part, respondents offered the testimonies of Dr. Peter Gotiong and Dr.
Ibarra Panopio. Dr. Gotiong is a diplomate in internal medicine whose expertise is
microbiology and infectious diseases. He is also a consultant at the Cebu City
Medical Center and an associate professor of medicine at the South Western
University College of Medicine in Cebu City.He had treated over a thousand cases of
typhoid patients. According to Dr. Gotiong, the patients history and positive Widal
Test results ratio of 1:320 would make him suspect that the patient had typhoid
fever. As to Dr. Vacalares observation regarding the absence of ulceration in Jorges
gastro-intestinal tract, Dr. Gotiong said that such hyperplasia in the intestines of a
typhoid victim may be microscopic. He noted that since the toxic effect of typhoid
fever may lead to meningitis, Dr. Vacalares autopsy should have included an
examination of the brain.[10]
The other doctor presented was Dr. Ibarra Panopio, a member of the American
Board of Pathology, examiner of the Philippine Board of Pathology from 1978 to
1991, fellow of the Philippine Society of Pathologist, associate professor of the Cebu
Institute of Medicine, and chief pathologist of the Andres Soriano Jr. Memorial
Hospital in Toledo City. Dr. Panopio stated that although he was partial to the use of
the culture test for its greater reliability in the diagnosis of typhoid fever, the Widal
Test may also be used. Like Dr. Gotiong, he agreed that the 1:320 ratio in Jorges
case was already the maximum by which a conclusion of typhoid fever may be
made. No additional information may be deduced from a higher dilution. [11]He said
that Dr. Vacalares autopsy on Jorge was incomplete and thus inconclusive.
On September 12, 1991, the trial court rendered its decision absolving
respondents from the charges of negligence and dismissing petitioners action for
damages. The trial court likewise dismissed respondents counterclaim, holding
that, in seeking damages from respondents, petitioners were impelled by the honest
belief that Jorges death was due to the latters negligence.

Petitioners brought the matter to the Court of Appeals. On July 31, 1997, the
Court of Appeals affirmed the decision of the trial court.
Hence this petition.
Petitioners raise the following assignment of errors:
I. THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR
WHEN IT RULED THAT THE DOCTRINE OF RES IPSA LOQUITUR IS NOT
APPLICABLE IN THE INSTANT CASE.
II. THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR
WHEN IT MADE AN UNFOUNDED ASSUMPTION THAT THE LEVEL OF
MEDICAL PRACTICE IS LOWER IN ILIGAN CITY.
III. THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT RULED
FOR A LESSER STANDARD OF CARE AND DEGREE OF DILIGENCE FOR
MEDICAL PRACTICE IN ILIGAN CITY WHEN IT APPRECIATE[D] NO DOCTORS
NEGLIGENCE IN THE TREATMENT OF JORGE REYES.
Petitioners action is for medical malpractice. This is a particular form of
negligence which consists in the failure of a physician or surgeon to apply to his
practice of medicine that degree of care and skill which is ordinarily employed by
the profession generally, under similar conditions, and in like surrounding
circumstances.[12] In order to successfully pursue such a claim, a patient must prove
that the physician or surgeon either failed to do something which a reasonably
prudent physician or surgeon would have done, or that he or she did something that
a reasonably prudent physician or surgeon would not have done, and that the
failure or action caused injury to the patient. [13] There are thus four elements
involved in medical negligence cases, namely: duty, breach, injury, and proximate
causation.
In the present case, there is no doubt that a physician-patient relationship
existed between respondent doctors and Jorge Reyes. Respondents were thus dutybound to use at least the same level of care that any reasonably competent doctor
would use to treat a condition under the same circumstances. It is breach of this
duty which constitutes actionable malpractice. [14] As to this aspect of medical
malpractice, the determination of the reasonable level of care and the breach
thereof, expert testimony is essential. Inasmuch as the causes of the injuries
involved in malpractice actions are determinable only in the light of scientific
knowledge, it has been recognized that expert testimony is usually necessary to
support the conclusion as to causation.[15]
Res Ipsa Loquitur

There is a case when expert testimony may be dispensed with, and that is
under the doctrine of res ipsa loquitur. As held in Ramos v. Court of Appeals:[16]
Although generally, expert medical testimony is relied upon in malpractice suits to
prove that a physician has done a negligent act or that he has deviated from the
standard medical procedure, when the doctrine ofres ipsa loquitor is availed by the
plaintiff, the need for expert medical testimony is dispensed with because the injury
itself provides the proof of negligence. The reason is that the general rule on the
necessity of expert testimony applies only to such matters clearly within the domain
of medical science, and not to matters that are within the common knowledge of

mankind which may be testified to by anyone familiar with the facts. Ordinarily, only
physicians and surgeons of skill and experience are competent to testify as to
whether a patient has been treated or operated upon with a reasonable degree of
skill and care. However, testimony as to the statements and acts of physicians and
surgeons, external appearances, and manifest conditions which are observable by
any one may be given by non-expert witnesses. Hence, in cases where the res ipsa
loquitur is applicable, the court is permitted to find a physician negligent upon
proper proof of injury to the patient, without the aid of expert testimony, where the
court from its fund of common knowledge can determine the proper standard of
care. Where common knowledge and experience teach that a resulting injury would
not have occurred to the patient if due care had been exercised, an inference of
negligence may be drawn giving rise to an application of the doctrine of res ipsa
loquitur without medical evidence, which is ordinarily required to show not only
what occurred but how and why it occurred.When the doctrine is appropriate, all
that the patient must do is prove a nexus between the particular act or omission
complained of and the injury sustained while under the custody and management of
the defendant without need to produce expert medical testimony to establish the
standard of care. Resort to res ipsa loquitor is allowed because there is no other
way, under usual and ordinary conditions, by which the patient can obtain redress
for injury suffered by him.
Thus, courts of other jurisdictions have applied the doctrine in the following
situations: leaving of a foreign object in the body of the patient after an operation,
injuries sustained on a healthy part of the body which was not under, or in the area,
of treatment, removal of the wrong part of the body when another part was
intended, knocking out a tooth while a patients jaw was under anesthetic for the
removal of his tonsils, and loss of an eye while the patient was under the influence
of anesthetic, during or following an operation for appendicitis, among others. [17]
Petitioners asserted in the Court of Appeals that the doctrine of res ipsa
loquitur applies to the present case because Jorge Reyes was merely experiencing
fever and chills for five days and was fully conscious, coherent, and ambulant when
he went to the hospital. Yet, he died after only ten hours from the time of his
admission.
This contention was rejected by the appellate court.
Petitioners now contend that all requisites for the application of res ipsa
loquitur were present, namely: (1) the accident was of a kind which does not
ordinarily occur unless someone is negligent; (2) the instrumentality or agency
which caused the injury was under the exclusive control of the person in charge;
and (3) the injury suffered must not have been due to any voluntary action or
contribution of the person injured.[18]
The contention is without merit. We agree with the ruling of the Court of
Appeals. In the Ramos case, the question was whether a surgeon, an
anesthesiologist, and a hospital should be made liable for the comatose condition of
a patient scheduled for cholecystectomy. [19] In that case, the patient was given
anesthesia prior to her operation. Noting that the patient was neurologically sound
at the time of her operation, the Court applied the doctrine of res ipsa loquitur as
mental brain damage does not normally occur in a gallblader operation in the
absence of negligence of the anesthesiologist. Taking judicial notice that anesthesia
procedures had become so common that even an ordinary person could tell if it was
administered properly, we allowed the testimony of a witness who was not an
expert. In this case, while it is true that the patient died just a few hours after

professional medical assistance was rendered, there is really nothing unusual or

extraordinary about his death. Prior to his admission, the patient already had
recurring fevers and chills for five days unrelieved by the analgesic, antipyretic, and
antibiotics given him by his wife. This shows that he had been suffering from a
serious illness and professional medical help came too late for him.
Respondents alleged failure to observe due care was not immediately apparent
to a layman so as to justify application of res ipsa loquitur. The question required
expert opinion on the alleged breach by respondents of the standard of care
required by the circumstances. Furthermore, on the issue of the correctness of her
diagnosis, no presumption of negligence can be applied to Dr. Marlyn Rico. As held
in Ramos:
. . . . Res ipsa loquitur is not a rigid or ordinary doctrine to be perfunctorily used but
a rule to be cautiously applied, depending upon the circumstances of each case. It
is generally restricted to situations in malpractice cases where a layman is able to
say, as a matter of common knowledge and observation, that the consequences of
professional care were not as such as would ordinarily have followed if due care had
been exercised. A distinction must be made between the failure to secure results,
and the occurrence of something more unusual and not ordinarily found if the
service or treatment rendered followed the usual procedure of those skilled in that
particular practice. It must be conceded that the doctrine of res ipsa loquitur can
have no application in a suit against a physician or a surgeon which involves the
merits of a diagnosis or of a scientific treatment. The physician or surgeon is not
required at his peril to explain why any particular diagnosis was not correct, or why
any particular scientific treatment did not produce the desired result.[20]
Specific Acts of Negligence

We turn to the question whether petitioners have established specific acts of

negligence allegedly committed by respondent doctors.
Petitioners contend that: (1) Dr. Marlyn Rico hastily and erroneously relied upon
the Widal test, diagnosed Jorges illness as typhoid fever, and immediately
prescribed the administration of the antibiotic chloromycetin; [21] and (2) Dr. Marvie
Blanes erred in ordering the administration of the second dose of 500 milligrams of
chloromycetin barely three hours after the first was given. [22] Petitioners presented
the testimony of Dr. Apolinar Vacalares, Chief Pathologist of the Northern Mindanao
Training Hospital, Cagayan de Oro City, who performed an autopsy on the body of
Jorge Reyes. Dr. Vacalares testified that, based on his findings during the autopsy,
Jorge Reyes did not die of typhoid fever but of shock undetermined, which could be
due to allergic reaction or chloromycetin overdose. We are not persuaded.
First. While petitioners presented Dr. Apolinar Vacalares as an expert witness,
we do not find him to be so as he is not a specialist on infectious diseases like
typhoid fever.Furthermore, although he may have had extensive experience in
performing autopsies, he admitted that he had yet to do one on the body of a
typhoid victim at the time he conducted the postmortem on Jorge Reyes. It is also
plain from his testimony that he has treated only about three cases of typhoid fever.
Thus, he testified that:[23]
ATTY. PASCUAL:
Q Why? Have you not testified earlier that you have never seen a patient who
died of typhoid fever?

A In autopsy. But, that was when I was a resident physician yet.

Q But you have not performed an autopsy of a patient who died of typhoid fever?
A I have not seen one.
Q And you testified that you have never seen a patient who died of typhoid fever
within five days?
A I have not seen one.
Q How many typhoid fever cases had you seen while you were in the general
practice of medicine?
A In our case we had no widal test that time so we cannot consider that the
typhoid fever is like this and like that. And the widal test does not specify the
time of the typhoid fever.
Q The question is: how many typhoid fever cases had you seen in your general
practice regardless of the cases now you practice?
A I had only seen three cases.
Q And that was way back in 1964?
A Way back after my training in UP.
Q Clinically?
A Way back before my training.
He is thus not qualified to prove that Dr. Marlyn Rico erred in her diagnosis. Both
lower courts were therefore correct in discarding his testimony, which is really
inadmissible.
In Ramos, the defendants presented the testimony of a pulmonologist to prove
that brain injury was due to oxygen deprivation after the patient had
bronchospasms[24] triggered by her allergic response to a drug, [25] and not due to
faulty intubation by the anesthesiologist. As the issue was whether the intubation
was properly performed by an anesthesiologist, we rejected the opinion of the
pulmonologist on the ground that he was not: (1) an anesthesiologist who could
enlighten the court about anesthesia practice, procedure, and their complications;
nor (2) an allergologist who could properly advance expert opinion on allergic
mediated processes; nor (3) a pharmacologist who could explain the pharmacologic
and toxic effects of the drug allegedly responsible for the bronchospasms.
Second. On the other hand, the two doctors presented by respondents clearly
were experts on the subject. They vouched for the correctness of Dr. Marlyn Ricos
diagnosis. Dr. Peter Gotiong, a diplomate whose specialization is infectious diseases
and microbiology and an associate professor at the Southwestern University College
of Medicine and the Gullas College of Medicine, testified that he has already treated
over a thousand cases of typhoid fever. [26] According to him, when a case of typhoid
fever is suspected, the Widal test is normally used, [27] and if the 1:320 results of the
Widal test on Jorge Reyes had been presented to him along with the patients
history, his impression would also be that the patient was suffering from typhoid

fever.[28] As to the treatment of the disease, he stated that chloromycetin was the
drug of choice.[29] He also explained that despite the measures taken by respondent
doctors and the intravenous administration of two doses of chloromycetin,
complications of the disease could not be discounted. His testimony is as follows:[30]
ATTY. PASCUAL:
Q If with that count with the test of positive for 1 is to 320, what treatment if any
would be given?
A If those are the findings that would be presented to me, the first thing I would
consider would be typhoid fever.
Q And presently what are the treatments commonly used?
A Drug of choice of chloramphenical.
Q Doctor, if given the same patient and after you have administered
chloramphenical about 3 1/2 hours later, the patient associated with chills,
temperature - 41oC, what could possibly come to your mind?
A Well, when it is change in the clinical finding, you have to think of complication.
Q And what will you consider on the complication of typhoid?
A One must first understand that typhoid fever is toximia. The problem is
complications are caused by toxins produced by the bacteria . . . whether you
have suffered complications to think of -- heart toxic myocardities; then you
can consider a toxic meningitis and other complications and perforations and
bleeding in the ilium.
Q Even that 40-year old married patient who received medication of
chloromycetin of 500 milligrams intravenous, after the skin test, and received
a second dose of chloromycetin of 500 miligrams, 3 hours later, the patient
developed chills . . . rise in temperature to 41 oC, and then about 40 minutes
later the temperature rose to 100oF, cardiac rate of 150 per minute who
appeared to be coherent, restless, nauseating, with seizures: what
significance could you attach to these clinical changes?
A I would then think of toxemia, which was toxic meningitis and probably a toxic
meningitis because of the high cardiac rate.
Q Even if the same patient who, after having given intramuscular valium, became
conscious and coherent about 20 minutes later, have seizure and cyanosis
and rolling of eyeballs and vomitting . . . and death: what significance would
you attach to this development?
A We are probably dealing with typhoid to meningitis.
Q In such case, Doctor, what finding if any could you expect on the post-mortem
examination?
A No, the finding would be more on the meninges or covering of the brain.
Q And in order to see those changes would it require opening the skull?

A Yes.
As regards Dr. Vacalares finding
intestinal tract was normal, Dr.
payers patches or layers of the
same may not always be grossly
texture of the cells.[32]

during the autopsy that the deceaseds gastroRico explained that, while hyperplasia [31] in the
small intestines is present in typhoid fever, the
visible and a microscope was needed to see the

Respondents also presented the testimony of Dr. Ibarra T. Panopio who is

a member of the Philippine and American Board of Pathology, an examiner of the
Philippine Board of Pathology, and chief pathologist at the MetroCebu Community
Hospital, Perpetual Succor Hospital, and the Andres Soriano Jr. Memorial Medical
Center. He stated that, as a clinical pathologist, he recognized that the Widal test is
used for typhoid patients, although he did not encourage its use because a single
test would only give a presumption necessitating that the test be repeated,
becoming more conclusive at the second and third weeks of the disease. [33] He
corroborated Dr. Gotiongs testimony that the danger with typhoid fever is really the
possible complications which could develop like perforation, hemorrhage, as well as
liver and cerebral complications. [34] As regards the 1:320 results of the Widal test on
Jorge Reyes, Dr. Panopio stated that no additional information could be obtained
from a higher ratio.[35] He also agreed with Dr. Gotiong that hyperplasia in the
payers patches may be microscopic.[36]
Indeed, the standard contemplated is not what is actually the average merit
among all known practitioners from the best to the worst and from the most to the
least experienced, but the reasonable average merit among the ordinarily good
physicians.[37] Here, Dr. Marlyn Rico did not depart from the reasonable standard
recommended by the experts as she in fact observed the due care required under
the circumstances. Though the Widal test is not conclusive, it remains a standard
diagnostic test for typhoid fever and, in the present case, greater accuracy through
repeated testing was rendered unobtainable by the early death of the patient. The
results of the Widal test and the patients history of fever with chills for five days,
taken with the fact that typhoid fever was then prevalent as indicated by the fact
that the clinic had been getting about 15 to 20 typhoid cases a month, were
sufficient to give upon any doctor of reasonable skill the impression that Jorge Reyes
had typhoid fever.
Dr. Rico was also justified in recommending the administration of the drug
chloromycetin, the drug of choice for typhoid fever. The burden of proving that Jorge
Reyes was suffering from any other illness rested with the petitioners. As they failed
to present expert opinion on this, preponderant evidence to support their contention
is clearly absent.
Third. Petitioners contend that respondent Dr. Marvie Blanes, who took over
from Dr. Rico, was negligent in ordering the intravenous administration of two doses
of 500 milligrams of chloromycetin at an interval of less than three hours.
Petitioners claim that Jorge Reyes died of anaphylactic shock [38] or possibly from
overdose as the second dose should have been administered five to six hours after
the first, per instruction of Dr. Marlyn Rico. As held by the Court of Appeals,
however:
That chloromycetin was likewise a proper prescription is best established by medical
authority. Wilson, et. al., in Harrisons Principle of Internal Medicine, 12th ed. write
that chlorampenicol (which is the generic of chloromycetin) is the drug of choice for
typhoid fever and that no drug has yet proven better in promoting a favorable

clinical response. Chlorampenicol (Chloromycetin) is specifically indicated for

bacterial meningitis, typhoid fever, rickettsial infections, bacteriodes infections,
etc. (PIMS Annual, 1994, p. 211) The dosage likewise including the first
administration of five hundred milligrams (500 mg.) at around nine oclock in the
evening and the second dose at around 11:30 the same night was still within
medically acceptable limits, since the recommended dose of chloromycetin is one
(1) gram every six (6) hours.(cf. Pediatric Drug Handbook, 1st Ed., Philippine
Pediatric Society, Committee on Therapeutics and Toxicology, 1996). The
intravenous route is likewise correct. (Mansser, ONick, Pharmacology and
Therapeutics) Even if the test was not administered by the physician-on-duty, the
evidence introduced that it was Dra. Blanes who interpreted the results remain
uncontroverted. (Decision, pp. 16-17) Once more, this Court rejects any claim of
professional negligence in this regard.
....
As regards anaphylactic shock, the usual way of guarding against it prior to the
administration of a drug, is the skin test of which, however, it has been observed:
Skin testing with haptenic drugs is generally not reliable. Certain drugs cause
nonspecific histamine release, producing a weal-and-flare reaction in normal
individuals. Immunologic activation of mast cells requires a polyvalent allergen, so a
negative skin test to a univalent haptenic drug does not rule out anaphylactic
sensitivity to that drug. (Terr, Anaphylaxis and Urticaria in Basic and Clinical
Immunology, p. 349) What all this means legally is that even if the deceased
suffered from an anaphylactic shock, this, of itself, would not yet establish the
negligence of the appellee-physicians for all that the law requires of them is that
they perform the standard tests and perform standard procedures. The law cannot
require them to predict every possible reaction to all drugs administered. The onus
probandi was on the appellants to establish, before the trial court, that the appelleephysicians ignored standard medical procedure, prescribed and administered
medication with recklessness and exhibited an absence of the competence and
skills expected of general practitioners similarly situated. [39]
Fourth. Petitioners correctly observe that the medical profession is one which,
like the business of a common carrier, is affected with public interest. Moreover,
they assert that since the law imposes upon common carriers the duty of observing
extraordinary diligence in the vigilance over the goods and for the safety of the
passengers,[40] physicians and surgeons should have the same duty toward their
patients.[41] They also contend that the Court of Appeals erred when it allegedly
assumed that the level of medical practice is lower in Iligan City, thereby reducing
the standard of care and degree of diligence required from physicians and surgeons
in Iligan City.
The standard of extraordinary diligence is peculiar to common carriers. The Civil
Code provides:
Art. 1733. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to the
circumstances of each case. . . .
The practice of medicine is a profession engaged in only by qualified
individuals. It is a right earned through years of education, training, and by first
obtaining a license from the state through professional board examinations. Such
license may, at any time and for cause, be revoked by the government. In addition

to state regulation, the conduct of doctors is also strictly governed by the

Hippocratic Oath, an ancient code of discipline and ethical rules which doctors have
imposed upon themselves in recognition and acceptance of their great responsibility
to society. Given these safeguards, there is no need to expressly require of doctors
the observance of extraordinary diligence. As it is now, the practice of medicine is
already conditioned upon the highest degree of diligence. And, as we have already
noted, the standard contemplated for doctors is simply the reasonable average
merit among ordinarily good physicians. That is reasonable diligence for doctors or,
as the Court of Appeals called it, the reasonable skill and competence . . . that a
physician in the same or similar locality . . . should apply.
WHEREFORE, the instant petition is DENIED and the decision of the Court of
Appeals is AFFIRMED.
SO ORDERED.
Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-47379 May 16, 1988
NATIONAL POWER CORPORATION, petitioner,
vs.
HONORABLE COURT OF APPEALS and ENGINEERING CONSTRUCTION,
INC., respondents.
G.R. No. L-47481 May 16, 1988
ENGINEERING CONSTRUCTION, INC., petitioner,
vs.
COUTRT OF APPEALS and NATIONAL POWER CORPORATION, respondents.
Raymundo A. Armovit for private respondent in L-47379.
The Solicitor General for petitioner.

GUTIERREZ, JR., J.:

These consolidated petitions seek to set aside the decision of the respondent Court
of Appeals which adjudged the National Power Corporation liable for damages
against Engineering Construction, Inc. The appellate court, however, reduced the
amount of damages awarded by the trial court. Hence, both parties filed their
respective petitions: the National Power Corporation (NPC) in G.R. No. 47379,
questioning the decision of the Court of Appeals for holding it liable for damages
and the Engineering Construction, Inc. (ECI) in G.R. No. 47481, questioning the
same decision for reducing the consequential damages and attorney's fees and for
eliminating the exemplary damages.

The facts are succinctly summarized by the respondent Court of Appeals, as follows:
On August 4, 1964, plaintiff Engineering Construction, Inc., being a
successful bidder, executed a contract in Manila with the National
Waterworks and Sewerage Authority (NAWASA), whereby the former
undertook to furnish all tools, labor, equipment, and materials (not
furnished by Owner), and to construct the proposed 2nd lpo-Bicti
Tunnel, Intake and Outlet Structures, and Appurtenant Structures, and
Appurtenant Features, at Norzagaray, Bulacan, and to complete said
works within eight hundred (800) calendar days from the date the
Contractor receives the formal notice to proceed (Exh. A).
The project involved two (2) major phases: the first phase comprising,
the tunnel work covering a distance of seven (7) kilometers, passing
through the mountain, from the Ipo river, a part of Norzagaray,
Bulacan, where the Ipo Dam of the defendant National Power
Corporation is located, to Bicti; the other phase consisting of the
outworks at both ends of the tunnel.
By September 1967, the plaintiff corporation already had completed
the first major phase of the work, namely, the tunnel excavation work.
Some portions of the outworks at the Bicti site were still under
construction. As soon as the plaintiff corporation had finished the
tunnel excavation work at the Bicti site, all the equipment no longer
needed there were transferred to the Ipo site where some projects
were yet to be completed.
The record shows that on November 4,1967, typhoon 'Welming' hit
Central Luzon, passing through defendant's Angat Hydro-electric
Project and Dam at lpo, Norzagaray, Bulacan. Strong winds struck the
project area, and heavy rains intermittently fell. Due to the heavy
downpour, the water in the reservoir of the Angat Dam was rising
perilously at the rate of sixty (60) centimeters per hour. To prevent an
overflow of water from the dam, since the water level had reached the
danger height of 212 meters above sea level, the defendant
corporation caused the opening of the spillway gates." (pp. 45-46, L47379, Rollo)
The appellate court sustained the findings of the trial court that the evidence
preponlderantly established the fact that due to the negligent manner with which
the spillway gates of the Angat Dam were opened, an extraordinary large volume of
water rushed out of the gates, and hit the installations and construction works of
ECI at the lpo site with terrific impact, as a result of which the latter's stockpile of
materials and supplies, camp facilities and permanent structures and accessories
either washed away, lost or destroyed.
The appellate court further found that:
It cannot be pretended that there was no negligence or that the
appellant exercised extraordinary care in the opening of the spillway
gates of the Angat Dam. Maintainers of the dam knew very well that it
was far more safe to open them gradually. But the spillway gates were
opened only when typhoon Welming was already at its height, in a vain
effort to race against time and prevent the overflow of water from the
dam as it 'was rising dangerously at the rate of sixty centimeters per

hour. 'Action could have been taken as early as November 3, 1967,

when the water in the reservoir was still low. At that time, the gates of
the dam could have been opened in a regulated manner. Let it be
stressed that the appellant knew of the coming of the typhoon four
days before it actually hit the project area. (p. 53, L-47379, Rollo)
As to the award of damages, the appellate court held:
We come now to the award of damages. The appellee submitted a list
of estimated losses and damages to the tunnel project (Ipo side)
caused by the instant flooding of the Angat River (Exh. J-1). The
damages were itemized in four categories, to wit: Camp Facilities
P55,700.00; Equipment, Parts and Plant P375,659.51; Materials
P107,175.80; and Permanent Structures and accessories
P137,250.00, with an aggregate total amount of P675,785.31. The list
is supported by several vouchers which were all submitted as Exhibits
K to M-38 a, N to O, P to U-2 and V to X- 60-a (Vide: Folders Nos. 1 to
4). The appellant did not submit proofs to traverse the aforementioned
documentary evidence. We hold that the lower court did not commit
any error in awarding P 675,785.31 as actual or compensatory
damages.
However, We cannot sustain the award of P333,200.00 as
consequential damages. This amount is broken down as follows:
P213,200.00 as and for the rentals of a crane to temporarily replace
the one "destroyed beyond repair," and P120,000.00 as one month
bonus which the appellee failed to realize in accordance with the
contract which the appellee had with NAWASA. Said rental of the crane
allegedly covered the period of one year at the rate of P40.00 an hour
for 16 hours a day. The evidence, however, shows that the appellee
bought a crane also a crawler type, on November 10, 1967, six (6)
days after the incident in question (Exh N) And according to the lower
court, which finding was never assailed, the appellee resumed its
normal construction work on the Ipo- Bicti Project after a stoppage of
only one month. There is no evidence when the appellee received the
crane from the seller, Asian Enterprise Limited. But there was an
agreement that the shipment of the goods would be effected within 60
days from the opening of the letter of credit (Exh. N).<re||
an1w> It appearing that the contract of sale was consummated, We
must conclude or at least assume that the crane was delivered to the
appellee within 60 days as stipulated. The appellee then could have
availed of the services of another crane for a period of only one month
(after a work stoppage of one month) at the rate of P 40.00 an hour for
16 hours a day or a total of P 19,200.00 as rental.
But the value of the new crane cannot be included as part of actual
damages because the old was reactivated after it was repaired. The
cost of the repair was P 77,000.00 as shown in item No. 1 under the
Equipment, Parts and Plants category (Exh. J-1), which amount of repair
was already included in the actual or compensatory damages. (pp. 5456, L-47379, Rollo)
The appellate court likewise rejected the award of unrealized bonus from NAWASA in
the amount of P120,000.00 (computed at P4,000.00 a day in case construction is
finished before the specified time, i.e., within 800 calendar days), considering that

the incident occurred after more than three (3) years or one thousand one hundred
seventy (1,170) days. The court also eliminated the award of exemplary damages
as there was no gross negligence on the part of NPC and reduced the amount of
attorney's fees from P50,000.00 to P30,000.00.
In these consolidated petitions, NPC assails the appellate court's decision as being
erroneous on the ground that the destruction and loss of the ECI's equipment and
facilities were due to force majeure. It argues that the rapid rise of the water level in
the reservoir of its Angat Dam due to heavy rains brought about by the typhoon was
an extraordinary occurrence that could not have been foreseen, and thus, the
subsequent release of water through the spillway gates and its resultant effect, if
any, on ECI's equipment and facilities may rightly be attributed to force majeure.
On the other hand, ECI assails the reduction of the consequential damages from
P333,200.00 to P19,000.00 on the grounds that the appellate court had no basis in
concluding that ECI acquired a new Crawler-type crane and therefore, it only can
claim rentals for the temporary use of the leased crane for a period of one month;
and that the award of P4,000.00 a day or P120,000.00 a month bonus is justified
since the period limitation on ECI's contract with NAWASA had dual effects, i.e.,
bonus for earlier completion and liquidated damages for delayed performance; and
in either case at the rate of P4,000.00 daily. Thus, since NPC's negligence compelled
work stoppage for a period of one month, the said award of P120,000.00 is justified.
ECI further assailes the reduction of attorney's fees and the total elimination of
exemplary damages.
Both petitions are without merit.
It is clear from the appellate court's decision that based on its findings of fact and
that of the trial court's, petitioner NPC was undoubtedly negligent because it
opened the spillway gates of the Angat Dam only at the height of typhoon
"Welming" when it knew very well that it was safer to have opened the same
gradually and earlier, as it was also undeniable that NPC knew of the coming
typhoon at least four days before it actually struck. And even though the typhoon
was an act of God or what we may call force majeure, NPC cannot escape liability
because its negligence was the proximate cause of the loss and damage. As we
have ruled in Juan F. Nakpil & Sons v. Court of Appeals, (144 SCRA 596, 606-607):
Thus, if upon the happening of a fortuitous event or an act of God,
there concurs a corresponding fraud, negligence, delay or violation or
contravention in any manner of the tenor of the obligation as provided
for in Article 1170 of the Civil Code, which results in loss or damage,
the obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly requires that
the act must be one occasioned exclusively by the violence of nature
and human agencies are to be excluded from creating or entering into
the cause of the mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the participation of man,
whether it be from active intervention or neglect, or failure to act, the
whole occurrence is thereby humanized, as it was, and removed from
the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus, it has been held that when the negligence of a person concurs
with an act of God in producing a loss, such person is not exempt from
liability by showing that the immediate cause of the damage was the

act of God. To be exempt from liability for loss because of an act of

God, he must be free from any previous negligence or misconduct by
which the loss or damage may have been occasioned. (Fish & Elective
Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan 49 O.G. 4379;
Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam
v. Smith, 45 Phil. 657).
Furthermore, the question of whether or not there was negligence on the part of
NPC is a question of fact which properly falls within the jurisdiction of the Court of
Appeals and will not be disturbed by this Court unless the same is clearly
unfounded. Thus, in Tolentino v. Court of appeals, (150 SCRA 26, 36) we ruled:
Moreover, the findings of fact of the Court of Appeals are generally
final and conclusive upon the Supreme Court (Leonardo v. Court of
Appeals, 120 SCRA 890 [1983]. In fact it is settled that the Supreme
Court is not supposed to weigh evidence but only to determine its
substantially (Nuez v. Sandiganbayan, 100 SCRA 433 [1982] and will
generally not disturb said findings of fact when supported by
substantial evidence (Aytona v. Court of Appeals, 113 SCRA 575
[1985]; Collector of Customs of Manila v. Intermediate Appellate Court,
137 SCRA 3 [1985]. On the other hand substantial evidence is defined
as such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion (Philippine Metal Products, Inc. v.
Court of Industrial Relations, 90 SCRA 135 [1979]; Police Commission v.
Lood, 127 SCRA 757 [1984]; Canete v. WCC, 136 SCRA 302 [1985])
Therefore, the respondent Court of Appeals did not err in holding the NPC liable for
damages.
Likewise, it did not err in reducing the consequential damages from P333,200.00 to
P19,000.00. As shown by the records, while there was no categorical statement or
admission on the part of ECI that it bought a new crane to replace the damaged
one, a sales contract was presented to the effect that the new crane would be
delivered to it by Asian Enterprises within 60 days from the opening of the letter of
credit at the cost of P106,336.75. The offer was made by Asian Enterprises a few
days after the flood. As compared to the amount of P106,336.75 for a brand new
crane and paying the alleged amount of P4,000.00 a day as rental for the use of a
temporary crane, which use petitioner ECI alleged to have lasted for a period of one
year, thus, totalling P120,000.00, plus the fact that there was already a sales
contract between it and Asian Enterprises, there is no reason why ECI should opt to
rent a temporary crane for a period of one year. The appellate court also found that
the damaged crane was subsequently repaired and reactivated and the cost of
repair was P77,000.00. Therefore, it included the said amount in the award of of
compensatory damages, but not the value of the new crane. We do not find
anything erroneous in the decision of the appellate court that the consequential
damages should represent only the service of the temporary crane for one month. A
contrary ruling would result in the unjust enrichment of ECI.
The P120,000.00 bonus was also properly eliminated as the same was granted by
the trial court on the premise that it represented ECI's lost opportunity "to earn the
one month bonus from NAWASA ... ." As stated earlier, the loss or damage to ECI's
equipment and facilities occurred long after the stipulated deadline to finish the
construction. No bonus, therefore, could have been possibly earned by ECI at that
point in time. The supposed liquidated damages for failure to finish the project
within the stipulated period or the opposite of the claim for bonus is not clearly

presented in the records of these petitions. It is not shown that NAWASA imposed
them.
As to the question of exemplary damages, we sustain the appellate court in
eliminating the same since it found that there was no bad faith on the part of NPC
and that neither can the latter's negligence be considered gross. InDee Hua Liong
Electrical Equipment Corp. v. Reyes, (145 SCRA 713, 719) we ruled:
Neither may private respondent recover exemplary damages since he
is not entitled to moral or compensatory damages, and again because
the petitioner is not shown to have acted in a wanton, fraudulent,
reckless or oppressive manner (Art. 2234, Civil Code; Yutuk v. Manila
Electric Co., 2 SCRA 377; Francisco v. Government Service Insurance
System, 7 SCRA 577; Gutierrez v. Villegas, 8 SCRA 527; Air France v.
Carrascoso, 18 SCRA 155; Pan Pacific (Phil.) v. Phil. Advertising Corp.,
23 SCRA 977; Marchan v. Mendoza, 24 SCRA 888).
We also affirm the reduction of attorney's fees from P50,000.00 to P30,000.00.
There are no compelling reasons why we should set aside the appellate court's
finding that the latter amount suffices for the services rendered by ECI's counsel.
WHEREFORE, the petitions in G.R. No. 47379 and G.R. No. 47481 are both
DISMISSED for LACK OF MERIT. The decision appealed from is AFFIRMED.
SO ORDERED.
Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 112127 July 17, 1995

CENTRAL PHILIPPINE UNIVERSITY, petitioner,
vs.
COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ, CECILIA P.
VDA. DE LOPEZ, REDAN LOPEZ AND REMARENE LOPEZ, respondents.

BELLOSILLO, J.:
CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the
decision of the Court of Appeals which reversed that of the Regional Trial Court of
Iloilo City directing petitioner to reconvey to private respondents the property
donated to it by their predecessor-in-interest.

Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the
Board of Trustees of the Central Philippine College (now Central Philippine University
[CPU]), executed a deed of donation in favor of the latter of a parcel of land
identified as Lot No. 3174-B-1 of the subdivision plan Psd-1144, then a portion of Lot
No. 3174-B, for which Transfer Certificate of Title No. T-3910-A was issued in the
name of the donee CPU with the following annotations copied from the deed of
donation
1. The land described shall be utilized by the CPU exclusively for the
establishment and use of a medical college with all its buildings as part
of the curriculum;
2. The said college shall not sell, transfer or convey to any third party
nor in any way encumber said land;
3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said
college shall be under obligation to erect a cornerstone bearing that
name. Any net income from the land or any of its parks shall be put in
a fund to be known as the "RAMON LOPEZ CAMPUS FUND" to be used
for improvements of said campus and erection of a building thereon. 1
On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr.,
filed an action for annulment of donation, reconveyance and damages against CPU
alleging that since 1939 up to the time the action was filed the latter had not
complied with the conditions of the donation. Private respondents also argued that
petitioner had in fact negotiated with the National Housing Authority (NHA) to
exchange the donated property with another land owned by the latter.
In its answer petitioner alleged that the right of private respondents to file the
action had prescribed; that it did not violate any of the conditions in the deed of
donation because it never used the donated property for any other purpose than
that for which it was intended; and, that it did not sell, transfer or convey it to any
third party.
On 31 May 1991, the trial court held that petitioner failed to comply with the
conditions of the donation and declared it null and void. The court a quo further
directed petitioner to execute a deed of the reconveyance of the property in favor of
the heirs of the donor, namely, private respondents herein.
Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled that the
annotations at the back of petitioner's certificate of title were resolutory conditions
breach of which should terminate the rights of the donee thus making the donation
revocable.
The appellate court also found that while the first condition mandated petitioner to
utilize the donated property for the establishment of a medical school, the donor did
not fix a period within which the condition must be fulfilled, hence, until a period
was fixed for the fulfillment of the condition, petitioner could not be considered as
having failed to comply with its part of the bargain. Thus, the appellate court
rendered its decision reversing the appealed decision and remanding the case to
the court of origin for the determination of the time within which petitioner should
comply with the first condition annotated in the certificate of title.
Petitioner now alleges that the Court of Appeals erred: (a) in holding that the quoted
annotations in the certificate of title of petitioner are onerous obligations and

resolutory conditions of the donation which must be fulfilled non-compliance of

which would render the donation revocable; (b) in holding that the issue of
prescription does not deserve "disquisition;" and, (c) in remanding the case to the
trial court for the fixing of the period within which petitioner would establish a
medical college. 2
We find it difficult to sustain the petition. A clear perusal of the conditions set forth
in the deed of donation executed by Don Ramon Lopez, Sr., gives us no alternative
but to conclude that his donation was onerous, one executed for a valuable
consideration which is considered the equivalent of the donation itself, e.g., when a
donation imposes a burden equivalent to the value of the donation. A gift of land to
the City of Manila requiring the latter to erect schools, construct a children's
playground and open streets on the land was considered an onerous
donation. 3 Similarly, where Don Ramon Lopez donated the subject parcel of land to
petitioner but imposed an obligation upon the latter to establish a medical college
thereon, the donation must be for an onerous consideration.
Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of
rights, as well as the extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the condition. Thus, when a
person donates land to another on the condition that the latter would build upon the
land a school, the condition imposed was not a condition precedent or a suspensive
condition but a resolutory one. 4 It is not correct to say that the schoolhouse had to
be constructed before the donation became effective, that is, before the donee
could become the owner of the land, otherwise, it would be invading the property
rights of the donor. The donation had to be valid before the fulfillment of the
condition. 5 If there was no fulfillment or compliance with the condition, such as
what obtains in the instant case, the donation may now be revoked and all rights
which the donee may have acquired under it shall be deemed lost and extinguished.
The claim of petitioner that prescription bars the instant action of private
respondents is unavailing.
The condition imposed by the donor, i.e., the building of a medical school
upon the land donated, depended upon the exclusive will of the donee as to
when this condition shall be fulfilled. When petitioner accepted the donation,
it bound itself to comply with the condition thereof. Since the time within
which the condition should be fulfilled depended upon the exclusive will of
the petitioner, it has been held that its absolute acceptance and the
acknowledgment of its obligation provided in the deed of donation were
sufficient to prevent the statute of limitations from barring the action of
private respondents upon the original contract which was the deed of
donation. 6
Moreover, the time from which the cause of action accrued for the revocation of the
donation and recovery of the property donated cannot be specifically determined in
the instant case. A cause of action arises when that which should have been done is
not done, or that which should not have been done is done. 7 In cases where there is
no special provision for such computation, recourse must be had to the rule that the
period must be counted from the day on which the corresponding action could have
been instituted. It is the legal possibility of bringing the action which determines the
starting point for the computation of the period. In this case, the starting point
begins with the expiration of a reasonable period and opportunity for petitioner to
fulfill what has been charged upon it by the donor.

The period of time for the establishment of a medical college and the necessary
buildings and improvements on the property cannot be quantified in a specific
number of years because of the presence of several factors and circumstances
involved in the erection of an educational institution, such as government laws and
regulations pertaining to education, building requirements and property restrictions
which are beyond the control of the donee.
Thus, when the obligation does not fix a period but from its nature and
circumstances it can be inferred that a period was intended, the general rule
provided in Art. 1197 of the Civil Code applies, which provides that the courts may
fix the duration thereof because the fulfillment of the obligation itself cannot be
demanded until after the court has fixed the period for compliance therewith and
such period has arrived. 8
This general rule however cannot be applied considering the different set of
circumstances existing in the instant case. More than a reasonable period of fifty
(50) years has already been allowed petitioner to avail of the opportunity to comply
with the condition even if it be burdensome, to make the donation in its favor
forever valid. But, unfortunately, it failed to do so. Hence, there is no more need to
fix the duration of a term of the obligation when such procedure would be a mere
technicality and formality and would serve no purpose than to delay or lead to an
unnecessary and expensive multiplication of suits. 9 Moreover, under Art. 1191 of
the Civil Code, when one of the obligors cannot comply with what is incumbent
upon him, the obligee may seek rescission and the court shall decree the same
unless there is just cause authorizing the fixing of a period. In the absence of any
just cause for the court to determine the period of the compliance, there is no more
obstacle for the court to decree the rescission claimed.
Finally, since the questioned deed of donation herein is basically a gratuitous one,
doubts referring to incidental circumstances of a gratuitous contract should be
resolved in favor of the least transmission of rights and interests. 10 Records are clear
and facts are undisputed that since the execution of the deed of donation up to the
time of filing of the instant action, petitioner has failed to comply with its obligation
as donee. Petitioner has slept on its obligation for an unreasonable length of time.
Hence, it is only just and equitable now to declare the subject donation already
ineffective and, for all purposes, revoked so that petitioner as donee should now
return the donated property to the heirs of the donor, private respondents herein,
by means of reconveyance.
WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991
is REINSTATED and AFFIRMED, and the decision of the Court of Appeals of 18 June
1993 is accordingly MODIFIED. Consequently, petitioner is directed to reconvey to
private respondents Lot No. 3174-B-1 of the subdivision plan Psd-1144 covered by
Transfer Certificate of Title No. T-3910-A within thirty (30) days from the finality of
this judgment.
Costs against petitioner.
SO ORDERED.
Quiason and Kapunan, JJ., concur.

CENTRAL PHIL UNIV. vs. Court of Appeals

246 SCRA 511
FACTS:
In 1939, Don Ramon Lopez Sr. executed a deed of donation in favor of CPU together
with the following conditions:
a) The land should be utilized by CPU exclusively for the establishment & use of
medical college;
b) The said college shall not sell transfer or convey to any 3rd party;
c) The said land shall be called Ramon Lopez Campus and any income from that
land shall be put in the fund to be known as Ramon Lopez Campus Fund.
However, on May 31, 1989, PR, who are the heirs of Don Ramon filed an action for
annulment of donation, reconveyance & damages against CPU for not complying
with the conditions. The heirs also argued that CPU had negotiated with the NHA to
exchange the donated property with another land owned by the latter.
Petitioner alleged that the right of private respondents to file the action had
prescribed.
ISSUE:
1) WON petitioner failed to comply the resolutely conditions annotated at the back
of petitioners certificate of title without a fixed period when to comply with such
conditions? YES
2) WON there is a need to fix the period for compliance of the condition? NO
HELD:
1)
Under Art. 1181, on conditional obligations, the acquisition of rights as well the
extinguishment or loss of those already acquired shall depend upon the happening
of the event which constitutes the condition. Thus, when a person donates land to
another on the condition that the latter would build upon the land a school is such a
resolutory one. The donation had to be valid before the fulfillment of the condition.
If there was no fulfillment with the condition such as what obtains in the instant
case, the donation may be revoked & all rights which the donee may have acquired
shall be deemed lost & extinguished.
More than a reasonable period of fifty (50) years has already been allowed
petitioner to avail of the opportunity to comply with the condition even if it be
burdensome, to make the donation in its favor forever valid. But, unfortunately, it
failed to do so. Hence, there is no more need to fix the duration of a term of the
obligation when such procedure would be a mere technicality and formality and
would serve no purpose than to delay or lead to an unnecessary and expensive
multiplication of suits.
Records are clear and facts are undisputed that since the execution of the deed of
donation up to the time of filing of the instant action, petitioner has failed to comply
with its obligation as donee. Petitioner has slept on its obligation for an
unreasonable length of time. Hence, it is only just and equitable now to declare the
subject donation already ineffective and, for all purposes, revoked so that petitioner
as donee should now return the donated property to the heirs of the donor, private
respondents herein, by means of reconveyance.

