Republic of the Philippines

Supreme Court
Baguio City

SECOND DIVISION
ESTELITA VILLAMAR,
Petitioner,

G.R. No. 188661

Present:

- versus -

BALBINO MANGAOIL,
Respondent.

CARPIO, J.,
Chairperson,
BRION,
PEREZ,
SERENO, and
REYES, JJ.

Promulgated:
April 11, 2012
x--------------------------------------------------------------------------------------------x
DECISION
REYES, J.:
The Case
Before us is a petition for review on certiorari[1] under Rule 45 of the Rules of
Court filed by Estelita Villamar (Villamar) to assail the Decision [2] rendered by the
Court of Appeals (CA) on February 20, 2009 in CA-G.R. CV No. 86286, the
dispositive portion of which reads:
WHEREFORE, the instant appeal is DISMISSED. The assailed decision
is AFFIRMED in toto.

SO ORDERED.[3]

The resolution[4] issued by the CA on July 8, 2009 denied the petitioner's

motion for reconsideration to the foregoing.
The ruling[5] of Branch 23, Regional Trial Court (RTC) of Roxas, Isabela,
which was affirmed by the CA in the herein assailed decision and resolution,
ordered the (1) rescission of the contract of sale of real property entered into by
Villamar and Balbino Mangaoil (Mangaoil); and (2) return of the down payment
made relative to the said contract.
Antecedents Facts
The CA aptly summarized as follows the facts of the case prior to the filing by
Mangaoil of the complaint[6] for rescission of contract before the RTC:
Villamar is the registered owner of a 3.6080 hectares parcel of land [hereinafter
referred as the subject property] in San Francisco, Manuel, Isabela covered by
Transfer Certificate of Title (TCT) No. T-92958-A. On March 30, 1998, she
entered into an Agreement with Mangaoil for the purchase and sale of said parcel
of land, under the following terms and conditions:
1. The price of the land is ONE HUNDRED AND EIGHTY
THOUSAND (180,000.00) PESOS per hectare but only the 3.5000
hec. shall be paid and the rest shall be given free, so that the total
purchase or selling price shall be [P]630,000.00 only;
2. ONE HUNDRED EIGHTY FIVE THOUSAND (185,000.00)
PESOS of the total price was already received on March 27,
1998 for payment of the loan secured by the certificate of title
covering the land in favor of the Rural Bank of Cauayan, San
Manuel Branch, San Manuel, Isabela [Rural Bank of Cauayan], in
order that the certificate of title thereof be withdrawn and released
from the said bank, and the rest shall be for the payment of the
mortgag[e]s in favor of Romeo Lacaden and Florante
Parangan;
3. After the release of the certificate of title covering the land
subject-matter of this agreement, the necessary deed of absolute
sale in favor of the PARTY OF THE SECOND PART shall be
executed and the transfer be immediately effected so that the latter
can apply for a loan from any lending institution using the
corresponding certificate of title as collateral therefor, and the

proceeds of the loan, whatever be the amount, be given to the

PARTY OF THE FIRST PART;
4. Whatever balance left from the agreed purchase price of the land
subject matter hereof after deducting the proceed of the loan and
the [P]185,000.00 already received as above-mentioned, the
PARTY OF THE SECOND PART shall pay unto the PARTY OF
THE FIRST PART not later than June 30, 1998 and thereafter the
parties shall be released of any obligations for and against each
other; xxx
On April 1, 1998, the parties executed a Deed of Absolute Sale whereby Villamar
(then Estelita Bernabe) transferred the subject parcel of land to Mangaoil for and
in consideration of [P]150,000.00.
In a letter dated September 18, 1998, Mangaoil informed Villamar that he was
backing out from the sale agreed upon giving as one of the reasons therefor:
3. That the area is not yet fully cleared by incumbrances as there
are tenants who are not willing to vacate the land without giving
them back the amount that they mortgaged the land.
Mangaoil demanded refund of his [P]185,000.00 down payment. Reiterating said
demand in another letter dated April 29, 1999, the same, however, was unheeded.
[7]
x x x (Citations omitted)

On January 28, 2002, the respondent filed before the RTC a complaint[8] for
rescission of contract against the petitioner. In the said complaint, the respondent
sought the return of P185,000.00 which he paid to the petitioner, payment of
interests thereon to be computed from March 27, 1998 until the suit's termination,
and the award of damages, costs and P20,000.00 attorney's fees. The respondent's
factual allegations were as follows:
5. That as could be gleaned the Agreement (Annex A), the plaintiff
[Mangaoil] handed to the defendant [Villamar] the sum of [P]185,000.00 to be
applied as follows;[P]80,000 was for the redemption of the land which was
mortgaged to the Rural Bank of Cauayan, San Manuel Branch, San Manuel,
Isabela, to enable the plaintiff to get hold of the title and register the sale x x
x and [P]105,000.00 was for the redemption of the said land from private
mortgages to enable plaintiff to posses[s] and cultivate the same;
6. That although the defendant had already long redeemed the said land
from the said bank and withdrawn TCT No. T-92958-A, she has failed and
refused, despite repeated demands, to hand over the said title to the plaintiff and
still refuses and fails to do so;

7. That, also, the plaintiff could not physically, actually and materially
posses[s] and cultivate the said land because the private mortgage[e]s and/or
present possessors refuse to vacate the same;
xxxx
11. That on September 18, 1998, the plaintiff sent a letter to the defendant
demanding a return of the amount so advanced by him, but the latter ignored the
same, x x x;
12. That, again, on April 29, 1999, the plaintiff sent to the defendant
another demand letter but the latter likewise ignored the same, x x x;
13. That, finally, the plaintiff notified the defendant by a notarial act of his
desire and intention to rescind the said contract of sale, xxx;
x x x x.[9] (Citations omitted)

In the respondents answer to the complaint, she averred that she had complied with
her obligations to the respondent. Specifically, she claimed having caused the
release of TCT No. T-92958-A by the Rural Bank of Cauayan and its delivery to a
certain Atty. Pedro C. Antonio (Atty. Antonio). The petitioner alleged that Atty.
Antonio was commissioned to facilitate the transfer of the said title in the
respondent's name. The petitioner likewise insisted that it was the respondent who
unceremoniously withdrew from their agreement for reasons only the latter knew.
The Ruling of the RTC
On September 9, 2005, the RTC ordered the rescission of the agreement and the
deed of absolute sale executed between the respondent and the petitioner. The
petitioner was, thus directed to return to the respondent the sum of P185,000.00
which the latter tendered as initial payment for the purchase of the subject
property. The RTC ratiocinated that:
There is no dispute that the defendant sold the LAND to the plaintiff
for [P]630,000.00 with down payment of [P]185,000.00. There is no evidence
presented if there were any other partial payments made after the perfection of the
contract of sale.
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 therefore a
price certain in money or its equivalent.
As such, in a contract of sale, the obligation of the vendee to pay the price is
correlative of the obligation of the vendor to deliver the thing sold. It created or
established at the same time, out of the same course, and which result in mutual
relations of creditor and debtor between the parties.
The claim of the plaintiff that the LAND has not been delivered to him was not
refuted by the defendant. Considering that defendant failed to deliver to him the
certificate of title and of the possession over the LAND to the plaintiff, the
contract must be rescinded pursuant to Article 1191 of the Civil Code which, in
part, provides:
Art. 1191. The power of rescind obligations is implied in
reciprocal ones in case one of the obligors should not comply
with what is incumbent upon him.[10]

The petitioner filed before the CA an appeal to challenge the foregoing. She
ascribed error on the part of the RTC when the latter ruled that the agreement and
deed of sale executed by and between the parties can be rescinded as she failed to
deliver to the respondent both the subject property and the certificate of title
covering the same.
The Ruling of the CA
On February 20, 2009, the CA rendered the now assailed decision dismissing the
petitioners appeal based on the following grounds:
Burden of proof is the duty of a party to prove the truth of his claim or defense,
or any fact in issue necessary to establish his claim or defense by the amount of
evidence required by law. In civil cases, the burden of proof is on the defendant
if he alleges, in his answer, an affirmative defense, which is not a denial of an
essential ingredient in the plaintiff's cause of action, but is one which, if
established, will be a good defense i.e., an avoidance of the claim, which prima
facie, the plaintiff already has because of the defendant's own admissions in the
pleadings.
Defendant-appellant Villamar's defense in this case was an affirmative defense.
She did not deny plaintiff-appellees allegation that she had an agreement with
plaintiff-appellee for the sale of the subject parcel of land. Neither did she deny

that she was obliged under the contract to deliver the certificate of title to
plaintiff-appellee immediately after said title/property was redeemed from the
bank. What she rather claims is that she already complied with her obligation
to deliver the title to plaintiff-appellee when she delivered the same to Atty.
Antonio as it was plaintiff-appellee himself who engaged the services of said
lawyer to precisely work for the immediate transfer of said title in his name.
Since, however, this affirmative defense as alleged in defendant-appellant's
answer was not admitted by plaintiff-appellee, it then follows that it behooved
the defendant-appellant to prove her averments by preponderance of evidence.
Yet, a careful perusal of the record shows that the defendant-appellant failed to
sufficiently prove said affirmative defense. She failed to prove that in the first
place, Atty. Antonio existed to receive the title for and in behalf of plaintiffappellee. Worse, the defendant-appellant failed to prove that Atty. Antonio
received said title as allegedlyagreed upon.
We likewise sustain the RTC's finding that defendant-appellant V[i]llamar failed
to deliver possession of the subject property to plaintiff-appellee Mangaoil. As
correctly observed by the RTC - [t]he claim of the plaintiff that the land has not
been delivered to him was not refuted by the defendant. Not only that. On crossexamination, the defendant-appellant gave Us insight on why no such delivery
could be made, viz.:
xxxx
Q: So, you were not able to deliver this property to Mr.
Mangaoil just after you redeem the property because of the
presence of these two (2) persons, is it not?
xxx
A: Yes, sir.
Q: Forcing you to file the case against them and which according
to you, you have won, is it not?
A: Yes, sir.
Q: And now at present[,] you are in actual possession of the
land?
A: Yes, sir. x x x
With the foregoing judicial admission, the RTC could not have erred in finding
that defendant-[appellant] failed to deliver the possession of the property sold, to
plaintiff-appellee.

