Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 134685 November 19, 1999

MARIA ANTONIA SIGUAN, petitioner,
vs.
ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM, respondents.

DAVIDE, JR., C.J.:

May the Deed of Donation executed by respondent Rosa Lim (hereafter LIM) in favor of her children
be rescinded for being in fraud of her alleged creditor, petitioner Maria Antonia Siguan? This is the
pivotal issue to be resolved in this petition for review on certiorari under Rule 45 of the Revised
Rules of Court.
The relevant facts, as borne out of the records, are as follows:
On 25 and 26 August 1990, LIM issued two Metrobank checks in the sums of P300,000 and
P241,668, respectively, payable to "cash." Upon presentment by petitioner with the drawee bank, the
checks were dishonored for the reason "account closed." Demands to make good the checks proved
futile. As a consequence, a criminal case for violation of Batas Pambansa Blg. 22, docketed as
Criminal Cases Nos. 22127-28, were filed by petitioner against LIM with Branch 23 of the Regional
Trial Court (RTC) of Cebu City. In its decision 1 dated 29 December 1992, the court a quo convicted LIM
as charged. The case is pending before this Court for review and docketed as G.R. No. 134685.
It also appears that on 31 July 1990 LIM was convicted of estafa by the RTC of Quezon City in
Criminal Case No. Q-89-2216 2 filed by a certain Victoria Suarez. This decision was affirmed by the
Court of Appeals. On appeal, however, this Court, in a decision 3 promulgated on 7 April 1997, acquitted
LIM but held her civilly liable in the amount of P169,000, as actual damages, plus legal interest.
Meanwhile, on 2 July 1991, a Deed of Donation 4 conveying the following parcels of land and
purportedly executed by LIM on 10 August 1989 in favor of her children, Linde, Ingrid and Neil, was
registered with the Office of the Register of Deeds of Cebu City:
(1) a parcel of land situated at Barrio Lahug, Cebu City, containing an
area of 563 sq. m. and covered by TCT No. 93433;

(2) a parcel of land situated at Barrio Lahug, Cebu City, containing an

area of 600 sq. m. and covered by TCT No. 93434;
(3) a parcel of land situated at Cebu City containing an area of 368
sq. m. and covered by TCT No. 87019; and
(4) a parcel of land situated at Cebu City, Cebu containing an area of
511 sq. m. and covered by TCT No. 87020.
New transfer certificates of title were thereafter issued in the names of the donees.

On 23 June 1993, petitioner filed an accion pauliana against LIM and her children before Branch 18
of the RTC of Cebu City to rescind the questioned Deed of Donation and to declare as null and void
the new transfer certificates of title issued for the lots covered by the questioned Deed. The
complaint was docketed as Civil Case No. CEB-14181. Petitioner claimed therein that sometime in
July 1991, LIM, through a Deed of Donation, fraudulently transferred all her real property to her
children in bad faith and in fraud of creditors, including her; that LIM conspired and confederated
with her children in antedating the questioned Deed of Donation, to petitioner's and other creditors'
prejudice; and that LIM, at the time of the fraudulent conveyance, left no sufficient properties to pay
her obligations.
On the other hand, LIM denied any liability to petitioner. She claimed that her convictions in Criminal
Cases Nos. 22127-28 were erroneous, which was the reason why she appealed said decision to the
Court of Appeals. As regards the questioned Deed of Donation, she maintained that it was not
antedated but was made in good faith at a time when she had sufficient property. Finally, she alleged
that the Deed of Donation was registered only on 2 July 1991 because she was seriously ill.
In its decision of 31 December 1994, 6 the trial court ordered the rescission of the questioned deed of
donation; (2) declared null and void the transfer certificates of title issued in the names of private
respondents Linde, Ingrid and Neil Lim; (3) ordered the Register of Deeds of Cebu City to cancel said
titles and to reinstate the previous titles in the name of Rosa Lim; and (4) directed the LIMs to pay the
petitioner, jointly and severally, the sum of P10,000 as moral damages; P10,000 as attorney's fees; and
P5,000 as expenses of litigation.
On appeal, the Court of Appeals, in a decision 7 promulgated on 20 February 1998, reversed the
decision of the trial court and dismissed petitioner's accion pauliana. It held that two of the requisites for
filing an accion pauliana were absent, namely, (1) there must be a credit existing prior to the celebration
of the contract; and (2) there must be a fraud, or at least the intent to commit fraud, to the prejudice of the
creditor seeking the rescission.
According to the Court of Appeals, the Deed of Donation, which was executed and acknowledged
before a notary public, appears on its face to have been executed on 10 August 1989. Under Section
23 of Rule 132 of the Rules of Court, the questioned Deed, being a public document, is evidence of
the fact which gave rise to its execution and of the date thereof. No antedating of the Deed of
Donation was made, there being no convincing evidence on record to indicate that the notary public
and the parties did antedate it. Since LIM's indebtedness to petitioner was incurred in August 1990,

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

We resolve these issues in the negative.

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

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

For this presumption of fraud to apply, it must be established that the donor did not leave adequate
properties which creditors might have recourse for the collection of their credits existing before the
execution of the donation.
As earlier discussed, petitioner's alleged credit existed only a year after the deed of donation was
executed. She cannot, therefore, be said to have been prejudiced or defrauded by such alienation.
Besides, the evidence disclose that as of 10 August 1989, when the deed of donation was executed,
LIM had the following properties:
(1) A parcel of land containing an area of 220 square meters, together
with the house constructed thereon, situated in Sto. Nio Village,
Mandaue City, Cebu, registered in the name of Rosa Lim and
covered by TCT No. 19706; 22
(2) A parcel of land located in Benros Subdivision, Lawa-an, Talisay,
Cebu; 23
(3) A parcel of land containing an area of 2.152 hectares, with coconut
trees thereon, situated at Hindag-an, St. Bernard, Southern Leyte, and
covered by Tax Declaration No. 13572. 24
(4) A parcel of land containing an area of 3.6 hectares, with coconut trees
thereon, situated at Hindag-an, St. Bernard, Southern Leyte, and
covered by Tax Declaration No. 13571. 25

During her cross-examination, LIM declared that the house and lot mentioned in no. 1 was bought by
her in the amount of about P800,000 to P900,000. 26 Thus:
ATTY. FLORIDO:
Q These properties at the Sto. Nio Village, how much did you
acquire this property?
A Including the residential house P800,000.00 to P900,000.00.
Q How about the lot which includes the house. How much was the
price in the Deed of Sale of the house and lot at Sto. Nio Violage
[sic]?
A I forgot.
Q How much did you pay for it?
A That is P800,000.00 to P900,000.00.
Petitioner did not adduce any evidence that the price of said property was lower. Anent the
property in no. 2, LIM testified that she sold it in 1990. 27 As to the properties in nos. 3 and 4,

the total market value stated in the tax declarations dated 23 November 1993 was P56,871.60.
Aside from these tax declarations, petitioner did not present evidence that would indicate the
actual market value of said properties. It was not, therefore, sufficiently established that the
properties left behind by LIM were not sufficient to cover her debts existing before the donation
was made. Hence, the presumption of fraud will not come into play.

Nevertheless, a creditor need not depend solely upon the presumption laid down in Articles 759 and
1387 of the Civil Code. Under the third paragraph of Article 1387, the design to defraud may be
proved in any other manner recognized by the law of evidence. Thus in the consideration of whether
certain transfers are fraudulent, the Court has laid down specific rules by which the character of the
transaction may be determined. The following have been denominated by the Court as badges of
fraud:
(1) The fact that the consideration of the conveyance is fictitious or is
inadequate;
(2) A transfer made by a debtor after suit has begun and while it is
pending against him;
(3) A sale upon credit by an insolvent debtor;
(4) Evidence of large indebtedness or complete insolvency;
(5) The transfer of all or nearly all of his property by a debtor,
especially when he is insolvent or greatly embarrassed financially;
(6) The fact that the transfer is made between father and son, when
there are present other of the above circumstances; and
(7) The failure of the vendee to take exclusive possession of all the
property. 28
The above enumeration, however, is not an exclusive list. The circumstances evidencing fraud are
as varied as the men who perpetrate the fraud in each case. This Court has therefore declined to
define it, reserving the liberty to deal with it under whatever form it may present itself. 29
Petitioner failed to discharge the burden of proving any of the circumstances enumerated above or
any other circumstance from which fraud can be inferred. Accordingly, since the four requirements
for the rescission of a gratuitous contract are not present in this case, petitioner's action must fail.
In her further attempt to support her action for rescission, petitioner brings to our attention the 31
July 1990 Decision 30 of the RTC of Quezon City, Branch 92, in Criminal Case No. Q-89-2216. LIM was
therein held guilty of estafa and was ordered to pay complainant Victoria Suarez the sum of P169,000 for
the obligation LIM incurred on 8 October 1987. This decision was affirmed by the Court of Appeals. Upon
appeal, however, this Court acquitted LIM of estafa but held her civilly liable for P169,000 as actual
damages.

It should be noted that the complainant in that case, Victoria Suarez, albeit a creditor prior to the
questioned alienation, is not a party to this accion pauliana. Article 1384 of the Civil Code provides
that rescission shall only be to the extent necessary to cover the damages caused. Under this
Article, only the creditor who brought the action for rescission can benefit from the rescission; those
who are strangers to the action cannot benefit from its effects. 31And the revocation is only to the extent
of the plaintiff creditor's unsatisfied credit; as to the excess, the alienation is maintained. 32 Thus, petitioner
cannot invoke the credit of Suarez to justify rescission of the subject deed of donation.
Now on the propriety of the trial court's awards of moral damages, attorney's fees and expenses of
litigation in favor of the petitioner. We have pored over the records and found no factual or legal
basis therefor. The trial court made these awards in the dispositive portion of its decision without
stating, however, any justification for the same in the ratio decidendi. Hence, the Court of Appeals
correctly deleted these awards for want of basis in fact, law or equity.
WHEREFORE, the petition is hereby DISMISSED and the challenged decision of the Court of
Appeals in CA-G.R. CV. No. 50091 is AFFIRMED in toto.
No pronouncement as to costs.
SO ORDERED.
Puno, Kapunan, Pardo and Ynares-Santiago, JJ., concur.
Footnotes
1 Original Record (OR), 42.
2 Id., 135.
3 G.R. No. 102784, 271 SCRA 12 [1997].
4 OR, 10-12.
5 Id., 6-9.
6 OR, 160; Rollo, 22. Per Judge Galicano C. Arriesgado.
7 Rollo, 31. Per Tuquero, A., J., with Imperial, J., and Verzola, E., JJ., concurring.
8 21 Phil. 243 [1912].
9 Sec. 23. Public documents as evidence. Documents consisting of entries in
public records made in the performance of a duty by a public officer are prima
facie evidence of the facts therein stated. All other public documents are evidence,
even against a third person, of the fact which gave rise to their execution and of the
date of the latter.

10 Sec. 30. Proof of notarial documents. Every instrument duly acknowledged or

proved and certified as provided by law may be presented in evidence without further
proof, the certificate of acknowledgment being prima facie evidence of the execution
of the instrument or document involved.
11 In Sta. Maria v. Court of Appeals, 285 SCRA 351 [1998], the Court enumerated
some of the instances when the factual findings of the Court of Appeals are not
deemed conclusive, to wit: (1) when the findings are grounded entirely on
speculation, surmises, or conjectures; (2) when the inference made is manifestly
mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4)
when the judgment is based on a misapprehension of facts; (5) when the findings of
fact are conflicting; (6) when in making its findings the Court of Appeals went beyond
the issues of the case, or its findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings are contrary to those of the trial
court; (8) when the findings are conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in the petition as well as in the
petitioner's main and reply briefs are not disputed by the respondent; and (10) when
the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record.
12 Panlilio v. Victoria, 35 Phil. 706 [1916]; Solis v. Chua Pua Hermanos, 50 Phil. 636
[1927].
13 Art. 1383, Civil Code.
14 4 TOLENTINO, ARTURO M., CIVIL CODE OF THE PHILIPPINES 576 (1991),
[hereafter 4 TOLENTINO]; citing 8 MANRESA 756, 2 Castan 543-555, and 3 Camus
207.
15 4 TOLENTINO 576, citing 2 Castan 543-555 and 3 Camus 107.
16 Solis v. Chua Pua Hernanes, supra note 12, at 639.
17 4 TOLENTINO 576-577, citing Sentencia (Cuba) of 7 May 1910 and 1 Gasperi
484-485.
18 Sec. 19(b), Rule 132, Rules of Court.
19 MORENO, FEDERICO B., PHILIPPINE LAW DICTIONARY 915 (1988).
20 Art. 1177, Civil Code.
21 See Goquiolay v. Sycip, 9 SCRA 663, 677 [1963]; Solis v. Chua Pua
Hermanos, supra note 12, at 639-640.
22 Exhibit "M"; Exhibit "2"; OR, 114.

23 TSN, 12 November 1993, 4.

24 Exhibit "N"; OR, 146.
25 Exhibit "O"; Id., 147.
26 TSN, 12 November 1993, 7.
27 Id., 6.
28 Oria v. McMicking, supra note 8.
29 Rivera v. Litam & Co., 4 SCRA 1072 [1962].
30 Exhibit "K"; OR, 135.
31 4 PARAS, EDGARDO L., CIVIL CODE OF THE PHILIPPINES, 70 (1994); 4
TOLENTINO 586, citing 7 Planiol & Ripert 274-275.
32 4 TOLENTINO 586, Citing 7 Planiol & Ripert 271-272.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 126890

November 28, 2006

UNITED PLANTERS SUGAR MILLING COMPANY, INC. (UPSUMCO), Petitioner,

vs.
THE HONORABLE COURT OF APPEALS, PHILIPPINE NATIONAL BANK (PNB), and ASSET
PRIVATIZATION TRUST (APT), as TRUSTEE OF THE REPUBLIC OF THE
PHILIPPINES, Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review1 of the Decision2 dated 29 February 1996 and the Resolution dated 29
October 1996 of the Court of Appeals remanding to the Regional Trial Court of Bais City, Negros
Oriental a suit for collection of sum of money and damages for further proceedings.
The Facts
Petitioner United Planters Sugar Milling Company, Inc. ("UPSUMCO") is a domestic sugar miller
based in Manjuyod, Negros Oriental. To finance the construction of its milling plant, UPSUMCO
obtained loans from respondent Philippine National Bank ("PNB"), evidenced by, among others, a
Credit Agreement dated 5 November 1974, subsequently restructured on 24 June 1982, 10
December 1982, and 9 May 1984 ("take-off loans"). These loans were secured by a real estate
mortgage over two parcels of land3 where UPSUMCOs milling plant stands and by chattel
mortgages over machineries and equipment on the parcels of land. The loan agreements also
required UPSUMCO to open bank accounts with PNB the funds of which PNB could apply to pay
any due obligations of UPSUMCO. As of 1987, UPSUMCO maintained five savings accounts 4 and
one current account5 with PNBs Dumaguete City Branch ("PNB Dumaguete") and an account 6 at
PNBs Escolta, Manila Branch ("PNB Escolta"). UPSUMCO also maintained bank accounts with the
Bank of the Philippine Islands, Republic Planters Bank, and the Rural Banks of Bais City and
Manjuyod, Negros Oriental, the latter two being PNB affiliates at that time.
To monitor UPSUMCOs finances, PNB subsequently assigned a comptroller to UPSUMCO, Dante
Santos ("Santos"), who was made signatory to all checks UPSUMCO drew against its current
account with PNB Dumaguete. PNB also placed five representatives in UPSUMCOs Board of
Directors. Lastly, PNB required UPSUMCOs Directors to bind themselves solidarily liable with
UPSUMCO on the loans.
To finance its operations, UPSUMCO also obtained loans from PNB evidenced by, among others,
the Deed of Assignment by Way of Payment, notarized on 16 November 1984 and the Credit
Agreements dated 19 February 1987 and 29 April 1987 ("operational loans"). The Credit
Agreements, which also carried set-off clauses,7 were secured by Pledge contracts dated 19

February 1987 and 30 March 1987. By these contracts, UPSUMCO undertook to assign to PNB all
its sugar produce for PNB to sell and apply the proceeds to satisfy UPSUMCOs unpaid obligation
under the operational loans. The promissory notes8 for the funds released under the operational
loans also carried set-off clauses. In the Deed of Assignment by Way of Payment, UPSUMCO
undertook to assign to PNB its milled sugar and molasses beginning the crop year 1984-1985. To
keep track of UPSUMCOs sugar assignments and the payments to UPSUMCOs loans, PNB
maintained "sugar accounts payable" under UPSUMCOs name. 9
In the early 1980s, UPSUMCO and other sugar millers, hard hit by a slump in the international sugar
market, started to default on their loan payments. To bail out these corporations, then President
Ferdinand E. Marcos created10 the Philippine Sugar Corporation (PHILSUCOR), which was
authorized to issue and sell "sugar bonds" to various commercial banks holding non-performing
loans of ailing sugar millers. Accordingly, PHILSUCOR issued and sold to PNB P3 billion worth of
"sugar bonds" on 14 February 1984. PNB partly paid the bonds by assigning to PHILSUCOR
30% of its credit with UPSUMCO, computed as of 14 February 1984.11 This made PHILSUCOR
UPSUMCOs creditor to that extent. To secure PHILSUCORs interest in UPSUMCO, PHILSUCOR
agreed that PNB will continue to hold UPSUMCOs collateral for the take-off loans, for itself and
PHILSUCOR, to the extent of their pro-rata interest in the event of a foreclosure.
On 8 December 1986, then President Corazon C. Aquino issued Proclamation No. 50 12 creating
respondent Asset Privatization Trust ("APT"),13 to among others, "[circumscribe] the areas of
economic activities within which government corporations may operate x x x [by disposing and
liquidating the] non-relevant and non-performing assets of retained corporations" like PNB. On 27
February 1987, PNB assigned to the Government its "rights, titles, and interests in" several
corporations and entities, including UPSUMCO.14 The Government then transferred these financial
assets to APT under a Trust Agreement.
To quickly dispose of UPSUMCOs mortgaged assets, APT negotiated with UPSUMCO for the
mortgages uncontested or "friendly" foreclosure and for UPSUMCOs waiver of its right of
redemption. UPSUMCO accommodated APT. Hence, APT and PNB ("respondents"), the latter as
PHILSUCORs representative, scheduled the foreclosure sale on 27 August 1987. In the notices of
foreclosure, PNB placed UPSUMCOs total "mortgage indebtedness" at P2,137,076,433.15, as of 30
June 1987. At the foreclosure sale, APT purchased the auctioned properties for P450 million.
On 3 September 1987, UPSUMCO "transferred" to APT its right to redeem the foreclosed properties
under a Deed of Assignment15 which reads in full:
That United Planter[s] Sugar Milling Co., Inc. (the "Corporation") (pursuant to a resolution passed
by its board of Directors on September 3, 1987, and confirmed by the Corporations stockholders in
a stockholders Meeting held on the same (date), for and in consideration of the Asset Privatization
Trust ("APT") condoning any deficiency amount it may be entitled to recover from the Corporation
under the Credit Agreement dated November 5, 1974 and the Restructuring Agreement[s] dated
June 24 and December 10, 1982, and May 9, 1984, respectively, executed between the Corporation
and the Philippine National Bank ("PNB"), which financial claims have been assigned to APT,
through the National Government, by PNB, hereby irrevocably sells, assigns and transfer to APT its
right to redeem the foreclosed real properties covered by Transfer Certificates of Title Nos. T-16700
and T-16701.
IN WITNESS WHEREOF, the Corporation has caused this instrument to be executed on its behalf
by Mr. Joaquin S. Montenegro, thereunto duly authorized, this 3rd day of September, 1987. 16

On 29 September 1987, APT, in a public auction, sold the foreclosed properties to Universal Robina
Sugar Milling Corporation ("URSUMCO") for P500 million. APT and URSUMCO signed the Deed of
Sale on 29 December 1987.
On 13 March 1989, UPSUMCO sued respondents in the Regional Trial Court of Bais City, Branch 45
("trial court"), for sum of money and damages. UPSUMCO alleged that respondents illegally
appropriated funds belonging to it, namely: (1) funds on deposit in UPSUMCOs bank accounts with
PNB, a portion of which APT allegedly used to pay for the salaries of the mill workers; (2) the
proceeds of the sale of UPSUMCO sugar PNB sold in September 1987; and (3) a sum of money
respondent APT withdrew from UPSUMCOs account in the Rural Bank of Bais City and placed in an
escrow account at PNB Dumaguete. UPSUMCO claimed that it is entitled to recover these amounts
as APT had condoned its deficiency obligation. UPSUMCO subsequently amended its complaint to
pray for the remittance of the proceeds of all UPSUMCO sugar PNB sold after 27 August 1987 and
that respondents liability be made solidary.
Respondents denied UPSUMCOs claims. PNB contended that as foreclosing creditor, it had the
prerogative to place UPSUMCOs accounts in PNB Dumaguete in the name of APT. PNB added that
this procedure is based on the set-off clauses provided in the "covering instruments" of UPSUMCOs
loans. PNB counterclaimed for damages.
For its part, APT contended that UPSUMCOs claims have been "paid, waived, abandoned or
otherwise extinguished." As counterclaim, APT sought payment of the deficiency from the
foreclosure sale.
Pending trial, the trial court allowed UPSUMCO to examine the records of PNB relating to
UPSUMCOs accounts in PNB Dumaguete and PNB Escolta. In the course of such examination,
UPSUMCO found out that, as of latest updating, the credit balance in its five savings accounts in
PNB Dumaguete was P1,489,656.80.17 For its bank account in PNB Escolta, UPSUMCO learned
that as of 26 November 1986, it had a credit balance of P352,869.28 which, however, PNB refused
to release. UPSUMCO also discovered the following: (1) on 27 August 1987, PNB transferred to
APTs bank account UPSUMCOs deposits from its five savings accounts in PNB Dumaguete
amounting to P14,316,593.29; (2) Santos, as APTs comptroller, withdrew the funds in UPSUMCOs
bank accounts in the Rural Banks of Bais City and Manjuyod and deposited them to APTs bank
account in PNB Dumaguete; (3) from 27 August 1987 to 8 December 1987, PNB credited to APTs
bank account, through credit memoranda, the proceeds from the sale of UPSUMCOs sugar
amounting to P74,563,823.80; and (4) on 2 September 1987 and 2 October 1987, PNB paid
PHILSUCOR P41,407,444.95. UPSUMCO adopted as part of its evidence the documents showing
these transfers and payments.
The Ruling of the Trial Court
In its Decision 18 of 27 April 1992, the trial court rendered judgment for UPSUMCO and ordered
respondents, singly and solidarily, to pay UPSUMCO, with interest, the following: (1) the credit
balance, as of 13 February 1990, in UPSUMCOs five savings accounts in PNB Dumaguete and the
deposits from these accounts PNB credited to APT on 27 February 1987; (2) the deposits in
UPSUMCOs bank accounts in the Rural Banks of Bais City and Manjuyod Santos transferred to
APT; (3) the proceeds of the sale of UPSUMCO sugar PNB transferred to APT from 27 August 1987
to 8 December 1987; (4) the payments PNB made to PHILSUCOR; (5) the credit balance, as of 26
November 1986, in UPSUMCOs bank account in PNB Escolta; (6) the milling plants maintenance
and operating expenses from 3 September 1987 to January 1988 which UPSUMCO paid; and (7)
attorneys fees. The trial court also ordered respondents to solidarily pay exemplary damages. 19 The
trial court held:

Crystal[l]izing in simpler terms the facts, it appears that the [UPSUMCO] was both a debtor and
depositor[], and that defendant PNB was both a creditor and a depository bank. When Proclamation
No. 50 was issued by President Aquino on [December 8, 1986] and defendant PNB executed in
favor of defendant APT a deed of assignment of its rights and interest on certain corporations,
UPSUMCOs debt was included which indebtedness total[]ed as of June 30, 1987 in the amount
of P2,137,076,433.15. Defendants PNB and APT jointly executed foreclosure proceedings against
the properties of [UPSUMCO] covered by mortgages and pledges. Prior, on and after the foreclosure
proceedings, defendant PNB paid Philippine Sugar Corporation out of [UPSUMCOs] funds and
deposits. At the foreclosure sale, on August 27, 1987, defendant APT was the winning bid [sic] in the
amount of P450,000,000.00. Thus, deducting the amount of the winning bid, there remained a
deficiency balance of P1,687,076,433.15. On September 3, 1987, [UPSUMCO] and defendant APT
entered into a Deed of Assignment (Exh. "K") and [the] term[s] substantially stated that in
consideration of [UPSUMCOs] [sic] waiving its right of redemption, defendant APT condoned any
deficiency amount it may be entitled from the [UPSUMCO].
In finest terms, before the assignment by defendant PNB of its rights, interests, [and] collectibles in
favor of defendant APT on February 27, 1987 x x x the role of PNB, was both a creditor and a
depository bank. [UPSUMCO] was a debtor and a depositor. After the execution of said Deed of
Assignment of February 27, 1987, defendant PNB became an assignor and maintained its status as
a depository bank. [UPSUMCO] maintained itself as a debtor and a depositor. However, a third party
came in, APT, who was subrogated to the rights of defendant PNB as a creditor.
As its legal effect, the obligation of [UPSUMCO] with defendant PNB was novated by the
subrogation of creditors, i.e. defendant APT stepping into the shoes on the creditors right of
defendant PNB. x x x x
[D]efendant PNBs participation in the foreclosure proceedings did not cause retention of the former
as a creditor, the same being unnecessary. Legally, as the assignee, and subrogated to the rights of
defendant PNB, defendant APT is considered the only foreclosing creditor. Thus, defendant PNB
being not a foreclosing creditor, cannot claim to any deficiency claim.
Furthermore, if at all any deficiency claim do exists [sic], regardless as to whether it is in favor of
defendant PNB, or defendant APT, the same has been absolutely abandoned or condoned upon the
execution of [the] Deed of Assignment between [UPSUMCO] and APT in its initial pleadings may
have attempted to becloued [sic] the existence and validity of said Deed of Assignment, [however] in
its Memorandum dated February 18, 1992 (p. 716, Records), [APT] clearly admitted its validity and
existence with the qualification that the same should not be given retroactive effects [sic] prior to
August 27, 1987. But, even admitting in arguendo that either defendant PNB or defendant APT is
entitled to deficiency claim, was the procedure in perfecting [sic] such claim followed[?] As of the
date of the foreclosure on August 27, 1987, [UPSUMCO] was a creditor as to its deposits and
proceeds of sugar sale with the defendant PNB. NEITHER defendant PNB nor defendant APT can[]
simply appropriate the things of [UPSUMCO]. (Article 2088, Civil Code of the Philippines). If at all,
such deficiency claim did exist and subsist [sic], [the] foreclosing creditor should have initiated
proper actions to recover the same, particularly the creditors interest of [UPSUMCO] in the form of
deposits and proceeds of sale with defendant PNB. x x x Defendant PNB did not have any right, as a
debtor, to debit the interest of its creditor, [UPSUMCO], by the simple expediency of furnishing
[UPSUMCO] of credit memos that the latters bank deposits have been debited, and credited in favor
of defendant APT.20 (Capitalization in the original)
Respondents separately appealed to, but raised similar claims in, the Court of Appeals.
Respondents took issue with the trial courts finding that UPSUMCO no longer has any unpaid
obligations. Respondents claimed that the Deed of Assignment only covered the loans dated 5

November 1974, 24 June 1982, 10 December 1982, and 9 May 1984. Thus, UPSUMCO remains
liable for the other loans not mentioned in the Deed of Assignment.
The Ruling of the Court of Appeals
In its Decision of 29 February 1996, the Court of Appeals set aside the trial courts ruling and
remanded the case for further proceedings. The Court of Appeals found merit in respondents claim
that the Deed of Assignment condoned only some and not all of UPSUMCOs unpaid obligations. At
the same time, the Court of Appeals found that APT failed to show how much UPSUMCO owes it
and to account "for all the money which had been transferred to its account," thus the order to
remand the case. The Court of Appeals held:
A perusal of the Deed of Assignment plainly shows that what it expressly condoned was any
deficiency which APT, as assignee of PNBs rights, may be entitled to recover under the following
documents: (1) Credit Agreement dated November 5, 1974 x x x; and (2) the Restructuring
Agreements dated: (a) June 24, 1982, (b) December 10, 1982, and (c) May 9, 1984,
There is no ambiguity in the terms of the Deed of Assignment. What APT condoned were the
obligations covered by the documents expressly mentioned therein[.] Therefore, UPSUMCOs
assertion that said Deed covered all its other obligations with PNB and APT is unfounded. The Deed
of Assignment did not in any way include nor mention UPSUMCOs other obligations with PNB
subsequently transferred to APT covered by the following instruments or agreements, to wit:
1) Trust Receipts dated August 26, 1987; February 5, 1987; and July 10, 1987;
2) Deed of Assignment By Way of Payment dated November 16, 1984 x x x;
(3) Two (2) documents of Pledge both dated February 19, 1987;
(4) Sugar Quedans x x x;
(5) Credit Agreements dated February 19, 1987 x x x and April 29, 1987 x x x [;]
(6) Promissory Notes dated February 20, 1987 x x x; March 2, 1987 x x x; March 3, 1987 x x
x; March 27, 1987 x x x; March 30,1987 x x x; April 7, 1987 x x x; May 22, 1987 x x x; and
July 30, 1987 x x x.
xxxx
The provisions [in these instruments] are clear and leave no room for interpretation the Bank has
all the right to apply the proceeds of UPSUMCOs deposits with it and its affiliated banks, as well as
the proceeds of the sale of UPSUMCOs sugar and molasses, in satisfaction of UPSUMCOs
obligations. This right was never waived by PNB and was subsequently transferred to APT by virtue
of the Deed of Transfer executed between them (Exh. MM). Neither did APT ever waive such right.
Thus, the same should be considered as valid and binding between it and UPSUMCO.
The lower court, in granting [UPSUMCOs] motion for release of the aforementioned deposits,
treated the savings deposits of UPSUMCO with PNB and the Rural Banks of Bais and Manjuyod as
"ordinary or regular savings accounts." These accounts however are not ordinary. They were opened
because UPSUMCO was required to do so in compliance with the mandate of the Credit
Agreements x x x. The deposits form part of the additional securities required of UPSUMCO under

the Credit Agreements for the release of its additional loan. Consequently, since APT as assignee
of PNB enjoyed the privilege to apply the proceeds therefrom in satisfaction of UPSUMCOs
obligations and had accordingly applied the same thereto, UPSUMCO cannot validly claim that it still
owns the funds deposited in these accounts.
Significantly, if UPSUMCO truly owned these funds, why did it need APTs approval to use or
disburse the same while it was acting as caretaker of the mill after the foreclosure? x x x
In view of the foregoing, APT is therefore entitled to have the funds from UPSUMCOs savings
accounts with PNB Dumaguete and its affiliated banks transferred to its own account, to the extent of
UPSUMCOs remaining obligation, less the amount condoned in the Deed of Assignment and
the P450,000,000.00 proceeds of the foreclosure. As transferee of these deposits, APT has the right
to use and enjoy these funds as it deems fit, in furtherance of its role under Proclamation No. 50. We
find nothing irregular either in the transfer of the proceeds of the sugar sold to APT x x x. As
previously mentioned, the obligations secured by these objects were not included in the Deed of
Assignment and have not been condoned.
xxxx
On APTs counterclaim that it is still entitled to recover deficiency balance from UPSUMCO, it is not
clear from the record how much deficiency balance there is, if any. It is not disputed that as of June
30, 1987, the total obligation of UPSUMCO amounted to P2,137,076,433.15. x x x Thereafter, it
applied UPSUMCOs deposits as well as the sugar and molasses sales to UPSUMCOs remaining
obligation. However, APT failed to present an accounting of UPSUMCOs entire obligation and the
total amount of payments already made. We could not make an award based on conjectures. APT
has the duty to prove its claims against UPSUMCO, and the latter is entitled to know how much it
already paid and to which obligations these payments were applied.
Finally, although the foreclosure yielded only P450,000,000.00, APT is still duty-bound to render an
accounting for all the money which had been transferred to its account as well as the proceeds of
the sugar and molasses sale. Only after such accounting has been completed could this Court
decide how much it is still entitled to recover from UPSUMCO.
Correlatively, before we could decide on whether any balance remains in favor of UPSUMCO and
whether it is entitled to recover the funds expended for the operation of the mill and the wages of the
mill workers, the aforementioned accounting should first be completed.21 (Emphasis in the original)
UPSUMCO sought reconsideration but the Court of Appeals denied its motion in the Resolution of
29 October 1996.
Hence, this petition. UPSUMCO contends that:
(A) THE COURT OF APPEALS SERIOUSLY ERRED IN ITS FINDINGS AND CONCLUSION THAT
EXCEPT FOR THE P2,137,076,433.15 PAST DUE OR DELINQUENT ACCOUNTS OF UPSUMCO,
COMPUTED AND DETERMINED AS OF JUNE 30, 1987 WITH THE CONFORMITY OF
UPSUMCO, WHOSE COLLATERALS WERE EXTRAJUDICIALLY FORECLOSED BY PNB AND
APT, UPSUMCO HAS OTHER UNPAID OBLIGATIONS TO PNB WHICH IT SUBSEQUENTLY
TRANSFERRED TO APT.
(A-1) AS A SIGNATORY IN THE STATEMENT OF ACCOUNT-SUMMARY
COVERING THE PAST DUE ACCOUNTS OF UPSUMCO AS OF JUNE 30, 1987 TO

PNB AND PHILSUCOR FOR PURPOSES OF EXTRAJUDICIAL FORECLOSURE

[PNB] KNEW IT WAS FULLY PAID OF ITS OPERATIONAL LOANS GRANTED ON
PER CROP YEAR BASIS TO UPSUMCO.
(A-2) PNB IS ONLY A NOMINAL PARTY IN THE EXTRAJUDICIAL FORECLOSURE,
AS ATTORNEY-IN-FACT OF THE PHILIPPINE SUGAR CORPORATION
(PHILSUCOR).
(A-3) KNOWLEDGE OF FOREGOING FACTS PRECLUDED PNB AND APT FROM
ALLEGING IN THEIR RESPECTIVE PLEADINGS CLAIMS OR COUNTERCLAIMS
CONSTITUTING OTHER UNPAID OBLIGATIONS OF UPSUMCO TO PNB OR APT
--- THERE BEING NONE.
(A-4) THE PRE-TRIAL BRIEFS OF PNB AND APT DO NOT RAISE ANY ISSUE
CONCERNING OTHER UNPAID OBLIGATIONS OF UPSUMCO TO PNB/APT.
(A-5) NO EVIDENCE OF DEMAND WAS MADE BY PNB AND APT TO ENFORCE
COLLECTION OF OTHER UNPAID OBLIGATIONS ON UPSUMCO, IF TRUE.
(A-6) PNB AND APT ALLOWED UPSUMCO UNIMPEDED ENJOYMENT OF ITS
DEPOSITS AS AN EXERCISE AND ATTRIBUTE OF OWNERSHIP IN OTHER
BANK BRANCHES OF PNB AFTER THE EXTRAJUDICIAL FORECLOSURE, AND
IN OTHER BANKS WHERE UPSUMCO HAS BANK DEPOSITS. ACTS WHICH
AMOUNTED TO RELEASE AND DISCHARGE OF UPSUMCOS OBLIGATIONS TO
PNB, THENCE TO APT.
(A-7) UPSUMCO PAID ITS CREDITORS FROM BANK DEPOSITS AND SUGAR
PROCEEDS MAINTAINED IN PNB, DUMAGUETE CITY BRANCH WITHOUT PNB
AND/OR APT OBJECTING. ANOTHER EVIDENCE OF RELEASE OF UPSUMCO
FROM ITS REMAINING OBLIGATIONS TO PNB/APT, IF ANY.
(A-8) OF THE ELIMINATION OF PNBS REPRESENTATION, THENCE APT, IN THE
BOARD OF UPSUMCO DURING THE REGULAR ELECTION AT A
STOCKHOLDERS MEETING ON NOVEMBER 11, 1987 WAS ANOTHER
INDELIBLE EVIDENCE THAT THE FINDINGS AND CONCLUSION OF THE COURT
OF APPEALS WERE PREMISED ON THE ABSENCE OF EVIDENCE AND IS
CONTRADICTED BY THE EVIDENCE ON RECORD CONCERNING ITS
ERRONEOUS FINDINGS ON "OTHER UNPAID OBLIGATIONS OF UPSUMCO.["]
(A-9) PNB COULD NOT HAVE ASSIGNED OR TRANSFERRED TO APT OTHER
LOAN ACCOUNTS OF UPSUMCO OBTAINED THRU QUEDAN FINANCING,
BEING CURRENT IN STATUS.
(A-10) CREDIT AGREEMENTS DATED FEBRUARY 19, 1987 AND APRIL 29, 1987
AND ALL OTHER INSTRUMENTS OF INDEBTEDNESS OF UPSUMCO IN 1984
AND 1987 WERE NOT INCLUDED IN THE FORECLOSED AMOUNT
OF P2,137,076,433.15 AND WERE NEITHER VALIDLY TRANSFERRED OR
ASSIGNED BY PNB TO APT ANYTIME THEREAFTER BECAUSE OF THE
STATUTE OF FRAUD[.]