2)
Under Art. 1197, when the obligation does not fix a period but from its nature &
circumstance it can be inferred that the period was intended, the court may fix the
duration thereof because the fulfillment of the obligation itself cannot be demanded
until after the court has fixed the period for compliance therewith & such period has
arrived. However, this general rule cannot be applied in this case considering the
different set of circumstances existing more than a reasonable period of 50yrs has
already been allowed to petitioner to avail of the opportunity to comply but
unfortunately, it failed to do so. Hence, there is no need to fix a period when such
procedure would be a mere technicality & formality & would serve no purpose than
to delay or load to unnecessary and expensive multiplication of suits.
Under Art. 1191, when one of the obligors cannot comply with what is incumbent
upon him, the obligee may seek rescission before the court unless there is just
cause authorizing the fixing of a period. In the absence of any just cause for the
court to determine the period of compliance there is no more obstacle for the court
to decree recission.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-68021 February 20, 1989
HEIRS OF FAUSTA DIMACULANGAN, petitioners,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT and FELIMON
UY, respondents.
Jerry D. Baares for petitioners.
Luis T. Tuason, Jr. for private respondent.

FERNAN, C.J.:
This is a petition for review on certiorari of the July 2, 1984 decision of the Third
Special Cases Division, Intermediate Appellate Court, in AC-G.R. SP. No. 01230,
entitled "Heirs of Fausta Dimaculangan v. Hon. Baltazar R. Dizon, et al." dismissing
for lack of merit the petition for review of the Orders dated June 6, 1983 and July 13,
1983, issued by the Regional Trial Court of Pasay City, Branch CXIII in Civil Case No.
8865-P which in turn affirmed on appeal the October 16, 1980 decision of Hon.
Mariano A. Lacsamana, then presiding judge, Pasay City Court, Branch 11, in Civil
Case No. 13591, entitled "Felimon Uy v. Fausta Dimaculangan, for Ejectment".
Fausta Dimaculangan and her children, petitioners herein, occupy by lease an
apartment located at No. 2490 E. Zamora St., Pasay City, at a monthly rental of
P260.00. They have been living in said premises since 1961. To augment its income,
the family maintains therein a sari-sari store and bakes hot pan de sal to sell to the
general public. The capital investment involved is claimed to be P3,200.00 only.

On July 5, 1978, private respondent Felimon Uy sent Fausta Dimaculangan a

registered letter informing her that the property which she has been occupying has
been sold to him and should she desire to continue occupying the same, she should
sign a contract of lease for a period of two (2) years at a monthly rental of
P1,500.00. Receiving no reply to his letter, the private respondent sent a second
one, demanding payment of P750.00 covering unpaid rentals for the months of
August, September and October, 1978 but still he received no answer to hisdemand. Thus, he filed with the City Court of Pasay City a complaint for
ejectment 1 praying, among others, that said court render judgment ordering Fausta
Dimaculangan and all persons claiming rights under her to vacate the leased
premises.
In her answer with compulsory counterclaim, 2 Fausta Dimaculangan admitted that
she received plaintiff's letter of July 5, 1978 but claimed that she sent plaintiff a
reply which was however returned undelivered because plaintiff distorted his
address. She denied having been in default in her monthly rentals to the plaintiff,
and alleged that she has never been in default during the entire period of her
occupancy of the premises since 1961 up to the present. In fact she tried to pay the
plaintiff who did not want to collect the monthly rentals, even in the form of money
orders which were however, returned unclaimed. She countered that the filing of the
complaint was just a scheme to compel her to agree to the capricious and whimsical
demand for an unconscionable increase in the monthly rental from P250.00 to
P1,500.00, in clear violation of the provisions of P.D. No. 20, as amended. She
further alleged that when she received the plaintiff s letter of October 3, 1978, she
caused the payment of the rentals for August, September and October, 1978.
Defendant Fausta Dimaculangan prayed to the trial court that the complaint be
dismissed and a favorable judgment be rendered in her favor.
Pending trial of the case, Fausta Dimaculangan died. She was substituted by her
children as defendants.
After trial, the presiding judge of the City Court of Pasay found that the premises in
question is partly residential and partly commercial; that defendant has no arrears
and that the latter replied to plaintiff s demand letter and paid by way of money
orders her rentals which were however, returned unclaimed.
On October 16, 1980, the aforementioned court rendered a decision increasing the
monthly rentals and fixing a definite period for the term of the lease, the dispositive
portion of which reads:
WHEREFORE, AND IN VIEW OF THE FOREGOING, the defendant is
hereby ordered to pay the plaintiff the amount of P500.00 per month,
as monthly rental from August 1978 to August 1980; defendant shall
be granted a Contract of Lease for two (2) years from August 1980 to
August 1982 of which the defendant shall pay the plaintiff a monthly
rental of P750.00; the party-litigants are ordered to pay the amount of
P1,500.00 to their respective counsels by way of attorney's fees; and
the party-litigates (sic) shall equally pay the costs of suit.
SO ORDERED.

On Appeal, the Regional Trial Court, Branch CXIII, Pasay City, affirmed the aforesaid
decision of the City Court and denied petitioner's motion for reconsideration. 4

On review by certiorari, the Intermediate Appellate Court, now Court of Appeals,

dismissed the petition for lack of merit. 5
Hence, the instant petition for review, raising the following issues for the resolution
of this Court:
1. May the trial court in a complaint for ejectment increase the rental
agreed upon by the parties, and in the instant case, from the agreed
P250.00 to P500.00, and then to P750.00, without violating the
provisions of existing laws;
2. May the trial court alter the agreement of the parties by shortening
the period of the lease from an indefinite period within the purview of
Presidential Decree No. 20, the law in force at the time, and of the
amendatory Batas Pambansa Blg. 25, to a fixed two (2) years;
3. In two dismissing the petition for review, and in effect, affirming the
judgments of the Metropolitan Trial Court, and the Regional Trial Court,
has the Honorable Intermediate Appellate Court committed a grave
abuse of discretion amounting to lack or absence of jurisdiction, or at
least a grave reversible error of a question of law, and/or of fact and
law, correctible by the instant petition ? 6
It has been established that petitioners have been occupying the leased premises
on a verbal contract since 1961 at a monthly rent of P250.00, and that although no
fixed period for the duration of the lease has been agreed upon the original lessor
and lessee, the rentals were paid monthly.
Under the circumstances, there appears to be no dispute that subject contract of
lease is covered by P.D. 20 and later by B.P. No. 25.
The decisive issue therefore, in this case, is whether or not subject contract of lease
is for an indefinite period, for the purpose of applying Presidential Decree No. 20.
The pertinent provision of P.D. No. 20 reads:
SEC. 4. Except when the lease is for a definite period, the provisions
of paragraph (1) of Article 1673 of the Civil Code of the Philippines
insofar as they refer to dwelling unit or land on which another's
dwelling is located shall be suspended until otherwise provided; but
other provisions of the Civil Code and the Rules of Court of the
Philippines on lease contracts, insofar as they are not in conflict with
the provisions of this act, shall apply.
To exempt the lease from the application of P.D. No. 20, it must be one with a
definite period.
It will be recalled that the agreement between the original lessor and lessee was
unwritten, so that it is difficult to determine with certainty the terms and conditions
agreed upon.
Be that as it may, it is undisputed that the rentals are paid monthly. This Court had
already ruled that leases are deemed on a "month-to-month basis", if rentals
therefore are paid monthly. 7

Similarly, it is well settled that a lease contract "on a month-to month basis"
provides for a definite period and may be terminated at the end of any month.
express exception of P.D. No. 20, judicial ejectment lies when the lease is for a
definite period or when the fixed or definite period agreed upon has expired. 9

By

Even more recently, this Court clarified that "(I)n exempting from suspension
ejectments on the ground of the expiration of the lease period, Section 4 of
Presidential Decree No. 20 made no distinction between oral and written lease
contracts and no distinction may, therefore, be inferred. Consequently, at the time
of filing her action the private respondent had a clear and indubitable right to eject
the petitioners, the period of the latter's lease expiring at the end of every monthly
period ... 10 The Court further pointed out that the Rent Control Law now in force,
Batas Pambansa Blg. 877, has erased the distinction between oral and written
leases insofar as expiration of the lease period as a ground for judicial ejectment in
leases covered by said law, is concerned. 11
In view of the foregoing, there appears to be no necessity to discuss the other
issues in this case; more specifically whether or not the trial court may increase the
rental and/or alter the period of the lease from an indefinite period to a definite
period; both issues having become moot and academic.
Citing the case of Mabalot v. Madela Jr. 12 the Court of Appeals ruled that the petition
has been rendered moot and academic by the death of the lessee Fausta
Dimaculangan, which terminated the lease in her favor. It will be noted however,
that in the aforecited case, those seeking to continue in possession of the premises
were not the heirs of the lessee but merely members of the lessee's household,
which does not apply in the case at bar, where petitioners are the lessee's children.
Authorities are of the view that lease is not essentially personal in character, thus
the right is transmissible to the heirs. 13
At any rate, the period fixed by respondent Judge which appears acceptable to the
lessor has expired in 1982 and has therefore become moot and academic, aside
from the fact that with private respondent's conformity, it has become the latter's
term which is well within his authority; that is, to terminate the contract and enter
into a new one.
WHEREFORE, the petition is hereby dismissed for lack of merit, with costs against
the petitioner.
SO ORDERED.
Feliciano, Bidin and Cortes JJ., concur.
Gutierrez, Jr., J., In the result.

SECOND DIVISION
[G.R. No. 138842. October 18, 2000]
NATIVIDAD P. NAZARENO, MAXIMINO P. NAZARENO, JR., petitioners, vs.
COURT OF APPEALS, ESTATE OF MAXIMINO A. NAZARENO, SR.,
ROMEO P. NAZARENO and ELIZA NAZARENO, respondents.

DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision [1] of the Court of Appeals
in CA-GR CV No. 39441 dated May 29, 1998 affirming with modifications the
decision of the Regional Trial Court, Branch 107, Quezon City, in an action for
annulment of sale and damages.
The facts are as follows:
Maximino Nazareno, Sr. and Aurea Poblete were husband and wife. Aurea died
on April 15, 1970, while Maximino, Sr. died on December 18, 1980. They had five
children, namely, Natividad, Romeo, Jose, Pacifico, and Maximino, Jr. Natividad and
Maximino, Jr. are the petitioners in this case, while the estate of Maximino, Sr.,
Romeo, and his wife Eliza Nazareno are the respondents.
During their marriage, Maximino Nazareno, Sr. and Aurea Poblete acquired
properties in Quezon City and in the Province of Cavite. It is the ownership of some
of these properties that is in question in this case.
It appears that after the death of Maximino, Sr., Romeo filed an intestate case in
the Court of First Instance of Cavite, Branch XV, where the case was docketed as Sp.
Proc. No. NC-28. Upon the reorganization of the courts in 1983, the case was
transferred to the Regional Trial Court of Naic, Cavite. Romeo was appointed
administrator of his fathers estate.
In the course of the intestate proceedings, Romeo discovered that his parents
had executed several deeds of sale conveying a number of real properties in favor
of his sister, Natividad. One of the deeds involved six lots in Quezon City which were
allegedly sold by Maximino, Sr., with the consent of Aurea, to Natividad on January
29, 1970 for the total amount of P47,800.00. The Deed of Absolute Sale reads as
follows:
DEED OF ABSOLUTE SALE
KNOW ALL MEN BY THESE PRESENTS:
I, MAXIMINO A. NAZARENO, Filipino, married to Aurea Poblete-Nazareno, of legal age
and a resident of the Mun. of Naic, Prov. of Cavite, Philippines,
-WITNESSETHThat I am the absolute registered owner of six (6) parcels of land with the
improvements thereon situated in Quezon City, Philippines, which parcels of land
are herewith described and bounded as follows, to wit:
TRANS. CERT. OF TITLE NO. 140946
A parcel of land (Lot 3-B of the subdivision plan Psd-47404, being a portion of Lot 3,
Block D-3 described on plan Bsd-10642, G.L.R.O. Record No.) situated in the Quirino
District, Quezon City. Bounded on the N., along line 1-2 by Lot 15, Block D-3 of plan
Bsd - 10642; along line 2-3 by Lot 4, Block D-3 of plan Bsd-10642; along line 3-4 by
Aurora Boulevard (Road Lot-1, Bsd-10642); and along line 4-1 by Lot 3-D of the

subdivision plan. Beginning at a point marked 1 on plan, being S.29 deg. 26E.,
1156.22 m. from B.L.L.M. 9, Quezon City,
thence N. 79 deg. 53E., 12.50 m. to point 2;
thence S. 10 deg. 07E., 40.00 m. to point 3;
thence S. 79 deg. 53W., 12.50 m. to point 4;
thence N. 10 deg. 07W., 40.00 m. to the point
of beginning; containing an area of FIVE HUNDRED (500) SQUARE METERS. All
points referred to are indicated on the plan and are marked on the ground as
follows: points 1 and 4 by P.L.S. Cyl. Conc. Mons. bearings true; date of the
original survey, April 8-July 15, 1920 and that of the subdivision survey, March 25,
1956.
TRANS. CERT. OF TITLE NO. 132019
A parcel of land (Lot 3, Block 93 of the subdivision plan Psd-57970 being a portion
of Lot 6, Pcs-4786, G.L.R.O. Rec. No. 917) situated in Quirino District Quezon
City. Bounded on the NW., along line 1-2, by Lot 1, Block 93; on the NE., along line 23, by Road Lot 101; on the SE., along line 3-4, by Road Lot 100; on the SW., along
line 4-1, by Lot 4, Block 93; all of the subdivision plan. Beginning at point marked
1 on plan, being S. 65 deg. 40 3339.92 m. from B.L.L.M. No. 1, Marikina, Rizal;
thence N. 23 deg. 28 min. E., 11.70 m. to point 2;
thence S. 66 deg. 32 min. E., 18.00 m. to point 3;
thence S. 23 deg. 28 min. W., 11.70 m. to point 4;
thence N. 66 deg. 32. min. W., 18.00 m. to the point
of beginning; containing an area of TWO HUNDRED TEN SQUARE METERS AND SIXTY
SQUARE DECIMETERS (210.60). All points referred to are indicated on the plan and
are marked on the ground by B.L. Cyl. Conc. Mons. 15 x 60 cm.; bearings true; date
of the original survey, Nov. 10, 1920 and Jan. 31-March 31, 1924 and that of the
subdivision survey, February 1 to September 30, 1954. Date approved - March 9,
1962.
TRANS. CERT. OF TITLE NO. 118885
A parcel of land (Lot No. 10, of the consolidation and subdivision plan Pcs-988,
being a portion of the consolidated Lot No. 26, Block No. 6, Psd-127, and Lots Nos.
27-A and 27-B, Psd-14901, G.L.R.O.Record No. 917), situated in the District of
Cubao, Quezon City, Island of Luzon. Bounded on the NE., by Lot No. 4 of the
consolidation and subdivision plan; on the SE., by Lot No. 11 of the consolidation
and subdivision plan; on the SW., by Lot No. 3 of the consolidation and subdivision
plan; and on the NW., by Lot No. 9 of the consolidation and subdivision
plan. Beginning at a point marked 1 on the plan, being S. 7 deg. 26W., 4269.90
m. more or less from B.L.L.M. No. 1, Mp. of Mariquina;
thence S. 25 deg. 00E., 12.00 m. to point 2;

thence S. 64 deg. 59W., 29.99 m. to point 3;

thence N. 25 deg. 00W., 12.00 m to point 4;
thence N. 64 deg. 59E., 29.99 m. to the point of
beginning; containing an area of THREE HUNDRED SIXTY SQUARE METERS (360),
more or less. All points referred to are indicated on the plan and on the ground are
marked by P.L.S. Conc. Mons. 15 x 60 cm.; bearings true; declination 0 deg. 50E.,
date of the original survey, April 8 to July 15, 1920, and that of the consolidation
and subdivision survey, April 24 to 26, 1941.
TRANS. CERT. OF TITLE NO. 118886
A parcel of land (Lot No. 11, of the consolidation and subdivision plan Pcs-988,
being a portion of the consolidated Lot No. 26, Block No. 6, Psd-127, and Lots Nos.
27-A and 27-B, Psd-14901, G.L.R.O. Record No. 917), situated in the District of
Cubao, Quezon City, Island of Luzon. Bounded on the NE., by Lot No. 4 of the
consolidation and subdivision plan; on the SE., by Lot No. 12 of the consolidation
and subdivision plan; on the SW., by Lot No. 3 of the consolidation and subdivision
plan; on the NW., by Lot No. 10 of the consolidation and subdivision plan. Beginning
at a point marked 1 on plan, being S. 79 deg. 07W., 4264.00 m. more or less from
B.L.L.M. No. 1, Mp. of Mariquina;
thence S. 64 deg. 59W., 29.99 m. to point 2;
thence N. 25 deg. 00W., 12.00 m. to point 3;
thence N. 64 deg. 59E., 29.99 m. to point 4;
thence S. 26 deg. 00E., 12.00 m. to the point of
beginning; containing an area of THREE HUNDRED SIXTY SQUARE METERS (360),
more or less. All points referred to are indicated on the plan and on the ground, are
marked by P.L.S. Conc. Mons. 15 x 60 cm.; bearings true; declination 0 deg. 50E.;
date of the original survey, April 8 to July 15, 1920, and that of the consolidation
and subdivision survey, April 24 to 26, 1941.
A parcel of land (Lot No. 13 of the consolidation and subdivision plan Pcs-988,
being a portion of the consolidated Lot No. 26, Block No. 6, Psd-127, and Lots Nos.
27-A and 27-B, Psd-14901, G.L.R.O.Record No. 917), situated in the District of
Cubao, Quezon City, Island of Luzon. Bounded on the NE., by Lot No. 4 of the
consolidation and subdivision plan; on the SE., by Lot No. 14, of the consolidation;
and subdivision plan; on the SW., by Lot No. 3 of the consolidation and subdivision
plan; and on the NW., by Lot No. 12, of the consolidation and subdivision
plan. Beginning at the point marked 1 on plan, being S.78 deg. 48W., 4258.20 m.
more or less from B.L.L.M. No. 1, Mp. of Mariquina;
thence S. 64 deg. 58W., 30.00 m. to point 2;
thence N. 25 deg. 00W., 12.00 m. to point 3;
thence N. 64 deg. 59E., 29.99 m. to point 4;
thence S.25 deg. 00E., 12.00 m. to point of

beginning; containing an area of THREE HUNDRED SIXTY SQUARE METERS (360,

more or less. All points referred to are indicated on the plan and on the ground are
marked by P.L.S. Conc. Mons. 15 x 60 cm.; bearings true; declination 0 deg. 50E.,
date of the original survey, April 8 to July 15, 1920, and that of the consolidation
and subdivision survey, April 24 to 26, 1941.
A parcel of land (Lot No. 14, of the consolidation and subdivision plan Pcs-988,
being a portion of the consolidated Lot No. 26, Block No. 6, Psd-127, and Lots Nos.
27-A and 27-B, Psd-14901, G.L.R.O. Record No. 917), situated in the District of
Cubao, Quezon City, Island of Luzon. Bounded on the NE., by Lot No. 4 of the
consolidation and subdivision plan; on the SE., by Lot No. 15, of the consolidation
and subdivision plan; on the SW., by Lot No. 3 of the consolidation and subdivision
plan; and on the NW., by Lot No. 13 of the consolidation and subdivision
plan. Beginning at the point marked 1 on plan, being S.78 deg. 48W., 4258.20 m.
more or less from B.L.L.M. No. 1, Mp. of Mariquina;
thence S. 25 deg. 00E., 12.00 m. to point 2;
thence S. 65 deg. 00W., 30.00 m. to point 3;
thence S. 65 deg. 00W., 12.00 m. to point 4;
thence N.64 deg. 58E., 30.00 m. to the point of
beginning; containing an area of THREE HUNDRED SIXTY SQUARE METERS (360),
more or less. All points referred to are indicated on the plan and on the ground are
marked by P.L.S. Conc. Mons. 15 x 60 cm.; bearings true; declination 0 deg. 50E.,
date of the original survey, April 8 to July 15, 1920, and that of the consolidation
and subdivision survey, April 24 to 26, 1941.
That for and in consideration of the sum of FORTY THREE THOUSAND PESOS
(P43,000.00) PHILIPPINE CURRENCY, to me in hand paid by NATIVIDAD P.
NAZARENO, Filipino, single, of legal age and a resident of the Mun. of Naic, Prov. of
Cavite, Philippines, the receipt whereof is acknowledged to my entire satisfaction, I
do hereby CEDE, SELL, TRANSFER, CONVEY and ASSIGN unto the said Natividad P.
Nazareno, her heirs, administrators and assigns, all my title, rights, interests and
participations to the abovedescribed parcels of land with the improvements
thereon, with the exception of LOT NO. 11 COVERED BY T.C.T. NO. 118886, free of
any and all liens and encumbrances; and
That for and in consideration of the sum of FOUR THOUSAND EIGHT HUNDRED
PESOS (P4,800.00) PHILIPPINE CURRENCY, to me in hand paid by NATIVIDAD P.
NAZARENO, Filipino, single, of legal age and a resident of the Mun. of Naic, Prov. of
Cavite, Philippines, the receipt whereof is acknowledged to my entire satisfaction, I
do hereby CEDE, SELL, TRANSFER, CONVEY and ASSIGN unto the said Natividad P.
Nazareno, her heirs, administrators and assigns, all my title, rights, interests and
participations in and to Lot No. 11 covered by T.C.T. No. 118886 above-described,
free of any and all liens and encumbrances, with the understanding that the title to
be issued in relation hereto shall be separate and distinct from the title to be issued
in connection with Lots Nos. 13 and 14, although covered by the same title.
IN WITNESS WHEREOF, I have hereunto signed this deed of absolute sale in the City
of Manila, Philippines, this 29th day of January, 1970. [2]

By virtue of this deed, transfer certificates of title were issued to Natividad, to

wit: TCT No. 162738 (Lot 3-B), [3] TCT No. 162739 (Lot 3), [4] TCT No. 162735 (Lot 10),
[5]
TCT No. 162736 (Lot 11),[6] and TCT No. 162737 (Lots 13 and 14), [7] all of the
Register of Deeds of Quezon City.
Among the lots covered by the above Deed of Sale is Lot 3-B which is registered
under TCT No. 140946. This lot had been occupied by Romeo, his wife Eliza, and by
Maximino, Jr. since 1969. Unknown to Romeo, Natividad sold Lot 3-B on July 31,
1982 to Maximino, Jr.,[8] for which reason the latter was issued TCT No. 293701 by
the Register of Deeds of Quezon City. [9]
When Romeo found out about the sale to Maximino, Jr., he and his wife
Eliza locked Maximino, Jr. out of the house. On August 4, 1983, Maximino, Jr. brought
an action for recoveryof possession and damages with prayer for writs of
preliminary injunction and mandatory injunction with the Regional Trial Court of
Quezon City. On December 12, 1986, the trial court ruled in favor of Maximino, Jr. In
CA-G.R. CV No. 12932, the Court of Appeals affirmed the decision of the trial court.
[10]

On June 15, 1988, Romeo in turn filed, on behalf of the estate of Maximino, Sr.,
the present case for annulment of sale with damages against Natividad and
Maximino, Jr. The case was filed in the Regional Trial Court of Quezon City, where it
was docketed as Civil Case No. 88-58. [11] Romeo sought the declaration of nullity of
the sale made on January 29, 1970 to Natividad and that made on July 31, 1982 to
Maximino, Jr. on the ground that both sales were void for lack of consideration.
On March 1, 1990, Natividad and Maximino, Jr. filed a third-party complaint
against the spouses Romeo and Eliza. [12] They alleged that Lot 3, which was included
in the Deed of Absolute Sale of January 29, 1970 to Natividad, had been
surreptitiously appropriated by Romeo by securing for himself a new title (TCT No.
277968) in his name.[13] They alleged that Lot 3 is being leased by the spouses
Romeo and Eliza to third persons. They therefore sought the annulment of the
transfer to Romeo and the cancellation of his title, the eviction of Romeo and his
wife Eliza and all persons claiming rights from Lot 3, and the payment of damages.
The issues having been joined, the case was set for trial. Romeo presented
evidence to show that Maximino and Aurea Nazareno never intended to sell the six
lots to Natividad and that Natividad was only to hold the said lots in trust for her
siblings. He presented the Deed of Partition and Distribution dated June 28, 1962
executed by Maximino Sr. and Aurea and duly signed by all of their children, except
Jose, who was then abroad and was represented by their mother, Aurea. By virtue of
this deed, the nine lots subject of this Deed of Partition were assigned by raffle as
follows:
1. Romeo - Lot 25-L (642 m2)
2. Natividad - Lots 23 (312 m2) and 24 (379 m2)
3. Maximino, Jr. - Lots 6 (338 m2) and 7 (338 m2)
4. Pacifico - Lots 13 (360 m2) and 14 (360 m2)
5. Jose - Lots 10 (360 m2) and 11 (360 m2)

Romeo received the title to Lot 25-L under his name, [14] while Maximino, Jr.
received Lots 6 and 7 through a Deed of Sale dated August 16, 1966 for the amount
of P9,500.00.[15]Pacifico and Joses shares were allegedly given to Natividad, who
agreed to give Lots 10 and 11 to Jose, in the event the latter came back from
abroad. Natividads share, on the other hand, was sold to third persons [16] because
she allegedly did not like the location of the two lots. But, Romeo said, the money
realized from the sale was given to Natividad.
Romeo also testified that Lot 3-B was bought for him by his father, while Lot 3
was sold to him for P7,000.00 by his parents on July 4, 1969. [17] However, he
admitted that a document was executed by his parents transferring six properties in
Quezon City, i.e., Lots 3, 3-B, 10, 11, 13, and 14, to Natividad.
Romeo further testified that, although the deeds of sale executed by his parents
in their favor stated that the sale was for a consideration, they never really paid any
amount for the supposed sale. The transfer was made in this manner in order to
avoid the payment of inheritance taxes. [18] Romeo denied stealing Lot 3 from his
sister but instead claimed that the title to said lot was given to him by Natividad in
1981 after their father died.
Natividad and Maximino, Jr. claimed that the Deed of Partition and Distribution
executed in 1962 was not really carried out. Instead, in December of 1969, their
parents offered to sell to them the six lots in Quezon City, i.e., Lots 3, 3-B, 10, 11, 13
and 14. However, it was only Natividad who bought the six properties because she
was the only one financially able to do so. Natividad said she sold Lots 13 and 14 to
Ros-Alva Marketing Corp.[19] and Lot 3-B to Maximino, Jr. for P175,000.00.
[20]
Natividad admitted that Romeo and the latters wife were occupying Lot 3-B at
that time and that she did not tell the latter about the sale she had made to
Maximino, Jr.
Natividad said that she had the title to Lot 3 but it somehow got lost. She could
not get an original copy of the said title because the records of the Registrar of
Deeds had been destroyed by fire. She claimed she was surprised to learn that
Romeo was able to obtain a title to Lot 3 in his name.
Natividad insisted that she paid the amount stated in the Deed of Absolute Sale
dated January 29, 1970. She alleged that their parents had sold these properties to
their children instead of merely giving the same to them in order to impose on them
the value of hardwork.
Natividad accused Romeo of filing this case to harass her after Romeo lost in the
action for recovery of possession (Civil Case No. Q-39018) which had been brought
against him by Maximino, Jr. It appears that before the case filed by Romeo could be
decided, the Court of Appeals rendered a decision in CA-GR CV No. 12932 affirming
the trial courts decision in favor of Maximino, Jr.
On August 10, 1992, the trial court rendered a decision, the dispositive portion
of which states:
WHEREFORE, judgment is hereby rendered declaring the nullity of the Deed of Sale
dated January 29, 1970. Except as to Lots 3, 3-B, 13 and 14 which had passed on to
third persons, the defendant Natividad shall hold the rest in trust for Jose Nazareno
to whom the same had been adjudicated. The Register of Deeds of Quezon City is
directed to annotate this judgment on Transfer Certificate of Titles Nos. 162735 and
162736 as a lien in the titles of Natividad P. Nazareno.

The defendants counterclaim is dismissed. Likewise, the third-party complaint is

dismissed.
The defendants are hereby directed to pay to the plaintiff jointly and severally the
sum of P30,000 as and for attorneys fees. Likewise, the third-party plaintiff is
directed to pay the third-party defendants attorneys fees of P20,000.
All other claims by one party against the other are dismissed.
SO ORDERED.[21]
Natividad and Maximino, Jr. filed a motion for reconsideration. As a result, on
October 14, 1992 the trial court modified its decision as follows:
WHEREFORE, the plaintiffs Partial Motion for Reconsideration is hereby granted. The
judgment dated August 10, 1992 is hereby amended, such that the first paragraph
of its dispositive portion is correspondingly modified to read as follows:
WHEREFORE, judgment is hereby rendered declaring the nullity of the Deeds of
Sale dated January 29, 1970 and July 31, 1982.
Except as to Lots 3, 13 and 14 which had passed on to third person, the defendant
Natividad shall hold the rest OF THE PROPERTIES COVERED BY THE DEED OF SALE
DATED JANUARY 29, 1970 (LOTS 10 and 11) in trust for Jose Nazareno to whom the
same had been adjudicated.
The Register of Deeds of Quezon City is directed to annotate this judgment on
Transfer Certificates of Title No. 162735 and 162736 as a lien on the titles of
Natividad P. Nazareno.
LIKEWISE, THE SAID REGISTER OF DEEDS IS DIRECTED TO CANCEL TCT NO. 293701
(formerly 162705) OVER LOT 3-B AND RESTORE TCT NO. 140946 IN THE NAME OF
MAXIMINO NAZARENO SR. AND AUREA POBLETE.[22]
On appeal to the Court of Appeals, the decision of the trial court was modified in
the sense that titles to Lot 3 (in the name of Romeo Nazareno) and Lot 3-B (in the
name of Maximino Nazareno, Jr.), as well as to Lots 10 and 11 were cancelled and
ordered restored to the estate of Maximino Nazareno, Sr. The dispositive portion of
the decision dated May 29, 1998 reads:
WHEREFORE, the appeal is GRANTED. The decision and the order in question are
modified as follows:
1. The Deed of Absolute Sale dated 29 January 1970 and the Deed of Absolute Sale
dated 31 July 1982 are hereby declared null and void;
2. Except as to Lots 13 and 14 ownership of which has passed on to third persons, it
is hereby declared that Lots 3, 3-B, 10 and 11 shall form part of the estate of the
deceased Maximino Nazareno, Sr.;
3. The Register of Deeds of Quezon City is hereby ordered to restore TCT No.
140946 (covering Lot 3-B), TCT No. 132019 (covering Lot 3), TCT No. 118885
(covering Lot 10), and TCT No. 118886 (covering Lot 11). [23]

Petitioners filed a motion for reconsideration but it was denied in a resolution

dated May 27, 1999. Hence this petition.
Petitioners raise the following issues:
1. WHETHER OR NOT THE UNCORROBORATED TESTIMONY OF PRIVATE
RESPONDENT ROMEO P. NAZARENO CAN DESTROY THE FULL FAITH AND
CREDIT ACCORDED TO NOTARIZED DOCUMENTS LIKE THE DEED OF
ABSOLUTE SALE DATED JANUARY 29, 1970 (EXH. 1) EXECUTED BY THE
DECEASED SPOUSES MAXIMINO A. NAZARENO, SR. AND AUREA POBLETE
IN FAVOR OF PETITIONER NATIVIDAD P. NAZARENO.
2. WHETHER OR NOT THE RESPONDENT COURT GROSSLY MISAPPRECIATED
THE FACTS OF THE CASE WITH RESPECT TO THE VALIDITY OF THE SAID
DEED OF ABSOLUTE SALE DATED JANUARY 29, 1970 (EXH. 1) IN THE
LIGHT OF THE FOLLOWING:
A) THE DOCUMENTARY EVIDENCE, ALL OF WHICH ARE NOTARIZED,
EXECUTED BY THE DECEASED SPOUSES DURING THEIR LIFETIME
INVOLVING SOME OF THEIR CONJUGAL PROPERTIES.
B) THE EXECUTION OF AN EXTRA-JUDICIAL PARTITION WITH WAIVER OF
RIGHTS AND CONFIRMATION OF SALE DATED MAY 24, 1975 (EXH. 14A)
OF THE ESTATE OF AUREA POBLETE BY THE DECEASED MAXIMINO A.
NAZARENO, SR. AND THEIR CHILDREN INVOLVING THE ONLY
REMAINING ESTATE OF AUREA POBLETE THUS IMPLIEDLY ADMITTING
THE VALIDITY OF PREVIOUS DISPOSITIONS MADE BY SAID DECEASED
SPOUSES ON THEIR CONJUGAL PROPERTIES, HALF OF WHICH WOULD
HAVE BECOME A PART OF AUREA POBLETES ESTATE UPON HER
DEMISE.
C) THE ADMISSION MADE BY MAXIMINO A. NAZARENO, SR. IN HIS
TESTIMONY IN OPEN COURT ON AUGUST 13, 1980 DURING HIS
LIFETIME IN CIVIL CASE NO. NC-712 (EXH. 81, 81B) THAT HE HAD SOLD
CERTAIN PROPERTIES IN FAVOR OF NATIVIDAD P. NAZARENO THUS
BELYING THE CLAIM OF ROMEO P. NAZARENO THAT THE DEED OF
ABSOLUTE SALE DATED JANUARY 29, 1970 IS ONE AMONG THE
DOCUMENTS EXECUTED BY THE DECEASED SPOUSES TO BE WITHOUT
CONSIDERATION.
D) THE ADMISSIONS MADE BY ROMEO P. NAZARENO HIMSELF CONTAINED
IN A FINAL DECISION OF THE RESPONDENT COURT IN CA-GR CV NO.
12932 DATED AUGUST 31, 1992 AND AN ANNEX APPEARING IN HIS
ANSWER TO THE COMPLAINT IN CIVIL CASE NO. Q-39018 (EXH. 11-B)
INVOLVING LOT 3B, ONE OF THE PROPERTIES IN QUESTION THAT THE
SAID PROPERTY IS OWNED BY PETITIONER NATIVIDAD P. NAZARENO.
E) THE PARTIAL PROJECT OF PARTITION DATED MAY 24, 1995 WHICH WAS
APPROVED BY THE INTESTATE COURT IN SP. PROC. NO. NC-28 AND
EXECUTED IN ACCORDANCE WITH THE LATTER COURTS FINAL ORDER
DATED JULY 9, 1991 DETERMINING WHICH WERE THE REMAINING
PROPERTIES OF THE ESTATE.
3. WHETHER OR NOT THE DEED OF ABSOLUTE SALE DATED JANUARY 29,
1970 EXECUTED BY THE DECEASED SPOUSES MAXIMINO A. NAZARENO,

SR. AND AUREA POBLETE DURING THEIR LIFETIME INVOLVING THEIR

CONJUGAL PROPERTIES IS AN INDIVISIBLE CONTRACT? AND IF SO
WHETHER OR NOT UPON THEIR DEATH, THE ESTATE OF MAXIMINO A.
NAZARENO, SR. ALONE CAN SEEK THE ANNULMENT OF SAID SALE?
4. WHETHER OR NOT THE SALE OF LOT 3 UNDER THE DEED OF ABSOLUTE
SALE DATED JANUARY 29, 1970 IN FAVOR OF PETITIONER NATIVIDAD P.
NAZARENO, IS VALID CONSIDERING THAT AS PER THE ORDER OF THE
LOWER COURT DATED NOVEMBER 21, 1990. ROMEO NAZARENO
ADMITTED THAT HE DID NOT PAY THE CONSIDERATION STATED IN THE
DEED OF ABSOLUTE SALE DATED JULY 4, 1969 EXECUTED BY THE
DECEASED SPOUSES IN HIS FAVOR (EXH. M-2).
5. WHETHER OR NOT AS A CONSEQUENCE, THE TITLE ISSUED IN THE NAME
OF ROMEO P. NAZARENO, TCT NO. 277968 (EXH. M) SHOULD BE
CANCELLED AND DECLARED NULL AND VOID AND A NEW ONE ISSUED IN
FAVOR OF NATIVIDAD P. NAZARENO PURSUANT TO THE DEED OF
ABSOLUTE SALE EXECUTED IN THE LATTERS FAVOR ON JANUARY 29,
1970 BY THE DECEASED SPOUSES.[24]
We find the petition to be without merit.
First. Petitioners argue that the lone testimony of Romeo is insufficient to
overcome the presumption of validity accorded to a notarized document.
To begin with, the findings of fact of the Court of Appeals are conclusive on the
parties and carry even more weight when these coincide with the factual findings of
the trial court.This Court will not weigh the evidence all over again unless there is a
showing that the findings of the lower court are totally devoid of support or are
clearly erroneous so as to constitute serious abuse of discretion. [25] The lone
testimony of a witness, if credible, is sufficient. In this case, the testimony of Romeo
that no consideration was ever paid for the sale of the six lots to Natividad was
found to be credible both by the trial court and by the Court of Appeals and it has
not been successfully rebutted by petitioners. We, therefore, have no reason to
overturn the findings by the two courts giving credence to his testimony.
The fact that the deed of sale was notarized is not a guarantee of the validity of
its contents. As held in Suntay v. Court of Appeals:[26]
Though the notarization of the deed of sale in question vests in its favor the
presumption of regularity, it is not the intention nor the function of the notary public
to validate and make binding an instrument never, in the first place, intended to
have any binding legal effect upon the parties thereto. The intention of the parties
still and always is the primary consideration in determining the true nature of a
contract.
Second. Petitioners make capital of the fact that in C.A.-G.R. CV No. 12932,
which was declared final by this Court in G.R. No. 107684, the Court of Appeals
upheld the right of Maximino, Jr. to recover possession of Lot 3-B. In that case, the
Court of Appeals held:
As shown in the preceding disquisition, Natividad P. Nazareno acquired the property
in dispute by purchase in 1970. She was issued Transfer Certificate of Title No.
162738 of the Registry of Deeds of Quezon City. When her parents died, her mother
Aurea Poblete-Nazareno in 1970 and her father Maximino A. Nazareno, Sr. in 1980,

Natividad P. Nazareno had long been the exclusive owner of the property in
question. There was no way therefore that the aforesaid property could belong to
the estate of the spouses Maximino Nazareno, Sr. and Aurea Poblete. The mere fact
that Romeo P. Nazareno included the same property in an inventory of the
properties of the deceased Maximino A. Nazareno, Sr. will not adversely affect the
ownership of the said realty. Appellant Romeo P. Nazarenos suspicion that his
parents had entrusted all their assets under the care and in the name of Natividad P.
Nazareno, their eldest living sister who was still single, to be divided upon their
demise to all the compulsory heirs, has not progressed beyond mere
speculation. His barefaced allegation on the point not only is without any
corroboration but is even belied by documentary evidence. The deed of absolute
sale (Exhibit B), being a public document (Rule 132, Secs. 19 and 23, Revised
Rules on Evidence), is entitled to great weight; to contradict the same, there must
be evidence that is clear, convincing and more than merely preponderant (Yturralde
vs. Aganon, 28 SCRA 407; Favor vs. Court of Appeals, 194 SCRA 308). Defendantsappellants own conduct disproves their claim of co-ownership over the property in
question. Being themselves the owner of a ten-unit apartment building along
Stanford St., Cubao Quezon City, defendants-appellants, in a letter of demand to
vacate addressed to their tenants (Exhibits P, P-1 and P-2) in said apartment,
admitted that the house and lot located at No. 979 Aurora Blvd., Quezon City where
they were residing did not belong to them. Also, when they applied for a permit to
repair the subject property in 1977, they stated that the property belonged to and
was registered in the name of Natividad P. Nazareno. Among the documents
submitted to support their application for a building permit was a copy of TCT No.
162738 of the Registry of Deeds of Quezon City in the name of Natividad Nazareno
(Exhibit O and submarkings; tsn March 15, 1985, pp. 4-5). [27]
To be sure, that case was for recovery of possession based on ownership of Lot
3-B. The parties in that case were Maximino, Jr., as plaintiff, and the spouses Romeo
and Eliza, as defendants. On the other hand, the parties in the present case for
annulment of sale are the estate of Maximino, Sr., as plaintiff, and Natividad and
Maximino, Jr., as defendants. Romeo and Eliza were named third-party defendants
after a third-party complaint was filed by Natividad and Maximino, Jr. As already
stated, however, this third-party complaint concerned Lot 3, and not Lot 3-B.
The estate of a deceased person is a juridical entity that has a personality of its
own.[28] Though Romeo represented at one time the estate of Maximino, Sr., the
latter has a separate and distinct personality from the former. Hence, the judgment
in CA-GR CV No. 12932 regarding the ownership of Maximino, Jr. over Lot 3-B binds
Romeo and Eliza only, and not the estate of Maximino, Sr., which also has a right to
recover properties which were wrongfully disposed.
Furthermore, Natividads title was clearly not an issue in the first case. In other
words, the title to the other five lots subject of the present deed of sale was not in
issue in that case. If the first case resolved anything, it was the ownership of
Maximino, Jr. over Lot 3-B alone.
Third. Petitioners allege that, as shown by several deeds of sale executed by
Maximino, Sr. and Aurea during their lifetime, the intention to dispose of their real
properties is clear.Consequently, they argue that the Deed of Sale of January 29,
1970 should also be deemed valid.
This is a non-sequitur. The fact that other properties had allegedly been sold by
the spouses Maximino, Sr. and Aurea does not necessarily show that the Deed of
Sale made on January 29, 1970 is valid.