Neither can We agree with defendant-appellant in her argument that the execution
of the Deed of Absolute Sale by the parties is already equivalent to a valid and
constructive delivery of the property to plaintiff-appellee. Not only is it
doctrinally settled that in a contract of sale, the vendor is bound to transfer the
ownership of, and to deliver the thing that is the object of the sale, the way
Article 1547 of the Civil Code is worded, viz.:
Art. 1547. In a contract of sale, unless a contrary intention appears,
there is:
(1) An implied warranty on the part of the seller that he has a
right to sell the thing at the time when the ownership is to pass,
and that the buyer shall from that time have and enjoy the legal
and peaceful possession of the thing;
(2) An implied warranty that the thing shall be free from any
hidden defaults or defects, or any change or encumbrance not
declared or known to the buyer.
x x x.
shows that actual, and not mere constructive delivery is warrantied by the seller
to the buyer. (P)eaceful possession of the thing sold can hardly be enjoyed in a
mere constructive delivery.
The obligation of defendant-appellant Villamar to transfer ownership and deliver
possession of the subject parcel of land was her correlative obligation to plaintiffappellee in exchange for the latter's purchase price thereof. Thus, if she fails to
comply with what is incumbent upon her, a correlative right to rescind such
contract from plaintiff-appellee arises, pursuant to Article 1191 of the Civil Code.
[11]
x x x (Citations omitted)

The Issues
Aggrieved, the petitioner filed before us the instant petition and submits the
following issues for resolution:
I.
WHETHER THE FAILURE
CERTIFICATE OF TITLE
BUYER IS A BREACH OF
REAL PROPERTY THAT
CONTRACT;

OF PETITIONER-SELLER TO DELIVER THE

OVER THE PROPERTY TO RESPONDENTOBLIGATION IN A CONTRACT OF SALE OF
WOULD WARRANT RESCISSION OF THE

II.
WHETHER PETITIONER IS LIABLE FOR BREACH OF OBLIGATION IN A
CONTRACT OF SALE FOR FAILURE OF RESPONDENT[-]BUYER TO
IMMEDIATELY TAKE ACTUAL POSSESSION OF THE PROPERTY
NOTWITHSTANDING THE ABSENCE OF ANY STIPULATION IN THE
CONTRACT PROVIDING FOR THE SAME;
III.
WHETHER THE EXECUTION OF A DEED OF SALE OF REAL PROPERTY
IN THE PRESENT CASE IS ALREADY EQUIVALENT TO A VALID AND
CONSTRUCTIVE DELIVERY OF THE PROPERTY TO THE BUYER;
IV.
WHETHER OR NOT THE CONTRACT OF SALE SUBJECT MATTER OF
THIS CASE SHOULD BE RESCINDED ON SLIGHT OR CASUAL BREACH;
V.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN AFFIRMING
THE DECISION OF THE RTC ORDERING THE RESCISSION OF THE
CONTRACT OFSALE[.][12]

The Petitioner's Arguments

The petitioner avers that the CA, in ordering the rescission of the agreement and
deed of sale, which she entered into with the respondent, on the basis of her alleged
failure to deliver the certificate of title, effectively imposed upon her an extra duty
which was neither stipulated in the contract nor required by law. She argues that
under Articles 1495[13] and 1496[14] of the New Civil Code (NCC), the obligation to
deliver the thing sold is complied with by a seller who executes in favor of a buyer
an instrument of sale in a public document. Citing Chua v. Court of Appeals,[15] she
claims that there is a distinction between transferring a certificate of title in the
buyer's name, on one hand, and transferring ownership over the property sold, on
the other. The latter can be accomplished by the seller's execution of an instrument
of sale in a public document. The recording of the sale with the Registry of Deeds
and the transfer of the certificate of title in the buyer's name are necessary only to
bind third parties to the transfer of ownership.[16]

The petitioner contends that in her case, she had already complied with her
obligations under the agreement and the law when she had caused the release of
TCT No. T-92958-A from the Rural Bank of Cauayan, paid individual mortgagees
Romeo Lacaden (Lacaden) and Florante Parangan (Paranga), and executed an
absolute deed of sale in the respondent's favor. She adds that before T-92958-A can
be cancelled and a new one be issued in the respondent's favor, the latter decided to
withdraw from their agreement. She also points out that in the letters seeking for an
outright rescission of their agreement sent to her by the respondent, not once did he
demand for the delivery of TCT.
The petitioner insists that the respondent's change of heart was due to (1) the
latter's realization of the difficulty in determining the subject property's perimeter
boundary; (2) his doubt that the property he purchased would yield harvests in the
amount he expected; and (3) the presence of mortgagees who were not willing to
give up possession without first being paid the amounts due to them. The petitioner
contends that the actual reasons for the respondent's intent to rescind their
agreement did not at all constitute a substantial breach of her obligations.
The petitioner stresses that under Article 1498 of the NCC, when a sale is made
through a public instrument, its execution is equivalent to the delivery of the thing
which is the contract's object, unless in the deed, the contrary appears or can be
inferred. Further, in Power Commercial and Industrial Corporation v. CA,[17] it was
ruled that the failure of a seller to eject lessees from the property he sold and to
deliver actual and physical possession, cannot be considered a substantial breach,
when such failure was not stipulated as a resolutory or suspensive condition in the
contract and when the effects and consequences of the said failure were not
specified as well. The execution of a deed of sale operates as a formal or symbolic
delivery of the property sold and it already authorizes the buyer to use the
instrument as proof of ownership.[18]
The petitioner argues that in the case at bar, the agreement and the absolute deed of
sale contains no stipulation that she was obliged to actually and physically deliver
the subject property to the respondent. The respondent fully knew Lacaden's and
Parangan's possession of the subject property. When they agreed on the sale of the
property, the respondent consciously assumed the risk of not being able to take

immediate physical possession on account of Lacaden's and Parangan's presence

therein.
The petitioner likewise laments that the CA allegedly misappreciated the evidence
offered before it when it declared that she failed to prove the existence of Atty.
Antonio. For the record, she emphasizes that the said lawyer prepared and
notarized the agreement and deed of absolute sale which were executed between
the parties. He was also the petitioners counsel in the proceedings before the RTC.
Atty. Antonio was also the one asked by the respondent to cease the transfer of the
title over the subject property in the latter's name and to return the money he paid
in advance.
The Respondent's Contentions
In the respondent's comment,[19] he seeks the dismissal of the instant petition. He
invokes Articles 1191 and 1458 to argue that when a seller fails to transfer the
ownership and possession of a property sold, the buyer is entitled to rescind the
contract of sale. Further, he contends that the execution of a deed of absolute sale
does not necessarily amount to a valid and constructive delivery. In Masallo v.
Cesar,[20] it was ruled that a person who does not have actual possession of real
property cannot transfer constructive possession by the execution and delivery of a
public document by which the title to the land is transferred. In Addison v. Felix
and Tioco,[21] the Court was emphatic that symbolic delivery by the execution of a
public instrument is equivalent to actual delivery only when the thing sold is
subject to the control of the vendor.
Our Ruling
The instant petition is bereft of merit.
There is only a single issue for resolution in the instant petition, to wit, whether or
not the failure of the petitioner to deliver to the respondent both the physical
possession of the subject property and the certificate of title covering the same
amount to a substantial breach of the former's obligations to the latter constituting a
valid cause to rescind the agreement and deed of sale entered into by the parties.
We rule in the affirmative.

The RTC and the CA both found that the petitioner failed to comply with her
obligations to deliver to the respondent both the possession of the subject property
and the certificate of title covering the same.
Although Articles 1458, 1495 and 1498 of
the NCC and case law do not generally
require the seller to deliver to the buyer
the physical possession of the property
subject of a contract of sale and the
certificate of title covering the same, the
agreement entered into by the petitioner
and the respondent provides otherwise.
However, the terms of the agreement
cannot be considered as violative of law,
morals, good customs, public order, or
public policy, hence, valid.
Article 1458 of the NCC obliges the seller to transfer the ownership of and to
deliver a determinate thing to the buyer, who shall in turn pay therefor a price
certain in money or its equivalent. In addition thereto, Article 1495 of the NCC
binds the seller to warrant the thing which is the object of the sale. On the other
hand, Article 1498 of the same code provides that when the sale is made through a
public instrument, the execution thereof shall be equivalent to the delivery of the
thing which is the object of the contract, if from the deed, the contrary does not
appear or cannot clearly be inferred.
In the case of Chua v. Court of Appeals,[22] which was cited by the petitioner, it was
ruled that when the deed of absolute sale is signed by the parties and notarized,
then delivery of the real property is deemed made by the seller to the buyer.[23] The
transfer of the certificate of title in the name of the buyer is not necessary to confer
ownership upon him.
In the case now under our consideration, item nos. 2 and 3 of the agreement
entered into by the petitioner and the respondent explicitly provide:
2. ONE HUNDRED EIGHTY FIVE THOUSAND (P185,000.00) PESOS of the
total price was already received on March 27, 1998 for payment of the loan

secured by the certificate of title covering the land in favor of the Rural Bank of
Cauayan, San Manuel Branch, San Manuel, Isabela, in order that the certificate of
title thereof be withdrawn and released from the said bank, and the rest shall be
for the payment of the mortgages in favor of Romeo Lacaden and Florante
Parangan;