(A-11) CREDIT AGREEMENTS, PROMISSORY NOTES, AND TRUST RECEIPTS

WERE FORMALLY OFFERED IN EVIDENCE NOT TO ESTABLISH THE LIABILITY
OF UPSUMCO UNDER SAID INSTRUMENTS, BUT FOR DIFFERENT PURPOSES.
(B) THE DECISION OF THE COURT OF APPEALS IS CONTRARY TO THE LAWS ON NOVATION
AND COMPENSATION AND THE SETTLED AND APPLICABLE DOCTRINES THEREON WHERE
THE TRIAL COURT HAS APTLY AND CORRECTLY APPLIED IN ITS DECISION DATED APRIL 27,
199[2.]
(B-1) THERE IS NO DEFICIENCY BALANCE REMAINING THAT UPSUMCO
COULD BE HELD LIABLE TO PAY AS A RESULT OF THE EXECUTION OF THE
DEED OF ASSIGNMENT ON SEPTEMBER 3, 1987. AND SHOULD THERE BE
ANY, PNBS RIGHTS UNDER SAID CREDIT AGREEMENTS AND OTHER
INSTRUMENTS OF INDEBTEDNESS HAS BECOME FUNCTUS OFFICIO, THAT
COMPENSATION WAS NO LONGER PROPER.
(B-2) APT IS NOT ENTITLED TO COMPENSATION OTHERWISE THERE WOULD
BE DOUBLE PAYMENT.
(B-3) PNB, AFTER FEBRUARY 27, 1987 COULD NO LONGER INVOKE
COMPENSATION[.]
(C) IN FAILING TO AFFIRM THE LIABILITY OF PNB TO UPSUMCO WHEN PNB PAID PHILIPPINE
SUGAR CORPORATION (PHILSUCOR) THE TOTAL AMOUNT OF P41,407,444.75 WITHOUT THE
KNOWLEDGE AND AUTHORITY FROM THE BOARD OF DIRECTORS OF UPSUMCO.
(D) IN ORDERING THE REMAND OF THE CASE TO THE LOWER COURT WHEN IT COUL[D]
HAVE DECIDED THE CASE BASED ON THE EVIDENCE ON RECORD.22
In their respective Comments, respondents claim that the Court should deny the petition outright for
raising questions of fact instead of questions of law. Alternatively, respondents maintain that the
Court of Appeals did not commit any reversible error.
The Issues
The petition raises the following issues:
(1) Procedurally, whether the petition should be denied outright for raising factual questions;
and
(2) On the merits
(a) Whether UPSUMCO has any outstanding obligations to respondents, and, in the
negative,
(b) Whether UPSUMCO is entitled to all the monetary awards the trial court ordered
respondents to pay.
The Ruling of the Court
The petition has merit. With some modifications, we reinstate the trial courts ruling.

On Whether the Petition Deserves Outright Denial

Respondents correctly observe that the petition raises questions of fact instead of questions of law
because the issues call for a determination of the truth or falsity of alleged facts and not of what the
law is on a certain state of facts.23 However, respondents err in concluding that, for this reason, the
petition deserves outright denial. Although under Section 1, Rule 45 of the 1997 Rules of Civil
Procedure, this Court will resolve only questions of law in a petition for review,24 this rule is subject to
several exceptions and one of these is when, as here, the lower courts arrived at conflicting findings
of fact.25 For this reason, we opt to review this case.
UPSUMCO Has No
Unpaid Obligations to Respondents
UPSUMCOs obligations to PNB, and later, to APT, sprang from two sources (1) the take-off loans
to finance the construction of UPSUMCOs milling plant (e.g. the Credit Agreement dated 5
November 1974 as re-structured on 24 June 1982, 10 December 1982, and 9 May 1984) and (2) the
operational loans (e.g. Credit Agreements dated 19 February 1987 and 29 April 1987 and the loan
under the Deed of Payment by Way of Assignment). As will be shown shortly, we find that
UPSUMCO no longer owes respondents under either types of loan.
As of 30 June 1987, PNB placed UPSUMCOs total "mortgage indebtedness"
at P2,137,076,433.15.26 By APTs own admission27 in its counterclaim, this amount in fact represents
UPSUMCOs total indebtedness to PNB and APT as of 30 June 1987, thus:
COUNTERCLAIM
19. The total indebtedness of [UPSUMCO] to PNB and APT as of June 30, 1987 was TWO BILLION
ONE HUNDRED THIRTY SEVEN MILLION SEVENTY SIX THOUSAND FOUR HUNDRED THIRTY
THREE AND 15/100 (P2,137,076,433.15) PESOS, while the assets of [UPSUMCO] were foreclosed
and sold for FOUR HUNDRED FIFTY MILLION (P450,000.000.00) PESOS[] only thereby leaving a
deficiency balance of ONE BILLION SIX HUNDRED EIGHTY SEVEN MILLION SEVENTY SIX
THOUSAND FOUR HUNDRED THIRTY THREE AND 15/100 (P1,687,076,433.15) payable by the
plaintiff [UPSUMCO] to the NATIONAL GOVERNMENT[.] (Capitalization in the original; boldfacing
supplied) 28
The parties agree that this total obligation was partially paid by the proceeds of the foreclosure sale
of P450 million, leaving a deficiency balance of P1,687,076,433.15. It is respondents claim, which
the Court of Appeals sustained, that a portion of this amount remains unpaid because the Deed of
Assignment only condoned "any deficiency amount [APT] may be entitled to recover from
[UPSUMCO] under the Credit Agreement dated November 5, 1974 and the Restructuring
Agreements dated June 24 and December 10, 1988, and May 9, 1984." Thus, the appellate court
concluded that the Deed of Assignment could not have condoned UPSUMCOs other obligations
under the Credit Agreements dated 19 February 1987 and 29 April 1987 and their ancillary
documents (i.e. the Pledges, assignment contracts and promissory notes).
This is error.
Contrary to the Court of Appeals ruling, we find that the Deed of Assignment fully condoned
UPSUMCOs deficiency obligation of P1,687,076,433.15. For clarity in discussion, we reproduce
below the Deed of Assignment, thus:

That United Planter[s] Sugar Milling Co., Inc. (the "Corporation") (pursuant to a resolution passed
by its board of Directors on September 3, 1987, and confirmed by the Corporations stockholders in
a stockholders Meeting held on the same (date), for and in consideration of the Asset Privatization
Trust ("APT") condoning any deficiency amount it may be entitled to recover from the Corporation
under the Credit Agreement dated November 5, 1974 and the Restructuring Agreement[s] dated
June 24 and December 10, 1982, and May 9, 1984, respectively, executed between the Corporation
and the Philippine National Bank ("PNB"), which financial claims have been assigned to APT,
through the National Government, by PNB, hereby irrevocably sells, assigns and transfer to APT its
right to redeem the foreclosed real properties covered by Transfer Certificates of Title Nos. T-16700
and T-16701.
IN WITNESS WHEREOF, the Corporation has caused this instrument to be executed on its behalf
by Mr. Joaquin S. Montenegro, thereunto duly authorized, this 3rd day of September,
1987.29 (Emphasis supplied)
UPSUMCOs Board Resolution of 3 September 1987, authorizing its President Joaquin Montenegro
("Montenegro") to sign the Deed of Assignment, reads in full:
RESOLVED, That in consideration of the Asset Privatization Trust ("APT") condoning any deficiency
amount it may be entitled to recover from the Corporation after having foreclosed the real estate and
chattel mortgages assigned to APT, through the National Government, by the Philippine National
Bank ("PNB"), which mortgages were executed in favor of PNB by the Corporation to secure its
obligations under the Credit Agreement dated November 5, 1974 and the Restructuring Agreements
dated June 24 and December 10, 1982, and May 9, 1984, respectively, executed by the Corporation
and PNB, the Corporation is hereby authorized to irrevocably sell, assign, and transfer to APT the
Corporations right to redeem the foreclosed real properties covered by Transfer Certificates of Title
Nos. T-16700 and T-16701;
RESOLVED, Further that Mr. Joaquin S. Montenegro, the President-Director of the Corporation, be
and is hereby authorized for and in behalf of the Corporation to make, sign, execute and/or deliver
any and all such agreements, undertakings, or other documents, as well as to perform any and all
such acts as may be necessary to implement the foregoing resolution;
RESOLVED, FINALLY That all actions taken by Mr. Joaquin S. Montenegro pursuant to the
foregoing resolution be, and the same are hereby confirmed and ratified to be binding on this
Corporation.30 (Emphasis supplied)
Taken together, these two documents support UPSUMCOs claim that, as stated in its Resolution of
3 September 1987, APT condoned "any deficiency amount it may be entitled to recover x x x after
[foreclosing the mortgages securing] the obligations under the Credit Agreement dated November 5,
1974 and the Restructuring Agreements dated June 24 and December 10, 1982, and May 9, 1984."
Indeed, the Deed of Assignment should not be treated in isolation but considered in the larger
context of the APT initiated "friendly foreclosure" of UPSUMCOs mortgaged assets.
During the trial, it was disclosed that APT offered UPSUMCO the following incentives for the latter to
agree to the expedited foreclosure (to enable APT to quickly dispose of the mortgaged properties, as
it did sell them to URSUMCO less than a month after the Deed of Assignments signing): (1) a 5%
"preference" or mark-up on UPSUMCOs bid price in the auction sale of the foreclosed properties, or,
should UPSUMCO lose in the bidding, a cash payment equivalent to 5% of the winning bid; (2) the
waiver of the solidary obligation of UPSUMCOs Directors; and (3) the condonation of any deficiency
from the foreclosure sale.31 APT made good on its word by releasing UPSUMCOs Directors from
their solidary liability, executing the Deed of Assignment, and paying UPSUMCO P25 million in April

1988 (representing 5% of URSUMCOs P500 million winning bid).32 Thus, we find unconvincing
APTs claim here that the Deed of Assignment condoned only a portion of UPSUMCOs deficiency
obligation. Significantly, UPSUMCO and APTs actuations after the signing of the Deed of
Assignment are consistent with a full condonation of the formers deficiency liability APT never
demanded payment from UPSUMCO and UPSUMCO carried out its affairs as a debt-free
corporation.33
Further, the question of whether APT fully condoned UPSUMCOs deficiency obligation had been
judicially settled. In United Planters and Sugar Milling Corporation, Inc. v. Philippine Sugar
Corporation ("PHILSUCOR Case"), UPSUMCO sued PHILSUCOR also in the Regional Trial Court
of Bais City, Branch 45, for "Release and Discharge of Obligation with Damages" to recover, as in
this case, a sum of money PNB paid to PHILSUCOR after the foreclosure on 27 August 1987. In its
Decision dated 7 March 1994 in Civil Case No. 63-B, the trial court ruled for UPSUMCO, holding that
since PHILSUCOR appointed PNB as its foreclosing agent for its proportionate lien in UPSUMCOs
mortgaged assets, PHILSUCOR is bound by PNBs assignment of credit to the Government/APT
and by APTs subsequent condonation of UPSUMCOs deficiency liability. The trial court held:
Defendant [PHILSUCOR] ha[d] notice of the friendly foreclosure conducted by APT and PNB. x x x x
[UPSUMCO] was made to believe that the proceedings were with the participation of APT, PNB and
the defendant [PHILSUCOR]. [UPSUMCO], due to the conduct of the defendant [PHILSUCOR], and
the other parties, PNB and APT[,] was made to believe that when it assigned its right of redemption,
it was in consideration of the condonation of deficiency claims against it including that which pertains
to the defendant [PHILSUCOR].
xxxx
The doctrine of estoppel x x x, precludes [a party] from repudiating an obligation voluntarily assumed
after its having accepted benefits therefrom. x x x x
Under the aforesaid principle of estoppel, defendant [PHILSUCOR] in the case at bar, after having
made [UPSUMCO] believed [sic] in good faith that the foreclosure proceedings, including[] a part of
it, i.e. condonation of deficiency claims against plaintiff, and after having benefited from such
conduct, [cannot] undertake an inconsistent claim subsequently and proceed with its concealed
intention to collect deficiency claim against [UPSUMCO].
In fact, according to Atty. Buag, defendant [PHILSUCOR] did not make any reservation to claim for
deficiency after having received its share of the auction sale in the amount of P58 million from APT. x
x x However, defendant [PHILSUCOR] left the matter of deficiency balance to APT. x x x But, what
happened was that APT condoned said deficiency claim against [UPSUMCO]. x x x x
WHEREFORE, premises considered, this Court renders the following judgment:
On Civil Case No. 63-B
1. [UPSUMCO] is hereby ordered released and discharged from any and all claims that the
defendant [PHILSUCOR] may have against the former;
x x x x34
(Underlining in the original; boldfacing supplied)

PHILSUCOR appealed to the Court of Appeals but that court affirmed the trial courts ruling in its
Decision35 dated 15 October 1997 in CA G.R. CV No. 46957, the dispositive portion of which
provides:
WHEREFORE, the decision appealed from is AFFIRMED with the MODIFICATION that the
defendant-appellant, the PHILIPPINE SUGAR CORPORATION[,] is held liable to plaintiff-appellant,
the UNITED PLANTERS SUGAR MILLING [COMPANY], INC., for attorneys fees in the amount
equivalent to ten percent (10%) of the award for compensatory damages allowed by the court
below.36
PHILSUCOR further appealed to this Court but we dismissed its petition outright in the Resolution of
30 March 1998 in G.R. No. 132731. This ruling became final on 6 August 1998. The doctrine
of stare decisis provides that a conclusion reached in one case should, for the sake of certainty, be
applied to those which follow, if the facts are substantially the same, even though the parties may be
different.37 Accordingly, we apply the conclusion in the PHILSUCOR Case here.
1wphi1

Indeed, for us to rule that UPSUMCO still owes respondents, nothing less than concrete and
uncontested proof of UPSUMCOs unpaid obligations suffices. Absent such proof, and respondents
presented none, we see no reason to remand this case to the trial court to compute UPSUMCOs
supposed unpaid obligations, the existence of which is left to inference.
PNB and/or APTs Right to Set-Off
UPSUMCO Funds Ended on 26 August 1987
Aside from wiping-out all of UPSUMCOs deficiency obligation, the Deed of Assignment also ended
any right PNB and/or APT had to set-off UPSUMCO funds.38 Although UPSUMCO and APT signed
the Deed of Assignment on 3 September 1987, we hold that its effectivity should properly retroact to
the date of the foreclosure on 27 August 1987 considering that the Deed of Assignment was part of
the APT-sponsored "friendly foreclosure" of UPSUMCOs assets, entailing UPSUMCOs waiver of its
redemption right. Hence, the cut-off date for PNB and/or APT to set-off UPSUMCO funds was 26
August 1987. From 27 August 1987 onwards, all UPSUMCO funds under the control or possession
of respondents belonged wholly to UPSUMCO. What PNB did here was (1) pay PHILSUCORs
deficiency claim against UPSUMCO; (2) transfer to APTs account, upon the latters request,
UPSUMCOs bank deposits in PNB Dumaguete; (3) transfer to APT, through credit memos, the
proceeds of the sale of UPSUMCO sugar; and (4) appropriate the bank deposit in UPSUMCOs
account in PNB Escolta on or after 27 August 1987. Similarly, Santos, as APT comptroller, withdrew
funds from UPSUMCOs bank accounts in the Rural Banks of Bais City and Manjuyod and deposited
them to APTs bank account in PNB Dumaguete on and after 27 August 1987, respectively.
On the Monetary Awards UPSUMCO is Entitled
Accordingly, we affirm the trial courts ruling ordering PNB and/or APT to pay UPSUMCO (1) the
credit balance in UPSUMCOs savings accounts in PNB Dumaguete, PNB Escolta, and the Rural
Banks of Bais City and Manjuyod, Negros Oriental; (2) the deposits from UPSUMCOs savings
accounts in PNB Dumaguete PNB transferred to APT; (3) the proceeds from the sale of UPSUMCO
sugar from 27 August 1987 onwards which PNB credited to APT; and (4) the amounts paid to
PHILSUCOR. UPSUMCO did not include in its Complaint the last item because it could not have
done so, having discovered the documentary evidence on this matter only during the course of the
trial after the trial court allowed the examination of PNBs books. However, we agree with the trial
court that such falls under UPSUMCOs prayer in its Amended Complaint for the payment of the
proceeds of "sugar [PNB] sold and/or liquidated" after the foreclosure on 27 August 1987 as PNB
paid PHILSUCOR using funds taken from such sale.39

For the other items awarded to UPSUMCO, the following modifications are in order:
(1) On the trial courts order for APT to pay the cost for the milling plants maintenance and
operating expenses, ordinarily, the mortgagor retains ownership of the foreclosed property
during the redemption period,40 and thus remains liable for the maintenance expenses.
However, in the present case, UPSUMCO waived its redemption right. This had the effect of
consolidating ownership over the foreclosed properties to APT effective 27 August 1987, the
date of foreclosure. APTs ownership continued until it sold the milling plant to URSUMCO on
29 December 1987. Thus, APT is liable for the milling plants maintenance and operating
expenses only from 27 August 1987 to 29 December 1987.
1wphi1

During the trial, UPSUMCO showed that it paid for the maintenance and operating expenses
from 3 September 1987 to "January 1988." UPSUMCO thus waived presenting evidence on
the expenses from 27 August 1987 to 3 September 1987. On the other hand, the expenses
incurred after 29 December 1987 cannot be charged to APT. Hence, in the execution of this
judgment, the trial court is ordered to recompute the amount chargeable to APT covering the
period 3 September 1987 to 29 December 1987 only. This does not entail reception of new
evidence but only a mathematical computation to proportionately reduce the amount payable
taking into account the shortened period;41
(2) On the award of exemplary damages, we also find this appropriate to set an example to
creditor banks and their assignees not to trifle with the funds of their depositors or debtors,
as the case may be.42 However, since exemplary damages cannot be awarded by itself but
must be given in addition to moral, temperate, or actual damages, none of which the trial
court awarded,43 we further order respondents to jointly and severally pay UPSUMCO
nominal damages in the amount of P100,000. This is but proper as respondents clearly
violated UPSUMCOs right to enjoy and have control over its deposited funds and the
proceeds of the sale of its sugar produce;44
(3) The award of attorneys fees is also in order because UPSUMCO had to incur expenses
to protect its interest and of the award of exemplary damages.45 However, we reduce the
award to P500,000 for which respondents are solidarily liable. If the trial courts order
requiring respondents to pay 20% attorneys fees on each of the obligations respondents are
held liable singly and solidarily (apparently the rate agreed between UPSUMCO and its
counsel), UPSUMCO stands to receive P26,217,744.698, excluding interest and the
adjusted amount for the maintenance expenses. This, by any measure, is exorbitant. Under
the circumstances, we find the amount of P500,000 as attorneys fees to be more
appropriate;46
(4) On the payment of interest, the 12% rate the trial court imposed applies only when the
obligation breached consists in the payment of a sum of money i.e. forbearance of money, in
the absence of a stipulation. Otherwise the applicable rate is 6% per annum.47 Thus, except
for UPSUMCOs bank deposits in (1) PNB Dumaguete and Escolta and (2) the Rural Banks
of Bais City and Manjuyod, which being forbearance in money, are subject to interest rates of
10%48 and 12%49 per annum, respectively, the interest rate on all the other monetary awards
to UPSUMCO should be reduced to 6% per annum. Upon the finality of this ruling, the rate of
interest shall be 12% per annum for the entire judgment, until its satisfaction.50
WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 29 February 1996 and
the Resolution dated 29 October 1996 of the Court of Appeals. We REINSTATE the Decision dated
27 April 1992 of the Regional Trial Court of Bais City, Branch 45, with the
following MODIFICATIONS:

(1) APT, now the Privatization Management Office ("PMO"), is ORDERED to pay UPSUMCO
the maintenance and operating expenses of the milling plant incurred from 3 September
1987 to 29 December 1987 only;
(2) PNB and APT, now the PMO, are ORDERED to jointly and severally pay UPSUMCO
nominal damages in the amount of P100,000;
(3) PNB and APT, now the PMO, are ORDERED to jointly and severally pay UPSUMCO
attorneys fees in the amount of P500,000; and
(4) The interest rates for the monetary awards relating to UPSUMCOs bank accounts in (a)
PNB Dumaguete and Escolta Branches and (b) the Rural Banks of Bais City and Manjuyod
are 10% and 12% per annum, respectively, computed from 13 March 1987. All the other
monetary awards due to UPSUMCO shall earn interest at 6% per annum also computed
from 13 March 1987. Upon the finality of this ruling, the rate of interest for the entire
judgment shall be 12% per annum until its payment.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CONCHITA CARPIO MORALES
Associate Justice

DANTE O. TINGA
Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice
ATT E S TATI 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.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
C E R TI F I C ATI O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons 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.
ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes
1

Under Rule 45 of the Rules of Court.

Penned by Associate Justice Alfredo L. Benipayo with Associate Justices Corona IbaySomera and Celia Lipana-Reyes, concurring.
2

Covered by Transfer Certificates of Title Nos. T-16701 and T-16700 and measuring 87,154
square meters and 125,804 square meters, respectively.
3

Savings Account Nos. 5176994, 5188305, 5192639, 5197762, and 5208578.

Current Account No. 8300963.

No. 0120-011088-702.

The contracts provide:

"The CLIENTS shall open and/or maintain a deposit account with the BANK, and the
BANK shall have the right to apply any amount on deposit with it or with any of its
subsidiaries or affiliates to the payment of any amount past due hereunder or under
any other credit accommodation granted to the CLIENTS by the BANK, including
amounts due for advances made by the BANK for insurance premiums, taxes, fees,
and other charges."

Dated 20 February 1987, 2 March 1987, 3 March 1987, 27 March 1987, 30 March 1987, 7
April 1987, 22 May 1987, and 30 July 1987 (Records, pp. 586-593).
8

UPSUMCO also executed trust receipts for sugar sold for PNB. Three such trust receipts,
dated 5 February 1987, 10 July1987 and 26 August 1987, are found in the records.
9

10

Under Presidential Decree No. 1890, dated 14 November 1983.

PHILSUCOR bailed out 13 other sugar millers with delinquent PNB accounts. The Court of
Appeals in United Planters and Sugar Milling Corporation, Inc. v. Philippine Sugar
Corporation (CA-G.R. CV No. 46957) had occasion to discuss in detail the set-up between
PNB and PHILSUCOR, thus: "For a clearer appreciation of the x x x agreement [between
PHILSUCOR and PNB], it is to be noted that [PHILSUCOR] circulated government-backed
indentures through the issuance of high-yielding sugar bonds which are sold in primary
markets or in commercial banks to finance the "cash throw-off" in favor of the indebted sugar
mills. Under the [agreement], [PHILSUCOR] became a new creditor of UPSUMCO for the
principal amount of P262,420 Million Pesos (representing 30% of UPSUMCOs loan
outstanding to PNB as of 14 February 1984); the "cash throw-off" refunding of the distressed
loans lowered the principal loan outstanding of the sugar mills in PNB but added a variation
in the obligation. Under the re-structured loan arrangement, UPSUMCO must continue to
service the debt and repay its remaining obligation with the PNB under the original terms and
conditions of the credit arrangement to prevent an acceleration of the term-loan maturity and
avoid a liquidation of the collectibles of PNB through a recourse against the collateral, while
11

UPSUMCO simultaneously and separately repays its new loan with x x x [PHILSUCOR]. In
other words, UPSUMCO must pay two loans: (1) repayment of the amount financed by
[PHILSUCOR] for a 30% cash throw-off; and, (2) repayment of the remaining balance on its
secured loan in PNB." (Rollo [G.R. No. 132731], pp. 58-59).
"Proclaiming and Launching a Program for the Expeditious Disposition and Privatization of
Certain Government Corporations and/or Assets thereof, and Creating the Committee on
Privatization and the Asset Privatization Trust."
12

APTs term ended on 31 December 2000 as provided under Republic Act No. 8758. It has
since been replaced by the Privatization Management Office ("PMO") created under
Executive Order No. 323, dated 6 December 2000.
13

14

Exh. "MM."

Signed by Johnny Araneta, Associate Executive Trustee of APT, and Joaquin S.

Montenegro, UPSUMCO President.
15

16

Records, p. 254.

UPSUMCO moved for the release of this amount, with interest. Over respondents
objections, the trial court, in its Order of 4 January 1990, granted UPSUMCOs motion and
directed PNB to release the deposits in question. On 14 February 1990, PNB paid
UPSUMCO P1,950,000.
17

18

Penned by Judge Ismael O. Baldado.

19

The dispositive portion of the trial courts ruling provides (Rollo, pp. 214-217):
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of
the plaintiff UNITED PLANTERS SUGAR MILLING [COMPANY] (UPSUMCO) and
against the defendant[s] PHILIPPINE NATIONAL BANK (PNB) and ASSET
PRIVATIZATION TRUST (APT) and the aforesaid defendants are hereby ordered to
pay to the plaintiff in the following manner:
1. Both defendant[s] Philippine National Bank and Asset Privatization Trust
are ordered jointly and severally to pay to plaintiff the following:
(a) the sum of FORTY SIX MILLION NINE HUNDRED EIGHTY
SEVEN THOUSAND FOUR HUNDRED FIFTY NINE & 49/100
(P46,987,459.49) PESOS, representing [the] amount transferred by
defendant PNB to APT in credit memo dated August 27, 1987 (Exh.
"QQ[]"), plus twelve percent (12%) interest per annum computed from
date of filing of the complaint;
(b) the sum of FOURTEEN MILLION THREE HUNDRED SIXTEEN
THOUSAND FIVE HUNDRED NINETY THREE & 29/100
([P]14,316,593.29) PESOS, representing the total sum of money
withdrawn from Savings Account Nos. 5176994[,] 5188305, 5192639,
5197762, and 520857[8] of plaintiff and transferred by defendant PNB
to defendant APT as shown in debit memo dated August 27, 1987

(Exh. "WW[]-1"), plus twelve percent (12%) interest per annum

computed from date of filing of the complaint;
(c) the sum of EIGHTEEN MILLION EIGHT HUNDRED NINETY SIX
THOUSAND SEVEN HUNDRED FIFTY THREE & 63/100
(P18,896,753.63) PESOS, representing the proceeds of the sale of
plaintiffs sugar credited by defendant PNB in favor of defendant APT
as shown in a credit memo dated August 28, 1987 (Exh. "XX"), plus
twelve percent (12%) interest computed from date of filing of the
complaint;
(d) the sum of THREE MILLION THREE HUNDRED TWENTY
THREE THOUSAND SIX HUNDRED FORTY SEVEN & 48/100
(P3,323,647.48) PESOS, representing proceeds of sale of plaintiffs
sugar which was credited by defendant PNB to the account of
defendant APT as shown by a credit memo dated September 4, 1987
(Exh. "YY"), plus twelve percent interest (12%) per annum computed
from date of filing of the complaint;
(e) the sum of FOUR MILLION NINE THOUSAND FOUR HUNDRED
THREE & 37/100 (P4,009,403.37) PESOS representing the proceeds
of sale of plaintiffs sugar credited by defendant PNB in favor of
defendant APT as shown by a credit memo dated September 15,
1987 (Exh. "ZZ"), plus twelve percent (12%) interest per annum
computed from date of filing of the complaint;
(f) the sum of THREE HUNDRED FORTY SIX THOUSAND FIVE
HUNDRED FIFTY NINE & 83/100 (P346,559.83) PESOS,
representing final differential of the sale of plaintiffs sugar for the year
1985-86 which was credited by defendant PNB in favor of defendant
APT as shown in a credit memo dated December 4, 1987 (Exh.
"AAA[]") plus twelve percent (12%) interest per annum computed
from date of filing of the complaint;
(g) the sum of ONE MILLION (P1,000,000.00) PESOS, representing
partial payments to the 6,399.89 piculs of export "A" sugar credited
by defendant PNB in favor of defendant APT as shown by a credit
memo dated December 8, 1987, plus interest at twelve (12%)
percentum per annum computed from date of filing of the complaint;
(Exh. "BBB")
2. Defendant Philippine National Bank is ordered to pay singly to plaintiff the
following:
(a) the sum of ELEVEN MILLION EIGHT HUNDRED THIRTY FOUR
THOUSAND FOUR HUNDRED NINETY EIGHT & 45/100
(P11,834,498.45) PESOS, corresponding to the payment made by
defendant PNB to the Philippine Sugar Corporation as shown in
Official Receipt No. 0160 dated September 2, 1987 (Exh. "LLL[L]")
plus interest at twelve percent (12%) per annum computed from date
of filing of the complaint;

(b) the sum of TWENTY NINE MILLION FIVE HUNDRED SEVENTY

TWO THOUSAND NINE HUNDRED FORTY SIX & 50/100
(P29,572,946.50) PESOS, corresponding to payment made by
defendant PNB to Philippine Sugar Corporation as shown in Official
Receipt No. 0109 dated October 20, 1987 (Exh. "LLL[L]-1"), plus
interest at twelve percent (12%) computed from date of filing of the
complaint;
(c) the sum of THREE HUNDRED FIFTY TWO THOU[]SAND EIGHT
HUNDRED SIXTY NINE & 28/100 (P352,869.28) PESOS,
corresponding to the credit balance as of November 26, 1986 of
plaintiffs Account No. 0120-011088-702 with defendant PNB (Escolta
Branch), plus twelve (12%) percent interest per annum computed
from date of the filing of the complaint;
(d) the sum of THIRTY FOUR THOUSAND TWENTY EIGHT &
29/100 (P34,028.29) PESOS, representing [the] balance of deposits
of Savings Account Nos. 5176994, 5188305, 5192639, 5197762,
5208578 of plaintiff with defendant PNB as of February 13, 1990 plus
twelve percent (12%) interest per annum computed from date of filing
of the complaint;
3. Defendant Asset Privatization Trust is hereby ordered to pay singly to
plaintiff the following:
(a) the sum of THREE HUNDRED NINETY SEVEN THOU[]SAND
NINE HUNDRED SEVENTY SIX & 11/100 PESOS (P397,976.11),
representing the total balance of plaintiffs Savings Account No. 1196
with the Rural Bank of Bais, Inc., and transferred to account of
defendant APT plus twelve (12%) percent x x x per annum computed
from date of filing of the complaint;
(b) the sum of FIFTEEN THOUSAND NINE HUNDRED EIGHTY
SEVEN & 77/100 (P15,987.77) PESOS representing the total
balance of plaintiffs Savings Account No. 3642 with the Rural Bank of
Manjuyod, Inc., which was transferred to defendant APT, plus interest
at twelve percentum (12%) per annum computed from date of filing of
the complaint;
(c) the total sum of FIVE MILLION THREE HUNDRED FIVE
THOUSAND SEVEN HUNDRED FIFTY SIX and 22/100
(P5,305,756.22) PESOS representing the expenses incurred by
plaintiff for the maintenance and operations of the sugar central after
September 3, 1987, plus interest at twelve (12%) percent x x x per
annum computed from date of filing of the complaint;
4. Defendant[s] Philippine National Bank and Asset Privatization Trust are
hereby ordered to pay jointly and severally x x x attorneys fees x x x
equivalent to twenty (20%) percent of the total sum they are ordered to pay
jointly and severally;

5. Defendant Philippine National Bank is hereby ordered to pay singly to

plaintiff[] attorneys fees equivalent to twenty (20%) percent x x x of the total
sum it is ordered to pay x x x;
6. Defendant Asset Privatization Trust is hereby ordered to pay singly to
plaintiff attorneys fees equivalent to twenty (20%) percent x x x [of] the total
sum[] it is ordered to pay x x x;
7. Both defendants Asset Privatization Trust and Philippine National Bank are
ordered to pay jointly and severally to the plaintiff exemplary damages in the
amount of FIVE HUNDRED THOUSAND (P500,000.00) PESOS;
8. Both defendants are hereby ordered jointly and severally to pay costs.
Counterclaim[s] interposed by both defendants are hereby ordered dismissed.
20

Rollo, pp. 204, 206-207.

21

Id. at 170, 175-176.

22

Id. at 52-55.

McDonalds Corporation v. L.C. Big Mak Burger, Inc., G.R. No. 143993, 18 August 2004,
437 SCRA 10.
23

This provision states: "Filing of petition with Supreme Court. A party desiring to appeal by
certiorari from a judgment or final order or resolution of the Court of Appeals, the
Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law, may
file with the Supreme Court a verified petition for review on certiorari. The petition shall raise
only questions of law which must be distinctly set forth." Section 2, paragraph 2, Rule 45 of
the Rules of Court similarly requires that "[o]nly questions of law may be raised in the petition
and must be distinctly set forth." (Boldfacing supplied)
24

25

Twin Towers Condominium Corp. v. Court of Appeals, 446 Phil. 280 (2003).

26

This was the same amount PNB and APT indicated in the published notices of foreclosure.

Having been made in the course of the proceedings, this is a judicial admission conclusive
on APT (See Solivio v. Court of Appeals, G.R. No. 83484, 12 February 1990, 182 SCRA
119).
27

28

Records, p. 106.

29

Id. at 254.

30

Exh. "GG."

31

TSN, 15 May 1991, pp. 12-13 (Romeo S. Geocadin).

32

TSN, 26 July 1991, pp. 8-10 (Joaquin Montenegro).

On 26 March 1988, UPSUMCO passed Resolution No. 6 seeking, among others, APTs
intervention in a case for voluntary insolvency PHILSUCOR filed against UPSUMCO.
PHILSUCOR filed the suit to recover its alleged deficiency claim against UPSUMCO.
Resolution No. 6 pertinently provides (Exh. "DDDD"):
33

WHEREAS, the Asset Privatization Trust or APT and the Philippine National Bank or
PNB and the United Planters Sugar Milling Company, Inc., or UPSUMCO after a
series of negotiations have agreed on the "uncontested" or "friendly" foreclosure of
the physical assets of UPSUMCO as mentioned in the petition for extrajudicial
foreclosure;
WHEREAS, in these negotiations and uncontested foreclosure, the account of the
Philippine Sugar Corporation or [PHILSUCOR] was included in the foreclosure;
WHEREAS, before said foreclosure where APT won as the highest bidder,
[PHILSUCOR] was properly informed and did not interpose any objection. In fact, the
legal counsel/consultant of [PHILSUCOR], Atty. Jose Sicangco, Jr., has rendered a
legal opinion which has influenced the Board of UPSUMCO to go ahead with the
foreclosure by APT/PNB;
WHEREAS, after the public bidding where Universal Robina won as the highest
bidder, PSC made [a] series of demands to UPSUMCO x x x in the amount of P199
million which demands shocked the Board of Directors;
WHEREAS, APT exercising its powers and authority under Proclamation No. 50 had
executed a condonation agreement with UPSUMCO on any deficiency that may arise
out of the uncontested foreclosure, and this was confirmed by the letter of the late
MR. DAVID SYCIP, Chief Executive Trustee of APT in a letter to Mr. John
Gokongwei, copy furnished UPSUMCO, after the award to Universal Robina was
confirmed by the COP;
WHEREAS, on February 12, 1988 [PHILSUCOR] filed a case for involuntary
insolvency against UPSUMCO before the Regional Trial Court of Makati, Metro
Manila docketed as S.P. Case No. M-1709 allegedly because of the non-payment of
the deficiency amount;
WHEREAS, UPSUMCO had considered the matter of uncontested foreclosure
closed, except the payment of the 5% preference;
WHEREAS, in October, 1987 [PHILSUCOR] allegedly indorsed to APT all its nonperforming assets including the properties subject of the uncontested foreclosure of
UPSUMCO;
WHEREAS, the early acceptance of the aforesaid indorsement may pave the avenue
for the dismissal of the petition for involuntary insolvency, which although frivolous[,]
could trigger legal complications;
xxxx

WHEREFORE, the UNITED PLANTERS SUGAR MILLING COMPANY, INC.,

through its Board of Directors hereunto resolved, as it hereby resolves to appeal to
the APT, the following;
1. That the reported non-performing assets of the Philippine Sugar Corporation which
were allegedly indorsed to APT be accepted or any internal arrangement between
APT/COP and the PSC be agreed at the earliest convenience for the early dismissal
of the involuntary insolvency case; x x x x (Capitalization in the original; boldfacing
supplied)
34

Rollo (G.R. No. 132731), pp. 41-43, 46.

Penned by Associate Justice Ricardo P. Galvez with then Presiding Justice Fidel P.
Purisima and Associate Justice B.A. Adefuin-De la Cruz, concurring.
35

36

Rollo (G.R. No. 132731), p. 63.

37

Negros Navigation Co., Inc. v. Court of Appeals, 346 Phil. 551 (1997).

Under Article 1279 of the Civil Code, compensation is proper, if among others, the parties
are creditor and debtor of each other. We note that on 27 February 1987, PNB assigned its
interests in UPSUMCO to the Government/APT thus ceasing to be UPSUMCOs creditor.
38

39

TSN, 26 July 1991, pp. 45-48 (Joaquin Montenegro).

40

See Medida v. Court of Appeals, G.R. No. 98334, 8 May 1992, 208 SCRA 887 (1992).

We note that although in its Amended Complaint, UPSUMCO only prayed for the
reimbursement of expenses for the salaries of the mill workers, UPSUMCO, during the trial,
presented evidence for other items of expense (e.g. for material and supplies, taxes, and
utilities). As respondents failed to object to the admission of such evidence for not having
been alleged in the Amended Complaint, the issue on the payment of these other expenses
are deemed to have been raised in the pleadings as provided under Section 5, Rule 10 of
the 1997 Rules of Civil Procedure.
41

Article 2229 of the Civil Code provides: "Exemplary or corrective damages are imposed, by
way of example or correction for the public good, in addition to the moral, temperate,
liquidated or compensatory damages."
42

The sums of money awarded to UPSUMCO as payment for the funds in its bank accounts
and the proceeds of the sale of its sugar are not actual damages as they are neither
compensation for what UPSUMCO suffered or lost (dao emergente) nor benefits to which
UPSUMCO is entitled (lucro cesante). Further, as a juridical entity, UPSUMCO is not entitled
to moral damages (ABS-CBN Broadcasting Corporation v. Court of Appeals, 361 Phil. 499
[1999]).
43

Article 2221 of the Civil Code provides: "Nominal damages are adjudicated in order that a
right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated
or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by
him."
44

45

Article 2208 (1) & (2), Civil Code.