Romeo does not dispute that their parents had executed deeds of sale. The
question, however, is whether these sales were made for a consideration. The trial
court and the Court of Appeals found that the Nazareno spouses transferred their
properties to their children by fictitious sales in order to avoid the payment of
inheritance taxes.
Indeed, it was found both by the trial court and by the Court of Appeals that
Natividad had no means to pay for the six lots subject of the Deed of Sale.
All these convince the Court that Natividad had no means to pay for all the lots she
purportedly purchased from her parents. What is more, Romeos admission that he
did not pay for the transfer to him of lots 3 and 25-L despite the considerations
stated in the deed of sale is a declaration against interest and must ring with
resounding truth. The question is, why should Natividad be treated any
differently, i.e., with consideration for the sale to her, when she is admittedly the
closest to her parents and the one staying with them and managing their affairs? It
just seems without reason. Anyway, the Court is convinced that the questioned
Deed of Sale dated January 29, 1970 (Exh. A or 1) is simulated for lack of
consideration, and therefore ineffective and void. [29]
In affirming this ruling, the Court of Appeals said:
Facts and circumstances indicate badges of a simulated sale which make the Deed
of Absolute Sale dated 29 January 1970 void and of no effect. In the case of Suntay
vs. Court of Appeals (251 SCRA 430 [1995]), the Supreme Court held that badges of
simulation make a deed of sale null and void since parties thereto enter into a
transaction to which they did not intend to be legally bound.
It appears that it was the practice in the Nazareno family to make simulated
transfers of ownership of real properties to their children in order to avoid the
payment of inheritance taxes. Per the testimony of Romeo, he acquired Lot 25-L
from his parents through a fictitious or simulated sale wherein no consideration was
paid by him. He even truthfully admitted that the sale of Lot 3 to him on 04 July
1969 (Deed of Absolute Sale, Records, Vol. II, p. 453) likewise had no
consideration. This document was signed by the spouses Max, Sr. and Aurea as
vendors while defendant-appellant Natividad signed as witness. [30]
Fourth. Petitioners argue further:
The Deed of Absolute Sale dated January 29, 1970 is an indivisible contract founded
on an indivisible obligation. As such, it being indivisible, it can not be annulled by
only one of them. And since this suit was filed only by the estate of Maximino A.
Nazareno, Sr. without including the estate of Aurea Poblete, the present suit must
fail. The estate of Maximino A. Nazareno, Sr. can not cause its annulment while its
validity is sustained by the estate of Aurea Poblete. [31]
An obligation is indivisible when it cannot be validly performed in parts,
whatever may be the nature of the thing which is the object thereof. The
indivisibility refers to the prestation and not to the object thereof. [32] In the present
case, the Deed of Sale of January 29, 1970 supposedly conveyed the six lots to
Natividad. The obligation is clearly indivisible because the performance of the
contract cannot be done in parts, otherwise the value of what is transferred is
diminished. Petitioners are therefore mistaken in basing the indivisibility of a
contract on the number of obligors.

In any case, if petitioners only point is that the estate of Maximino, Sr. alone
cannot contest the validity of the Deed of Sale because the estate of Aurea has not
yet been settled, the argument would nonetheless be without merit. The validity of
the contract can be questioned by anyone affected by it. [33] A void contract is
inexistent from the beginning. Hence, even if the estate of Maximino, Sr. alone
contests the validity of the sale, the outcome of the suit will bind the estate of
Aurea as if no sale took place at all.
Fifth. As to the third-party complaint concerning Lot 3, we find that this has been
passed upon by the trial court and the Court of Appeals. As Romeo admitted, no
consideration was paid by him to his parents for the Deed of Sale. Therefore, the
sale was void for having been simulated. Natividad never acquired ownership over
the property because the Deed of Sale in her favor is also void for being without
consideration and title to Lot 3 cannot be issued in her name.
Nonetheless, it cannot be denied that Maximino, Sr. intended to give the six
Quezon City lots to Natividad. As Romeo testified, their parents executed the Deed
of Sale in favor of Natividad because the latter was the only female and the only
unmarried member of the family.[34] She was thus entrusted with the real properties
in behalf of her siblings. As she herself admitted, she intended to convey Lots 10
and 11 to Jose in the event the latter returned from abroad. There was thus an
implied trust constituted in her favor. Art. 1449 of the Civil Code states:
There is also an implied trust when a donation is made to a person but it appears
that although the legal estate is transmitted to the donee, he nevertheless is either
to have no beneficial interest or only a part thereof.
There being an implied trust, the lots in question are therefore subject to
collation in accordance with Art. 1061 which states:
Every compulsory heir, who succeeds with other compulsory heirs, must bring into
the mass of the estate any property or right which he may have received from the
decedent, during the lifetime of the latter, by way of donation, or any other
gratuitous title, in order that it may be computed in the determination of the
legitime of each heir, and in the account of the partition.
As held by the trial court, the sale of Lots 13 and 14 to Ros-Alva Marketing,
Corp. on April 20, 1979[35] will have to be upheld for Ros-Alva Marketing is an
innocent purchaser for value which relied on the title of Natividad. The rule is
settled that every person dealing with registered land may safely rely on the
correctness of the certificate of title issued therefor and the law will in no way oblige
him to go behind the certificate to determine the condition of the property. [36]
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Bellosillo, (Chairman), Quisumbing, and De Leon, Jr., JJ., concur.
Buena, J., no part.

[G.R. No. 116896. May 5, 1997]

PHILIPPINE NATIONAL CONSTRUCTION CORPORATION petitioner, vs. COURT

OF APPEALS, MA. TERESA S. RAYMUNDO-ABARRA, JOSE S.
RAYMUNDO, ANTONIO S. RAYMUNDO, RENE S. RAYMUNDO, and
AMADOR S. RAYMUNDO, respondents.
DECISION
DAVIDE, JR., J.:
This petition for review on certiorari has its roots in Civil Case No. 53444, which
was sparked by the petitioner's refusal to pay the rentals as stipulated in the
contract of lease[1] on an undivided portion of 30,000 square meters of a parcel of
land owned by the private respondents.
The lease contract, executed on 18 November 1985, reads in part as follows:
1. TERM OF LEASE - This lease shall be for a period of five (5) years,
commencing on the date of issuance of the industrial clearance by the
Ministry of Human Settlements, renewable for a like or other period at the
option of the LESSEE under the same terms and conditions.
2. RATE OF RENT - LESSEE shall pay to the LESSOR rent at the monthly rate of
TWENTY THOUSAND PESOS (P20,000.00), Philippine Currency, in the manner
set forth in Paragraph 3 below. This rate shall be increased yearly by Five
Percent (5%) based on the agreed monthly rate of P20,000.00 as follows:
Monthly Rate

Period Applicable

P21,000.00

Starting on the 2nd year

P22,000.00

Starting on the 3rd year

P23,000.00

Starting on the 4th year

P24,000.00

Starting on the 5th year

3. TERMS OF PAYMENT - The rent stipulated in Paragraph 2 above shall be paid

yearly in advance by the LESSEE. The first annual rent in the amount of TWO
HUNDRED FORTY THOUSAND PESOS (P240,000.00), Philippine currency, shall
be due and payable upon the execution of this Agreement and the
succeeding annual rents shall be payable every twelve (12) months
thereafter during the effectivity of this Agreement.
4. USE OF LEASED PROPERTY - It is understood that the Property shall be used
by the LESSEE as the site, grounds and premises of a rock crushing plant and
field office, sleeping quarters and canteen/mess hall. The LESSORS hereby
grant to the LESSEE the right to erect on the Leased Property such
structure(s) and/or improvement(s) necessary for or incidental to the
LESSEE's purposes.
...
11. TERMINATION OF LEASE - This Agreement may be terminated by mutual
agreement of the parties. Upon the termination or expiration of the period

of lease without the same being renewed, the LESSEE shall vacate the
Leased Property at its expense.
On 7 January 1986, petitioner obtained from the Ministry of Human Settlements
a Temporary Use Permit[2] for the proposed rock crushing project. The permit was to
be valid for two years unless sooner revoked by the Ministry.
On 16 January 1986, private respondents wrote petitioner requesting payment
of the first annual rental in the amount of P240,000 which was due and payable
upon the execution of the contract. They also assured the latter that they had
already stopped considering the proposals of other aggregates plants to lease the
property because of the existing contract with petitioner. [3]
In its reply-letter, petitioner argued that under paragraph 1 of the lease
contract, payment of rental would commence on the date of the issuance of an
industrial clearance by the Ministry of Human Settlements, and not from the date of
signing of the contract. It then expressed its intention to terminate the contract, as
it had decided to cancel or discontinue with the rock crushing project "due to
financial, as well as technical, difficulties." [4]
The private respondents refused to accede to petitioner's request for the
pretermination of the lease contract. They insisted on the performance of
petitioner's obligation and reiterated their demand for the payment of the first
annual rental.[5]
Petitioner objected to the claim of the private respondents and argued that it
was "only obligated to pay ... the amount of P20,000.00 as rental payments for the
one-month period of lease, counted from 07 January 1986 when the Industrial
Permit was issued by the Ministry of Human Settlements up to 07 February 1986
when the Notice of Termination was served" [6]on private respondents.
On 19 May 1986, the private respondents instituted with the Regional Trial Court
of Pasig an action against petitioner for Specific Performance with Damages. [7] The
case was docketed as Civil Case No. 53444 at Branch 160 of the said court. After
the filing by petitioner of its Answer with Counterclaim, the case was set for trial on
the merits.
What transpired next was summarized by the trial court in this wise:
Plaintiffs rested their case on September 7, 1987 (p. 87 rec.). Defendant asked for
postponement of the reception of its evidence scheduled on August 10, 1988 and as
prayed for, was reset to August 25, 1988 (p. 91 rec.) Counsel for defendant again
asked for postponement, through representative, as he was presently
indisposed. The case was reset, intransferable to September 15 and 26, 1988 (p. 94
rec.) On September 2, 1988, the office of the Government Corporate Counsel
entered its appearance for defendant (p. 95, rec.) and the original counsel later
withdrew his appearance. On September 15, 1988 the Government Corporate
Counsel asked for postponement, represented by Atty. Elpidio de Vega, and with his
conformity in open court, the hearing was reset, intransferable to September 26 and
October 17, 1988. (p. 98, rec.) On September 26, 1988 during the hearing,
defendant's counsel filed a motion for postponement (urgent) as he had "sore
eyes", a medical certificate attached.
Counsel for plaintiffs objected to the postponement and the court considered the
evidence of the government terminated or waived. The case was deemed

submitted for decision upon the filing of the memorandum. Plaintiffs filed their
memorandum on October 26, 1988. (p. 111, rec.).
On October 18, 1988 in the meantime, the defendant filed a motion for
reconsideration of the order of the court on September 26, 1988 (p. 107, rec.) The
motion was not asked to be set for hearing (p. 110 rec.)There was also no proof of
notice and service to counsel for plaintiff. The court in the interest of justice set the
hearing on the motion on November 29, 1988. (p. 120, rec.) but despite notice,
again defendant's counsel was absent (p. 120-A, dorsal side, rec.) without
reason. The court reset the motion to December 16, 1988, in the interest of
justice. The motion for reconsideration was denied by the court. A second motion
for reconsideration was filed and counsel set for hearing the motion on January 19,
1989. During the hearing, counsel for the government was absent. The motion was
deemed abandoned but the court at any rate, after a review of the incidents and the
grounds relied upon in the earlier motion of defendant, found no reason to disturb
its previous order.[8]
On 12 April 1989, the trial court rendered a decision ordering petitioner to pay
the private respondents the amount of P492,000 which represented the rentals for
two years, with legal interest from 7 January 1986 until the amount was fully paid,
plus attorney's fees in the amount of P20,000 and costs.[9]
Petitioner then appealed to the Court of Appeals alleging that the trial court
erred in ordering it to pay the private respondent the amount of P492,000 and in
denying it the right to be heard.
Upon the affirmance of the trial court's decision [10] and the denial of its motion
for reconsideration, petitioner came to this Court ascribing to the respondent Court
of Appeals the same alleged errors and reiterating their arguments.
First. Petitioner invites the attention of this Court to paragraph 1 of the lease
contract, which reads: "This lease shall be for a period of five (5) years,
commencing on the date of issuance of the industrial clearance by the Ministry of
Human Settlements...." It then submits that the issuance of an industrial clearance
is a suspensive condition without which the rights under the contract would not be
acquired. The Temporary Use Permit is not the industrial clearance referred to in
the contract; for the said permit requires that a clearance from the National
Production Control Commission be first secured, and besides, there is a finding in
the permit that the proposed project does not conform to the Zoning Ordinance of
Rodriguez, (formerly Montalban), Rizal, where the leased property is
located. Without the industrial clearance the lease contract could not become
effective and petitioner could not be compelled to perform its obligation under the
contract.
Petitioner is now estopped from claiming that the Temporary Use Permit was not
the industrial clearance contemplated in the contract. In its letter dated 24 April
1986, petitioner states:
We wish to reiterate PNCC Management's previous stand that it is only obligated
to pay your clients the amount of P20,000.00 as rental payments for the onemonth period of the lease, counted from 07 January 1986 when the Industrial
Permit was issued by the Ministry of Human Settlements up to 07 February
1986 when the Notice of Termination was served on your clients.
[11]
(Underscoring Supplied).

The "Industrial Permit" mentioned in the said letter could only refer to the
Temporary Use Permit issued by the Ministry of Human Settlements on 7 January
1986. And it can be gleaned from this letter that petitioner has considered the
permit as industrial clearance; otherwise, petitioner could have simply told the
private respondents that its obligation to pay rentals has not yet arisen because the
Temporary Use Permit is not the industrial clearance contemplated by
them. Instead, petitioner recognized its obligation to pay rental counted from the
date the permit was issued.
Also worth noting is the earlier letter of petitioner; thus:
[P]lease be advised of PNCC Management's decision to cancel or discontinue
with the rock crushing project due to financial as well as technical
difficulties. In view thereof, we would like to terminate our Lease Contract
dated 18 November, 1985. Should you agree to the mutual termination of
our Lease Contract, kindly indicate your conformity hereto by affixing your
signature on the space provided below. May we likewise request Messrs.
Rene, Jose and Antonio, all surnamed Raymundo and Mrs. Socorro A.
Raymundo as Attorney-in-Fact of Amador S. Raymundo to sign on the spaces
indicated below.[12]
It can be deduced from this letter that the suspensive condition - issuance of
industrial clearance - has already been fulfilled and that the lease contract has
become operative. Otherwise, petitioner did not have to solicit the conformity of the
private respondents to the termination of the contract for the simple reason that no
juridical relation was created because of the non-fulfillment of the condition.
Moreover, the reason of petitioner in discontinuing with its project and in
consequently cancelling the lease contract was financial as well as technical
difficulties, not the alleged insufficiency of the Temporary Use Permit.
Second. Invoking Article 1266 and the principle of rebus sic stantibus,
petitioner asserts that it should be released from the obligatory force of the contract
of lease because the purpose of the contract did not materialize due to unforeseen
events and causes beyond its control, i.e., due to abrupt change in political climate
after the EDSA Revolution and financial difficulties.
It is a fundamental rule that contracts, once perfected, bind both contracting
parties, and obligations arising therefrom have the force of law between the parties
and should be complied with in good faith. [13] But the law recognizes exceptions to
the principle of the obligatory force of contracts. One exception is laid down in
Article 1266 of the Civil Code, which reads: "The debtor in obligations to do shall
also be released when the prestation becomes legally or physically impossible
without the fault of the obligor."
Petitioner cannot, however, successfully take refuge in the said article, since it is
applicable only to obligations "to do", and not to obligations "to give". [14] An
obligation "to do" includes all kinds of work or service; while an obligation "to give"
is a prestation which consists in the delivery of a movable or an immovable thing in
order to create a real right, or for the use of the recipient, or for its simple
possession, or in order to return it to its owner. [15]
The obligation to pay rentals[16] or deliver the thing in a contract of lease [17] falls
within the prestation to give; hence, it is not covered within the scope of Article
1266. At any rate, the unforeseen event and causes mentioned by petitioner are

not the legal or physical impossibilities contemplated in said article. Besides,

petitioner failed to state specifically the circumstances brought about by the
abrupt change in the political climate in the country except the alleged prevailing
uncertainties in government policies on infrastructure projects.
The principle of rebus sic stantibus[18] neither fits in with the facts of the
case. Under this theory, the parties stipulate in the light of certain prevailing
conditions, and once these conditions cease to exist the contract also ceases to
exist.[19] This theory is said to be the basis of Article 1267 of the Civil Code, which
provides:
ART. 1267. When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part.
This article, which enunciates the doctrine of unforeseen events, is not,
however, an absolute application of the principle of rebus sic stantibus, which would
endanger the security of contractual relations. The parties to the contract must be
presumed to have assumed the risks of unfavorable developments. It is therefore
only in absolutely exceptional changes of circumstances that equity demands
assistance for the debtor.[20]
In this case, petitioner wants this Court to believe that the abrupt change in the
political climate of the country after the EDSA Revolution and its poor financial
condition rendered the performance of the lease contract impractical and inimical
to the corporate survival of the petitioner.
This Court cannot subscribe to this argument. As pointed out by private
respondents:[21]
It is a matter of record that petitioner PNCC entered into a contract with
private respondents on November 18, 1985. Prior thereto, it is of judicial
notice that after the assassination of Senator Aquino on August 21, 1983, the
country has experienced political upheavals, turmoils, almost daily mass
demonstrations, unprecedented, inflation, peace and order deterioration, the
Aquino trial and many other things that brought about the hatred of people
even against crony corporations. On November 3, 1985, Pres. Marcos, being
interviewed live on U.S. television announced that there would be a snap
election scheduled for February 7, 1986.
On November 18, 1985, notwithstanding the above, petitioner PNCC entered
into the contract of lease with private respondents with open eyes of the
deteriorating conditions of the country.
Anent petitioners alleged poor financial condition, the same will neither release
petitioner from the binding effect of the contract of lease. As held in Central Bank v.
Court of Appeals,[22] cited by the private respondents, mere pecuniary inability to
fulfill an engagement does not discharge a contractual obligation, nor does it
constitute a defense to an action for specific performance.
With regard to the non-materialization of petitioners particular purpose in
entering into the contract of lease, i.e., to use the leased premises as a site of a
rock crushing plant, the same will not invalidate the contract. The cause or
essential purpose in a contract of lease is the use or enjoyment of a thing. [23] As a
general principle, the motive or particular purpose of a party in entering into a

contract does not affect the validity or existence of the contract; an exception is
when the realization of such motive or particular purpose has been made a
condition upon which the contract is made to depend. [24] The exception is not apply
here.
Third. According to petitioner, the award of P492,000 representing the rent for
two years is excessive, considering that it did not benefit from the
property. Besides, the temporary permit, conformably with the express provision
therein, was deemed automatically revoked for failure of petitioner to use the same
within one year from the issuance thereof. Hence, the rent payable should only be
for one year.
Petitioner cannot be heard to complain that the award is excessive. The
temporary permit was valid for two years but was automatically revoked because of
its non-use within one year from its issuance. The non-use of the permit and the
non-entry into the property subject of the lease contract were both imputable to
petitioner and cannot, therefore, be taken advantage of in order to evade or lessen
petitioners monetary obligation. The damage or prejudice to private respondents is
beyond dispute. They unquestionably suffered pecuniary losses because of their
inability to use the leased premises. Thus, in accordance with Article 1659 of the
Civil Code,[25] they are entitled to indemnification for damages; and the award
of P492,000 is fair and just under the circumstances of the case.
Finally, petitioner submits that the trial court gravely abused its discretion in
denying petitioner the right to be heard.
We disagree. The trial court was in fact liberal in granting several
postponements[26] to petitioner before it deemed terminated and waived the
presentation of evidence in petitioners behalf.
It must be recalled that private respondents rested their case on 7 September
1987 yet.[27] Almost a year after, or on 10 August 1988 when it was petitioners turn
to present evidence, petitioners counsel asked for postponement of the hearing to
25 August 1988 due to conflict of schedules, [28] and this was granted.[29] At the
rescheduled hearing, petitioners counsel, through a representative, moved anew
for postponement, as he was allegedly indisposed. [30] The case was then reset
intransferable to September 15 and 26, 1988. [31] On 2 September 1988, the Office
of the Government Corporate Counsel, through Atty. Elpidio J. Vega, entered its
appearance for the petitioner,[32] and later the original counsel withdrew his
appearance.[33] On 15 September 1988, Atty. Vega requested for postponement to
enable him to go over the records of the case. [34] With his conformity, the hearing
was reset intransferable to September 26 and October 17, 1988. [35] In the morning
of 26 September 1988, the court received Atty. Vegas Urgent Motion for
Postponement on the ground that he was afflicted with conjunctivitis or sore eyes.
[36]
This time, private respondents objected; and upon their motion, the court
deemed terminated and waived the presentation of evidence for the petitioner.
[37]
Nevertheless, before the court considered the case submitted for decision, it
required the parties to submit their respective memoranda within thirty days. [38] But
petitioner failed to file one.
Likewise, the court was liberal in respect to petitioners motion for
reconsideration. Notwithstanding the lack of request for hearing and proof of notice
and service to private respondents, the court set the hearing of the said motion on
29 November 1988.[39] Upon the denial of the said motion for lack of merit,
[40]
petitioner filed a second motion for reconsideration. But during the hearing of

the motion on a date selected by him, Atty. Vega was absent for no reason at all,
despite due notice.[41]
From the foregoing narration of procedural antecedents, it cannot be said that
the petitioner was deprived of its day in court. The essence of due process is simply
an opportunity to be heard.[42] To be heard does not only mean oral arguments in
court; one may be heard also through pleadings. Where opportunity to be heard,
either through oral arguments or pleadings, is accorded, there is no denial of
procedural due process.[43]
WHEREFORE, the instant petition is DENIED and the challenged decision of the
Court of Appeals is AFFIRMED in toto.
No pronouncements as to costs.
SO ORDERED.
Narvasa, C.J., (Chairman), Melo, Francisco, and Panganiban, JJ., concur.

[G.R. No. 138544. October 3, 2000]

SECURITY BANK AND TRUST COMPANY, Inc., petitioner, vs. RODOLFO M.
CUENCA, respondent.
DECISION
PANGANIBAN, J.:
Being an onerous undertaking, a surety agreement is strictly construed against
the creditor, and every doubt is resolved in favor of the solidary debtor. The
fundamental rules of fair play require the creditor to obtain the consent of the
surety to any material alteration in the principal loan agreement, or at least to
notify it thereof. Hence, petitioner bank cannot hold herein respondent liable for
loans obtained in excess of the amount or beyond the period stipulated in the
original agreement, absent any clear stipulation showing that the latter waived his
right to be notified thereof, or to give consent thereto. This is especially true where,
as in this case, respondent was no longer the principal officer or major stockholder
of the corporate debtor at the time the later obligations were incurred. He was thus
no longer in a position to compel the debtor to pay the creditor and had no more
reason to bind himself anew to the subsequent obligations.
The Case

This is the main principle used in denying the present Petition for Review under
Rule 45 of the Rules of Court. Petitioner assails the December 22, 1998 Decision [1] of
the Court of Appeals (CA) in CA-GR CV No. 56203, the dispositive portion of which
reads as follows:
WHEREFORE, the judgment appealed from is hereby amended in the sense that
defendant-appellant Rodolfo M. Cuenca [herein respondent] is RELEASED from
liability to pay any amount stated in the judgment.
Furthermore, [Respondent] Rodolfo M. Cuencas counterclaim is
hereby DISMISSED for lack of merit.

In all other respect[s], the decision appealed from is AFFIRMED.[2]

Also challenged is the April 14, 1999 CA Resolution, [3] which denied petitioners
Motion for Reconsideration.
Modified by the CA was the March 6, 1997 Decision [4] of the Regional Trial Court
(RTC) of Makati City (Branch 66) in Civil Case No. 93-1925, which disposed as
follows:
WHEREFORE, judgment is hereby rendered ordering defendants Sta. Ines Melale
Corporation and Rodolfo M. Cuenca to pay, jointly and severally, plaintiff Security
Bank & Trust Company the sum ofP39,129,124.73 representing the balance of the
loan as of May 10, 1994 plus 12% interest per annum until fully paid, and the sum
of P100,000.00 as attorneys fees and litigation expenses and to pay the costs.
SO ORDERED.
The Facts

The facts are narrated by the Court of Appeals as follows: [5]

The antecedent material and relevant facts are that defendant-appellant Sta. Ines
Melale (Sta. Ines) is a corporation engaged in logging operations. It was a holder of
a Timber License Agreement issued by the Department of Environment and Natural
Resources (DENR).
On 10 November 1980, [Petitioner] Security Bank and Trust Co. granted appellant
Sta. Ines Melale Corporation [SIMC] a credit line in the amount of [e]ight [m]llion
[p]esos (P8,000,000.00) to assist the latter in meeting the additional capitalization
requirements of its logging operations.
The Credit Approval Memorandum expressly stated that the P8M Credit Loan
Facility shall be effective until 30 November 1981:
JOINT CONDITIONS:
1. Against Chattel Mortgage on logging trucks and/or inventories (except logs)
valued at 200% of the lines plus JSS of Rodolfo M. Cuenca.
2. Submission of an appropriate Board Resolution authorizing the borrowings,
indicating therein the companys duly authorized signatory/ies;
3. Reasonable/compensating deposit balances in current account shall be
maintained at all times; in this connection, a Makati account shall be opened prior
to availment on lines;
4. Lines shall expire on November 30, 1981; and
5. The bank reserves the right to amend any of the aforementioned terms and
conditions upon written notice to the Borrower. (Emphasis supplied.)
To secure the payment of the amounts drawn by appellant SIMC from the abovementioned credit line, SIMC executed a Chattel Mortgage dated 23 December 1980
(Exhibit A) over some of its machinery and equipment in favor of [Petitioner]
SBTC. As additional security for the payment of the loan, [Respondent] Rodolfo M.

Cuenca executed an Indemnity Agreement dated 17 December 1980 (Exhibit B) in

favor of [Petitioner] SBTC whereby he solidarily bound himself with SIMC as follows:
xxxxxxxxx
Rodolfo M. Cuenca x x x hereby binds himself x x x jointly and severally with the
client (SIMC) in favor of the bank for the payment, upon demand and without the
benefit of excussion of whatever amount x x x the client may be indebted to the
bank x x x by virtue of aforesaid credit accommodation(s) including the
substitutions, renewals, extensions, increases, amendments, conversions and
revivals of the aforesaid credit accommodation(s) x x x . (Emphasis supplied).
On 26 November 1981, four (4) days prior to the expiration of the period of
effectivity of the P8M-Credit Loan Facility, appellant SIMC made a first drawdown
from its credit line with [Petitioner] SBTC in the amount of [s]ix [m]illion [o]ne
[h]undred [t]housand [p]esos (P6,100,000.00). To cover said drawdown, SIMC duly
executed promissory Note No. TD/TLS-3599-81 for said amount (Exhibit C).
Sometime in 1985, [Respondent] Cuenca resigned as President and Chairman of
the Board of Directors of defendant-appellant Sta. Ines. Subsequently, the
shareholdings of [Respondent] Cuenca in defendant-appellant Sta. Ines were sold at
a public auction relative to Civil Case No. 18021 entitled Adolfo A. Angala vs.
Universal Holdings, Inc. and Rodolfo M. Cuenca. Said shares were bought by Adolfo
Angala who was the highest bidder during the public auction.
Subsequently, appellant SIMC repeatedly availed of its credit line and obtained six
(6) other loan[s] from [Petitioner] SBTC in the aggregate amount of [s]ix [m]illion
[t]hree [h]undred [s]ixty-[n]ine [t]housand [n]ineteen and 50/100 [p]esos
(P6,369,019.50). Accordingly, SIMC executed Promissory Notes Nos. DLS/74/760/85,
DLS/74773/85, DLS/74/78/85, DLS/74/760/85 DLS/74/12/86, and DLS/74/47/86 to
cover the amounts of the abovementioned additional loans against the credit line.
Appellant SIMC, however, encountered difficulty [6] in making the amortization
payments on its loans and requested [Petitioner] SBTC for a complete restructuring
of its indebtedness. SBTC accommodated appellant SIMCs request and signified its
approval in a letter dated 18 February 1988 (Exhibit G) wherein SBTC and
defendant-appellant Sta. Ines, without notice to or the prior consent of [Respondent]
Cuenca, agreed to restructure the past due obligations of defendant-appellant Sta.
Ines. [Petitioner] Security Bank agreed to extend to defendant-appellant Sta. Ines
the following loans:
a. Term loan in the amount of [e]ight [m]illion [e]ight [h]undred [t]housand
[p]esos (P8,800,000.00), to be applied to liquidate the principal portion of
defendant-appellant Sta. Ines[] total outstanding indebtedness to [Petitioner]
Security Bank (cf. P. 1 of Exhibit G, Expediente, at Vol. II, p. 336; Exhibit 5-BCuenca, Expediente, et Vol I, pp. 33 to 34) and
b. Term loan in the amount of [t]hree [m]illion [f]our [h]undred [t]housand
[p]esos (P3,400,000.00), to be applied to liquidate the past due interest and
penalty portion of the indebtedness of defendant-appellant Sta. Ines to
[Petitioner] Security Bank (cf. Exhibit G, Expediente, at Vol. II, p. 336; Exhibit
5-B-Cuenca, Expediente, at Vol. II, p. 33 to 34).
It should be pointed out that in restructuring defendant-appellant Sta. Ines
obligations to [Petitioner] Security Bank, Promissory Note No. TD-TLS-3599-81 in the

amount of [s]ix [m]illion [o]ne [h]undred [t]housand [p]esos (P6,100,000.00), which

was the only loan incurred prior to the expiration of the P8M-Credit Loan Facility on
30 November 1981 and the only one covered by the Indemnity Agreement dated 19
December 1980 (Exhibit 3-Cuenca, Expediente, at Vol. II, p. 331), was not
segregated from, but was instead lumped together with, the other loans, i.e.,
Promissory Notes Nos. DLS/74/12/86, DLS/74/28/86 and DLS/74/47/86 (Exhibits D,
E, and F, Expediente, at Vol. II, pp. 333 to 335) obtained by defendant-appellant
Sta. Ines which were not secured by said Indemnity Agreement.
Pursuant to the agreement to restructure its past due obligations to [Petitioner]
Security Bank, defendant-appellant Sta. Ines thus executed the following promissory
notes, both dated 09 March 1988 in favor of [Petitioner] Security Bank:
PROMISSORY NOTE NO. AMOUNT
RL/74/596/88 P8,800,000.00
RL/74/597/88 P3,400,000.00
------------------TOTAL P12,200,000.00
(Exhibits H and I, Expediente, at Vol. II, pp. 338 to 343).
To formalize their agreement to restructure the loan obligations of defendantappellant Sta. Ines, [Petitioner] Security Bank and defendant-appellant Sta. Ines
executed a Loan Agreement dated 31 October 1989 (Exhibit 5-Cuenca,
Expediente, at Vol. I, pp. 33 to 41). Section 1.01 of the said Loan Agreement dated
31 October 1989 provides:
1.01 Amount - The Lender agrees to grant loan to the Borrower in the aggregate
amount of TWELVE MILLION TWO HUNDRED THOUSAND PESOS (P12,200,000.00),
Philippines [c]urrency (the Loan). The loan shall be released in two (2) tranches
of P8,800,000.00 for the first tranche (the First Loan) and P3,400,000.00 for the
second tranche (the Second Loan) to be applied in the manner and for the purpose
stipulated hereinbelow.
1.02. Purpose - The First Loan shall be applied to liquidate the principal portion of
the Borrowers present total outstanding indebtedness to the Lender (the
indebtedness) while the Second Loan shall be applied to liquidate the past due
interest and penalty portion of the Indebtedness. (Underscoring supplied.) (cf. p. 1
of Exhibit 5-Cuenca, Expediente, at Vol. I, p. 33)
From 08 April 1988 to 02 December 1988, defendant-appellant Sta. Ines made
further payments to [Petitioner] Security Bank in the amount of [o]ne [m]illion
[s]even [h]undred [f]ifty-[s]even [t]housand [p]esos (P1,757,000.00) (Exhibits 8,
9-P-SIMC up to 9-GG-SIMC, Expediente, at Vol. II, pp. 38, 70 to 165)
Appellant SIMC defaulted in the payment of its restructured loan obligations to
[Petitioner] SBTC despite demands made upon appellant SIMC and CUENCA, the last
of which were made through separate letters dated 5 June 1991 (Exhibit K) and 27
June 1991 (Exhibit L), respectively.

Appellants individually and collectively refused to pay the [Petitioner] SBTC. Thus,
SBTC filed a complaint for collection of sum of money on 14 June 1993, resulting
after trial on the merits in a decision by the court a quo, x x x from which
[Respondent] Cuenca appealed.
Ruling of the Court of Appeals

In releasing Respondent Cuenca from liability, the CA ruled that the 1989 Loan
Agreement had novated the 1980 credit accommodation earlier granted by the
bank to Sta. Ines.Accordingly, such novation extinguished the Indemnity
Agreement, by which Cuenca, who was then the Board chairman and president of
Sta. Ines, had bound himself solidarily liable for the payment of the loans secured
by that credit accommodation. It noted that the 1989 Loan Agreement had been
executed without notice to, much less consent from, Cuenca who at the time was no
longer a stockholder of the corporation.
The appellate court also noted that the Credit Approval Memorandum had
specified that the credit accommodation was for a total amount of P8 million, and
that its expiry date was November 30, 1981. Hence, it ruled that Cuenca was liable
only for loans obtained prior to November 30, 1981, and only for an amount not
exceeding P8 million.
It further held that the restructuring of Sta. Ines obligation under the 1989 Loan
Agreement was tantamount to a grant of an extension of time to the debtor without
the consent of the surety. Under Article 2079 of the Civil Code, such extension
extinguished the surety.
The CA also opined that the surety was entitled to notice, in case the bank and
Sta. Ines decided to materially alter or modify the principal obligation after the
expiry date of the credit accommodation.
Hence, this recourse to this Court.[7]
The Issues

In its Memorandum, petitioner submits the following for our consideration: [8]
A. Whether or not the Honorable Court of Appeals erred in releasing
Respondent Cuenca from liability as surety under the Indemnity
Agreement for the payment of the principal amount of twelve million two
hundred thousand pesos (P12,200,000.00) under Promissory Note No.
RL/74/596/88 dated 9 March 1988 and Promissory Note No. RL/74/597/88
dated 9 March 1988, plus stipulated interests, penalties and other
charges due thereon;
i. Whether or not the Honorable Court of Appeals erred in ruling
that Respondent Cuencas liability under the Indemnity
Agreement covered only availments on SIMCs credit line to the
extent of eight million pesos (P8,000,000.00) and made on or
before 30 November 1981;
ii. Whether or not the Honorable Court of Appeals erred in ruling
that the restructuring of SIMCs indebtedness under the P8
million credit accommodation was tantamount to an extension
granted to SIMC without Respondent Cuencas consent, thus

extinguishing his liability under the Indemnity Agreement

pursuant to Article 2079 of the Civil Code;
iii. Whether or not the Honorable Court of appeals erred in ruling
that the restructuring of SIMCs indebtedness under the P8
million credit accommodation constituted a novation of the
principal obligation, thus extinguishing Respondent Cuencas
liability under the indemnity agreement;
B. Whether or not Respondent Cuencas liability under the Indemnity
Agreement was extinguished by the payments made by SIMC;
C. Whether or not petitioners Motion for Reconsideration was pro-forma;
D. Whether or not service of the Petition by registered mail sufficiently
complied with Section 11, Rule 13 of the 1997 Rules of Civil Procedure.
Distilling the foregoing, the Court will resolve the following issues: (a) whether
the 1989 Loan Agreement novated the original credit accommodation and Cuencas
liability under the Indemnity Agreement; and (b) whether Cuenca waived his right to
be notified of and to give consent to any substitution, renewal, extension, increase,
amendment, conversion or revival of the said credit accommodation. As preliminary
matters, the procedural questions raised by respondent will also be addressed.
The Courts Ruling

The Petition has no merit.

Preliminary Matters: Procedural Questions

Motion for Reconsideration Not Pro Forma

Respondent contends that petitioners Motion for Reconsideration of the CA

Decision, in merely rehashing the arguments already passed upon by the appellate
court, was pro forma; that as such, it did not toll the period for filing the present
Petition for Review.[9] Consequently, the Petition was filed out of time.[10]
We disagree. A motion for reconsideration is not pro forma just because it
reiterated the arguments earlier passed upon and rejected by the appellate
court. The Court has explained that a movant may raise the same arguments,
precisely to convince the court that its ruling was erroneous. [11]
Moreover, there is no clear showing of intent on the part of petitioner to delay
the proceedings. In Marikina Valley Development Corporation v. Flojo, [12] the Court
explained that a pro forma motion had no other purpose than to gain time and to
delay or impede the proceedings. Hence, where the circumstances of a case do not
show an intent on the part of the movant merely to delay the proceedings, our
Court has refused to characterize the motion as simply pro forma. It held:
We note finally that because the doctrine relating to pro forma motions for
reconsideration impacts upon the reality and substance of the statutory right of
appeal, that doctrine should be applied reasonably, rather than literally. The right to
appeal, where it exists, is an important and valuable right. Public policy would be
better served by according the appellate court an effective opportunity to review
the decision of the trial court on the merits, rather than by aborting the right to

appeal by a literal application of the procedural rules relating to pro forma motions
for reconsideration.
Service by Registered Mail Sufficiently Explained

Section 11, Rule 13 of the 1997 Rules of Court, provides as follows:

SEC. 11. Priorities in modes of service and filing. -- Whenever practicable, the
service and filing of pleadings and other papers shall be done personally. Except
with respect to papers emanating from the court, a resort to other modes must be
accompanied by a written explanation why the service or filing was not done
personally. A violation of this Rule may be cause to consider the paper as not filed.
Respondent maintains that the present Petition for Review does not contain a
sufficient written explanation why it was served by registered mail.
We do not think so. The Court held in Solar Entertainment v. Ricafort[13] that the
aforecited rule was mandatory, and that only when personal service or filing is not
practicable may resort to other modes be had, which must then be accompanied by
a written explanation as to why personal service or filing was not practicable to
begin with.
In this case, the Petition does state that it was served on the respective
counsels of Sta. Ines and Cuenca by registered mail in lieu of personal service due
to limitations in time and distance. [14] This explanation sufficiently shows that
personal service was not practicable. In any event, we find no adequate reason to
reject the contention of petitioner and thereby deprive it of the opportunity to fully
argue its cause.
First Issue: Original Obligation Extinguished by Novation

An obligation may be extinguished by novation, pursuant to Article 1292 of the

Civil Code, which reads as follows:
ART. 1292. In order that an obligation may be extinguished by another which
substitute the same, it is imperative that it be so declared in unequivocal terms, or
that the old and the new obligations be on every point incompatible with each
other.
Novation of a contract is never presumed. It has been held that [i]n the
absence of an express agreement, novation takes place only when the old and the
new obligations are incompatible on every point. [15] Indeed, the following requisites
must be established: (1) there is a previous valid obligation; (2) the parties
concerned agree to a new contract; (3) the old contract is extinguished; and (4)
there is a valid new contract. [16]
Petitioner contends that there was no absolute incompatibility between the old
and the new obligations, and that the latter did not extinguish the earlier one. It
further argues that the 1989 Agreement did not change the original loan in respect
to the parties involved or the obligations incurred. It adds that the terms of the 1989
Contract were not more onerous.[17]Since the original credit accomodation was not
extinguished, it concludes that Cuenca is still liable under the Indemnity Agreement.
We reject these contentions. Clearly, the requisites of novation are present in
this case. The 1989 Loan Agreement extinguished the obligation [18] obtained under

the 1980 credit accomodation. This is evident from its explicit provision to
liquidate the principal and the interest of the earlier indebtedness, as the
following shows:
1.02. Purpose. The First Loan shall be applied to liquidate the principal portion of
the Borrowers present total outstanding Indebtedness to the Lender (the
Indebtedness) while the Second Loan shall be applied to liquidate the past due
interest and penalty portion of the Indebtedness. [19] (Italics supplied.)
The testimony of an officer[20] of the bank that the proceeds of the 1989 Loan
Agreement were used to pay-off the original indebtedness serves to strengthen
this ruling.[21]
Furthermore, several incompatibilities between the 1989 Agreement and the
1980 original obligation demonstrate that the two cannot coexist. While the 1980
credit accommodation had stipulated that the amount of loan was not to exceed P8
million,[22] the 1989 Agreement provided that the loan was P12.2 million. The
periods for payment were also different.
Likewise, the later contract contained conditions, positive covenants and
negative covenants not found in the earlier obligation. As an example of a positive
covenant, Sta. Ines undertook from time to time and upon request by the Lender,
[to] perform such further acts and/or execute and deliver such additional documents
and writings as may be necessary or proper to effectively carry out the provisions
and purposes of this Loan Agreement. [23] Likewise, SIMC agreed that it would not
create any mortgage or encumbrance on any asset owned or hereafter acquired,
nor would it participate in any merger or consolidation. [24]
Since the 1989 Loan Agreement had extinguished the original credit
accommodation, the Indemnity Agreement, an accessory obligation, was
necessarily extinguished also, pursuant to Article 1296 of the Civil Code, which
provides:
ART. 1296. When the principal obligation is extinguished in consequence of a
novation, accessory obligations may subsist only insofar as they may benefit third
persons who did not give their consent.
Alleged Extension

Petitioner insists that the 1989 Loan Agreement was a mere renewal or
extension of the P8 million original accommodation; it was not a novation. [25]
This argument must be rejected. To begin with, the 1989 Loan Agreement
expressly stipulated that its purpose was to liquidate, not to renew or extend, the
outstanding indebtedness. Moreover, respondent did not sign or consent to the
1989 Loan Agreement, which had allegedly extended the original P8 million credit
facility. Hence, his obligation as a surety should be deemed extinguished, pursuant
to Article 2079 of the Civil Code, which specifically states that [a]n extension
granted to the debtor by the creditor without the consent of the guarantor
extinguishes the guaranty. x x x. In an earlier case,[26] the Court explained the
rationale of this provision in this wise:
The theory behind Article 2079 is that an extension of time given to the principal
debtor by the creditor without the suretys consent would deprive the surety of his
right to pay the creditor and to be immediately subrogated to the creditors

remedies against the principal debtor upon the maturity date. The surety is said to
be entitled to protect himself against the contingency of the principal debtor or the
indemnitors becoming insolvent during the extended period.
Binding Nature of the Credit Approval Memorandum

As noted earlier, the appellate court relied on the provisions of the Credit
Approval Memorandum in holding that the credit accommodation was only for P8
million, and that it was for a period of one year ending on November 30,
1981. Petitioner objects to the appellate courts reliance on that document,
contending that it was not a binding agreement because it was not signed by the
parties. It adds that it was merely for its internal use.
We disagree. It was petitioner itself which presented the said document to prove
the accommodation. Attached to the Complaint as Annex A was a copy thereof
evidencing the accommodation. [27] Moreover, in its Petition before this Court, it
alluded to the Credit Approval Memorandum in this wise:
4.1 On 10 November 1980, Sta. Ines Melale Corporation (SIMC) was granted by
the Bank a credit line in the aggregate amount of Eight Million Pesos
(P8,000,000.00) to assist SIMC in meeting the additional capitalization requirements
for its logging operations. For this purpose, the Bank issued a Credit Approval
Memorandum dated 10 November 1980.
Clearly, respondent is estopped from denying the terms and conditions of the P8
million credit accommodation as contained in the very document it presented to the
courts. Indeed, it cannot take advantage of that document by agreeing to be bound
only by those portions that are favorable to it, while denying those that are
disadvantageous.
Second Issue: Alleged Waiver of Consent