3. After the release of the certificate of title covering the land subject-matter of
this agreement, the necessary deed of absolute sale in favor of the PARTY OF
THE SECOND PART shall be executed and the transfer be immediately effected
so that the latter can apply for a loan from any lending institution using the
corresponding certificate of title as collateral therefor, and the proceeds of the
loan, whatever be the amount, be given to the PARTY OF THE FIRST PART;
[24]
(underlining supplied)

As can be gleaned from the agreement of the contending parties, the respondent
initially paid the petitioner P185,000.00 for the latter to pay the loan obtained from
the Rural Bank of Cauayan and to cause the release from the said bank of the
certificate of title covering the subject property. The rest of the amount shall be
used to pay the mortgages over the subject property which was executed in favor
of Lacaden and Parangan. After the release of the TCT, a deed of sale shall be
executed and transfer shall be immediately effected so that the title covering the
subject property can be used as a collateral for a loan the respondent will apply for,
the proceeds of which shall be given to the petitioner.
Under Article 1306 of the NCC, 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.
While Articles 1458 and 1495 of the NCC and the doctrine enunciated in the case
of Chua do not impose upon the petitioner the obligation to physically deliver to
the respondent the certificate of title covering the subject property or cause the
transfer in the latter's name of the said title, a stipulation requiring otherwise is not
prohibited by law and cannot be regarded as violative of morals, good customs,
public order or public policy. Item no. 3 of the agreement executed by the parties
expressly states that transfer [shall] be immediately effected so that the latter can
apply for a loan from any lending institution using the corresponding certificate of
title as collateral therefore. Item no. 3 is literal enough to mean that there should be
physical delivery of the TCT for how else can the respondent use it as a collateral

to obtain a loan if the title remains in the petitioners possession. We agree with the
RTC and the CA that the petitioner failed to prove that she delivered the TCT
covering the subject property to the respondent. What the petitioner attempted to
establish was that she gave the TCT to Atty. Antonio whom she alleged was
commissioned to effect the transfer of the title in the respondent's name. Although
Atty. Antonio's existence is certain as he was the petitioners counsel in the
proceedings before the RTC, there was no proof that the former indeed received
the TCT or that he was commissioned to process the transfer of the title in the
respondent's name.
It is likewise the petitioners contention that pursuant to Article 1498 of the NCC,
she had already complied with her obligation to deliver the subject property upon
her execution of an absolute deed of sale in the respondents favor. The petitioner
avers that she did not undertake to eject the mortgagors Parangan and Lacaden,
whose presence in the premises of the subject property was known to the
respondent.
We are not persuaded.
In the case of Power Commercial and Industrial Corporation[25] cited by the
petitioner, the Court ruled that the failure of the seller to eject the squatters from
the property sold cannot be made a ground for rescission if the said ejectment was
not stipulated as a condition in the contract of sale, and when in the negotiation
stage, the buyer's counsel himself undertook to eject the illegal settlers.
The circumstances surrounding the case now under our consideration are different.
In item no. 2 of the agreement, it is stated that part of the P185,000.00 initially paid
to the petitioner shall be used to pay the mortgagors, Parangan and Lacaden. While
the provision does not expressly impose upon the petitioner the obligation to eject
the said mortgagors, the undertaking is necessarily implied. Cessation of
occupancy of the subject property is logically expected from the mortgagors upon
payment by the petitioner of the amounts due to them.
We note that in the demand letter[26] dated September 18, 1998, which was sent by
the respondent to the petitioner, the former lamented that the area is not yet fully
cleared of incumbrances as there are tenants who are not willing to vacate the land

without giving them back the amount that they mortgaged the land. Further, in the
proceedings before the RTC conducted after the complaint for rescission was filed,
the petitioner herself testified that she won the ejectment suit against the
mortgagors only last year.[27] The complaint was filed on September 8, 2002 or
more than four years from the execution of the parties' agreement. This means that
after the lapse of a considerable period of time from the agreement's execution, the
mortgagors remained in possession of the subject property.
Notwithstanding
the
absence
of stipulations in the agreement and
absolute deed of sale entered into by
Villamar
and
Mangaoil
expressly
indicating the consequences of the
former's failure to deliver the physical
possession of the subject property and the
certificate of title covering the same, the
latter is entitled to demand for the
rescission of their contractpursuant to
Article 1191 of the NCC.
We note that the agreement entered into by the petitioner and the respondent only
contains three items specifying the parties' undertakings. In item no. 5, the parties
consented to abide with all the terms and conditions set forth in this agreement and
never violate the same.[28]
Article 1191 of the NCC is clear that the power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him. The respondent cannot be deprived of his right to demand for
rescission in view of the petitioners failure to abide with item nos. 2 and 3 of the
agreement. This remains true notwithstanding the absence of express stipulations
in the agreement indicating the consequences of breaches which the parties may
commit. To hold otherwise would render Article 1191 of the NCC as useless.
Article 1498 of the NCC generally
considers the execution of a public
instrument as constructive delivery by the
seller to the buyer of the property subject

of a contract of sale. The case at bar,

however, falls among the exceptions to the
foregoing rule since a mere presumptive
and not conclusive delivery is created as
the respondent failed to take material
possession of the subject property.
Further, even if we were to assume for argument's sake that the agreement entered
into by the contending parties does not require the delivery of the physical
possession of the subject property from the mortgagors to the respondent, still, the
petitioner's claim that her execution of an absolute deed of sale was already
sufficient as it already amounted to a constructive delivery of the thing sold which
Article 1498 of the NCC allows, cannot stand.
In Philippine Suburban Development Corporation v. The Auditor General,[29] we
held:
When the sale of real property is made in a public instrument, the execution
thereof is equivalent to the delivery of the thing object of the contract, if from the
deed the contrary does not appear or cannot clearly be inferred.
In other words, there is symbolic delivery of the property subject of the sale by
the execution of the public instrument, unless from the express terms of the
instrument, or by clear inference therefrom, this was not the intention of the
parties. Such would be the case, for instance, x x x where the vendor has no
control over the thing sold at the moment of the sale, and, therefore, its material
delivery could not have been made.[30] (Underlining supplied and citations
omitted)

Stated differently, as a general rule, the execution of a public instrument amounts

to a constructive delivery of the thing subject of a contract of sale. However,
exceptions exist, among which is when mere presumptive and not conclusive
delivery is created in cases where the buyer fails to take material possession of the
subject of sale. A person who does not have actual possession of the thing sold
cannot transfer constructive possession by the execution and delivery of a public
instrument.

In the case at bar, the RTC and the CA found that the petitioner failed to deliver to
the respondent the possession of the subject property due to the continued presence
and occupation of Parangan and Lacaden. We find no ample reason to reverse the
said findings. Considered in the light of either the agreement entered into by the
parties or the pertinent provisions of law, the petitioner failed in her undertaking to
deliver the subject property to the respondent.
IN VIEW OF THE FOREGOING, the instant petition is DENIED. The
February 20, 2009 Decision and July 8, 2009 Resolution of the Court of Appeals,
directing the rescission of the agreement and absolute deed of sale entered into by
Estelita Villamar and Balbino Mangaoil and the return of the down payment made
for the purchase of the subject property, are AFFIRMED. However, pursuant to
our ruling in Eastern Shipping Lines, Inc. v. CA,[31] an interest of 12% per
annum is imposed on the sum of P185,000.00 to be returned to Mangaoil to be
computed from the date of finality of this Decision until full satisfaction thereof.
SO ORDERED.
BIENVENIDO L. REYES
Associate Justice
WE CONCUR:

ANTONIO T. CARPIO
Associate Justice

ARTURO D. BRION
Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

AT T E S TAT I O N
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson's Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

RENATO C. CORONA
Chief Justice

[1]

Rollo, pp. 26-77.

Penned by Associate Justice Vicente S.E. Veloso, with Associate Justices Edgardo P. Cruz and Ricardo R. Rosario,
concurring; id. at 11-22.
[3]
Id. at 22.
[4]
Id. at 24.
[5]
Id. at 102-107.
[6]
Id. at 98-100.
[7]
Id. at 12-14.
[8]
Supra note 6.
[9]
Id. at 98-99.
[10]
Rollo, pp. 106-107.
[11]
Id. at 17-21.
[12]
Id. at 40.
[2]

[13]

Art. 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the
object of the sale.
[14]
Art. 1496. The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in
any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the
possession is transferred from the vendor to the vendee.
[15]
449 Phil. 25 (2003).
[16]
Id. at 50.
[17]
340 Phil. 705 (1997).
[18]
Id. at 715.
[19]
Rollo, pp. 121-123.
[20]
39 Phil. 134 (1918).
[21]
38 Phil. 404 (1918).
[22]
Supra note 15.
[23]
Id. at 47.
[24]
Rollo, p. 108.
[25]
Supra note 17.
[26]
Rollo, p. 111.
[27]
Id. at 19.
[28]
Supra note 24.
[29]
159 Phil. 998 (1975).
[30]
Id. at 1007-1008. also see Addison v. Felix and Tioco, supra note 19; Masallo v. Cesar, supra note 18; Leonardo v.
Maravilla, 441 Phil. 409 (2002); Asset Privatization Trust v. T.J. Enterprises, G.R. No. 167195, May 8, 2009, 587
SCRA 481.
[31]
G.R. No. 97412, July 12, 1994, 234 SCRA 78.