As an item of damages, attorneys fees under Article 2208 of the Civil Code is awarded to
the litigant and not to his counsel (Quirante v. Intermediate Appellate Court, G.R. No. 73886,
31 January 1989, 169 SCRA 769) thus any agreement between the client and his counsel is
not controlling (See Corpus v. Cuaderno, Sr., 121 Phil. 568 [1965]).
46

Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12 July 1994, 234 SCRA
78.
47

48

As stipulated in the deposit contracts.

UPSUMCO failed to present evidence on the stipulated rate of interest for these bank
accounts.
49

50

Eastern Shipping Lines, Inc. v. Court of Appeals, supra.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-47851 October 3, 1986
JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners,
vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC., JUAN J. CARLOS, and
the PHILIPPINE BAR ASSOCIATION, respondents.
G.R. No. L-47863 October 3, 1986
THE UNITED CONSTRUCTION CO., INC., petitioner,
vs.
COURT OF APPEALS, ET AL., respondents.
G.R. No. L-47896 October 3, 1986
PHILIPPINE BAR ASSOCIATION, ET AL., petitioners,
vs.
COURT OF APPEALS, ET AL., respondents.

PARAS, J.:
These are petitions for review on certiorari of the November 28, 1977 decision of the Court of
Appeals in CA-G.R. No. 51771-R modifying the decision of the Court of First Instance of Manila,
Branch V, in Civil Case No. 74958 dated September 21, 1971 as modified by the Order of the lower
court dated December 8, 1971. The Court of Appeals in modifying the decision of the lower court
included an award of an additional amount of P200,000.00 to the Philippine Bar Association to be
paid jointly and severally by the defendant United Construction Co. and by the third-party defendants
Juan F. Nakpil and Sons and Juan F. Nakpil.
The dispositive portion of the modified decision of the lower court reads:
WHEREFORE, judgment is hereby rendered:
(a) Ordering defendant United Construction Co., Inc. and third-party defendants
(except Roman Ozaeta) to pay the plaintiff, jointly and severally, the sum of
P989,335.68 with interest at the legal rate from November 29, 1968, the date of the
filing of the complaint until full payment;

(b) Dismissing the complaint with respect to defendant Juan J. Carlos;

(c) Dismissing the third-party complaint;
(d) Dismissing the defendant's and third-party defendants' counterclaims for lack of
merit;
(e) Ordering defendant United Construction Co., Inc. and third-party defendants
(except Roman Ozaeta) to pay the costs in equal shares.
SO ORDERED. (Record on Appeal p. 521; Rollo, L- 47851, p. 169).
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, the judgment appealed from is modified to include an award of
P200,000.00 in favor of plaintiff-appellant Philippine Bar Association, with interest at
the legal rate from November 29, 1968 until full payment to be paid jointly and
severally by defendant United Construction Co., Inc. and third party defendants
(except Roman Ozaeta). In all other respects, the judgment dated September 21,
1971 as modified in the December 8, 1971 Order of the lower court is hereby
affirmed with COSTS to be paid by the defendant and third party defendant (except
Roman Ozaeta) in equal shares.
SO ORDERED.
Petitioners Juan F. Nakpil & Sons in L-47851 and United Construction Co., Inc. and Juan J. Carlos in
L-47863 seek the reversal of the decision of the Court of Appeals, among other things, for
exoneration from liability while petitioner Philippine Bar Association in L-47896 seeks the
modification of aforesaid decision to obtain an award of P1,830,000.00 for the loss of the PBA
building plus four (4) times such amount as damages resulting in increased cost of the building,
P100,000.00 as exemplary damages; and P100,000.00 as attorney's fees.
These petitions arising from the same case filed in the Court of First Instance of Manila were
consolidated by this Court in the resolution of May 10, 1978 requiring the respective respondents to
comment. (Rollo, L-47851, p. 172).
The facts as found by the lower court (Decision, C.C. No. 74958; Record on Appeal, pp. 269-348;
pp. 520-521; Rollo, L-47851, p. 169) and affirmed by the Court of Appeals are as follows:
The plaintiff, Philippine Bar Association, a civic-non-profit association, incorporated under the
Corporation Law, decided to construct an office building on its 840 square meters lot located at the
comer of Aduana and Arzobispo Streets, Intramuros, Manila. The construction was undertaken by
the United Construction, Inc. on an "administration" basis, on the suggestion of Juan J. Carlos, the
president and general manager of said corporation. The proposal was approved by plaintiff's board
of directors and signed by its president Roman Ozaeta, a third-party defendant in this case. The

plans and specifications for the building were prepared by the other third-party defendants Juan F.
Nakpil & Sons. The building was completed in June, 1966.
In the early morning of August 2, 1968 an unusually strong earthquake hit Manila and its environs
and the building in question sustained major damage. The front columns of the building buckled,
causing the building to tilt forward dangerously. The tenants vacated the building in view of its
precarious condition. As a temporary remedial measure, the building was shored up by United
Construction, Inc. at the cost of P13,661.28.
On November 29, 1968, the plaintiff commenced this action for the recovery of damages arising from
the partial collapse of the building against United Construction, Inc. and its President and General
Manager Juan J. Carlos as defendants. Plaintiff alleges that the collapse of the building was accused
by defects in the construction, the failure of the contractors to follow plans and specifications and
violations by the defendants of the terms of the contract.
Defendants in turn filed a third-party complaint against the architects who prepared the plans and
specifications, alleging in essence that the collapse of the building was due to the defects in the said
plans and specifications. Roman Ozaeta, the then president of the plaintiff Bar Association was
included as a third-party defendant for damages for having included Juan J. Carlos, President of the
United Construction Co., Inc. as party defendant.
On March 3, 1969, the plaintiff and third-party defendants Juan F. Nakpil & Sons and Juan F. Nakpil
presented a written stipulation which reads:
1. That in relation to defendants' answer with counterclaims and third- party
complaints and the third-party defendants Nakpil & Sons' answer thereto, the plaintiff
need not amend its complaint by including the said Juan F. Nakpil & Sons and Juan
F. Nakpil personally as parties defendant.
2. That in the event (unexpected by the undersigned) that the Court should find after
the trial that the above-named defendants Juan J. Carlos and United Construction
Co., Inc. are free from any blame and liability for the collapse of the PBA Building,
and should further find that the collapse of said building was due to defects and/or
inadequacy of the plans, designs, and specifications p by the third-party defendants,
or in the event that the Court may find Juan F. Nakpil and Sons and/or Juan F. Nakpil
contributorily negligent or in any way jointly and solidarily liable with the defendants,
judgment may be rendered in whole or in part. as the case may be, against Juan F.
Nakpil & Sons and/or Juan F. Nakpil in favor of the plaintiff to all intents and purposes
as if plaintiff's complaint has been duly amended by including the said Juan F. Nakpil
& Sons and Juan F. Nakpil as parties defendant and by alleging causes of action
against them including, among others, the defects or inadequacy of the plans,
designs, and specifications prepared by them and/or failure in the performance of
their contract with plaintiff.
3. Both parties hereby jointly petition this Honorable Court to approve this stipulation.
(Record on Appeal, pp. 274-275; Rollo, L-47851,p.169).

Upon the issues being joined, a pre-trial was conducted on March 7, 1969, during which among
others, the parties agreed to refer the technical issues involved in the case to a Commissioner. Mr.
Andres O. Hizon, who was ultimately appointed by the trial court, assumed his office as
Commissioner, charged with the duty to try the following issues:
1. Whether the damage sustained by the PBA building during the August 2, 1968
earthquake had been caused, directly or indirectly, by:
(a) The inadequacies or defects in the plans and specifications prepared by thirdparty defendants;
(b) The deviations, if any, made by the defendants from said plans and specifications
and how said deviations contributed to the damage sustained;
(c) The alleged failure of defendants to observe the requisite quality of materials and
workmanship in the construction of the building;
(d) The alleged failure to exercise the requisite degree of supervision expected of the
architect, the contractor and/or the owner of the building;
(e) An act of God or a fortuitous event; and
(f) Any other cause not herein above specified.
2. If the cause of the damage suffered by the building arose from a combination of
the above-enumerated factors, the degree or proportion in which each individual
factor contributed to the damage sustained;
3. Whether the building is now a total loss and should be completely demolished or
whether it may still be repaired and restored to a tenantable condition. In the latter
case, the determination of the cost of such restoration or repair, and the value of any
remaining construction, such as the foundation, which may still be utilized or availed
of (Record on Appeal, pp. 275-276; Rollo, L-47851, p. 169).
Thus, the issues of this case were divided into technical issues and non-technical issues. As
aforestated the technical issues were referred to the Commissioner. The non-technical issues were
tried by the Court.
Meanwhile, plaintiff moved twice for the demolition of the building on the ground that it may topple
down in case of a strong earthquake. The motions were opposed by the defendants and the matter
was referred to the Commissioner. Finally, on April 30, 1979 the building was authorized to be
demolished at the expense of the plaintiff, but not another earthquake of high intensity on April 7,
1970 followed by other strong earthquakes on April 9, and 12, 1970, caused further damage to the
property. The actual demolition was undertaken by the buyer of the damaged building. (Record on
Appeal, pp. 278-280; Ibid.)

After the protracted hearings, the Commissioner eventually submitted his report on September 25,
1970 with the findings that while the damage sustained by the PBA building was caused directly by
the August 2, 1968 earthquake whose magnitude was estimated at 7.3 they were also caused by the
defects in the plans and specifications prepared by the third-party defendants' architects, deviations
from said plans and specifications by the defendant contractors and failure of the latter to observe
the requisite workmanship in the construction of the building and of the contractors, architects and
even the owners to exercise the requisite degree of supervision in the construction of subject
building.
All the parties registered their objections to aforesaid findings which in turn were answered by the
Commissioner.
The trial court agreed with the findings of the Commissioner except as to the holding that the owner
is charged with full nine supervision of the construction. The Court sees no legal or contractual basis
for such conclusion. (Record on Appeal, pp. 309-328; Ibid).
Thus, on September 21, 1971, the lower court rendered the assailed decision which was modified by
the Intermediate Appellate Court on November 28, 1977.
All the parties herein appealed from the decision of the Intermediate Appellate Court. Hence, these
petitions.
On May 11, 1978, the United Architects of the Philippines, the Association of Civil Engineers, and the
Philippine Institute of Architects filed with the Court a motion to intervene as amicus curiae. They
proposed to present a position paper on the liability of architects when a building collapses and to
submit likewise a critical analysis with computations on the divergent views on the design and plans
as submitted by the experts procured by the parties. The motion having been granted, the amicus
curiae were granted a period of 60 days within which to submit their position.
After the parties had all filed their comments, We gave due course to the petitions in Our Resolution
of July 21, 1978.
The position papers of the amicus curiae (submitted on November 24, 1978) were duly noted.
The amicus curiae gave the opinion that the plans and specifications of the Nakpils were not
defective. But the Commissioner, when asked by Us to comment, reiterated his conclusion that the
defects in the plans and specifications indeed existed.
Using the same authorities availed of by the amicus curiae such as the Manila Code (Ord. No. 4131)
and the 1966 Asep Code, the Commissioner added that even if it can be proved that the defects in
the construction alone (and not in the plans and design) caused the damage to the building, still the
deficiency in the original design and jack of specific provisions against torsion in the original plans
and the overload on the ground floor columns (found by an the experts including the original
designer) certainly contributed to the damage which occurred. (Ibid, p. 174).

In their respective briefs petitioners, among others, raised the following assignments of errors:
Philippine Bar Association claimed that the measure of damages should not be limited to
P1,100,000.00 as estimated cost of repairs or to the period of six (6) months for loss of rentals while
United Construction Co., Inc. and the Nakpils claimed that it was an act of God that caused the
failure of the building which should exempt them from responsibility and not the defective
construction, poor workmanship, deviations from plans and specifications and other imperfections in
the case of United Construction Co., Inc. or the deficiencies in the design, plans and specifications
prepared by petitioners in the case of the Nakpils. Both UCCI and the Nakpils object to the payment
of the additional amount of P200,000.00 imposed by the Court of Appeals. UCCI also claimed that it
should be reimbursed the expenses of shoring the building in the amount of P13,661.28 while the
Nakpils opposed the payment of damages jointly and solidarity with UCCI.
The pivotal issue in this case is whether or not an act of God-an unusually strong earthquake-which
caused the failure of the building, exempts from liability, parties who are otherwise liable because of
their negligence.
The applicable law governing the rights and liabilities of the parties herein is Article 1723 of the New
Civil Code, which provides:
Art. 1723. The engineer or architect who drew up the plans and specifications for a
building is liable for damages if within fifteen years from the completion of the
structure the same should collapse by reason of a defect in those plans and
specifications, or due to the defects in the ground. The contractor is likewise
responsible for the damage if the edifice fags within the same period on account of
defects in the construction or the use of materials of inferior quality furnished by him,
or due to any violation of the terms of the contract. If the engineer or architect
supervises the construction, he shall be solidarily liable with the contractor.
Acceptance of the building, after completion, does not imply waiver of any of the
causes of action by reason of any defect mentioned in the preceding paragraph.
The action must be brought within ten years following the collapse of the building.
On the other hand, the general rule is that no person shall be responsible for events which could not
be foreseen or which though foreseen, were inevitable (Article 1174, New Civil Code).
An act of God has been defined as an accident, due directly and exclusively to natural causes
without human intervention, which by no amount of foresight, pains or care, reasonably to have been
expected, could have been prevented. (1 Corpus Juris 1174).
There is no dispute that the earthquake of August 2, 1968 is a fortuitous event or an act of God.
To exempt the obligor from liability under Article 1174 of the Civil Code, for a breach of an obligation
due to an "act of God," the following must concur: (a) the cause of the breach of the obligation must
be independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable;
(c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal

manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the
creditor. (Vasquez v. Court of Appeals, 138 SCRA 553; Estrada v. Consolacion, 71 SCRA 423;
Austria v. Court of Appeals, 39 SCRA 527; Republic of the Phil. v. Luzon Stevedoring Corp., 21
SCRA 279; Lasam v. Smith, 45 Phil. 657).
Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding
fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as
provided for in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot
escape liability.
The principle embodied in the act of God doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature and all human agencies are to be excluded from
creating or entering into the cause of the mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it were, and
removed from the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus it has been held that when the negligence of a person concurs with an act of God in producing
a loss, such person is not exempt from liability by showing that the immediate cause of the damage
was the act of God. To be exempt from liability for loss because of an act of God, he must be free
from any previous negligence or misconduct by which that loss or damage may have been
occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan, 49 O.G. 4379;
Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).
The negligence of the defendant and the third-party defendants petitioners was established beyond
dispute both in the lower court and in the Intermediate Appellate Court. Defendant United
Construction Co., Inc. was found to have made substantial deviations from the plans and
specifications. and to have failed to observe the requisite workmanship in the construction as well as
to exercise the requisite degree of supervision; while the third-party defendants were found to have
inadequacies or defects in the plans and specifications prepared by them. As correctly assessed by
both courts, the defects in the construction and in the plans and specifications were the proximate
causes that rendered the PBA building unable to withstand the earthquake of August 2, 1968. For
this reason the defendant and third-party defendants cannot claim exemption from liability. (Decision,
Court of Appeals, pp. 30-31).
It is well settled that the findings of facts of the Court of Appeals are conclusive on the parties and on
this court (cases cited in Tolentino vs. de Jesus, 56 SCRA 67; Cesar vs. Sandiganbayan, January
17, 1985, 134 SCRA 105, 121), unless (1) the conclusion is a finding grounded entirely on
speculation, surmise and conjectures; (2) the inference made is manifestly mistaken; (3) there is
grave abuse of discretion; (4) the judgment is based on misapprehension of facts; (5) the findings of
fact are conflicting , (6) the Court of Appeals went beyond the issues of the case and its findings are
contrary to the admissions of both appellant and appellees (Ramos vs. Pepsi-Cola Bottling Co.,
February 8, 1967, 19 SCRA 289, 291-292; Roque vs. Buan, Oct. 31, 1967, 21 SCRA 648, 651); (7)
the findings of facts of the Court of Appeals are contrary to those of the trial court; (8) said findings of
facts are conclusions without citation of specific evidence on which they are based; (9) the facts set
forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the

respondents (Garcia vs. CA, June 30, 1970, 33 SCRA 622; Alsua-Bett vs. Court of Appeals, July 30,
1979, 92 SCRA 322, 366); (10) the finding of fact of the Court of Appeals is premised on the
supposed absence of evidence and is contradicted by evidence on record (Salazar vs. Gutierrez,
May 29, 1970, 33 SCRA 243, 247; Cited in G.R. No. 66497-98, Sacay v. Sandiganbayan, July 10,
1986).
It is evident that the case at bar does not fall under any of the exceptions above-mentioned. On the
contrary, the records show that the lower court spared no effort in arriving at the correct appreciation
of facts by the referral of technical issues to a Commissioner chosen by the parties whose findings
and conclusions remained convincingly unrebutted by the intervenors/amicus curiae who were
allowed to intervene in the Supreme Court.
In any event, the relevant and logical observations of the trial court as affirmed by the Court of
Appeals that "while it is not possible to state with certainty that the building would not have collapsed
were those defects not present, the fact remains that several buildings in the same area withstood
the earthquake to which the building of the plaintiff was similarly subjected," cannot be ignored.
The next issue to be resolved is the amount of damages to be awarded to the PBA for the partial
collapse (and eventual complete collapse) of its building.
The Court of Appeals affirmed the finding of the trial court based on the report of the Commissioner
that the total amount required to repair the PBA building and to restore it to tenantable condition was
P900,000.00 inasmuch as it was not initially a total loss. However, while the trial court awarded the
PBA said amount as damages, plus unrealized rental income for one-half year, the Court of Appeals
modified the amount by awarding in favor of PBA an additional sum of P200,000.00 representing the
damage suffered by the PBA building as a result of another earthquake that occurred on April 7,
1970 (L-47896, Vol. I, p. 92).
The PBA in its brief insists that the proper award should be P1,830,000.00 representing the total
value of the building (L-47896, PBA's No. 1 Assignment of Error, p. 19), while both the NAKPILS and
UNITED question the additional award of P200,000.00 in favor of the PBA (L- 47851, NAKPIL's Brief
as Petitioner, p. 6, UNITED's Brief as Petitioner, p. 25). The PBA further urges that the unrealized
rental income awarded to it should not be limited to a period of one-half year but should be
computed on a continuing basis at the rate of P178,671.76 a year until the judgment for the principal
amount shall have been satisfied L- 47896, PBA's No. 11 Assignment of Errors, p. 19).
The collapse of the PBA building as a result of the August 2, 1968 earthquake was only partial and it
is undisputed that the building could then still be repaired and restored to its tenantable condition.
The PBA, however, in view of its lack of needed funding, was unable, thru no fault of its own, to have
the building repaired. UNITED, on the other hand, spent P13,661.28 to shore up the building after
the August 2, 1968 earthquake (L-47896, CA Decision, p. 46). Because of the earthquake on April 7,
1970, the trial court after the needed consultations, authorized the total demolition of the building (L47896, Vol. 1, pp. 53-54).
There should be no question that the NAKPILS and UNITED are liable for the damage resulting from
the partial and eventual collapse of the PBA building as a result of the earthquakes.

We quote with approval the following from the erudite decision penned by Justice Hugo E. Gutierrez
(now an Associate Justice of the Supreme Court) while still an Associate Justice of the Court of
Appeals:
There is no question that an earthquake and other forces of nature such as cyclones,
drought, floods, lightning, and perils of the sea are acts of God. It does not
necessarily follow, however, that specific losses and suffering resulting from the
occurrence of these natural force are also acts of God. We are not convinced on the
basis of the evidence on record that from the thousands of structures in Manila, God
singled out the blameless PBA building in Intramuros and around six or seven other
buildings in various parts of the city for collapse or severe damage and that God
alone was responsible for the damages and losses thus suffered.
The record is replete with evidence of defects and deficiencies in the designs and
plans, defective construction, poor workmanship, deviation from plans and
specifications and other imperfections. These deficiencies are attributable to
negligent men and not to a perfect God.
The act-of-God arguments of the defendants- appellants and third party defendantsappellants presented in their briefs are premised on legal generalizations or
speculations and on theological fatalism both of which ignore the plain facts. The
lengthy discussion of United on ordinary earthquakes and unusually strong
earthquakes and on ordinary fortuitous events and extraordinary fortuitous events
leads to its argument that the August 2, 1968 earthquake was of such an
overwhelming and destructive character that by its own force and independent of the
particular negligence alleged, the injury would have been produced. If we follow this
line of speculative reasoning, we will be forced to conclude that under such a
situation scores of buildings in the vicinity and in other parts of Manila would have
toppled down. Following the same line of reasoning, Nakpil and Sons alleges that the
designs were adequate in accordance with pre-August 2, 1968 knowledge and
appear inadequate only in the light of engineering information acquired after the
earthquake. If this were so, hundreds of ancient buildings which survived the
earthquake better than the two-year old PBA building must have been designed and
constructed by architects and contractors whose knowledge and foresight were
unexplainably auspicious and prophetic. Fortunately, the facts on record allow a
more down to earth explanation of the collapse. The failure of the PBA building, as a
unique and distinct construction with no reference or comparison to other buildings,
to weather the severe earthquake forces was traced to design deficiencies and
defective construction, factors which are neither mysterious nor esoteric. The
theological allusion of appellant United that God acts in mysterious ways His
wonders to perform impresses us to be inappropriate. The evidence reveals defects
and deficiencies in design and construction. There is no mystery about these acts of
negligence. The collapse of the PBA building was no wonder performed by God. It
was a result of the imperfections in the work of the architects and the people in the
construction company. More relevant to our mind is the lesson from the parable of
the wise man in the Sermon on the Mount "which built his house upon a rock; and

the rain descended and the floods came and the winds blew and beat upon that
house; and it fen not; for it was founded upon a rock" and of the "foolish upon the
sand. And the rain descended and man which built his house the floods came, and
the winds blew, and beat upon that house; and it fell and great was the fall of it. (St.
Matthew 7: 24-27)." The requirement that a building should withstand rains, floods,
winds, earthquakes, and natural forces is precisely the reason why we have
professional experts like architects, and engineers. Designs and constructions vary
under varying circumstances and conditions but the requirement to design and build
well does not change.
The findings of the lower Court on the cause of the collapse are more rational and
accurate. Instead of laying the blame solely on the motions and forces generated by
the earthquake, it also examined the ability of the PBA building, as designed and
constructed, to withstand and successfully weather those forces.
The evidence sufficiently supports a conclusion that the negligence and fault of both
United and Nakpil and Sons, not a mysterious act of an inscrutable God, were
responsible for the damages. The Report of the Commissioner, Plaintiff's Objections
to the Report, Third Party Defendants' Objections to the Report, Defendants'
Objections to the Report, Commissioner's Answer to the various Objections,
Plaintiffs' Reply to the Commissioner's Answer, Defendants' Reply to the
Commissioner's Answer, Counter-Reply to Defendants' Reply, and Third-Party
Defendants' Reply to the Commissioner's Report not to mention the exhibits and the
testimonies show that the main arguments raised on appeal were already raised
during the trial and fully considered by the lower Court. A reiteration of these same
arguments on appeal fails to convince us that we should reverse or disturb the lower
Court's factual findings and its conclusions drawn from the facts, among them:
The Commissioner also found merit in the allegations of the defendants as to the
physical evidence before and after the earthquake showing the inadequacy of
design, to wit:
Physical evidence before the earthquake providing (sic) inadequacy of design;
1. inadequate design was the cause of the failure of the building.
2. Sun-baffles on the two sides and in front of the building;
a. Increase the inertia forces that move the building laterally toward the Manila Fire
Department.
b. Create another stiffness imbalance.
3. The embedded 4" diameter cast iron down spout on all exterior columns reduces
the cross-sectional area of each of the columns and the strength thereof.

4. Two front corners, A7 and D7 columns were very much less reinforced.
Physical Evidence After the Earthquake, Proving Inadequacy of design;
1. Column A7 suffered the severest fracture and maximum sagging. Also D7.
2. There are more damages in the front part of the building than towards the rear, not
only in columns but also in slabs.
3. Building leaned and sagged more on the front part of the building.
4. Floors showed maximum sagging on the sides and toward the front corner parts of
the building.
5. There was a lateral displacement of the building of about 8", Maximum sagging
occurs at the column A7 where the floor is lower by 80 cm. than the highest slab
level.
6. Slab at the corner column D7 sagged by 38 cm.
The Commissioner concluded that there were deficiencies or defects in the design,
plans and specifications of the PBA building which involved appreciable risks with
respect to the accidental forces which may result from earthquake shocks. He
conceded, however, that the fact that those deficiencies or defects may have arisen
from an obsolete or not too conservative code or even a code that does not require a
design for earthquake forces mitigates in a large measure the responsibility or liability
of the architect and engineer designer.
The Third-party defendants, who are the most concerned with this portion of the
Commissioner's report, voiced opposition to the same on the grounds that (a) the
finding is based on a basic erroneous conception as to the design concept of the
building, to wit, that the design is essentially that of a heavy rectangular box on stilts
with shear wan at one end; (b) the finding that there were defects and a deficiency in
the design of the building would at best be based on an approximation and,
therefore, rightly belonged to the realm of speculation, rather than of certainty and
could very possibly be outright error; (c) the Commissioner has failed to back up or
support his finding with extensive, complex and highly specialized computations and
analyzes which he himself emphasizes are necessary in the determination of such a
highly technical question; and (d) the Commissioner has analyzed the design of the
PBA building not in the light of existing and available earthquake engineering
knowledge at the time of the preparation of the design, but in the light of recent and
current standards.
The Commissioner answered the said objections alleging that third-party defendants'
objections were based on estimates or exhibits not presented during the hearing that
the resort to engineering references posterior to the date of the preparation of the

plans was induced by the third-party defendants themselves who submitted

computations of the third-party defendants are erroneous.
The issue presently considered is admittedly a technical one of the highest degree. It
involves questions not within the ordinary competence of the bench and the bar to
resolve by themselves. Counsel for the third-party defendants has aptly remarked
that "engineering, although dealing in mathematics, is not an exact science and that
the present knowledge as to the nature of earthquakes and the behaviour of forces
generated by them still leaves much to be desired; so much so "that the experts of
the different parties, who are all engineers, cannot agree on what equation to use, as
to what earthquake co-efficients are, on the codes to be used and even as to the
type of structure that the PBA building (is) was (p. 29, Memo, of third- party
defendants before the Commissioner).
The difficulty expected by the Court if tills technical matter were to be tried and
inquired into by the Court itself, coupled with the intrinsic nature of the questions
involved therein, constituted the reason for the reference of the said issues to a
Commissioner whose qualifications and experience have eminently qualified him for
the task, and whose competence had not been questioned by the parties until he
submitted his report. Within the pardonable limit of the Court's ability to comprehend
the meaning of the Commissioner's report on this issue, and the objections voiced to
the same, the Court sees no compelling reasons to disturb the findings of the
Commissioner that there were defects and deficiencies in the design, plans and
specifications prepared by third-party defendants, and that said defects and
deficiencies involved appreciable risks with respect to the accidental forces which
may result from earthquake shocks.
(2) (a) The deviations, if any, made by the defendants from the plans and
specifications, and how said deviations contributed to the damage sustained by the
building.
(b) The alleged failure of defendants to observe the requisite quality of materials and
workmanship in the construction of the building.
These two issues, being interrelated with each other, will be discussed together.
The findings of the Commissioner on these issues were as follows:
We now turn to the construction of the PBA Building and the alleged deficiencies or
defects in the construction and violations or deviations from the plans and
specifications. All these may be summarized as follows:
a. Summary of alleged defects as reported by Engineer Mario M. Bundalian.
(1) Wrongful and defective placing of reinforcing bars.

(2) Absence of effective and desirable integration of the 3 bars in the cluster.
(3) Oversize coarse aggregates: 1-1/4 to 2" were used. Specification requires no
larger than 1 inch.
(4) Reinforcement assembly is not concentric with the column, eccentricity being 3"
off when on one face the main bars are only 1 1/2' from the surface.
(5) Prevalence of honeycombs,
(6) Contraband construction joints,
(7) Absence, or omission, or over spacing of spiral hoops,
(8) Deliberate severance of spirals into semi-circles in noted on Col. A-5, ground
floor,
(9) Defective construction joints in Columns A-3, C-7, D-7 and D-4, ground floor,
(10) Undergraduate concrete is evident,
(11) Big cavity in core of Column 2A-4, second floor,
(12) Columns buckled at different planes. Columns buckled worst where there are no
spirals or where spirals are cut. Columns suffered worst displacement where the
eccentricity of the columnar reinforcement assembly is more acute.
b. Summary of alleged defects as reported by Engr. Antonio Avecilla.
Columns are first (or ground) floor, unless otherwise stated.
(1) Column D4 Spacing of spiral is changed from 2" to 5" on centers,
(2) Column D5 No spiral up to a height of 22" from the ground floor,
(3) Column D6 Spacing of spiral over 4 l/2,
(4) Column D7 Lack of lateral ties,
(5) Column C7 Absence of spiral to a height of 20" from the ground level, Spirals
are at 2" from the exterior column face and 6" from the inner column face,
(6) Column B6 Lack of spiral on 2 feet below the floor beams,
(7) Column B5 Lack of spirals at a distance of 26' below the beam,

(8) Column B7 Spirals not tied to vertical reinforcing bars, Spirals are uneven 2" to
4",
(9) Column A3 Lack of lateral ties,
(10) Column A4 Spirals cut off and welded to two separate clustered vertical bars,
(11) Column A4 (second floor Column is completely hollow to a height of 30"
(12) Column A5 Spirals were cut from the floor level to the bottom of the spandrel
beam to a height of 6 feet,
(13) Column A6 No spirals up to a height of 30' above the ground floor level,
(14) Column A7 Lack of lateralties or spirals,
c. Summary of alleged defects as reported by the experts of the Third-Party
defendants.
Ground floor columns.
(1) Column A4 Spirals are cut,
(2) Column A5 Spirals are cut,
(3) Column A6 At lower 18" spirals are absent,
(4) Column A7 Ties are too far apart,
(5) Column B5 At upper fourth of column spirals are either absent or improperly
spliced,
(6) Column B6 At upper 2 feet spirals are absent,
(7) Column B7 At upper fourth of column spirals missing or improperly spliced.
(8) Column C7 Spirals are absent at lowest 18"
(9) Column D5 At lowest 2 feet spirals are absent,
(10) Column D6 Spirals are too far apart and apparently improperly spliced,
(11) Column D7 Lateral ties are too far apart, spaced 16" on centers.
There is merit in many of these allegations. The explanations given by the
engineering experts for the defendants are either contrary to general principles of

engineering design for reinforced concrete or not applicable to the requirements for
ductility and strength of reinforced concrete in earthquake-resistant design and
construction.
We shall first classify and consider defects which may have appreciable bearing or
relation to' the earthquake-resistant property of the building.
As heretofore mentioned, details which insure ductility at or near the connections
between columns and girders are desirable in earthquake resistant design and
construction. The omission of spirals and ties or hoops at the bottom and/or tops of
columns contributed greatly to the loss of earthquake-resistant strength. The plans
and specifications required that these spirals and ties be carried from the floor level
to the bottom reinforcement of the deeper beam (p. 1, Specifications, p. 970,
Reference 11). There were several clear evidences where this was not done
especially in some of the ground floor columns which failed.
There were also unmistakable evidences that the spacings of the spirals and ties in
the columns were in many cases greater than those called for in the plans and
specifications resulting again in loss of earthquake-resistant strength. The assertion
of the engineering experts for the defendants that the improper spacings and the
cutting of the spirals did not result in loss of strength in the column cannot be
maintained and is certainly contrary to the general principles of column design and
construction. And even granting that there be no loss in strength at the yield point (an
assumption which is very doubtful) the cutting or improper spacings of spirals will
certainly result in the loss of the plastic range or ductility in the column and it is
precisely this plastic range or ductility which is desirable and needed for earthquakeresistant strength.
There is no excuse for the cavity or hollow portion in the column A4, second floor,
and although this column did not fail, this is certainly an evidence on the part of the
contractor of poor construction.
The effect of eccentricities in the columns which were measured at about 2 1/2
inches maximum may be approximated in relation to column loads and column and
beam moments. The main effect of eccentricity is to change the beam or girder span.
The effect on the measured eccentricity of 2 inches, therefore, is to increase or
diminish the column load by a maximum of about 1% and to increase or diminish the
column or beam movements by about a maximum of 2%. While these can certainly
be absorbed within the factor of safety, they nevertheless diminish said factor of
safety.
The cutting of the spirals in column A5, ground floor is the subject of great contention
between the parties and deserves special consideration.
The proper placing of the main reinforcements and spirals in column A5, ground floor,
is the responsibility of the general contractor which is the UCCI. The burden of proof,

therefore, that this cutting was done by others is upon the defendants. Other than a
strong allegation and assertion that it is the plumber or his men who may have done
the cutting (and this was flatly denied by the plumber) no conclusive proof was
presented. The engineering experts for the defendants asserted that they could have
no motivation for cutting the bar because they can simply replace the spirals by
wrapping around a new set of spirals. This is not quite correct. There is evidence to
show that the pouring of concrete for columns was sometimes done through the
beam and girder reinforcements which were already in place as in the case of
column A4 second floor. If the reinforcement for the girder and column is to
subsequently wrap around the spirals, this would not do for the elasticity of steel
would prevent the making of tight column spirals and loose or improper spirals would
result. The proper way is to produce correct spirals down from the top of the main
column bars, a procedure which can not be done if either the beam or girder
reinforcement is already in place. The engineering experts for the defendants
strongly assert and apparently believe that the cutting of the spirals did not materially
diminish the strength of the column. This belief together with the difficulty of slipping
the spirals on the top of the column once the beam reinforcement is in place may be
a sufficient motivation for the cutting of the spirals themselves. The defendants,
therefore, should be held responsible for the consequences arising from the loss of
strength or ductility in column A5 which may have contributed to the damages
sustained by the building.
The lack of proper length of splicing of spirals was also proven in the visible spirals of
the columns where spalling of the concrete cover had taken place. This lack of
proper splicing contributed in a small measure to the loss of strength.
The effects of all the other proven and visible defects although nor can certainly be
accumulated so that they can contribute to an appreciable loss in earthquakeresistant strength. The engineering experts for the defendants submitted an estimate
on some of these defects in the amount of a few percent. If accumulated, therefore,
including the effect of eccentricity in the column the loss in strength due to these
minor defects may run to as much as ten percent.
To recapitulate: the omission or lack of spirals and ties at the bottom and/or at the top
of some of the ground floor columns contributed greatly to the collapse of the PBA
building since it is at these points where the greater part of the failure occurred. The
liability for the cutting of the spirals in column A5, ground floor, in the considered
opinion of the Commissioner rests on the shoulders of the defendants and the loss of
strength in this column contributed to the damage which occurred.
It is reasonable to conclude, therefore, that the proven defects, deficiencies and
violations of the plans and specifications of the PBA building contributed to the
damages which resulted during the earthquake of August 2, 1968 and the vice of
these defects and deficiencies is that they not only increase but also aggravate the
weakness mentioned in the design of the structure. In other words, these defects and
deficiencies not only tend to add but also to multiply the effects of the shortcomings

in the design of the building. We may say, therefore, that the defects and deficiencies
in the construction contributed greatly to the damage which occurred.
Since the execution and supervision of the construction work in the hands of the
contractor is direct and positive, the presence of existence of all the major defects
and deficiencies noted and proven manifests an element of negligence which may
amount to imprudence in the construction work. (pp. 42-49, Commissioners Report).
As the parties most directly concerned with this portion of the Commissioner's report, the defendants
voiced their objections to the same on the grounds that the Commissioner should have specified the
defects found by him to be "meritorious"; that the Commissioner failed to indicate the number of
cases where the spirals and ties were not carried from the floor level to the bottom reinforcement of
the deeper beam, or where the spacing of the spirals and ties in the columns were greater than that
called for in the specifications; that the hollow in column A4, second floor, the eccentricities in the
columns, the lack of proper length of splicing of spirals, and the cut in the spirals in column A5,
ground floor, did not aggravate or contribute to the damage suffered by the building; that the defects
in the construction were within the tolerable margin of safety; and that the cutting of the spirals in
column A5, ground floor, was done by the plumber or his men, and not by the defendants.
Answering the said objections, the Commissioner stated that, since many of the defects were minor
only the totality of the defects was considered. As regards the objection as to failure to state the
number of cases where the spirals and ties were not carried from the floor level to the bottom
reinforcement, the Commissioner specified groundfloor columns B-6 and C-5 the first one without
spirals for 03 inches at the top, and in the latter, there were no spirals for 10 inches at the bottom.
The Commissioner likewise specified the first storey columns where the spacings were greater than
that called for in the specifications to be columns B-5, B-6, C-7, C-6, C-5, D-5 and B-7. The objection
to the failure of the Commissioner to specify the number of columns where there was lack of proper
length of splicing of spirals, the Commissioner mentioned groundfloor columns B-6 and B-5 where all
the splices were less than 1-1/2 turns and were not welded, resulting in some loss of strength which
could be critical near the ends of the columns. He answered the supposition of the defendants that
the spirals and the ties must have been looted, by calling attention to the fact that the missing spirals
and ties were only in two out of the 25 columns, which rendered said supposition to be improbable.
The Commissioner conceded that the hollow in column A-4, second floor, did not aggravate or
contribute to the damage, but averred that it is "evidence of poor construction." On the claim that the
eccentricity could be absorbed within the factor of safety, the Commissioner answered that, while the
same may be true, it also contributed to or aggravated the damage suffered by the building.
The objection regarding the cutting of the spirals in Column A-5, groundfloor, was answered by the
Commissioner by reiterating the observation in his report that irrespective of who did the cutting of
the spirals, the defendants should be held liable for the same as the general contractor of the
building. The Commissioner further stated that the loss of strength of the cut spirals and inelastic
deflections of the supposed lattice work defeated the purpose of the spiral containment in the
column and resulted in the loss of strength, as evidenced by the actual failure of this column.