Pursuing
another
course,
petitioner
contends
that
Respondent
Cuenca impliedly gave his consent to any modification of the credit
accommodation or otherwise waived his right to be notified of, or to give consent to,
the same.[28] Respondents consent or waiver thereof is allegedly found in the
Indemnity Agreement, in which he held himself liable for the credit accommodation
including
[its]
substitutions, renewals,
extensions, increases,
amendments,
conversions and revival. It explains that the novation of the original credit
accommodation by the 1989 Loan Agreement is merely its renewal, which
connotes cessation of an old contract and birth of another one x x x.[29]
At the outset, we should emphasize that an essential alteration in the terms of
the Loan Agreement without the consent of the surety extinguishes the latters
obligation. As the Court held in National Bank v. Veraguth,[30] [i]t is fundamental in
the law of suretyship that any agreement between the creditor and the principal
debtor which essentially varies the terms of the principal contract, without the
consent of the surety, will release the surety from liability.
In this case, petitioners assertion - that respondent consented to the alterations
in the credit accommodation -- finds no support in the text of the Indemnity
Agreement, which isreproduced hereunder:
Rodolfo M. Cuenca of legal age, with postal address c/o Sta. Ines Malale Forest
Products Corp., Alco Bldg., 391 Buendia Avenue Ext., Makati Metro Manila for and in

consideration of the credit accommodation in the total amount of eight million

pesos (P8,000,000.00) granted by the SECURITY BANK AND TRUST COMPANY, a
commercial bank duly organized and existing under and by virtue of the laws of the
Philippine, 6778 Ayala Avenue, Makati, Metro Manila hereinafter referred to as the
BANK in favor of STA. INES MELALE FOREST PRODUCTS CORP., x x x ---- hereinafter
referred to as the CLIENT, with the stipulated interests and charges thereon,
evidenced by that/those certain PROMISSORY NOTE[(S)], made, executed and
delivered by the CLIENT in favor of the BANK hereby bind(s) himself/themselves
jointly and severally with the CLIENT in favor of the BANK for the payment , upon
demand and without benefit of excussion of whatever amount or amounts the
CLIENT may be indebted to the BANK under and by virtue of aforesaid credit
accommodation(s) including the substitutions, renewals, extensions, increases,
amendment, conversions and revivals of the aforesaid credit accommodation(s),as
well as of the amount or amounts of such other obligations that the CLIENT may
owe the BANK, whether direct or indirect, principal or secondary, as appears in the
accounts, books and records of the BANK, plus interest and expenses arising from
any agreement or agreements that may have heretofore been made, or may
hereafter be executed by and between the parties thereto, including the
substitutions, renewals, extensions, increases, amendments, conversions and
revivals of the aforesaid credit accommodation(s), and further bind(s)
himself/themselves with the CLIENT in favor of the BANK for the faithful compliance
of all the terms and conditions contained in the aforesaid credit accommodation(s),
all of which are incorporated herein and made part hereof by reference.
While respondent held himself liable for the credit accommodation or any
modification thereof, such clause should be understood in the context of the P8
million limit and the November 30, 1981 term. It did not give the bank or Sta. Ines
any license to modify the nature and scope of the original credit accommodation,
without informing or getting the consent of respondent who was solidarily
liable. Taking the banks submission to the extreme, respondent (or his successors)
would be liable for loans even amounting to, say, P100 billion obtained 100 years
after the expiration of the credit accommodation, on the ground that he consented
to all alterations and extensions thereof.
Indeed, it has been held that a contract of surety cannot extend to more than
what is stipulated. It is strictly construed against the creditor, every doubt being
resolved against enlarging the liability of the surety. [31] Likewise, the Court has
ruled that it is a well-settled legal principle that if there is any doubt on the terms
and conditions of the surety agreement, the doubt should be resolved in favor of the
surety x x x. Ambiguous contracts are construed against the party who caused the
ambiguity.[32] In the absence of an unequivocal provision that respondent waived
his right to be notified of or to give consent to any alteration of the credit
accommodation, we cannot sustain petitioners view that there was such a waiver.
It should also be observed that the Credit Approval Memorandum clearly shows
that the bank did not have absolute authority to unilaterally change the terms of the
loan accommodation. Indeed, it may do so only upon notice to the borrower,
pursuant to this condition:
5. The Bank reserves the right to amend any of the aforementioned terms and
conditions upon written notice to the Borrower. [33]
We reject petitioners submission that only Sta. Ines as the borrower, not
respondent, was entitled to be notified of any modification in the original loan
accommodation.[34] Following the banks reasoning, such modification would not be

valid as to Sta. Ines if no notice were given; but would still be valid as to respondent
to whom no notice need be given. The latters liability would thus be more
burdensome than that of the former. Such untenable theory is contrary to the
principle that a surety cannot assume an obligation more onerous than that of the
principal.[35]
The present controversy must be distinguished from Philamgen v. Mutuc,[36] in
which the Court sustained a stipulation whereby the surety consented to be bound
not only for the specified period, but to any extension thereafter made, an
extension x x x that could be had without his having to be notified.
In that case, the surety agreement contained this unequivocal stipulation: It is
hereby further agreed that in case of any extension of renewal of the bond, we
equally bind ourselves to the Company under the same terms and conditions as
herein provided without the necessity of executing another indemnity agreement for
the purpose and that we hereby equally waive our right to be notified of any
renewal or extension of the bond which may be granted under this indemnity
agreement.
In the present case, there is no such express stipulation. At most, the alleged
basis of respondents waiver is vague and uncertain. It confers no clear
authorization on the bank orSta. Ines to modify or extend the original obligation
without the consent of the surety or notice thereto.
Continuing Surety

Contending that the Indemnity Agreement was in the nature of a continuing

surety, petitioner maintains that there was no need for respondent to execute
another surety contract to secure the 1989 Loan Agreement.
This argument is incorrect. That the Indemnity Agreement is a continuing surety
does not authorize the bank to extend the scope of the principal obligation
inordinately.[37] In Dino v. CA,[38] the Court held that a continuing guaranty is one
which covers all transactions, including those arising in the future, which are within
the description or contemplation of the contract of guaranty, until the expiration or
termination thereof.
To repeat, in the present case, the Indemnity Agreement was subject to the two
limitations of the credit accommodation: (1) that the obligation should not
exceed P8 million, and (2) that the accommodation should expire not later than
November 30, 1981. Hence, it was a continuing surety only in regard to loans
obtained on or before the aforementioned expiry date and not exceeding the total
of P8 million.
Accordingly, the surety of Cuenca secured only the first loan of P6.1 million
obtained on November 26, 1991. It did not secure the subsequent loans,
purportedly under the 1980 credit accommodation, that were obtained
in 1986. Certainly, he could not have guaranteed the 1989 Loan Agreement, which
was executed after November 30, 1981 and which exceeded the stipulated P8
million ceiling.
Petitioner, however, cites the Dino ruling in which the Court found the surety
liable for the loan obtained after the payment of the original one, which was
covered by a continuing surety agreement. At the risk of being repetitious, we hold
that in Dino, the surety Agreement specifically provided that each suretyship is a

continuing one which shall remain in full force and effect until this bank is notified
of its revocation. Since the bank had not been notified of such revocation, the
surety was held liable even for the subsequent obligations of the principal borrower.
No similar provision is found in the present case. On the contrary, respondents
liability was confined to the 1980 credit accommodation, the amount and the expiry
date of which were set down in the Credit Approval Memorandum.
Special Nature of the JSS

It is a common banking practice to require the JSS (joint and solidary

signature) of a major stockholder or corporate officer, as an additional security for
loans granted to corporations. There are at least two reasons for this. First, in case
of default, the creditors recourse, which is normally limited to the corporate
properties under the veil of separate corporate personality, would extend to the
personal assets of the surety. Second, such surety would be compelled to ensure
that the loan would be used for the purpose agreed upon, and that it would be paid
by the corporation.
Following this practice, it was therefore logical and reasonable for the bank to
have required the JSS of respondent, who was the chairman and president of Sta.
Ines in 1980 when the credit accommodation was granted. There was no reason or
logic, however, for the bank or Sta. Ines to assume that he would still agree to act
as surety in the 1989 Loan Agreement, because at that time, he was no longer an
officer or a stockholder of the debtor-corporation. Verily, he was not in a position
then to ensure the payment of the obligation.Neither did he have any reason to bind
himself further to a bigger and more onerous obligation.
Indeed, the stipulation in the 1989 Loan Agreement providing for the surety of
respondent, without even informing him, smacks of negligence on the part of the
bank and bad faith on that of the principal debtor. Since that Loan Agreement
constituted a new indebtedness, the old loan having been already liquidated, the
spirit of fair play should have impelled Sta. Ines to ask somebody else to act as a
surety for the new loan.
In the same vein, a little prudence should have impelled the bank to insist on
the JSS of one who was in a position to ensure the payment of the loan. Even a
perfunctory attempt at credit investigation would have revealed that respondent
was no longer connected with the corporation at the time. As it is, the bank is now
relying on an unclear Indemnity Agreement in order to collect an obligation that
could have been secured by a fairly obtained surety. For its defeat in this litigation,
the bank has only itself to blame.
In sum, we hold that the 1989 Loan Agreement extinguished by novation the
obligation under the 1980 P8 million credit accommodation. Hence, the Indemnity
Agreement, which had been an accessory to the 1980 credit accommodation, was
also extinguished. Furthermore, we reject petitioners submission that respondent
waived his right to be notified of, or to give consent to, any modification or
extension of the 1980 credit accommodation.
In this light, we find no more need to resolve the issue of whether the loan
obtained before the expiry date of the credit accommodation has been paid.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.

SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

[G.R. No. 112191. February 7, 1997]

FORTUNE
MOTORS
(PHILS.)
CORPORATION
and
EDGAR
L.
RODRIGUEZA, petitioners, vs. THE HONORABLE COURT OF APPEALS
and FILINVEST CREDIT CORPORATION, respondents.
DECISION
PANGANIBAN, J.:
To fund their acquisition of new vehicles (which are later retailed or resold to the
general public), car dealers normally enter into wholesale automotive financing
schemes whereby vehicles are delivered by the manufacturer or assembler on the
strength of trust receipts or drafts executed by the car dealers, which are backed up
by sureties. These trust receipts or drafts are then assigned and/or discounted by
the manufacturer to/with financing companies, which assume payment of the
vehicles but with the corresponding right to collect such payment from the car
dealers and/or the sureties. In this manner, car dealers are able to secure delivery
of their stock-in-trade without having to pay cash therefor; manufacturers get paid
without any receivables/collection problems; and financing companies earn their
margins with the assurance of payment not only from the dealers but also from the
sureties. When the vehicles are eventually resold, the car dealers are supposed to
pay the financing companies -- and the business goes merrily on. However, in the
event the car dealer defaults in paying the financing company, may the surety
escape liability on the legal ground that the obligations were incurred subsequent to
the execution of the surety contract?
This is the principal legal question raised in this petition for review (under Rule
45 of the Rules of Court) seeking to set aside the Decision [1] of the Court of Appeals
(Tenth Division)[2]promulgated on September 30, 1993 in CA G.R. CV No. 09136
which affirmed in toto the decision[3] of the Regional Trial Court of Manila - Branch
11[4] in Civil Case No. 83-21994, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants, by ordering the latter to pay, jointly and severally, the plaintiff the
following amounts:
1.
The sum of P1,348,033.89, plus interest thereon at the rate of P922.53 per
day starting April 1, 1985 until the said principal amount is fully paid;
2.
The amount of P50,000.00 as attorneys fees and another P50,000.00 as
liquidated damages; and
3.
That the defendants, although spared from paying exemplary damages,
are further ordered to pay, in solidum, the costs of this suit.
Plaintiff therein was the financing company and the defendants the car dealer
and its sureties.
The Facts

On or about August 4, 1981, Joseph L. G. Chua and Petitioner Edgar Lee

Rodrigueza (Petitioner Rodrigueza) each executed an undated Surety
Undertaking[5] whereunder they absolutely, unconditionally and solidarily
guarantee(d) to Respondent Filinvest Credit Corporation (Respondent Filinvest)
and its affiliated and subsidiary companies the full, faithful and prompt
performance, payment and discharge of any and all obligations and agreements of
Fortune Motors (Phils.) Corporation (Petitioner Fortune) under or with respect to
any and all such contracts and any and all other agreements (whether by way of
guaranty or otherwise) of the latter with Filinvest and its affiliated and subsidiary
companies now in force or hereafter made.
The following year or on April[6] 5, 1982, Petitioner Fortune, Respondent Filinvest
and Canlubang Automotive Resources Corporation (CARCO) entered into an
Automotive Wholesale Financing Agreement[7] (Financing Agreement) under
which CARCO will deliver motor vehicles to Fortune for the purpose of resale in the
latters ordinary course of business; Fortune, in turn, will execute trust receipts over
said vehicles and accept drafts drawn by CARCO, which will discount the same
together with the trust receipts and invoices and assign them in favor of
Respondent Filinvest, which will pay the motor vehicles for Fortune. Under the
same agreement, Petitioner Fortune, as trustee of the motor vehicles, was to report
and remit proceeds of any sale for cash or on terms to Respondent Filinvest
immediately without necessity of demand.
Subsequently, several motor vehicles were delivered by CARCO to Fortune, and
trust receipts covered by demand drafts and deeds of assignment were executed in
favor of Respondent Filinvest. However, when the demand drafts matured, not all
the proceeds of the vehicles which Petitioner Fortune had sold were remitted to
Respondent Filinvest. Fortune likewise failed to turn over to Filinvest several unsold
motor vehicles covered by the trust receipts. Thus, Filinvest through counsel, sent a
demand letter[8] dated December 12, 1983 to Fortune for the payment of its
unsettled account in the amount of P1,302,811.00. Filinvest sent similar demand
letters[9] separately to Chua and Rodrigueza as sureties. Despite said demands, the
amount was not paid. Hence, Filinvest filed in the Regional Trial Court of Manila a
complaint for a sum of money with preliminary attachment against Fortune, Chua
and Rodrigueza.
In an order dated September 26, 1984, the trial court declared that there was
no factual issue to be resolved except for the correct balance of defendants
account with Filinvest as agreed upon by the parties during pre-trial.
[10]
Subsequently,
Filinvest
presented
testimonial
and
documentary
evidence. Defendants (petitioners herein), instead of presenting their evidence,
filed a Motion for Judgment on Demurrer to Evidence [11] anchored principally on
the ground that the Surety Undertakings were null and void because, at the time
they were executed, there was no principal obligation existing. The trial court
denied the motion and scheduled the case for reception of defendants
evidence. On two scheduled dates, however, defendants failed to present their
evidence, prompting the court to deem them to have waived their right to present
evidence. On December 17, 1985, the trial court rendered its decision earlier cited
ordering Fortune, Chua and Rodrigueza to pay Filinvest, jointly and severally, the
sum of P1,348,033.83 plus interest at the rate of P922.53 per day from April 1, 1985
until fully paid, P50,000.00 in attorneys fees, another P50,000.00 in liquidated
damages and costs of suit.
As earlier mentioned, their appeal was dismissed by the Court of Appeals (Tenth
Division) which affirmed in toto the trial courts decision. Hence, this recourse.

Issues
Petitioners assign the following errors in the appealed Decision:
1.
that the Court of Appeals erred in declaring that surety can exist even if there
was no existing indebtedness at the time of its execution.
2.

that the Court of Appeals erred when it declared that there was no novation.

3.
that the Court of Appeals erred when it declared, that the evidence was
sufficient to prove the amount of the claim.[12]
Petitioners argue that future debts which can be guaranteed under Article 2053
of the Civil Code refer only to debts existing at the time of the constitution of the
guaranty but the amount thereof is unknown, and that a guaranty being an
accessory obligation cannot exist without a principal obligation. Petitioners claim
that the surety undertakings cannot be made to cover the Financing Agreement
executed by Fortune, Filinvest and CARCO since the latter contract was not yet in
existence when said surety contracts were entered into.
Petitioners further aver that the Financing Agreement would effect a novation of
the surety contracts since it changed the principal terms of the surety contracts and
imposed additional and onerous obligations upon the sureties.
Lastly, petitioners claim that no accounting of the payments made by Petitioner
Fortune to Respondent Filinvest was done by the latter. Hence, there could be no
way by which the sureties can ascertain the correct amount of the balance, if any.
Respondent Filinvest, on the other hand, imputes estoppel (by pleadings or by
judicial admission) upon petitioners when in their Motion to Discharge
Attachment, they admitted their liability as sureties thus:
Defendants Chua and Rodrigueza could not have perpetrated fraud because they
are only sureties of defendant Fortune Motors x x x;
x x x The defendants (referring to Rodrigueza and Chua) are not parties to the trust
receipts agreements since they are ONLY sureties x x x. [13]
In rejecting the arguments of petitioners and in holding that they (Fortune and
the sureties) were jointly and solidarily liable to Filinvest, the trial court declared:
As to the alleged non-existence of a principal obligation when the surety
agreement was signed, it is enought (sic) to state that a guaranty may also be
given as security for future debts, the amount of which is not known (Art. 2053, New
Civil Code). In the case of NARIC vs. Fojas, L-11517, promulgated April 10, 1958, it
was ruled that a bond posted to secure additional credit that the principal debtor
had applied for, is not void just because the said bond was signed and filed before
the additional credit was extended by the creditor. The obligation of the sureties on
future obligations of Fortune is apparent from a proviso under the Surety
Undertakings marked Exhs. B and C that the sureties agree with the plaintiff as
follows:
In consideration of your entering into an arrangement with the party (Fortune)
named above, x x x x by which you may purchase or otherwise require from, and
or enter into with obligor x x x trust receipt x x x arising out of wholesale and/or

retail transactions by or with obligor, the undersigned x x x absolutely,

unconditionally, and solidarily guarantee to you x x x the full, faithful and prompt
performance, payment and discharge of any and all obligations x x x of obligor
under and with respect to any and all such contracts and any and all agreements
(whether by way of guaranty or otherwise) of obligor with you x x x now in force or
hereafter made. (Underlinings supplied).
On the matter of novation, this has already been ruled upon when this Court denied
defendants Motion to dismiss on the argument that what happened was really an
assignment of credit, and not a novation of contract, which does not require the
consent of the debtors. The fact of knowledge is enough. Besides, as explained by
the plaintiff, the mother or the principal contract was the Financing Agreement,
whereas the trust receipts, the sight drafts, as well as the Deeds of assignment
were only collaterals or accidental modifications which do not extinguish the original
contract by way of novation. This proposition holds true even if the subsequent
agreement would provide for more onerous terms for, at any rate, it is the principal
or mother contract that is to be followed. When the changes refer to secondary
agreements and not to the object or principal conditions of the contract, there is no
novation; such changes will produce modifications of incidental facts, but will not
extinguish the original obligation (Tolentino, Commentaries on Jurisprudence of the
Civil Code of the Philippines, 1973 Edition, Vol. IV, page 367; cited in plaintiffs
Memorandum of September 6, 1985, p. 3).
On the evidence adduced by the plaintiff to show the status of defendants
accounts, which took into consideration payments by defendants made after the
filing of the case, it is enough to state that a statement was carefully prepared
showing a balance of the principal obligation plus interest totalling P1,348,033.89 as
of March 31, 1985 (Exh. M). This accounting has not been traversed nor
contradicted by defendants although they had the opportunity to do so. Likewise,
there was absolute silence on the part of defendants as to the correctness of the
previous statement of account made as of December 16, 1983 (referring to Exh. I),
but more important, however, is that defendants received demand letters from the
plaintiff stating that, as of December 1983 (Exhs. J, K and L), this total amount of
obligation was P1,302,811,00, and yet defendants were not heard to have
responded to said demand letters, let alone have taken any exception
thereto. There is such a thing as evidence by silence (Sec. 23, Rule 130, Revised
Rules of Court).[14]
The Court of Appeals, affirming the above decision of the trial court, further
explained:
x x x In the case at bar, the surety undertakings in question unequivocally state
that Chua and Rodrigueza absolutely, unconditionally and solidarily guarantee to
Filinvest the full, faithful and prompt performance, payment and discharge of any
and all obligations and agreements of Fortune under or with respect to any and all
such contracts and any and all other agreements (whether by way of guaranty or
otherwise) of the latter with Filinvest in force at the time of the execution of the
Surety Undertakings or made thereafter. Indeed, if Chua and Rodrigueza did not
intend to guarantee all of Fortunes future obligation with Filinvest, then they should
have expressly stated in their respective surety undertakings exactly what said
surety agreements guaranteed or to which obligations of Fortune the same were
intended to apply. For another, if Chua and Rodrigueza truly believed that the
surety undertakings they executed should not cover Fortunes obligations under the
AWFA, then why did they not inform Filinvest of such fact when the latter sent them
the aforementioned demand letters (Exhs. K and L) urging them to pay Fortunes

liability under the AWFA. Instead, quite uncharacteristic of persons who have just
been asked to pay an obligation to which they believe they are not liable, Chua and
Rodrigueza elected or chose not to answer said demand letters. Then, too,
considering that appellant Chua is the corporate president of Fortune and a
signatory to the AWFA, he should have simply had it stated in the AWFA or in a
separate document that the Surety Undertakings do not cover Fortunes
obligations in the aforementioned AWFA, trust receipts or demand drafts.
Appellants argue that it was unfair for Filinvest to have executed the AWFA only
after two (2) years from the date of the Surety undertakings because Chua and
Rodrigueza were thereby made to wait for said number of years just to know what
kind of obligation they had to guarantee.
The argument cannot hold water. In the first place, the Surety Undertakings did
not provide that after a period of time the same will lose its force and effect. In the
second place, if Chua and Rodrigueza did not want to guarantee the obligations of
Fortune under the AWFA, trust receipts and demand drafts, then why did they not
simply terminate the Surety Undertakings by serving ten (10) days written notice
to Filinvest as expressly allowed in said surety agreements. It is highly plausible
that the reason why the Surety Undertakings were not terminated was because the
execution of the same was part of the consideration why Filinvest and CARCO
agreed to enter into the AWFA with Fortune. [15]
The Courts Ruling
We affirm the decisions of the trial and appellate courts.
First Issue: Surety May Secure Future Obligations
The case at bench falls on all fours with Atok Finance Corporation vs. Court of
Appeals[16] which reiterated our rulings in National Rice and Corn Corporation
(NARIC) vs. Court of Appeals[17] and Rizal Commercial Banking Corporation vs. Arro.
[18]
In Atok Finance, Sanyu Chemical as principal, and Sanyu Trading along with
individual private stockholders of Sanyu Chemical, namely, spouses Daniel and
Nenita Arrieta, Leopoldo Halili and Pablito Bermundo, as sureties, executed a
continuing suretyship agreement in favor of Atok Finance as creditor. Under the
agreement, Sanyu Trading and the individual private stockholders and officers of
Sanyu Chemical jointly and severally unconditionally guarantee(d) to Atok Finance
Corporation (hereinafter called Creditor), the full, faithful and prompt payment and
discharge of any and all indebtedness of [Sanyu Chemical] x x x to the
Creditor. Subsequently, Sanyu Chemical assigned its trade receivables outstanding
with a total face value of P125,871.00 to Atok Finance in consideration of receipt of
the amount ofP105,000.00. Later, additional trade receivables with a total face
value of P100,378.45 were also assigned. Due to nonpayment upon maturity, Atok
Finance commenced action against Sanyu Chemical, the Arrieta spouses, Bermundo
and Halili to collect the sum of P120,240.00 plus penalty charges due and
payable. The individual private respondents contended that the continuing
suretyship agreement, being an accessory contract, was null and void since, at the
time of its execution, Sanyu Chemical had no pre-existing obligation due to Atok
Finance. The trial court rendered a decision in favor of Atok Finance and ordered
defendants to pay, jointly and severally, aforesaid amount to Atok.
On appeal, the then Intermediate Appellate Court reversed the trial court and
dismissed the complaint on the ground that there was no proof that when the
suretyship agreement was entered into, there was a pre-existing obligation which

served as the principal obligation between the parties. Furthermore, the future
debts alluded to in Article 2053 refer to debts already existing at the time of the
constitution of the agreement but the amount thereof is unknown, unlike in the case
at bar where the obligation was acquired two years after the agreement.
We ruled then that the appellate court was in serious error. The distinction
which said court sought to make with respect to Article 2053 (that future debts
referred to therein relate to debts already existing at the time of the constitution of
the agreement but the amount [of which] is unknown and not to debts not yet
incurred and existing at that time) has previously been rejected, citing
the RCBC and NARIC cases. We further said:
x x x Of course, a surety is not bound under any particular principal obligation
until that principal obligation is born. But there is no theoretical or doctrinal
difficulty inherent in saying that the suretyship agreement itself is valid and binding
even before the principal obligation intended to be secured thereby is born, any
more than there would be in saying that obligations which are subject to a condition
precedent are valid and binding before the occurrence of the condition precedent.
Comprehensive or continuing surety agreements are in fact quite commonplace in
present day financial and commercial practice. A bank or financing company which
anticipates entering into a series of credit transactions with a particular company,
commonly requires the projected principal debtor to execute a continuing surety
agreement along with its sureties. By executing such an agreement, the principal
places itself in a position to enter into the projected series of transactions with its
creditor; with such suretyship agreement, there would be no need to execute a
separate surety contract or bond for each financing or credit accommodation
extended to the principal debtor.
In Dio vs. Court of Appeals,[19] we again had occasion to discourse on
continuing guaranty/suretyship thus:
x x x A continuing guaranty is one which is not limited to a single transaction, but
which contemplates a future course of dealing, covering a series of transactions,
generally for an indefinite time or until revoked. It is prospective in its operation
and is generally intended to provide security with respect to future transactions
within certain limits, and contemplates a succession of liabilities, for which, as they
accrue, the guarantor becomes liable. Otherwise stated, a continuing guaranty is
one which covers all transactions, including those arising in the future, which are
within the description or contemplation of the contract, of guaranty, until the
expiration or termination thereof. A guaranty shall be construed as continuing when
by the terms thereof it is evident that the object is to give a standing credit to the
principal debtor to be used from time to time either indefinitely or until a certain
period; especially if the right to recall the guaranty is expressly reserved. Hence,
where the contract of guaranty states that the same is to secure advances to be
made from time to time the guaranty will be construed to be a continuing one.
In other jurisdictions, it has been held that the use of particular words and
expressions such as payment of any debt, any indebtedness, any deficiency, or
any sum, or the guaranty of any transaction or money to be furnished the
principal debtor at any time, or on such time that the principal debtor may
require, have been construed to indicate a continuing guaranty. [20]
We have no reason to depart from our uniform ruling in the above-cited
cases. The facts of the instant case bring us to no other conclusion than that the

surety undertakings executed by Chua and Rodrigueza were continuing guaranties

or suretyships covering all future obligations of Fortune Motors (Phils.) Corporation
with Filinvest Credit Corporation. This is evident from the written contract itself
which contained the words absolutely, unconditionally and solidarily guarantee(d)
to Respondent Filinvest and its affiliated and subsidiary companies the full, faithful
and prompt performance, payment and discharge of any and all obligations and
agreements of Petitioner Fortune under or with respect to any and all such
contracts and any and all other agreements (whether by way of guaranty or
otherwise) of the latter with Filinvest and its affiliated and subsidiary companies
now in force or hereafter made.
Moreover, Petitioner Rodrigueza and Joseph Chua knew exactly where they
stood at the time they executed their respective surety undertakings in favor of
Fortune. As stated in the petition:
Before the execution of the new agreement, Edgar L. Rodrigueza and Joseph Chua
were required to sign blank surety agreements, without informing them how much
amount they would be liable as sureties. However, because of the desire of
petitioners, Chua and Rodrigueza to have the cars delivered to petitioner, Fortune,
they signed the blank promissory notes.[21] (underscoring supplied)
It is obvious from the foregoing that Rodrigueza and Chua were fully aware of
the business of Fortune, an automobile dealer; Chua being the corporate president
of Fortune and even a signatory to the Financial Agreement with Filinvest. [22] Both
sureties knew the purpose of the surety undertaking which they signed and they
must have had an estimate of the amount involved at that time. Their undertaking
by way of the surety contracts was critical in enabling Fortune to acquire credit
facility from Filinvest and to procure cars for resale, which was the business of
Fortune. Respondent Filinvest, for its part, relied on the surety contracts when it
agreed to be the assignee of CARCO with respect to the liabilities of Fortune with
CARCO. After benefiting therefrom, petitioners cannot now impugn the validity of
the surety contracts on the ground that there was no pre-existing obligation to be
guaranteed at the time said surety contracts were executed. They cannot resort to
equity to escape liability for their voluntary acts, and to heap injustice to Filinvest,
which relied on their signed word.
This is a clear case of estoppel by deed. By the acts of petitioners, Filinvest was
made to believe that it can collect from Chua and/or Rodrigueza in case of Fortunes
default. Filinvest relied upon the surety contracts when it demanded payment from
the sureties of the unsettled liabilities of Fortune. A refusal to enforce said surety
contracts would virtually sanction the perpetration of fraud or injustice. [23]
Second Issue: No Novation
Neither do we find merit in the averment of petitioners that the Financing
Agreement contained onerous obligations not contemplated in the surety
undertakings, thus changing the principal terms thereof and effecting a novation.
We have ruled previously that there are only two ways to effect novation and
thereby extinguish an obligation. First, novation must be explicitly stated and
declared in unequivocal terms. Novation is never presumed. Second, the old and
new obligations must be incompatible on every point. The test of incompatibility is
whether the two obligations can stand together, each one having its independent
existence. If they cannot, they are incompatible and the latter obligation novates
the first.[24] Novation must be established either by the express terms of the new

agreement or by the acts of the parties clearly demonstrating the intent to dissolve
the old obligation as a consideration for the emergence of the new one. The will to
novate, whether totally or partially, must appear by express agreement of the
parties, or by their acts which are too clear and unequivocal to be mistaken. [25]
Under the surety undertakings however, the obligation of the sureties referred
to absolutely, unconditionally and solidarily guaranteeing the full, faithful and
prompt performance, payment and discharge of all obligations of Petitioner Fortune
with respect to any and all contracts and other agreements with Respondent
Filinvest in force at that time or thereafter made. There were no qualifications,
conditions or reservations stated therein as to the extent of the suretyship. The
Financing Agreement, on the other hand, merely detailed the obligations of Fortune
to CARCO (succeeded by Filinvest as assignee). The allegation of novation by
petitioners is, therefore, misplaced. There is no incompatibility of obligations to
speak of in the two contracts. They can stand together without conflict.
Furthermore, the parties have not performed any explicit and unequivocal act to
manifest their agreement or intention to novate their contract. Neither did the
sureties object to the Financing Agreement nor try to avoid liability thereunder at
the time of its execution. As aptly discussed by the Court of Appeals:
x x x For another, if Chua and Rodrigueza truly believed that the surety
undertakings they executed should not cover Fortunes obligations under the AWFA
(Financing Agreement), then why did they not inform Filinvest of such fact when the
latter sent them the aforementioned demand letters (Exhs. K and L) urging them
to pay Fortunes liability under the AWFA. Instead, quite uncharacteristic of persons
who have just been asked to pay an obligation to which they are not liable, Chua
and Rodrigueza elected or chose not to answer said demand letters. Then, too,
considering that appellant Chua is the corporate president of Fortune and a
signatory to the AWFA, he should have simply had it stated in the AWFA or in a
separate document that the Surety Undertakings do not cover Fortunes
obligations in the aforementioned AWFA, trust receipts or demand drafts. [26]
Third Issue: Amount of Claim Substantiated
The contest on the correct amount of the liability of petitioners is a purely
factual issue. It is an oft repeated maxim that the jurisdiction of this Court in cases
brought before it from the Court of Appeals under Rule 45 of the Rules of Court is
limited to reviewing or revising errors of law. It is not the function of this Court to
analyze or weigh evidence all over again unless there is a showing that the findings
of the lower court are totally devoid of support or are glaringly erroneous as to
constitute serious abuse of discretion. Factual findings of the Court of Appeals are
conclusive on the parties and carry even more weight when said court affirms the
factual findings of the trial court. [27]
In the case at bar, the findings of the trial court and the Court of Appeals with
respect to the assigned error are based on substantial evidence which were not
refuted with contrary proof by petitioners. Hence, there is no necessity to depart
from the above judicial dictum.
WHEREFORE, premises considered, the petition is DENIED and the assailed
Decision of the Court of Appeals concurring with the decision of the trial court is
hereby AFFIRMED. Costs against petitioners.
SO ORDERED.

Melo, and Francisco, JJ., concur.

Narvasa, C.J. (Chairman), took no part due to personal relationship to party.
Davide, Jr., took no part due to close relationship of a party.

[G.R. No. 142838. August 9, 2001]

ABELARDO
B.
LICAROS, petitioner,
GATMAITAN, respondent.

vs. ANTONIO

P.

DECISION
GONZAGA-REYES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of
Court. The petition seeks to reverse and set aside the Decision [1] dated February 10,
2000 of the Court of Appeals and its Resolution [2] dated April 7, 2000 denying
petitioners Motion for Reconsideration thereto. The appellate court decision
reversed the Decision[3] dated November 11, 1997 of the Regional Trial Court of
Makati, Branch 145 in Civil Case No. 96-1211.
The facts of the case, as stated in the Decision of the Court of Appeals dated
February 10, 2000, are as follows:
The Anglo-Asean Bank and Trust Limited (Anglo-Asean, for brevity), is a private
bank registered and organized to do business under the laws of the Republic of
Vanuatu but not in the Philippines. Its business consists primarily in receiving fund
placements by way of deposits from institutions and individual investors from
different parts of the world and thereafter investing such deposits in money market
placements and potentially profitable capital ventures in Hongkong, Europe and the
United States for the purpose of maximizing the returns on those investments.
Enticed by the lucrative prospects of doing business with Anglo-Asean, Abelardo
Licaros, a Filipino businessman, decided to make a fund placement with said bank
sometime in the 1980s. As it turned out, the grim outcome of Licaros foray in
overseas fund investment was not exactly what he envisioned it to be. More
particularly, Licaros, after having invested in Anglo-Asean, encountered tremendous
and unexplained difficulties in retrieving, not only the interest or profits, but even
the very investments he had put in Anglo-Asean.
Confronted with the dire prospect of not getting back any of his investments,
Licaros then decided to seek the counsel of Antonio P. Gatmaitan, a reputable
banker and investment manager who had been extending managerial, financial and
investment consultancy services to various firms and corporations both here and
abroad. To Licaros relief, Gatmaitan was only too willing enough to
help. Gatmaitan voluntarily offered to assume the payment of Anglo-Aseans
indebtedness to Licaros subject to certain terms and conditions. In order to
effectuate and formalize the parties respective commitments, the two executed a
notarized MEMORANDUM OF AGREEMENT on July 29, 1988 (Exh. B; also Exhibit
1), the full text of which reads:
Memorandum of Agreement

KNOW ALL MEN BY THESE PRESENTS:

This MEMORANDUM OF AGREEMENT made and executed this 29th day of July 1988,
at Makati by and between:
ABELARDO B. LICAROS, Filipino, of legal age and holding office at Concepcion
Building, Intramuros, Manila hereinafter referred to as THE PARTY OF THE FIRST
PART,
and
ANTONIO P. GATMAITAN, Filipino, of legal age and residing at 7 Mangyan St., La
Vista, hereinafter referred to as the PARTY OF THE SECOND PART,
WITNESSETH THAT:
WHEREAS, ANGLO-ASEAN BANK & TRUST, a company incorporated by the Republic
of Vanuatu, hereinafter referred to as the OFFSHORE BANK, is indebted to the PARTY
OF THE FIRST PART in the amount of US dollars; ONE HUNDRED FIFTY THOUSAND
ONLY (US$150,000) which debt is now due and demandable.
WHEREAS, the PARTY OF THE FIRST PART has encountered difficulties in securing
full settlement of the said indebtedness from the OFFSHORE BANK and has sought a
business arrangement with the PARTY OF THE SECOND PART regarding his claims;
WHEREAS, the PARTY OF THE SECOND PART, with his own resources and due to his
association with the OFFSHORE BANK, has offered to the PARTY OF THE FIRST PART
to assume the payment of the aforesaid indebtedness, upon certain terms and
conditions, which offer, the PARTY OF THE FIRST PART has accepted;
WHEREAS, the parties herein have come to an agreement on the nature, form and
extent of their mutual prestations which they now record herein with the express
conformity of the third parties concerned;
NOW, THEREFORE, for and in consideration of the foregoing and the mutual
covenants stipulated herein, the PARTY OF THE FIRST PART and the PARTY OF THE
SECOND PART have agreed, as they do hereby agree, as follows:
1.
The PARTY OF THE SECOND PART hereby undertakes to pay the PARTY OF
THE FIRST PART the amount of US DOLLARS ONE HUNDRED FIFTY
THOUSAND ((US$150,000) payable in Philippine Currency at the fixed exchange rate
of Philippine Pesos 21 to US$1 without interest on or before July 15, 1993.
For this purpose, the PARTY OF THE SECOND PART shall execute and deliver a non
negotiable promissory note, bearing the aforesaid material consideration in favor of
the PARTY OF THE FIRST PART upon execution of this MEMORANDUM OF
AGREEMENT, which promissory note shall form part as ANNEX A hereof.
2.
For and in consideration of the obligation of the PARTY OF THE SECOND PART,
the PARTY OF THE FIRST does hereby;
a.
Sell, assign, transfer and set over unto the PARTY OF THE SECOND PART that
certain debt now due and owing to the PARTY OF THE FIRST PART by the OFFSHORE
BANK, to the amount of US Dollars One Hundred Fifty Thousand plus interest due
and accruing thereon;

b.
Grant the PARTY OF THE SECOND PART the full power and authority, for his
own use and benefit, but at his own cost and expense, to demand, collect, receive,
compound, compromise and give acquittance for the same or any part thereof, and
in the name of the PARTY OF THE FIRST PART, to prosecute, and withdraw any suit
or proceedings therefor;
c.
Agree and stipulate that the debt assigned herein is justly owing and due to
the PARTY OF THE FIRST PART from the said OFFSHORE BANK, and that the PARTY
OF THE FIRST PART has not done and will not cause anything to be done to diminish
or discharge said debt, or to delay or prevent the PARTY OF THE SECOND PART from
collecting the same; and;
d.
At the request of the PARTY OF SECOND PART and the latters own cost and
expense, to execute and do all such further acts and deeds as shall be reasonably
necessary for proving said debt and to more effectually enable the PARTY OF THE
SECOND PART to recover the same in accordance with the true intent and meaning
of the arrangements herein.
IN WITNESS WHEREOF, the parties have caused this MEMORANDUM OF AGREEMENT
to be signed on the date and place first written above.
Sgd.

Sgd.

ABELARDO B. LICAROS
PARTY OF THE FIRST PART

ANTONIO P. GATMAITAN
PARTY OF THE FIRST PART

WITH OUR CONFORME:

ANGLO-ASEAN BANK & TRUST
BY: (Unsigned)
SIGNED IN THE PRESENCE OF:
Sgd. (illegible)
________________________

________________________

Conformably with his undertaking under paragraph 1 of the aforequoted agreement,

Gatmaitan executed in favor of Licaros a NON-NEGOTIABLE PROMISSORY NOTE
WITH ASSIGNMENT OF CASH DIVIDENDS (Exhs. A; also Exh. 2), which promissory
note, appended as Annex A to the same Memorandum of Agreement, states in full,
thus
NON-NEGOTIABLE PROMISSORY NOTE
WITH ASSIGNMENT OF CASH DIVIDENDS
This promissory note is Annex A of the Memorandum of Agreement executed
between Abelardo B. Licaros and Antonio P. Gatmaitan, on ______ 1988 at Makati,
Philippines and is an integral part of said Memorandum of Agreement.
P3,150,000.

On or before July 15, 1993, I promise to pay to Abelardo B. Licaros the sum of
Philippine Pesos 3,150,000 (P3,150,000) without interest as material consideration
for the full settlement of his money claims from ANGLO-ASEAN BANK, referred to in
the Memorandum of Agreement as the OFFSHORE BANK.
As security for the payment of this Promissory Note, I hereby ASSIGN, CEDE and
TRANSFER, Seventy Percent (70%) of ALL CASH DIVIDENDS, that may be due or
owing to me as the registered owner of ___________________ (__________) shares of
stock in the Prudential Life Realty, Inc.
This assignment shall likewise include SEVENTY PERCENT (70%) of cash dividends
that may be declared by Prudential Life Realty, Inc. and due or owing to Prudential
Life Plan, Inc., of which I am a stockholder, to the extent of or in proportion to my
aforesaid shareholding in Prudential Life Plan, Inc., the latter being the holding
company of Prudential Life Realty, Inc.
In the event that I decide to sell or transfer my aforesaid shares in either or both the
Prudential Life Plan, Inc. or Prudential Life Realty, Inc. and the Promissory Note
remains unpaid or outstanding, I hereby give Mr. Abelardo B. Licaros the first option
to buy the said shares.
Manila, Philippines
July _____, 1988

(SGD.)