SECOND DIVISION
POLO S. PANTALEON, G.R. No. 174269
Petitioner,
Present:
CARPIO MORALES, J.,*
Acting Chairperson,
- versus - TINGA,
VELASCO,
LEONARDO-DE CASTRO,** and
BRION, JJ.
AMERICAN EXPRESS
INTERNATIONAL, INC., Promulgated:
Respondent.
May 8, 2009
x---------------------------------------------------------------------------x

DECISION
TINGA, J.:
The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina
and son Adrian Roberto, joined an escorted tour of Western Europe organized by
Trafalgar Tours of Europe, Ltd., in October of 1991. The tour group arrived
in Amsterdam in the afternoon of 25 October 1991, the second to the last day of
the tour. As the group had arrived late in the city, they failed to engage in any sightseeing. Instead, it was agreed upon that they would start early the next day to see
the entire city before ending the tour.
The following day, the last day of the tour, the group arrived at the Coster
Diamond House in Amsterdam around 10 minutes before 9:00 a.m. The group had
agreed that the visit to Coster should end by 9:30 a.m. to allow enough time to take
in a guided city tour of Amsterdam. The group was ushered into Coster shortly
before 9:00 a.m., and listened to a lecture on the art of diamond polishing that
lasted for around ten minutes.[1] Afterwards, the group was led to the stores
showroom to allow them to select items for purchase. Mrs. Pantaleon had already
planned to purchase even before the tour began a 2.5 karat diamond brilliant cut,
and she found a diamond close enough in approximation that she decided to buy.
[2]
Mrs. Pantaleon also selected for purchase a pendant and a chain,[3] all of which
totaled U.S. $13,826.00.
To pay for these purchases, Pantaleon presented his American Express credit
card together with his passport to the Coster sales clerk. This occurred at
around9:15 a.m., or 15 minutes before the tour group was slated to depart from the
store. The sales clerk took the cards imprint, and asked Pantaleon to sign the
charge slip. The charge purchase was then referred electronically to
respondents Amsterdam office at 9:20 a.m.

Ten minutes later, the store clerk informed Pantaleon that his AmexCard had
not yet been approved. His son, who had already boarded the tour bus, soon
returned to Coster and informed the other members of the Pantaleon family that the
entire tour group was waiting for them. As it was already 9:40 a.m., and he was
already worried about further inconveniencing the tour group, Pantaleon asked the
store clerk to cancel the sale. The store manager though asked plaintiff to wait a
few more minutes. After 15 minutes, the store manager informed Pantaleon that
respondent had demanded bank references. Pantaleon supplied the names of his
depositary banks, then instructed his daughter to return to the bus and apologize to
the tour group for the delay.
At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his
AmexCard, and 30 minutes after the tour group was supposed to have left the
store, Coster decided to release the items even without respondents approval of the
purchase. The spouses Pantaleon returned to the bus. It is alleged that their offers
of apology were met by their tourmates with stony silence. [4] The tour groups
visible irritation was aggravated when the tour guide announced that the city tour
ofAmsterdam was to be canceled due to lack of remaining time, as they had to
catch a 3:00 p.m. ferry at Calais, Belgium to London.[5] Mrs. Pantaleon ended up
weeping, while her husband had to take a tranquilizer to calm his nerves.

It later emerged that Pantaleons purchase was first transmitted for approval
to respondents Amsterdam office at 9:20 a.m., Amsterdam time, then referred to
respondents Manila office at 9:33 a.m, then finally approved at 10:19
a.m., Amsterdam time.[6] The Approval Code was transmitted to respondents
Amsterdam office at 10:38 a.m., several minutes after petitioner had already left
Coster, and 78 minutes from the time the purchases were electronically transmitted
by the jewelry store to respondents Amsterdam office.
After the star-crossed tour had ended, the Pantaleon family proceeded to the United
States before returning to Manila on 12 November 1992. While in the United
States, Pantaleon continued to use his AmEx card, several times without hassle or
delay, but with two other incidents similar to the Amsterdam brouhaha. On 30

October 1991, Pantaleon purchased golf equipment amounting to US $1,475.00

using his AmEx card, but he cancelled his credit card purchase and borrowed
money instead from a friend, after more than 30 minutes had transpired without the
purchase having been approved. On 3 November 1991, Pantaleon used the card to
purchase childrens shoes worth $87.00 at a store in Boston, and it took 20 minutes
before this transaction was approved by respondent.
On 4 March 1992, after coming back to Manila, Pantaleon sent a letter[7] through
counsel to the respondent, demanding an apology for the inconvenience,
humiliation and embarrassment he and his family thereby suffered for respondents
refusal to provide credit authorization for the aforementioned purchases. [8] In
response, respondent sent a letter dated 24 March 1992,[9] stating among others that
the delay in authorizing the purchase from Coster was attributable to the
circumstance that the charged purchase of US $13,826.00 was out of the usual
charge purchase pattern established.[10] Since respondent refused to accede to
Pantaleons demand for an apology, the aggrieved cardholder instituted an action
for damages with the Regional Trial Court (RTC) of Makati City, Branch 145.
[11]
Pantaleon prayed that he be awarded P2,000,000.00, as moral
damages; P500,000.00, as exemplary damages; P100,000.00, as attorneys fees;
and P50,000.00 as litigation expenses.[12]
On 5 August 1996, the Makati City RTC rendered a decision [13] in favor of
Pantaleon, awarding him P500,000.00 as moral damages, P300,000.00 as
exemplary damages, P100,000.00 as attorneys fees, and P85,233.01 as expenses of
litigation. Respondent filed a Notice of Appeal, while Pantaleon moved for partial
reconsideration, praying that the trial court award the increased amount of moral
and exemplary damages he had prayed for.[14] The RTC denied Pantaleons motion
for partial reconsideration, and thereafter gave due course to respondents Notice of
Appeal.[15]
On 18 August 2006, the Court of Appeals rendered a decision [16] reversing the
award of damages in favor of Pantaleon, holding that respondent had not breached
its obligations to petitioner. Hence, this petition.
The key question is whether respondent, in connection with the aforementioned
transactions, had committed a breach of its obligations to Pantaleon. In addition,

Pantaleon submits that even assuming that respondent had not been in breach of its
obligations, it still remained liable for damages under Article 21 of the Civil Code.
The RTC had concluded, based on the testimonial representations of Pantaleon and
respondents credit authorizer, Edgardo Jaurigue, that the normal approval time for
purchases was a matter of seconds. Based on that standard, respondent had been in
clear delay with respect to the three subject transactions. As it appears, the Court of
Appeals conceded that there had been delay on the part of respondent in approving
the purchases. However, it made two critical conclusions in favor of respondent.
First, the appellate court ruled that the delay was not attended by bad faith, malice,
or gross negligence. Second, it ruled that respondent had exercised diligent efforts
to effect the approval of the purchases, which were not in accordance with the
charge pattern petitioner had established for himself, as exemplified by the fact that
at Coster, he was making his very first single charge purchase of US$13,826, and
the record of [petitioner]s past spending with [respondent] at the time does not
favorably support his ability to pay for such purchase.[17]
On the premise that there was an obligation on the part of respondent to approve or
disapprove with dispatch the charge purchase, petitioner argues that the failure to
timely approve or disapprove the purchase constituted mora solvendi on the part of
respondent in the performance of its obligation. For its part, respondent
characterizes the depiction by petitioner of its obligation to him as to approve
purchases instantaneously or in a matter of seconds.
Petitioner correctly cites that under mora solvendi, the three requisites for a
finding of default are that the obligation is demandable and liquidated; the debtor
delays performance; and the creditor judicially or extrajudicially requires the
debtors performance.[18] Petitioner asserts that the Court of Appeals had wrongly
applied the principle of mora accipiendi, which relates to delay on the part of the
obligee in accepting the performance of the obligation by the obligor. The
requisites of mora accipiendi are: an offer of performance by the debtor who has
the required capacity; the offer must be to comply with the prestation as it should
be performed; and the creditor refuses the performance without just cause. [19] The
error of the appellate court, argues petitioner, is in relying on the invocation by
respondent of just cause for the delay, since while just cause is determinative
of mora accipiendi, it is not so with the case of mora solvendi.

We can see the possible source of confusion as to which type of mora to

appreciate. Generally, the relationship between a credit card provider and its card
holders is that of creditor-debtor,[20] with the card company as the creditor
extending loans and credit to the card holder, who as debtor is obliged to repay the
creditor. This relationship already takes exception to the general rule that as
between a bank and its depositors, the bank is deemed as the debtor while the
depositor is considered as the creditor.[21] Petitioner is asking us, not baselessly, to
again shift perspectives and again see the credit card company as the
debtor/obligor, insofar as it has the obligation to the customer as creditor/obligee to
act promptly on its purchases on credit.
Ultimately, petitioners perspective appears more sensible than if we were to
still regard respondent as the creditor in the context of this cause of action. If there
was delay on the part of respondent in its normal role as creditor to the cardholder,
such delay would not have been in the acceptance of the performance of the
debtors obligation (i.e., the repayment of the debt), but it would be delay in the
extension of the credit in the first place. Such delay would not fall under mora
accipiendi, which contemplates that the obligation of the debtor, such as the actual
purchases on credit, has already been constituted. Herein, the establishment of the
debt itself (purchases on credit of the jewelry) had not yet been perfected, as it
remained pending the approval or consent of the respondent credit card company.
Still, in order for us to appreciate that respondent was in mora solvendi, we
will have to first recognize that there was indeed an obligation on the part of
respondent to act on petitioners purchases with timely dispatch, or for the purposes
of this case, within a period significantly less than the one hour it apparently took
before the purchase at Coster was finally approved.
The findings of the trial court, to our mind, amply established that the
tardiness on the part of respondent in acting on petitioners purchase at Coster did
constitute culpable delay on its part in complying with its obligation to act
promptly on its customers purchase request, whether such action be favorable or
unfavorable. We quote the trial court, thus:

As to the first issue, both parties have testified that normal approval time
for purchases was a matter of seconds.
Plaintiff testified that his personal experience with the use of the card was
that except for the three charge purchases subject of this case, approvals of his
charge purchases were always obtained in a matter of seconds.
Defendants credit authorizer Edgardo Jaurique likewise testified:
Q. You also testified that on normal occasions, the normal
approval time for charges would be 3 to 4 seconds?
A. Yes, Maam.
Both parties likewise presented evidence that the processing and approval
of plaintiffs charge purchase at the Coster Diamond House was way beyond the
normal approval time of a matter of seconds.
Plaintiff testified that he presented his AmexCard to the sales clerk at
Coster, at 9:15 a.m. and by the time he had to leave the store at 10:05 a.m., no
approval had yet been received. In fact, the Credit Authorization System (CAS)
record of defendant at Phoenix Amex shows that defendants Amsterdam office
received the request to approve plaintiffs charge purchase at 9:20 a.m.,
Amsterdam time or 01:20, Phoenix time, and that the defendant relayed its
approval to Coster at 10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a
total time lapse of one hour and [18] minutes. And even then, the approval was
conditional as it directed in computerese [sic] Positive Identification of Card
holder necessary further charges require bank information due to high exposure.
By Jack Manila.
The delay in the processing is apparent to be undue as shown from the
frantic successive queries of Amexco Amsterdam which reads: US$13,826.
Cardmember buying jewels. ID seen. Advise how long will this take? They were
sent at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:08, all times Phoenix. Manila
Amexco could be unaware of the need for speed in resolving the charge purchase
referred to it, yet it sat on its hand, unconcerned.
xxx
To repeat, the Credit Authorization System (CAS) record on
the Amsterdam transaction shows how Amexco Netherlands viewed the delay as
unusually frustrating. In sequence expressed in Phoenix time from 01:20 when the
charge purchased was referred for authorization, defendants own record shows:
01:22 the authorization is referred to Manila Amexco

01:32 Netherlands gives information that the identification of

the cardmember has been presented and he is buying
jewelries worth US $13,826.
01:33 Netherlands asks How long will this take?
02:08 Netherlands is still asking How long will this take?
The Court is convinced that defendants delay constitute[s] breach of its
contractual obligation to act on his use of the card abroad with special handling.
[22]
(Citations omitted)
xxx

Notwithstanding the popular notion that credit card purchases are approved
within seconds, there really is no strict, legally determinative point of
demarcation on how long must it take for a credit card company to approve or
disapprove a customers purchase, much less one specifically contracted upon by
the parties. Yet this is one of those instances when youd know it when youd see it,
and one hour appears to be an awfully long, patently unreasonable length of time to
approve or disapprove a credit card purchase. It is long enough time for the
customer to walk to a bank a kilometer away, withdraw money over the counter,
and return to the store.
Notably, petitioner frames the obligation of respondent as to approve or
disapprove the purchase in timely dispatch, and not to approve the purchase
instantaneously or within seconds. Certainly, had respondent disapproved
petitioners purchase within seconds or within a timely manner, this particular
action would have never seen the light of day. Petitioner and his family would have
returned to the bus without delay internally humiliated perhaps over the rejection
of his card yet spared the shame of being held accountable by newly-made friends
for making them miss the chance to tour the city of Amsterdam.
We do not wish do dispute that respondent has the right, if not the
obligation, to verify whether the credit it is extending upon on a particular
purchase was indeed contracted by the cardholder, and that the cardholder is within
his means to make such transaction. The culpable failure of respondent herein is
not the failure to timely approve petitioners purchase, but the more elemental
failure to timely act on the same, whether favorably or unfavorably. Even assuming

that respondents credit authorizers did not have sufficient basis on hand to make a
judgment, we see no reason why respondent could not have promptly informed
petitioner the reason for the delay, and duly advised him that resolving the same
could take some time. In that way, petitioner would have had informed basis on
whether or not to pursue the transaction at Coster, given the attending
circumstances. Instead, petitioner was left uncomfortably dangling in the chilly
autumn winds in a foreign land and soon forced to confront the wrath of foreign
folk.
Moral damages avail in cases of breach of contract where the defendant
acted fraudulently or in bad faith, and the court should find that under the
circumstances, such damages are due. The findings of the trial court are ample in
establishing the bad faith and unjustified neglect of respondent, attributable in
particular to the dilly-dallying of respondents Manila credit authorizer, Edgardo
Jaurique.[23] Wrote the trial court:
While it is true that the Cardmembership Agreement, which defendant
prepared, is silent as to the amount of time it should take defendant to grant
authorization for a charge purchase, defendant acknowledged that the normal time
for approval should only be three to four seconds. Specially so with cards used
abroad which requires special handling, meaning with priority. Otherwise, the
object of credit or charge cards would be lost; it would be so inconvenient to use
that buyers and consumers would be better off carrying bundles of currency or
travellers checks, which can be delivered and accepted quickly. Such right was
not accorded to plaintiff in the instances complained off for reasons known only
to defendant at that time. This, to the Courts mind, amounts to a wanton and
deliberate refusal to comply with its contractual obligations, or at least abuse of its
rights, under the contract.[24]
xxx
The delay committed by defendant was clearly attended by unjustified
neglect and bad faith, since it alleges to have consumed more than one hour to
simply go over plaintiffs past credit history with defendant, his payment record
and his credit and bank references, when all such data are already stored and
readily available from its computer. This Court also takes note of the fact that
there is nothing in plaintiffs billing history that would warrant the imprudent
suspension of action by defendant in processing the purchase. Defendants witness
Jaurique admits:
Q. But did you discover that he did not have any outstanding
account?

A. Nothing in arrears at that time.

Q. You were well aware of this fact on this very date?
A. Yes, sir.
Mr. Jaurique further testified that there were no delinquencies in plaintiffs
account.[25]

It should be emphasized that the reason why petitioner is entitled to damages

is not simply because respondent incurred delay, but because the delay, for which
culpability lies under Article 1170, led to the particular injuries under Article 2217
of the Civil Code for which moral damages are remunerative. [26] Moral damages do
not avail to soothe the plaints of the simply impatient, so this decision should not
be cause for relief for those who time the length of their credit card transactions
with a stopwatch. The somewhat unusual attending circumstances to the purchase
at Coster that there was a deadline for the completion of that purchase by petitioner
before any delay would redound to the injury of his several traveling companions
gave rise to the moral shock, mental anguish, serious anxiety, wounded feelings
and social humiliation sustained by the petitioner, as concluded by the RTC.
[27]
Those circumstances are fairly unusual, and should not give rise to a general
entitlement for damages under a more mundane set of facts.

We sustain the amount of moral damages awarded to petitioner by the

RTC. There is no hard-and-fast rule in determining what would be a fair and
reasonable amount of moral damages, since each case must be governed by its own
peculiar facts, however, it must be commensurate to the loss or injury suffered.
[28]
Petitioners original prayer for P5,000,000.00 for moral damages is excessive
under the circumstances, and the amount awarded by the trial court of P500,000.00
in moral damages more seemly.
Likewise, we deem exemplary damages available under the circumstances,
and the amount of P300,000.00 appropriate. There is similarly no cause though to

disturb the determined award of P100,000.00 as attorneys fees, and P85,233.01 as

expenses of litigation.
WHEREFORE, the petition is GRANTED. The assailed Decision of the
Court of Appeals is REVERSED and SET ASIDE. The Decision of the Regional
Trial Court of Makati, Branch 145 in Civil Case No. 92-1665 is hereby
REINSTATED. Costs against respondent.
SO ORDERED.
DANTE O. TINGA
Associate Justice

WE CONCUR:

CONCHITA CARPIO MORALES

Associate Justice
Acting Chairperson

PRESBITERO J. VELASCO, JR. TERESITA LEONARDO DE CASTRO

Associate Justice Associate Justice

ARTURO D. BRION
Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.
CONCHITA CARPIO MORALES
Associate Justice
Acting Chairperson, Second Division

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Acting Chairpersons Attestation, it is hereby certified that the conclusions in the
above Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

Acting Chairperson.

**

Per Special Order No. 619, Justice Teresita J. Leonardo-De Castro is hereby designated as additional
member of the Second Division in lieu of Justice Leonardo A. Quisumbing, who is on official leave
[1]
[2]

Id. at 747.
Id. at 748-749.

[3]

Id. at 750.

[4]

Id. at 20.

[5]

Id. at 20-21.

[6]

Id. at 21-22; citing defendants Exhibit 9-G, 9-H and 9-I.

[7]

Id. at 330-331.

[8]

Id. at 331.

[9]

Id. at 332-333.

[10]

[11]

Id. at 332.

Docketed as Civil Case No. 92-1665. Id. at 335-340.

[12]

Id. at 339.

[13]

Penned by Judge Francisco Donato Villanueva; id. at 92-110.

[14]

Id. at 348-351.

[15]

Id. at 360-362.

[16]

Decision penned by Court of Appeals Associate Justice E.J. Asuncion, , concurred by Associate Justices
J. Mendoza and A. Tayag.
[17]

Rollo, p. 80.

[18]

See, e.g., Selegna Management v. UCPB, G.R. No. 165662, 3 May 2006.

[19]

A. TOLENTINO, IV CIVIL CODE OF THE PHILIPPINES (1991 ed.), at 108.

[20]
See, e.g., Pacific Banking Corp. v. IAC, G.R. No. 72275, 13 November 1991, 203 SCRA 496; Molino v.
Security Diners International Corp., G.R. No. 136780, 16 August 2001, 358 SCRA 363.
[21]

See, e.g., Citibank, N.A. v. Cabamongan, G.R. No. 146918, 2 May 2006, 488 SCRA 517.

[22]

Rollo, pp. 97-99.

[23]

Id. at 101.

[24]

Id. at 105-106.

[25]

Id. at 104.

[26]

Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shocks, social humiliation, and similar injury. Though incapable of pecuniary
computation, moral damages may be recovered if they are the proximate result of the defendant's wrongful act or
omission.
[27]

See rollo, p. 107.

[28]

Mercury Drug v. Baking, G.R. No. 156037, May 25, 2007, 523 SCRA 184, 191.

THIRD DIVISION

[G. R. No. 126486. February 9, 1998]

BARONS MARKETING CORP., petitioner, vs. COURT OF APPEALS

and PHELPS DODGE PHILS., INC. respondents.