Again, the Court concurs in the findings of the Commissioner on these issues and fails to find any
sufficient cause to disregard or modify the same. As found by the Commissioner, the "deviations
made by the defendants from the plans and specifications caused indirectly the damage sustained
and that those deviations not only added but also aggravated the damage caused by the defects in
the plans and specifications prepared by third-party defendants. (Rollo, Vol. I, pp. 128-142)
The afore-mentioned facts clearly indicate the wanton negligence of both the defendant and the
third-party defendants in effecting the plans, designs, specifications, and construction of the PBA
building and We hold such negligence as equivalent to bad faith in the performance of their
respective tasks.
Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49 O.G. 4379, 4380) which may
be in point in this case reads:
One who negligently creates a dangerous condition cannot escape liability for the natural and
probable consequences thereof, although the act of a third person, or an act of God for which he is
not responsible, intervenes to precipitate the loss.
As already discussed, the destruction was not purely an act of God. Truth to tell hundreds of ancient
buildings in the vicinity were hardly affected by the earthquake. Only one thing spells out the fatal
difference; gross negligence and evident bad faith, without which the damage would not have
occurred.
WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and
environmental circumstances of this case, We deem it reasonable to render a decision imposing, as
We do hereby impose, upon the defendant and the third-party defendants (with the exception of
Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra, p. 10) indemnity in favor of the Philippine
Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the exception of
attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals)
and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the
total sum being payable upon the finality of this decision. Upon failure to pay on such finality, twelve
(12%) per cent interest per annum shall be imposed upon afore-mentioned amounts from finality
until paid. Solidary costs against the defendant and third-party defendants (except Roman Ozaeta).
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Cruz, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-21749

September 29, 1967

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
LUZON STEVEDORING CORPORATION, defendant-appellant.
Office of the Solicitor General for plaintiff-appellee.
H. San Luis and L.V. Simbulan for defendant-appellant.

REYES, J.B.L., J.:

The present case comes by direct appeal from a decision of the Court of First Instance of Manila
(Case No. 44572) adjudging the defendant-appellant, Luzon Stevedoring Corporation, liable in
damages to the plaintiff-appellee Republic of the Philippines.
In the early afternoon of August 17, 1960, barge L-1892, owned by the Luzon Stevedoring
Corporation was being towed down the Pasig river by tugboats "Bangus" and "Barbero" 1 also
belonging to the same corporation, when the barge rammed against one of the wooden piles of the
Nagtahan bailey bridge, smashing the posts and causing the bridge to list. The river, at the time, was
swollen and the current swift, on account of the heavy downpour of Manila and the surrounding
provinces on August 15 and 16, 1960.
Sued by the Republic of the Philippines for actual and consequential damage caused by its
employees, amounting to P200,000 (Civil Case No. 44562, CFI of Manila), defendant Luzon
Stevedoring Corporation disclaimed liability therefor, on the grounds that it had exercised due
diligence in the selection and supervision of its employees; that the damages to the bridge were
caused by force majeure; that plaintiff has no capacity to sue; and that the Nagtahan bailey bridge is
an obstruction to navigation.
After due trial, the court rendered judgment on June 11, 1963, holding the defendant liable for the
damage caused by its employees and ordering it to pay to plaintiff the actual cost of the repair of the
Nagtahan bailey bridge which amounted to P192,561.72, with legal interest thereon from the date of
the filing of the complaint.
Defendant appealed directly to this Court assigning the following errors allegedly committed by the
court a quo, to wit:

I The lower court erred in not holding that the herein defendant-appellant had exercised
the diligence required of it in the selection and supervision of its personnel to prevent
damage or injury to others.
1awphl.nt

II The lower court erred in not holding that the ramming of the Nagtahan bailey bridge by
barge L-1892 was caused by force majeure.
III The lower court erred in not holding that the Nagtahan bailey bridge is an obstruction, if
not a menace, to navigation in the Pasig river.
IV The lower court erred in not blaming the damage sustained by the Nagtahan bailey
bridge to the improper placement of the dolphins.
V The lower court erred in granting plaintiff's motion to adduce further evidence in chief
after it has rested its case.
VI The lower court erred in finding the plaintiff entitled to the amount of P192,561.72 for
damages which is clearly exorbitant and without any factual basis.
However, it must be recalled that the established rule in this jurisdiction is that when a party appeals
directly to the Supreme Court, and submits his case there for decision, he is deemed to have waived
the right to dispute any finding of fact made by the trial Court. The only questions that may be raised
are those of law (Savellano vs. Diaz, L-17441, July 31, 1963; Aballe vs. Santiago, L-16307, April 30,
1963; G.S.I.S. vs. Cloribel, L-22236, June 22, 1965). A converso, a party who resorts to the Court of
Appeals, and submits his case for decision there, is barred from contending later that his claim was
beyond the jurisdiction of the aforesaid Court. The reason is that a contrary rule would encourage
the undesirable practice of appellants' submitting their cases for decision to either court in
expectation of favorable judgment, but with intent of attacking its jurisdiction should the decision be
unfavorable (Tyson Tan, et al. vs. Filipinas Compaia de Seguros) et al., L-10096, Res. on Motion to
Reconsider, March 23, 1966). Consequently, we are limited in this appeal to the issues of law raised
in the appellant's brief.
Taking the aforesaid rules into account, it can be seen that the only reviewable issues in this appeal
are reduced to two:
1) Whether or not the collision of appellant's barge with the supports or piers of the Nagtahan
bridge was in law caused by fortuitous event or force majeure, and
2) Whether or not it was error for the Court to have permitted the plaintiff-appellee to
introduce additional evidence of damages after said party had rested its case.
As to the first question, considering that the Nagtahan bridge was an immovable and stationary
object and uncontrovertedly provided with adequate openings for the passage of water craft,
including barges like of appellant's, it is undeniable that the unusual event that the barge, exclusively
controlled by appellant, rammed the bridge supports raises a presumption of negligence on the part
of appellant or its employees manning the barge or the tugs that towed it. For in the ordinary course

of events, such a thing does not happen if proper care is used. In Anglo American Jurisprudence, the
inference arises by what is known as the "res ipsa loquitur" rule (Scott vs. London Docks Co., 2 H &
C 596; San Juan Light & Transit Co. vs. Requena, 224 U.S. 89, 56 L. Ed., 680; Whitwell vs. Wolf,
127 Minn. 529, 149 N.W. 299; Bryne vs. Great Atlantic & Pacific Tea Co., 269 Mass. 130; 168 N.E.
540; Gribsby vs. Smith, 146 S.W. 2d 719).
The appellant strongly stresses the precautions taken by it on the day in question: that it assigned
two of its most powerful tugboats to tow down river its barge L-1892; that it assigned to the task the
more competent and experienced among its patrons, had the towlines, engines and equipment
double-checked and inspected; that it instructed its patrons to take extra precautions; and concludes
that it had done all it was called to do, and that the accident, therefore, should be held due to force
majeure or fortuitous event.
These very precautions, however, completely destroy the appellant's defense. For caso
fortuito or force majeure (which in law are identical in so far as they exempt an obligor from
liability)2 by definition, are extraordinary events not foreseeable or avoidable, "events that could
not be foreseen, or which, though foreseen, were inevitable" (Art. 1174, Civ. Code of the
Philippines). It is, therefore, not enough that the event should not have been foreseen or anticipated,
as is commonly believed, but it must be one impossible to foresee or to avoid. The mere difficulty to
foresee the happening is not impossibility to foresee the same: "un hecho no constituye caso fortuito
por la sola circunstancia de que su existencia haga mas dificil o mas onerosa la accion diligente del
presento ofensor" (Peirano Facio, Responsibilidad Extra-contractual, p. 465; Mazeaud Trait de la
Responsibilite Civil, Vol. 2, sec. 1569). The very measures adopted by appellant prove that the
possibility of danger was not only foreseeable, but actually foreseen, and was not caso fortuito.
Otherwise stated, the appellant, Luzon Stevedoring Corporation, knowing and appreciating the perils
posed by the swollen stream and its swift current, voluntarily entered into a situation involving
obvious danger; it therefore assured the risk, and can not shed responsibility merely because the
precautions it adopted turned out to be insufficient. Hence, the lower Court committed no error in
holding it negligent in not suspending operations and in holding it liable for the damages caused.
It avails the appellant naught to argue that the dolphins, like the bridge, were improperly located.
Even if true, these circumstances would merely emphasize the need of even higher degree of care
on appellant's part in the situation involved in the present case. The appellant, whose barges and
tugs travel up and down the river everyday, could not safely ignore the danger posed by these
allegedly improper constructions that had been erected, and in place, for years.
On the second point: appellant charges the lower court with having abused its discretion in the
admission of plaintiff's additional evidence after the latter had rested its case. There is an insinuation
that the delay was deliberate to enable the manipulation of evidence to prejudice defendantappellant.
We find no merit in the contention. Whether or not further evidence will be allowed after a party
offering the evidence has rested his case, lies within the sound discretion of the trial Judge, and this
discretion will not be reviewed except in clear case of abuse. 3

In the present case, no abuse of that discretion is shown. What was allowed to be introduced, after
plaintiff had rested its evidence in chief, were vouchers and papers to support an item of P1,558.00
allegedly spent for the reinforcement of the panel of the bailey bridge, and which item already
appeared in Exhibit GG. Appellant, in fact, has no reason to charge the trial court of being unfair,
because it was also able to secure, upon written motion, a similar order dated November 24, 1962,
allowing reception of additional evidence for the said defendant-appellant. 4
WHEREFORE, finding no error in the decision of the lower Court appealed from, the same is hereby
affirmed. Costs against the defendant-appellant.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Bengzon, J.P. J., on leave, took no part.
Footnotes
The lead-tugboat "Bangus" was pulling the barge, while the tugboat "Barbero" was holding
or restraining it at the back.
1

Lasam vs. Smith, 45 Phil. 661.

Lopez vs. Liboro, 81 Phil. 429.

p. 89, Record on Appeal.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-25906 May 28, 1970

PEDRO D. DIOQUINO, plaintiff-appellee,
vs.
FEDERICO LAUREANO, AIDA DE LAUREANO and JUANITO LAUREANO, defendantsappellants.
Pedro D. Dioquino in his own behalf.
Arturo E. Valdomero, Jose L. Almario and Rolando S. Relova for defendants-appellants.

FERNANDO, J.:
The present lawsuit had its origin in a relationship, if it could be called such, the use of a car owned
by plaintiff Pedro D. Dioquino by defendant Federico Laureano, clearly of a character casual and
temporary but unfortunately married by an occurrence resulting in its windshield being damaged. A
stone thrown by a boy who, with his other companions, was thus engaged in what undoubtedly for
them must have been mistakenly thought to be a none too harmful prank did not miss its mark.
Plaintiff would hold defendant Federico Laureano accountable for the loss thus sustained, including
in the action filed the wife, Aida de Laureano, and the father, Juanito Laureano. Plaintiff prevail in the
lower court, the judgment however going only against the principal defendant, his spouse and his
father being absolved of any responsibility. Nonetheless, all three of them appealed directly to us,
raising two questions of law, the first being the failure of the lower court to dismiss such a suit as no
liability could have been incurred as a result of a fortuitous event and the other being its failure to
award damages against plaintiff for the unwarranted inclusion of the wife and the father in this
litigation. We agree that the lower court ought to have dismissed the suit, but it does not follow that
thereby damages for the inclusion of the above two other parties in the complaint should have been
awarded appellants.
The facts as found by the lower court follow: "Attorney Pedro Dioquino, a practicing lawyer of
Masbate, is the owner of a car. On March 31, 1964, he went to the office of the MVO, Masbate, to
register the same. He met the defendant Federico Laureano, a patrol officer of said MVO office, who
was waiting for a jeepney to take him to the office of the Provincial Commander, PC, Masbate.
Attorney Dioquino requested the defendant Federico Laureano to introduce him to one of the clerks
in the MVO Office, who could facilitate the registration of his car and the request was graciously
attended to. Defendant Laureano rode on the car of Atty. Dioquino on his way to the P.C. Barracks at

Masbate. While about to reach their destination, the car driven by plaintiff's driver and with defendant
Federico Laureano as the sole passenger was stoned by some 'mischievous boys,' and its
windshield was broken. Defendant Federico Laureano chased the boys and he was able to catch
one of them. The boy was taken to Atty. Dioquino [and] admitted having thrown the stone that broke
the car's windshield. The plaintiff and the defendant Federico Laureano with the boy returned to the
P.C. barracks and the father of the boy was called, but no satisfactory arrangements [were] made
about the damage to the
windshield." 1
It was likewise noted in the decision now on appeal: "The defendant Federico Laureano refused to
file any charges against the boy and his parents because he thought that the stone-throwing was
merely accidental and that it was due to force majeure. So he did not want to take any action and
after delaying the settlement, after perhaps consulting a lawyer, the defendant Federico Laureano
refused to pay the windshield himself and challenged that the case be brought to court for judicial
adjudication. There is no question that the plaintiff tried to convince the defendant Federico
Laureano just to pay the value of the windshield and he even came to the extent of asking the wife to
convince her husband to settle the matter amicably but the defendant Federico Laureano refused to
make any settlement, clinging [to] the belief that he could not be held liable because a minor child
threw a stone accidentally on the windshield and therefore, the same was due to force majeure." 2
1. The law being what it is, such a belief on the part of defendant Federico Laureano was justified.
The express language of Art. 1174 of the present Civil Code which is a restatement of Art. 1105 of
the Old Civil Code, except for the addition of the nature of an obligation requiring the assumption of
risk, compels such a conclusion. It reads thus: "Except in cases expressly specified by the law, or
when it is otherwise declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which could not be, foreseen, or
which, though foreseen were inevitable." Even under the old Civil Code then, as stressed by us in
the first decision dating back to 1908, in an opinion by Justice Mapa, the rule was well-settled that in
the absence of a legal provision or an express covenant, "no one should be held to account for
fortuitous cases." 3 Its basis, as Justice Moreland stressed, is the Roman law principle major casus est,
cui humana infirmitas resistere non potest. 4 Authorities of repute are in agreement, more specifically
concerning an obligation arising from contract "that some extraordinary circumstance independent of the
will of the obligor, or of his employees, is an essential element of a caso fortuito." 5 If it could be shown
that such indeed was the case, liability is ruled out. There is no requirement of "diligence beyond what
human care and foresight can provide." 6
The error committed by the lower court in holding defendant Federico Laureano liable appears to be
thus obvious. Its own findings of fact repel the motion that he should be made to respond in
damages to the plaintiff for the broken windshield. What happened was clearly unforeseen. It was a
fortuitous event resulting in a loss which must be borne by the owner of the car. An element of
reasonableness in the law would be manifestly lacking if, on the circumstances as thus disclosed,
legal responsibility could be imputed to an individual in the situation of defendant Laureano. Art.
1174 of the Civil Code guards against the possibility of its being visited with such a reproach.
Unfortunately, the lower court was of a different mind and thus failed to heed its command.

It was misled, apparently, by the inclusion of the exemption from the operation of such a provision of
a party assuming the risk, considering the nature of the obligation undertaken. A more careful
analysis would have led the lower court to a different and correct interpretation. The very wording of
the law dispels any doubt that what is therein contemplated is the resulting liability even if caused by
a fortuitous event where the party charged may be considered as having assumed the risk incident
in the nature of the obligation to be performed. It would be an affront, not only to the logic but to the
realities of the situation, if in the light of what transpired, as found by the lower court, defendant
Federico Laureano could be held as bound to assume a risk of this nature. There was no such
obligation on his part.
Reference to the leading case of Republic v. Luzon Stevedoring Corp. 7 will illustrate when the nature
of the obligation is such that the risk could be considered as having been assumed. As noted in the
opinion of Justice J.B.L. Reyes, speaking for the Court: "The appellant strongly stresses the precautions
taken by it on the day in question: that it assigned two of its most powerful tugboats to tow down river its
barge L-1892; that it assigned to the task the more competent and experienced among its patrons, had
the towlines, engines and equipment double-checked and inspected; that it instructed its patrons to take
extra-precautions; and concludes that it had done all it was called to do, and that the accident, therefore,
should be held due to force majeure or fortuitous event." Its next paragraph explained clearly why the
defense of caso fortuito or force majeure does not lie. Thus: "These very precautions, however,
completely destroy the appellant's defense. For caso fortuito or force majeure (which in law are identical
in so far as they exempt an obligor from liability) by definition, are extraordinary events not foreseeable or
avoidable, 'events that could not be foreseen, or which, though foreseen, were inevitable' (Art. 1174, Civil
Code of the Philippines). It is, therefore, not enough that the event should not have been foreseen or
participated, as is commonly believed, but it must be one impossible to foresee or to avoid. The mere
difficulty to foresee the happening is not impossibility to foresee the same: un hecho no constituye caso
fortuito por la sola circunstancia de que su existencia haga mas dificil o mas onerosa la accion diligente
del presente ofensor' (Peirano Facio, Responsibilidad Extra-contractual, p. 465; Mazeaud, Traite de la
Responsibilite Civile, Vol. 2, sec. 1569). The very measures adopted by appellant prove that the
possibility of danger was not only foreseeable, but actually foreseen, and was not caso fortuito."
In that case then, the risk was quite evident and the nature of the obligation such that a party could
rightfully be deemed as having assumed it. It is not so in the case before us. It is anything but that. If
the lower court, therefore, were duly mindful of what this particular legal provision contemplates, it
could not have reached the conclusion that defendant Federico Laureano could be held liable. To
repeat, that was clear error on its part.
2. Appellants do not stop there. It does not suffice for them that defendant Federico Laureano would
be freed from liability. They would go farther. They would take plaintiff to task for his complaint having
joined the wife, Aida de Laureano, and the father, Juanita Laureano. They were far from satisfied
with the lower court's absolving these two from any financial responsibility. Appellants would have
plaintiff pay damages for their inclusion in this litigation. We are not disposed to view the matter thus.
It is to be admitted, of course, that plaintiff, who is a member of the bar, ought to have exercised
greater care in selecting the parties against whom he would proceed. It may be said that his view of
the law that would consider defendant Federico Laureano liable on the facts as thus disclosed, while
erroneous, is not bereft of plausibility. Even the lower court, mistakenly of course, entertained similar

view. For plaintiff, however, to have included the wife and the father would seem to indicate that his
understanding of the law is not all that it ought to have been.
Plaintiff apparently was not entirely unaware that the inclusion in the suit filed by him was
characterized by unorthodoxy. He did attempt to lend some color of justification by explicitly setting
forth that the father was joined as party defendant in the case as he was the administrator of the
inheritance of an undivided property to which defendant Federico Laureano could lay claim and that
the wife was likewise proceeded against because the conjugal partnership would be made to
respond for whatever liability would be adjudicated against the husband.
It cannot be said that such an attempt at justification is impressed with a high persuasive quality. Far
from it. Nonetheless, mistaken as plaintiff apparently was, it cannot be concluded that he was
prompted solely by the desire to inflict needless and unjustified vexation on them. Considering the
equities of the situation, plaintiff having suffered a pecuniary loss which, while resulting from a
fortuitous event, perhaps would not have occurred at all had not defendant Federico Laureano
borrowed his car, we, feel that he is not to be penalized further by his mistaken view of the law in
including them in his complaint. Well-worth paraphrasing is the thought expressed in a United States
Supreme Court decision as to the existence of an abiding and fundamental principle that the
expenses and annoyance of litigation form part of the social burden of living in a society which seeks
to attain social control through law. 8
WHEREFORE, the decision of the lower court of November 2, 1965 insofar as it orders defendant
Federico Laureano to pay plaintiff the amount of P30,000.00 as damages plus the payment of costs,
is hereby reversed. It is affirmed insofar as it dismissed the case against the other two defendants,
Juanita Laureano and Aida de Laureano, and declared that no moral damages should be awarded
the parties. Without pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Teehankee, Barredo and Villamor, JJ.,
concur.
Castro. J., is on leave.

Footnotes
1 Decision, Record on Appeal, pp. 29-30.
2 Ibid, pp. 36-37.
3 Crame Sy Panco v. Gonzaga, 10 Phil. 646, 648. Cf. Chan Keep v. Chan Gioco, 14 Phil. 5
(1909) and Novo & Co. v. Ainsworth, 26 Phil. 380 (1913).
4 Roman Catholic Bishop of Jaro v. De la Pena, 26 Phil. 144, 146 (1913).

5 Lasam v. Smith, 45 Phil. 657, 661-662 (1924). Cf. Yap Kim Chuan v. Tiaoqui, 31 Phil. 433
(1955); University of Santo Tomas v. Descals, 38 Phil. 267 (1918); Lizares v. Hernaez, 40
Phil. 981 (1920); Garcia v. Escudero, 43 Phil. 437 (1922); Millan v. Rio y Olabarrieta, 45 Phil.
718 (1924); Obejera v. Iga Sy, 76 Phil. 580 (1946).
6 Gillaco v. Manila Railroad Co., 97 Phil. 884 (1955).
7 L-21749, Sept. 29, 1967, 21 SCRA 279.
8 Cf. Petroleum Exploration v. Public Service Commission, 304 US 209 (1938).

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-29640 June 10, 1971

GUILLERMO AUSTRIA, petitioner,
vs.
THE COURT OF APPEALS (Second Division), PACIFICO ABAD and MARIA G.
ABAD, respondents.
Antonio Enrile Inton for petitioner.
Jose A. Buendia for respondents.

REYES, J.B.L., J.:

Guillermo Austria petitions for the review of the decision rendered by the Court of Appeal (in CA-G.R.
No. 33572-R), on the sole issue of whether in a contract of agency (consignment of goods for sale) it
is necessary that there be prior conviction for robbery before the loss of the article shall exempt the
consignee from liability for such loss.
In a receipt dated 30 January 1961, Maria G. Abad acknowledged having received from Guillermo
Austria one (1) pendant with diamonds valued at P4,500.00, to be sold on commission basis or to be
returned on demand. On 1 February 1961, however, while walking home to her residence in
Mandaluyong, Rizal, Abad was said to have been accosted by two men, one of whom hit her on the
face, while the other snatched her purse containing jewelry and cash, and ran away. Among the
pieces of jewelry allegedly taken by the robbers was the consigned pendant. The incident became
the subject of a criminal case filed in the Court of First Instance of Rizal against certain persons
(Criminal Case No. 10649, People vs. Rene Garcia, et al.).
As Abad failed to return the jewelry or pay for its value notwithstanding demands, Austria brought in
the Court of First Instance of Manila an action against her and her husband for recovery of the
pendant or of its value, and damages. Answering the allegations of the complaint, defendants
spouses set up the defense that the alleged robbery had extinguished their obligation.
After due hearing, the trial court rendered judgment for the plaintiff, and ordered defendants
spouses, jointly and severally, to pay to the former the sum of P4,500.00, with legal interest thereon,
plus the amount of P450.00 as reasonable attorneys' fees, and the costs. It was held that defendants
failed to prove the fact of robbery, or, if indeed it was committed, that defendant Maria Abad was

guilty of negligence when she went home without any companion, although it was already getting
dark and she was carrying a large amount of cash and valuables on the day in question, and such
negligence did not free her from liability for damages for the loss of the jewelry.
Not satisfied with his decision, the defendants went to the Court of Appeals, and there secured a
reversal of the judgment. The appellate court overruling the finding of the trial court on the lack of
credibility of the two defense witnesses who testified on the occurrence of the robbery, and holding
that the facts of robbery and defendant Maria Abad's possesion of the pendant on that unfortunate
day have been duly published, declared respondents not responsible for the loss of the jewelry on
account of a fortuitous event, and relieved them from liability for damages to the owner. Plaintiff
thereupon instituted the present proceeding.
It is now contended by herein petitioner that the Court of Appeals erred in finding that there was
robbery in the case, although nobody has been found guilty of the supposed crime. It is petitioner's
theory that for robbery to fall under the category of a fortuitous event and relieve the obligor from his
obligation under a contract, pursuant to Article 1174 of the new Civil Code, there ought to be prior
finding on the guilt of the persons responsible therefor. In short, that the occurrence of the robbery
should be proved by a final judgment of conviction in the criminal case. To adopt a different view,
petitioner argues, would be to encourage persons accountable for goods or properties received in
trust or consignment to connive with others, who would be willing to be accused in court for the
robbery, in order to be absolved from civil liability for the loss or disappearance of the entrusted
articles.
We find no merit in the contention of petitioner.
It is recognized in this jurisdiction that to constitute a caso fortuito that would exempt a person from
responsibility, it is necessary that (1) the event must be independent of the human will (or rather, of
the debtor's or obligor's); (2) the occurrence must render it impossible for the debtor to fulfill the
obligation in a normal manner; and that (3) the obligor must be free of participation in or aggravation
of the injury to the creditor. 1 A fortuitous event, therefore, can be produced by nature, e.g., earthquakes,
storms, floods, etc., or by the act of man, such as war, attack by bandits, robbery, 2etc., provided that the
event has all the characteristics enumerated above.
It is not here disputed that if respondent Maria Abad were indeed the victim of robbery, and if it were
really true that the pendant, which she was obliged either to sell on commission or to return to
petitioner, were taken during the robbery, then the occurrence of that fortuitous event would have
extinguished her liability. The point at issue in this proceeding is how the fact of robbery is to be
established in order that a person may avail of the exempting provision of Article 1174 of the new
Civil Code, which reads as follows:
ART. 1174. Except in cases expressly specified by law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption
of risk, no person shall be responsible for those events which could not be foreseen,
or which, though foreseen, were inevitable.

It may be noted the reform that the emphasis of the provision is on the events, not on the agents or
factors responsible for them. To avail of the exemption granted in the law, it is not necessary that the
persons responsible for the occurrence should be found or punished; it would only be sufficient to
established that the enforceable event, the robbery in this case did take place without any
concurrent fault on the debtor's part, and this can be done by preponderant evidence. To require in
the present action for recovery the prior conviction of the culprits in the criminal case, in order to
establish the robbery as a fact, would be to demand proof beyond reasonable doubt to prove a fact
in a civil case.
It is undeniable that in order to completely exonerate the debtor for reason of a fortutious event, such
debtor must, in addition to the cams itself, be free of any concurrent or contributory fault or
negligence. 3 This is apparent from Article 1170 of the Civil Code of the Philippines, providing that:
ART. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are
liable for damages.
It is clear that under the circumstances prevailing at present in the City of Manila and its suburbs,
with their high incidence of crimes against persons and property that renders travel after nightfall a
matter to be sedulously avoided without suitable precaution and protection, the conduct of
respondent Maria G. Abad, in returning alone to her house in the evening, carrying jewelry of
considerable value would be negligent per se and would not exempt her from responsibility in the
case of a robbery. We are not persuaded, however, that the same rule should obtain ten years
previously, in 1961, when the robbery in question did take place, for at that time criminality had not
by far reached the levels attained in the present day.
There is likewise no merit in petitioner's argument that to allow the fact of robbery to be recognized
in the civil case before conviction is secured in the criminal action, would prejudice the latter case, or
would result in inconsistency should the accused obtain an acquittal or should the criminal case be
dismissed. It must be realized that a court finding that a robbery has happened would not
necessarily mean that those accused in the criminal action should be found guilty of the crime; nor
would a ruling that those actually accused did not commit the robbery be inconsistent with a finding
that a robbery did take place. The evidence to establish these facts would not necessarily be the
same.
WHEREFORE, finding no error in the decision of the Court of Appeals under review, the petition in
this case is hereby dismissed with costs against the petitioner.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Villamor and
Makasiar, JJ., concur.
Castro, J., took no part.

Footnotes

1 Reyes & Puno, Outline of Philippine Civil Law, Vol. IV, pages 25-26, citing Lasam
vs. Smith, 45 Phil. 657, 661.
2 Tolentino, Civil Code of the Philippines, Vol. IV, 1962 ed., page 117, citing 3 Salvat
83-84.
3 V. Lachica vs. Gayoso, 48 Off. Gaz. (No. 1) 205, and cases cited; Lanaso Fruit SS
Co. vs. Univ. Ins. Co., 82 L. Ed. 422.

Republic of the Philippines

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

GUTIERREZ, JR., J.:

These consolidated petitions seek to set aside the decision of the respondent Court of Appeals
which adjudged the National Power Corporation liable for damages against Engineering
Construction, Inc. The appellate court, however, reduced the amount of damages awarded by the
trial court. Hence, both parties filed their respective petitions: the National Power Corporation (NPC)
in G.R. No. 47379, questioning the decision of the Court of Appeals for holding it liable for damages
and the Engineering Construction, Inc. (ECI) in G.R. No. 47481, questioning the same decision for
reducing the consequential damages and attorney's fees and for eliminating the exemplary
damages.
The facts are succinctly summarized by the respondent Court of Appeals, as follows:
On August 4, 1964, plaintiff Engineering Construction, Inc., being a successful
bidder, executed a contract in Manila with the National Waterworks and Sewerage
Authority (NAWASA), whereby the former undertook to furnish all tools, labor,
equipment, and materials (not furnished by Owner), and to construct the proposed
2nd lpo-Bicti Tunnel, Intake and Outlet Structures, and Appurtenant Structures, and
Appurtenant Features, at Norzagaray, Bulacan, and to complete said works within
eight hundred (800) calendar days from the date the Contractor receives the formal
notice to proceed (Exh. A).

The project involved two (2) major phases: the first phase comprising, the tunnel
work covering a distance of seven (7) kilometers, passing through the mountain, from
the Ipo river, a part of Norzagaray, Bulacan, where the Ipo Dam of the defendant
National Power Corporation is located, to Bicti; the other phase consisting of the
outworks at both ends of the tunnel.
By September 1967, the plaintiff corporation already had completed the first major
phase of the work, namely, the tunnel excavation work. Some portions of the
outworks at the Bicti site were still under construction. As soon as the plaintiff
corporation had finished the tunnel excavation work at the Bicti site, all the
equipment no longer needed there were transferred to the Ipo site where some
projects were yet to be completed.
The record shows that on November 4,1967, typhoon 'Welming' hit Central Luzon,
passing through defendant's Angat Hydro-electric Project and Dam at lpo,
Norzagaray, Bulacan. Strong winds struck the project area, and heavy rains
intermittently fell. Due to the heavy downpour, the water in the reservoir of the Angat
Dam was rising perilously at the rate of sixty (60) centimeters per hour. To prevent an
overflow of water from the dam, since the water level had reached the danger height
of 212 meters above sea level, the defendant corporation caused the opening of the
spillway gates." (pp. 45-46, L-47379, Rollo)
The appellate court sustained the findings of the trial court that the evidence preponlderantly
established the fact that due to the negligent manner with which the spillway gates of the Angat Dam
were opened, an extraordinary large volume of water rushed out of the gates, and hit the
installations and construction works of ECI at the lpo site with terrific impact, as a result of which the
latter's stockpile of materials and supplies, camp facilities and permanent structures and accessories
either washed away, lost or destroyed.
The appellate court further found that:
It cannot be pretended that there was no negligence or that the appellant exercised
extraordinary care in the opening of the spillway gates of the Angat Dam. Maintainers
of the dam knew very well that it was far more safe to open them gradually. But the
spillway gates were opened only when typhoon Welming was already at its height, in
a vain effort to race against time and prevent the overflow of water from the dam as it
'was rising dangerously at the rate of sixty centimeters per hour. 'Action could have
been taken as early as November 3, 1967, when the water in the reservoir was still
low. At that time, the gates of the dam could have been opened in a regulated
manner. Let it be stressed that the appellant knew of the coming of the typhoon four
days before it actually hit the project area. (p. 53, L-47379, Rollo)
As to the award of damages, the appellate court held:
We come now to the award of damages. The appellee submitted a list of estimated
losses and damages to the tunnel project (Ipo side) caused by the instant flooding of

the Angat River (Exh. J-1). The damages were itemized in four categories, to wit:
Camp Facilities P55,700.00; Equipment, Parts and Plant P375,659.51; Materials
P107,175.80; and Permanent Structures and accessories P137,250.00, with an
aggregate total amount of P675,785.31. The list is supported by several vouchers
which were all submitted as Exhibits K to M-38 a, N to O, P to U-2 and V to X- 60-a
(Vide: Folders Nos. 1 to 4). The appellant did not submit proofs to traverse the
aforementioned documentary evidence. We hold that the lower court did not commit
any error in awarding P 675,785.31 as actual or compensatory damages.
However, We cannot sustain the award of P333,200.00 as consequential damages.
This amount is broken down as follows: P213,200.00 as and for the rentals of a
crane to temporarily replace the one "destroyed beyond repair," and P120,000.00 as
one month bonus which the appellee failed to realize in accordance with the contract
which the appellee had with NAWASA. Said rental of the crane allegedly covered the
period of one year at the rate of P40.00 an hour for 16 hours a day. The evidence,
however, shows that the appellee bought a crane also a crawler type, on November
10, 1967, six (6) days after the incident in question (Exh N) And according to the
lower court, which finding was never assailed, the appellee resumed its normal
construction work on the Ipo- Bicti Project after a stoppage of only one month. There
is no evidence when the appellee received the crane from the seller, Asian Enterprise
Limited. But there was an agreement that the shipment of the goods would be
effected within 60 days from the opening of the letter of credit (Exh. N). It appearing
that the contract of sale was consummated, We must conclude or at least assume
that the crane was delivered to the appellee within 60 days as stipulated. The
appellee then could have availed of the services of another crane for a period of only
one month (after a work stoppage of one month) at the rate of P 40.00 an hour for 16
hours a day or a total of P 19,200.00 as rental.
<re||an1w>

But the value of the new crane cannot be included as part of actual damages
because the old was reactivated after it was repaired. The cost of the repair was P
77,000.00 as shown in item No. 1 under the Equipment, Parts and Plants category
(Exh. J-1), which amount of repair was already included in the actual or
compensatory damages. (pp. 54-56, L-47379, Rollo)
The appellate court likewise rejected the award of unrealized bonus from NAWASA in the amount of
P120,000.00 (computed at P4,000.00 a day in case construction is finished before the specified
time, i.e., within 800 calendar days), considering that the incident occurred after more than three (3)
years or one thousand one hundred seventy (1,170) days. The court also eliminated the award of
exemplary damages as there was no gross negligence on the part of NPC and reduced the amount
of attorney's fees from P50,000.00 to P30,000.00.
In these consolidated petitions, NPC assails the appellate court's decision as being erroneous on the
ground that the destruction and loss of the ECI's equipment and facilities were due to force majeure.
It argues that the rapid rise of the water level in the reservoir of its Angat Dam due to heavy rains
brought about by the typhoon was an extraordinary occurrence that could not have been foreseen,

and thus, the subsequent release of water through the spillway gates and its resultant effect, if any,
on ECI's equipment and facilities may rightly be attributed to force majeure.
On the other hand, ECI assails the reduction of the consequential damages from P333,200.00 to
P19,000.00 on the grounds that the appellate court had no basis in concluding that ECI acquired a
new Crawler-type crane and therefore, it only can claim rentals for the temporary use of the leased
crane for a period of one month; and that the award of P4,000.00 a day or P120,000.00 a month
bonus is justified since the period limitation on ECI's contract with NAWASA had dual effects, i.e.,
bonus for earlier completion and liquidated damages for delayed performance; and in either case at
the rate of P4,000.00 daily. Thus, since NPC's negligence compelled work stoppage for a period of
one month, the said award of P120,000.00 is justified. ECI further assailes the reduction of attorney's
fees and the total elimination of exemplary damages.
Both petitions are without merit.
It is clear from the appellate court's decision that based on its findings of fact and that of the trial
court's, petitioner NPC was undoubtedly negligent because it opened the spillway gates of the Angat
Dam only at the height of typhoon "Welming" when it knew very well that it was safer to have opened
the same gradually and earlier, as it was also undeniable that NPC knew of the coming typhoon at
least four days before it actually struck. And even though the typhoon was an act of God or what we
may call force majeure, NPC cannot escape liability because its negligence was the proximate
cause of the loss and damage. As we have ruled in Juan F. Nakpil & Sons v. Court of Appeals, (144
SCRA 596, 606-607):
Thus, if upon the happening of a fortuitous event or an act of God, there concurs a
corresponding fraud, negligence, delay or violation or contravention in any manner of
the tenor of the obligation as provided for in Article 1170 of the Civil Code, which
results in loss or damage, the obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly requires that the act must
be one occasioned exclusively by the violence of nature and human agencies are to
be excluded from creating or entering into the cause of the mischief. When the effect,
the cause of which is to be considered, is found to be in part the result of the
participation of man, whether it be from active intervention or neglect, or failure to
act, the whole occurrence is thereby humanized, as it was, and removed from the
rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus, it has been held that when the negligence of a person concurs with an act of
God in producing a loss, such person is not exempt from liability by showing that the
immediate cause of the damage was the act of God. To be exempt from liability for
loss because of an act of God, he must be free from any previous negligence or
misconduct by which the loss or damage may have been occasioned. (Fish &
Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan 49 O.G. 4379; Limpangco &
Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).