Antonio P. Gatmaitan

7 Mangyan St., La Vista, QC

Signed in the Presence of
(SGD.)
_________________

__________________

Francisco A. Alba
President, Prudential Life Plan, Inc..
Thereafter, Gatmaitan presented to Anglo-Asean the Memorandum of Agreement
earlier executed by him and Licaros for the purpose of collecting the latters
placement thereat of U.S.$150,000.00. Albeit the officers of Anglo-Asean allegedly
committed themselves to look into [this matter], no formal response was ever
made by said bank to either Licaros or Gatmaitan. To date, Anglo-Asean has not
acted on Gatmaitans monetary claims.
Evidently, because of his inability to collect from Anglo-Asean, Gatmaitan did not
bother anymore to make good his promise to pay Licaros the amount stated in his
promissory note (Exh. A; also Exh. 2). Licaros, however, thought differently. He
felt that he had a right to collect on the basis of the promissory note regardless of

the outcome of Gatmaitan's recovery efforts. Thus, in July 1996, Licaros, thru
counsel, addressed successive demand letters to Gatmaitan (Exhs. C and D),
demanding payment of the latters obligations under the promissory
note. Gatmaitan, however, did not accede to these demands.
Hence, on August 1, 1996, in the Regional Trial Court at Makati, Licaros filed the
complaint in this case. In his complaint, docketed in the court below as Civil Case
No. 96-1211, Licaros prayed for a judgment ordering Gatmaitan to pay him the
following:
a) Principal Obligation in the amount of Three Million Five Hundred Thousand Pesos
(P3,500,000.00);
b) Legal interest thereon at the rate of six (6%) percent per annum from July 16,
1993 when the amount became due until the obligation is fully paid;
c) Twenty percent (20%) of the amount due as reasonable attorneys fees;
d) Costs of the suit.[4]
After trial on the merits, the court a quo rendered judgment in favor of
petitioner Licaros and found respondent Gatmaitan liable under the Memorandum of
Agreement and Promissory Note for P3,150,000.00 plus 12% interest per annum
from July 16, 1993 until the amount is fully paid. Respondent was likewise ordered
to pay attorneys fees of P200,000.00.[5]
Respondent Gatmaitan appealed the trial courts decision to the Court of
Appeals. In a decision promulgated on February 10, 2000, the appellate court
reversed the decision of the trial court and held that respondent Gatmaitan did not
at any point become obligated to pay to petitioner Licaros the amount stated in the
promissory note. In a Resolution dated April 7, 2000, the Court of Appeals denied
petitioners Motion for Reconsideration of its February 10, 2000 Decision.
Hence this petition for review on certiorari where petitioner prays for the
reversal of the February 10, 2000 Decision of the Court of Appeals and the
reinstatement of the November 11, 1997 decision of the Regional Trial Court.
The threshold issue for the determination of this Court is whether the
Memorandum of Agreement between petitioner and respondent is one of
assignment of credit or one of conventional subrogation. This matter is
determinative of whether or not respondent became liable to petitioner under the
promissory note considering that its efficacy is dependent on the Memorandum of
Agreement, the note being merely an annex to the said memorandum. [6]
An assignment of credit has been defined as the process of transferring the
right of the assignor to the assignee who would then have the right to proceed
against the debtor. The assignment may be done gratuitously or onerously, in
which case, the assignment has an effect similar to that of a sale. [7]
On the other hand, subrogation has been defined as the transfer of all the rights
of the creditor to a third person, who substitutes him in all his rights. It may either
be legal or conventional. Legal subrogation is that which takes place without
agreement but by operation of law because of certain acts. Conventional
subrogation is that which takes place by agreement of parties. [8]

The general tenor of the foregoing definitions of the terms subrogation and
assignment of credit may make it seem that they are one and the same which
they are not. A noted expert in civil law notes their distinctions thus:
Under our Code, however, conventional subrogation is not identical to assignment
of credit. In the former, the debtors consent is necessary; in the latter it is not
required. Subrogation extinguishes the obligation and gives rise to a new one;
assignment refers to the same right which passes from one person to another. The
nullity of an old obligation may be cured by subrogation, such that a new obligation
will be perfectly valid; but the nullity of an obligation is not remedied by the
assignment of the creditors right to another. [9]
For our purposes, the crucial distinction deals with the necessity of the consent
of the debtor in the original transaction. In an assignment of credit, the consent of
the debtor is not necessary in order that the assignment may fully produce legal
effects.[10] What the law requires in an assignment of credit is not the consent of the
debtor but merely notice to him as the assignment takes effect only from the time
he has knowledge thereof. [11] A creditor may, therefore, validly assign his credit and
its accessories without the debtors consent. [12] On the other hand, conventional
subrogation requires an agreement among the three parties concerned the
original creditor, the debtor, and the new creditor. It is a new contractual relation
based on the mutual agreement among all the necessary parties. Thus, Article
1301 of the Civil Code explicitly states that (C)onventional subrogation of a third
person requires the consent of the original parties and of the third person.
The trial court, in finding for the petitioner, ruled that the Memorandum of
Agreement was in the nature of an assignment of credit. As such, the court a quo
held respondent liable for the amount stated in the said agreement even if the
parties thereto failed to obtain the consent of Anglo-Asean Bank. On the other
hand, the appellate court held that the agreement was one of conventional
subrogation which necessarily requires the agreement of all the parties
concerned. The Court of Appeals thus ruled that the Memorandum of Agreement
never came into effect due to the failure of the parties to get the consent of AngloAsean Bank to the agreement and, as such, respondent never became liable for the
amount stipulated.
We agree with the finding of the Court of Appeals that the Memorandum of
Agreement dated July 29, 1988 was in the nature of a conventional subrogation
which requires the consent of the debtor, Anglo-Asean Bank, for its validity. We note
with approval the following pronouncement of the Court of Appeals:
Immediately discernible from above is the common feature of contracts involving
conventional subrogation, namely, the approval of the debtor to the subrogation of
a third person in place of the creditor. That Gatmaitan and Licaros had intended to
treat their agreement as one of conventional subrogation is plainly borne by a
stipulation in their Memorandum of Agreement, to wit:
WHEREAS, the parties herein have come to an agreement on the nature, form and
extent of their mutual prestations which they now record herein with the express
conformity of the third parties concerned (emphasis supplied),
which third party is admittedly Anglo-Asean Bank.
Had the intention been merely to confer on appellant the status of a mere
assignee of appellees credit, there is simply no sense for them to have stipulated

in their agreement that the same is conditioned on the express conformity thereto
of Anglo-Asean Bank. That they did so only accentuates their intention to treat the
agreement as one of conventional subrogation. And it is basic in the interpretation
of contracts that the intention of the parties must be the one pursued (Rule 130,
Section 12, Rules of Court).
Given our finding that the Memorandum of Agreement (Exh. B; also Exh. 1), is
not one of assignment of credit but is actually a conventional subrogation, the
next question that comes to mind is whether such agreement was ever perfected at
all. Needless to state, the perfection or non-perfection of the subject agreement
is of utmost relevance at this point. For, if the same Memorandum of Agreement
was actually perfected, then it cannot be denied that Gatmaitan still has a
subsisting commitment to pay Licaros on the basis of his promissory note. If not,
Licaros suit for collection must necessarily fail.
Here, it bears stressing that the subject Memorandum of Agreement expressly
requires the consent of Anglo-Asean to the subrogation. Upon whom the task of
securing such consent devolves, be it on Licaros or Gatmaitan, is of no
significance. What counts most is the hard reality that there has been an abject
failure to get Anglo-Aseans nod of approval over Gatmaitans being subrogated in
the place of Licaros. Doubtless, the absence of such conformity on the part of AngloAsean, which is thereby made a party to the same Memorandum of Agreement,
prevented the agreement from becoming effective, much less from being a source
of any cause of action for the signatories thereto. [13]
Aside for the whereas clause cited by the appellate court in its decision, we
likewise note that on the signature page, right under the place reserved for the
signatures of petitioner and respondent, there is, typewritten, the words WITH OUR
CONFORME. Under this notation, the words ANGLO-ASEAN BANK AND TRUST
were written by hand.[14] To our mind, this provision which contemplates the signed
conformity of Anglo-Asean Bank, taken together with the aforementioned
preambulatory clause leads to the conclusion that both parties intended that AngloAsean Bank should signify its agreement and conformity to the contractual
arrangement between petitioner and respondent. The fact that Anglo-Asean Bank
did not give such consent rendered the agreement inoperative considering that, as
previously discussed, the consent of the debtor is needed in the subrogation of a
third person to the rights of a creditor.
In this petition, petitioner assails the ruling of the Court of Appeals that what
was entered into by the parties was a conventional subrogation of petitioners rights
as creditor of the Anglo-Asean Bank which necessarily requires the consent of the
latter. In support, petitioner alleges that: (1) the Memorandum of Agreement did
not create a new obligation and, as such, the same cannot be a conventional
subrogation; (2) the consent of Anglo-Asean Bank was not necessary for the validity
of the Memorandum of Agreement; (3) assuming that such consent was necessary,
respondent failed to secure the same as was incumbent upon him; and (4)
respondent himself admitted that the transaction was one of assignment of credit.
Petitioner argues that the parties to the Memorandum of Agreement could not
have intended the same to be a conventional subrogation considering that no new
obligation was created. According to petitioner, the obligation of Anglo-Asean Bank
to pay under Contract No. 00193 was not extinguished and in fact, it was the basic
intention of the parties to the Memorandum of Agreement to enforce the same
obligation of Anglo-Asean Bank under its contract with petitioner. Considering that
the old obligation of Anglo-Asean Bank under Contract No. 00193 was never

extinguished under the Memorandum of Agreement, it is contended that the same

could not be considered as a conventional subrogation.
We are not persuaded.
It is true that conventional subrogation has the effect of extinguishing the old
obligation and giving rise to a new one. However, the extinguishment of the old
obligation is the effect of the establishment of a contract for conventional
subrogation. It is not a requisite without which a contract for conventional
subrogation may not be created. As such, it is not determinative of whether or not
a contract of conventional subrogation was constituted.
Moreover, it is of no moment that the subject of the Memorandum of Agreement
was the collection of the obligation of Anglo-Asean Bank to petitioner Licaros under
Contract No. 00193. Precisely, if conventional subrogation had taken place with the
consent of Anglo-Asean Bank to effect a change in the person of its creditor, there is
necessarily created a new obligation whereby Anglo-Asean Bank must now give
payment to its new creditor, herein respondent.
Petitioner next argues that the consent or conformity of Anglo-Asean Bank is not
necessary to the validity of the Memorandum of Agreement as the evidence on
record allegedly shows that it was never the intention of the parties thereto to treat
the same as one of conventional subrogation. He claims that the preambulatory
clause requiring the express conformity of third parties, which admittedly was
Anglo-Asean Bank, is a mere surplusage which is not necessary to the validity of the
agreement.
As previously discussed, the intention of the parties to treat the Memorandum of
Agreement as embodying a conventional subrogation is shown not only by the
whereas clause but also by the signature space captioned WITH OUR
CONFORME reserved for the signature of a representative of Anglo-Asean
Bank. These provisions in the aforementioned Memorandum of Agreement may not
simply be disregarded or dismissed as superfluous.
It is a basic rule in the interpretation of contracts that (t)he various stipulations
of a contract shall be interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly. [15] Moreover, under our Rules
of Court, it is mandated that (i)n the construction of an instrument where there are
several provisions or particulars, such a construction is, if possible, to be adopted as
will give effect to all.[16] Further, jurisprudence has laid down the rule that contracts
should be so construed as to harmonize and give effect to the different provisions
thereof.[17]
In the case at bench, the Memorandum of Agreement embodies certain
provisions that are consistent with either a conventional subrogation or assignment
of credit. It has not been shown that any clause or provision in the Memorandum of
Agreement is inconsistent or incompatible with a conventional subrogation. On the
other hand, the two cited provisions requiring consent of the debtor to the
memorandum is inconsistent with a contract of assignment of credit. Thus, if we
were to interpret the same as one of assignment of credit, then the aforementioned
stipulations regarding the consent of Anglo-Asean Bank would be rendered inutile
and useless considering that, as previously discussed, the consent of the debtor is
not necessary in an assignment of credit.

Petitioner next argues that assuming that the conformity of Anglo-Asean was
necessary to the validity of the Memorandum of Agreement, respondent only had
himself to blame for the failure to secure such conformity as was, allegedly,
incumbent upon him under the memorandum.
As to this argument regarding the party responsible for securing the conformity
of Anglo-Asean Bank, we fail to see how this question would have any relevance on
the outcome of this case. Having ruled that the consent of Anglo-Asean was
necessary for the validity of the Memorandum of Agreement, the determinative fact
is that such consent was not secured by either petitioner or respondent which
consequently resulted in the invalidity of the said memorandum.
With respect to the argument of petitioner that respondent himself allegedly
admitted in open court that an assignment of credit was intended, it is enough to
say that respondent apparently used the word assignment in his testimony in the
general sense. Respondent is not a lawyer and as such, he is not so well versed in
law that he would be able to distinguish between the concepts of conventional
subrogation and of assignment of credit. Moreover, even assuming that there was
an admission on his part, such admission is not conclusive on this court as the
nature and interpretation of the Memorandum of Agreement is a question of law
which may not be the subject of stipulations and admissions. [18]
Considering the foregoing, it cannot then be said that the consent of the debtor
Anglo-Asean Bank is not necessary to the validity of the Memorandum of
Agreement. As above stated, the Memorandum of Agreement embodies a contract
for conventional subrogation and in such a case, the consent of the original parties
and the third person is required.[19] The absence of such conformity by Anglo-Asean
Bank prevented the Memorandum of Agreement from becoming valid and
effective. Accordingly, the Court of Appeals did not err when it ruled that the
Memorandum of Agreement was never perfected.
Having arrived at the above conclusion, the Court finds no need to discuss the
other issues raised by petitioner.
WHEREFORE, the instant petition is DENIED and the Decision of the Court of
Appeals dated February 10, 2000 and its Resolution dated April 7, 2000 are hereby
AFFIRMED.
Melo, (Chairman), Vitug, and Panganiban, JJ., concur.
Sandoval-Gutierrez, J., on leave.

[G.R. No. 118248. April 5, 2000]

DKC HOLDINGS CORPORATION, petitioner, vs. COURT OF APPEALS, VICTOR
U. BARTOLOME and REGISTER OF DEEDS FOR METRO MANILA, DISTRICT
III, respondents. francis
DECISION
YNARES_SANTIAGO, J.:

This is a petition for review on certiorari seeking the reversal of the December 5,
1994 Decision of the Court of Appeals in CA-G.R. CV No. 40849 entitled "DKC
Holdings Corporation vs. Victor U. Bartolome, et al.",[1] affirming in toto the January
4, 1993 Decision of the Regional Trial Court of Valenzuela, Branch 172, [2] which
dismissed Civil Case No. 3337-V-90 and ordered petitioner to pay P30,000.00 as
attorneys fees.
The subject of the controversy is a 14,021 square meter parcel of land located in
Malinta, Valenzuela, Metro Manila which was originally owned by private respondent
Victor U. Bartolomes deceased mother, Encarnacion Bartolome, under Transfer
Certificate of Title No. B-37615 of the Register of Deeds of Metro Manila, District III.
This lot was in front of one of the textile plants of petitioner and, as such, was seen
by the latter as a potential warehouse site.
On March 16, 1988, petitioner entered into a Contract of Lease with Option to Buy
with Encarnacion Bartolome, whereby petitioner was given the option to lease or
lease with purchase the subject land, which option must be exercised within a
period of two years counted from the signing of the Contract. In turn, petitioner
undertook to pay P3,000.00 a month as consideration for the reservation of its
option. Within the two-year period, petitioner shall serve formal written notice upon
the lessor Encarnacion Bartolome of its desire to exercise its option. The contract
also provided that in case petitioner chose to lease the property, it may take actual
possession of the premises. In such an event, the lease shall be for a period of six
years, renewable for another six years, and the monthly rental fee shall be
P15,000.00 for the first six years and P18,000.00 for the next six years, in case of
renewal.
Petitioner regularly paid the monthly P3,000.00 provided for by the Contract to
Encarnacion until her death in January 1990. Thereafter, petitioner coursed its
payment to private respondent Victor Bartolome, being the sole heir of Encarnacion.
Victor, however, refused to accept these payments. iska
Meanwhile, on January 10, 1990, Victor executed an Affidavit of Self-Adjudication
over all the properties of Encarnacion, including the subject lot. Accordingly,
respondent Register of Deeds cancelled Transfer Certificate of Title No. B-37615 and
issued Transfer Certificate of Title No. V-14249 in the name of Victor Bartolome.
On March 14, 1990, petitioner served upon Victor, via registered 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 March. Again, Victor refused to accept the tendered rental
fee and to surrender possession of the property to petitioner.
Petitioner thus opened Savings Account No. 1-04-02558-I-1 with the China Banking
Corporation, Cubao Branch, in the name of 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 February and March.
Petitioner also tried to register and annotate the Contract on the title of Victor to the
property. Although respondent Register of Deeds accepted the required fees, he
nevertheless refused to register or annotate the same or even enter it in the day
book or primary register.
Thus, on April 23, 1990, petitioner filed a complaint for specific performance and
damages against Victor and the Register of Deeds, [3] docketed as Civil Case No.
3337-V-90 which was raffled off to Branch 171 of the Regional Trial Court of

Valenzuela. Petitioner prayed for the surrender and delivery of possession of the
subject land in accordance with the Contract terms; the surrender of title for
registration and annotation thereon of the Contract; and the payment of
P500,000.00 as actual damages, P500,000.00 as moral damages, P500,000.00 as
exemplary damages and P300,000.00 as attorneys fees.
Meanwhile, on May 8, 1990, a Motion for Intervention with Motion to Dismiss [4] was
filed by one Andres Lanozo, who claimed that he was and has been a tenant-tiller of
the subject property, which was agricultural riceland, for forty-five years. He
questioned the jurisdiction of the lower court over the property and invoked the
Comprehensive Agrarian Reform Law to protect his rights that would be affected by
the dispute between the original parties to the case. ella
On May 18, 1990, the lower court issued an Order [5] referring the case to the
Department of Agrarian Reform for preliminary determination and certification as to
whether it was proper for trial by said court.
On July 4, 1990, the lower court issued another Order [6] referring the case to Branch
172 of the RTC of Valenzuela which was designated to hear cases involving agrarian
land, after the Department of Agrarian Reform issued a letter-certification stating
that referral to it for preliminary determination is no longer required.
On July 16, 1990, the lower court issued an Order denying the Motion to Intervene,
[7]
holding that Lanozos rights may well be ventilated in another proceeding in due
time.
After trial on the merits, the RTC of Valenzuela, branch 172 rendered its Decision on
January 4, 1993, dismissing the Complaint and ordering petitioner to pay Victor
P30,000.00 as attorneys fees. On appeal to the CA, the Decision was affirmed in
toto.
Hence, the instant Petition assigning the following errors:
(A)
FIRST ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE
PROVISION ON THE NOTICE TO EXERCISE OPTION WAS NOT
TRANSMISSIBLE.
(B)
SECOND ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE
NOTICE OF OPTION MUST BE SERVED BY DKC UPON ENCARNACION
BARTOLOME PERSONALLY.
(C) nigel
THIRD ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE
CONTRACT WAS ONE-SIDED AND ONEROUS IN FAVOR OF DKC.

(D)
FOURTH ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE
EXISTENCE OF A REGISTERED TENANCY WAS FATAL TO THE VALIDITY
OF THE CONTRACT.
(E)
FIFTH ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
PLAINTIFF-APPELLANT WAS LIABLE TO DEFENDANT-APPELLEE FOR
ATTORNEYS FEES.[8]
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 Bartolome with petitioner was
terminated upon her death or whether it binds her sole heir, Victor, even after her
demise.
Both the lower court and the Court of Appeals held that the said contract was
terminated upon the death of Encarnacion Bartolome and did not bind Victor
because he was not a party thereto.
Article 1311 of the Civil Code provides, as follows"ART. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations
arising from the 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 received from the decedent. brnado
xxx

xxx

x x x."

The general rule, therefore, is that heirs are bound by contracts entered into by
their predecessors-in-interest except when the rights and obligations arising
therefrom are not transmissible by (1) their nature, (2) stipulation or (3) provision of
law.
In the case at bar, there is neither contractual stipulation nor legal provision making
the rights and obligations under the contract intransmissible. More importantly, the
nature of the rights and obligations therein are, by their nature, transmissible.
The nature of intransmissible rights as explained by Arturo Tolentino, an eminent
civilist, is as follows:
"Among contracts which are intransmissible are those which are purely
personal, either by provision of law, such as in cases of partnerships
and agency, or by the very nature of the obligations arising therefrom,
such as those requiring special personal qualifications of the obligor. It
may also be stated that contracts for the payment of money debts are
not transmitted to the heirs of a party, but constitute a charge against
his estate. Thus, where the client in a contract for professional services
of a lawyer died, leaving minor heirs, and the lawyer, instead of

presenting his claim for professional services under the contract to the
probate court, substituted the minors as parties for his client, it was
held that the contract could not be enforced against the minors; the
lawyer was limited to a recovery on the basis of quantum meruit."[9]
In American jurisprudence, "(W)here acts stipulated in a contract require the
exercise of special knowledge, genius, skill, taste, ability, experience, judgment,
discretion, integrity, or other personal qualification of one or both parties, the
agreement is of a personal nature, and terminates on the death of the party who is
required to render such service." [10] marinella
It has also been held that a good measure for determining whether a contract
terminates upon the death of one of the parties is whether it is of such a character
that it may be performed by the promissors personal representative. Contracts to
perform personal acts which cannot be as well performed by others are discharged
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, or where the contract, by its
terms, shows that performance by others was contemplated, death does not
terminate the contract or excuse nonperformance. [11]
In the case at bar, there is no personal act required from the late Encarnacion
Bartolome. Rather, the obligation of Encarnacion in the contract to deliver
possession of the subject property to petitioner upon the exercise by the latter of its
option to lease the same may very well be performed by her heir Victor.
As early as 1903, it was held that "(H)e who contracts does so for himself and his
heirs."[12] In 1952, it was ruled that if the predecessor was duty-bound to reconvey
land to another, and at his death the reconveyance had not been made, the heirs
can be compelled to execute the proper deed for reconveyance. This was grounded
upon the principle that heirs cannot escape the legal consequence of a transaction
entered into by their predecessor-in-interest because they have inherited the
property subject to the liability affecting their common ancestor. [13]
It is futile for Victor to insist that he is not a party to the contract because of the
clear provision of Article 1311 of the Civil Code. Indeed, being an heir of
Encarnacion, there is privity of interest between him and his deceased mother. He
only succeeds to what rights his mother had and what is valid and binding against
her is also valid and binding as against him. [14]This is clear from Paraaque Kings
Enterprises vs. Court of Appeals,[15] where this Court rejected a similar defensealonzo
With respect to the contention of respondent Raymundo that he is not
privy to the lease contract, not being the lessor nor the lessee referred
to therein, he could thus not have violated its provisions, but he is
nevertheless a proper party. Clearly, he stepped into the shoes of the
owner-lessor of the land as, by virtue of his purchase, he assumed all
the obligations of the lessor under the lease contract. Moreover, he
received benefits in the form of rental payments. Furthermore, the
complaint, as well as the petition, prayed for the annulment of the sale
of the properties to him. Both pleadings also alleged collusion between
him and respondent Santos which defeated the exercise by petitioner
of its right of first refusal.
In order then to accord complete relief to petitioner, respondent
Raymundo was a necessary, if not indispensable, party to the case. A

favorable judgment for the petitioner will necessarily affect the rights
of respondent Raymundo as the buyer of the property over which
petitioner would like to assert its right of first option to buy.
In the case at bar, the subject matter of the contract is likewise a lease, which is a
property right. The death of a party does not excuse nonperformance of a contract
which involves a property right, and the rights and obligations thereunder pass to
the personal representatives of the deceased. Similarly, nonperformance is not
excused by the death of the party when the other party has a property interest in
the subject matter of the contract.[16]
Under both Article 1311 of the Civil Code and jurisprudence, therefore, Victor is
bound by the subject Contract of Lease with Option to Buy.
That being resolved, we now rule on the issue of whether petitioner had complied
with its obligations under the contract and with the requisites to exercise its option.
The payment by petitioner of the reservation fees during the two-year period within
which it had the option to lease or purchase the property is not disputed. In fact, the
payment of such reservation fees, except those for February and March, 1990 were
admitted by Victor.[17] This is clear from the transcripts, to wit"ATTY. MOJADO:
One request, Your Honor. The last payment which was allegedly
made in January 1990 just indicate in that stipulation that it was issued
November of 1989 and postdated Janaury 1990 and then we will admit
all. rodp;fo
COURT:
All reservation fee?
ATTY. MOJADO:
Yes, Your Honor.
COURT:
All as part of the lease?
ATTY. MOJADO:
Reservation fee, Your Honor. There was no payment with respect
to payment of rentals."[18]
Petitioner also paid the P15,000.00 monthly rental fee on the subject property by
depositing the same in China Bank Savings Account No. 1-04-02558-I-1, in the name
of Victor as the sole heir of Encarnacion Bartolome, [19] for the months of March to
July 30, 1990, or a total of five (5) months, despite the refusal of Victor to turn over
the subject property.[20]
Likewise, petitioner complied with its duty to inform the other party of its intention
to exercise its option to lease through its letter dated Match 12, 1990, [21] 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.
It appears, therefore, that the exercise by petitioner of its option to lease the
subject property was made in accordance with the contractual provisions.
Concomitantly, private respondent Victor Bartolome has the obligation to surrender
possession of and lease the premises to petitioner for a period of six (6) years,
pursuant to the Contract of Lease with Option to Buy. micks
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 Motion to Intervene and to Dismiss of
the alleged tenant, Andres Lanozo, was denied by the lower court and that such
denial was never made the subject of an appeal. As the lower court stated in its
Order, the alleged right of the tenant may well be ventilated in another proceeding
in due time.
WHEREFORE, in view of the foregoing, the instant Petition for Review is GRANTED.
The Decision of the Court of Appeals in CA-G.R. CV No. 40849 and that of the
Regional Trial Court of Valenzuela in Civil Case No. 3337-V-90 are both SET ASIDE
and a new one rendered ordering private respondent Victor Bartolome to:
(a) surrender and deliver possession of that parcel of land covered by
Transfer Certificate of Title No. V-14249 by way of lease to petitioner
and to perform all obligations of his predecessor-in-interest,
Encarnacion Bartolome, under the subject Contract of Lease with
Option to Buy;
(b) surrender and deliver his copy of Transfer Certificate of Title No. V14249 to respondent Register of Deeds for registration and annotation
thereon of the subject Contract of Lease with Option to Buy;
(c) pay costs of suit. Sc
Respondent Register of Deeds is, accordingly, ordered to register and annotate the
subject Contract of Lease with Option to Buy at the back of Transfer Certificate of
Title No. V-14249 upon submission by petitioner of a copy thereof to his office.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur. Scmis
[G.R. No. 119850. June 20, 1996]
MANDARIN VILLA, INC., petitioner, vs. COURT OF APPEALS and CLODUALDO
DE JESUS, respondents.
RESOLUTION
FRANCISCO, J.:
With ample evidentiary support are the following antecedent facts:
In the evening of October 19, 1989, private respondent, Clodualdo de Jesus, a
practicing lawyer and businessman, hosted a dinner for his friends at the
petitioner's restaurant the Mandarin Villa Seafoods Village, Greenhills, Mandaluyong

City. After dinner the waiter handed to him the bill in the amount of
P2,658.50. Private respondent offered to pay the bill through his credit card issued
by Philippine Commercial Credit Card Inc. (BANKARD). This card was accepted by
the waiter who immediately proceeded to the restaurant's cashier for card
verification. Ten minutes later, however, the waiter returned and audibly informed
private respondent that his credit card had expired. [1] Private respondent
remonstrated that said credit card had yet to expire on September 1990, as
embossed on its face.[2] The waiter was unmoved, thus, private respondent and two
of his guests approached the restaurant's cashier who again passed the credit card
over the verification computer. The same information was produced, i.e., CARD
EXPIRED. Private respondent and his guests returned to their table and at this
juncture, Professor Lirag, another guest, uttered the following remarks: "Clody
[referring to Clodualdo de Jesus], may problema ba? Baka kailangang maghugas na
kami ng pinggan?"[3] Thereupon, private respondent left the restaurant and got his
BPI Express Credit Card from his car and offered it to pay their bill. This was
accepted and honored by the cashier after verification. [4] Petitioner and his
companions left afterwards.
The incident triggered the filing of a suit for damages by private
respondent. Following a full-dress trial, judgment was rendered directing the
petitioner and BANKARD to pay jointly and severally the private respondent: (a)
moral damages in the amount of P250,000.00; (b) exemplary damages in the
amount of P100,000.00; and (c) attorney's fees and litigation expenses in the
amount of P50,000.00.
Both the petitioner and BANKARD appealed to the respondent Court of Appeals
which rendered a decision, thus:
"WHEREFORE, the decision appealed from is hereby MODIFIED by:
1. Finding appellant MANDARIN solely responsible for damages in favor of appellee;
2. Absolving appellant BANKARD of any responsibility for damages;
3. Reducing moral damages awarded to appellee to TWENTY FIVE THOUSAND and
00/100 (P25,000.00) PESOS;
4. Reducing exemplary damages awarded to appellee to TEN THOUSAND and
00/100 (P10,000.00) PESOS;
5. Reversing and setting aside the award of P50,000.00 for attorney's fees as well
as interest awarded; and
6. AFFIRMING the dismissal of all counterclaims and cross-claims.
Costs against appellant Mandarin.
SO ORDERED."[5]
Mandarin Villa, thus, interposed this present petition, faulting the respondent
court with six (6) assigned errors which may be reduced to the following issues, to
wit: (1) whether or not petitioner is bound to accept payment by means of credit
card; (2) whether or not petitioner is negligent under the circumstances obtaining in
this case; and (3) if negligent, whether or not such negligence is the proximate
cause of the private respondent's damage.

Petitioner contends that it cannot be faulted for its cashier's refusal to accept
private respondent's BANKARD credit card, the 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 proposal to novate an existing obligation for which petitioner, as
creditor, must first give its consent otherwise there will be no binding contract
between them. Petitioner cannot seek refuge behind this averment.
We note that Mandarin Villa Seafood Village is affiliated with BANKARD. In fact,
an "Agreement"[6] entered into by petitioner and BANKARD dated June 23, 1989,
provides inter alia:
"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 date has not elapsed and the card number does
not appear on the latest cancellation bulletin of lost, suspended and cancelled
PCCCI credit cards and, no signs of tampering, alterations or irregularities appear on
the face of the credit card."[7]
While private respondent may not be a party to the said agreement, the abovequoted stipulation conferred a favor upon the private respondent, a holder of credit
card validly issued by BANKARD. This stipulation is a stipulation pour autri and
under Article 1311 of the Civil Code private respondent may demand its fulfillment
provided he communicated his acceptance to the petitioner before its revocation.
[8]
In this case, private respondent's offer to pay by means of his BANKARD credit
card constitutes not only an acceptance of the said stipulation but also an explicit
communication of his acceptance to the obligor.
In addition, the record shows that petitioner posted a logo inside Mandarin Villa
Seafood Village stating that "Bankard is accepted here." [9] This representation is
conclusive upon the petitioner which it cannot deny or disprove as against the
private respondent, the party relying thereon. Petitioner, therefore, cannot disclaim
its obligation to accept private respondent's BANKARD credit card without violating
the equitable principle of estoppel.[10]
Anent the second issue, petitioner insists that it is not negligent. In support
thereof, petitioner cites its good faith in checking, not just once but twice, the
validity of the aforementioned credit card prior to its dishonor. It argues that since
the verification machine flashed an information that the credit card has expired,
petitioner could not be expected to honor the same much less be adjudged
negligent for dishonoring it. Further, petitioner asseverates that it only followed the
guidelines and instructions issued by BANKARD in dishonoring the aforementioned
credit card. The argument is untenable.
The test for determining the existence of negligence in a particular case may be
stated as follows: Did the defendant in doing the alleged negligent act use the
reasonable care and caution which an ordinary prudent person would have used in
the same situation? If not, then he is guilty of negligence. [11] The Point of Sale (POS)
Guidelines which outlined the steps that petitioner must follow under the
circumstances provides:
"x x x
"CARD EXPIRED
a.

Check expiry date on card.

xxx

xxx

b.

If unexpired, refer to CB.

b.1.

If valid, honor up to maximum of SPL only.

b.2.

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

b.3.

If in CB as Suspended/Cancelled, do not honor card.

c.

If expired, do not honor card."[12]

A cursory reading of said rule reveals that whenever the words CARD EXPIRED
flashes on the screen of the verification machine, petitioner should check the credit
card's expiry date embossed on the card itself. If unexpired, petitioner should honor
the card provided it is not invalid, cancelled or otherwise suspended. But if expired,
petitioner should not honor the card. In this case, private respondent's BANKARD
credit card has an embossed expiry date of September 1990. [13] Clearly, it has not
yet expired on October 19,1989, when the same was wrongfully dishonored by the
petitioner. Hence, petitioner did not use the reasonable care and caution which an
ordinary prudent person would have used in the same situation and as such
petitioner is guilty of negligence. In this connection, we quote with approval the
following observations of the respondent Court.
"Mandarin argues that based on the POS Guidelines (supra), it has three options
in case the verification machine flashes 'CARD EXPIRED.' It chose to exercise option
(c) by not honoring appellee's credit card. However, appellant apparently
intentionally glossed over option '(a) Check expiry date on card" (id.) which would
have shown without any shadow of doubt that the expiry date embossed on the
BANKARD was 'SEP 90.' (Exhibit "D".) A cursory look at the appellee's BANKARD
would also reveal that appellee had been as of that date a cardholder since 1982, a
fact which would have entitled the customer the courtesy of better treatment." [14]
Petitioner, however, argues that private respondent's own negligence in not
bringing with him sufficient cash was the proximate cause of his damage. It
likewise sought exculpation by contending that the remark of Professor Lirag [15] is a
supervening event and at the same time the proximate cause of private
respondent's injury.
We find this contention also devoid of merit. While it is true that private
respondent did not have sufficient cash on hand when he hosted a dinner at
petitioner's restaurant, this fact alone does not constitute negligence on his
part. Neither can it be claimed that the same was the proximate cause of private
respondent's damage. We take judicial notice[16] of the current practice among
major establishments, petitioner included, to accept payment by means of credit
cards in lieu of cash. Thus, petitioner accepted private respondent's BPI Express
Credit Card after verifying its validity, [17] a fact which all the more refutes
petitioner's imputation of negligence on the private respondent.
Neither can we conclude that the remark of Professor Lirag was a supervening
event and the proximate cause of private respondent's injury. The humiliation and
embarrassment of the private respondent was brought about not by such a remark
of Professor Lirag but by the fact of dishonor by the petitioner of private
respondent's valid BANKARD credit card. If at all, the remark of Professor Lirag
served only to aggravate the embarrassment then felt by private respondent, albeit
silently within himself.

WHEREFORE, the instant petition is hereby DISMISSED.

SO ORDERED.
Davide, Jr., Melo, and Panganiban, JJ., concur.
Narvasa, C.J., (Chairman), no part, no participation in deliberations.

G.R. No. 78903 February 28, 1990

SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-DALION, petitioners,
vs.
THE HONORABLE COURT OF APPEALS AND RUPERTO SABESAJE,
JR., respondents.
Francisco A. Puray, Sr. for petitioners.
Gabriel N. Duazo for private respondent.

MEDIALDEA, J.:
This is a petition to annul and set aside the decision of the Court of Appeals
rendered on May 26, 1987, upholding the validity of the sale of a parcel of land by
petitioner Segundo Dalion (hereafter, "Dalion") in favor of private respondent
Ruperto Sabesaje, Jr. (hereafter, "Sabesaje"), described thus:
A parcel of land located at Panyawan, Sogod, Southern Leyte, declared
in the name of Segundo Dalion, under Tax Declaration No. 11148, with
an area of 8947 hectares, assessed at P 180.00, and bounded on the
North, by Sergio Destriza and Titon Veloso, East, by Feliciano Destriza,
by Barbara Bonesa (sic); and West, by Catalino Espina. (pp. 36-37,
Rollo)
The decision affirms in toto the ruling of the trial court
the dispositive portion of which provides as follows:

issued on January 17, 1984,

WHEREFORE, IN VIEW OF THE FOREGOING, the Court hereby renders

judgment.
(a) Ordering the defendants to deliver to the plaintiff the parcel of land
subject of this case, declared in the name of Segundo Dalion previously
under Tax Declaration No. 11148 and lately under Tax Declaration No.
2297 (1974) and to execute the corresponding formal deed of
conveyance in a public document in favor of the plaintiff of the said
property subject of this case, otherwise, should defendants for any

reason fail to do so, the deed shall be executed in their behalf by the
Provincial Sheriff or his Deputy;
(b) Ordering the defendants to pay plaintiff the amount of P2,000.00 as
attorney's fees and P 500.00 as litigation expenses, and to pay the
costs; and
(c) Dismissing the counter-claim. (p. 38, Rollo)
The facts of the case are as follows:
On May 28, 1973, Sabesaje sued to recover ownership of a parcel of land, based on
a private document of absolute sale, dated July 1, 1965 (Exhibit "A"), allegedly
executed by Dalion, who, however denied the fact of sale, contending that the
document sued upon is fictitious, his signature thereon, a forgery, and that subject
land is conjugal property, which he and his wife acquired in 1960 from Saturnina
Sabesaje as evidenced by the "Escritura de Venta Absoluta" (Exhibit "B"). The
spouses denied claims of Sabesaje that after executing a deed of sale over the
parcel of land, they had pleaded with Sabesaje, their relative, to be allowed to
administer the land because Dalion did not have any means of livelihood. They
admitted, however, administering since 1958, five (5) parcels of land in Sogod,
Southern Leyte, which belonged to Leonardo Sabesaje, grandfather of Sabesaje,
who died in 1956. They never received their agreed 10% and 15% commission on
the sales of copra and abaca, respectively. Sabesaje's suit, they countered, was
intended merely to harass, preempt and forestall Dalion's threat to sue for these
unpaid commissions.
From the adverse decision of the trial court, Dalion appealed, assigning errors some
of which, however, were disregarded by the appellate court, not having been raised
in the court below. While the Court of Appeals duly recognizes Our authority to
review matters even if not assigned as errors in the appeal, We are not inclined to
do so since a review of the case at bar reveals that the lower court has judicially
decided the case on its merits.
As to the controversy regarding the identity of the land, We have no reason to
dispute the Court of Appeals' findings as follows:
To be sure, the parcel of land described in Exhibit "A" is the same
property deeded out in Exhibit "B". The boundaries delineating it from
adjacent lots are identical. Both documents detail out the following
boundaries, to wit:
On the North-property of Sergio Destriza and Titon Veloso;
On the East-property of Feliciano Destriza;
On the South-property of Barbara Boniza and
On the West-Catalino Espina.
(pp. 41-42, Rollo)
The issues in this case may thus be limited to: a) the validity of the contract of sale
of a parcel of land and b) the necessity of a public document for transfer of
ownership thereto.

The appellate court upheld the validity of the sale on the basis of Secs. 21 and 23 of
Rule 132 of the Revised Rules of Court.
SEC. 21. Private writing, its execution and authenticity, how proved.Before any private writing may be received in evidence, its due
execution and authenticity must be proved either:
(a) By anyone who saw the writing executed;
(b) By evidence of the genuineness of the handwriting of the maker; or
(c) By a subscribing witness
xxx xxx xxx
SEC. 23. Handwriting, how proved. The handwriting of a person may
be proved by any witness who believes it to be the handwriting of such
person, and has seen the person write, or has seen writing purporting
to be his upon which the witness has acted or been charged, and has
thus acquired knowledge of the handwriting of such person. Evidence
respecting the handwriting may also be given by a comparison, made
by the witness or the court, with writings admitted or treated as
genuine by the party against whom the evidence is offered, or proved
to be genuine to the satisfaction of the judge. (Rule 132, Revised Rules
of Court)
And on the basis of the findings of fact of the trial court as follows:
Here, people who witnessed the execution of subject deed positively
testified on the authenticity thereof. They categorically stated that it
had been executed and signed by the signatories thereto. In fact, one
of such witnesses, Gerardo M. Ogsoc, declared on the witness stand
that he was the one who prepared said deed of sale and had copied
parts thereof from the "Escritura De Venta Absoluta" (Exhibit B) by
which one Saturnina Sabesaje sold the same parcel of land to appellant
Segundo Dalion. Ogsoc copied the bounderies thereof and the name of
appellant Segundo Dalion's wife, erroneously written as "Esmenia" in
Exhibit "A" and "Esmenia" in Exhibit "B". (p. 41, Rollo)
xxx xxx xxx
Against defendant's mere denial that he signed the document, the
positive testimonies of the instrumental Witnesses Ogsoc and Espina,
aside from the testimony of the plaintiff, must prevail. Defendant has
affirmatively alleged forgery, but he never presented any witness or
evidence to prove his claim of forgery. Each party must prove his own
affirmative allegations (Section 1, Rule 131, Rules of Court).
Furthermore, it is presumed that a person is innocent of a crime or
wrong (Section 5 (a), Idem), and defense should have come forward
with clear and convincing evidence to show that plaintiff committed
forgery or caused said forgery to be committed, to overcome the
presumption of innocence. Mere denial of having signed, does not
suffice to show forgery.

In addition, a comparison of the questioned signatories or specimens

(Exhs. A-2 and A-3) with the admitted signatures or specimens (Exhs. X
and Y or 3-C) convinces the court that Exhs. A-2 or Z and A-3 were
written by defendant Segundo Dalion who admitted that Exhs. X and Y
or 3-C are his signatures. The questioned signatures and the
specimens are very similar to each other and appear to be written by
one person.
Further comparison of the questioned signatures and the specimens
with the signatures Segundo D. Dalion appeared at the back of the
summons (p. 9, Record); on the return card (p. 25, Ibid.); back of the
Court Orders dated December 17, 1973 and July 30, 1974 and for
October 7, 1974 (p. 54 & p. 56, respectively, Ibid.), and on the open
court notice of April 13, 1983 (p. 235, Ibid.) readily reveal that the
questioned signatures are the signatures of defendant Segundo Dalion.
It may be noted that two signatures of Segundo D. Dalion appear on
the face of the questioned document (Exh. A), one at the right corner
bottom of the document (Exh. A-2) and the other at the left hand
margin thereof (Exh. A-3). The second signature is already a
surplusage. A forger would not attempt to forge another signature, an
unnecessary one, for fear he may commit a revealing error or an
erroneous stroke. (Decision, p. 10) (pp. 42-43, Rollo)
We see no reason for deviating from the appellate court's ruling (p. 44, Rollo) as we
reiterate that
Appellate courts have consistently subscribed to the principle that
conclusions and findings of fact by the trial courts are entitled to great
weight on appeal and should not be disturbed unless for strong and
cogent reasons, since it is undeniable that the trial court is in a more
advantageous position to examine real evidence, as well as to observe
the demeanor of the witnesses while testifying in the case (Chase v.
Buencamino, Sr., G.R. No. L-20395, May 13, 1985, 136 SCRA 365; Pring
v. Court of Appeals, G.R. No. L-41605, August 19, 1985, 138 SCRA 185)
Assuming authenticity of his signature and the genuineness of the document, Dalion
nonetheless still impugns the validity of the sale on the ground that the same is
embodied in a private document, and did not thus convey title or right to the lot in
question since "acts and contracts which have for their object the creation,
transmission, modification or extinction of real rights over immovable property must
appear in a public instrument" (Art. 1358, par 1, NCC).
This argument is misplaced. The provision of Art. 1358 on the necessity of a public
document is only for convenience, not for validity or enforceability. It is not a
requirement for the validity of a contract of sale of a parcel of land that this be
embodied in a public instrument.
A contract of sale is a consensual contract, which means that the sale is perfected
by mere consent. No particular form is required for its validity. Upon perfection of
the contract, the parties may reciprocally demand performance (Art. 1475, NCC),
i.e., the vendee may compel transfer of ownership of the object of the sale, and the
vendor may require the vendee to pay the thing sold (Art. 1458, NCC).

The trial court thus rightly and legally ordered Dalion to deliver to Sabesaje the
parcel of land and to execute corresponding formal deed of conveyance in a public
document. Under Art. 1498, NCC, when the sale is made through a public
instrument, the execution thereof is equivalent to the delivery of the thing. Delivery
may either be actual (real) or constructive. Thus delivery of a parcel of land may be
done by placing the vendee in control and possession of the land (real) or by
embodying the sale in a public instrument (constructive).
As regards petitioners' contention that the proper action should have been one for
specific performance, We believe that the suit for recovery of ownership is proper.
As earlier stated, Art. 1475 of the Civil Code gives the parties to a perfected
contract of sale the right to reciprocally demand performance, and to observe a
particular form, if warranted, (Art. 1357). The trial court, aptly observed that
Sabesaje's complaint sufficiently alleged a cause of action to compel Dalion to
execute a formal deed of sale, and the suit for recovery of ownership, which is
premised on the binding effect and validity inter partes of the contract of sale,
merely seeks consummation of said contract.
... . A sale of a real property may be in a private instrument but that
contract is valid and binding between the parties upon its perfection.
And a party may compel the other party to execute a public instrument
embodying their contract affecting real rights once the contract
appearing in a private instrument hag been perfected (See Art. 1357).
... . (p. 12, Decision, p. 272, Records)
ACCORDINGLY, the petition is DENIED and the decision of the Court of Appeals
upholding the ruling of the trial court is hereby AFFIRMED. No costs.
SO ORDERED.
Narvasa, Cruz, Gancayco and Grino-Aquino, JJ., concur.

FIRST DIVISION
CAMILO F. BORROMEO,
Petitioner,

G.R. No. 159310

Present:

- versus -

ANTONIETTA O. DESCALLAR,
Respondent.