DECISION
KAPUNAN, J.:

The instant petition raises two issues: (1) whether or not private respondent is guilty
of abuse of right; and (2) whether or not private respondent is entitled to interest and
attorneys fees.
The facts are undisputed:

On August 31, 1973, plaintiff [Phelps Dodge, Philippines, Inc. private

respondent herein] appointed defendant [petitioner Barons Marketing,
Corporation] as one of its dealers of electrical wires and cables effective
September 1, 1973 (Exh. A). As such dealer, defendant was given by plaintiff
60 days credit for its purchases of plaintiffs electrical products.This credit term
was to be reckoned from the date of delivery by plaintiff of its products to
defendant (Exh. 1).
During the period covering December 1986 to August 17, 1987, defendant
purchased, on credit, from plaintiff various electrical wires and cables in the
total amount ofP4,102,438.30 (Exh. B to K). These wires and cables were in
turn sold, pursuant to previous arrangements, by defendant to MERALCO, the
former being the accredited supplier of the electrical requirements of the
latter. Under the sales invoices issued by plaintiff to defendant for the subject
purchases, it is stipulated that interest at 12% on the amount due for attorneys
fees and collection (Exh. BB). On September 7, 1987, defendant paid plaintiff
the amount of P300,000.00 out of its total purchases as above-stated (Exh.
S), thereby leaving an unpaid account on the aforesaid deliveries
of P3,802,478.20. On several occasions, plaintiff wrote defendant demanding
payment of its outstanding obligations due plaintiff (Exhs. L, M, N, and P). In
response, defendant wrote plaintiff on October 5, 1987 requesting the latter if
it could pay its outstanding account in monthly installments of P500,000.00
plus 1% interest per month commencing on October 15, 1987 until full
payment (Exh. O and O-4). Plaintiff, however, rejected defendants offer and
accordingly reiterated its demand for the full payment of defendants account
(Exh. P).
[1]

[2]

On 29 October 1987, private respondent Phelps Dodge Phils., Inc. filed a complaint
before the Pasig Regional Trial Court against petitioner Barons Marketing Corporation
for the recovery of P3,802,478.20 representing the value of the wires and cables the
former had delivered to the latter, including interest. Phelps Dodge likewise prayed that
it be awarded attorneys fees at the rate of 25% of the amount demanded, exemplary
damages amounting to at least P100,000.00, the expenses of litigation and the costs of
suit.

Petitioner, in its answer, admitted purchasing the wires and cables from private
respondent but disputed the amount claimed by the latter. Petitioner likewise interposed
a counterclaim against private respondent, alleging that it suffered injury to its reputation
due to Phelps Dodges acts. Such acts were purportedly calculated to humiliate
petitioner and constituted an abuse of rights.
After hearing, the trial court on 17 June 1991 rendered its decision, the dispositive
portion of which reads:

WHEREFORE, from all the foregoing considerations, the Court finds Phelps
Dodge Phils., Inc. to have preponderantly proven its case and hereby orders
Barons Marketing, Inc. to pay Phelps Dodge the following:
1. P3,108,000.00 constituting the unpaid balance of defendants purchases
from plaintiff and interest thereon at 12% per annum computed from the
respective expiration of the 60 day credit term, vis--vis the various sales
invoices and/or delivery receipts;
2. 25% of the preceding obligation for and as attorneys fees;
3. P10,000.00 as exemplary damages;
4. Costs of suit.

[3]

Both parties appealed to respondent court. Private respondent claimed that the trial
court should have awarded it the sum of P3,802,478.20, the amount which appeared in
the body of the complaint and proven during the trial rather than P3,108,000.00. The
latter amount appears in petitioners prayer supposedly as a result of a typographical
error.
On the other hand, petitioner reiterated its claims for damages as a result
of creditors abuse. It also alleged that private respondent failed to prove its cause of
action against it.
On 25 June 1996, the Court of Appeals rendered a decision modifying the decision
of the trial court, thus:

WHEREFORE, from all the foregoing considerations, the Court finds Phelps
Dodge Phils., Inc. to have preponderantly proven its case and hereby orders
Barons Marketing, Inc. to pay Phelps Dodge the following:
1. P3,802,478.20 constituting the unpaid balance of defendants purchases
from plaintiff and interest thereon at 12% per annum computed from the
respective expiration of the 60 day credit term, vis--vis the various sales
invoices and/or delivery receipts; and

2. 5% of the preceding obligation for and as attorneys fees.

No costs.

[4]

Petitioner Barons Marketing is now before this Court alleging that respondent court
erred when it held (1) private respondent Phelps Dodge not guilty of creditors abuse,
and (2) petitioner liable to private respondent for interest and attorneys fees.
I

Petitioner does not deny private respondents rights to institute an action for
collection and to claim full payment. Indeed, petitioners right to file an action for
collection is beyond cavil. Likewise, private respondents right to reject petitioners offer
to pay in installments is guaranteed by Article 1248 of the Civil Code which states:
[5]

ART. 1248. Unless there is an express stipulation to that effect, the creditor
cannot be compelled partially to receive the prestations in which the obligation
consists. Neither may the debtor be required to make partial payments.
However, when the debt is in part liquidated and in part unliquidated, the
creditor may demand and the debtor may effect the payment of the former
without waiting for the liquidation of the latter.
Under this provision, the prestation , i.e., the object of the obligation, must be performed
in one act, not in parts.
Tolentino concedes that the right has its limitations:
Partial Prestations. Since the creditor cannot be compelled to accept partial
performance, unless otherwise stipulated, the creditor who refuses to accept partial
prestations does not incur in delay or mora accipiendi, except when there is abuse of
right or if good faith requires acceptance.
[6]

Indeed, the law, as set forth in Article 19 of the Civil Code, prescribes a primordial
limitation on all rights by setting certain standards that must be observed in the exercise
thereof . Thus:
[7]

ART. 19. 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.
Petitioner now invokes Article 19 and Article 21 of the Civil Code, claiming that
private respondent abused its rights when it rejected petitioners offer of settlement and
subsequently filed the action for collection considering:
[8]

xxx that the relationship between the parties started in 1973 spanning more
than 13 years before the complaint was filed, that the petitioner had been a
good and reliable dealer enjoying a good credit standing during the period
before it became delinquent in 1987, that the relationship between the parties
had been a fruitful one especially for the private respondent, that the petitioner
exerted its outmost efforts to settle its obligations and avoid a suit, that the
petitioner did not evade in the payment of its obligation to the private
respondent, and that the petitioner was just asking a small concession that it
be allowed to liquidate its obligation to eight (8) monthly installments
of P500,000.00 plus 1% interest per month on the balance which proposal
was supported by post-dated checks.
[9]

Expounding on its theory, petitioner states:

In the ordinary course of events, a suit for collection of a sum of money filed in
court is done for the primary purpose of collecting a debt or obligation. If there
is an offer by the debtor to pay its debt or obligation supported by post-dated
checks and with provision for interests, the normal response of a creditor
would be to accept the offer of compromise and not file the suit for
collection. It is of common knowledge that proceedings in our courts would
normally take years before an action is finally settled. It is always wiser and
more prudent to accept an offer of payment in installment rather than file an
action in court to compel the debtor to settle his obligation in full in a single
payment.
xxx.

xxx. Why then did private respondent elect to file a suit for collection rather
than accept petitioners offer of settlement, supported by post-dated checks, by
paying monthly installments of P500,000.00 plus 1% per month commencing
on October 15, 1987 until full payment? The answer is obvious. The action of
private respondent in filling a suit for collection was an abuse of right and
exercised for the sole purpose of prejudicing and injuring the petitioner.
[10]

Petitioner prays that the Court order private respondent to pay petitioner moral and
exemplary damages, attorneys fees, as well as the costs of suit. It likewise asks that it
be allowed to liquidate its obligation to private respondent, without interests, in eight
equal monthly installments.
Petitioners theory is untenable.
Both parties agree that to constitute an abuse of rights under Article 19 the
defendant must act with bad faith or intent to prejudice the plaintiff. They cite the
following comments of Tolentino as their authority:

Test of Abuse of Right. Modern jurisprudence does not permit acts which,
although not unlawful, are anti-social. There is undoubtedly an abuse of right
when it is exercised for the only purpose of prejudicing or injuring
another. When the objective of the actor is illegitimate, the illicit act cannot be
concealed under the guise of exercising a right. The principle does not permit
acts which, without utility or legitimate purpose cause damage to another,
because they violate the concept of social solidarity which considers law as
rational and just. Hence, every abnormal exercise of a right, contrary to its
socio-economic purpose, is an abuse that will give rise to liability. The
exercise of a right must be in accordance with the purpose for which it was
established, and must not be excessive or unduly harsh; there must be no
intention to injure another. Ultimately, however, and in practice, courts, in the
sound exercise of their discretion, will have to determine all the facts and
circumstances when the exercise of a right is unjust, or when there has been
an abuse of right.
[11]

The question, therefore, is whether private respondent intended to prejudice or

injure petitioner when it rejected petitioners offer and filed the action for collection.
We hold in the negative. It is an elementary rule in this jurisdiction that good faith is
presumed and that the burden of proving bad faith rests upon the party alleging the
same. In the case at bar, petitioner has failed to prove bad faith on the part of private
respondent. Petitioners allegation that private respondent was motivated by a desire to
terminate its agency relationship with petitioner so that private respondent itself may
deal directly with Meralco is simply not supported by the evidence. At most, such
supposition is merely speculative.
[12]

Moreover, we find that private respondent was driven by very

legitimate reasons for rejecting petitioners offer and instituting the action for collection
before the trial court. As pointed out by private respondent, the corporation had its own
cash position to protect in order for it to pay its own obligations. This is not such a lame
and poor rationalization as petitioner purports it to be. For if private respondent were to
be required to accept petitioners offer, there would be no reason for the latter to reject
similar offers from its other debtors. Clearly, this would be inimical to the interests of any
enterprise, especially a profit-oriented one like private respondent. It is plain to see that
what we have here is a mere exercise of rights, not an abuse thereof. Under these
circumstances, we do not deem private respondent to have acted in a manner contrary
to morals, good customs or public policy as to violate the provisions of Article 21 of the
Civil Code.
Consequently, petitioners prayer for moral and exemplary damages must thus be
rejected. Petitioners claim for moral damages is anchored on Article 2219 (10) of the
Civil Code which states:

ART. 2219. Moral damages may be recovered in the following and analogous
cases:

xxx.