Furthermore, the question of whether or not there was negligence on the part of NPC is a question
of fact which properly falls within the jurisdiction of the Court of Appeals and will not be disturbed by
this Court unless the same is clearly unfounded. Thus, in Tolentino v. Court of appeals, (150 SCRA
26, 36) we ruled:
Moreover, the findings of fact of the Court of Appeals are generally final and
conclusive upon the Supreme Court (Leonardo v. Court of Appeals, 120 SCRA 890
[1983]. In fact it is settled that the Supreme Court is not supposed to weigh evidence
but only to determine its substantially (Nuez v. Sandiganbayan, 100 SCRA 433
[1982] and will generally not disturb said findings of fact when supported by
substantial evidence (Aytona v. Court of Appeals, 113 SCRA 575 [1985]; Collector of
Customs of Manila v. Intermediate Appellate Court, 137 SCRA 3 [1985]. On the other
hand substantial evidence is defined as such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion (Philippine Metal Products,
Inc. v. Court of Industrial Relations, 90 SCRA 135 [1979]; Police Commission v. Lood,
127 SCRA 757 [1984]; Canete v. WCC, 136 SCRA 302 [1985])
Therefore, the respondent Court of Appeals did not err in holding the NPC liable for damages.
Likewise, it did not err in reducing the consequential damages from P333,200.00 to P19,000.00. As
shown by the records, while there was no categorical statement or admission on the part of ECI that
it bought a new crane to replace the damaged one, a sales contract was presented to the effect that
the new crane would be delivered to it by Asian Enterprises within 60 days from the opening of the
letter of credit at the cost of P106,336.75. The offer was made by Asian Enterprises a few days after
the flood. As compared to the amount of P106,336.75 for a brand new crane and paying the alleged
amount of P4,000.00 a day as rental for the use of a temporary crane, which use petitioner ECI
alleged to have lasted for a period of one year, thus, totalling P120,000.00, plus the fact that there
was already a sales contract between it and Asian Enterprises, there is no reason why ECI should
opt to rent a temporary crane for a period of one year. The appellate court also found that the
damaged crane was subsequently repaired and reactivated and the cost of repair was P77,000.00.
Therefore, it included the said amount in the award of of compensatory damages, but not the value
of the new crane. We do not find anything erroneous in the decision of the appellate court that the
consequential damages should represent only the service of the temporary crane for one month. A
contrary ruling would result in the unjust enrichment of ECI.
The P120,000.00 bonus was also properly eliminated as the same was granted by the trial court on
the premise that it represented ECI's lost opportunity "to earn the one month bonus from NAWASA ...
." As stated earlier, the loss or damage to ECI's equipment and facilities occurred long after the
stipulated deadline to finish the construction. No bonus, therefore, could have been possibly earned
by ECI at that point in time. The supposed liquidated damages for failure to finish the project within
the stipulated period or the opposite of the claim for bonus is not clearly presented in the records of
these petitions. It is not shown that NAWASA imposed them.
As to the question of exemplary damages, we sustain the appellate court in eliminating the same
since it found that there was no bad faith on the part of NPC and that neither can the latter's

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

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 113003 October 17, 1997

ALBERTA YOBIDO and CRESENCIO YOBIDO, petitioners,
vs.
COURT OF APPEALS, LENY TUMBOY, ARDEE TUMBOY and JASMIN TUMBOY, respondents.

ROMERO, J.:
In this petition for review on certiorari of the decision of the Court of Appeals, the issue is whether or
not the explosion of a newly installed tire of a passenger vehicle is a fortuitous event that exempts
the carrier from liability for the death of a passenger.
On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named Ardee and
Jasmin, bearded at Mangagoy, Surigao del Sur, a Yobido Liner bus bound for Davao City. Along
Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left front tire of the bus exploded. The bus fell
into a ravine around three (3) feet from the road and struck a tree. The incident resulted in the death
of 28-year-old Tito Tumboy and physical injuries to other passengers.
On November 21, 1988, a complaint for breach of contract of carriage, damages and attorney's fees
was filed by Leny and her children against Alberta Yobido, the owner of the bus, and Cresencio
Yobido, its driver, before the Regional Trial Court of Davao City. When the defendants therein filed
their answer to the complaint, they raised the affirmative defense of caso fortuito. They also filed a
third-party complaint against Philippine Phoenix Surety and Insurance, Inc. This third-party
defendant filed an answer with compulsory counterclaim. At the pre-trial conference, the parties
agreed to a stipulation of facts. 1
Upon a finding that the third party defendant was not liable under the insurance contract, the lower
court dismissed the third party complaint. No amicable settlement having been arrived at by the
parties, trial on the merits ensued.
The plaintiffs asserted that violation of the contract of carriage between them and the defendants
was brought about by the driver's failure to exercise the diligence required of the carrier in
transporting passengers safely to their place of destination. According to Leny Tumboy, the bus left
Mangagoy at 3:00 o'clock in the afternoon. The winding road it traversed was not cemented and was
wet due to the rain; it was rough with crushed rocks. The bus which was full of passengers had
cargoes on top. Since it was "running fast," she cautioned the driver to slow down but he merely

stared at her through the mirror. At around 3:30 p.m., in Trento, she heard something explode and
immediately, the bus fell into a ravine.
For their part, the defendants tried to establish that the accident was due to a fortuitous event.
Abundio Salce, who was the bus conductor when the incident happened, testified that the 42-seater
bus was not full as there were only 32 passengers, such that he himself managed to get a seat. He
added that the bus was running at a speed of "60 to 50" and that it was going slow because of the
zigzag road. He affirmed that the left front tire that exploded was a "brand new tire" that he mounted
on the bus on April 21, 1988 or only five (5) days before the incident. The Yobido Liner secretary,
Minerva Fernando, bought the new Goodyear tire from Davao Toyo Parts on April 20, 1988 and she
was present when it was mounted on the bus by Salce. She stated that all driver applicants in
Yobido Liner underwent actual driving tests before they were employed. Defendant Cresencio
Yobido underwent such test and submitted his professional driver's license and clearances from the
barangay, the fiscal and the police.
On August 29, 1991, the lower court rendered a decision 2 dismissing the action for lack of merit. On
the issue of whether or not the tire blowout was a caso fortuito, it found that "the falling of the bus to the
cliff was a result of no other outside factor than the tire blow-out." It held that the ruling in the La Mallorca
and Pampanga Bus Co. v. De Jesus 3 that a tire blowout is "a mechanical defect of the conveyance or a
fault in its equipment which was easily discoverable if the bus had been subjected to a more thorough or
rigid check-up before it took to the road that morning" is inapplicable to this case. It reasoned out that in
said case, it was found that the blowout was caused by the established fact that the inner tube of the left
front tire "was pressed between the inner circle of the left wheel and the rim which had slipped out of the
wheel." In this case, however, "the cause of the explosion remains a mystery until at present." As such,
the court added, the tire blowout was "a caso fortuito which is completely an extraordinary circumstance
independent of the will" of the defendants who should be relieved of "whatever liability the plaintiffs may
have suffered by reason of the explosion pursuant to Article 1174 4 of the Civil Code."
Dissatisfied, the plaintiffs appealed to the Court of Appeals. They ascribed to the lower court the
following errors: (a) finding that the tire blowout was a caso fortuito; (b) failing to hold that the
defendants did not exercise utmost and/or extraordinary diligence required of carriers under Article
1755 of the Civil Code, and (c) deciding the case contrary to the ruling in Juntilla v. Fontanar, 5 and
Necesito v. Paras. 6
On August 23, 1993, the Court of Appeals rendered the Decision 7 reversing that of the lower court. It
held that:
To Our mind, the explosion of the tire is not in itself a fortuitous event. The cause of the blowout, if due to a factory defect, improper mounting, excessive tire pressure, is not an
unavoidable event. On the other hand, there may have been adverse conditions on the road
that were unforeseeable and/or inevitable, which could make the blow-out a caso fortuito.
The fact that the cause of the blow-out was not known does not relieve the carrier of liability.
Owing to the statutory presumption of negligence against the carrier and its obligation to
exercise the utmost diligence of very cautious persons to carry the passenger safely as far
as human care and foresight can provide, it is the burden of the defendants to prove that the
cause of the blow-out was a fortuitous event. It is not incumbent upon the plaintiff to prove
that the cause of the blow-out is not caso-fortuito.

Proving that the tire that exploded is a new Goodyear tire is not sufficient to discharge
defendants' burden. As enunciated in Necesito vs. Paras, the passenger has neither choice
nor control over the carrier in the selection and use of its equipment, and the good repute of
the manufacturer will not necessarily relieve the carrier from liability.
Moreover, there is evidence that the bus was moving fast, and the road was wet and rough.
The driver could have explained that the blow-out that precipitated the accident that caused
the death of Toto Tumboy could not have been prevented even if he had exercised due care
to avoid the same, but he was not presented as witness.
The Court of Appeals thus disposed of the appeal as follows:
WHEREFORE, the judgment of the court a quo is set aside and another one entered
ordering defendants to pay plaintiffs the sum of P50,000.00 for the death of Tito Tumboy,
P30,000.00 in moral damages, and P7,000.00 for funeral and burial expenses.
SO ORDERED.
The defendants filed a motion for reconsideration of said decision which was denied on November 4,
1993 by the Court of Appeals. Hence, the instant petition asserting the position that the tire blowout
that caused the death of Tito Tumboy was a caso fortuito. Petitioners claim further that the Court of
Appeals, in ruling contrary to that of the lower court, misapprehended facts and, therefore, its
findings of fact cannot be considered final which shall bind this Court. Hence, they pray that this
Court review the facts of the case.
The Court did re-examine the facts and evidence in this case because of the inapplicability of the
established principle that the factual findings of the Court of Appeals are final and may not be
reviewed on appeal by this Court. This general principle is subject to exceptions such as the one
present in this case, namely, that the lower court and the Court of Appeals arrived at diverse factual
findings. 8 However, upon such re-examination, we found no reason to overturn the findings and
conclusions of the Court of Appeals.
As a rule, when a passenger boards a common carrier, he takes the risks incidental to the mode of
travel he has taken. After all, a carrier is not an insurer of the safety of its passengers and is not
bound absolutely and at all events to carry them safely and without injury. 9 However, when a
passenger is injured or dies while travelling, the law presumes that the common carrier is negligent. Thus,
the Civil Code provides:
Art. 1756. In case of death or injuries to passengers, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence as prescribed in articles 1733 and 1755.
Article 1755 provides that "(a) common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very cautious persons, with a
due regard for all the circumstances." Accordingly, in culpa contractual, once a passenger dies or is
injured, the carrier is presumed to have been at fault or to have acted negligently. This disputable

presumption may only be overcome by evidence that the carrier had observed extraordinary
diligence as prescribed by Articles 1733, 10 1755 and 1756 of the Civil Code or that the death or injury of
the passenger was due to a fortuitous event. 11 Consequently, the court need not make an express finding
of fault or negligence on the part of the carrier to hold it responsible for damages sought by the
passenger. 12
In view of the foregoing, petitioners' contention that they should be exempt from liability because the
tire blowout was no more than a fortuitous event that could not have been foreseen, must fail. A
fortuitous event is possessed of the following characteristics: (a) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtor to comply with his obligations, must be
independent of human will; (b) it must be impossible to foresee the event which constitutes the caso
fortuito, or if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to
render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the obliger must
be free from any participation in the aggravation of the injury resulting to the creditor. 13 As Article 1174
provides, no person shall be responsible for a fortuitous event which could not be foreseen, or which,
though foreseen, was inevitable. In other words, there must be an entire exclusion of human agency from
the cause of injury or loss. 14
Under the circumstances of this case, the explosion of the new tire may not be considered a
fortuitous event. There are human factors involved in the situation. The fact that the tire was new did
not imply that it was entirely free from manufacturing defects or that it was properly mounted on the
vehicle. Neither may the fact that the tire bought and used in the vehicle is of a brand name noted for
quality, resulting in the conclusion that it could not explode within five days' use. Be that as it may, it
is settled that an accident caused either by defects in the automobile or through the negligence of its
driver is not a caso fortuito that would exempt the carrier from liability for damages. 15
Moreover, a common carrier may not be absolved from liability in case of force majeure or fortuitous
event alone. The common carrier must still prove that it was not negligent in causing the death or
injury resulting from an accident. 16 This Court has had occasion to state:
While it may be true that the tire that blew-up was still good because the grooves of the tire
were still visible, this fact alone does not make the explosion of the tire a fortuitous event. No
evidence was presented to show that the accident was due to adverse road conditions or
that precautions were taken by the jeepney driver to compensate for any conditions liable to
cause accidents. The sudden blowing-up, therefore, could have been caused by too much
air pressure injected into the tire coupled by the fact that the jeepney was overloaded and
speeding at the time of the accident. 17
It is interesting to note that petitioners proved through the bus conductor, Salce, that the bus was
running at "60-50" kilometers per hour only or within the prescribed lawful speed limit. However, they
failed to rebut the testimony of Leny Tumboy that the bus was running so fast that she cautioned the
driver to slow down. These contradictory facts must, therefore, be resolved in favor of liability in view
of the presumption of negligence of the carrier in the law. Coupled with this is the established
condition of the road rough, winding and wet due to the rain. It was incumbent upon the defense
to establish that it took precautionary measures considering partially dangerous condition of the
road. As stated above, proof that the tire was new and of good quality is not sufficient proof that it
was not negligent. Petitioners should have shown that it undertook extraordinary diligence in the

care of its carrier, such as conducting daily routinary check-ups of the vehicle's parts. As the late
Justice J.B.L. Reyes said:
It may be impracticable, as appellee argues, to require of carriers to test the strength of each
and every part of its vehicles before each trip; but we are of the opinion that a due regard for
the carrier's obligations toward the traveling public demands adequate periodical tests to
determine the condition and strength of those vehicle portions the failure of which may
endanger the safety of the passengers. 18
Having failed to discharge its duty to overthrow the presumption of negligence with clear and
convincing evidence, petitioners are hereby held liable for damages. Article 1764 19 in relation to
Article 2206 20 of the Civil Code prescribes the amount of at least three thousand pesos as damages for
the death of a passenger. Under prevailing jurisprudence, the award of damages under Article 2206 has
been increased to fifty thousand pesos (P50,000.00). 21
Moral damages are generally not recoverable in culpa contractual except when bad faith had been
proven. However, the same damages may be recovered when breach of contract of carriage results
in the death of a passenger, 22 as in this case. Exemplary damages, awarded by way of example or
correction for the public good when moral damages are awarded, 23 may likewise be recovered in
contractual obligations if the defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent
manner. 24 Because petitioners failed to exercise the extraordinary diligence required of a common carrier,
which resulted in the death of Tito Tumboy, it is deemed to have acted recklessly. 25 As such, private
respondents shall be entitled to exemplary damages.
WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED subject to the modification
that petitioners shall, in addition to the monetary awards therein, be liable for the award of exemplary
damages in the amount of P20,000.00. Costs against petitioners.
SO ORDERED.
Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.
Footnotes
1 Record, pp. 77-78.
2 Penned by Judge William M. Layague.
3 123 Phil. 875 (1966).
4 Art. 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption
of risk, no person shall be responsible for those events which could not be foreseen,
or which, though foreseen, were inevitable.
5 L-45637, May 31, 1985, 136 SCRA 624.

6 104 Phil. 75 (1958).

7 Penned by Associate Justice Minerva P. Gonzaga-Reyes and concurred in by
Associate Justices Vicente V. Mendoza and Pacita Caizares-Nye.
8 Philippine Rabbit Bus Lines, Inc. v. IAC, G.R. Nos. 66102-04, August 30, 1990, 189
SCRA 158, 159.
9 TOLENTINO, CIVIL CODE OF THE PHILIPPINES, Vol. V, 1992 ed., p. 312.
10 Art. 1733. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all the
circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further
expressed in articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the
extraordinary diligence for the safety of the passengers is further set forth in
articles 1755 and 1756.
11 Phil. Rabbit Bus Lines, Inc. vs. IAC, supra, at pp. 171-172 citing Lasam v. Smith,
Jr., 45 Phil. 657 (1924).
12 Batangas Trans. Co. v. Caguimbal, 130 Phil. 166, 171 (1968) citing Brito Sy v.
Malate Taxicab & Garage, Inc., 102 Phil. 482 (1957).
13 Metal Forming Corp. v. Office of the President, 317 Phil. 853, 859 (1995);
Vasquez v. Court of Appeals, L-42926, September 13, 1985, 138 SCRA 553,
557 citing Lasam v. Smith, supra at p. 661 and Austria v. Court of Appeals, 148-A
Phil. 462 (1971); Estrada v. Consolacion, L-40948, June 29, 1976, 71 SCRA 523,
530; Republic of the Phil. v. Luzon Stevedoring Corporation, 128 Phil. 313 (1967).
14 Vasquez v. Court of Appeals, supra, at p. 557.
15 Son v. Cebu Autobus Co., 94 Phil. 893, 896 (1954) citing Lasam v. Smith, supra.
16 Bachelor Express, Inc. v. Court of Appeals, G.R. No. 85691, July 31, 1990, 188
SCRA 216, 222-223.
17 Juntilla v. Fontanar, supra, at p. 630.
18 Necesito v. Paras, supra at p. 82.
19 Art. 1764. Damages in cases comprised in this Section shall be awarded in
accordance with Title XVIII of this Book, concerning Damages. Article 2206 shall also

apply to the death of a passenger caused, by the breach of contract by a common

carrier.
20 Art. 2206. The amount of damages for death caused by a crime or quasidelict shall be at least three thousand pesos, even though there may have been
mitigating circumstances. . . . .
21 Sulpicio Lines, Inc. v. Court of Appeals, 316 Phil. 455, 460 (1995) citing People v.
Flores, G.R. Nos. 103801-02, October 19, 1994, 237 SCRA 653.
22 Sulpicio Lines, Inc. v. Court of Appeals, supra at pp. 460-461 citing Trans World
Air Lines v. Court of Appeals, G.R. No. 78656, August 30, 1988, 165 SCRA 143;
Philippine Rabbit Bus Lines, Inc. v. Esguerra, 203 Phil. 107 (1982) and Vasquez v.
Court of Appeals, supra.
23 Art. 2229, Civil Code.
24 Art. 2232, supra.
25 Sulpicio Lines, Inc. v. Court of Appeals, supra at p. 461.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. Nos. 81100-01 February 7, 1990
BACOLOD-MURCIA MILLING CO., INC., petitioner,
vs.
HON. COURT OF APPEALS AND ALONSO GATUSLAO, respondents.
BACOLOD-MURCIA MILLING CO., INC., petitioner,
vs.
HON. COURT OF APPEALS, ALONSO GATUSLAO, AGRO-INDUSTRIAL DEVELOPMENT OF
SILAY-SARAVIA (AIDSISA) AND BACOLOD-MURCIA AGRICULTURAL COOPERATIVE
MARKETING ASSOCIATION (BM-ACMA), respondents.
Jalandoni, Herrera, Del Castillo & Associates for petitioner.
Taada, Vico & Tan for respondent AIDSISA.
San Juan, Gonzalez, San Agustin & Sinense for respondents Alfonso Gatuslao and BMACMA.
PARAS, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R.
CV Nos. 59716-59717 promulgated on September 11, 1987 affirming in toto the decision of the
Court of First Instance of Negros Occidental in two consolidated civil cases, the dispositive
portion of which reads as follows:
PREMISES CONSIDERED, the decision appealed from is hereby affirmed in
toto.
The uncontroverted facts of the case 1 are as follows:
1. xxx xxx xxx
2. BMMC is the owner and operator of the sugar central in Bacolod City,
Philippines;
3. ALONSO GATUSLAO is a registered planter of the Bacolod-Murcia Mill
District with Plantation Audit No. 3-79, being a registered owner of Lot Nos.
310, 140, 141 and 101-A of the Cadastral Survey of Murcia, Negros Occidental,
otherwise known as Hda. San Roque;

4. On May 24, 1957 BMMC and Alonso Gatuslao executed an 'Extension and
Modification of Milling Contract (Annex 'A' of the complaint in both cases)
which was registered on September 17, 1962 in the Office of the Register of
Deeds of Negros Occidental, and annotated on Transfer Certificates of Title
Nos. T-24207, RT-2252, RT-12035, and RT-12036 covering said Lot Nos. 310,
140, 141 and 101-A;
5. That since the crop year 1957-1958 up to crop year 1967-1968, inclusive,
Alonso Gatuslao has been milling all the sugarcane grown and produced on
said Lot Nos. 310, 140, 141 and 101-A with the Mill of BMMC;.
6. Since the crop year 1920-21 to crop year 1967-1968, inclusive, the canes of
planters adhered to the mill of BMMC were transported from the plantation to
the mill by means of cane cars and through railway system operated by BMMC;
7. The loading points at which planters Alonso Gatuslao was and should
deliver and load all his canes produced in his plantation, Hda. San Roque, were
at the Arimas Line, Switch 2, and from which loading stations, BMMC had been
hauling planter Gatuslao's sugar cane to its mill or factory continuously until
the crop year 1967-68;
8. BMMC had not been able to use its cane cars and railway system for the
cargo crop year 1968-1969;
9. Planter Alonso Gatuslao on various dates requested transportation facilities
of BMMC to be sent to his loading stations or switches for purposes of hauling
and milling his sugarcane crops of crop year 1968-1969;
10. The estimated gross production of Hda. San Roque for the crop year 19681969 is 4,500 piculs.
The records show that since the crop year 1920-1921 to the crop year 1967-1968, the canes of
the adhered planters were transported from the plantation to the mill of BMMC by means of
cane cars and through a railway system operated by BMMC which traversed the land of the
adherent planters, corresponding to the rights of way on their lands granted by the planters
to the Central for the duration of the milling contracts which is for "un periodo de cuarenta y
cinco anos o cosechas a contar desde la cosecha de 1920-1921" 2 (a period of 45 years or
harvests, beginning with a harvest of 1920-1921).
BMMC constructed the railroad tracks in 1920 and the adherent planters granted the BMMC a
right of way over their lands as provided for in the milling contracts. The owners of the
hacienda Helvetia were among the signatories of the milling contracts. When their milling
contracts with petitioner BMMC expired at the end of the 1964-1965 crop year, the
corresponding right of way of the owners of the hacienda Helvetia granted to the Central also
expired.

Thus, the BMMC was unable to use its railroad facilities during the crop year 1968-1969 due
to the closure in 1968 of the portion of the railway traversing the hacienda Helvetia as per
decision of the Court in Angela Estate, Inc. and Fernando F. Gonzaga, Inc. v. Court of First
Instance of Negros Occidental, G.R. No. L-27084, (24 SCRA 500 [1968]). In the same case the
Court ruled that the Central's conventional right of way over the hacienda Helvetia ceased
with the expiration of its amended milling contracts with the landowners of the hacienda at
the end of the 1964-1965 crop year and that in the absence of a renewal contract or the
establishment of a compulsory servitude of right of way on the same spot and route which
must be predicated on the satisfaction of the preconditions required by law, there subsists
no right of way to be protected.
Consequently, the owners of the hacienda Helvetia required the Central to remove the railway
tracks in the hacienda occupying at least 3,245 lineal meters with a width of 7 meters or a
total of 22,715 square meters, more or less. That was the natural consequence of the
expiration of the milling contracts with the landowners of the hacienda Helvetia (Angela
Estate, Inc. and Fernando Gonzaga, Inc. v. Court of First Instance of Negros Occidental, ibid).
BMMC filed a complaint for legal easement against the owners of the hacienda, with the
Court of First Instance of Negros Occidental which issued on October 4, 1965 an ex parte writ
of preliminary injunction restraining the landowners from reversing and/or destroying the
railroad tracks in question and from impeding, obstructing or in any way preventing the
passage and operation of plaintiffs locomotives and cane cars over defendants' property
during the pendency of the litigation and maintained the same in its subsequent orders of
May 31, and November 26, 1966. The outcome of the case, however, was not favorable to the
plaintiff BMMC. In the same case the landowners asked this Court to restrain the lower court
from enforcing the writ of preliminary injunction it issued, praying that after the hearing on
the merits, the restraining order be made permanent and the orders complained of be
annulled and set aside. The Court gave due course to the landowner's petition and on August
10, 1967 issued the writ of preliminary injunction enjoining the lower court from enforcing the
writ of preliminary injunction issued by the latter on October 4, 1965.
The writ of preliminary injunction issued by the Court was lifted temporarily on motion that
through the mediation of the President of the Philippines the Angela Estate and the Gonzaga
Estate agreed with the Central to allow the use of the railroad tracks passing through the
hacienda Helvetia during the 1967-1968 milling season only, for the same purpose for which
they had been previously used, but it was understood that the lifting of the writ was without
prejudice to the respective rights and positions of the parties in the case and not deemed a
waiver of any of their respective claims and allegations in G.R. No. L-27084 or in any other
case between the same parties, future or pending. The Court resolved to approve the motion
only up to and including June 30, 1968 to give effect to the agreement but to be deemed
automatically reinstated beginning July 1, 1968 (Angela Estate, Inc. and Fernando F.
Gonzaga, Inc. v. Court of First Instance of Negros Occidental, ibid.).
The temporary lifting of the writ of preliminary injunction assured the milling of the 1967-1968
crop but not the produce of the succeeding crop years which situation was duly
communicated by the President and General Manager of the BMMC to the President of
Bacolod-Murcia Sugar Farmers Corporation (BMSFC) on January 2, 1968. 3

On October 30, 1968, Alonso Gatuslao, one of private respondents herein, and his wife, Maria
H. Gatuslao, filed Civil Case No. 8719 in the Court of First Instance of Negros Occidental,
against petitioner herein, Bacolod-Murcia Milling Co., Inc. (BMMC), for breach of contract,
praying among others, for the issuance of a writ of preliminary mandatory injunction ordering
defendant to immediately send transportation facilities and haul the already cut sugarcane to
the mill site and principally praying after hearing, that judgment be rendered declaring the
rescission of the milling contract executed by plaintiffs and defendant in 1957 for seventeen
(17) years or up to crop year 1973-74, invoking as ground the alleged failure and/or inability
of defendant to comply with its specific obligation of providing the necessary transportation
facilities to haul the sugarcane of Gatuslao from plaintiffs plantation specifically for the crop
year 1967-1968. Plaintiffs further prayed for the recovery of actual and compensatory
damages as well as moral and exemplary damages and attorney's fees. 4
In answer, defendant BMMC claimed that despite its inability to use its railways system for its
locomotives and cane cars to haul the sugarcanes of all its adhered planters including
plaintiffs for the 1968-69 crop year allegedly due to force majeure, in order to comply with its
obligation, defendant hired at tremendous expense, private trucks as prime movers for its
trailers to be used for hauling of the canes, especially for those who applied for and
requested transportation facilities. Plaintiffs, being one of said planters, instead of loading
their cut canes for the 1968-69 crop on the cargo trucks of defendant, loaded their cut canes
on trucks provided by the Bacolod-Murcia Agricultural Cooperative Marketing Association,
Inc. (B-M ACMA) which transported plaintiffs' canes of the 1968-69 sugarcanes crop.
Defendant prayed in its counterclaim for the dismissal of Civil Case No. 8719 for the recovery
of actual damages, moral and exemplary damages and for attorney's fees. 5
On November 21, 1968, BMMC filed in the same court Civil Case No. 8745 against Alonso
Gatuslao, the Agro-Industrial Development of Silay-Saravia (AIDSISA) and the BacolodMurcia Agricultural Cooperative Marketing Associations, Inc. (B-M ACMA), seeking specific
performance under the mining contract executed on May 24, 1957 between plaintiff and
defendant Alonso Gatuslao praying for the issuance of writs of preliminary mandatory
injunction to stop the alleged violation of the contract by defendant Alonso Gatuslao in
confederation, collaboration and connivance with defendant BM-ACMA, AIDSISA, and for the
recovery of actual, moral and exemplary damages and attorney's fees. 6
Defendant Alonso Gatuslao and the Bacolod-Murcia Agricultural Cooperative Marketing
Association, Inc. filed their answer on January 27, 1969 with compulsory counter-claims,
stating by way of special and affirmative defense, among others, that the case is barred by
another action pending between the same parties for the same cause of action. 7
Defendant Agro-Industrial Development Corporation of Silay-Saravia, Inc. filed its answer on
February 8, 1969, alleging among others by way of affirmative defense that before it agreed to
mill the sugarcane of its co-defendant Alonso Gatuslao, it carefully ascertained and believed
in good faith that: (a) plaintiff was incapable of the sugarcane of AIDSISA's co-defendant
planters as well as the sugarcane of other planters formerly adherent to plaintiff, (b) plaintiff
had in effect agreed to a rescission of its milling contracts with its adhered planters,
including the defendant planter, because of inadequate means of transportation. and had

warned and advised them to mill their sugarcane elsewhere, and had thus induced them to
believe and act on the belief, that it could not mill their sugarcane and that it would not object
to their milling with other centrals; and (c) up to now plaintiff is incapable of hauling the
sugarcane of AIDSISA's co-defendants to plaintiffs mill site for milling purposes.
The two cases, Civil Cases Nos. 8719 and 8745 were consolidated for joint trial before Branch
II of the Court of First Instance of Negros Occidental. 8 On September 8, 1969, the parties in
both civil cases filed their partial stipulation of facts which included a statement of the issues
raised by the parties. 9
On February 6, 1976, the lower court rendered judgment declaring the milling contract dated
May 24, 1957 rescinded. The dispositive portion of the decision 10 reads:
WHEREFORE, judgment is hereby rendered as follows:
(1) In Civil Case No. 8719 the milling contract (Exh. "121") dated May 24, 1957
is hereby declared rescinded or resolved and the defendant Bacolod-Murcia
Company, Inc. is hereby ordered to pay plaintiffs Alonso Gatuslao and Maria H.
Gatuslao the amount of P2,625.00 with legal interest from the time of the filing
of the complaint by way of actual damages; P5,000.00 as attorney's fees and
the costs of the suit; defendant's counterclaim is dismissed; and
(2) The complaint in Civil Case No. 8745 as well as the counterclaims therein
are ordered dismissed, without costs.
Bacolod-Murcia Milling Co., Inc. defendant in Civil Case No. 8719 and plaintiff in Civil Case
No. 8745 appealed the case to respondent Court of Appeals which affirmed in toto (Rollo, p.
81) the decision of the lower court. The motion for reconsideration filed by defendantappellant Bacolod-Murcia Milling Company, petitioner herein, was denied by the appellate
court for lack of merit. 11 Hence, this petition.
The issues 12 raised by petitioner are as follows:
I
WHETHER OR NOT THE CLOSURE OF PETITIONER'S RAIL ROAD LINES
CONSTITUTE FORCE MAJEURE.
II
WHETHER OR NOT PRIVATE RESPONDENT GATUSLAO HAS THE RIGHT TO
RESCIND THE MILLING CONTRACT WITH PETITIONER UNDER ARTICLE 1191
OF THE CIVIL CODE.
III

WHETHER OR NOT PRIVATE RESPONDENT GATUSLAO WAS JUSTIFIED IN

VIOLATING HIS MILLING CONTRACT WITH PETITIONER.
IV
WHETHER OR NOT PRIVATE RESPONDENTS GATUSLAO AND B-M ACMA ARE
GUILTY OF BAD FAITH IN THE EXERCISE OF THEIR DUTIES AND ARE IN
ESTOPPEL TO QUESTION THE ADEQUACY OF THE TRANSPORTATION
FACILITIES OF PETITIONER AND ITS CAPACITY TO MILL AND HAUL THE
CANES OF ITS ADHERENT PLANTERS.
The crux of the issue is whether or not the termination of petitioner's right of way over the
hacienda Helvetia caused by the expiration of its amended milling contracts with the
landowners of the lands in question is a fortuitous event or force majeure which will exempt
petitioner BMMC from fulfillment of its contractual obligations.
It is the position of petitioner Bacolod-Murcia Milling Co., Inc. (BMMC) that the closure of its
railroad lines constitute force majeure, citing Article 1174 of the Civil Code, exempting a
person from liability for events which could not be foreseen or which though foreseen were
inevitable.
This Court has consistently ruled that when an obligor is exempted from liability under the
aforecited provision of the Civil Code for a breach of an obligation due to an act of God, the
following elements must concur: (a) the cause of the breach of the obligation must be
independent of the wig of the debtor; (b) the event must be either unforseeable or
unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner; (d) the debtor must be free from any participation in, or
aggravation of the injury to the creditor (Vasquez v. Court of Appeals, 138 SCRA 553 [1985];
Juan F. Nakpil & Sons v. Court of Appeals, 144 SCRA 596 [1986]). Applying the criteria to the
instant case, there can be no other conclusion than that the closure of the railroad tracks
does not constitute force majeure.
The terms of the milling contracts were clear and undoubtedly there was no reason for BAMC
to expect otherwise. The closure of any portion of the railroad track, not necessarily in the
hacienda Helvetia but in any of the properties whose owners decided not to renew their
milling contracts with the Central upon their expiration, was forseeable and inevitable.
Petitioner Central should have anticipated and should have provided for the eventuality
before committing itself. Under the circumstances it has no one to blame but itself and
cannot now claim exemption from liability.
In the language of the law, the event must have been impossible to foresee, or if it could be
foreseen, must have been impossible to avoid. There must be an entire exclusion of human
agency from the cause of the injury or loss (Vasquez v. Court of Appeals, supra). In the case
at bar, despite its awareness that the conventional contract of lease would expire in Crop
Year 1964-1965 and that refusal on the part of any one of the landowners to renew their

milling contracts and the corresponding use of the right of way on their lands would render
impossible compliance of its commitments, petitioner took a calculated risk that all the
landowners would renew their contracts. Unfortunately, the sugar plantation of Angela
Estate, Inc. which is located at the entrance of the mill was the one which refused to renew its
milling contract. As a result, the closure of the railway located inside said plantation
paralyzed the entire transportation system. Thus, the closure of the railway lines was not an
act of God nor does it constitute force majeure. It was due to the termination of the
contractual relationships of the parties, for which petitioner is charged with knowledge.
Verily, the lower court found that the Angela Estate, Inc. notified BMMC as far back as August
or September 1965 of its intention not to allow the passage of the railway system thru its land
after the aforesaid crop year. Adequate measures should have been adopted by BMMC to
forestall such paralyzation but the records show none. All its efforts were geared toward the
outcome of the court litigation but provided no solutions to the transport problem early
enough in case of an adverse decision.
The last three issues being inter-related will be treated as one. Private respondent Gatuslao
filed an action for rescission while BMMC filed in the same court an action against Gatuslao,
the Agro Industrial Development Silay Saravia (AIDSISA) and the Bacolod-Murcia Agricultural
Cooperative Marketing Associations, Inc. (B-M ACMA) for specific performance under the
milling contract.
There is no question that the contract in question involves reciprocal obligations; as such
party is a debtor and creditor of the other, such that the obligation of one is dependent upon
the obligation of the other. They are to be performed simultaneously so that the performance
of one is conditioned upon the simultaneous fulfillment of the other (Boysaw v. Interphil
Promotions, Inc., 148 SCRA 643 [1987]).
Under Article 1191 of the Civil Code, 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. In fact,
it is well established that the party who deems the contract violated may consider it revoked
or rescinded pursuant to their agreement and act accordingly, even without previous court
action (U.P. v. de los Angeles, 35 SCRA 102 [1970]; Luzon Brokerage Co., Inc. v. Maritime
Building Co., Inc., 43 SCRA 94 [1972]).
It is the general rule, however, that rescission of a contract will not be permitted for a slight
or casual breach, but only for such substantial and fundamental breach as would defeat the
very object of the parties in making the agreement. The question of whether a breach of a
contract is substantial depends upon the attendant circumstances (Universal Food
Corporation v. Court of Appeals, et al., 33 SCRA 1 [1970]).
The issue therefore, hinges on who is guilty of the breach of the milling contract.
Both parties are agreed that time is of the essence in the sugar industry; so that the
sugarcanes have to be milled at the right time, not too early or too late, if the quantity and
quality of the juice are to be assured. As found by the trial court, upon the execution of the
amended milling contract on May 24, 1957 for a period of 17 crop years, BMMC undertook

expressly among its principal prestations not only to mill Gatuslao's canes but to haul them
by railway from the loading stations to the mill. Atty. Solidum, Chief Legal Counsel and in
Charge of the Legal-Crop Loan Department of the BMMC Bacolod City admits that the mode
of transportation of canes from the fields to the mill is a vital factor in the sugar industry;
precisely for this reason the mode of transportation or hauling the canes is embodied in the
milling contract. 13 But BMMC is now unable to haul the canes by railways as stipulated because
of the closure of the railway lines; so that resolution of this issue ultimately rests on whether or
not BMMC was able to provide adequate and efficient transportation facilities of the canes of
Gatuslao and the other planters milling with BMMC during the crop year 1968-1969. As found by
both the trial court and the Court of Appeals, the answer is in the negative.
Armando Guanzon, Dispatcher of the Transportation Department of BMMC testified that when
the Central was still using the railway lines, it had between 900 to 1,000 cane cars and 10
locomotives, each locomotive pulling from 30 to 50 cane cars with maximum capacity of 8
tons each. 14 This testimony was corroborated by Rodolfo Javelosa, Assistant Crop Loan
Inspector in the Crop Loan Department of petitioner. 15 After the closure of the railway lines,
petitioner on February 5, 1968 through its President and General Manager, informed the National
Committee of the National Federation of Sugarcane Planters that the trucking requirement for
hauling adherent planters produce with a milling average of 3,500 tons of canes daily at an
average load of 5 tons per truck is not less than 700 trucks daily plus another 700 empty trucks to
be shuttled back to the plantations to be available for loading the same day. 16 Guanzon, however,
testified that petitioner had only 280 units of trailers, 20 tractors and 3 trucks plus 20 trucks more
or less hired by the Central and given as repartos (allotments) to the different planters. 17 The 180
trailers that the Central initially had were permanently leased to some planters who had their own
cargo trucks while out of the 250 BMMC trailers existing during the entire milling season only 70
were left available to the rest of the planters pulled by 3 trucks. 18
It is true that BMMC purchased 20 units John Deere Tractors (prime movers) and 230 units,
Vanguard Trailers with land capacity of 3 tons each but that was only on October 1968 as
registered in the Land Transportation Commission, Bacolod City. 19
The evidence shows that great efforts had been exerted by the planters to enter into some
concrete understanding with BMMC with a view of obtaining a reasonable assurance that the
latter would be able to haul and mill their canes for the 1968-1969 crop year, but to no avail. 20
As admitted by BMMC itself, in its communications with the planters, it is not in a position to
provide adequate transportation for the canes in compliance with its commitment under the
milling contract. Said communications 21 were quoted by the Court of Appeals as follows:
We are sorry to inform you that unless we can work out a fair and equitable
solution to this problem of closure of our railroad lines, the milling of your
canes for the crop year 1968-69 would be greatly hampered to the great
detriment of our economy and the near elimination of the means of livelihood
of most planters and the possible starvation of thousands of laborers working
in the sugar District of Bacolod-Murcia Milling Co.
and