PUNO, C.J., Chairperson,

CARPIO,
CORONA,
LEONARDO-DE CASTRO, and
BRION, JJ.
Promulgated:
February 24, 2009

x--------------------------------------------------x
DECISION
PUNO, C.J.:

What are the rights of an alien (and his successor-in-interest) who acquired
real properties in the country as against his former Filipina girlfriend in whose sole
name the properties were registered under the Torrens system?
The facts are as follows:
Wilhelm Jambrich, an Austrian, arrived in the Philippines in 1983 after he was
assigned by his employer, Simmering-Graz Panker A.G., an Austrian company, to
work at a project in Mindoro. In 1984, he transferred to Cebu and worked at the
Naga II Project of the National Power Corporation. There, he met respondent
Antonietta Opalla-Descallar, a separated mother of two boys who was working as a
waitress at St. Moritz Hotel. Jambrich befriended respondent and asked her to tutor
him in English. In dire need of additional income to support her children,
respondent agreed. The tutorials were held in Antoniettas residence at a squatters
area in Gorordo Avenue.
Jambrich and respondent fell in love and decided to live together in a rented
house in Hernan Cortes, Mandaue City. Later, they transferred to their own house
and lots at Agro-Macro Subdivision, Cabancalan, Mandaue City. In the Contracts to
Sell dated November 18, 1985[1] and March 10, 1986[2] covering the
properties, Jambrich and respondent were referred to as the buyers. A Deed of
Absolute Sale dated November 16, 1987 [3] was likewise issued in their
favor. However, when the Deed of Absolute Sale was presented for registration
before the Register of Deeds, registration was refused on the ground that Jambrich
was an alien and could not acquire alienable lands of the public
domain. Consequently, Jambrichs name was erased from the document. But it
could be noted that his signature remained on the left hand margin of page 1,
beside respondents signature as buyer on page 3, and at the bottom of page 4
which is the last page. Transfer Certificate of Title (TCT) Nos. 24790, 24791 and
24792 over the properties were issued in respondents name alone.
Jambrich also formally adopted respondents two sons in Sp. Proc. No. 39MAN,[4] and per Decision of the Regional Trial Court of Mandaue City dated May 5,
1988.[5]
However, the idyll lasted only until April 1991. By then, respondent found a
new boyfriend while Jambrich began to live with another woman
in Danao City. Jambrich supported respondents sons for only two months after the
break up.
Jambrich met petitioner Camilo F. Borromeo sometime in 1986. Petitioner
was engaged in the real estate business. He also built and repaired speedboats as
a hobby. In 1989, Jambrich purchased an engine and some accessories for his boat
from petitioner, for which he became indebted to the latter for
about P150,000.00. To pay for his debt, he sold his rights and interests in the AgroMacro properties to petitioner for P250,000, as evidenced by a Deed of Absolute
Sale/Assignment.[6] On July 26, 1991, when petitioner sought to register the deed
of assignment, he discovered that titles to the three lots have been transferred in
the name of respondent, and that the subject property has already been
mortgaged.
On August 2, 1991, petitioner filed a complaint against respondent for
recovery of real property before the Regional Trial Court of Mandaue City. Petitioner
alleged that the Contracts to Sell dated November 18, 1985 and March 10, 1986
and the Deed of Absolute Sale dated November 16, 1987 over the properties which
identified both Jambrich and respondent as buyers do not reflect the true
agreement of the parties since respondent did not pay a single centavo of the
purchase price and was not in fact a buyer; that it was Jambrich alone who paid for
the properties using his exclusive funds; that Jambrich was the real and absolute
owner of the properties; and, that petitioner acquired absolute ownership by virtue
of the Deed of Absolute Sale/Assignment dated July 11, 1991 which Jambrich
executed in his favor.
In her Answer, respondent belied the allegation that she did not pay a single
centavo of the purchase price. On the contrary, she claimed that she solely and
exclusively used her own personal funds to defray and pay for the purchase price of
the subject lots in question, and that Jambrich, being an alien, was prohibited to
acquire or own real property in the Philippines.
At the trial, respondent presented evidence showing her alleged financial
capacity to buy the disputed property with money from a supposed copra

business. Petitioner, in turn, presented Jambrich as his witness and documentary

evidence showing the substantial salaries which Jambrich received while still
employed by the Austrian company, Simmering-Graz Panker A.G.
In its decision, the court a quo found
Evidence on hand clearly show that at the time of the purchase
and acquisition of [the] properties under litigation that Wilhelm
Jambrich was still working and earning much. This fact of Jambrich
earning much is not only supported by documentary evidence but also
by the admission made by the defendant Antoniet[t]a Opalla. So
that, Jambrichs financial capacity to acquire and purchase the
properties . . . is not disputed.[7]
x x x
On the other hand, evidence . . . clearly show that before
defendant met Jambrich sometime in the latter part of 1984, she was
only working as a waitress at the St. Moritz Hotel with an income
of P1,000.00 a month and was . . . renting and living only in . . . [a]
room at . . . [a] squatter area at Gorordo Ave., Cebu City; that Jambrich
took pity of her and the situation of her children that he offered her a
better life which she readily accepted. In fact, this miserable financial
situation of hers and her two children . . . are all stated and reflected in
the Child Study Report dated April 20, 1983 (Exhs. G and G-1)
which facts she supplied to the Social Worker who prepared the same
when she was personally interviewed by her in connection with the
adoption of her two children by Wilhelm Jambrich. So that, if such facts
were not true because these are now denied by her . . . and if it was
also true that during this time she was already earning as much
as P8,000.00 to P9,000.00 as profit per month from her copra business,
it would be highly unbelievable and impossible for her to be living only
in such a miserable condition since it is the observation of this Court
that she is not only an extravagant but also an expensive person and
not thrifty as she wanted to impress this Court in order to have a big
saving as clearly shown by her actuation when she was already
cohabiting and living with Jambrich that according to her . . . the
allowance given . . . by him in the amount of $500.00 a month is not
enough to maintain the education and maintenance of her children.[8]
This being the case, it is highly improbable and impossible that
she could acquire the properties under litigation or could contribute
any amount for their acquisition which according to her is worth more
than P700,000.00 when while she was working as [a] waitress at St.
Moritz Hotel earning P1,000.00 a month as salary and tips of more or
less P2,000.00 she could not even provide [for] the daily needs of her
family so much so that it is safe to conclude that she was really in
financial distress when she met and accepted the offer of Jambrich to
come and live with him because that was a big financial opportunity for
her and her children who were already abandoned by her husband.[9]
x x x
The only probable and possible reason why her name appeared
and was included in [the contracts to sell dated November 18, 1985
and March 10, 1986 and finally, the deed of absolute sale dated
November 16, 1987] as buyer is because as observed by the Court,
she being a scheming and exploitive woman, she has taken advantage
of the goodness of Jambrich who at that time was still bewitched by
her beauty, sweetness, and good attitude shown by her to him since
he could still very well provide for everything she needs, he being
earning (sic) much yet at that time. In fact, as observed by this Court,
the acquisition of these properties under litigation was at the time
when their relationship was still going smoothly and harmoniously.
[10]
[Emphasis supplied.]

The dispositive portion of the Decision states:

WHEREFORE, . . . Decision is hereby rendered in favor of the
plaintiff and against the defendant Antoniet[t]a Opalla by:
1) Declaring plaintiff as the owner in fee simple over the
residential house of strong materials and three parcels of land
designated as Lot Nos. 1, 3 and 5 which are covered by TCT Nos.
24790, 24791 and 24792 issued by the Register of Deeds of Mandaue
City;
2) Declaring as null and void TCT Nos. 24790, 24791 and 24792
issued in the name of defendant Antoniet[t]a Descallar by the Register
of Deeds of Mandaue City;
3) Ordering the Register of Deeds of Mandaue City to cancel
TCT Nos. 24790, 24791 and 24792 in the name of defendant
Antoniet[t]a Descallar and to issue new ones in the name of plaintiff
Camilo F. Borromeo;
4) Declaring the contracts now marked as Exhibits I, K and
L as avoided insofar as they appear to convey rights and interests
over the properties in question to the defendant Antoniet[t]a Descallar;
5) Ordering the defendant to pay plaintiff attorneys fees in the
amount of P25,000.00 and litigation expenses in the amount
of P10,000.00; and,
6) To pay the costs.[11]
Respondent appealed to the Court of Appeals. In a Decision dated April 10,
2002,[12] the appellate court reversed the decision of the trial court. In ruling for the
respondent, the Court of Appeals held:
We disagree with the lower courts conclusion. The
circumstances involved in the case cited by the lower court and similar
cases decided on by the Supreme Court which upheld the validity of
the title of the subsequent Filipino purchasers are absent in the case at
bar. It should be noted that in said cases, the title to the subject
property has been issued in the name of the alien transferee (Godinez
et al., vs. Fong Pak Luen et al., 120 SCRA 223 citing Krivenko vs.
Register of Deeds of Manila, 79 Phils. 461; United Church Board for
World Ministries vs. Sebastian, 159 SCRA 446, citing the case of
Sarsosa Vda. De Barsobia vs. Cuenco, 113 SCRA 547; Tejido vs.
Zamacoma, 138 SCRA 78). In the case at bar, the title of the subject
property is not in the name of Jambrich but in the name of defendantappellant. Thus, Jambrich could not have transferred a property he has
no title thereto.[13]
Petitioners motion for reconsideration was denied.
Hence, this petition for review.
Petitioner assigns the following errors:
I.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED
IN DISREGARDING RESPONDENTS JUDICIAL ADMISSION AND
OTHER OVERWHELMING EVIDENCE ESTABLISHING JAMBRICHS
PARTICIPATION, INTEREST AND OWNERSHIP OF THE PROPERTIES
IN QUESTION AS FOUND BY THE HONORABLE TRIAL COURT.
II.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN

HOLDING THAT JAMBRICH HAS NO TITLE TO THE PROPERTIES IN
QUESTION AND MAY NOT THEREFORE TRANSFER AND ASSIGN
ANY RIGHTS AND INTERESTS IN FAVOR OF PETITIONER.

III.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN

REVERSING THE WELL-REASONED DECISION OF THE TRIAL

COURT AND IN IMPOSING DOUBLE COSTS AGAINST HEREIN

PETITIONER (THEN, PLAINTIFF-APPELLEE).[14]
First, who purchased the subject properties?
The evidence clearly shows, as pointed out by the trial court, who between
respondent and Jambrich possesses the financial capacity to acquire the properties
in dispute. At the time of the acquisition of the properties in 1985 to 1986, Jambrich
was gainfully employed at Simmering-Graz Panker A.G., an Austrian company. He
was earning an estimated monthly salary of P50,000.00. Then, Jambrich was
assigned to Syria for almost one year where his monthly salary was
approximately P90,000.00.
On the other hand, respondent was employed as a waitress from 1984 to
1985 with a monthly salary of not more than P1,000.00. In 1986, when the parcels
of land were acquired, she was unemployed, as admitted by her during the pre-trial
conference. Her allegations of income from a copra business were
unsubstantiated. The supposed copra business was actually the business of her
mother and their family, with ten siblings. She has no license to sell copra, and had
not filed any income tax return. All the motorized bancas of her mother were lost to
fire, and the last one left standing was already scrap. Further, the Child Study
Report[15] submitted by the Department of Social Welfare and Development (DSWD)
in the adoption proceedings of respondents two sons by Jambrich disclosed that:
Antonietta tried all types of job to support the children until she
was accepted as a waitress at St. Moritz Restaurant in 1984. At first
she had no problem with money because most of the customers of St.
Moritz are (sic) foreigners and they gave good tips but towards the end
of 1984 there were no more foreigners coming because of the situation
in the Philippines at that time. Her financial problem started then. She
was even renting a small room in a squatters area in Gorordo
Ave., Cebu City. It was during her time of great financial distress that
she met Wilhelm Jambrich who later offered her a decent place for
herself and her children.[16]
The DSWD Home Study Report[17] further disclosed that:
[Jambrich] was then at the Restaurant of St. Moritz when he saw
Antonietta Descallar, one of the waitresses of the said Restaurants. He
made friends with the girl and asked her to tutor him in [the] English
language. Antonietta accepted the offer because she was in need of
additional income to support [her] 2 young children who were
abandoned by their father. Their session was agreed to be scheduled
every afternoon at the residence of Antonietta in the squatters area
in Gorordo Avenue, Cebu City. The Austrian was observing the situation
of the family particularly the children who were malnourished. After a
few months sessions, Mr. Jambrich offered to transfer the family into a
decent place. He told Antonietta that the place is not good for the
children. Antonietta who was miserable and financially distressed at
that time accepted the offer for the sake of the children. [18]
Further, the following additional pieces of evidence point to Jambrich as the
source of fund used to purchase the three parcels of land, and to construct the
house thereon:
(1)
Respondent Descallar herself affirmed under oath, during her re-direct
examination and during the proceedings for the adoption of her minor children, that
Jambrich was the owner of the properties in question, but that his name was deleted
in the Deed of Absolute Sale because of legal constraints. Nonetheless, his
signature remained in the deed of sale, where he signed as buyer.
(2)
The money used to pay the subject parcels of land in installments was
in postdated checks issued by Jambrich. Respondent has never opened any account
with any bank. Receipts of the installment payments were also in the name of
Jambrich and respondent.
(3)
In 1986-1987, respondent lived in Syria with Jambrich and her two
children for ten months, where she was completely under the support of Jambrich.
(4)
Jambrich executed a Last Will and Testament, where he, as owner,
bequeathed the subject properties to respondent.

Thus, Jambrich has all authority to transfer all his rights, interests and
participation over the subject properties to petitioner by virtue of the Deed of
Assignment he executed on July 11, 1991.
Well-settled is the rule that this Court is not a trier of facts. The findings of
fact of the trial court are accorded great weight and respect, if not finality by this
Court, subject to a number of exceptions. In the instant case, we find no reason to
disturb the factual findings of the trial court. Even the appellate court did not
controvert the factual findings of the trial court. They differed only in their
conclusions of law.
Further, the fact that the disputed properties were acquired during the
couples cohabitation also does not help respondent. The rule that co-ownership
applies to a man and a woman living exclusively with each other as husband and
wife without the benefit of marriage, but are otherwise capacitated to marry each
other, does not apply.[19] In the instant case, respondent was still legally married to
another when she and Jambrich lived together. In such an adulterous relationship,
no co-ownership exists between the parties. It is necessary for each of the partners
to prove his or her actual contribution to the acquisition of property in order to be
able to lay claim to any portion of it. Presumptions of co-ownership and equal
contribution do not apply.[20]
Second, we dispose of the issue of registration of the properties in the name
of respondent alone. Having found that the true buyer of the disputed house and
lots was the Austrian Wilhelm Jambrich, what now is the effect of registration of the
properties in the name of respondent?
It is settled that registration is not a mode of acquiring ownership. [21] It is only
a means of confirming the fact of its existence with notice to the world at large.
[22]
Certificates of title are not a source of right. The mere possession of a title does
not make one the true owner of the property. Thus, the mere fact that respondent
has the titles of the disputed properties in her name does not necessarily,
conclusively and absolutely make her the owner. The rule on indefeasibility of title
likewise does not apply to respondent. A certificate of title implies that the title is
quiet,[23] and that it is perfect, absolute and indefeasible. [24] However, there are
well-defined exceptions to this rule, as when the transferee is not a holder in good
faith and did not acquire the subject properties for a valuable consideration. [25] This
is the situation in the instant case. Respondent did not contribute a single centavo
in the acquisition of the properties. She had no income of her own at that time, nor
did she have any savings. She and her two sons were then fully supported by
Jambrich.
Respondent argued that aliens are prohibited from acquiring private
land. This is embodied in Section 7, Article XII of the 1987 Constitution, [26] which is
basically a reproduction of Section 5, Article XIII of the 1935 Constitution, [27] and
Section 14, Article XIV of the 1973 Constitution. [28] The capacity to acquire private
land is dependent on the capacity to acquire or hold lands of the public
domain. Private land may be transferred only to individuals or entities qualified to
acquire or hold lands of the public domain. Only Filipino citizens or corporations at
least 60% of the capital of which is owned by Filipinos are qualified to acquire or
hold lands of the public domain. Thus, as the rule now stands, the fundamental law
explicitly prohibits non-Filipinos from acquiring or holding title to private lands,
except only by way of legal succession or if the acquisition was made by a former
natural-born citizen.[29]
Therefore, in the instant case, the transfer of land from Agro-Macro
Development Corporation to Jambrich, who is an Austrian, would have been
declared invalid if challenged, had not Jambrich conveyed the properties to
petitioner who is a Filipino citizen. In United Church Board for World Ministries v.
Sebastian,[30] the Court reiterated the consistent ruling in a number of cases [31] that
if land is invalidly transferred to an alien who subsequently becomes a Filipino
citizen or transfers it to a Filipino, the flaw in the original transaction is considered
cured and the title of the transferee is rendered valid. Applying United Church
Board for World Ministries, the trial court ruled in favor of petitioner, viz.:
[W]hile the acquisition and the purchase of (sic) Wilhelm
Jambrich of the properties under litigation [were] void ab initio since
[they were] contrary to the Constitution of the Philippines, he being a
foreigner, yet, the acquisition of these properties by plaintiff who is a

Filipino citizen from him, has cured the flaw in the original transaction
and the title of the transferee is valid.
The trial court upheld the sale by Jambrich in favor of petitioner and ordered the
cancellation of the TCTs in the name of respondent. It declared petitioner as owner
in fee simple of the residential house of strong materials and three parcels of land
designated as Lot Nos. 1, 3 and 5, and ordered the Register of Deeds of Mandaue
City to issue new certificates of title in his name. The trial court likewise ordered
respondent to pay petitioner P25,000 as attorneys fees and P10,000 as litigation
expenses, as well as the costs of suit.
We affirm the Regional Trial Court.
The rationale behind the Courts ruling in United Church Board for World
Ministries, as reiterated in subsequent cases, [32] is this since the ban on aliens is
intended to preserve the nations land for future generations of Filipinos, that aim is
achieved by making lawful the acquisition of real estate by aliens who became
Filipino citizens by naturalization or those transfers made by aliens to Filipino
citizens. As the property in dispute is already in the hands of a qualified person, a
Filipino citizen, there would be no more public policy to be protected. The objective
of the constitutional provision to keep our lands in Filipino hands has been achieved.
IN VIEW WHEREOF, the petition is GRANTED. The Decision of the Court of
Appeals in C.A. G.R. CV No. 42929 dated April 10, 2002 and its Resolution dated July
8,
2003
are
REVERSED
and
SET
ASIDE. The
Decision
of
the Regional Trial Court of Mandaue City in Civil Case No. MAN-1148 is REINSTATED.
SO ORDERED.

G.R. No. L-60174 February 16, 1983

EDUARDO FELIPE, HERMOGENA V. FELIPE AND VICENTE V.
FELIPE, petitioners,
vs.
HEIRS OF MAXIMO ALDON, NAMELY: GIMENA ALMOSARA, SOFIA ALDON,
SALVADOR ALDON, AND THE HONORABLE COURT OF
APPEALS, respondents.
Romulo D. San Juan for petitioner.
Gerundino Castillejo for private respondent.

ABAD SANTOS, J.:

Maximo Aldon married Gimena Almosara in 1936. The spouses bought several
pieces of land sometime between 1948 and 1950. In 1960-62, the lands were
divided into three lots, 1370, 1371 and 1415 of the San Jacinto Public Land
Subdivision, San Jacinto, Masbate.
In 1951, Gimena Almosara sold the lots to the spouses Eduardo Felipe and
Hermogena V. Felipe. The sale was made without the consent of her husband,
Maximo.
On April 26, 1976, the heirs of Maximo Aldon, namely his widow Gimena and their
children Sofia and Salvador Aldon, filed a complaint in the Court of First Instance of
Masbate against the Felipes. The complaint which was docketed as Civil Case No.
2372 alleged that the plaintiffs were the owners of Lots 1370, 1371 and 1415; that
they had orally mortgaged the same to the defendants; and an offer to redeem the

mortgage had been refused so they filed the complaint in order to recover the three
parcels of land.
The defendants asserted that they had acquired the lots from the plaintiffs by
purchase and subsequent delivery to them. The trial court sustained the claim of
the defendants and rendered the following judgment:
a. declaring the defendants to be the lawful owners of the property
subject of the present litigation;
b. declaring the complaint in the present action to be without merit
and is therefore hereby ordered dismissed;
c. ordering the plaintiffs to pay to the defendants the amount of
P2,000.00 as reasonable attorney's fees and to pay the costs of the
suit.
The plaintiffs appealed the decision to the Court of Appeals which rendered the
following judgment:
PREMISES CONSIDERED, the decision appealed from is hereby
REVERSED and SET ASIDE, and a new one is hereby RENDERED,
ordering the defendants-appellees to surrender the lots in question as
well as the plaintiffs'-appellants' muniments of title thereof to said
plaintiffs-appellants, to make an accounting of the produce derived
from the lands including expenses incurred since 1951, and to
solidarity turn over to the plaintiffs-appellants the NET monetary value
of the profits, after deducting the sum of P1,800.00. No attorney's fees
nor moral damages are awarded for lack of any legal justification
therefor. No. costs.
The ratio of the judgment is stated in the following paragraphs of the decision
penned by Justice Edgardo L. Paras with the concurrence of Justices Venicio Escolin
and Mariano A. Zosa:
One of the principal issues in the case involves the nature of the
aforementioned conveyance or transaction, with appellants claiming
the same to be an oral contract of mortgage or antichresis, the
redemption of which could be done anytime upon repayment of the
P1,800.00 involved (incidentally the only thing written about the
transaction is the aforementioned receipt re the P1,800). Upon the
other hand, appellees claim that the transaction was one of sale,
accordingly, redemption was improper. The appellees claim that
plaintiffs never conveyed the property because of a loan or mortgage
or antichresis and that what really transpired was the execution of a
contract of sale thru a private document designated as a 'Deed of
Purchase and Sale' (Exhibit 1), the execution having been made by
Gimena Almosara in favor of appellee Hermogena V. Felipe.
After a study of this case, we have come to the conclusion that the
appellants are entitled to recover the ownership of the lots in question.
We so hold because although Exh. 1 concerning the sale made in 1951
of the disputed lots is, in Our opinion, not a forgery the fact is that the
sale made by Gimena Almosara is invalid, having been executed
without the needed consent of her husband, the lots being conjugal.

Appellees' argument that this was an issue not raised in the pleadings
is baseless, considering the fact that the complaint alleges that the
parcels 'were purchased by plaintiff Gimena Almosara and her late
husband Maximo Aldon' (the lots having been purchased during the
existence of the marriage, the same are presumed conjugal) and
inferentially, by force of law, could not, be disposed of by a wife
without her husband's consent.
The defendants are now the appellants in this petition for review. They invoke
several grounds in seeking the reversal of the decision of the Court of Appeals. One
of the grounds is factual in nature; petitioners claim that "respondent Court of
Appeals has found as a fact that the 'Deed of Purchase and Sale' executed by
respondent Gimena Almosara is not a forgery and therefore its authenticity and due
execution is already beyond question." We cannot consider this ground because as
a rule only questions of law are reviewed in proceedings under Rule 45 of the Rules
of Court subject to well-defined exceptions not present in the instant case.
The legal ground which deserves attention is the legal effect of a sale of lands
belonging to the conjugal partnership made by the wife without the consent of the
husband.
It is useful at this point to re-state some elementary rules: The husband is the
administrator of the conjugal partnership. (Art. 165, Civil Code.) Subject to certain
exceptions, the husband cannot alienate or encumber any real property of the
conjugal partnership without the wife's consent. (Art. 166, Idem.) And the wife
cannot bind the conjugal partnership without the husband's consent, except in
cases provided by law. (Art. 172, Idem.)
In the instant case, Gimena, the wife, sold lands belonging to the conjugal
partnership without the consent of the husband and the sale is not covered by the
phrase "except in cases provided by law." The Court of Appeals described the sale
as "invalid" - a term which is imprecise when used in relation to contracts because
the Civil Code uses specific names in designating defective contracts,
namely: rescissible (Arts. 1380 et seq.), voidable(Arts. 1390 et
seq.), unenforceable (Arts. 1403, et seq.), and void or inexistent (Arts. 1409 et seq.)
The sale made by Gimena is certainly a defective contract but of what category?
The answer: it is a voidable contract.
According to Art. 1390 of the Civil Code, among the voidable contracts are "[T]hose
where one of the parties is incapable of giving consent to the contract." (Par. 1.) In
the instant case-Gimena had no capacity to give consent to the contract of sale.
The capacity to give consent belonged not even to the husband alone but to both
spouses.
The view that the contract made by Gimena is a voidable contract is supported by
the legal provision that contracts entered by the husband without the consent of the
wife when such consent is required, are annullable at her instance during the
marriage and within ten years from the transaction questioned. (Art. 173, Civil
Code.)
Gimena's contract is not rescissible for in such contract all the essential elements
are untainted but Gimena's consent was tainted. Neither can the contract be
classified as unenforceable because it does not fit any of those described in Art.
1403 of the Civil Code. And finally, the contract cannot be void or inexistent

because it is not one of those mentioned in Art. 1409 of the Civil Code. By process
of elimination, it must perforce be a voidable contract.
The voidable contract of Gimena was subject to annulment by her husband only
during the marriage because he was the victim who had an interest in the contract.
Gimena, who was the party responsible for the defect, could not ask for its
annulment. Their children could not likewise seek the annulment of the contract
while the marriage subsisted because they merely had an inchoate right to the
lands sold.
The termination of the marriage and the dissolution of the conjugal partnership by
the death of Maximo Aldon did not improve the situation of Gimena. What she could
not do during the marriage, she could not do thereafter.
The case of Sofia and Salvador Aldon is different. After the death of Maximo they
acquired the right to question the defective contract insofar as it deprived them of
their hereditary rights in their father's share in the lands. The father's share is onehalf (1/2) of the lands and their share is two-thirds (2/3) thereof, one-third (1/3)
pertaining to the widow.
The petitioners have been in possession of the lands since 1951. It was only in 1976
when the respondents filed action to recover the lands. In the meantime, Maximo
Aldon died.
Two questions come to mind, namely: (1) Have the petitioners acquired the lands by
acquisitive prescription? (2) Is the right of action of Sofia and Salvador Aldon barred
by the statute of limitations?
Anent the first question, We quote with approval the following statement of the
Court of Appeals:
We would like to state further that appellees [petitioners herein] could
not have acquired ownership of the lots by prescription in view of what
we regard as their bad faith. This bad faith is revealed by testimony to
the effect that defendant-appellee Vicente V. Felipe (son of appellees
Eduardo Felipe and Hermogena V. Felipe) attempted in December 1970
to have Gimena Almosara sign a ready-made document purporting to
self the disputed lots to the appellees. This actuation clearly indicated
that the appellees knew the lots did not still belong to them, otherwise,
why were they interested in a document of sale in their favor? Again
why did Vicente V. Felipe tell Gimena that the purpose of the document
was to obtain Gimena's consent to the construction of an irrigation
pump on the lots in question? The only possible reason for purporting
to obtain such consent is that the appellees knew the lots were not
theirs. Why was there an attempted improvement (the irrigation tank)
only in 1970? Why was the declaration of property made only in 1974?
Why were no attempts made to obtain the husband's signature,
despite the fact that Gimena and Hermogena were close relatives? An
these indicate the bad faith of the appellees. Now then, even if we
were to consider appellees' possession in bad faith as a possession in
the concept of owners, this possession at the earliest started in 1951,
hence the period for extraordinary prescription (30 years) had not yet
lapsed when the present action was instituted on April 26, 1976.

As to the second question, the children's cause of action accrued from the death of
their father in 1959 and they had thirty (30) years to institute it (Art. 1141, Civil
Code.) They filed action in 1976 which is well within the period.
WHEREFORE, the decision of the Court of Appeals is hereby modified. Judgment is
entered awarding to Sofia and Salvador Aldon their shares of the lands as stated in
the body of this decision; and the petitioners as possessors in bad faith shall make
an accounting of the fruits corresponding to the share aforementioned from 1959
and solidarity pay their value to Sofia and Salvador Aldon; costs against the
petitioners.
SO ORDERED.
Concepcion Jr., Guerrero and De Castro, JJ., concur.
Makasiar, (Chairman), J., In the result.
Escolin J., took no part.

Separate Opinions
AQUINO, J., concurring:
I concur in the result. The issue is whether the wife's sale in 1651 of an unregistered
sixteen-hectare conjugal land, without the consent of her husband (he died in
1959), can be annulled in 1976 by the wife and her two children.
As a rule, the husband cannot dispose of the conjugal realty without the wife's
consent (Art. 166, Civil Code). Thus, a sale by the husband of the conjugal realty
without the wife's consent was declared void (Tolentino vs. Cardenas, 123 Phil. 517;
Villocino vs. Doyon, L-19797, December 17, 1966, 18 SCRA 1094 and L-28871, April
25, 1975, 63 SCRA 460; Reyes vs. De Leon, L-22331, June 6,1967, 20 SCRA 369;
Bucoy vs. Paulino, L-25775, April 26, 1968, 23 SCRA 248; Tinitigan vs. Tinitigan, L45418, October 30,1980, 100 SCRA 619).
With more reason, the wife cannot make such a disposition without the husband's
consent since the husband is the administrator of the conjugal assets.
In the instant case, the Court of Appeals did not err in voiding the wife's sale of the
conjugal land without the husband's consent. As that sale is contrary to law, the
action to have it declared void or inexistent does not prescribe.
Moreover, there are indications that the contract between the parties was an
antichresis, a transaction which is very common in rural areas.

Separate Opinions
AQUINO, J., concurring:
I concur in the result. The issue is whether the wife's sale in 1651 of an unregistered
sixteen-hectare conjugal land, without the consent of her husband (he died in
1959), can be annulled in 1976 by the wife and her two children.

As a rule, the husband cannot dispose of the conjugal realty without the wife's
consent (Art. 166, Civil Code). Thus, a sale by the husband of the conjugal realty
without the wife's consent was declared void (Tolentino vs. Cardenas, 123 Phil. 517;
Villocino vs. Doyon, L-19797, December 17, 1966, 18 SCRA 1094 and L-28871, April
25, 1975, 63 SCRA 460; Reyes vs. De Leon, L-22331, June 6,1967, 20 SCRA 369;
Bucoy vs. Paulino, L-25775, April 26, 1968, 23 SCRA 248; Tinitigan vs. Tinitigan, L45418, October 30,1980, 100 SCRA 619).
With more reason, the wife cannot make such a disposition without the husband's
consent since the husband is the administrator of the conjugal assets.
In the instant case, the Court of Appeals did not err in voiding the wife's sale of the
conjugal land without the husband's consent. As that sale is contrary to law, the
action to have it declared void or inexistent does not prescribe.
Moreover, there are indications that the contract between the parties was an
antichresis, a transaction which is very common in rural areas.
FIRST DIVISION
[G.R. No. 134685. November 19, 1999]
MARIA ANTONIA SIGUAN, petitioner, vs. ROSA LIM, LINDE LIM, INGRID LIM
and NEIL LIM, respondents.
DECISION
DAVIDE, JR., C.J.:
May the Deed of Donation executed by respondent Rosa Lim (hereafter LIM) in
favor of her children be rescinded for being in fraud of her alleged creditor,
petitioner Maria Antonia Siguan? This is the pivotal issue to be resolved in this
petition for review on certiorari under Rule 45 of the Revised Rules of Court.
The relevant facts, as borne out of the records, are as follows:
On 25 and 26 August 1990, LIM issued two Metrobank checks in the sums
of P300,000 and P241,668, respectively, payable to cash. Upon presentment by
petitioner with the drawee bank, the checks were dishonored for the reason
account closed. Demands to make good the checks proved futile. As a
consequence, a criminal case for violation of Batas Pambansa Blg. 22, docketed as
Criminal Cases Nos. 22127-28, were filed by petitioner against LIM with Branch 23
of the Regional Trial Court (RTC) of Cebu City. In its decision[1] dated 29 December
1992, the court a quo convicted LIM as charged. The case is pending before this
Court for review and docketed as G.R. No. 134685.
It also appears that on 31 July 1990 LIM was convicted of estafa by the RTC of
Quezon City in Criminal Case No. Q-89-2216 [2] filed by a certain Victoria
Suarez. This decision was affirmed by the Court of Appeals. On appeal, however,
this Court, in a decision[3] promulgated on 7 April 1997, acquitted LIM but held her
civilly liable in the amount of P169,000, as actual damages, plus legal interest.
Meanwhile, on 2 July 1991, a Deed of Donation [4] conveying the following parcels
of land and purportedly executed by LIM on 10 August 1989 in favor of her children,

Linde, Ingrid and Neil, was registered with the Office of the Register of Deeds of
Cebu City:
(1) a parcel of land situated at Barrio Lahug, Cebu City, containing an area
of 563 sq. m. and covered by TCT No. 93433;
(2) a parcel of land situated at Barrio Lahug, Cebu City, containing an area
of 600 sq. m. and covered by TCT No. 93434;
(3) a parcel of land situated at Cebu City containing an area of 368 sq. m.
and covered by TCT No. 87019; and
(4) a parcel of land situated at Cebu City, Cebu containing an area of 511
sq. m. and covered by TCT No. 87020.
New transfer certificates of title were thereafter issued in the names of the
donees.[5]
On 23 June 1993, petitioner filed an accion pauliana against LIM and her
children before Branch 18 of the RTC of Cebu City to rescind the questioned Deed of
Donation and to declare as null and void the new transfer certificates of title issued
for the lots covered by the questioned Deed. The complaint was docketed as Civil
Case No. CEB-14181. Petitioner claimed therein that sometime in July 1991, LIM,
through a Deed of Donation, fraudulently transferred all her real property to her
children in bad faith and in fraud of creditors, including her; that LIM conspired and
confederated with her children in antedating the questioned Deed of Donation, to
petitioners and other creditors prejudice; and that LIM, at the time of the
fraudulent conveyance, left no sufficient properties to pay her obligations.
On the other hand, LIM denied any liability to petitioner. She claimed that her
convictions in Criminal Cases Nos. 22127-28 were erroneous, which was the reason
why she appealed said decision to the Court of Appeals. As regards the questioned
Deed of Donation, she maintained that it was not antedated but was made in good
faith at a time when she had sufficient property. Finally, she alleged that the Deed
of Donation was registered only on 2 July 1991 because she was seriously ill.
In its decision of 31 December 1994, [6] the trial court ordered the rescission of
the questioned deed of donation; (2) declared null and void the transfer certificates
of title issued in the names of private respondents Linde, Ingrid and Neil Lim; (3)
ordered the Register of Deeds of Cebu City to cancel said titles and to reinstate the
previous titles in the name of Rosa Lim; and (4) directed the LIMs to pay the
petitioner, jointly and severally, the sum of P10,000 as moral damages; P10,000 as
attorneys fees; and P5,000 as expenses of litigation.
On appeal, the Court of Appeals, in a decision [7] promulgated on 20 February
1998, reversed the decision of the trial court and dismissed petitioners accion
pauliana. It held that two of the requisites for filing an accion pauliana were absent,
namely, (1) there must be a credit existing prior to the celebration of the contract;
and (2) there must be a fraud, or at least the intent to commit fraud, to the
prejudice of the creditor seeking the rescission.
According to the Court of
and acknowledged before a
executed on 10 August 1989.
the questioned Deed, being a

Appeals, the Deed of Donation, which was executed

notary public, appears on its face to have been
Under Section 23 of Rule 132 of the Rules of Court,
public document, is evidence of the fact which gave

rise to its execution and of the date thereof. No antedating of the Deed of Donation
was made, there being no convincing evidence on record to indicate that the notary
public and the parties did antedate it. Since LIMs indebtedness to petitioner was
incurred in August 1990, or a year after the execution of the Deed of Donation, the
first requirement for accion pauliana was not met.
Anent petitioners contention that assuming that the Deed of Donation was not
antedated it was nevertheless in fraud of creditors because Victoria Suarez became
LIMs creditor on 8 October 1987, the Court of Appeals found the same untenable,
for the rule is basic that the fraud must prejudice the creditor seeking the
rescission.
Her motion for reconsideration having been denied, petitioner came to this
Court and submits the following issue:
WHETHER OR NOT THE DEED OF DONATION, EXH. 1, WAS ENTERED INTO IN
FRAUD OF [THE] CREDITORS OF RESPONDENT ROSA [LIM].
Petitioner argues that the finding of the Court of Appeals that the Deed of
Donation was not in fraud of creditors is contrary to well-settled jurisprudence laid
down by this Court as early as 1912 in the case of Oria v. McMicking,[8] which
enumerated the various circumstances indicating the existence of fraud in a
transaction. She reiterates her arguments below, and adds that another fact found
by the trial court and admitted by the parties but untouched by the Court of Appeals
is the existence of a prior final judgment against LIM in Criminal Case No. Q-89-2216
declaring Victoria Suarez as LIMs judgment creditor before the execution of the
Deed of Donation.
Petitioner further argues that the Court of Appeals incorrectly applied or
interpreted Section 23,[9] Rule 132 of the Rules of Court, in holding that being a
public document, the said deed of donation is evidence of the fact which gave rise
to its execution and of the date of the latter. Said provision should be read with
Section 30[10] of the same Rule which provides that notarial documents are prima
facieevidence of their execution, not of the facts which gave rise to their execution
and of the date of the latter.
Finally, petitioner avers that the Court of Appeals overlooked Article 759 of the
New Civil Code, which provides: The donation is always presumed to be in fraud of
creditors when at the time of the execution thereof the donor did not reserve
sufficient property to pay his debts prior to the donation. In this case, LIM made no
reservation of sufficient property to pay her creditors prior to the execution of the
Deed of Donation.
On the other hand, respondents argue that (a) having agreed on the law and
requisites of accion pauliana, petitioner cannot take shelter under a different law;
(b) petitioner cannot invoke the credit of Victoria Suarez, who is not a party to this
case, to support her accion pauliana; (c) the Court of Appeals correctly applied or
interpreted Section 23 of Rule 132 of the Rules of Court; (d) petitioner failed to
present convincing evidence that the Deed of Donation was antedated and
executed in fraud of petitioner; and (e) the Court of Appeals correctly struck down
the awards of damages, attorneys fees and expenses of litigation because there is
no factual basis therefor in the body of the trial courts decision.
The primordial issue for resolution is whether the questioned Deed of Donation
was made in fraud of petitioner and, therefore, rescissible. A corollary issue is

whether the awards of damages, attorneys fees and expenses of litigation are
proper.
We resolve these issues in the negative.
The rule is well settled that the jurisdiction of this Court in cases brought before
it from the Court of Appeals via Rule 45 of the Rules of Court is limited to reviewing
errors of law. Findings of fact of the latter court are conclusive, except in a number
of instances.[11] In the case at bar, one of the recognized exceptions warranting a
review by this Court of the factual findings of the Court of Appeals exists, to wit, the
factual findings and conclusions of the lower court and Court of Appeals are
conflicting, especially on the issue of whether the Deed of Donation in question was
in fraud of creditors.
Article 1381 of the Civil Code enumerates the contracts which are rescissible,
and among them are those contracts undertaken in fraud of creditors when the
latter cannot in any other manner collect the claims due them.
The action to rescind contracts in fraud of creditors is known as accion
pauliana. For this action to prosper, the following requisites must be present: (1)
the plaintiff asking for rescission has a credit prior to the alienation, [12] although
demandable later; (2) the debtor has made a subsequent contract conveying a
patrimonial benefit to a third person; (3) the creditor has no other legal remedy to
satisfy his claim; [13](4) the act being impugned is fraudulent; [14] (5) the third person
who received the property conveyed, if it is by onerous title, has been an
accomplice in the fraud.[15]
The general rule is that rescission requires the existence of creditors at the time
of the alleged fraudulent alienation, and this must be proved as one of the bases of
the judicial pronouncement setting aside the contract. [16] Without any prior existing
debt, there can neither be injury nor fraud. While it is necessary that the credit of
the plaintiff in the accion pauliana must exist prior to the fraudulent alienation, the
date of the judgment enforcing it is immaterial. Even if the judgment be
subsequent to the alienation, it is merely declaratory, with retroactive effect to the
date when the credit was constituted.[17]
In the instant case, the alleged debt of LIM in favor of petitioner was incurred in
August 1990, while the deed of donation was purportedly executed on 10 August
1989.
We are not convinced with the allegation of the petitioner that the questioned
deed was antedated to make it appear that it was made prior to petitioners
credit. Notably, that deed is a public document, it having been acknowledged
before a notary public.[18] As such, it is evidence of the fact which gave rise to its
execution and of its date, pursuant to Section 23, Rule 132 of the Rules of Court.
Petitioners contention that the public documents referred to in said Section 23
are only those entries in public records made in the performance of a duty by a
public officer does not hold water. Section 23 reads:
SEC. 23. Public documents as evidence. Documents consisting of entries in public
records made in the performance of a duty by a public officer are prima
facie evidence of the facts therein stated. All other public documents are evidence,
even against a third person, of the fact which gave rise to their execution and of the
date of the latter. (Emphasis supplied).

The phrase all other public documents in the second sentence of Section 23
means those public documents other than the entries in public records made in the
performance of a duty by a public officer. And these include notarial documents, like
the subject deed of donation. Section 19, Rule 132 of the Rules of Court provides:
SEC. 19. Classes of documents. -- For the purpose of their presentation in
evidence, documents are either public or private.
Public documents are:
(a) . . .
(b) Documents acknowledged before a notary public except last wills and
testaments. . . .
It bears repeating that notarial documents, except last wills and testaments, are
public documents and are evidence of the facts that gave rise to their execution and
of their date.
In the present case, the fact that the questioned Deed was registered only on 2
July 1991 is not enough to overcome the presumption as to the truthfulness of the
statement of the date in the questioned deed, which is 10 August 1989. Petitioners
claim against LIM was constituted only in August 1990, or a year after the
questioned alienation. Thus, the first two requisites for the rescission of contracts
are absent.
Even assuming arguendo that petitioner became a creditor of LIM prior to the
celebration of the contract of donation, still her action for rescission would not fare
well because the third requisite was not met. Under Article 1381 of the Civil Code,
contracts entered into in fraud of creditors may be rescinded only when the
creditors cannot in any manner collect the claims due them. Also, Article 1383 of
the same Code provides that the action for rescission is but a subsidiary remedy
which cannot be instituted except when the party suffering damage has no other
legal means to obtain reparation for the same. The term subsidiary remedy has
been defined as the exhaustion of all remedies by the prejudiced creditor to collect
claims due him before rescission is resorted to. [19] It is, therefore, essential that the
party asking for rescission prove that he has exhausted all other legal means to
obtain satisfaction of his claim. [20] Petitioner neither alleged nor proved that she did
so. On this score, her action for the rescission of the questioned deed is not
maintainable even if the fraud charged actually did exist. [21]
The fourth requisite for an accion pauliana to prosper is not present either.
Article 1387, first paragraph, of the Civil Code provides: All contracts by virtue
of which the debtor alienates property by gratuitous title are presumed to have
been entered into in fraud of creditors when the donor did not reserve sufficient
property to pay all debts contracted before the donation. Likewise, Article 759 of
the same Code, second paragraph, states that the donation is always presumed to
be in fraud of creditors when at the time thereof the donor did not reserve sufficient
property to pay his debts prior to the donation.
For this presumption of fraud to apply, it must be established that the donor did
not leave adequate properties which creditors might have recourse for the
collection of their credits existing before the execution of the donation.