(10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and
35.
xxx.
Having ruled that private respondents acts did not transgress the provisions of Article
21, petitioner cannot be entitled to moral damages or, for that matter, exemplary
damages.While the amount of exemplary damages need not be proved, petitioner must
show that he is entitled to moral, temperate or compensatory damages before the court
may consider the question of whether or not exemplary damages should be awarded.
As we have observed above, petitioner has failed to discharge this burden.
[13]

It may not be amiss to state that petitioners contract with private respondent has the
force of law between them. Petitioner is thus bound to fulfill what has been expressly
stipulated therein. In the absence of any abuse of right, private respondent cannot be
allowed to perform its obligation under such contract in parts. Otherwise, private
respondents right under Article 1248 will be negated, the sanctity of its contract with
petitioner defiled. The principle of autonomy of contracts must be respected.
[14]

[15]

[16]

II

Under said contract, petitioner is liable to private respondent for the unpaid balance
of its purchases from private respondent plus 12% interest. Private respondents sales
invoices expressly provide that:

xxx. Interest at 12% per annum will be charged on all overdue account plus
25% on said amount for attorneys fees and collection. xxx.
[17]

It may also be noted that the above stipulation, insofar as it provides for the
payment of 25% on said amount for attorneys fees and collection (sic), constitutes what
is known as a penal clause. Petitioner is thus obliged to pay such penalty in addition to
the 12% annual interest, there being an express stipulation to that effect.
[18]

Petitioner nevertheless urges this Court to reduce the attorneys fees for being
grossly excessive, considering the nature of the case which is a mere action for
collection of a sum of money. It may be pointed out however that the above penalty is
supposed to answer not only for attorneys fees but for collection fees as well. Moreover:

x x x the attorneys fees here provided is not, strictly speaking, the attorneys
fees recoverable as between attorney and client spoken of and regulated by
the Rules of Court.Rather, the attorneys fees here are in the nature of
liquidated damages and the stipulation therefor is aptly called a penal
clause. It has been said that so long as such stipulation does not contravene
law, morals, or public order, it is strictly binding upon defendant. The attorneys
fees so provided are awarded in favor of the litigant, not his counsel. It is the

litigant, not counsel, who is the judgment creditor entitled to enforce the
judgment by execution.
[19]

Nonetheless, courts are empowered to reduce such penalty if the same is iniquitous
or unconscionable. Article 1229 of the Civil Code states thus:

ART. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable. (Underscoring supplied.)
The sentiments of the law are echoed in Article 2227 of the same Code:

ART. 2227. Liquidated damages, whether intended as an indemnity or a

penalty, shall be equitably reduced if they are iniquitous or unconscionable.
It is true that we have upheld the reasonableness of penalties in the form of
attorneys fees consisting of twenty-five percent (25%) of the principal debt plus interest.
In the case at bar, however, the interest alone runs to some four and a half million
pesos (P4.5M), even exceeding the principal debt amounting to almost four million
pesos (P4.0M). Twenty five percent (25%) of the principal and interest amounts to
roughly two million pesos (P2M). In real terms, therefore, the attorneys fees and
collection fees are manifestly exorbitant. Accordingly, we reduce the same to ten
percent (10%) of the principal.
[20]

Private respondent, however, argues that petitioner failed to question the award of
attorneys fees on appeal before respondent court and raised the issue only in its motion
for reconsideration. Consequently, petitioner should be deemed to have waived its right
to question such award.
Private respondents attempts to dissuade us from reducing the penalty are
futile. The Court is clothed with ample authority to review matters, even if they are not
assigned as errors in their appeal, if it finds that their consideration is necessary in
arriving at a just decision of the case.
[21]

WHEREFORE, the decision of the Court of Appeals is hereby MODIFIED in that the
attorneys and collection fees are reduced to ten percent (10%) of the principal but is
AFFIRMED in all other respects.
SO ORDERED.
Narvasa, C.J., Romero, Francisco, and Purisima, JJ., concur.

[1]

More accurately, the invoices state:

xxx Interest at 12% per annum will be charged on all overdue account plus 25% on said amount for
attorneys fees and collection. xxx.
[2]

Rollo, p. 51.

[3]

Id., at 54.

[4]

Id., at 43; underscoring in the original.

[5]

See Melendez v. Lavarias, 9 SCRA 548 (1963).

IV Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, 1990 ed., p. 298;
underscoring supplied.
[6]

[7]

Globe Mackay Cable and Radio Corp. v. Court of Appeals, 176 SCRA 778 (1989).

ART. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage.
[8]

[9]

Rollo, p. 137.

[10]

Id., at 18-20.

[11]

I Tolentino, pp.61-62; underscoring supplied.

[12]

Ford Philippines v. Court of Appeals, G.R. No. 99039, February 3, 1997.

[13]

ART. 2234, Civil Code.

[14]

ART. 1158, Civil Code.

[15]

ART. 1315, Civil Code.

[16]

ART. 1306, Civil Code.

[17]

Exhibit BB; underscoring supplied.

[18]

See Luneta Motor Co. v. Mora, 73 Phil. 80 (1941).

[19]

Polytrade Corporation v. Blanco, 30 SCRA 187 (1969).

[20]

See Polytrade v. Blanco, supra., note 1.

Korean Airlines Co., Ltd. v. Court of Appeals, 234 SCRA 717 (1994); see also: Asset Privatization
Trust v. CA, 214 SCRA 400 (1994).
[21]

THIRD DIVISION
REMINGTON INDUSTRIAL G.R. No. 171858
SALES CORPORATION,
Petitioner, Present:
Ynares-Santiago, J. (Chairperson),
- versus - Austria-Martinez,
Chico-Nazario,
Nachura, and

Reyes, JJ.
CHINESE YOUNG MENS
CHRISTIAN ASSOCIATION OF
THE PHIL. ISLANDS, doing Promulgated:
business under the name MANILA
DOWNTOWN YMCA,
Respondent. August 31, 2007
x ---------------------------------------------------------------------------------------- x

RESOLUTION
YNARES-SANTIAGO, J.:
For resolution is the motion for reconsideration filed by respondent Chinese
Young Mens Christian Association of the Philippine Islands (YMCA) of the
Decision dated January 22, 2007, the dispositive portion of which states:
WHEREFORE, the instant petition is GRANTED. The Decision and
Resolution of the Court of Appeals in CA-G.R. SP No. 88599 are SET ASIDE.
The Decision of the Regional Trial Court of Manila, Branch 25, in Civil Case No.
03-107655, dismissing the unlawful detainer case for lack of merit, is hereby
REINSTATED and AFFIRMED.
SO ORDERED.[1]

Respondent YMCA owns a two storey-building in Binondo, Manila. It

leased Unit No. 963 located at the second floor to petitioner RISC from December
1, 1993 to November 30, 1995. It also leased to petitioner RISC Unit No. 966
located at the ground floor from December 1, 1995 to November 30, 1997, while
the adjoining unit or Unit 964 was leased to petitioners sister company
RSC. Petitioner removed the partition between Units 964 and 966 and used the
combined areas as its office, hardware store and display shop for steel products. It
was also used as a passageway to Unit 963, which was utilized by petitioner as its
staff room.
On February 27, 1997, respondent formally terminated the lease over the
second floor unit and gave RISC until March 31, 1997 to vacate the

premises. Before the said period ended, RISC filed an action for the Fixing of
Lease Period over the said unit.[2] Subsequently, YMCA filed an action
for Ejectment[3] against petitioner. The two cases were consolidated before Branch
26 of the Metropolitan Trial Court of Manila (MeTC-Manila).
Meanwhile, petitioner filed a Petition for Consignation of Rentals[4] alleging
that respondent refused to receive payments of the rentals for the ground floor units
without just cause. During the hearing, petitioner filed a Formal Surrender of the
Leased Premises[5] to which respondent manifested that it does not object to the
turn over or the surrender of the leased premises. [6] On July 9, 1998, after petitioner
delivered two checks covering the rents for the ground floor units, the trial court
issued an Order declaring the consignation case closed. However, petitioner
continued to use the premises as passageway since it is the only means of ingress
and egress to the second floor unit it occupies. RISC kept the premises padlocked
allegedly as a security measure and failed to give YMCA the keys to the premises.
On August 11, 1998, the trial court hearing the consolidated cases rendered a
Decision extending the lease period for three years from finality of the Decision
and dismissed YMCAs complaint for ejectment. Petitioner filed a Motion to
Constitute Passageway alleging that it has no means of ingress or egress to its
second floor Unit. An ocular inspection was conducted on February 5, 1999. The
Commissioners Report revealed that petitioner is still in possession of the keys to
the two ground floor units because YMCA failed to provide an adequate
passageway to the second floor.[7] Thereafter, YMCA manifested its willingness to
constitute a passageway provided Remington will surrender possession of the
ground floor unit.[8]
Since respondent was never in actual possession of the premises at the
ground floor, it demanded payment from the respective lessees rentals in
arrears.Respondent sent Statements of Account dated September 7, 1999 and
December 31, 1999 which petitioner repudiated. Finally, on January 18, 2000,
respondent sent petitioner a Notice of Termination of Lease with demand to vacate
and pay rents from July 1998 to December 1999. This was followed by Statements
of Account dated July 28, 2000 and August 7, 2000 according to which the rental
arrears amounted to P571,153.85.