We are fully conscious of our contractual obligations to our existing Milling

Contract. But, if prevented by judicial order we will find ourselves unable to
serve you in the hauling of the canes through our railroad lines. It is for this
reason that we suggest you explore other solutions to the problem in the face
of such an eventuality so that you may be able to proceed with the planting of
your canes with absolute peace of mind and the certainty that the same will be
properly milled and not left to rot in the fields.
also,
In the meantime, and before July 1, 1968, the end of the temporary
arrangement we have with Fernando Gonzaga, Inc. and the Angela Estate, Inc.
for the use of the rights of ways, our lawyers are studying the possibility of
getting a new injunction from the Supreme Court or the Court of First Instance
of Negros Occidental based on the new grounds interposed in said
memorandum not heretofore raised previously nor in the Capitol Subdivision
case. And if we are doing this, it is principally to prevent any injury to your
crops or foreclosure of your property, which is just in line with the object of
your plans.
On March 26, 1968 the President of the Bacolod-Murcia Sugar Farmer's Corporation writing
on behalf of its planter-members demanded to know the plans of the Central for the crop year
1968-1969, stating that if they fail to hear from the Central on or before the 15th of April they
will feel free to make their own plans in order to save their crops and the possibility of
foreclosure of their properties. 22
In its letter dated April 1, 1968, the president of BMMC simply informed the Bacolod-Murcia
Sugar Farmer's Corporation that they were studying the possibility of getting a new
injunction from the court before expiration of their temporary arrangement with Fernando
Gonzaga, Inc. and the Angela Estate, Inc. 23
Pressing for a more definite commitment (not a mere hope or expectation), on May 30, 1968
the Bacolod-Murcia Sugar Farmer's Corporation requested the Central to put up a
performance bond in the amount of P13 million within a 5-day period to allay the fears of the
planters that their sugar canes can not be milled at the Central in the coming milling
season. 24
BMMC's reply was only to express optimism over the final outcome of its pending cases in
court.
Hence, what actually happened afterwards is that petitioner failed to provide adequate
transportation facilities to Gatuslao and other adherent planters.
As found by the trial court, the experience of Alfonso Gatuslao at the start of the 1968-1969
milling season is reflective of the inadequacies of the reparto or trailer allotment as well as

the state of unpreparedness on the part of BMMC to meet the problem posed by the closure
of the railway lines.
It was established that after Gatuslao had cut his sugarcanes for hauling, no trailers arrived
and when two trailers finally arrived on October 20, 1968 after several unheeded requests,
they were left on the national highway about one (1) kilometer away from the loading station.
Such fact was confirmed by Carlos Butog the driver of the truck that hauled the trailers. 25
Still further, Javelosa, Assistant Crop Loan Inspector, testified that the estimated production
of Gatuslao for the crop year 1968-1969 was 4,400 piculs hauled by 10 cane cars a week with
a maximum capacity of 8 tons. 26 Compared with his later schedule of only one trailer a week
with a maximum capacity of only 3 to 4 tons, 27 there appears to be no question that the means of
transportation provided by BMMC is very inadequate to answer the needs of Gatuslao.
Undoubtedly, BMMC is guilty of breach of the conditions of the milling contract and that
Gatuslao is the injured party. Under the same Article 1191 of the Civil Code, the injured party
may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. In fact, he may also seek rescission even after he had chosen
fulfillment if the latter should become impossible.
Under the foregoing, Gatuslao has the right to rescind the milling contract and neither the
court a quo erred in decreeing the rescission claimed nor the Court of Appeals in affirming
the same.
Conversely, BMMC cannot claim enforcement of the contract. As ruled by this Court, by virtue
of the violations of the terms of the contract, the offending party has forfeited any right to its
enforcement (Boysaw v. Interphil Promotions, Inc., 148 SCRA 645 [1987]).
Likewise, the Bacolod-Murcia Agricultural Cooperative Marketing Association, Inc. (B-M
ACMA) cannot be faulted for organizing itself to take care of the needs of its members.
Definitely, it was organized at that time when petitioner could not assure the planters that it
could definitely haul and mill their canes. More importantly, as mentioned earlier in a letter
dated January 12, 1968, J. Araneta, President & General Manager of the Central itself
suggested to the Bacolod-Murcia Sugar Farmer's Corporation that it explore solutions to the
problem of hauling the canes to the milling station in the face of the eventuality of a judicial
order permanently closing the railroad lines so that the planters may be able to proceed with
their planting of the canes with absolute peace of mind and the certainty that they will be
properly milled and not left to rot in the fields. As a result, the signing of the milling contract
between private respondents AIDSISA and B-M-ACMA on June 19, 1968 28 was a matter of selfpreservation inasmuch as the sugarcanes were already matured and the planters had crop loans
to pay. Further delay would mean tremendous losses. 29
In its defense AIDSISA stressed as earlier stated, that it agreed to mill the sugarcanes of
Gatuslao only after it had carefully ascertained and believed in good faith that BMMC was
incapable of milling the sugarcanes of the adherent planters because of inadequate

transportation and in fact up to now said Central is incapable of hauling the sugarcanes of
the said planters to its mill site for milling purposes.
As an extra precaution, AIDSISA provided in paragraph 15

30

of its milling contract that

If any member of the planter has an existing milling contract with other sugar
central, then this milling contract with the Central shall be of no force and
effect with respect to that member or those members having such contract, if
that other sugar central is able, ready and willing, to mill said member or
members' canes in accordance with their said milling contract. (Emphasis
supplied)
The President of BANC himself induced the planters to believe and to act on the belief that
said Central would not object to the milling of their canes with other centrals.
Under the circumstances, no evidence of bad faith on the part of private respondents could
be found much less any plausible reason to disturb the findings and conclusions of the trial
court and the Court of Appeals.
PREMISES CONSIDERED, the petition is hereby DENIED for lack of merit and the decision of
the Court of Appeals is hereby AFFIRMED in toto.
SO ORDERED.
Melencio-Herrera (Chairperson), Padilla, Sarmiento and Regalado, JJ., concur.

Footnotes
1 Record on Appeal, p. 234, Rollo.
2 Milling Contract, par. 9, p. 335, Rollo.
3 Exhibits, p. 13.
4 Rollo, p. 116.
5 Rollo, p. 148.
6 Rollo, p. 157.
7 Rollo, p. 293.
8 Rollo, p. 233.

9 Rollo, p. 234.
10 Rollo, p. 238.
11 Rollo, p. 113.
12 Rollo, p. 445.
13 Rollo, p. 97.
14 TSN, June 29, 1971, pp. 21-22.
15 TSN, January 24, 1973, pp. 16-18.
16 Exhibits, p. 51.
17 TSN, June 29, 1971, p, 13.
18 TSN, July 29, 1971, pp. 13-20.
19 Exhibits, p. 34.
20 Rollo, pp. 97-98.
21 Rollo, p. 108.
22 Exhibits, p. 17.
23 Exhibits, p. 18.
24 Exhibits, p. 21.
25 TSN, February 23, 1971, pp. 7-12.
26 TSN, January 24, 1973, pp. 24, 30.
27 TSN, January 15, 1970, p. 25.
28 Exhibits, p. 30.
29 TSN, September 9, 1969, pp. 36-37.
30 Rollo, p. 91.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 147324

May 25, 2004

PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner,

vs.
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio Corporation), respondents.
x-----------------------------x
GLOBE TELECOM, INC., petitioner,
vs.
PHILIPPINE COMMUNICATION SATELLITE CORPORATION, respondent.
DECISION
TINGA, J.:
Before the Court are two Petitions for Review assailing the Decision of the Court of Appeals, dated
27 February 2001, in CA-G.R. CV No. 63619.1
The facts of the case are undisputed.
For several years prior to 1991, Globe Mckay Cable and Radio Corporation, now Globe Telecom,
Inc. (Globe), had been engaged in the coordination of the provision of various communication
facilities for the military bases of the United States of America (US) in Clark Air Base, Angeles,
Pampanga and Subic Naval Base in Cubi Point, Zambales. The said communication facilities were
installed and configured for the exclusive use of the US Defense Communications Agency (USDCA),
and for security reasons, were operated only by its personnel or those of American companies
contracted by it to operate said facilities. The USDCA contracted with said American companies, and
the latter, in turn, contracted with Globe for the use of the communication facilities. Globe, on the
other hand, contracted with local service providers such as the Philippine Communications Satellite
Corporation (Philcomsat) for the provision of the communication facilities.
On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat obligated
itself to establish, operate and provide an IBS Standard B earth station (earth station) within Cubi
Point for the exclusive use of the USDCA.2 The term of the contract was for 60 months, or five (5)
years.3 In turn, Globe promised to pay Philcomsat monthly rentals for each leased circuit involved. 4
At the time of the execution of the Agreement, both parties knew that the Military Bases Agreement
between the Republic of the Philippines and the US (RP-US Military Bases Agreement), which was
the basis for the occupancy of the Clark Air Base and Subic Naval Base in Cubi Point, was to expire
in 1991. Under Section 25, Article XVIII of the 1987 Constitution, foreign military bases, troops or
facilities, which include those located at the US Naval Facility in Cubi Point, shall not be allowed in
the Philippines unless a new treaty is duly concurred in by the Senate and ratified by a majority of

the votes cast by the people in a national referendum when the Congress so requires, and such new
treaty is recognized as such by the US Government.
Subsequently, Philcomsat installed and established the earth station at Cubi Point and the USDCA
made use of the same.
On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141, expressing its
decision not to concur in the ratification of the Treaty of Friendship, Cooperation and Security and its
Supplementary Agreements that was supposed to extend the term of the use by the US of Subic
Naval Base, among others.5 The last two paragraphs of the Resolution state:
FINDING that the Treaty constitutes a defective framework for the continuing relationship
between the two countries in the spirit of friendship, cooperation and sovereign equality:
Now, therefore, be it Resolved by the Senate, as it is hereby resolved, To express its
decision not to concur in the ratification of the Treaty of Friendship, Cooperation and Security
and its Supplementary Agreements, at the same time reaffirming its desire to continue
friendly relations with the government and people of the United States of America. 6
On 31 December 1991, the Philippine Government sent a Note Verbale to the US Government
through the US Embassy, notifying it of the Philippines termination of the RP-US Military Bases
Agreement. The Note Verbale stated that since the RP-US Military Bases Agreement, as amended,
shall terminate on 31 December 1992, the withdrawal of all US military forces from Subic Naval
Base should be completed by said date.
In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to discontinue the use of
the earth station effective 08 November 1992 in view of the withdrawal of US military personnel from
Subic Naval Base after the termination of the RP-US Military Bases Agreement. Globe invoked as
basis for the letter of termination Section 8 (Default) of the Agreement, which provides:
Neither party shall be held liable or deemed to be in default for any failure to perform its
obligation under this Agreement if such failure results directly or indirectly from force majeure
or fortuitous event. Either party is thus precluded from performing its obligation until such
force majeure or fortuitous event shall terminate. For the purpose of this paragraph, force
majeure shall mean circumstances beyond the control of the party involved including, but not
limited to, any law, order, regulation, direction or request of the Government of the
Philippines, strikes or other labor difficulties, insurrection riots, national emergencies, war,
acts of public enemies, fire, floods, typhoons or other catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that "we expect [Globe] to
know its commitment to pay the stipulated rentals for the remaining terms of the Agreement even
after [Globe] shall have discontinue[d] the use of the earth station after November 08,
1992."7 Philcomsat referred to Section 7 of the Agreement, stating as follows:
7. DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of the earth station after it has been put
into operation, a written notice shall be served to PHILCOMSAT at least sixty (60) days prior
to the expected date of termination. Notwithstanding the non-use of the earth station, [Globe]
shall continue to pay PHILCOMSAT for the rental of the actual number of T1 circuits in use,
but in no case shall be less than the first two (2) T1 circuits, for the remaining life of the
agreement. However, should PHILCOMSAT make use or sell the earth station subject to this

agreement, the obligation of [Globe] to pay the rental for the remaining life of the agreement
shall be at such monthly rate as may be agreed upon by the parties.8
After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated 24
November 1993 demanding payment of its outstanding obligations under the Agreement amounting
to US$4,910,136.00 plus interest and attorneys fees. However, Globe refused to heed Philcomsats
demand.
On 27 January 1995, Philcomsat filed with the Regional Trial Court of Makati a Complaint against
Globe, praying that the latter be ordered to pay liquidated damages under the Agreement, with legal
interest, exemplary damages, attorneys fees and costs of suit. The case was raffled to Branch 59 of
said court.
Globe filed an Answer to the Complaint, insisting that it was constrained to end the Agreement due
to the termination of the RP-US Military Bases Agreement and the non-ratification by the Senate of
the Treaty of Friendship and Cooperation, which events constituted force majeure under the
Agreement. Globe explained that the occurrence of said events exempted it from paying rentals for
the remaining period of the Agreement.
On 05 January 1999, the trial court rendered its Decision, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the defendant to pay the plaintiff the amount of Ninety Two Thousand
Two Hundred Thirty Eight US Dollars (US$92,238.00) or its equivalent in Philippine
Currency (computed at the exchange rate prevailing at the time of compliance or
payment) representing rentals for the month of December 1992 with interest thereon
at the legal rate of twelve percent (12%) per annum starting December 1992 until the
amount is fully paid;
2. Ordering the defendant to pay the plaintiff the amount of Three Hundred Thousand
(P300,000.00) Pesos as and for attorneys fees;
3. Ordering the DISMISSAL of defendants counterclaim for lack of merit; and
4. With costs against the defendant.
SO ORDERED.9
Both parties appealed the trial courts Decision to the Court of Appeals.
Philcomsat claimed that the trial court erred in ruling that: (1) the non-ratification by the Senate of the
Treaty of Friendship, Cooperation and Security and its Supplementary Agreements constitutes force
majeure which exempts Globe from complying with its obligations under the Agreement; (2) Globe is
not liable to pay the rentals for the remainder of the term of the Agreement; and (3) Globe is not
liable to Philcomsat for exemplary damages.
Globe, on the other hand, contended that the RTC erred in holding it liable for payment of rent of the
earth station for December 1992 and of attorneys fees. It explained that it terminated Philcomsats
services on 08 November 1992; hence, it had no reason to pay for rentals beyond that date.

On 27 February 2001, the Court of Appeals promulgated its Decision dismissing Philcomsats appeal
for lack of merit and affirming the trial courts finding that certain events constituting force
majeure under Section 8 the Agreement occurred and justified the non-payment by Globe of rentals
for the remainder of the term of the Agreement.
The appellate court ruled that the non-ratification by the Senate of the Treaty of Friendship,
Cooperation and Security, and its Supplementary Agreements, and the termination by the Philippine
Government of the RP-US Military Bases Agreement effective 31 December 1991 as stated in the
Philippine Governments Note Verbale to the US Government, are acts, directions, or requests of the
Government of the Philippines which constitute force majeure. In addition, there were circumstances
beyond the control of the parties, such as the issuance of a formal order by Cdr. Walter Corliss of the
US Navy, the issuance of the letter notification from ATT and the complete withdrawal of all US
military forces and personnel from Cubi Point, which prevented further use of the earth station under
the Agreement.
However, the Court of Appeals ruled that although Globe sought to terminate Philcomsats services
by 08 November 1992, it is still liable to pay rentals for the December 1992, amounting to
US$92,238.00 plus interest, considering that the US military forces and personnel completely
withdrew from Cubi Point only on 31 December 1992.10
Both parties filed their respective Petitions for Review assailing the Decision of the Court of Appeals.
In G.R. No. 147324,11 petitioner Philcomsat raises the following assignments of error:
A. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A DEFINITION
OF FORCE MAJEURE DIFFERENT FROM WHAT ITS LEGAL DEFINITION FOUND IN
ARTICLE 1174 OF THE CIVIL CODE, PROVIDES, SO AS TO EXEMPT GLOBE TELECOM
FROM COMPLYING WITH ITS OBLIGATIONS UNDER THE SUBJECT AGREEMENT.
B. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM
IS NOT LIABLE TO PHILCOMSAT FOR RENTALS FOR THE REMAINING TERM OF THE
AGREEMENT, DESPITE THE CLEAR TENOR OF SECTION 7 OF THE AGREEMENT.
C. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE TRIAL COURTS
AWARD OF ATTORNEYS FEES IN FAVOR OF PHILCOMSAT.
D. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM
IS NOT LIABLE TO PHILCOMSAT FOR EXEMPLARY DAMAGES.12
Philcomsat argues that the termination of the RP-US Military Bases Agreement cannot be
considered a fortuitous event because the happening thereof was foreseeable. Although the
Agreement was freely entered into by both parties, Section 8 should be deemed ineffective because
it is contrary to Article 1174 of the Civil Code. Philcomsat posits the view that the validity of the
parties definition of force majeure in Section 8 of the Agreement as "circumstances beyond the
control of the party involved including, but not limited to, any law, order, regulation, direction or
request of the Government of the Philippines, strikes or other labor difficulties, insurrection riots,
national emergencies, war, acts of public enemies, fire, floods, typhoons or other catastrophies or
acts of God," should be deemed subject to Article 1174 which defines fortuitous events as events
which could not be foreseen, or which, though foreseen, were inevitable. 13

Philcomsat further claims that the Court of Appeals erred in holding that Globe is not liable to pay for
the rental of the earth station for the entire term of the Agreement because it runs counter to what
was plainly stipulated by the parties in Section 7 thereof. Moreover, said ruling is inconsistent with
the appellate courts pronouncement that Globe is liable to pay rentals for December 1992 even
though it terminated Philcomsats services effective 08 November 1992, because the US military and
personnel completely withdrew from Cubi Point only in December 1992. Philcomsat points out that it
was Globe which proposed the five-year term of the Agreement, and that the other provisions of the
Agreement, such as Section 4.114 thereof, evince the intent of Globe to be bound to pay rentals for
the entire five-year term.15
Philcomsat also maintains that contrary to the appellate courts findings, it is entitled to attorneys
fees and exemplary damages.16
In its Comment to Philcomsats Petition, Globe asserts that Section 8 of the Agreement is not
contrary to Article 1174 of the Civil Code because said provision does not prohibit parties to a
contract from providing for other instances when they would be exempt from fulfilling their
contractual obligations. Globe also claims that the termination of the RP-US Military Bases
Agreement constitutes force majeure and exempts it from complying with its obligations under the
Agreement.17 On the issue of the propriety of awarding attorneys fees and exemplary damages to
Philcomsat, Globe maintains that Philcomsat is not entitled thereto because in refusing to pay
rentals for the remainder of the term of the Agreement, Globe only acted in accordance with its
rights.18
In G.R. No. 147334,19 Globe, the petitioner therein, contends that the Court of Appeals erred in
finding it liable for the amount of US$92,238.00, representing rentals for December 1992, since
Philcomsats services were actually terminated on 08 November 1992. 20
In its Comment, Philcomsat claims that Globes petition should be dismissed as it raises a factual
issue which is not cognizable by the Court in a petition for review on certiorari.21
On 15 August 2001, the Court issued a Resolution giving due course to Philcomsats Petition in G.R.
No.
147324 and required the parties to submit their respective memoranda. 22
Similarly, on 20 August 2001, the Court issued a Resolution giving due course to the Petition filed by
Globe in G.R. No. 147334 and required both parties to submit their memoranda. 23
Philcomsat and Globe thereafter filed their respective Consolidated Memoranda in the two
cases, reiterating their arguments in their respective petitions.
The Court is tasked to resolve the following issues: (1) whether the termination of the RP-US Military
Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation and Security, and the
consequent withdrawal of US military forces and personnel from Cubi Point constitute force
majeure which would exempt Globe from complying with its obligation to pay rentals under its
Agreement with Philcomsat; (2) whether Globe is liable to pay rentals under the Agreement for the
month of December 1992; and (3) whether Philcomsat is entitled to attorneys fees and exemplary
damages.
No reversible error was committed by the Court of Appeals in issuing the assailed Decision; hence
the petitions are denied.

There is no merit is Philcomsats argument that Section 8 of the Agreement cannot be given effect
because the enumeration of events constituting force majeure therein unduly expands the concept of
a fortuitous event under Article 1174 of the Civil Code and is therefore invalid.
In support of its position, Philcomsat contends that under Article 1174 of the Civil Code, an event
must be unforeseen in order to exempt a party to a contract from complying with its obligations
therein. It insists that since the expiration of the RP-US Military Bases Agreement, the nonratification of the Treaty of Friendship, Cooperation and Security and the withdrawal of US military
forces and personnel from Cubi Point were not unforeseeable, but were possibilities known to it and
Globe at the time they entered into the Agreement, such events cannot exempt Globe from
performing its obligation of paying rentals for the entire five-year term thereof.
However, Article 1174, which exempts an obligor from liability on account of fortuitous events
or force majeure, refers not only to events that are unforeseeable, but also to those which are
foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person
shall be responsible for those events which, could not be foreseen, or which, though
foreseen were inevitable.
A fortuitous event under Article 1174 may either be an "act of God," or natural occurrences such as
floods or typhoons,24 or an "act of man," such as riots, strikes or wars.25
Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall be
deemed events constituting force majeure:
1. Any law, order, regulation, direction or request of the Philippine Government;
2. Strikes or other labor difficulties;
3. Insurrection;
4. Riots;
5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or other catastrophies or acts of God;
9. Other circumstances beyond the control of the parties.
Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the control of the parties.
There is nothing in the enumeration that runs contrary to, or expands, the concept of a fortuitous
event under Article 1174.

Furthermore, under Article 130626 of the Civil Code, parties to a contract may establish such
stipulations, clauses, terms and conditions as they may deem fit, as long as the same do not run
counter to the law, morals, good customs, public order or public policy.27
Article 1159 of the Civil Code also provides that "[o]bligations arising from contracts have the force of
law between the contracting parties and should be complied with in good faith." 28 Courts cannot
stipulate for the parties nor amend their agreement where the same does not contravene law,
morals, good customs, public order or public policy, for to do so would be to alter the real intent of
the parties, and would run contrary to the function of the courts to give force and effect thereto. 29
Not being contrary to law, morals, good customs, public order, or public policy, Section 8 of the
Agreement which Philcomsat and Globe freely agreed upon has the force of law between them. 30
In order that Globe may be exempt from non-compliance with its obligation to pay rentals under
Section 8, the concurrence of the following elements must be established: (1) the event must be
independent of the human will; (2) the occurrence must render it impossible for the debtor to fulfill
the obligation in a normal manner; and (3) the obligor must be free of participation in, or aggravation
of, the injury to the creditor.31
The Court agrees with the Court of Appeals and the trial court that the abovementioned requisites
are present in the instant case. Philcomsat and Globe had no control over the non-renewal of the
term of the RP-US Military Bases Agreement when the same expired in 1991, because the
prerogative to ratify the treaty extending the life thereof belonged to the Senate. Neither did the
parties have control over the subsequent withdrawal of the US military forces and personnel from
Cubi Point in December 1992:
Obviously the non-ratification by the Senate of the RP-US Military Bases Agreement (and its
Supplemental Agreements) under its Resolution No. 141. (Exhibit "2") on September 16,
1991 is beyond the control of the parties. This resolution was followed by the sending on
December 31, 1991 o[f] a "Note Verbale" (Exhibit "3") by the Philippine Government to the
US Government notifying the latter of the formers termination of the RP-US Military Bases
Agreement (as amended) on 31 December 1992 and that accordingly, the withdrawal of all
U.S. military forces from Subic Naval Base should be completed by said date. Subsequently,
defendant [Globe] received a formal order from Cdr. Walter F. Corliss II Commander USN
dated July 31, 1992 and a notification from ATT dated July 29, 1992 to terminate the
provision of T1s services (via an IBS Standard B Earth Station) effective November 08,
1992. Plaintiff [Philcomsat] was furnished with copies of the said order and letter by the
defendant on August 06, 1992.
Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine
Government to the US Government are acts, direction or request of the Government of the
Philippines and circumstances beyond the control of the defendant. The formal order from
Cdr. Walter Corliss of the USN, the letter notification from ATT and the complete withdrawal
of all the military forces and personnel from Cubi Point in the year-end 1992 are also acts
and circumstances beyond the control of the defendant.
Considering the foregoing, the Court finds and so holds that the afore-narrated
circumstances constitute "force majeure or fortuitous event(s) as defined under paragraph 8
of the Agreement.

From the foregoing, the Court finds that the defendant is exempted from paying the rentals
for the facility for the remaining term of the contract.
As a consequence of the termination of the RP-US Military Bases Agreement (as amended)
the continued stay of all US Military forces and personnel from Subic Naval Base would no
longer be allowed, hence, plaintiff would no longer be in any position to render the service it
was obligated under the Agreement. To put it blantly (sic), since the US military forces and
personnel left or withdrew from Cubi Point in the year end December 1992, there was no
longer any necessity for the plaintiff to continue maintaining the IBS facility. 32 (Emphasis in
the original.)
The aforementioned events made impossible the continuation of the Agreement until the end of its
five-year term without fault on the part of either party. The Court of Appeals was thus correct in ruling
that the happening of such fortuitous events rendered Globe exempt from payment of rentals for the
remainder of the term of the Agreement.
Moreover, it would be unjust to require Globe to continue paying rentals even though Philcomsat
cannot be compelled to perform its corresponding obligation under the Agreement. As noted by the
appellate court:
We also point out the sheer inequity of PHILCOMSATs position. PHILCOMSAT would like to
charge GLOBE rentals for the balance of the lease term without there being any
corresponding telecommunications service subject of the lease. It will be grossly unfair and
iniquitous to hold GLOBE liable for lease charges for a service that was not and could not
have been rendered due to an act of the government which was clearly beyond GLOBEs
control. The binding effect of a contract on both parties is based on the principle that the
obligations arising from contracts have the force of law between the contracting parties, and
there must be mutuality between them based essentially on their equality under which it is
repugnant to have one party bound by the contract while leaving the other party free
therefrom (Allied Banking Corporation v. Court of Appeals, 284 SCRA 357).33
With respect to the issue of whether Globe is liable for payment of rentals for the month of
December 1992, the Court likewise affirms the appellate courts ruling that Globe should pay the
same.
Although Globe alleged that it terminated the Agreement with Philcomsat effective 08 November
1992 pursuant to the formal order issued by Cdr. Corliss of the US Navy, the date when they actually
ceased using the earth station subject of the Agreement was not established during the
trial.34 However, the trial court found that the US military forces and personnel completely withdrew
from Cubi Point only on 31 December 1992.35 Thus, until that date, the USDCA had control over the
earth station and had the option of using the same. Furthermore, Philcomsat could not have
removed or rendered ineffective said communication facility until after 31 December 1992 because
Cubi Point was accessible only to US naval personnel up to that time. Hence, the Court of Appeals
did not err when it affirmed the trial courts ruling that Globe is liable for payment of rentals until
December 1992.
Neither did the appellate court commit any error in holding that Philcomsat is not entitled to
attorneys fees and exemplary damages.
The award of attorneys fees is the exception rather than the rule, and must be supported by factual,
legal and equitable justifications.36 In previously decided cases, the Court awarded attorneys fees
where a party acted in gross and evident bad faith in refusing to satisfy the other partys claims and

compelled the former to litigate to protect his rights;37 when the action filed is clearly unfounded,38 or
where moral or exemplary damages are awarded.39 However, in cases where both parties have
legitimate claims against each other and no party actually prevailed, such as in the present case
where the claims of both parties were sustained in part, an award of attorneys fees would not be
warranted.40
Exemplary damages may be awarded in cases involving contracts or quasi-contracts, if the erring
party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.41 In the present
case, it was not shown that Globe acted wantonly or oppressively in not heeding Philcomsats
demands for payment of rentals. It was established during the trial of the case before the trial court
that Globe had valid grounds for refusing to comply with its contractual obligations after 1992.
WHEREFORE, the Petitions are DENIED for lack of merit. The assailed Decision of the Court of
Appeals in CA-G.R. CV No. 63619 is AFFIRMED.
SO ORDERED.
Puno*, Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.
Footnotes
*

On Official Leave.

Philippine Communications Satellite Corporation v. Globe Telecom, Inc. [formerly Globe

Mackay Cable and Radio Corporation]. Penned by J. Candido V. Rivera and concurred in by
J. Jose L. Sabio, Jr. and J. Rebecca de Guia-Salvador.
1

Agreement, G.R. No. 147324, Rollo, p. 65; G.R. No. 147334, Rollo, p. 79.

Section 11, Agreement, Id. at 73; Id. at 87.

Section 4, Agreement, Id. at 67-69; Id. at 82-83.

Resolution No. 141, G.R. No. 147324, Rollo, pp. 75-78; G.R. No. 147334, Rollo, pp. 98-101.

Id. at 78; Id. at 101.

CA Decision, Id. at 28-29; Id. at 48-49.

Id. at 71-72; Id. at 94-95.

Id. at 100; Id. at 123.

10

Id. at 25-38; Id. at 45-58.

Philippine Communications Satellite Corporation, Petitioner, v. Globe Telecom (formerly

Globe Mackay Cable and Radio Corporation), Respondent.
11

12

G.R. No. 147324, Rollo, p. 8.

13

Id. at 9-16.

14

Said Section provides:

In consideration of the use of facilities and after taking into account the tax and duty
free provisions under the U.S. and R.P. Military Base Agreement, GMCR [now Globe]
shall pay PHILCOMSAT the following rates exclusive of space segment charges:
a. First two (2) t-1 circuits at US$ 46,119 per circuit per month;
b. Third and fourth T-1 circuits at US$ 30,333.00 per circuit per month;
c. Extension of the first two (2) T-1 circuits in (a) above, starting on the 61st
month, at US$ 40,406.00 per circuit per month;
d. Extension of the third and fourth circuits in (b) above, starting on the 61st
month, at US$ 22, 200.00 per circuit per month;
The above-mentioned monthly lease of circuits become due and payable within
fifteen (15) days from service establishment date or availment of the service
whichever comes earlier and within the fifteenth day of each month thereafter.

15

Id. at 16-20.

16

Id. at 20.

17

Id. at 53-61.

18

Id. at 61.

Globe Telecom, Inc., Petitioner v. Philippine Communications Satellite

Corporation, Respondent.
19

20

G.R. No. 147334, Rollo, pp.36-37.

21

Id. at 167-176.

22

Rollo, G.R. No. 147324, pp. 116-117.

23

Rollo, G.R. No. 147334, pp. 183-184.

24

Blacks Law Dictionary, Seventh Edition, p. 657.

25

Ibid.

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.
26

See Development Bank of the Philippines v. Court of Appeals, G.R. No. 137557, 30
October 2000, 344 SCRA 492; Roman Catholic Archbishop of Manila v. Court of Appeals,
G.R. Nos. 77425 and 77450, 19 June 1991, 198 SCRA 300; De Luna v. Abrigo, G.R. No.
57455, 18 January 1990, 181 SCRA 150; Rocamora, et al. v. RTC- Cebu (Branch VIII), et
al., G.R. No. L-65037, 23 November 1988, 167 SCRA 615; Community Savings & Loan
Association, G.R. No. 75786, 31 August 1987, 153 SCRA 564.
27

See National Sugar Trading and/or the Sugar Regulatory Administration v. Philippine
National Bank, G.R. No. 151218, 28 January 2003; Pilipinas Hino, Inc. v. Court of Appeals,
G.R. No. 126570, 18 August 2000, 338 SCRA 355.
28

29

Heirs of Juan San Andres v. Rodriguez, G.R. No. 135634, 31 May 2000, 332 SCRA 769.

30

Ibid.

Bacolod-Murcia Milling Co., Inc. v. Hon. Court of Appeals and Gatuslao, G.R. Nos. 8110001, 07 February 1990, 182 SCRA 24; Juan F. Nakpil & Sons v. Court of Appeals, G.R. Nos.
L-47851, 47863 and 47896, 03 October 1986, 144 SCRA 596; Vasquez v. Court of Appeals,
G.R. No. L-42926, 13 September 1985, 138 SCRA 553; Servando, et al. v. Philippine Steam
Navigation, Co., G.R. Nos. L-36481-2, 23 October 1982, 117 SCRA 832; Austria v. Court of
Appeals, G.R. No. L-29640, 10 June 1971, 39 SCRA 527; Lasam v. Smith, 45 Phil. 657
(1924).
31

CA Decision citing RTC Decision, G.R. No. 147324, Rollo, pp. 32-33; G.R. No. 147334,
Rollo, pp. 16-17.
32

33

Id. at 36.

34

See Id., at 37.

35

RTC Decision, Id. at 99.

GSIS v. Labung-Deang, G.R. No. 135644, 17 September 2001, 365 SCRA 341; SCC
Chemicals Corporation v. Court of Appeals, et al., G.R. No. 128538, 28 February 2001, 353
SCRA 70; Philippine National Bank v. Court of Appeals, G.R. No. 107508, 25 April 1996, 256
SCRA 491; Scott Consultants & Resource Development Corporation, Inc. v. Court of
Appeals, G.R. No. 112916, 16 March 1995, 242 SCRA 393.
36

Industrial Insurance Company, Inc. v. Bondad, G.R. No. 136722, 12 April 2000, 330 SCRA
706; Sulpicio Lines, Inc. v. Court of Appeals, G.R. No. 93291, 29 March 1999, 305 SCRA
478; Brahm Industries, Inc. v. National Labor Relations Commission, G.R. No. 118853, 16
October 1997, 280 SCRA 828.
37

Union Motor Corporation v. Court of Appeals, G.R. No. 117187, 20 July 2001, 361 SCRA
506; Lim v. Court of Appeals, G.R. No. 118347, 24 October 1996, 263 SCRA 569.
38

39

Estanislao, Jr. v. Court of Appeals, G.R. No. 143687, 30 July 2001, 362 SCRA 229.

40

Sarmiento v. Court of Appeals, G.R. No. 110871, 02 July 1998, 291 SCRA 656.

41

Article 2232, Civil Code.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 110053 October 16, 1995

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS, CELEBRADA MANGUBAT and ABNER MANGUBAT, respondents.

REGALADO, J.:
This appeal by certiorari sprouted from the judgment of respondent Court of Appeals promulgated on
September 9, 1992 in CA-G.R. CV No. 28311, and its resolution dated April 7, 1993 denying
petitioner's motion for reconsideration. 1 Said adjudgments, in turn, were rooted in the factual
groundwork of this case which is laid out hereunder.
On July 20, 1981, herein petitioner Development Bank of the Philippines (DBP) executed a "Deed of
Absolute Sale" in favor of respondent spouses Celebrada and Abner Mangubat over a parcel of
unregistered land identified as Lot 1, PSU-142380, situated in the Barrio of Toytoy, Municipality of
Garchitorena, Province of Camarines Sur, containing an area of 55.5057 hectares, more or less.
The land, covered only by a tax declaration, is known to have been originally owned by one
Presentacion Cordovez, who, on February 4, 1937, donated it to Luciano Sarmiento. On June 8,
1964, Luciano Sarmiento sold the land to Pacifico Chica.
On April 27, 1965, Pacifico Chica mortgaged the land to DBP to secure a loan of P6,000.00.
However, he defaulted in the payment of the loan, hence DBP caused the extrajudicial foreclosure of
the mortgage. In the auction sale held on September 9, 1970, DBP acquired the property as the
highest bidder and was issued a certificate of sale on September 17, 1970 by the sheriff. The
certificate of sale was entered in the Book of Unregistered Property on September 23, 1970. Pacifico
Chica failed to redeem the property, and DBP consolidated its ownership over the same.
On October 14, 1980, respondent spouses offered to buy the property for P18,599.99. DBP made a
counter-offer of P25,500.00 which was accepted by respondent spouses. The parties further agreed
that payment was to be made within six months thereafter for it to be considered as cash payment.
On July 20, 1981, the deed of absolute sale, which is now being assailed herein, was executed by
DBP in favor of respondent spouses. Said document contained a waiver of the seller's warranty
against eviction. 2
Thereafter, respondent spouses applied for an industrial tree planting loan with DBP. The latter
required the former to submit a certification from the Bureau of Forest Development that the land is
alienable and disposable. However, on October 29, 1981, said office issued a certificate attesting to
the fact that the said property was classified as timberland, hence not subject to disposition. 3

The loan application of respondent spouses was nevertheless eventually approved by DBP in the
sum of P140,000.00, despite the aforesaid certification of the bureau, on the understanding of the
parties that DBP would work for the release of the land by the former Ministry of Natural Resources.
To secure payment of the loan, respondent spouses executed a real estate mortgage over the land
on March 17, 1982, which document was registered in the Registry of Deeds pursuant to Act No.
3344.
The loan was then released to respondent spouses on a staggered basis. After a substantial sum of
P118,540.00 had been received by private respondents, they asked for the release of the remaining
amount of the loan. It does not appear that their request was acted upon by DBP, ostensibly
because the release of the land from the then Ministry of Natural Resources had not been obtained.
On July 7, 1983, respondent spouses, as plaintiffs, filed a complaint against DBP in the trial
court 4 seeking the annulment of the subject deed of absolute sale on the ground that the object thereof
was verified to be timberland and, therefore, is in law an inalienable part of the public domain. They also
alleged that petitioner, as defendant therein, acted fraudulently and in bad faith by misrepresenting itself
as the absolute owner of the land and in incorporating the waiver of warranty against eviction in the deed
of sale. 5
In its answer, DBP contended that it was actually the absolute owner of the land, having purchased it
for value at an auction sale pursuant to an extrajudicial foreclosure of mortgage; that there was
neither malice nor fraud in the sale of the land under the terms mutually agreed upon by the parties;
that assuming arguendo that there was a flaw in its title, DBP can not be held liable for anything
inasmuch as respondent spouses had full knowledge of the extent and nature of DBP's rights, title
and interest over the land.
It further averred that the annulment of the sale and the return of the purchase price to respondent
spouses would redound to their benefit but would result in petitioner's prejudice, since it had already
released P118,540.00 to the former while it would be left without any security for the P140,000.00
loan; and that in the remote possibility that the land is reverted to the public domain, respondent
spouses should be made to immediately pay, jointly and severally, the total amount of P118,540.00
with interest at 15% per annum, plus charges and other expenses. 6
On May 25, 1990, the trial court rendered judgment annulling the subject deed of absolute sale and
ordering DBP to return the P25,500.00 purchase price, plus interest; to reimburse to respondent
spouses the taxes paid by them, the cost of the relocation survey, incidental expenses and other
damages in the amount of P50,000.00; and to further pay them attorney's fees and litigation
expenses in the amount of P10,000.00, and the costs of suit. 7
In its recourse to the Court of Appeals, DBP raised the following assignment of errors:
1. The trial court erred in declaring the deed of absolute sale executed between the
parties canceled and annulled on the ground that therein defendant-appellant had no
title over the property subject of the sale.
2. The trial court erred in finding that defendant-appellant DBP acted fraudulently and
in bad faith or that it had misrepresented facts since it had prior knowledge that
subject property was part of the public domain at the time of sale to therein plaintiffsappellees.
3. The trial court erred in finding said plaintiffs-appellees' waiver of warranty against
eviction void.