As earlier discussed, petitioners alleged credit existed only a year after the
deed of donation was executed. She cannot, therefore, be said to have been
prejudiced or defrauded by such alienation. Besides, the evidence disclose that as
of 10 August 1989, when the deed of donation was executed, LIM had the following
properties:
(1)
A parcel of land containing an area of 220 square meters,
together with the house constructed thereon, situated in Sto. Nio
Village, Mandaue City, Cebu, registered in the name of Rosa Lim and
covered by TCT No. 19706;[22]
(2)
A parcel of land located in Benros Subdivision, Lawa-an, Talisay,
[23]
Cebu;
(3)
A parcel of land containing an area of 2.152 hectares, with
coconut trees thereon, situated at Hindag-an, St. Bernard, Southern
Leyte, and covered by Tax Declaration No. 13572. [24]
(4)
A parcel of land containing an area of 3.6 hectares, with coconut
trees thereon, situated at Hindag-an, St. Bernard, Southern Leyte, and
covered by Tax Declaration No. 13571.[25]
During her cross-examination, LIM declared that the house and lot mentioned in
no. 1 was bought by her in the amount of about P800,000 to P900,000.[26] Thus:
ATTY. FLORIDO:
Q

A
Q

These properties at the Sto. Nio Village, how much did you acquire this
property?
Including the residential house P800,000.00 to P900,000.00.
How about the lot which includes the house. How much was the price in the
Deed of Sale of the house and lot at Sto. Nio Violage [sic]?

I forgot.

How much did you pay for it?

That is P800,000.00 to P900,000.00.

Petitioner did not adduce any evidence that the price of said property was
lower. Anent the property in no. 2, LIM testified that she sold it in 1990. [27] As to the
properties in nos. 3 and 4, the total market value stated in the tax declarations
dated 23 November 1993 was P56,871.60. Aside from these tax declarations,
petitioner did not present evidence that would indicate the actual market value of
said properties. It was not, therefore, sufficiently established that the properties left
behind by LIM were not sufficient to cover her debts existing before the donation
was made. Hence, the presumption of fraud will not come into play.
Nevertheless, a creditor need not depend solely upon the presumption laid
down in Articles 759 and 1387 of the Civil Code. Under the third paragraph of
Article 1387, the design to defraud may be proved in any other manner recognized
by the law of evidence. Thus in the consideration of whether certain transfers are
fraudulent, the Court has laid down specific rules by which the character of the

transaction may be determined. The following have been denominated by the

Court as badges of fraud:
(1) The fact that the consideration of the conveyance is fictitious or is
inadequate;
(2) A transfer made by a debtor after suit has begun and while it is pending
against him;
(3) A sale upon credit by an insolvent debtor;
(4) Evidence of large indebtedness or complete insolvency;
(5) The transfer of all or nearly all of his property by a debtor, especially
when he is insolvent or greatly embarrassed financially;
(6) The fact that the transfer is made between father and son, when there
are present other of the above circumstances; and
(7)
The failure of the vendee to take exclusive possession of all the
property.[28]
The above enumeration, however, is not an exclusive list. The circumstances
evidencing fraud are as varied as the men who perpetrate the fraud in each
case. This Court has therefore declined to define it, reserving the liberty to deal
with it under whatever form it may present itself. [29]
Petitioner failed to discharge the burden of proving any of the circumstances
enumerated above or any other circumstance from which fraud can be
inferred. Accordingly, since the four requirements for the rescission of a gratuitous
contract are not present in this case, petitioners action must fail.
In her further attempt to support her action for rescission, petitioner brings to
our attention the 31 July 1990 Decision [30] of the RTC of Quezon City, Branch 92, in
Criminal Case No. Q-89-2216. LIM was therein held guilty of estafa and was ordered
to pay complainant Victoria Suarez the sum of P169,000 for the obligation LIM
incurred on 8 October 1987. This decision was affirmed by the Court of
Appeals. Upon appeal, however, this Court acquitted LIM of estafa but held her
civilly liable for P169,000 as actual damages.
It should be noted that the complainant in that case, Victoria Suarez, albeit a
creditor prior to the questioned alienation, is not a party to this accion
pauliana. Article 1384 of the Civil Code provides that rescission shall only be to the
extent necessary to cover the damages caused. Under this Article, only the creditor
who brought the action for rescission can benefit from the rescission; those who are
strangers to the action cannot benefit from its effects. [31] And the revocation is only
to the extent of the plaintiff creditors unsatisfied credit; as to the excess, the
alienation is maintained.[32] Thus, petitioner cannot invoke the credit of Suarez to
justify rescission of the subject deed of donation.
Now on the propriety of the trial courts awards of moral damages, attorneys
fees and expenses of litigation in favor of the petitioner. We have pored over the
records and found no factual or legal basis therefor. The trial court made these
awards in the dispositive portion of its decision without stating, however, any

justification for the same in the ratio decidendi. Hence, the Court of Appeals
correctly deleted these awards for want of basis in fact, law or equity.
WHEREFORE, the petition is hereby DISMISSED and the challenged decision of
the Court of Appeals in CA-G.R. CV. No. 50091 is AFFIRMED in toto.
No pronouncement as to costs.
SO ORDERED.
Puno, Kapunan, Pardo, and Ynares-Santiago, JJ., concur.

G.R. No. 74938-39 January 17, 1990

ANGELINA J. MALABANAN, petitioner,
vs.
GAW CHING and THE INTERMEDIATE APPELLATE COURT, respondents.
G.R. No. L-75524-25 January 17, 1990
LEONIDA CHY SENOLOS, LEONARD CHAN and LEONSO CHY CHAN,
petitioners,
vs.
INTERMEDIATE APPELLATE COURT and GAW CHING, respondents.
Puruganan, Chato, Chato, Chato & Tan and Romero, Lagman, Torres, Arrieta &
Evangelista for petitioners in 75524-25.
Quiason, Makalintal, Barot & Torres for petitioners in 74938-39.
Limqueco & Macaraeg Law Office and Herminio T. Sugay for respondent Gaw Ching.
RESOLUTION

FELICIANO, J.:
The two (2) Petitions before us G.R. Nos. 74938-39 and 75524-25 assail the
decision of the then Intermediate Appellate Court in A.C.-G.R. CV Nos. 05136-05137
dated 31 January 1986, which reversed the decision of the Regional Trial Court in
two (2) consolidated cases, namely: Civil Case No. R-81-416 and Civil Case No. R-826789. Upon motion of petitioners, we ordered the consolidation of the two (2)
Petitions.
Respondent Gaw Ching instituted two (2) cases against petitioners Angelina
Malabanan, Leonida Senolos, et al. in connection with the sale of piece of land
located in Binondo, Manila. The first case, Civil Case No. R-81-416, sought to annul
such sale and to enjoin the demolition of a building standing on that piece of land,
and also prayed for the award of damages. The second case, Civil Case No. G.R. 826798, demanded damages from petitioner Senolos for bringing about the demolition
of the building.

The following facts found by the trial court, and adopted and incorporated by the
appellate court, are undisputed:
Evidence for plaintiff showed that Gaw Ching has been leasing the
house and lot located [in] 697-699 Asuncion Street, Binondo, Manila
from Mr. Jabit since 1951. Plaintiff conducted his business (Victoria
Blacksmith Shop) on the ground floor and lived on the second floor.
When Mr. Jabit died, his daughter, defendant Malabanan continued to
lease the premises to plaintiff but at an increased rental of P1,000.00
per month. Before the increase, Gaw Ching paid P700.00 per month, as
evidenced by receipts of rentals. There was no written contract of lease
between plaintiff and Mr. Jabit as to its duration but the rentals were
evidently, paid monthly. On April 27, 1980, Angelina Malabanan told
him that she was selling the house and lot for P5,000.00 per square
meter. Plaintiff told her however, that the price is prohibitive. On May
13, 1980, defendant Malabanan wrote plaintiff, reiterating that she was
selling the house and lot at P5,000.00 per square meter and that if he
is not agreeable, she will sell it to another person. After receiving the
letter, plaintiff turned over the letter to his counsel, Atty. Sugay. Gaw
Ching claims that he is not in a position to buy the property at
P5,000.00 per square meter because it was expensive. Subsequently,
Gaw Ching tried to pay the rent for June, 1980, but Malabanan refused
to accept it. Plaintiff's counsel advised him to deposit the rentals in a
bank which he did, after which, his counsel wrote Malabanan informing
her about the deposit (Exh. B). On October 2, 1980, plaintiff received
another letter from defendant Malabanan which he gave to his counsel
who told him that said defendant is offering the house and lot at
P5,000.00 per square meter and that if he is not agreeable, she will sell
the premises to another person at P4,000.00 per square meter. Plaintiff
testified that he was willing to buy the subject property at P4,000.00
but hastened to add that it was still expensive and did not ask his
counsel to write Malabanan about it. So, also, it was the opinion of his
counsel that it was not necessary to reply because the context of the
letter was invariably a threat. On November 3, 1980, plaintiff received
another letter from Defendant Malabanan, informing him that the
premises in question had already been sold to defendant Leonida
Senolos. This time, Atty. Sugay sent a reply dated November 24, 1980,
requesting that the pertinent documents of the sale be sent to them
but according to plaintiff, they were not furnished a copy of said sale.
Consequently, plaintiff received a letter from Atty. Techico dated
December 5, 1980 demanding that he vacate the premises and to pay
the arrearages in rentals from October to December, as they were
more importantly, going to repair and convert the dwelling into a
warehouse. Atty. Sugay sent a reply dated February 17, 1981 (Exh. C)
requesting Atty. Techico to furnish them with the Deed of Sale and TCT
because he doubted the veracity of the sale. It took a long time before
Atty. Sugay's letter was answered and he was never furnished a copy
of the Deed of Sale and Transfer Certificate of Title. After exerting all
efforts, plaintiff finally was able to procure a copy of the Deed of Sale
and TCT No. 14789 (Exh- A) which reflected that the date of entry of
the Deed of Sale was December 9, 1980, whereas the Deed of Sale
was dated August 23, 1979 (Exh. I). Plaintiff then told Atty. Sugay to file
a civil case against defendants. On October 7, 1981, Atty. Techico sent
a reply to Atty. Sugay's letter of February 17, 1981 (Exh K). Plaintiff
presented the receipt of rentals he paid (Exhs. L to L-6). He deposited

the monthly rentals which Malabanan refused to accept, with the

Pacific Banking Corporation (Exh. M). At a later period, plaintiff had to
move out of the premises when it was demolished by the defendant.
Gaw Ching however, admitted that he was not yet a Filipino Citizen at
the time the offer to sell was made, i.e., on April 27, 1980, May 13,
1980 and October 2, 1980 and that he became a Filipino citizen only on
October 7, 1980, when he was issued a certificate of naturalization
(Exh. 1-Malabanan). He did not, however, inform Malabanan on the
matter of his newly acquired citizenship. Likewise, Gaw Ching admitted
that he did not make any counter-offer in writing so as to price the
property.
As to plaintiffs claim for damages, he testified, that this was motivated
by the incident on November 16, 1981, while he was on the ground
floor, when there was a sudden brownout, and around 50 people came
thereat, climbed the roof with the use of a ladder, cut the electric wires
and started banging the roof. Plaintiff, his wife, and mother-in-law were
in the house and about 7 laborers were in the shop when the incident
happened. Plaintiff then immediately called up Atty. Sugay and told
him that Leonida Senolos called some people to demolish the house.
Plaintiff further testified that ... he was not notified of the demolition. . .
. On that same day, Atty. Sugay arrived at about 10:00 a.m. and told
plaintiff that he was going to the City Hall. When Atty. Sugay came
back, he was with Roldan (Building Inspector), who ordered that the
demolition be stopped, but Leonida Senolos refused to heed the order.
Atty. Sugay and Roldan went back to the City Hall. . . . At about 3:00
p.m., Atty. Sugay came back with another person from the City Hall
who presented a letter to Leonida Senolos to which defendant affixed
her signature. The formal letter was dated November 6, 1981
addressed to Leonida Senolos by Romulo del Rosario, City Engineer
and Building Officer. Upon receipt of the letter, the policeman remained
but the demolition continued. Plaintiff together with Atty. Sugay, and
the City Hall official, went to the police precinct where the City Hall
Official talked with somebody in the precinct. It was only when they
returned to the premises at about 4:00 p.m. with a policeman that the
demolition was stopped. . . .
On cross examination, plaintiff admitted that he received a letter from
the Office of the City Engineer dated July 29, 1981 (Exh. 1-Senolos)
condemning the building. He also admitted that he was furnished a
copy of the Demolition Order (Exh. 2-Senolos) to which he affixed his
signature.
After receiving Exhibits "I" and "2," Gaw Ching still refused to vacate
the premises because he was told that the building was still in good
condition and he continued paying the monthly rental.
On redirect, plaintiff declared that after receiving the notice of the City
Engineer, he filed a complaint with the Ministry of Public Works and
Highways by reason of which, the MPWH issued an order that the
demolition to be stopped. (Exh. 3).
xxx xxx xxx

Another witness presented by plaintiff was Felix Tienzo, Actg. Chief of

Enforcement Division, (Ministry of Public Works and Highways). . .
Mr. Felix Tienzo believes that the City of Manila was correct in ordering
the demolition of the building but he intended to hold in abeyance the
demolition of the building only in obedience to the order of the MPWH.
However, both Mr. Tienzo and Mr. Roldan claim that they do not usually
receive an order from the MPWH stopping the demolitions.
xxx xxx xxx

On 10 August 1984, the trial court rendered a decision which upheld the validity of
the contract of sale between petitioner Malabanan and petitioner Senolos. The trial
court declared that petitioner Malabanan had not violated Sections 4 and 6 of
Presidential Decree No. 1517 in relation to Presidential Proclamation No. 1893 and
Letter of Instruction (LOI) No. 935 which provide for a preemptive right on the part
of a lessee over leased property. The trial court stressed that respondent Gaw Ching
had been given ample opportunity to exercise any right of first refusal he might
have had, but he had chosen not to do so.
Respondent Gaw Ching went on appeal to the then Intermediate Appellate Court. By
a vote of three (3) to two (2), the appellate court voted to reverse the decision of
the trial court and hence to nullify the contract of sale between petitioners
Malabanan and Senolos inter se. 2 The majority also held that the transaction
between petitioners was vitiated by fraud, deceit and bad faith allegedly causing
damage to respondent Gaw Ching. Petitioners were held liable jointly and severally
to respondent for moral, exemplary and actual damages in the amount of
P350,000.00 and for attorney's fees in the amount of P20,000.00
for the indulgence in inequitous conduct to plaintiff-appellant's
(respondent Gaw Ching) prejudice and for the unwarranted demolition
of the building by defendants-appellees (petitioners herein) after the
issuance of the cease-and-desist order on October 30, 1981.
While holding that the land in question was located outside the Urban Land
Reform Zone declared by Proclamations Nos. 1767 and 1967, the majority
ruled that circumstances surrounding the sale of the land to petitioner
Senolos had rendered that sale null and void. The majority were here
referring to the finding that when petitioner Malabanan offered in October
1980 to sell the land involved to respondent Gaw Ching at P5,000.00 per
square meter, that land had already been sold to petitioner Senolos as early
as August 1979 for only P1,176.48 per square meter. On the matter of the
demolition of the building, the majority held that the same was unwarranted
and that even if petitioner Senolos had a demolition order,
that order of demolition was valid only if there are no more tenants
residing in the building. If there are tenants and they refused to vacate,
the order of demolition is unavailing. It could not rise higher than the
Civil Code and the Rules of Court. 3
In the instant Petitions for Certiorari, petitioners assail both the annulment of the
deed of sale and the grant of P350,000.00 worth of "moral, exemplary and actual
damages" to respondent Gaw Ching.
We believe that the Petitions must be granted.

I
The firmly settled rule is that strangers to a contract cannot sue either or both of
the contracting parties to annul and set aside that contract. Article 1397 of the Civil
Code embodies that rule in the following formulation:
Art. 1397. The action for the annulment of contracts may be instituted
by all who are thereby obliged principally or subsidiarily. However,
persons who are capable cannot allege the incapacity of those with
whom they contracted; nor can those who exerted intimidation,
violence, or undue influence, or employed fraud, or caused mistake
base their action upon these flaws of the contract. (Emphasis supplied)
Article 1397 itself follows from Article 1311 of the Civil Code which
establishes the fundamental rule that:
Art. 1311. Contracts take effect only between the parties, their assigns
and heirs, except in case where the rights and obligations arising from
the 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 received from the decedent.
xxx xxx xxx
(Emphasis supplied)
As long ago as 1912, this Court in Ibanez v. Hongkong and Shanghai
Bank, 4 pointed out that it is the existence of an interest in a particular
contract that is the basis of one's right to sue for nullification of that contract
and that essential interest in a given contract is, in general, possessed only
by one who is a party to the contract. In Ibanez, Mr. Justice Torres wrote:
From these legal provisions it is deduced that it is the interest had in a
given contract, that is the determining reason of the right which lies in
favor of the party obligated principally or subsidiarily to enable him to
bring an action for the nullity of the contract in which he
intervened, and, therefore, he who has no right in a contract is not
entitled to prosecute an action for nullity, for, according to the
precedents established by the courts, the person who is not a party to
a contract nor has any cause of action or representation from those
who intervened therein, is manifestly without right of action and
personality such as to enable him to assail the validity of the contract.
(Decisions of the Supreme Court of Spain, of April 18, 1901, and
November 23, 1903, pronounced in cases requiring an application of
the preinserted article 1302 of the Civil Code. 5
Mr. Justice Torres went on to indicate a possible qualification to the above
general principle, that is, a situation where a non-party to a contract could be
allowed to bring an action for declaring that contract null:
He who is not the party obligated principally or subsidiarily in a
contract may perhaps be entitled to exercise an action for nullity, if he
is prejudiced in his rights with respect to one of the contracting
parties; but, in order that such be the case, it is indispensable to show

the detriment which positively would result to him from the contract in
which he had no intervention
xxx xxx xxx
(Emphasis supplied)
There is an important and clear, albeit implicit, limitation upon the right of a
person who is in fact injured by the very operation of a contract between two
(2) third parties to sue to nullify that contract: that contract may be nullified
only to the extent that such nullification is absolutely necessary to protect the
plaintiff's lawful rights. It may be expected that in most instances, an
injunction restraining the carrying out of acts in fact injurious to the plaintiff's
rights would be sufficient and that there should be no need to set aside the
contract itself which is a res inter alios acta and which may have any number
of other provisions, implementation of which might have no impact at all
upon the plaintiff's rights and interests.
What is important for present purposes is that respondent Gaw Ching, admittedly a
stranger to the contract of sale of a piece of land between petitioners Malabanan
and Senolos inter se, does not fall within the possible exception recognized
in Ibanez v. Hongkong & Shanghai Bank. In the first place, Gaw Ching had no legal
right of preemption in respect of the house and lot here involved. The majority
opinion of the appellate court itself explicitly found that the subject piece of land is
located outside the Urban Land Reform Zones declared pursuant to P.D. No.
1517. 7 Even assuming for purposes of argument merely, that the land here
involved was in fact embraced in a declared Urban Land Reform Zone (which it was
not), Gaw Ching would still not have been entitled to a right of preemption in
respect of the land sold. In Santos v. Court of Appeals, 8 this Court held that the
preemptive or redemptive rights of a lessee under P.D. No. 1517 exists only in
respect of the urban land under lease on which the tenant or lessee had built his
home and in which he had resided for ten (10) years or more and that, in
consequence, where both land and building belong to the lessor, that preemptive or
redemptive right was simply not available under the law.
Finally, we are unable to understand the respondent appellate court's view that
respondent Gaw Ching having been a long-time tenant of the property in question,
had acquired a preferred right to purchase that property. This holding is simply
bereft of any legal basis. We know of no law, outside the Urban Land Reform Zone
or P.D. No. 1517, that grants such a right to a lessee no matter how long the period
of the lease has been. If such right existed at all, it could only have been created by
contract; 9 respondent Gaw Ching does not, however, pretend that there had been
such a contractual stipulation between him and petitioners.
In the second place, assuming once again, for present purposes only, that
respondent Gaw Ching did have a preemptive right to purchase the land from
petitioner Malabanan (which he did not), it must be stressed that petitioner
Malabanan did thrice offer the land to Gaw Ching but the latter had consistently
refused to buy. Since Gaw Ching did not in fact accept the offer to sell and did not
buy the land, he suffered no prejudice, and could not have suffered any prejudice,
by the sale of the same piece of land to petitioner Senolos. No fraud was thus
worked upon him notwithstanding his insinuation that the sale of the land to
petitioner Senolos had preceded the offer of the same piece of land to himself.

In the third place, and contrary to the holding of the majority appellate court
opinion, the fact that Gaw Ching had been lessee of the house and lot was simply
not enough basis for a right to bring an action to set aside the contract of sale
between the petitioners inter se. A lessee, it is elementary, cannot attack the title of
his lessor over the subject matter of the lease. 10 Moreover, the lease contract
between petitioner Malabanan and respondent Gaw Ching must in any case be held
to have lapsed when the leased house was condemned and the order of demolition
issued.
II
We consider next petitioners' claim that the appellate court erred grievously in
imposing upon them an award of P350,000.00 for "moral, exemplary and actual
damages" not only because petitioners had "indulged in inequitous conduct to
[respondent Gaw Ching's] prejudice" but also "for the unwarranted demolition of the
building by [petitioners] after the issuance of the cease and desist order on October
30, 1981."
Here again, we are compelled to hold that the appellate court lapsed into reversible
error. The relevant conclusions of fact which the trial court arrived at are set out in
its decision in the following manner:
On the legality of the demolition necessarily raising the question: (3)
whether or not plaintiff was notified within a reasonable period of time
of the demolition, and a fortiori whether this admittedly exercise of
police power, the validity of which was already being determined by
the Court could be stopped by a pretenatural [sic] administrative order
from the office of the Assistant Secretary for Operation of the MPWH
brought about by an appeal by a person other than the owner of the
building, which office had not done anything to immediately forestall
the imminent injury to person and damage to property. (Please see P.D.
1096, Rule XII, Sec. 5 thereof).
In the first place, the claim of the plaintiff that the demolition of the
house rented by him came as a surprise, is fiercely contradicted by his
own evidence. A copy of the demolition order is attached to the
complaint as Annex "L", now marked as Exhibit "9" for the defendant
Senolos, unmistakably show that plaintiff received a copy of the order
of demolition from the City Engineer's Office, approved by the Mayor,
on October 5, 1981.
Verily, the present action before the Court is procedurally and
substantially correct in abating a nuisance. This exercise of police
power is not only being cordoned sanitaired [sic] by the doctrinal
pronouncements, the provisions of Art. 482 in relation to Art. 436 of
the Civil Code, Sections 275 and 276 of the compilation of ordinances
of the City of Manila but also by Rule VII, par. 5 of the implementing
Rules and Regulations of the National Building Code of the Philippines
(P.D. 1096). Indeed, the latter law does not authorize any person other
than the owner, to appeal the order of the City Engineer to the Ministry
of Public Works and Highways. This is the position espoused by the City
Legal Officer of Manila in defense of the City Engineer and the Mayor,
in opposition to the move of the plaintiff to dismiss the order of
demolition as improvidently issued.

The demolition was invariably a valid exercise of police power which

may be ordered done by the authorities or caused to be done at the
expense of the owner. The exigency is made more demanding
especially, the demolition, when it was ordered stopped thru an order
inadvertently issued, as it was not as a consequence of an appeal by
the owner of the building, but by the lessee, was during its last stages.
It therefore stands to reason that the order of demolition which is
unquestionably legal could not be stopped by an inoperative
administrative order, assuming that the appeal to the MPWH could
validly be filed by the lessee, as it was filed only during the finishing
touches of a demolition. Decidedly, the move exude physiological
features of delay. This is compounded by the failure of the MPWH to act
assertively, which in a sense, could be interpreted as an admission that
the issuance of the order was inopportune.
On the claim for damages predicated on (4) whether or not there was
an indscriminate careless handling and pilferage of the properties of
the plaintiff, causing their loss or destruction:
It is readily explained that between October 5, 1981 to November
6,1981, plaintiff could have avoided the misplaced fear, but assuming
without having necessarily to concede that he was not able to guard
against an actual demolition on November 6, 1981, rendering him so
helpless, and prompting him to just sit on the sidewalk and watch the
demolition team wreck the building indiscriminately, thereby causing
destruction and loss of his personal properties, such as: (a) office
equipment; (b) assorted tools; (c) machines; (d) finished products; and
(e) steel box containing jewelries. The claim is almost too good to be
true, considering first, that these items were so huge that they could
not be spirited away without being noticed and, secondly; it has been
established that there was a policeman detailed to the demolition
scene from the start of the said demolition, to whom he could have
easily reported the matter, caused the apprehension of the culprits,
and prevent the loss of his personal properties, thirdly, he could have
grabbed the steel box containing jewelries if this were the last thing he
would have done. Waiting idly by the sidewalk and watching your
properties pilfered by persons whom you could have successfully
identified at the time and referring the matter to the policeman on
duty, which plaintiff did not do, is certainly against the natural order of
things and the legal presumption that a person takes great care of his
concern. Plaintiff strongly relies on the alleged illegal and
indiscriminate destruction of his properties as basis for his claim for
damages. Truth to tell, there was no suddenness or indiscriminate
destruction of plaintiffs property nor pilferage thereof, as alleged, in
the demolition of the house owned by the defendant. The order was
lawful as it was an abatement of a nuisance and the dismantling of the
house owned by defendant Senolos could only be conceived as having
been carried out in a manner consistent only with utmost care.
Conversely, its indiscriminate destruction is contrary to the interest of
the defendant Senolos as it is a truism that every bit of useful material
should be preserved either for use of, or for profit of the owner. It
would be sheer folly to assume that the demolition team would have
taken a selective method of care for the still serviceable materials of
the house and a destructive stance for the properties of the occupants.

Understandably, the unorthodox position taken by plaintiff would not

only lose his residence but also his place of business.
By and large, the basis for the claim for damages do not physically nor
imaginatively exist, for it has defied reason and common sense. 11
We note that the majority opinion chose to disregard the above conclusions
of fact of the trial court and instead quoted extensively from respondent Gaw
Ching's brief and, presumably relied upon such brief The majority opinion,
however, failed to indicate why it preferred Gaw Ching's version of the facts
set out in his brief over the trial court's findings. No indication was offered
where the trial court had fallen into error or what evidence had been
misapprehended by it. In this situation, the Court considers that it must go
back to the trial court's findings of fact in line with the time-honored rule that
such findings are entitled to great respect from appellate courts since the
trial court judge had the opportunity to examine the evidence directly and to
listen to the witnesses and observe their demeanor while testifying.
It appears therefore that firstly, the order of condemnation or demolition had been
issued by the proper authorities which order was valid and subsisting at the time
the demolition was actually carried out. Secondly, under Section 5.3 of Rule VII
entitled "Abandonment/Demolition of Buildings" of the Rules and Regulations
Implementing the National Building Code of the Philippines (P.D. No. 1096, as
amended dated 19 February 1977), an order for demolition may be appealed, by
the owner of the building or installation to be demolished, to the Secretary of Public
Works and Highways. In the case at bar, it was respondent Gaw Ching, a lessee
merely of the building condemned that sought to block the implementation of the
demolition order. It does not even appear from the record whether or not Gaw Ching
actually filed a formal appeal to the Secretary, even though he was not entitled to
do so. What does appear from the record 12 is that Gaw Ching's counsel, Atty. Sugay,
was able to obtain a letter dated 6 November 1981 from the Office of the City
Engineer and Building Official, enclosing a xerox copy of a letter from the Assistant
Secretary for Operations, Ministry of Public Works and Highways, "directing this
office to hold the demolition in abeyance." This letter, which did not purport to set
aside the order of demolition, was served upon the demolition team on site while
the demolition was in progress. After some hesitation, the demolition was in fact
stopped. 13
It is worth noting that officials from the Office of the City Engineer, City of Manila,
testified that it was not "normal practice to receive an order from the Ministry of
Public Works and Highways stopping demolitions."
In the fourth place, respondent Gaw Ching, in the action that he had filed before the
Regional Trial Court of Manila to set aside the contract of sale between petitioners
Malabanan and Senolos, had sought preliminary injunction precisely to restrain the
implementation of the order for demolition. That application for preliminary
injunction was denied by the trial court and the order for demolition was
implemented only after such denial. Thus, there was no subsisting court order
restraining the demolition at the time such demolition was carried out.
In the fifth place, Gaw Ching had ample notice of the demolition order and had
adequate time to remove his belongings from the premises if he was minded to
obey the order for demolition. He chose not to obey that order. If he did suffer any
lossesthe trial court did not believe his claims that he didhe had only himself to
blame.

ACCORDINGLY, The Court Resolved to GRANT the Petition and to REVERSE and SET
ASIDE the Decision of the then Intermediate Appellate Court dated 31 January 1986
and its Resolution dated 5 June 1986, in AC-G.R. CV Nos. 05136-05137. The Decision
of the trial court dated 10 August 1984 in consolidated Civil Cases Nos. R-81-416
and R-82-6798, is hereby REINSTATED. No pronouncement as to costs.
Fernan C.J., Gutierrez, Jr. and Corts, JJ., concur.
Bidin J., took no part.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 118509 December 1, 1995

LIMKETKAI SONS MILLING, INC., petitioner,
vs.
COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS and NATIONAL
BOOK STORE, respondents.

MELO, J.:
The issue in the petition before us is whether or not there was a perfected contract
between petitioner Limketkai Sons Milling, Inc. and respondent Bank of the
Philippine Islands (BPI) covering the sale of a parcel of land, approximately 3.3
hectares in area, and located in Barrio Bagong Ilog, Pasig City, Metro Manila.
Branch 151 of the Regional Trial Court of the National Capital Judicial Region
stationed in Pasig ruled that there was a perfected contract of sale between
petitioner and BPI. It stated that there was mutual consent between the parties; the
subject matter is definite; and the consideration was determined. It concluded that
all the elements of a consensual contract are attendant. It ordered the cancellation
of a sale effected by BPI to respondent National Book Store (NBS) while the case
was pending and the nullification of a title issued in favor of said respondent NBS.
Upon elevation of the case to the Court of Appeals, it was held that no contract of
sale was perfected because there was no concurrence of the three requisites
enumerated in Article 1318 of the Civil Code. The decision of the trial court was
reversed and the complaint dismissed.
Hence, the instant petition.
Shorn of the interpretations given to the acts of those who participated in the
disputed sale, the findings of facts of the trial court and the Court of Appeals narrate
basically the same events and occurrences. The records show that on May 14, 1976,
Philippine Remnants Co., Inc. constituted BPI as its trustee to manage, administer,

and sell its real estate property. One such piece of property placed under trust was
the disputed lot, a 33,056-square meter lot at Barrio Bagong Ilog, Pasig, Metro
Manila covered by Transfer Certificate of Title No. 493122.
On June 23, 1988, Pedro Revilla, Jr., a licensed real estate broker was given formal
authority by BPI to sell the lot for P1,000.00 per square meter. This arrangement
was concurred in by the owners of the Philippine Remnants.
Broker Revilla contacted Alfonso Lim of petitioner company who agreed to buy the
land. On July 8, 1988, petitioner's officials and Revilla were given permission by
Rolando V. Aromin, BPI Assistant Vice-President, to enter and view the property they
were buying.
On July 9, 1988, Revilla formally informed BPI that he had procured a buyer, herein
petitioner. On July 11, 1988, petitioner's officials, Alfonso Lim and Albino Limketkai,
went to BPI to confirm the sale. They were entertained by Vice-President Merlin
Albano and Asst. Vice-President Aromin. Petitioner asked that the price of P1,000.00
per square meter be reduced to P900.00 while Albano stated the price to be
P1,100.00. The parties finally agreed that the lot would be sold at P1,000.00 per
square meter to be paid in cash. Since the authority to sell was on a first come, first
served and non-exclusive basis, it may be mentioned at this juncture that there is
no dispute over petitioner's being the first comer and the buyer to be first served.
Notwithstanding the final agreement to pay P1,000.00 per square meter on a cash
basis, Alfonso Lim asked if it was possible to pay on terms. The bank officials stated
that there was no harm in trying to ask for payment on terms because in previous
transactions, the same had been allowed. It was the understanding, however, that
should the term payment be disapproved, then the price shall be paid in cash.
It was Albano who dictated the terms under which the installment payment may be
approved, and acting thereon, Alfonso Lim, on the same date, July 11, 1988, wrote
BPI through Merlin Albano embodying the payment initially of 10% and the
remaining 90% within a period of 90 days.
Two or three days later, petitioner learned that its offer to pay on terms had been
frozen. Alfonso Lim went to BPI on July 18, 1988 and tendered the full payment of
P33,056,000.00 to Albano. The payment was refused because Albano stated that
the authority to sell that particular piece of property in Pasig had been withdrawn
from his unit. The same check was tendered to BPI Vice-President Nelson Bona who
also refused to receive payment.
An action for specific performance with damages was thereupon filed on August 25,
1988 by petitioner against BPI. In the course of the trial, BPI informed the trial court
that it had sold the property under litigation to NBS on July 14, 1989. The complaint
was thus amended to include NBS.
On June 10, 1991, the trial court rendered judgment in the case as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and
against defendants Bank of the Philippine Islands and National Book
Store, Inc.:
1. Declaring the Deed of Sale of the property covered by T.C.T. No.
493122 in the name of the Bank of the Philippine Islands, situated in

Barrio Bagong Ilog, Pasig, Metro Manila, in favor of National Book Store,
Inc., null and void;
2. Ordering the Register of Deeds of the Province of Rizal to cancel the
Transfer Certificate of Title which may have been issued in favor of
National Book Store, Inc. by virtue of the aforementioned Deed of Sale
dated July 14, 1989;
3. Ordering defendant BPI, upon receipt by it from plaintiff of the sum
of P33,056,000.00, to execute a Deed of Sale in favor of plaintiff of the
aforementioned property at the price of P1,000.00 per square meter; in
default thereof, the Clerk of this Court is directed to execute the said
deed;
4. Ordering the Register of Deeds of Pasig, upon registration of the said
deed, whether executed by defendant BPI or the Clerk of Court and
payment of the corresponding fees and charges, to cancel said T.C.T.
No. 493122 and to issue, in lieu thereof, another transfer certificate of
title in the name of plaintiff;
5. Ordering defendants BPI and National Book Store, Inc. to pay, jointly
and severally, to the plaintiff the sums of P10,000,000.00 as actual and
consequential damages and P150,000.00 as attorney's fees and
litigation expenses, both with interest at 12% per annum from date
hereof;
6. On the cross-claim of defendant bank against National Book Store,
ordering the latter to indemnify the former of whatever amounts BPI
shall have paid to the plaintiff by reason hereof; and
7. Dismissing the counterclaims of the defendants against the plaintiff
and National Book Store's cross-claim against defendant bank.
Costs against defendants.
(pp. 44-45, Rollo.)
As earlier intimated, upon the decision being appealed, the Court of Appeals (Buena
[P], Rasul, and Mabutas,JJ.), on August 12, 1994, reversed the trial court's decision
and dismissed petitioner's complaint for specific performance and damages.
The issues raised by the parties revolve around the following four questions:
(1) Was there a meeting of the minds between petitioner Limketkai and respondent
BPI as to the subject matter of the contract and the cause of the obligation?
(2) Were the bank officials involved in the transaction authorized by BPI to enter into
the questioned contract?
(3) Is there competent and admissible evidence to support the alleged meeting of
the minds?
(4) Was the sale of the disputed land to the NBS during the pendency of trial
effected in good faith?

There is no dispute in regard to the following: (a) that BPI as trustee of the property
of Philippine Remnant Co. authorized a licensed broker, Pedro Revilla, to sell the lot
for P1,000.00 per square meter; (b) that Philippine Remnants confirmed the
authority to sell of Revilla and the price at which he may sell the lot; (c) that
petitioner and Revilla agreed on the former buying the property; (d) that BPI
Assistant Vice-President Rolando V. Aromin allowed the broker and the buyer to
inspect the property; and (e) that BPI was formally informed about the broker
having procured a buyer.
The controversy revolves around the interpretation or the significance of the
happenings or events at this point.
Petitioner states that the contract to sell and to buy was perfected on July 11, 1988
when its top officials and broker Revilla finalized the details with BPI Vice-Presidents
Merlin Albano and Rolando V. Aromin at the BPI offices.
Respondents, however, contend that what transpired on this date were part of
continuing negotiations to buy the land and not the perfection of the sale. The
arguments of respondents center on two propositions (1) Vice-Presidents Aromin
and Albano had no authority to bind BPI on this particular transaction and (2) the
subsequent attempts of petitioner to pay under terms instead of full payment in
cash constitutes a counter-offer which negates the existence of a perfected
contract.
The alleged lack of authority of the bank officials acting in behalf of BPI is not
sustained by the record.
At the start of the transactions, broker Revilla by himself already had full authority
to sell the disputed lot. Exhibit B dated June 23, 1988 states, "this will serve as your
authority to sell on an as is, where is basis the property located at Pasig Blvd.,
Bagong Ilog . . . ." We agree with Revilla's testimony that the authority given to him
was to sell and not merely to look for a buyer, as contended by respondents.
Revilla testified that at the time he perfected the agreement to sell the litigated
property, he was acting for and in behalf of the BPI as if he were the Bank itself. This
notwithstanding and to firm up the sale of the land, Revilla saw it fit to bring BPI
officials into the transaction. If BPI could give the authority to sell to a licensed
broker, we see no reason to doubt the authority to sell of the two BPI VicePresidents whose precise job in the Bank was to manage and administer real estate
property.
Respondent BPI alleges that sales of trust property need the approval of a Trust
Committee made up of top bank officials. It appears from the record that this trust
committee meets rather infrequently and it does not have to pass on regular
transactions.
Rolando Aromin was BPI Assistant Vice-President and Trust Officer. He directly
supervised the BPI Real Property Management Unit. He had been in the Real Estate
Division since 1985 and was the head supervising officer of real estate matters.
Aromin had been with the BPI Trust Department since 1968 and had been involved
in the handling of properties of beneficial owners since 1975 (tsn., December 3,
1990, p. 5).
Exhibit 10 of BPI, the February 15, 1989 letter from Senior Vice-President Edmundo
Barcelon, while purporting to inform Aromin of his poor performance, is an

admission of BPI that Aromin was in charge of Torrens titles, lease contracts,
problems of tenants, insurance policies, installment receivables, management fees,
quitclaims, and other matters involving real estate transactions. His immediate
superior, Vice-President Merlin Albano had been with the Real Estate Division for
only one week but he was present and joined in the discussions with petitioner.
There is nothing to show that Alfonso Lim and Albino Limketkai knew Aromin before
the incident. Revilla brought the brothers directly to Aromin upon entering the BPI
premises. Aromin acted in a perfectly natural manner on the transaction before him
with not the slightest indication that he was acting ultra vires. This shows that BPI
held Aromin out to the public as the officer routinely handling real estate
transactions and, as Trust Officer, entering into contracts to sell trust properties.
Respondents state and the record shows that the authority to buy and sell this
particular trust property was later withdrawn from Trust Officer Aromin and his
entire unit. If Aromin did not have any authority to act as alleged, there was no
need to withdraw authority which he never possessed.
Petitioner points to Areola vs. Court of Appeals (236 SCRA 643 [1994]) which
cited Prudential Bank vs. Court of Appeals (22 SCRA 350 [1993]), which in turn
relied upon McIntosh vs. Dakota Trust Co. (52 ND 752, 204 NW 818, 40 ALR 1021),
to wit:
Accordingly a banking corporation is liable to innocent third persons
where the representation is made in the course of its business by an
agent acting within the general scope of his authority even though, in
the particular case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other
person for his own ultimate benefit.
(at pp. 652-653.)
In the present case, the position and title of Aromin alone, not to mention the
testimony and documentary evidence about his work, leave no doubt that he had
full authority to act for BPI in the questioned transaction. There is no allegation of
fraud, nor is there the least indication that Aromin was acting for his own ultimate
benefit. BPI later dismissed Aromin because it appeared that a top official of the
bank was personally interested in the sale of the Pasig property and did not like
Aromin's testimony. Aromin was charged with poor performance but his dismissal
was only sometime after he testified in court. More than two long years after the
disputed transaction, he was still Assistant Vice-President of BPI.
The records show that the letter of instruction dated June 14, 1988 from the owner
of Philippine Remnants Co. regarding the sale of the firm's property was addressed
to Aromin. The P1,000.00 figure on the first page of broker Revilla's authority to sell
was changed to P1,100.00 by Aromin. The price was later brought down again to
P1,000.00, also by Aromin. The permission given to petitioner to view the lot was
signed by Aromin and honored by the BPI guards. The letter dated July 9, 1988 from
broker Revilla informing BPI that he had a buyer was addressed to Aromin. The
conference on July 11, 1988 when the contract was perfected was with Aromin and
Vice-President Albano. Albano and Aromin were the ones who assured petitioner
Limketkai's officers that term payment was possible. It was Aromin who called up
Miguel Bicharra of Philippine Remnants to state that the BPI rejected payment on
terms and it was to Aromin that Philippine Remnants gave the go signal to proceed
with the cash sale. Everything in the record points to the full authority of Aromin to

bind the bank, except for the self-serving memoranda or letters later produced by
BPI that Aromin was an inefficient and undesirable officer and who, in fact, was
dismissed after he testified in this case. But, of course, Aromin's alleged inefficiency
is not proof that he was not fully clothed with authority to bind BPI.
Respondents' second contention is that there was no perfected contract because
petitioner's request to pay on terms constituted a counter-offer and that
negotiations were still in progress at that point.
Asst. Vice-President Aromin was subpoenaed as a hostile witness for petitioner
during trial. Among his statements is one to the effect that
. . . Mr. Lim offered to buy the property at P900.00 per square meter
while Mr. Albano counter-offered to sell the property at P1,100.00 per
square meter but after the usual haggling, we finally agreed to sell the
property at the price of P1,000.00 per square meter . . .
(tsn, 12-3-90, p. 17; Emphasis supplied.)
Asked if there was a meeting of the minds between the buyer and the bank in
respect to the price of P1,000.00 per square meter, Aromin answered:
Yes, sir, as far as my evaluation there was a meeting of the minds as
far as the price is concerned, sir.
(ibid, p. 17.)
The requirements in the payment of the purchase price on terms instead of cash
were suggested by BPI Vice-President Albano. Since the authority given to broker
Revilla specified cash payment, the possibility of paying on terms was referred to
the Trust Committee but with the mutual agreement that "if the proposed payment
on terms will not be approved by our Trust Committee, Limketkai should pay in cash
. . . the amount was no longer subject to the approval or disapproval of the
Committee, it is only on the terms." (ibid, p. 19). This is incontrovertibly established
in the following testimony of Aromin:
A. After you were able to agree on the price of
P1,000.00/sq. m., since the letter or authority says the
payment must be in cash basis, what transpired later on?
B. After we have agreed on the price, the Lim brothers
inquired on how to go about submitting the covering
proposal if they will be allowed to pay on terms. They
requested us to give them a guide on how to prepare the
corresponding letter of proposal. I recall that, upon the
request of Mr. Albino Limketkai, we dictated a guide on
how to word a written firm offer that was to be submitted
by Mr. Lim to the bank setting out the terms of payment
but with the mutual agreement that if his proposed
payment on terms will not be approved by our trust
committee, Limketkai should pay the price in cash.
Q And did buyer Limketkai agree to pay in cash in case
the offer of terms will be cash (disapproved).