On October 26, 2000, respondent filed two ejectment cases against petitioner
before the MeTC of Manila. The ejectment case against RSC over ground floor
Unit No. 964 was raffled to Branch 20 of the MeTC-Manila which rendered its
Decision on November 5, 2001 ordering RSC to vacate the premises and to pay
back rents. However, upon appeal, the RTC reversed the Decision of the MeTC
and dismissed the complaint. YMCA appealed to the Court of Appeals which
dismissed the case on technical grounds and is now pending appeal before this
Court.
The ejectment case against petitioner RSIC over ground floor Unit No. 966,
the subject matter of the case at bar, was raffled to Branch 17 of the MeTC-Manila.
[9]
In its Decision dated June 20, 2003, it ordered petitioner RSIC to vacate the
premises and to pay back rents. [10] Consequently, petitioner appealed to the RTC
which ruled in its favor dismissing the complaint for ejectment for lack of cause of
action.[11] Thereafter, YMCA appealed to the Court of Appeals which reversed the
RTC and reinstated the Decision of the MeTC.
The Court of Appeals decided in favor of respondent YMCA ruling that it was
effectively deprived of possession of the subject units since RISC failed to
surrender possession despite manifesting its willingness to do so, by padlocking
the subject premises. It did not lend credence to petitioners claim that the
padlocking of the premises was for self-preservation and that it is the only means
of ingress and egress to its second floor unit since RISC continued to exercise
control over the subject premises. The appellate court also rejected the RTCs
observation that YMCA was not prevented from taking control of the disputed
units for it could have easily forced open the padlocks. It maintained that ejectment
is the legal alternative as against the use of force and breaches of the peace.
RISC thus filed the instant petition for review on certiorari assailing the Decision
of the Court of Appeals. In the assailed Decision, we ruled that petitioner has
effectively surrendered possession of Units 964 and 966; that the filing of
petitioners Formal Surrender of the Leased Premises constitute constructive
delivery of the said premises effective July 1, 1998 as it thereafter emptied and
vacated the premises; and that respondent could have easily removed the padlock
and take legal and actual possession of the premises.

In the instant motion for reconsideration, respondent argues that petitioner

has not constructively delivered the possession of the ground floor units despite the
filing in the consignation case of the Formal Surrender of the Leased Premises and
after it has emptied and vacated the leased premises on July 1, 1998. Respondent
contends that petitioners use of the premises as passageway, the continued
padlocking of the gates and non-turnover of keys constitute unlawful withholding
of the possession of the subject premises for which petitioner should be liable.
We grant the motion.
A case for Unlawful Detainer is an action against one who unlawfully
withholds possession after the expiration or termination of his right to hold
possession by virtue of any contract, express or implied, brought within one year
from the date of the last demand.[12] From the allegations of the respondent, the
case for unlawful detainer is grounded on three acts of petitioner, i.e., using the
premises as passageway, the continued padlocking of the premises and nonturnover of keys.
In a contract of lease, the lessor binds himself to give the enjoyment or use
of a thing to the lessee for a price certain, and for a period which may be definite or
indefinite.[13] The lessor is obliged to deliver the thing which is the object of the
contract in such condition as to render it fit for the use intended [14] and upon its
termination, the lessee shall return the thing just as he received it, save what has
been lost or impaired by the lapse of time, or by ordinary wear and tear, or from an
inevitable cause.[15]
The filing of the Formal Surrender of Leased Premises and the actual
emptying of the premises constitute constructive delivery of possession. Hence, the
contract of lease was terminated on July 1, 1998 and it is incumbent upon
petitioner, as lessee, to comply with its obligation to return the thing leased to the
lessor and vacate the premises.
However, petitioner failed to comply with its obligation to return the
premises to respondent. In order to return the thing leased to the lessor, it is not
enough that the lessee vacates it. It is necessary that he places the thing at the
disposal of the lessor, so that the latter can receive it without any obstacle. He must

return the keys and leave no sub-lessees or other persons in the property; otherwise
he shall continue to be liable for rents.[16]
Petitioners constructive delivery of the premises did not produce the effect
of actual delivery to the respondent. To be effective, it is necessary that the person
to whom the delivery is made must be able to take control of it without impediment
especially from the person who supposedly made such delivery.[17] In the case at
bar, records show that despite the termination of the lease, respondent was never in
possession of the premises because it was padlocked. Respondent was not given
the key to the premises hence it was deprived to use the same as it pleases.
Although the use of the premises as passageway was justified, petitioner
cannot deprive respondent the use of the said premises by having it
padlocked. Other than simply repudiating the demand for back rentals, petitioner
should have given respondent a set of keys so it can enter the premises without
exposing the property to security risks. Prudence dictates the delivery of the keys
to respondent to dispel any doubt that petitioner is using the premises other than as
a mere passageway and that it has never withheld possession of the same to the
respondent. Petitioner had several opportunities to give respondent access to the
premises starting from the time it sent its first demand to pay back rentals until the
complaint for ejectment was filed but it never availed of these opportunities.
From the foregoing, it is apparent that petitioners constructive delivery did
not effectively transfer possession of the leased premises to respondent. From the
time the lease was terminated, petitioner unlawfully withheld possession of the
leased premises from respondent.[18] However, it appears that petitioner had moved
out from respondents building on March 12, 2004, as stated in its
Manifestation[19] before Branch 25 of the RTC-Manila. Respondent is entitled to a
reasonable compensation for petitioners continued occupancy of the premises
despite termination of the lease from July 1, 1998 to March 12, 2004.
Under Section 17, Rule 70 of the Rules of Court, the trial court may award
reasonable compensation for the use and occupation of the leased premises after
the same is duly proved. In Asian Transmission Corporation v. Canlubang Sugar
Estates,[20] the Court ruled that the reasonable compensation contemplated under
said Rule partakes of the nature of actual damages based on the evidence adduced

by the parties. The Court also ruled that fair rental value is defined as the amount
at which a willing lessee would pay and a willing lessor would receive for the use
of a certain property, neither being under compulsion and both parties having a
reasonable knowledge of all facts, such as the extent, character and utility of the
property, sales and holding prices of similar land and the highest and best use of
the property.[21]
The reasonable compensation for the leased premises fixed by the trial court
based on the stipulated rent under the lease contract which is P22,531.00, must be
equitably reduced in view of the circumstances attendant in the case at bar. First, it
should be noted that the premises was used only as a means of passageway caused
by respondents failure to provide sufficient passageway towards the second floor
unit it also occupies. Second, respondent was negligent because it waited for more
than a year before it actually demanded payment for back rentals as reflected in its
Statement of Accounts dated September 7, 1999. When both parties to a
transaction are mutually negligent in the performance of their obligations, the fault
of one cancels the negligence of the other and, as in this case, their rights and
obligations may be determined equitably under the law proscribing unjust
enrichment.[22] From the foregoing, we find the amount of P11,000.00 a month
equitable and reasonable compensation for petitioners continued use of the
premises.
WHEREFORE, the motion for reconsideration is GRANTED. The
Decision dated January 22, 2007 is VACATED and a new judgment is
enteredREINSTATING and AFFIRMING the Decision of the Metropolitan Trial
Court of Manila in Civil Case No. 168628-CV with the MODIFICATION that
petitioner is ordered to PAY respondent P11,000.00 a month from July 1, 1998
until March 12, 2004 as reasonable compensation for the use of the premises.
SO ORDERED.

CONSUELO YNARES-SANTIAGO
Associate Justice

WE CONCUR:

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

MINITA V. CHICO-NAZARIO ANTONIO EDUARDO B. NACHURA

Associate Justice Associate Justice

RUBEN T. REYES
Associate Justice

ATTESTATION
I attest that the conclusions in the above resolution were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the above

Resolution were reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

[1]

Rollo, p. 286.
Civil Case No. 154969-CV, March 24, 1997.
[3]
Civil Case No. 155083-CV, April 8, 1997.
[4]
Civil Case No. 155897-CV.
[5]
Rollo, pp. 45-46.
[6]
Id. at 47-48.
[7]
Id. at 61-62.
[8]
Without resolving the motion to constitute passageway, the consolidated cases was elevated to the RTC which
affirmed the MTC Branch 26 ruling extending the lease but for a period of five years and granted the motion to
constitute passageway. However, the Court of Appeals, in its Decision dated September 19, 2003, ruled in favor of
YMCA and ordered RISC to vacate the premises. On May 21, 2004, the Court of Appeals denied RISCs motion for
reconsideration in accordance with its manifestation that it had completely vacated the premises which rendered the
case moot and academic.
[9]
Civil Case No. 168628-CV.
[10]
Rollo, pp. 78-82.
[11]
Id. at 102-110.
[12]
RULES OF COURT, Rule 70, Section 1.
[13]
CIVIL CODE, Article 1643.
[14]
CIVIL CODE, Article 1654 (1).
[15]
CIVIL CODE, Article 1665.
[16]
Arturo M. Tolentino, vol. 2, 1992, Central Professional Books, Inc., Quezon City, pp. 603-604.
[17]
See A. A. Addison v. Felix and Tioco, 38 Phil. 404, 408 (1918).
[18]
See Josefa v. San Buenaventura, G.R. No. 163429, March 3, 2006.
[19]
Rollo, pp. 95-97, In its Manifestation before Branch 25 of the RTC-Manila, petitioner stated that it had already
surrendered all of the keys to respondents lawyer on said date and has fully vacated both the ground floor and
second floor units of respondents building.
[20]
G.R. No. 142383, August 29, 2003, 410 SCRA 202.
[21]
Josefa v. San Buenaventura, supra.
[22]
Rodzssen Supply Co., Inc. v. Far East Bank & Trust Co., 409 Phil. 706, 715 (2001).
[2]