4. The trial court erred awarding to therein plaintiffs-appellees damages arising from
an alleged breach of contract.
5. The trial court erred in not ordering said plaintiffs-appellees to pay their loan
obligation to defendant-appellant DBP in the amount of P118,540. 8
As substantially stated at the outset, respondent Court of Appeals rendered judgment modifying the
disposition of the court below by deleting the award for damages, attorney's fees, litigation expenses
and the costs, but affirming the same in all its other aspects. 9 On April 7, 1993, said appellate court
also denied petitioner's motion for reconsideration. 10
Not satisfied therewith, DBP interposed the instant petition for review on certiorari, raising the
following issues:
1. Whether or not private respondent spouses Celebrada and Abner Mangubat
should be ordered to pay petitioner DBP their loan obligation due under the mortgage
contract executed between them and DBP; and
2. Whether or not petitioner should reimburse respondent spouses the purchase
price of the property and the amount of P11,980.00 for taxes and expenses for the
relocation Survey. 11
Considering that neither party questioned the legality and correctness of the judgment of the court a
quo, as affirmed by respondent court, ordering the annulment of the deed of absolute sale, such
decreed nullification of the document has already achieved finality. We only need
The Court of Appeals, after an extensive discussion, found that there had been no bad faith on the
part of either party, and this r, therefore, to dwell on the effects of that declaration of nullity.emains
uncontroverted as a fact in the case at bar. Correspondingly, respondent court correctly applied the
rule that if both parties have no fault or are not guilty, the restoration of what was given by each of
them to the other is consequently in order. 12 This is because the declaration of nullity of a contract
which is void ab initio operates to restore things to the state and condition in which they were found
before the execution thereof. 13
We also find ample support for said propositions in American jurisprudence. The effect of an
application of the aforequoted rule with respect to the right of a party to recover the amount given as
consideration has been passed upon in the case of Leather Manufacturers National Bank vs.
Merchants National Bank 14 where it was held that: "Whenever money is paid upon the representation of
the receiver that he has either a certain title in property transferred in consideration of the payment or a
certain authority to receive the money paid, when in fact he has no such title or authority, then, although
there be no fraud or intentional misrepresentation on his part, yet there is no consideration for the
payment, the money remains, in equity and good conscience, the property of the payer and may be
recovered back by him."
Therefore, the purchaser is entitled to recover the money paid by him where the contract is set aside
by reason of the mutual material mistake of the parties as to the identity or quantity of the land
sold. 15 And where a purchaser recovers the purchase money from a vendor who fails or refuses to
deliver the title, he is entitled as a general rule to interest on the money paid from the time of payment. 16
A contract which the law denounces as void is necessarily no contract whatever, and the acts of the
parties in an effort to create one can in no wise bring about a change of their legal status. The

parties and the subject matter of the contract remain in all particulars just as they did before any act
was performed in relation thereto. 17
An action for money had and received lies to recover back money paid on a contract, the
consideration of which has failed. 18 As a general rule, if one buys the land of another, to which the latter
is supposed to have a good title, and, in consequence of facts unknown alike to both parties, he has no
title at all, equity will cancel the transaction and cause the purchase money to be restored to the buyer,
putting both parties in status quo. 19
Thus, on both local and foreign legal principles, the return by DBP to respondent spouses of the
purchase price, plus corresponding interest thereon, is ineluctably called for.
Petitioner likewise contends that the trial court and respondent Court of Appeals erred in ordering the
reimbursement of taxes and the cost of the relocation survey, there being no factual or legal basis
therefor. It argues that private respondents merely submitted a "list of damages" allegedly incurred
by them, and not official receipts of expenses for taxes and said survey. Furthermore, the same list
has allegedly not been identified or even presented at any stage of the proceedings, since it was
vigorously objected to by DBP.
Contrary to the claim of petitioner, the list of damages was presented in the trial court and was
correspondingly marked as "Exhibit P." 20 The said exhibit was, thereafter, admitted by the trial court but
only as part of the testimonial evidence for private respondents, as stated in its Order dated August 16,
1988. 21
However, despite that admission of the said list of damages as evidence, we agree with petitioner
that the same cannot constitute sufficient legal basis for an award of P4,000.00 and P7,980.00 as
reimbursement for land taxes and expenses for the relocation survey, respectively. The list of
damages was prepared extrajudicially by respondent spouses by themselves without any supporting
receipts as bases thereof or to substantiate the same. That list, per se, is necessarily self-serving
and, on that account, should have been declared inadmissible in evidence as the factum probans.
In order that damages may be recovered, the best evidence obtainable by the injured party must be
presented. Actual or compensatory damages cannot be presumed, but must be duly proved, and so
proved with a reasonable degree of certainty. A court cannot rely on speculation, conjecture or
guesswork as to the fact and amount of damages, but must depend upon competent proof that they
have been suffered and on evidence of the actual amount thereof. If the proof is flimsy and
unsubstantial, no damages will be awarded. 22
Turning now to the issue of whether or not private respondents should be made to pay petitioner
their loan obligation amounting to P118,540.00, we answer in the affirmative.
In its legal context, the contract of loan executed between the parties is entirely different and discrete
from the deed of sale they entered into. The annulment of the sale will not have an effect on the
existence and demandability of the loan. One who has received money as a loan is bound to pay to
the creditor an equal amount of the same kind and quality. 23
The fact that the annulment of the sale will also result in the invalidity of the mortgage does not have
an effect on the validity and efficacy of the principal obligation, for even an obligation that is
unsupported by any security of the debtor may also be enforced by means of an ordinary action.
Where a mortgage is not valid, as where it is executed by one who is not the owner of the
property, 24 or the consideration of the contract is simulated 25 or false, 26 the principal obligation which it

guarantees is not thereby rendered null and void. That obligation matures and becomes demandable in
accordance with the stipulations pertaining to it.

Under the foregoing circumstances, what is lost is only the right to foreclose the mortgage as a
special remedy for satisfying or settling the indebtedness which is the principal obligation. In case of
nullity, the mortgage deed remains as evidence or proof of a personal obligation of the debtor, and
the amount due to the creditor may be enforced in an ordinary personal action. 27
It was likewise incorrect for the Court of Appeals to deny the claim of petitioner for payment of the
loan on the ground that it failed to present the promissory note therefor. While respondent court also
made the concession that its judgment was accordingly without prejudice to the filing by petitioner of
a separate action for the collection of that amount, this does not detract from the adverse effects of
that erroneous ruling on the proper course of action in this case.
The fact is that a reading of the mortgage contract 28 executed by respondent spouses in favor of
petitioner, dated March 17, 1982, will readily show that it embodies not only the mortgage but the
complete terms and conditions of the loan agreement as well. The provisions of said contract, specifically
paragraphs 16 and 28 thereof, are so precise and clear as to thereby render unnecessary the introduction
of the promissory note which would merely serve the same purpose.
Furthermore, respondent Celebrada Mangubat expressly acknowledged in her testimony that she
and her husband are indebted to petitioner in the amount of P118,000.00, more or less. 29 Admissions
made by the parties in the pleadings or in the course of the trial or other proceedings do not require proof
and can not be contradicted unless previously shown to have been made through palpable mistake. 30
Thus, the mortgage contract which embodies the terms and conditions of the loan obligation of
respondent spouses, as well as respondent Celebrada Mangubat's admission in open court, are
more than adequate evidence to sustain petitioner's claim for payment of private respondents'
aforestated indebtedness and for the adjudication of DBP's claim therefor in the very same action
now before us.
It is also worth noting that the adjustment and allowance of petitioner's demand by counterclaim or
set-off in the present action, rather than by another independent action, is favored or encouraged by
law. Such a practice serves to avoid circuitry of action, multiplicity of suits, inconvenience, expense,
and unwarranted consumption of the time of the court. The trend of judicial decisions is toward a
liberal extension of the right to avail of counterclaims or set-offs. 31
The rules on counterclaim are designed to achieve the disposition of a whole controversy of the
conflicting claims of interested parties at one time and in one action, provided all parties can be
brought before the court and the matter decided without prejudicing the rights of any party. 32
WHEREFORE, the judgment appealed from is hereby MODIFIED, by deleting the award of
P11,980.00 as reimbursement for taxes and expenses for the relocation survey, and ordering
respondent spouses Celebrada and Abner Mangubat to pay petitioner Development Bank of the
Philippines the amount of P118,540.00, representing the total amount of the loan released to them,
with interest of 15% per annum plus charges and other expenses in accordance with their mortgage
contract. In all other respects, the said judgment of respondent Court of Appeals is AFFIRMED.
SO ORDERED.
Narvasa, C.J., Puno, Mendoza and Francisco, JJ., concur.

Footnotes
1 Justice Cezar D. Francisco, ponente, with Justices Pedro A. Ramirez and Pacita
Caizares-Nye, concurring.
2 Original Record, 6.
3 Ibid., 90.
4 Civil Case No. RTC 83-152, Regional Trial Court, Branch 22, Naga City; Judge
Angel S. Malaya, presiding.
5 Ibid., 1-5.
6 Ibid., 9-17. These are alleged as defenses, incorporated by reference in the
counterclaims, and sought as reliefs by DBP in its answer (Original Record, 9-16).
7 Ibid., 156-164.
8 Rollo, CA-G.R. CV No. 28311, 35-C.
9 Rollo, 26-40.
10 Ibid., 41.
11 Ibid., 17.
12 Tolentino, A.M., Commentaries and Jurisprudence on the Civil Code of the
Philippines, Vol. IV, [1973], 594, citing Perez, Gonzales & Alguer: 1-11 Enneccerus,
Kipp & Wolff 364-366; 3 Von Tuhr 311; 3 Fabres 231.
13 Labrador, et al. vs. De los Santos, et al., 66 Phil. 579 (1938); Castro, et al. vs.
Orpiano, et al., 90 Phil. 491 (1951).
14 128 US 26, 9 S Ct, 5, 32 L ed 342.
15 Wolfinger vs. Thomas, et al., 22 SD 57, 115 NW 100.
16 Robinson, et al. vs. Bressler, et al., 122 Neb 461, 240 NW 564, 90 ALR 600;
Davis vs. Lee, et al., 52 Wash 330, 100 P 752.
17 Tate vs. Gaines, 25 Okla 141, 105 P 193.
18 17 Am. Jur. 2d, Contracts, 845.
19 Lee vs. Laprade, 106 Va 594, 56 SE 719; 77 Am. Jur. 2d, Mistakes as to Facts,
241.
20 Original Record, 93.

21 Ibid., 97.
22 Ching Sui Yong vs. Intermediate Appellate Court, et al., G.R. No. 64398,
November 6, 1990, 191 SCRA 187.
23 Article 1953, Civil Code.
24 Article 2085, [2], id.
25 Articles 1345 and 1352, id.
26 Article 1353, id.
27 Compaia General de Tabacos de Filipinas vs. Jeanjaquet, 12 Phil. 195 (1908)l;
Lozano vs. Tan Suico, 23 Phil. 16 (1912); Lim Julian vs. Lutero, et al., 49 Phil. 703
(1926).
28 Exhibit 2; Rollo, 104-108.
29 T.S.N., August 27, 1985, 36-37; December 16, 1985, 35.
30 Section 2, Rule 129, Rules of Court.
31 Am. Jur. 2d, Counterclaim, 237-238, citing Parmelee vs. Chicago Eye Shield Co.
(CA8Mo) 157 F2d 582,168 ALR 1130; Merchants National Bank of Los Angeles vs.
Clark-Parker Co., et al., 215 Cal. 296, 9 P2d 826, 81 ALR 778.
32 Kuenzel vs. Universal Carloading and Distributing Co., Inc. (1939) 29 F. Supp.
407.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 112127 July 17, 1995

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

BELLOSILLO, J.:
CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the decision of the
Court of Appeals which reversed that of the Regional Trial Court of Iloilo City directing petitioner to
reconvey to private respondents the property donated to it by their predecessor-in-interest.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of
Trustees of the Central Philippine College (now Central Philippine University [CPU]), executed a
deed of donation in favor of the latter of a parcel of land identified as Lot No. 3174-B-1 of the
subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for which Transfer Certificate of Title
No. T-3910-A was issued in the name of the donee CPU with the following annotations copied from
the deed of donation
1. The land described shall be utilized by the CPU exclusively for the establishment
and use of a medical college with all its buildings as part of the curriculum;
2. The said college shall not sell, transfer or convey to any third party nor in any way
encumber said land;
3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college
shall be under obligation to erect a cornerstone bearing that name. Any net income
from the land or any of its parks shall be put in a fund to be known as the "RAMON
LOPEZ CAMPUS FUND" to be used for improvements of said campus and erection
of a building thereon. 1
On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action
for annulment of donation, reconveyance and damages against CPU alleging that since 1939 up to
the time the action was filed the latter had not complied with the conditions of the donation. Private
respondents also argued that petitioner had in fact negotiated with the National Housing Authority
(NHA) to exchange the donated property with another land owned by the latter.
In its answer petitioner alleged that the right of private respondents to file the action had prescribed;
that it did not violate any of the conditions in the deed of donation because it never used the donated

property for any other purpose than that for which it was intended; and, that it did not sell, transfer or
convey it to any third party.
On 31 May 1991, the trial court held that petitioner failed to comply with the conditions of the
donation and declared it null and void. The court a quo further directed petitioner to execute a deed
of the reconveyance of the property in favor of the heirs of the donor, namely, private respondents
herein.
Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled that the annotations at the
back of petitioner's certificate of title were resolutory conditions breach of which should terminate the
rights of the donee thus making the donation revocable.
The appellate court also found that while the first condition mandated petitioner to utilize the donated
property for the establishment of a medical school, the donor did not fix a period within which the
condition must be fulfilled, hence, until a period was fixed for the fulfillment of the condition,
petitioner could not be considered as having failed to comply with its part of the bargain. Thus, the
appellate court rendered its decision reversing the appealed decision and remanding the case to the
court of origin for the determination of the time within which petitioner should comply with the first
condition annotated in the certificate of title.
Petitioner now alleges that the Court of Appeals erred: (a) in holding that the quoted annotations in
the certificate of title of petitioner are onerous obligations and resolutory conditions of the donation
which must be fulfilled non-compliance of which would render the donation revocable; (b) in holding
that the issue of prescription does not deserve "disquisition;" and, (c) in remanding the case to the
trial court for the fixing of the period within which petitioner would establish a medical college. 2
We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of
donation executed by Don Ramon Lopez, Sr., gives us no alternative but to conclude that his
donation was onerous, one executed for a valuable consideration which is considered the equivalent
of the donation itself, e.g., when a donation imposes a burden equivalent to the value of the
donation. A gift of land to the City of Manila requiring the latter to erect schools, construct a children's
playground and open streets on the land was considered an onerous donation. 3 Similarly, where Don
Ramon Lopez donated the subject parcel of land to petitioner but imposed an obligation upon the latter to
establish a medical college thereon, the donation must be for an onerous consideration.
Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening of the event
which constitutes the condition. Thus, when a person donates land to another on the condition that
the latter would build upon the land a school, the condition imposed was not a condition precedent or
a suspensive condition but a resolutory one. 4 It is not correct to say that the schoolhouse had to be
constructed before the donation became effective, that is, before the donee could become the owner of
the land, otherwise, it would be invading the property rights of the donor. The donation had to be valid
before the fulfillment of the condition. 5 If there was no fulfillment or compliance with the condition, such as
what obtains in the instant case, the donation may now be revoked and all rights which the donee may
have acquired under it shall be deemed lost and extinguished.
The claim of petitioner that prescription bars the instant action of private respondents is unavailing.
The condition imposed by the donor, i.e., the building of a medical school upon the land
donated, depended upon the exclusive will of the donee as to when this condition shall be
fulfilled. When petitioner accepted the donation, it bound itself to comply with the condition
thereof. Since the time within which the condition should be fulfilled depended upon the

exclusive will of the petitioner, it has been held that its absolute acceptance and the
acknowledgment of its obligation provided in the deed of donation were sufficient to prevent
the statute of limitations from barring the action of private respondents upon the original
contract which was the deed of donation. 6
Moreover, the time from which the cause of action accrued for the revocation of the donation and
recovery of the property donated cannot be specifically determined in the instant case. A cause of
action arises when that which should have been done is not done, or that which should not have
been done is done. 7 In cases where there is no special provision for such computation, recourse must
be had to the rule that the period must be counted from the day on which the corresponding action could
have been instituted. It is the legal possibility of bringing the action which determines the starting point for
the computation of the period. In this case, the starting point begins with the expiration of a reasonable
period and opportunity for petitioner to fulfill what has been charged upon it by the donor.
The period of time for the establishment of a medical college and the necessary buildings and
improvements on the property cannot be quantified in a specific number of years because of the
presence of several factors and circumstances involved in the erection of an educational institution,
such as government laws and regulations pertaining to education, building requirements and
property restrictions which are beyond the control of the donee.
Thus, when the obligation does not fix a period but from its nature and circumstances it can be
inferred that a period was intended, the general rule provided in Art. 1197 of the Civil Code applies,
which provides that the courts may fix the duration thereof because the fulfillment of the obligation
itself cannot be demanded until after the court has fixed the period for compliance therewith and
such period has arrived. 8
This general rule however cannot be applied considering the different set of circumstances existing
in the instant case. More than a reasonable period of fifty (50) years has already been allowed
petitioner to avail of the opportunity to comply with the condition even if it be burdensome, to make
the donation in its favor forever valid. But, unfortunately, it failed to do so. Hence, there is no more
need to fix the duration of a term of the obligation when such procedure would be a mere technicality
and formality and would serve no purpose than to delay or lead to an unnecessary and expensive
multiplication of suits. 9 Moreover, under Art. 1191 of the Civil Code, when one of the obligors cannot
comply with what is incumbent upon him, the obligee may seek rescission and the court shall decree the
same unless there is just cause authorizing the fixing of a period. In the absence of any just cause for the
court to determine the period of the compliance, there is no more obstacle for the court to decree the
rescission claimed.
Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring
to incidental circumstances of a gratuitous contract should be resolved in favor of the least
transmission of rights and interests. 10 Records are clear and facts are undisputed that since the
execution of the deed of donation up to the time of filing of the instant action, petitioner has failed to
comply with its obligation as donee. Petitioner has slept on its obligation for an unreasonable length of
time. Hence, it is only just and equitable now to declare the subject donation already ineffective and, for
all purposes, revoked so that petitioner as donee should now return the donated property to the heirs of
the donor, private respondents herein, by means of reconveyance.
WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991 is
REINSTATED and AFFIRMED, and the decision of the Court of Appeals of 18 June 1993 is
accordingly MODIFIED. Consequently, petitioner is directed to reconvey to private respondents Lot
No. 3174-B-1 of the subdivision plan Psd-1144 covered by Transfer Certificate of Title No. T-3910-A
within thirty (30) days from the finality of this judgment.

Costs against petitioner.

SO ORDERED.
Quiason and Kapunan, JJ., concur.

Separate Opinions

DAVIDE, JR., J., dissenting:

I agree with the view in the majority opinion that the donation in question is onerous considering the
conditions imposed by the donor on the donee which created reciprocal obligations upon both
parties. Beyond that, I beg to disagree.
First of all, may I point out an inconsistency in the majority opinion's description of the donation in
question. In one part, it says that the donation in question is onerous. Thus, on page 4 it states:
We find it difficult to sustain the petition. A clear perusal of the conditions set forth in
the deed of donation executed by Don Ramon Lopez, Sr., give us no alternative but
to conclude that his donation was onerous, one executed for a valuable
consideration which is considered the equivalent of the donation itself, e.g., when a
donation imposes a burden equivalent to the value of the donation . . . . (emphasis
supplied)
Yet, in the last paragraph of page 8 it states that the donation is basically a gratuitous one.
The pertinent portion thereof reads:
Finally, since the questioned deed of donation herein is basically a gratuitous one,
doubts referring to incidental circumstances of a gratuitous contract should be
resolved in favor of the least transmission of rights and interest . . . (emphasis
supplied)
Second, the discussion on conditional obligations is unnecessary. There is no conditional obligation
to speak of in this case. It seems that the "conditions" imposed by the donor and as the word is used
in the law of donations is confused with "conditions" as used in the law of obligations. In his
annotation of Article 764 of the Civil Code on Donations, Arturo M. Tolentino, citing the well-known
civilists such as Castan, Perez Gonzalez and Alguer, and Colin & Capitant, states clearly the context
within which the term "conditions" is used in the law of donations, to wit:
The word "conditions" in this article does not refer to uncertain events on which the
birth or extinguishment of a juridical relation depends, but is used in the vulgar sense

of obligations or chargesimposed by the donor on the donee. It is used, not in its

technical or strict legal sense, but in its broadest sense. 1 (emphasis supplied)
Clearly then, when the law and the deed of donation speaks of "conditions" of a donation, what are
referred to are actually the obligations, charges or burdens imposed by the donor upon the donee
and which would characterize the donation as onerous. In the present case, the donation is, quite
obviously, onerous, but it is more properly called a "modal donation." A modal donation is one in
which the donor imposes a prestation upon the donee. The establishment of the medical college as
the condition of the donation in the present case is one such prestation.
The conditions imposed by the donor Don Ramon Lopez determines neither the existence nor the
extinguishment of the obligations of the donor and the donee with respect to the donation. In fact,
the conditions imposed by Don Ramon Lopez upon the donee are the very obligations of the
donation to build the medical college and use the property for the purposes specified in the deed
of donation. It is very clear that those obligations are unconditional, the fulfillment, performance,
existence or extinguishment of which is not dependent on any future or uncertain event or past and
unknown event, as the Civil Code would define a conditional obligation. 2
Reliance on the case of Parks vs. Province of Tarlac 3 as cited on page 5 of the majority opinion is
erroneous in so far as the latter stated that the condition in Parks is a resolutory one and applied this to
the present case. A more careful reading of this Court's decision would reveal that nowhere did we say,
whether explicitly or impliedly, that the donation in that case, which also has a condition imposed to build
a school and a public park upon the property donated, is a resolutory condition. 4It is incorrect to say that
the "conditions" of the donation there or in the present case are resolutory conditions because, applying
Article 1181 of the Civil Code, that would mean that upon fulfillment of the conditions, the rights already
acquired will be extinguished. Obviously, that could not have been the intention of the parties.
What the majority opinion probably had in mind was that the conditions are resolutory because if
they are not complied with, the rights of the donee as such will be extinguished and the donation will
be revoked. To my mind, though, it is more accurate to state that the conditions here are not
resolutory conditions but, for the reasons stated above, are the obligations imposed by the donor.
Third, I cannot subscribe to the view that the provisions of Article 1197 cannot be applied here. The
conditions/obligations imposed by the donor herein are subject to a period. I draw this conclusion
based on our previous ruling which, although made almost 90 years ago, still finds application in the
present case. In Barretto vs. City of Manila, 5 we said that when the contract of donation, as the one
involved therein, has no fixed period in which the condition should be fulfilled, the provisions of what is
now Article 1197 (then Article 1128) are applicable and it is the duty of the court to fix a suitable time for its
fulfillment. Indeed, from the nature and circumstances of the conditions/obligations of the present
donation, it can be inferred that a period was contemplated by the donor. Don Ramon Lopez could not
have intended his property to remain idle for a long period of time when in fact, he specifically burdened
the donee with the obligation to set up a medical college therein and thus put his property to good use.
There is a need to fix the duration of the time within which the conditions imposed are to be fulfilled.
It is also important to fix the duration or period for the performance of the conditions/obligations in
the donation in resolving the petitioner's claim that prescription has already barred the present
action. I disagree once more with the ruling of the majority that the action of the petitioners is not
barred by the statute of limitations. There is misplaced reliance again on a previous decision of this
Court in Osmea vs. Rama. 6 That case does not speak of a deed of donation as erroneously quoted
and cited by the majority opinion. It speaks of a contract for a sum of money where the debtor herself
imposed a condition which will determine when she will fulfill her obligation to pay the creditor, thus,
making the fulfillment of her obligation dependent upon her will. What we have here, however, is not a
contract for a sum of money but a donation where the donee has not imposed any conditions on the

fulfillment of its obligations. Although it is admitted that the fulfillment of the conditions/obligations of the
present donation may be dependent on the will of the donee as to when it will comply therewith, this did
not arise out of a condition which the donee itself imposed. It is believed that the donee was not meant to
and does not have absolute control over the time within which it will perform its obligations. It must still do
so within a reasonable time. What that reasonable time is, under the circumstances, for the courts to
determine. Thus, the mere fact that there is no time fixed as to when the conditions of the donation are to
be fulfilled does not ipso facto mean that the statute of limitations will not apply anymore and the action to
revoke the donation becomes imprescriptible.

Admittedly, the donation now in question is an onerous donation and is governed by the law on
contracts (Article 733) and the case of Osmea, being one involving a contract, may apply. But we
must not lose sight of the fact that it is still a donation for which this Court itself applied the pertinent
law to resolve situations such as this. That the action to revoke the donation can still prescribe has
been the pronouncement of this Court as early as 1926 in the case of Parks which, on this point,
finds relevance in this case. There, this Court said,
[that] this action [for the revocation of the donation] is prescriptible, there is no doubt.
There is no legal provision which excludes this class of action from the statute of
limitations. And not only this, the law itself recognizes the prescriptibility of the action
for the revocation of a donation, providing a special period of [four] years for the
revocation by the subsequent birth of children [Art. 646, now Art. 763], and . . . by
reason of ingratitude. If no special period is provided for the prescription of the action
for revocation for noncompliance of the conditions of the donation [Art. 647, now Art.
764], it is because in this respect the donation is considered onerous and is
governed by the law of contracts and the general rules of prescription. 7
More recently, in De Luna v. Abrigo, 8 this Court reiterated the ruling in Parks and said that:
It is true that under Article 764 of the New Civil Code, actions for the revocation of a
donation must be brought within four (4) years from the non-compliance of the
conditions of the donation. However, it is Our opinion that said article does not apply
to onerous donations in view of the specific provision of Article 733 providing that
onerous donations are governed by the rules on contracts.
In the light of the above, the rules on contracts and the general rules on prescription
and not the rules on donations are applicable in the case at bar.
The law applied in both cases is Article 1144(1). It refers to the prescription of an action upon a
written contract, which is what the deed of an onerous donation is. The prescriptive period is ten
years from the time the cause of action accrues, and that is, from the expiration of the time within
which the donee must comply with the conditions/obligations of the donation. As to when this exactly
is remains to be determined, and that is for the courts to do as reposed upon them by Article 1197.
For the reasons expressed above, I register my dissent. Accordingly, the decision of the Court of
Appeals must be upheld, except its ruling that the conditions of the donation are resolutory.
Padilla, J., dissents

Separate Opinions

DAVIDE, JR., J., dissenting:

I agree with the view in the majority opinion that the donation in question is onerous considering the
conditions imposed by the donor on the donee which created reciprocal obligations upon both
parties. Beyond that, I beg to disagree.
First of all, may I point out an inconsistency in the majority opinion's description of the donation in
question. In one part, it says that the donation in question is onerous. Thus, on page 4 it states:
We find it difficult to sustain the petition. A clear perusal of the conditions set forth in
the deed of donation executed by Don Ramon Lopez, Sr., give us no alternative but
to conclude that his donation was onerous, one executed for a valuable
consideration which is considered the equivalent of the donation itself, e.g., when a
donation imposes a burden equivalent to the value of the donation . . . . (emphasis
supplied)
Yet, in the last paragraph of page 8 it states that the donation is basically a gratuitous one.
The pertinent portion thereof reads:
Finally, since the questioned deed of donation herein is basically a gratuitous one,
doubts referring to incidental circumstances of a gratuitous contract should be
resolved in favor of the least transmission of rights and interest . . . (emphasis
supplied)
Second, the discussion on conditional obligations is unnecessary. There is no conditional obligation
to speak of in this case. It seems that the "conditions" imposed by the donor and as the word is used
in the law of donations is confused with "conditions" as used in the law of obligations. In his
annotation of Article 764 of the Civil Code on Donations, Arturo M. Tolentino, citing the well-known
civilists such as Castan, Perez Gonzalez and Alguer, and Colin & Capitant, states clearly the context
within which the term "conditions" is used in the law of donations, to wit:
The word "conditions" in this article does not refer to uncertain events on which the
birth or extinguishment of a juridical relation depends, but is used in the vulgar sense
of obligations or chargesimposed by the donor on the donee. It is used, not in its
technical or strict legal sense, but in its broadest sense. 1 (emphasis supplied)
Clearly then, when the law and the deed of donation speaks of "conditions" of a donation, what are
referred to are actually the obligations, charges or burdens imposed by the donor upon the donee
and which would characterize the donation as onerous. In the present case, the donation is, quite
obviously, onerous, but it is more properly called a "modal donation." A modal donation is one in
which the donor imposes a prestation upon the donee. The establishment of the medical college as
the condition of the donation in the present case is one such prestation.
The conditions imposed by the donor Don Ramon Lopez determines neither the existence nor the
extinguishment of the obligations of the donor and the donee with respect to the donation. In fact,
the conditions imposed by Don Ramon Lopez upon the donee are the very obligations of the
donation to build the medical college and use the property for the purposes specified in the deed
of donation. It is very clear that those obligations are unconditional, the fulfillment, performance,
existence or extinguishment of which is not dependent on any future or uncertain event or past and
unknown event, as the Civil Code would define a conditional obligation. 2

Reliance on the case of Parks vs. Province of Tarlac 3 as cited on page 5 of the majority opinion is
erroneous in so far as the latter stated that the condition in Parks is a resolutory one and applied this to
the present case. A more careful reading of this Court's decision would reveal that nowhere did we say,
whether explicitly or impliedly, that the donation in that case, which also has a condition imposed to build
a school and a public park upon the property donated, is a resolutory condition. 4It is incorrect to say that
the "conditions" of the donation there or in the present case are resolutory conditions because, applying
Article 1181 of the Civil Code, that would mean that upon fulfillment of the conditions, the rights already
acquired will be extinguished. Obviously, that could not have been the intention of the parties.
What the majority opinion probably had in mind was that the conditions are resolutory because if
they are not complied with, the rights of the donee as such will be extinguished and the donation will
be revoked. To my mind, though, it is more accurate to state that the conditions here are not
resolutory conditions but, for the reasons stated above, are the obligations imposed by the donor.
Third, I cannot subscribe to the view that the provisions of Article 1197 cannot be applied here. The
conditions/obligations imposed by the donor herein are subject to a period. I draw this conclusion
based on our previous ruling which, although made almost 90 years ago, still finds application in the
present case. In Barretto vs. City of Manila, 5 we said that when the contract of donation, as the one
involved therein, has no fixed period in which the condition should be fulfilled, the provisions of what is
now Article 1197 (then Article 1128) are applicable and it is the duty of the court to fix a suitable time for its
fulfillment. Indeed, from the nature and circumstances of the conditions/obligations of the present
donation, it can be inferred that a period was contemplated by the donor. Don Ramon Lopez could not
have intended his property to remain idle for a long period of time when in fact, he specifically burdened
the donee with the obligation to set up a medical college therein and thus put his property to good use.
There is a need to fix the duration of the time within which the conditions imposed are to be fulfilled.
It is also important to fix the duration or period for the performance of the conditions/obligations in
the donation in resolving the petitioner's claim that prescription has already barred the present
action. I disagree once more with the ruling of the majority that the action of the petitioners is not
barred by the statute of limitations. There is misplaced reliance again on a previous decision of this
Court in Osmea vs. Rama. 6 That case does not speak of a deed of donation as erroneously quoted
and cited by the majority opinion. It speaks of a contract for a sum of money where the debtor herself
imposed a condition which will determine when she will fulfill her obligation to pay the creditor, thus,
making the fulfillment of her obligation dependent upon her will. What we have here, however, is not a
contract for a sum of money but a donation where the donee has not imposed any conditions on the
fulfillment of its obligations. Although it is admitted that the fulfillment of the conditions/obligations of the
present donation may be dependent on the will of the donee as to when it will comply therewith, this did
not arise out of a condition which the donee itself imposed. It is believed that the donee was not meant to
and does not have absolute control over the time within which it will perform its obligations. It must still do
so within a reasonable time. What that reasonable time is, under the circumstances, for the courts to
determine. Thus, the mere fact that there is no time fixed as to when the conditions of the donation are to
be fulfilled does not ipso facto mean that the statute of limitations will not apply anymore and the action to
revoke the donation becomes imprescriptible.
Admittedly, the donation now in question is an onerous donation and is governed by the law on
contracts (Article 733) and the case of Osmea, being one involving a contract, may apply. But we
must not lose sight of the fact that it is still a donation for which this Court itself applied the pertinent
law to resolve situations such as this. That the action to revoke the donation can still prescribe has
been the pronouncement of this Court as early as 1926 in the case of Parks which, on this point,
finds relevance in this case. There, this Court said,
[that] this action [for the revocation of the donation] is prescriptible, there is no doubt.
There is no legal provision which excludes this class of action from the statute of
limitations. And not only this, the law itself recognizes the prescriptibility of the action

for the revocation of a donation, providing a special period of [four] years for the
revocation by the subsequent birth of children [Art. 646, now Art. 763], and . . . by
reason of ingratitude. If no special period is provided for the prescription of the action
for revocation for noncompliance of the conditions of the donation [Art. 647, now Art.
764], it is because in this respect the donation is considered onerous and is
governed by the law of contracts and the general rules of prescription. 7
More recently, in De Luna v. Abrigo, 8 this Court reiterated the ruling in Parks and said that:
It is true that under Article 764 of the New Civil Code, actions for the revocation of a
donation must be brought within four (4) years from the non-compliance of the
conditions of the donation. However, it is Our opinion that said article does not apply
to onerous donations in view of the specific provision of Article 733 providing that
onerous donations are governed by the rules on contracts.
In the light of the above, the rules on contracts and the general rules on prescription
and not the rules on donations are applicable in the case at bar.
The law applied in both cases is Article 1144(1). It refers to the prescription of an action upon a
written contract, which is what the deed of an onerous donation is. The prescriptive period is ten
years from the time the cause of action accrues, and that is, from the expiration of the time within
which the donee must comply with the conditions/obligations of the donation. As to when this exactly
is remains to be determined, and that is for the courts to do as reposed upon them by Article 1197.
For the reasons expressed above, I register my dissent. Accordingly, the decision of the Court of
Appeals must be upheld, except its ruling that the conditions of the donation are resolutory.
Padilla, J., dissents
Footnotes
1 Rollo, p. 23.
2 Rollo, p. 8.
3 City of Manila v. Rizal Park Co., 53 Phil. 515 (1929).
4 Parks v. Province of Tarlac, 49 Phil. 142 (1926).
5 Ibid.
6 Osmea v. Rama, 14 Phil. 99 (1909).
7 Arturo M. Tolentino, The Civil Code of the Philippines, 1986 Ed., Vol. IV, p. 42.
8 Concepcion v. People, 74 Phil. 63 (1942).
9 Tiglao v. Manila Railroad Co., 52 O.G., p. 179.
10 Art. 1378, Civil Code.

DAVIDE, JR. J., dissenting:

1 ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the Civil Code of
the Philippines 535, vol. 2 [1983].
2 Article 1179.
3 49 Phil. 142 [1926].
4 Id. at 145-146.
5 7 Phil. 416 [1907].
6 14 Phil. 99 [1909].
7 Parks vs. Province of Tarlac, supra note 3, at 146.
8 181 SCRA 150 [1990].