A Yes, sir.
Q At the start, did they show their willingness to pay in
cash?
A Yes, sir.
Q You said that the agreement on terms was to be
submitted to the trust committee for approval, are you
telling the Court that what was to be approved by the
trust committee was the provision on the payment on
terms?
A Yes, sir.
Q So the amount was no longer subject to the approval or
disapproval of the committee, it is only on the terms?
A Yes, sir.
(tsn, Dec. 3, 1990, pp. 18-19; Emphasis supplied.)
The record shows that if payment was in cash, either broker Revilla or Aromin had
full authority. But because petitioner took advantage of the suggestion of VicePresident Albano, the matter was sent to higher officials. Immediately upon learning
that payment on terms was frozen and/or denied, Limketkai exercised his right
within the period given to him and tendered payment in full. The BPI rejected the
payment.
In its Comment and Memorandum, respondent NBS cites Ang Yu Asuncion vs. Court
of Appeals (238 SCRA 602 [1994]) to bolster its case. Contrarywise, it would seem
that the legal principles found in said case strengthen and support petitioner's
submission that the contract was perfected upon the meeting of the minds of the
parties.
The negotiation or preparation stage started with the authority given by Philippine
Remnants to BPI to sell the lot, followed by (a) the authority given by BPI and
confirmed by Philippine Remnants to broker Revilla to sell the property, (b) the offer
to sell to Limketkai, (c) the inspection of the property and finally (d) the negotiations
with Aromin and Albano at the BPI offices.
The perfection of the contract took place when Aromin and Albano, acting for BPI,
agreed to sell and Alfonso Lim with Albino Limketkai, acting for petitioner Limketkai,
agreed to buy the disputed lot at P1,000.00 per square meter. Aside from this there
was the earlier agreement between petitioner and the authorized broker. There was
a concurrence of offer and acceptance, on the object, and on the cause thereof.
The phases that a contract goes through may be summarized as follows:
a. preparation, conception or generation, which is the period of
negotiation and bargaining, ending at the moment of agreement of the
parties;
b. perfection or birth of the contract, which is the moment when the
parties come to agree on the terms of the contract; and

c. consummation or death, which is the fulfillment or performance of

the terms agreed upon in the contract (Toyota Shaw, Inc. vs. Court of
Appeals, G.R. No. 116650, May 23, 1995).
But in more graphic prose, we turn to Ang Yu Asuncion, per Justice Vitug:
. . . A contract undergoes various stages that include its negotiation or
preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time the
prospective contracting parties indicate interest in the contract to the
time the contract is concluded (perfected). Theperfection of the
contract takes place upon the concurrence of the essential elements
thereof. A contract which is consensual as to perfection is so
established upon a mere meeting of minds, i.e., the concurrence of
offer and acceptance, on the object and on the cause thereof. A
contract which requires, in addition to the above, the delivery of the
object of the agreement, as in a pledge orcommodatum, is commonly
referred to as a real contract. In a solemn contract, compliance with
certain formalities prescribed by law, such as in a donation of real
property, is essential in order to make the act valid, the prescribed
form being thereby an essential element thereof. The stage of
consummation begins when the parties perform their respective
undertakings under the contract culminating in the extinguishment
thereof.
Until the contract is perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation. In sales, particularly, to
which the topic for discussion about the case at bench belongs, the
contract is perfected when a person, called the seller, obligates
himself, for a price certain, to deliver and to transfer ownership of a
thing or right to another, called the buyer, over which the latter
agrees.
(238 SCRA 602; 611 [1994].)
In Villonco Realty Company vs. Bormaheco (65 SCRA 352 [1975]), bearing factual
antecendents similar to this case, the Court, through Justice Aquino (later to be
Chief Justice), quoting authorities, upheld the perfection of the contract of sale
thusly:
The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the
price. From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the form of
contracts. (Art. 1475,Ibid.)
xxx xxx xxx
Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The
offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer (Art. 1319, Civil Code). "An
acceptance may be express or implied." (Art. 1320, Civil Code).
xxx xxx xxx

It is true that an acceptance may contain a request for certain changes

in the terms of the offer and yet be a binding acceptance. "So long as
it is clear that the meaning of the acceptance is positively and
unequivocally to accept the offer, whether such request is granted or
not, a contract is formed." (Stuart vs. Franklin Life Ins. Co., 105 Fed.
2nd 965, citing Sec. 79, Williston on Contracts).
xxx xxx xxx
. . . the vendor's change in a phrase of the offer to purchase, which
change does not essentially change the terms of the offer, does not
amount to a rejection of the offer and the tender or a counter-offer.
(Stuart vs. Franklin Life Ins. Co., supra.)
(at pp. 362-363; 365-366.)
In the case at bench, the allegation of NBS that there was no concurrence of the
offer and acceptance upon the cause of the contract is belied by the testimony of
the very BPI official with whom the contract was perfected. Aromin and Albano
concluded the sale for BPI. The fact that the deed of sale still had to be signed and
notarized does not mean that no contract had already been perfected. A sale of
land is valid regardless of the form it may have been entered into (Claudel vs. Court
of Appeals, 199 SCRA 113, 119 [1991]). The requisite form under Article 1458 of the
Civil Code is merely for greater efficacy or convenience and the failure to comply
therewith does not affect the validity and binding effect of the act between the
parties (Vitug, Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, p.
552). If the law requires a document or other special form, as in the sale of real
property, the contracting parties may compel each other to observe that form, once
the contract has been perfected. Their right may be exercised simultaneously with
action upon the contract (Article 1359, Civil Code).
Regarding the admissibility and competence of the evidence adduced by petitioner,
respondent Court of Appeals ruled that because the sale involved real property, the
statute of frauds is applicable.
In any event, petitioner cites Abrenica vs. Gonda (34 Phil. 739 [1916]) wherein it
was held that contracts infringing the Statute of Frauds are ratified when the
defense fails to object, or asks questions on cross-examination. The succinct words
of Justice Araullo still ring in judicial cadence:
As no timely objection or protest was made to the admission of the
testimony of the plaintiff with respect to the contract; and as the
motion to strike out said evidence came too late; and, furthermore, as
the defendants themselves, by the cross-questions put by their counsel
to the witnesses in respect to said contract, tacitly waived their right to
have it stricken out, that evidence, therefore, cannot be considered
either inadmissible or illegal, and court, far from having erred in taking
it into consideration and basing his judgment thereon, notwithstanding
the fact that it was ordered to be stricken out during the trial, merely
corrected the error he committed in ordering it to be so stricken out
and complied with the rules of procedure hereinbefore cited.
(at p. 748.)

In the instant case, counsel for respondents cross-examined petitioner's witnesses

at length on the contract itself, the purchase price, the tender of cash payment, the
authority of Aromin and Revilla, and other details of the litigated contract. Under
the Abrenica rule (reiterated in a number of cases, among them Talosig vs. Vda. de
Nieba 43 SCRA 472 [1972]), even assuming that parol evidence was initially
inadmissible, the same became competent and admissible because of the crossexamination, which elicited evidence proving the evidence of a perfected contract.
The cross-examination on the contract is deemed a waiver of the defense of the
Statute of Frauds (Vitug, Compendium of Civil Law and Jurisprudence, 1993 Revised
Edition, supra, p. 563).
The reason for the rule is that as pointed out in Abrenica "if the answers of those
witnesses were stricken out, the cross-examination could have no object
whatsoever, and if the questions were put to the witnesses and answered by them,
they could only be taken into account by connecting them with the answers given
by those witnesses on direct examination" (pp. 747-748).
Moreover, under Article 1403 of the Civil Code, an exception to the unenforceability
of contracts pursuant to the Statute of Frauds is the existence of a written note or
memorandum evidencing the contract. The memorandum may be found in several
writings, not necessarily in one document. The memorandum or memoranda is/are
written evidence that such a contract was entered into.
We cite the findings of the trial court on this matter:
In accordance with the provisions of Art. 1403 of the Civil Code, the
existence of a written contract of the sale is not necessary so long as
the agreement to sell real property is evidenced by a written note or
memorandum, embodying the essentials of the contract and signed by
the party charged or his agent. Thus, it has been held:
The Statute of Frauds, embodied in Article 1403 of the
Civil Code of the Philippines,does not require that the
contract itself be written. The plain test of Article 1403,
Paragraph (2) is clear that a written note or
memorandum, embodying the essentials of the contract
and signed by the party charged, or his agent suffices to
make the verbal agreement enforceable, taking it out of
the operation of the statute. (Emphasis supplied)
xxx xxx xxx
In the case at bar, the complaint in its paragraph 3 pleads
that the deal had been closed by letter and telegram
(Record on Appeal, p. 2), and the letter referred to was
evidently the one copy of which was appended as Exhibit
A to plaintiffs opposition to the motion to dismiss. The
letter, transcribed above in part, together with the one
marked as Appendix B, constitute an adequate
memorandum of the transaction. They are signed by the
defendant-appellant; refer to the property sold as a Lot in
Puerto Princesa, Palawan, covered by T.C.T. No. 62, give
its area as 1,825 square meters and the purchase price of
four (P4.00) pesos per square meter payable in cash. We
have in them, therefore, all the essential terms of the

contract and they satisfy the requirements of the Statute

of Frauds.
(Footnote 26, Paredes vs. Espino, 22 SCRA 1000 [1968]).
While there is no written contract of sale of the Pasig property
executed by BPI in favor of plaintiff, there are abundant notes and
memoranda extant in the records of this case evidencing the elements
of a perfected contract. There is Exhibit P, the letter of Kenneth Richard
Awad addressed to Roland Aromin, authorizing the sale of the subject
property at the price of P1,000.00 per square meter giving 2%
commission to the broker and instructing that the sale be on cash
basis. Concomitantly, on the basis of the instruction of Mr. Awad, (Exh.
P), an authority to sell, (Exh. B) was issued by BPI to Pedro Revilla, Jr.,
representing Assetrade Co., authorizing the latter to sell the property
at the initial quoted price of P1,000.00 per square meter which was
altered on an unaccepted offer by Technoland. After the letter authority
was issued to Mr. Revilla, a letter authority was signed by Mr. Aromin
allowing the buyer to enter the premises of the property to inspect the
same (Exh. C). On July 9, 1988, Pedro Revilla, Jr., acting as agent of BPI,
wrote a letter to BPI informing it that he had procured a buyer in the
name of Limketkai Sons Milling, Inc. with offices at Limketkai Bldg.,
Greenhills, San Juan, Metro Manila, represented by its Exec. VicePresident, Alfonso Lim (Exh. D). On July 11, 1988, the plaintiff, through
Alfonso Lim, wrote a letter to the bank, through Merlin Albano,
confirming their transaction regarding the purchase of the subject
property (Exh. E). On July 18, 1988, the plaintiff tendered upon the
officials of the bank a check for P33,056,000.00 covered by Check No.
CA510883, dated July 18, 1988. On July 1, 1988, Alfonso Zamora
instructed Mr. Aromin in a letter to resubmit new offers only if there is
no transaction closed with Assetrade Co. (Exh. S). Combining all these
notes and memoranda, the Court is convinced of the existence of
perfected contract of sale. Aptly, the Supreme Court, citing American
cases with approval, held:
No particular form of language or instrument is necessary
to constitute a memorandum or note in writing under the
statute of frauds; any document or writing, formal or
informal, written either for the purpose of furnishing
evidence of the contract or for another purpose, which
satisfies all the requirements of the statute as to contents
and signature, as discussed respectively infra secs. 178200, and infra secs. 201-205, is a sufficient memorandum
or note. A memorandum may be written as well with lead
pencil as with pen and ink. It may also be filled in on a
printed form. (37 C.J.S., 653-654).
The note or memorandum required by the statute of
frauds need not be contained in a single document, nor,
when contained in two or more papers, need each paper
be sufficient as to contents and signature to satisfy the
statute. Two or more writings properly connected may be
considered together, matters missing or uncertain in one
may be supplied or rendered certain by another, and their
sufficiency will depend on whether, taken together, they

meet the requirements of the statute as to contents and

the requirements of the statutes as to signature, as
considered respectively infra secs. 179-200 and secs.
201-215.
(pp. 460-463, Original RTC Record).
The credibility of witnesses is also decisive in this case. The trial court directly
observed the demeanor and manner of testifying of the witnesses while the Court of
Appeals relied merely on the transcript of stenographic notes.
In this regard, the court of origin had this to say:
Apart from weighing the merits of the evidence of the parties, the
Court had occasion to observe the demeanor of the witnesses they
presented. This is one important factor that inclined the Court to
believe in the version given by the plaintiff because its witnesses,
including hostile witness Roland V. Aromin, an assistant vice-president
of the bank, were straightforward, candid and unhesitating in giving
their respective testimonies. Upon the other hand, the witnesses of BPI
were evasive, less than candid and hesitant in giving their answers to
cross examination questions. Moreover, the witnesses for BPI and NBS
contradicted each other. Fernando Sison III insisted that the authority
to sell issued to Mr. Revilla was merely an evidence by which a broker
may convince a prospective buyer that he had authority to offer the
property mentioned therein for sale and did not bind the bank. On the
contrary, Alfonso Zamora, a Senior Vice-President of the bank,
admitted that the authority to sell issued to Mr. Pedro Revilla, Jr. was
valid, effective and binding upon the bank being signed by two class
"A" signatories and that the bank cannot back out from its commitment
in the authority to sell to Mr. Revilla.
While Alfredo Ramos of NBS insisted that he did not know personally
and was not acquainted with Edmundo Barcelon, the latter
categorically admitted that Alfredo Ramos was his friend and that they
have even discussed in one of the luncheon meetings the matter of the
sale of the Pasig property to NBS. George Feliciano emphatically said
that he was not a consultant of Mr. Ramos nor was he connected with
him in any manner, but his calling card states that he was a consultant
to the chairman of the Pacific Rim Export and Holdings Corp. whose
chairman is Alfredo Ramos. This deliberate act of Mr. Feliciano of
concealing his being a consultant to Mr. Alfredo Ramos evidently was
done by him to avoid possible implication that he committed some
underhanded maneuvers in manipulating to have the subject property
sold to NBS, instead of being sold to the plaintiff.
(pp. 454-455, Original RTC Record.)
On the matter of credibility of witnesses where the findings or conclusions of the
Court of Appeals and the trial court are contrary to each other, the pronouncement
of the Court in Serrano vs. Court of Appeals (196 SCRA 107 [1991]) bears stressing:
It is a settled principle of civil procedure that the conclusions of the
trial court regarding the credibility of witnesses are entitled to great
respect from the appellate courts because the trial court had an

opportunity to observe the demeanor of witnesses while giving

testimony which may indicate their candor or lack thereof. While the
Supreme Court ordinarily does not rule on the issue of credibility of
witnesses, that being a question of fact not properly raised in a petition
under Rule 45, the Court has undertaken to do so in exceptional
situations where, for instance, as here, the trial court and the Court of
Appeals arrived at divergent conclusions on questions of fact and the
credibility of witnesses.
(at p. 110.)
On the fourth question of whether or not NBS is an innocent purchaser for value, the
record shows that it is not. It acted in bad faith.
Respondent NBS ignored the notice of lis pendens annotated on the title when it
bought the lot. It was the willingness and design of NBS to buy property already sold
to another party which led BPI to dishonor the contract with Limketkai.
Petitioner cites several badges of fraud indicating that BPI and NBS conspired to
prevent petitioner from paying the agreed price and getting possession of the
property:
1. The sale was supposed to be done through an authorized broker, but top officials
of BPI personally and directly took over this particular sale when a close friend
became interested.
2. BPI Senior Vice President Edmundo Barcelon admitted that NBS's President,
Alfredo Ramos, was his friend; that they had lunch meetings before this incident
and discussed NBS's purchase of the lot. Barcelon's father was a business associate
of Ramos.
3. George Feliciano, in behalf of NBS, offered P5 million and later P7 million if
petitioner would drop the case and give up the lot. Feliciano went to petitioner's
office and haggled with Alfonso Lim but failed to convince him inspite of various and
increasing offers.
4. In a place where big and permanent buildings abound, NBS had constructed only
a warehouse marked by easy portability. The warehouse is bolted to its foundations
and can easily be dismantled.
It is the very nature of the deed of absolute sale between BPI and NBS which,
however, clearly negates any allegation of good faith on the part of the buyer.
Instead of the vendee insisting that the vendor guarantee its title to the land and
recognize the right of the vendee to proceed against the vendor if the title to the
land turns out to be defective as when the land belongs to another person, the
reverse is found in the deed of sale between BPI and NBS. Any losses which NBS
may incur in the event the title turns out to be vested in another person are to be
borne by NBS alone. BPI is expressly freed under the contract from any recourse of
NBS against it should BPI's title be found defective.
NBS, in its reply memorandum, does not refute or explain the above circumstance
squarely. It simply cites the badges of fraud mentioned in Oria vs. McMicking (21
Phil. 243 [1912]) and argues that the enumeration there is exclusive. The decision
in said case plainly states "the following are some of the circumstances attending
sales which have been denominated by courts (as) badges of fraud." There are

innumerable situations where fraud is manifested. One enumeration in a 1912

decision cannot possibly cover all indications of fraud from that time up to the
present and into the future.
The Court of Appeals did not discuss the issue of damages. Petitioner cites the fee
for filing the amended complaint to implead NBS, sheriffs fees, registration fees,
plane fare and hotel expenses of Cebu-based counsel. Petitioner also claimed, and
the trial court awarded, damages for the profits and opportunity losses caused to
petitioner's business in the amount of P10,000,000.00.
We rule that the profits and the use of the land which were denied to petitioner
because of the non-compliance or interference with a solemn obligation by
respondents is somehow made up by the appreciation in land values in the
meantime.
Prescinding from the above, we rule that there was a perfected contract between
BPI and petitioner Limketkai; that the BPI officials who transacted with petitioner
had full authority to bind the bank; that the evidence supporting the sale is
competent and admissible; and that the sale of the lot to NBS during the trial of the
case was characterized by bad faith.
WHEREFORE, the questioned judgment of the Court of Appeals is hereby REVERSED
and SET ASIDE. The June 10, 1991 judgment of Branch 151 of the Regional Trial
Court of The National Capital Judicial Region stationed in Pasig, Metro Manila is
REINSTATED except for the award of Ten Million Pesos (P10,000,000.00) damages
which is hereby DELETED.
SO ORDERED.
Feliciano, Romero, Vitug and Panganiban, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 80965 June 6, 1990
SYLVIA LICHAUCO DE LEON, petitioner,
vs.
THE HON. COURT OF APPEALS, MACARIA DE LEON AND JOSE VICENTE DE
LEON, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
De Jesus & Associates for Macaria de Leon.
Quisumbing, Torres & Evangelista for Jose Vicente de Leon.

MEDIALDEA, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals in
CA-G.R. CV No. 06649 dated June 30, 1987 the decision of the Regional Trial Court of
Pasig in SP Proc. No. 8492 dated December 29, 1983; and its resolution dated
November 24, 1987 denying the motion for reconsideration.
The antecedent facts are as follows:
On October 18, 1969, private respondent Jose Vicente De Leon and petitioner Sylvia
Lichauco De Leon were united in wedlock before the Municipal Mayor of
Binangonan, Rizal. On August 28, 1971, a child named Susana L. De Leon was born
from this union.
Sometime in October, 1972, a de facto separation between the spouses occured
due to irreconcilable marital differences, with Sylvia leaving the conjugal home.
Sometime in March, 1973, Sylvia went to the United States where she obtained
American citizenship.
On November 23, 1973, Sylvia filed with the Superior Court of California, County of
San Francisco, a petition for dissolution of marriage against Jose Vicente. In the said
divorce proceedings, Sylvia also filed claims for support and distribution of
properties. It appears, however, that since Jose Vicente was then a Philippine
resident and did not have any assets in the United States, Sylvia chose to hold in
abeyance the divorce proceedings, and in the meantime, concentrated her efforts to
obtain some sort of property settlements with Jose Vicente in the Philippines.
Thus, on March 16, 1977, Sylvia succeeded in entering into a Letter-Agreement with
her mother-in-law, private respondent Macaria De Leon, which We quote in full, as
follows (pp. 40-42, Rollo):
March 16, 1977
Mrs. Macaria Madrigal de Leon
12 Jacaranda, North Forbes Park
Makati, Metro Manila
Dear Dora Macaria:
This letter represents a contractual undertaking among (A) the
undersigned (B) your son, Mr. Jose Vicente de Leon, represented by
you, and (C) yourself in your personal capacity.
You hereby bind yourself jointly and severally to answer for the
undertakings of Joe Vincent under this contract.
In consideration for a peaceful and amicable termination of relations
between the undersigned and her lawfully wedded husband, Jose
Vicente de Leon, your son, the following are agreed upon:
Obligations of Jose Vicente de Leon and/ or yourself in a joint and
several capacity:
1. To deliver with clear title free from all liens and encumbrances and
subject to no claims in any form whatsoever the following properties to
Sylvia Lichauco-de Leon hereinafter referred to as the wife:

A. Suite 11-C, Avalon Condominium, Ortigas Ave., corner Xavier St.,

Mandaluyong, Rizal, Philippines.
B. Apartment 702, Wack Wack Condominium, Mandaluyong, Rizal,
Philippines.
C. The rights to assignment of 2 Ayala lots in Alabang, Rizal (Corner
lots, 801 s q. meters each). (Fully paid).
D. 2470 Wexford Ave., South San Francisco, California, U.S.A. (Lot 18
Block 22 Westborough Unit No. 2). (Fully paid).
E. 1) The sum of One Hundred Thousand Pesos (P100,000)
2) $30,000
3) $5,000
2. To give monthly support payable six (6) months in advance every
year to any designated assignee of the wife for the care and
upbringing of Susana Lichauco de Leon which is hereby pegged at the
exchange rate of 7.50 to the dollar subject to adjustments in the event
of monetary exchange fluctuations. Subsequent increase on actual
need upon negotiation.
3. To respect the custody of said minor daughter as pertaining
exclusively to the wife except as herein provided.
Obligations of the wife:
1. To agree to a judicial separation of property in accordance with
Philippine law and in this connection to do all that may be necessary to
secure said separation of property including her approval in writing of a
joint petition or consent decree.
2. To amend her complaint in the United States before the Federal
Court of California, U.S.A. entitled "Sylvia Lichauco de Leon vs. Jose V.
de Leon" in a manner compatible with the objectives of this herein
agreement. It is the stated objective of this agreement that said
divorce proceedings will continue.
3. All the properties herein described for assignment to the wife must
be assigned to Sylvia Lichauco de Leon upon the decree of the Court of
First Instance in the Joint Petition for Separation of Property; except for
the P100,000, $30,000 and $5,000 which will be paid immediately.
4. This contract is intended to be applicable both in the Republic of the
Philippines and in the United States of America. It is agreed that this
will constitute an actionable document in both jurisdictions and the
parties herein waive their right to object to the use of this document in
the event a legal issue should arise relating to the validity of this
document. In the event of a dispute, this letter is subject to
interpretation under the laws of California, U.S.A.

5. To allow her daughter to spend two to three months each year with
the father upon mutual convenience.
Very truly yours,
(Sgd.) Sylvia de Leon t/ SYLVIA L. DE LEON
CONFORME:
s/t/MACARIA M. DE LEON
with my marital consent:
s/t/JUAN L. DE LEON
On the same date, Macaria made cash payments to Sylvia in the amount of
P100,000 and US$35,000.00 or P280,000.00, in compliance with her obligations as
stipulated in the aforestated Letter-Agreement.
On March 30, 1977, Sylvia and Jose Vicente filed before the then Court of First
Instance of Rizal a joint petition for judicial approval of dissolution of their conjugal
partnership, the main part of which reads as follows (pp. 37-38,Rollo):
5. For the best interest of each of them and of their minor child,
petitioners have agreed to dissolve their conjugal partnership and to
partition the assets thereof, under the following terms and conditionsthis document, a pleading being intended by them to embody and
evidence their agreement:
xxx xxx xxx
(c) The following properties shall be adjudicated to petitioner Sylvia
Lichauco De Leon. These properties will be free of any and all liens and
encumbrances, with clear title and subject to no claims by third
parties. Petitioner Jose Vicente De Leon fully assumes all responsibility
and liability in the event these properties shall not be as described in
the previous sentence:
Sedan (1972 model)
Suite 11-C, Avalon Condominium,
Ortigas Ave., comer Xavier St.,
Mandaluyong, Rizal, Philippines
Apt. 702, Wack-Wack Condominium,
Mandaluyong, Rizal, Philippines
The rights to assignment of 2 Ayala lots in Alabang Rizal (corner lots,
801 sq. meters each) (Fully paid)
2470 Wexford Ave., South San Francisco, California, U.S.A. (Lot 18,
Block 22 Westborough Unit 2) (Fully paid)
The sum of One Hundred Thousand Pesos (P100,000.00)
$30,000.00 at current exchange rate
$5,000.00 at current exchange rate

After ex-parte hearings, the trial court issued an Order dated February 19, 1980
approving the petition, the dispositive portion of which reads (p. 143, Rollo):
WHEREFORE, it is hereby declared that the conjugal partnership of the
Spouses is DISSOLVED henceforth, without prejudice to the terms of
their agreement that each spouse shall own, dispose of, possess,
administer and enjoy his or her separate estate, without the consent of
the other, and all earnings from any profession, business or industries
shall likewise belong to each spouse.
On March 17, 1980, Sylvia moved for the execution of the above-mentioned order.
However, Jose Vicente moved for a reconsideration of the order alleging that Sylvia
made a verbal reformation of the petition as there was no such agreement for the
payment of P4,500.00 monthly support to commence from the alleged date of
separation in April, 1973 and that there was no notice given to him that Sylvia
would attempt verbal reformation of the agreement contained in the joint petition
While the said motion for reconsideration was pending resolution, on April 20, 1980,
Macaria filed with the trial court a motion for leave to intervene alleging that she is
the owner of the properties involved in the case. The motion was granted. On
October 29, 1980, Macaria, assisted by her husband Juan De Leon, filed her
complaint in intervention. She assailed the validity and legality of the LetterAgreement which had for its purpose, according to her, the termination of marital
relationship between Sylvia and Jose Vicente. However, before any hearing could be
had, the judicial reorganization took place and the case was transferred to theRegional Trial Court of Pasig. On December 29, 1983, the trial court rendered
judgment, the dispositive portion of which reads (pp. 35-36, Rollo):
WHEREFORE, judgment is hereby rendered on the complaint in
intervention in favor of the intervenor, declaring null and void the
letter agreement dated March 16, 1977 (Exhibits 'E' to 'E-2'), and
ordering petitioner Sylvia Lichauco De Leon to restore to intervenor the
amount of P380,000.00 plus legal interest from date of complaint, and
to pay intervenor the amount of P100,000.00 as and for attorney's
fees, and to pay the costs of suit.
Judgment is likewise rendered affirming the order of the Court dated
February 19, 1980 declaring the conjugal partnership of the spouses
Jose Vicente De Leon and Sylvia Lichauco De Leon DISSOLVED; and
adjudicating to each of them his or her share of the properties and
assets of said conjugal partnership in accordance with the agreement
embodied in paragraph 5 of the petition, except insofar as the
adjudication to petitioner Sylvia L. De Leon of the properties belonging
to and owned by Intervenor Macaria De Leon is concerned.
Henceforth, (a) each spouse shall own, dispose of, possess, administer
and enjoy his or her separate estate, present and future without the
consent of the other; (b) an earnings from any profession, business or
industry shall likewise belong to each of them separately; (c) the minor
child Susana De Leon shall stay with petitioner Sylvia Lichauco De Leon
for two to three months every year-the transportation both ways of the
child for the trip to the Philippines to be at the expense of the
petitioner Jose Vicente De Leon; and (d) petitioner Jose Vicente De
Leon shall give petitioner Sylvia Lichauco De Leon the sum of

P4,500.00 as monthly support for the minor child Susana to commence

from February 19, 1980.
Sylvia appealed to the respondent Court of Appeals raising the following errors:
1) The trial court erred in finding that the cause or consideration of the LetterAgreement is the termination of marital relations;
2) The trial court failed to appreciate testimonial and documentary evidence proving
that Macaria de Leon's claims of threat, intimidation and mistake are baseless; and
3) The trial court erred in finding that Sylvia Lichauco de Leon committed breach of
the Letter-Agreement; and further, failed to appreciate evidence proving Macaria de
Leon's material breach thereof.
The respondent court affirmed the decision in toto. The motion for reconsideration
was denied. Hence, the present petition.
The only basis by which Sylvia may lay claim to the properties which are the subject
matter of the Letter-Agreement, is the Letter-Agreement itself. The main issue,
therefore, is whether or not the Letter-Agreement is valid. The third paragraph of
the Letter-Agreement, supra, reads:
In consideration for a peaceful and amicable termination
of relations between the undersigned and her lawfully wedded
husband, Jose Vicente De Leon, your son, the following are agreed
upon: (emphasis supplied)
It is readily apparent that the use of the word "relations" is ambiguous, perforce, it
is subject to interpretation. There being a doubt as to the meaning of this word
taken by itself, a consideration of the general scope and purpose of the instrument
in which it occurs (see Germann and Co. v. Donaldson, Sim and Co., 1 Phil. 63) and
Article 1374 of the Civil Code which provides that the various stipulations of a
contract shall be interpreted together, attributing to the doubtful ones that sense
which may result from all of them taken jointly, is necessary.
Sylvia insists that the consideration for her execution of the Letter-Agreement was
the termination of property relations with her husband. Indeed, Sylvia and Jose
Vicente subsequently filed a joint petition for judicial approval of the dissolution of
their conjugal partnership, sanctioned by Article 191 of the Civil Code. On the other
hand, Macaria and Jose Vicente assert that the consideration was the termination of
marital relationship.
We sustain the observations and conclusion made by the trial court, to wit (pp. 4446, Rollo):
On page two of the letter agreement (Exhibit' E'), the parties
contemplated not only to agree to a judicial separation of property of
the spouses but likewise to continue with divorce proceedings
(paragraphs 1 and 2, Obligations of the Wife, Exhibit 'E-1'). If taken
with the apparently ambiguous provisions in Exhibit E' regarding
termination of 'relations', the parties clearly contemplated not only the
termination of property relationship but likewise of marital relationship
in its entirety. Furthermore, it would be safe to assume that the parties
in Exhibit 'E' not having specified the particular relationship which they

wanted to peacefully and amicably terminate had intended to

terminate all kinds of relations, both marital and property. While there
could be inherent benefits to a termination of conjugal property
relationship between the spouses, the court could not clearly perceive
the underlying benefit for the intervenor insofar as termination of
property relationship between petitioners is concerned, unless the
underlying consideration for intervenor is the termination of marital
relationship by divorce proceedings between her son Jose Vicente and
his wife petitioner Sylvia. The last sentence of paragraph 2 under
"Obligations of the Wife" unequivocally states: "It is the stated
objective of this agreement that said divorce proceedings (in the
United States) will continue. "There is merit in concluding that the
consideration by which Intervenor executed Exhibit 'E' to 'E-2' was to
secure freedom for her son petitioner Jose Vicente De Leon, especially
if Exhibit 'R'-Intervenor, which is (sic) agreement signed by petitioner
Sylvia to consent to and pardon Jose Vicente De Leon for adultery and
concubinage (among others) would be considered. In the light,
therefore, of the foregoing circumstances, this Court finds credible the
testimony of intervenor as follows:
Q Will you please go over the Exhibit 'E' to 'E-2'intervenor consisting of three pages and inform us
whether or not this is the letter of March 16, 1977 which
you just referred to?
A Yes, this is the letter.
Why did you affix your signature to this Exh. 'E'-intervenor
(sic)?
A Because at that time when I signed it I want to buy
peace for myself and for the whole family.
Q From whom did you want to buy peace and/or what kind
of peace?
A I wanted to buy peace from Sylvia Lichauco whom I
knew was kind of 'matapang;' so I want peace for me and
primarily for the peaceful and amicable termination of
marital relationship between my son, Joe Vincent and
Sylvia. (Deposition dated September 6, 1983-Macaria de
Leon, p. 6-7)
This Court, therefore, finds and holds that the cause or consideration
for the intervenor Macaria De Leon in having executed Exhibits 'E' to
'E-2' was the termination of the marital relationship between her son
Jose Vicente De Leon and Sylvia Lichauco de Leon.
Article 1306 of the New Civil Code provides:
Art. 1306. The contracting parties may establish such stipulations,
clauses, terms, and conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public order or
public policy.

If the stipulation is contrary to law, morals or public policy, the contract

is void and inexistent from the beginning.
Art. 1409. The following contracts are inexistent and void from the
beginning:
Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;
xxx xxx xxx
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived.
But marriage is not a mere contract but a sacred social institution.
Thus, Art. 52 of the Civil Code provides:
Art. 52. Marriage is not a mere contract but an inviolable social
institution. Its nature, consequences and incidents are governed by law
and not subject to stipulations...
From the foregoing provisions of the New Civil Code, this court is of the
considered opinion and so holds that intervenor's undertaking under
Exhibit 'E' premised on the termination of marital relationship is not
only contrary to law but contrary to Filipino morals and public Policy. As
such, any agreement or obligations based on such unlawful
consideration and which is contrary to public policy should be deemed
null and void. (emphasis supplied)
Additionally, Article 191 of the Civil Case contemplates properties belonging to the
spouses and not those belonging to a third party, who, in the case at bar., is
Macaria. In the petition for the dissolution of the conjugal partnership, it was made
to appear that the said properties are conjugal in nature. However, Macaria was
able to prove that the questioned properties are owned by her. Neither Sylvia nor
Jose Vicente adduced any contrary evidence.
Granting, in gratia argumenti, that the consideration of the Letter-Agreement was
the termination of property relations, We agree with the respondent court that (pp.
46-47, Rollo):
... the agreement nevertheless is void because it contravenes the
following provisions of the Civil Code:
Art. 221. The following shall be void and of no effect:
(1) Any contract for personal separation between husband and wife;
(2) Every extra-judicial agreement, during marriage, for the dissolution
of the conjugal partnership of gains or of the absolute community of
property between husband and wife;
Besides, the Letter-Agreement shows on its face that it was prepared by Sylvia, and
in this regard, the ambiguity in a contract is to be taken contra proferentem, i.e.,

construed against the party who caused the ambiguity and could have also avoided
it by the exercise of a little more care. Thus, Article 1377 of the Civil Code provides:
"The interpretation of obscure words of stipulations in a contract shall not favor the
party who caused the obscurity" (see Equitable Banking Corp. vs. IAC, G.R. No.
74451, May 25, 1988, 161 SCRA 518).
Sylvia alleges further that since the nullity of the Letter-Agreement proceeds from
the unlawful consideration solely of Macaria, applying the pari delicto rule, it is clear
that she cannot recover what she has given by reason of the Letter-Agreement nor
ask for the fulfillment of what has been promised her. On her part, Macaria raises
the defenses of intimidation and mistake which led her to execute the LetterAgreement. In resolving this issue, the trial court said (pp. 148-151, Rollo):
In her second cause of action, intervenor claims that her signing of
Exhibits 'E' to 'E- 2' was due to a fear of an unpeaceful and
troublesome separation other son with petitioner Sylvia Lichauco de
Leon. In support of her claim, intervenor testified as follows:
Q Will you please inform us how did Sylvia Lichauco
disturb or threaten your son or yourself?
A Despite the fact that Sylvia Lichauco voluntarily left my
son Joe Vincent and abandoned him, she unashamedly
nagged Joe and me to get money and when her demands
were not met she resorted to threats like, she threatened
to bring Joe to court for support. Sylvia threatened to
scandalize our family by these baseless suits; in fact she
caused the service of summons to Joe when he went to
the United States. (Intervenor's deposition dated Sept. 6,
1983, p. 8).
On the other hand, petitioner Sylvia claims that it was intervenor and
petitioner Jose Vicente who initiated the move to convince her to agree
to a dissolution of their conjugal partnership due to the alleged extramarital activities of petitioner Jose Vicente de Leon. She testified as
follows:
Q Now in her testimony, Macaria Madrigal de Leon also
said that you threatened her by demanding money and
nagged her until she agreed to the letter agreement of
March 1977, what can you say about that?
A I think with all the people sitting around with Atty.
Quisumbing, Atty. Chuidian, my father-in-law, my sister-inlaw and I, you know, it can be shown that this was a
friendly amicable settlement that they were much really
interested in settling down as I was. I think there were
certain reasons that they wanted to get done or planned,
being at that time Jose was already remarried and had a
child. That since she then found out that since she was
worried about what might be, you know, involved in any
future matters. She just wanted to do what she could. She
just want me out of the picture. So in no way, it cannot be
said that I nagged and threatened her. (TSN dated
December 8, 1983, p. 137-138)

In resolving this issue, this Court leans heavily on Exhibit 'R'intervenor, which was not controverted by petitioner Sylvia. A reading
of Exhibit 'R' would show that petitioner Sylvia would consent to and
pardon petitioner Jose Vicente, son of intervenor, for possible crimes of
adultery and/or concubinage, with a sizing attached; that is, the
transfer of the properties subject herein to her. There appears some
truth to the apprehensions of intervenor for in petitioner Sylvia's
testimony she confirms the worry of intervenor as follows:'... being at
that time Jose (De Leon) was already remarried and had a child. That
since she (intervenor) found out that, she was worried about what
might be, you know, involved in any future matters. She just want me
out of the picture." The aforesaid fear of intervenor was further
corroborated by her witness Concepcion Tagudin who testified as
follows:
Q Now, you mentioned that you were present when Mrs.
Macaria De Leon signed this Exhibit 'E-2, ' will you inform
us whether there was anything unusual which you noticed
when Mrs. Macaria M. De Leon signed this Exhibit 'E-2'?
A Mrs. Macaria M. De Leon was in a state of tension and
anger. She was so mad that she remarked: 'Punetang
Sylvia ito bakit ba niya ako ginugulo. Ipakukulong daw
niya si Joe Vincent kung hindi ko pipirmahan ito. Sana
matapos na itong problemang ito pagkapirmang ito,' sabi
niya.' (Deposition-Concepcion Tagudin, Oct. 21, 1983, pp.
10-11)
In her third cause of action, intervenor claims mistake or error in
having signed Exhibits '1' to 'E-2' alleging in her testimony as follows:
Q Before you were told such by your lawyers what if any
were your basis to believe that Sylvia would no longer
have inheritance rights from your son, Joe Vincent?
A Well, that was what Sylvia told me. That she will
eliminate any inheritance rights from me or my son Joe
Vincent's properties if I sign the document amicably. ...
(Intervenor's deposition-Sept. 6, 1983, pp. 9-10).
On the other hand, petitioner Sylvia claims that intervenor could not
have been mistaken in her having signed the document as she was
under advice of counsel during the time that Exhibits 'E' to 'E-2' was
negotiated. To support such claims by Sylvia Lichauco De Leon, the
deposition testimony of Atty. Vicente Chuidian was presented before
this Court:
Atty. Herbosa: Now you mentioned Atty. Norberto
Quisumbing, would you be able to tell us in what capacity
he was present in that negotiation?
Atty. Chuidian: He was counsel for Dona Macaria and for
Joe Vincent, the spouse of Sylvia. (Deposition of V.
Chuidian, December 16, 1983, p. 8)

The New Civil Code provides:

Art. 1330. A contract where consent is given through mistake, violence,
intimidation, undue influence or fraud is voidable.
Art. 1331. In order that mistake may invalidate consent, it should refer
to the substance of the thing which is the object of the contract, or to
those conditions which have principally moved one or both parties to
enter into a contract. ...
The preponderance of evidence leans in favor of intervenor who even
utilized the statement of the divorce lawyer of petitioner Sylvia (Mr.
Penrod) in support of the fact that intervenor was mistaken in having
signed Exhibits 'E' to 'E-2' because when she signed said Exhibits she
believed that fact that petitioner Sylvia would eliminate her inheritance
rights and there is no showing that said intervenor was properly
advised by any American lawyer on the fact whether petitioner Sylvia,
being an American citizen, could rightfully do the same. Transcending,
however, the issue of whether there was mistake of fact on the part of
intervenor or not, this Court could not. see a valid cause or
consideration in favor of intervenor Macaria De Leon having signed
Exhibits 'E' to 'E-2.' For even if petitioner Sylvia had confirmed Mr.
Penrod's statement during the divorce proceedings in the United States
that she would undertake to eliminate her hereditary rights in the
event of the property settlement, under Philippine laws, such contract
would likewise be voidable, for under Art. 1347 of the New Civil Code
'no contract may be entered into upon future inheritance.
We do not subscribe to the aforestated view of the trial court. Article 1335 of the
Civil Code provides:
xxx xxx xxx
There is intimidation when one of the contracting parties is compelled
by a reasonable and well-grounded fear of an imminent and grave evil
upon his person or property, or upon the person or property of his
spouse, descendants or ascendants, to give his consent.
To determine the degree of the intimidation, the age, sex and condition
of the person shall be borne in mind.
A threat to enforce one's claim through competent authority, if the
claim is just or legal, does not vitiate consent.
In order that intimidation may vitiate consent and render the contract invalid, the
following requisites must concur: (1) that the intimidation must be the determining
cause of the contract, or must have caused the consent to be given; (2) that the
threatened act be unjust or unlawful; (3) that the threat be real and serious, there
being an evident disproportion between the evil and the resistance which all men
can offer, leading to the choice of the contract as the lesser evil; and (4) that it
produces a reasonable and well-grounded fear from the fact that the person from
whom it comes has the necessary means or ability to inflict the threatened injury.
Applying the foregoing to the present case, the claim of Macaria that Sylvia
threatened her to bring Jose Vicente to court for support, to scandalize their family
by baseless suits and that Sylvia would pardon Jose Vicente for possible crimes of

adultery and/or concubinage subject to the transfer of certain properties to her, is

obviously not the intimidation referred to by law. With respect to mistake as a vice
of consent, neither is Macaria's alleged mistake in having signed the LetterAgreement because of her belief that Sylvia will thereby eliminate inheritance rights
from her and Jose Vicente, the mistake referred to in Article 1331 of the Civil
Code, supra. It does not appear that the condition that Sylvia "will eliminate her
inheritance rights" principally moved Macaria to enter into the contract. Rather,
such condition was but an incident of the consideration thereof which, as discussed
earlier, is the termination of marital relations.
In the ultimate analysis, therefore, both parties acted in violation of the laws.
However, the pari delicto rule, expressed in the maxims "Ex dolo malo non oritur
actio" and "In pari delicto potior est conditio defendentis," which refuses remedy to
either party to an illegal agreement and leaves them where they are, does not apply
in this case. Contrary to the ruling of the respondent Court that (pp. 47-48, Rollo):
... [C]onsequently, intervenor appellees' obligation under the said
agreement having been annulled, the contracting parties shall restore
to each other that things which have been subject matter of the
contract, their fruits and the price or its interest, except as provided by
law (Art. 1398, Civil Code).
Article 1414 of the Civil Code, which is an exception to the pari delicto rule, is the
proper law to be applied. It provides:
When money is paid or property delivered for an illegal purpose, the
contract may be repudiated by one of the parties before the purpose
has been accomplished, or before any damage has been caused to a
third person. In such case, the courts may, if the public interest wig
thus be subserved, allow the party repudiating the contract to recover
the money or property.
Since the Letter-Agreement was repudiated before the purpose has been
accomplished and to adhere to the pari delicto rule in this case is to put a premium
to the circumvention of the laws, positive relief should be granted to Macaria.
Justice would be served by allowing her to be placed in the position in which she
was before the transaction was entered into.
With the conclusions thus reached, We find it unnecessary to discuss the other
issues raised.
ACCORDINGLY, the petition is hereby DENIED. The decision of the respondent Court
of Appeals dated June 30, 1987 and its resolution dated November 24, 1987 are
AFFIRMED.
SO ORDERED.
Narvasa (Chairman), Cruz and Gancayco, JJ., concur.
Grio-Aquino, J., is on leave.