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 119255

April 9, 2003

TOMAS K. CHUA, petitioner,

vs.
COURT OF APPEALS and ENCARNACION VALDES-CHOY, respondents.
CARPIO, J.:
The Case
This is a petition for review on certiorari seeking to reverse the decision1 of the Court of Appeals in
an action for specific performance2 filed in the Regional Trial Court3 by petitioner Tomas K. Chua
("Chua") against respondent Encarnacion Valdes-Choy ("Valdes-Choy"). Chua sought to compel
Valdes-Choy to consummate the sale of her paraphernal house and lot in Makati City. The Court of
Appeals reversed the decision4 rendered by the trial court in favor of Chua.
The Facts
Valdes-Choy advertised for sale her paraphernal house and lot ("Property") with an area of 718
square meters located at No. 40 Tampingco Street corner Hidalgo Street, San Lorenzo Village,
Makati City. The Property is covered by Transfer Certificate of Title No. 162955 ("TCT") issued by the
Register of Deeds of Makati City in the name of Valdes-Choy. Chua responded to the advertisement.
After several meetings, Chua and Valdes-Choy agreed on a purchase price of P10,800,000.00
payable in cash.
On 30 June 1989, Valdes-Choy received from Chua a check for P100,000.00. The receipt
("Receipt") evidencing the transaction, signed by Valdes-Choy as seller, and Chua as buyer, reads:

30 June 1989

RECEIPT
RECEIVED from MR. TOMAS K. CHUA PBCom Check No. 206011 in the amount of ONE
HUNDRED THOUSAND PESOS ONLY (P100,000.00) as EARNEST MONEY for the sale of
the property located at 40 Tampingco cor. Hidalgo, San Lorenzo Village, Makati, Metro
Manila (Area : 718 sq. meters).
The balance of TEN MILLION SEVEN HUNDRED THOUSAND (P10,700,000.00) is payable
on or before 155July 1989. Capital Gains Tax for the account of the seller. Failure to pay
balance on or before 15 July 1989 forfeits the earnest money. This provided that all papers
are in proper order.6

CONFORME:

ENCARNACION VALDES
Seller

TOMAS K. CHUA
Buyer

x x x.7
In the morning of 13 July 1989, Chua secured from Philippine Bank of Commerce ("PBCom") a
manager's check for P480,000.00. Strangely, after securing the manager's check, Chua immediately
gave PBCom a verbal stop payment order claiming that this manager's check for P480,000.00 "was
lost and/or misplaced."8 On the same day, after receipt of Chua's verbal order, PBCom Assistant
VicePresident Julie C. Pe notified in writing9 the PBCom Operations Group of Chua's stop payment
order.
In the afternoon of 13 July 1989, Chua and Valdes-Choy met with their respective counsels to
execute the necessary documents and arrange the payments.10 Valdes-Choy as vendor and Chua as
vendee signed two Deeds of Absolute Sale ("Deeds of Sale"). The first Deed of Sale covered the
house and lot for the purchase price of P8,000,000.00.11 The second Deed of Sale covered the
furnishings, fixtures and movable properties contained in the house for the purchase price of
P2,800,000.00.12 The parties also computed the capital gains tax to amount to P485,000.00.
On 14 July 1989, the parties met again at the office of Valdes-Choy's counsel. Chua handed to
Valdes-Choy the PBCom manager's check for P485,000.00 so Valdes-Choy could pay the capital
gains tax as she did not have sufficient funds to pay the tax. Valdes-Choy issued a receipt showing
that Chua had a remaining balance of P10,215,000.00 after deducting the advances made by Chua.
This receipt reads:

July 14, 1989

Received from MR. TOMAS K. CHUA PBCom. Check No. 325851 in the amount of FOUR
HUNDRED EIGHTY FIVE THOUSAND PESOS ONLY (P485,000.00) as Partial Payment for
the sale of the property located at 40 Tampingco Cor. Hidalgo St., San Lorenzo Village,
Makati, Metro Manila (Area 718 sq. meters), covered by TCT No. 162955 of the Registry of
Deeds of Makati, Metro Manila.
The total purchase price of the above-mentioned property is TEN MILLION EIGHT
HUNDRED THOUSAND PESOS only, broken down as follows:

SELLING PRICE

P10,800,000.00

EARNEST MONEY

P100,000.00

PARTIAL PAYMENT

485,000.00

585,000.00

BALANCE DUE TO
ENCARNACION VALDEZ-CHOY

P10,215,000.00

PLUS P80,000.00 for documentary

stamps paid in advance by seller

80,000.00

P10,295,000.00

x x x.13
On the same day, 14 July 1989, Valdes-Choy, accompanied by Chua, deposited the P485,000.00
manager's check to her account with Traders Royal Bank. She then purchased a Traders Royal
Bank manager's check for P480,000.00 payable to the Commissioner of Internal Revenue for the
capital gains tax. Valdes-Choy and Chua returned to the office of Valdes-Choy's counsel and handed
the Traders Royal Bank check to the counsel who undertook to pay the capital gains tax. It was then
also that Chua showed to Valdes-Choy a PBCom manager's check for P10,215,000.00 representing
the balance of the purchase price. Chua, however, did not give this PBCom manager's check to
Valdes-Choy because the TCT was still registered in the name of Valdes-Choy. Chua required that
the Property be registered first in his name before he would turn over the check to Valdes-Choy. This
angered Valdes-Choy who tore up the Deeds of Sale, claiming that what Chua required was not part
of their agreement.14
On the same day, 14 July 1989, Chua confirmed his stop payment order by submitting to PBCom an
affidavit of loss15 of the PBCom Manager's Check for P480,000.00. PBCom Assistant Vice-President
Pe, however, testified that the manager's check was nevertheless honored because Chua
subsequently verbally advised the bank that he was lifting the stop-payment order due to his "special
arrangement" with the bank.16
On 15 July 1989, the deadline for the payment of the balance of the purchase price, Valdes-Choy
suggested to her counsel that to break the impasse Chua should deposit in escrow the
P10,215,000.00 balance.17 Upon such deposit, Valdes-Choy was willing to cause the issuance of a
new TCT in the name of Chua even without receiving the balance of the purchase price. Valdes-

Choy believed this was the only way she could protect herself if the certificate of title is transferred in
the name of the buyer before she is fully paid. Valdes-Choy's counsel promised to relay her
suggestion to Chua and his counsel, but nothing came out of it.
On 17 July 1989, Chua filed a complaint for specific performance against Valdes-Choy which the trial
court dismissed on 22 November 1989. On 29 November 1989, Chua re-filed his complaint for
specific performance with damages. After trial in due course, the trial court rendered judgment in
favor of Chua, the dispositive portion of which reads:
Applying the provisions of Article 1191 of the new Civil Code, since this is an action for
specific performance where the plaintiff, as vendee, wants to pursue the sale, and in order
that the fears of the defendant may be allayed and still have the sale materialize, judgment is
hereby rendered:
I. 1. Ordering the defendant to deliver to the Court not later than five (5) days from finality of
this decision:
a. the owner's duplicate copy of TCT No. 162955 registered in her name;
b. the covering tax declaration and the latest tax receipt evidencing payment of real
estate taxes;
c. the two deeds of sale prepared by Atty. Mark Bocobo on July 13, 1989, duly
executed by defendant in favor of the plaintiff, whether notarized or not; and
2. Within five (5) days from compliance by the defendant of the above, ordering the plaintiff
to deliver to the Branch Clerk of Court of this Court the sum of P10,295,000.00 representing
the balance of the consideration (with the sum of P80,000.00 for stamps already included);
3. Ordering the Branch Clerk of this Court or her duly authorized representative:
a. to make representations with the BIR for the payment of capital gains tax for the
sale of the house and lot (not to include the fixtures) and to pay the same from the
funds deposited with her;
b. to present the deed of sale executed in favor of the plaintiff, together with the
owner's duplicate copy of TCT No. 162955, real estate tax receipt and proof of
payment of capital gains tax, to the Makati Register of Deeds;
c. to pay the required registration fees and stamps (if not yet advanced by the
defendant) and if needed update the real estate taxes all to be taken from the funds
deposited with her; and
d. surrender to the plaintiff the new Torrens title over the property;
4. Should the defendant fail or refuse to surrender the two deeds of sale over the property
and the fixtures that were prepared by Atty. Mark Bocobo and executed by the parties, the
Branch Clerk of Court of this Court is hereby authorized and empowered to prepare, sign
and execute the said deeds of sale for and in behalf of the defendant;
5. Ordering the defendant to pay to the plaintiff;

a. the sum of P100,000.00 representing moral and compensatory damages for the
plaintiff; and
b. the sum of P50,000.00 as reimbursement for plaintiff's attorney's fees and cost of
litigation.
6. Authorizing the Branch Clerk of Court of this Court to release to the plaintiff, to be taken
from the funds said plaintiff has deposited with the Court, the amounts covered at paragraph
5 above;
7. Ordering the release of the P10,295,000.00 to the defendant after deducting therefrom the
following amounts:
a. the capital gains tax paid to the BIR;
b. the expenses incurred in the registration of the sale, updating of real estate taxes,
and transfer of title; and
c. the amounts paid under this judgment to the plaintiff.
8. Ordering the defendant to surrender to the plaintiff or his representatives the premises
with the furnishings intact within seventy-two (72) hours from receipt of the proceeds of the
sale;
9. No interest is imposed on the payment to be made by the plaintiff because he had always
been ready to pay the balance and the premises had been used or occupied by the
defendant for the duration of this case.
II. In the event that specific performance cannot be done for reasons or causes not
attributable to the plaintiff, judgment is hereby rendered ordering the defendant:
1. To refund to the plaintiff the earnest money in the sum of P100,000.00, with interest at the
legal rate from June 30, 1989 until fully paid;
2. To refund to the plaintiff the sum of P485,000.00 with interest at the legal rate from July
14, 1989 until fully paid;
3. To pay to the plaintiff the sum of P700,000.00 in the concept of moral damages and the
additional sum of P300,000.00 in the concept of exemplary damages; and
4. To pay to the plaintiff the sum of P100,000.00 as reimbursement of attorney's fees and
cost of litigation.
SO ORDERED.18
Valdes-Choy appealed to the Court of Appeals which reversed the decision of the trial court. The
Court of Appeals handed down a new judgment, disposing as follows:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE, and
another one is rendered:

(1) Dismissing Civil Case No. 89-5772;

(2) Declaring the amount of P100,000.00, representing earnest money as forfeited in
favor of defendant-appellant;
(3) Ordering defendant-appellant to return/refund the amount of P485,000.00 to
plaintiff-appellee without interest;
(4) Dismissing defendant-appellant's compulsory counter-claim; and
(5) Ordering the plaintiff-appellee to pay the costs.19
Hence, the instant petition.
The Trial Court's Ruling
The trial court found that the transaction reached an impasse when Valdes-Choy wanted to be first
paid the full consideration before a new TCT covering the Property is issued in the name of Chua.
On the other hand, Chua did not want to pay the consideration in full unless a new TCT is first issued
in his name. The trial court faulted Valdes-Choy for this impasse.
The trial court held that the parties entered into a contract to sell on 30 June 1989, as evidenced by
the Receipt for the P100,000.00 earnest money. The trial court pointed out that the contract to sell
was subject to the following conditions: (1) the balance of P10,700,000.00 was payable not later
than 15 July 1989; (2) Valdes-Choy may stay in the Property until 13 August 1989; and (3) all papers
must be "in proper order" before full payment is made.
The trial court held that Chua complied with the terms of the contract to sell. Chua showed that he
was prepared to pay Valdes-Choy the consideration in full on 13 July 1989, two days before the
deadline of 15 July 1989. Chua even added P80,000.00 for the documentary stamp tax. He
purchased from PBCom two manager's checks both payable to Valdes-Choy. The first check for
P485,000.00 was to pay the capital gains tax. The second check for P10,215,000.00 was to pay the
balance of the purchase price. The trial court was convinced that Chua demonstrated his capacity
and readiness to pay the balance on 13 July 1989 with the production of the PBCom manager's
check for P10,215,000.00.
On the other hand, the trial court found that Valdes-Choy did not perform her correlative obligation
under the contract to sell to put all the papers in order. The trial court noted that as of 14 July 1989,
the capital gains tax had not been paid because Valdes-Choy's counsel who was suppose to pay the
tax did not do so. The trial court declared that Valdes-Choy was in a position to deliver only the
owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest
realty tax receipt. The trial court concluded that these documents were all useless without the
Bureau of Internal Revenue receipt evidencing full payment of the capital gains tax which is a prerequisite to the issuance of a new certificate of title in Chua's name.
The trial court held that Chua's non-payment of the balance of P10,215,000.00 on the agreed date
was due to Valdes-Choy's fault.
The Court of Appeals' Ruling

In reversing the trial court, the Court of Appeals ruled that Chua's stance to pay the full consideration
only after the Property is registered in his name was not the agreement of the parties. The Court of
Appeals noted that there is a whale of difference between the phrases "all papers are in proper
order" as written on the Receipt, and "transfer of title" as demanded by Chua.
Contrary to the findings of the trial court, the Court of Appeals found that all the papers were in order
and that Chua had no valid reason not to pay on the agreed date. Valdes-Choy was in a position to
deliver the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and
the latest realty tax receipt. The Property was also free from all liens and encumbrances.
The Court of Appeals declared that the trial court erred in considering Chua's showing to ValdesChoy of the PBCom manager's check for P10,215,000.00 as compliance with Chua's obligation to
pay on or before 15 July 1989. The Court of Appeals pointed out that Chua did not want to give up
the check unless "the property was already in his name." 20 Although Chua demonstrated his capacity
to pay, this could not be equated with actual payment which he refused to do.
The Court of Appeals did not consider the non-payment of the capital gains tax as failure by ValdesChoy to put the papers "in proper order." The Court of Appeals explained that the payment of the
capital gains tax has no bearing on the validity of the Deeds of Sale. It is only after the deeds are
signed and notarized can the final computation and payment of the capital gains tax be made.
The Issues
In his Memorandum, Chua raises the following issues:
1. WHETHER THERE IS A PERFECTED CONTRACT OF SALE OF IMMOVABLE
PROPERTY;
2. WHETHER VALDES-CHOY MAY RESCIND THE CONTRACT IN CONTROVERSY
WITHOUT OBSERVING THE PROVISIONS OF ARTICLE 1592 OF THE NEW CIVIL CODE;
3. WHETHER THE WITHHOLDING OF PAYMENT OF THE BALANCE OF THE PURCHASE
PRICE ON THE PART OF CHUA (AS VENDEE) WAS JUSTIFIED BY THE
CIRCUMSTANCES OBTAINING AND MAY NOT BE RAISED AS GROUND FOR THE
AUTOMATIC RESCISSION OF THE CONTRACT OF SALE;
4. WHETHER THERE IS LEGAL AND FACTUAL BASIS FOR THE COURT OF APPEALS
TO DECLARE THE "EARNEST MONEY" IN THE AMOUNT OF P100,000.00 AS
FORFEITED IN FAVOR OF VALDES-CHOY;
5. WHETHER THE TRIAL COURT'S JUDGMENT IS IN ACCORD WITH LAW, REASON
AND EQUITY DESERVING OF BEING REINSTATED AND AFFIRMED. 21
The issues for our resolution are: (a) whether the transaction between Chua and Valdes-Choy is a
perfected contract of sale or a mere contract to sell, and (b) whether Chua can compel Valdes-Choy
to cause the issuance of a new TCT in Chua's name even before payment of the full purchase price.
The Court's Ruling
The petition is bereft of merit.

There is no dispute that Valdes-Choy is the absolute owner of the Property which is registered in her
name under TCT No.162955, free from all liens and encumbrances. She was ready, able and willing
to deliver to Chua the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax
declarations, and the latest realty tax receipt. There is also no dispute that on 13 July 1989, ValdesChoy received PBCom Check No. 206011 for P100,000.00 as earnest money from Chua. Likewise,
there is no controversy that the Receipt for the P100,000.00 earnest money embodied the terms of
the binding contract between Valdes-Choy and Chua.
Further, there is no controversy that as embodied in the Receipt, Valdes-Choy and Chua agreed on
the following terms: (1) the balance of P10,215,000.00 is payable on or before 15 July 1989; (2) the
capital gains tax is for the account of Valdes-Choy; and (3) if Chua fails to pay the balance of
P10,215,000.00 on or before 15 July 1989, Valdes-Choy has the right to forfeit the earnest money,
provided that "all papers are in proper order." On 13 July 1989, Chua gave Valdes-Choy the PBCom
manager's check for P485,000.00 to pay the capital gains tax.
Both the trial and appellate courts found that the balance of P10,215,000.00 was not actually paid to
Valdes-Choy on the agreed date. On 13 July 1989, Chua did show to Valdes-Choy the PBCom
manager's check for P10,215,000.00, with Valdes-Choy as payee. However, Chua refused to give
this check to Valdes-Choy until a new TCT covering the Property is registered in Chua's name. Or,
as the trial court put it, until there is proof of payment of the capital gains tax which is a pre-requisite
to the issuance of a new certificate of title.
First and Second Issues: Contract of Sale or Contract to Sell?
Chua has consistently characterized his agreement with Valdez-Choy, as evidenced by the Receipt,
as a contract to sell and not a contract of sale. This has been Chua's persistent contention in his
pleadings before the trial and appellate courts.
Chua now pleads for the first time that there is a perfected contract of sale rather than a contract to
sell. He contends that there was no reservation in the contract of sale that Valdes-Choy shall retain
title to the Property until after the sale. There was no agreement for an automatic rescission of the
contract in case of Chua's default. He argues for the first time that his payment of earnest money
and its acceptance by Valdes-Choy precludes the latter from rejecting the binding effect of the
contract of sale. Thus, Chua claims that Valdes-Choy may not validly rescind the contract of sale
without following Article 159222 of the Civil Code which requires demand, either judicially or by
notarial act, before rescission may take place.
Chua's new theory is not well taken in light of well-settled jurisprudence. An issue not raised in the
court below cannot be raised for the first time on appeal, as this is offensive to the basic rules of fair
play, justice and due process.23 In addition, when a party deliberately adopts a certain theory, and the
case is tried and decided on that theory in the court below, the party will not be permitted to change
his theory on appeal. To permit him to change his theory will be unfair to the adverse party.24
Nevertheless, in order to put to rest all doubts on the matter, we hold that the agreement between
Chua and Valdes-Choy, as evidenced by the Receipt, is a contract to sell and not a contract of sale.
The distinction between a contract of sale and contract to sell is well-settled:
In a contract of sale, the title to the property passes to the vendee upon the delivery of the
thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is not
to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract
of sale, the vendor loses ownership over the property and cannot recover it until and unless
the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the

vendor until full payment of the price. In the latter contract, payment of the price is a positive
suspensive condition, failure of which is not a breach but an event that prevents the
obligation of the vendor to convey title from becoming effective.25
A perusal of the Receipt shows that the true agreement between the parties was a contract to sell.
Ownership over the Property was retained by Valdes-Choy and was not to pass to Chua until full
payment of the purchase price.
First, the Receipt provides that the earnest money shall be forfeited in case the buyer fails to pay the
balance of the purchase price on or before 15 July 1989. In such event, Valdes-Choy can sell the
Property to other interested parties. There is in effect a right reserved in favor of Valdes-Choy not to
push through with the sale upon Chua's failure to remit the balance of the purchase price before the
deadline. This is in the nature of a stipulation reserving ownership in the seller until full payment of
the purchase price. This is also similar to giving the seller the right to rescind unilaterally the contract
the moment the buyer fails to pay within a fixed period. 26
Second, the agreement between Chua and Valdes-Choy was embodied in a receipt rather than in a
deed of sale, ownership not having passed between them. The signing of the Deeds of Sale came
later when Valdes-Choy was under the impression that Chua was about to pay the balance of the
purchase price. The absence of a formal deed of conveyance is a strong indication that the parties
did not intend immediate transfer of ownership, but only a transfer after full payment of the purchase
price.27
Third, Valdes-Choy retained possession of the certificate of title and all other documents relative to
the sale. When Chua refused to pay Valdes-Choy the balance of the purchase price, Valdes-Choy
also refused to turn-over to Chua these documents.28 These are additional proof that the agreement
did not transfer to Chua, either by actual or constructive delivery, ownership of the Property.29
It is true that Article 1482 of the Civil Code provides that "[W]henever earnest money is given in a
contract of sale, it shall be considered as part of the price and proof of the perfection of the contract."
However, this article speaks of earnest money given in a contract of sale. In this case, the earnest
money was given in a contract to sell. The Receipt evidencing the contract to sell stipulates that the
earnest money is a forfeitable deposit, to be forfeited if the sale is not consummated should Chua fail
to pay the balance of the purchase price. The earnest money forms part of the consideration only if
the sale is consummated upon full payment of the purchase price. If there is a contract of sale,
Valdes-Choy should have the right to compel Chua to pay the balance of the purchase price. Chua,
however, has the right to walk away from the transaction, with no obligation to pay the balance,
although he will forfeit the earnest money. Clearly, there is no contract of sale. The earnest money
was given in a contract to sell, and thus Article 1482, which speaks of a contract of sale, is not
applicable.
Since the agreement between Valdes-Choy and Chua is a mere contract to sell, the full payment of
the purchase price partakes of a suspensive condition. The non-fulfillment of the condition prevents
the obligation to sell from arising and ownership is retained by the seller without further remedies by
the buyer.30 Article 1592 of the Civil Code permits the buyer to pay, even after the expiration of the
period, as long as no demand for rescission of the contract has been made upon him either judicially
or by notarial act. However, Article 1592 does not apply to a contract to sell where the seller reserves
the ownership until full payment of the price.31
Third and Fourth Issues: Withholding of Payment of the
Balance of the Purchase Price and Forfeiture of the Earnest Money

Chua insists that he was ready to pay the balance of the purchase price but withheld payment
because Valdes-Choy did not fulfill her contractual obligation to put all the papers in "proper order."
Specifically, Chua claims that Valdes-Choy failed to show that the capital gains tax had been paid
after he had advanced the money for its payment. For the same reason, he contends that ValdesChoy may not forfeit the earnest money even if he did not pay on time.
There is a variance of interpretation on the phrase "all papers are in proper order" as written in the
Receipt. There is no dispute though, that as long as the papers are "in proper order," Valdes-Choy
has the right to forfeit the earnest money if Chua fails to pay the balance before the deadline.
The trial court interpreted the phrase to include payment of the capital gains tax, with the Bureau of
Internal Revenue receipt as proof of payment. The Court of Appeals held otherwise. We quote
verbatim the ruling of the Court of Appeals on this matter:
The trial court made much fuss in connection with the payment of the capital gains tax, of
which Section 33 of the National Internal Revenue Code of 1977, is the governing provision
insofar as its computation is concerned. The trial court failed to consider Section 34-(a) of the
said Code, the last sentence of which provides, that "[t]he amount realized from the sale or
other disposition of property shall be the sum of money received plus the fair market value of
the property (other than money) received;" and that the computation of the capital gains tax
can only be finally assessed by the Commission on Internal Revenue upon the presentation
of the Deeds of Absolute Sale themselves, without which any premature computation of the
capital gains tax becomes of no moment. At any rate, the computation and payment of the
capital gains tax has no bearing insofar as the validity and effectiveness of the deeds of sale
in question are concerned, because it is only after the contracts of sale are finally executed
in due form and have been duly notarized that the final computation of the capital gains tax
can follow as a matter of course. Indeed, exhibit D, the PBC Check No. 325851, dated July
13, 1989, in the amount of P485,000.00, which is considered as part of the consideration of
the sale, was deposited in the name of appellant, from which she in turn, purchased the
corresponding check in the amount representing the sum to be paid for capital gains tax and
drawn in the name of the Commissioner of Internal Revenue, which then allayed any fear or
doubt that that amount would not be paid to the Government after all. 32
We see no reason to disturb the ruling of the Court of Appeals.
In a contract to sell, the obligation of the seller to sell becomes demandable only upon the
happening of the suspensive condition. In this case, the suspensive condition is the full payment of
the purchase price by Chua. Such full payment gives rise to Chua's right to demand the execution of
the contract of sale.
It is only upon the existence of the contract of sale that the seller becomes obligated to transfer the
ownership of the thing sold to the buyer. Article 1458 of the Civil Code defines a contract of sale as
follows:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer
the ownership of and to deliver a determinate thing, and the other to pay therefor a price
certain in money or its equivalent.
x x x. (Emphasis supplied)
Prior to the existence of the contract of sale, the seller is not obligated to transfer ownership to the
buyer, even if there is a contract to sell between them. It is also upon the existence of the contract of

sale that the buyer is obligated to pay the purchase price to the seller. Since the transfer of
ownership is in exchange for the purchase price, these obligations must be simultaneously fulfilled at
the time of the execution of the contract of sale, in the absence of a contrary stipulation.
In a contract of sale, the obligations of the seller are specified in Article 1495 of the Civil Code, as
follows:
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. (Emphasis supplied)
The obligation of the seller is to transfer to the buyer ownership of the thing sold. In the sale of real
property, the seller is not obligated to transfer in the name of the buyer a new certificate of title, but
rather to transfer ownership of the real property. There is a difference between transfer of the
certificate of title in the name of the buyer, and transfer of ownership to the buyer. The buyer may
become the owner of the real property even if the certificate of title is still registered in the name of
the seller. As between the seller and buyer, ownership is transferred not by the issuance of a new
certificate of title in the name of the buyer but by the execution of the instrument of sale in a public
document.
In a contract of sale, ownership is transferred upon delivery of the thing sold. As the noted civil law
commentator Arturo M. Tolentino explains it, Delivery is not only a necessary condition for the enjoyment of the thing, but is a mode of
acquiring dominion and determines the transmission of ownership, the birth of the real
right. The delivery, therefore, made in any of the forms provided in articles 1497 to 1505
signifies that the transmission of ownership from vendor to vendee has taken place. The
delivery of the thing constitutes an indispensable requisite for the purpose of acquiring
ownership. Our law does not admit the doctrine of transfer of property by mere consent; the
ownership, the property right, is derived only from delivery of the thing. x x x. 33 (Emphasis
supplied)
In a contract of sale of real property, delivery is effected when the instrument of sale is executed in a
public document. 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. Article 1498 of the Civil Code
provides that
Art. 1498. 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.
x x x.
Similarly, in a contract to sell real property, once the seller is ready, able and willing to sign the deed
of absolute sale before a notary public, the seller is in a position to transfer ownership of the real
property to the buyer. At this point, the seller complies with his undertaking to sell the real property in
accordance with the contract to sell, and to assume all the obligations of a vendor under a contract
of sale pursuant to the relevant articles of the Civil Code. In a contract to sell, the seller is not
obligated to transfer ownership to the buyer. Neither is the seller obligated to cause the issuance of a
new certificate of title in the name of the buyer. However, the seller must put all his papers in proper
order to the point that he is in a position to transfer ownership of the real property to the buyer upon
the signing of the contract of sale.

In the instant case, Valdes-Choy was in a position to comply with all her obligations as a seller under
the contract to sell. First, she already signed the Deeds of Sale in the office of her counsel in the
presence of the buyer. Second, she was prepared to turn-over the owner's duplicate of the TCT to
the buyer, along with the tax declarations and latest realty tax receipt. Clearly, at this point ValdesChoy was ready, able and willing to transfer ownership of the Property to the buyer as required by
the contract to sell, and by Articles 1458 and 1495 of the Civil Code to consummate the contract of
sale.
Chua, however, refused to give to Valdes-Choy the PBCom manager's check for the balance of the
purchase price. Chua imposed the condition that a new TCT should first be issued in his name, a
condition that is found neither in the law nor in the contract to sell as evidenced by the Receipt.
Thus, at this point Chua was not ready, able and willing to pay the full purchase price which is his
obligation under the contract to sell. Chua was also not in a position to assume the principal
obligation of a vendee in a contract of sale, which is also to pay the full purchase price at the agreed
time. Article 1582 of the Civil Code provides that
Art. 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at
the time and place stipulated in the contract.
x x x. (Emphasis supplied)
In this case, the contract to sell stipulated that Chua should pay the balance of the purchase price
"on or before 15 July 1989." The signed Deeds of Sale also stipulated that the buyer shall pay the
balance of the purchase price upon signing of the deeds. Thus, the Deeds of Sale, both signed by
Chua, state as follows:
Deed of Absolute Sale covering the lot:
xxx
For and in consideration of the sum of EIGHT MILLION PESOS (P8,000,000.00), Philippine
Currency, receipt of which in full is hereby acknowledged by the VENDOR from the
VENDEE, the VENDOR sells, transfers and conveys unto the VENDEE, his heirs,
successors and assigns, the said parcel of land, together with the improvements existing
thereon, free from all liens and encumbrances.34 (Emphasis supplied)
Deed of Absolute Sale covering the furnishings:
xxx
For and in consideration of the sum of TWO MILLION EIGHT HUNDRED THOUSAND
PESOS (P2,800,000.00), Philippine Currency, receipt of which in full is hereby
acknowledged by the VENDOR from the VENDEE, the VENDOR sells, transfers and
conveys unto the VENDEE, his heirs, successors and assigns, the said furnitures, fixtures
and other movable properties thereon, free from all liens and encumbrances. 35 (Emphasis
supplied)
However, on the agreed date, Chua refused to pay the balance of the purchase price as required by
the contract to sell, the signed Deeds of Sale, and Article 1582 of the Civil Code. Chua was therefore
in default and has only himself to blame for the rescission by Valdes-Choy of the contract to sell.

Even if measured under existing usage or custom, Valdes-Choy had all her papers "in proper order."
Article 1376 of the Civil Code provides that:
Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the
ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily
established.
Customarily, in the absence of a contrary agreement, the submission by an individual seller to the
buyer of the following papers would complete a sale of real estate: (1) owner's duplicate copy of the
Torrens title;36 (2) signed deed of absolute sale; (3) tax declaration; and (3) latest realty tax receipt.
The buyer can retain the amount for the capital gains tax and pay it upon authority of the seller, or
the seller can pay the tax, depending on the agreement of the parties.
The buyer has more interest in having the capital gains tax paid immediately since this is a prerequisite to the issuance of a new Torrens title in his name. Nevertheless, as far as the government
is concerned, the capital gains tax remains a liability of the seller since it is a tax on the seller's gain
from the sale of the real estate. Payment of the capital gains tax, however, is not a pre-requisite to
the transfer of ownership to the buyer. The transfer of ownership takes effect upon the signing and
notarization of the deed of absolute sale.
The recording of the sale with the proper Registry of Deeds 37 and the transfer of the certificate of title
in the name of the buyer are necessary only to bind third parties to the transfer of ownership. 38 As
between the seller and the buyer, the transfer of ownership takes effect upon the execution of a
public instrument conveying the real estate.39Registration of the sale with the Registry of Deeds, or
the issuance of a new certificate of title, does not confer ownership on the buyer. Such registration or
issuance of a new certificate of title is not one of the modes of acquiring ownership. 40
In this case, Valdes-Choy was ready, able and willing to submit to Chua all the papers that
customarily would complete the sale, and to pay as well the capital gains tax. On the other hand,
Chua's condition that a new TCT be first issued in his name before he pays the balance of
P10,215,000.00, representing 94.58% of the purchase price, is not customary in a sale of real
estate. Such a condition, not specified in the contract to sell as evidenced by the Receipt, cannot be
considered part of the "omissions of stipulations which are ordinarily established" by usage or
custom.41 What is increasingly becoming customary is to deposit in escrow the balance of the
purchase price pending the issuance of a new certificate of title in the name of the buyer. ValdesChoy suggested this solution but unfortunately, it drew no response from Chua.
Chua had no reason to fear being swindled. Valdes-Choy was prepared to turn-over to him the
owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest
realty tax receipt. There was no hindrance to paying the capital gains tax as Chua himself had
advanced the money to pay the same and Valdes-Choy had procured a manager's check payable to
the Bureau of Internal Revenue covering the amount. It was only a matter of time before the capital
gains tax would be paid. Chua acted precipitately in filing the action for specific performance a mere
two days after the deadline of 15 July 1989 when there was an impasse. While this case was
dismissed on 22 November 1989, he did not waste any time in re-filing the same on 29 November
1989.
Accordingly, since Chua refused to pay the consideration in full on the agreed date, which is a
suspensive condition, Chua cannot compel Valdes-Choy to consummate the sale of the Property.
Article 1181 of the Civil Code provides that -

ART. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment
or loss of those already acquired shall depend upon the happening of the event which
constitutes the condition.
Chua acquired no right to compel Valdes-Choy to transfer ownership of the Property to him because
the suspensive condition - the full payment of the purchase price - did not happen. There is no
correlative obligation on the part of Valdes-Choy to transfer ownership of the Property to Chua.
There is also no obligation on the part of Valdes-Choy to cause the issuance of a new TCT in the
name of Chua since unless expressly stipulated, this is not one of the obligations of a vendor.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 37652 dated 23 February
1995 is AFFIRMED in toto.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and Azcuna, JJ., concur.

Footnotes
In CA-G.R. CV No. 37652, dated 23 February 1995, penned by Associate Justice Artemon
D. Luna with Associate Justices Cancio C. Garcia and Godardo A. Jacinto concurring.
1

Civil Case No. 89-5772.

Branch 142, Makati, National Capital Judicial Region, presided by Judge Salvador P. De
Guzman, Jr.
3

Dated 29 August 1991.

The typewritten figure "30" was corrected in ink to "15".

The italicized portions were also handwritten in ink and initialed by Chua.

Annex "A," Records, p. 7.

TSN, 24 July 1990, pp. 20-28.

Exhibit "8," Records, p. 140.

10

TSN, 25 January 1990, p. 87.

11

Exhibit "B," Records, pp. 107-109.

12

Exhibit "C," Records, pp. 110-112.

13

Records, p. 73.

14

TSN, 25 January 1990, p. 226.

15

Exhibit "9," Records, p. 141.

16

TSN, 24 July 1989, p. 37.

17

TSN, 5 February 1990, pp. 37-38.

18

Rollo, pp. 71-72.

19

Ibid., p. 62.

20

Rollo, p. 60.

21

Ibid., p. 203.

Art. 1592. In the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon the rescission of the contract shall of
right take place, the vendee may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either judicially or by a
notarial act. After the demand, the court may not grant him a new term.
22

23

Rivera v. Court of Appeals, G.R. No. 44111, 10 August 1989, 176 SCRA 169.

24

FMIC v. Court of Appeals, G.R. No. 85141, 28 November 1989, 179 SCRA 638.

25

Salazar v. Court of Appeals, G.R. No. 118203, 5 July 1996, 258 SCRA 317.

Philippine National Bank v. Court of Appeals, G.R. No. 119580, 26 September 1996, 262
SCRA 464.
26

27

Alfonso v. Court of Appeals, G.R. No. 63745, 8 June 1990, 186 SCRA 400.

28

TSN, 5 February 1990, pp. 33-34.

29

Salazar v. Court of Appeals, supra, see note 25.

30

Roque v. Lapuz, G.R. No. L-32811, 31 March 1980, 96 SCRA 741.

31

Alfonso v. Court of Appeals, supra, see note 27.

32

Rollo, pp. 60-61.

33

ARTURO M. TOLENTINO, CIVIL CODE OF THE PHILIPPINES, VOL. V, p. 51 (1992).

34

Exhibit "B," Records, pp. 51-53.

35

Exhibit "C," Records, pp. 54-54-(A).

36

Section 53 of PD No. 1529 provides:

Section 53. Presentation of owner's duplicate upon entry of new certificate. No

voluntary instrument shall be registered by the Register of Deeds, unless the owner's
duplicate certificate is presented with such instrument, except in cases expressly
provided for in this Decree or upon order of the court, for cause shown.
The production of the owner's duplicate certificate, whenever any voluntary
instrument is presented for registration, shall be conclusive authority from the
registered owner to the Register of Deeds to enter a new certificate or to make a
memorandum of registration in accordance with such instrument, and the new
certificate or memorandum shall be binding upon the registered owner and upon all
persons claiming under him, in favor of every purchaser for value and in good faith.
x x x.
Garcia v. Court of Appeals, G.R. Nos. L-48971 and 49011, 22 January 1980, 95 SCRA
380.
37

38

Sections 51 and 52, Property Registration Decree (PD No.1529).

Sapto v. Fabiana, 103 Phil. 658 (1958); Abuyo, et al. v. De Suazo, 124 Phil.1138
(1966); Philippine Suburban Development Corp. v. Auditor General, G.R. No. L-19545, 18
April 1975, 63 SCRA 397.
39

40

Bollozos v. Yu Tieng Su, G.R. No. L-29442, 11 November 1987, 155 SCRA 506.

41

Mirasol v. Yusay, et al., 120 Phil. 407 (1964).

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 103577 October 7, 1996
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C.
GONZALES (for herself and on behalf of Florida C. Tupper, as attorney-in-fact), CIELITO A.
CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG, petitioners,
vs.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and RAMONA PATRICIA ALCARAZ,
assisted by GLORIA F. NOEL as attorney-in-fact, respondents.

MELO, J.:p
The petition before us has its roots in a complaint for specific performance to compel herein
petitioners (except the last named, Catalina Balais Mabanag) to consummate the sale of a parcel of
land with its improvements located along Roosevelt Avenue in Quezon City entered into by the
parties sometime in January 1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by respondent court in this wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et al. (hereinafter
referred to as Coronels) executed a document entitled "Receipt of Down Payment"
(Exh. "A") in favor of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as
Ramona) which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 Total amount
50,000 Down payment

P1,190,000.00 Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of
Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT
No. 119627 of the Registry of Deeds of Quezon City, in the total amount of
P1,240,000.00.
We bind ourselves to effect the transfer in our names from our deceased father,
Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the
down payment above-stated.

On our presentation of the TCT already in or name, We will immediately execute the
deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall
immediately pay the balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand (P50,000.00) Pesos upon
execution of the document aforestated;
2. The Coronels will cause the transfer in their names of the title of the property
registered in the name of their deceased father upon receipt of the Fifty Thousand
(P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the subject property, the Coronels will execute
the deed of absolute sale in favor of Ramona and the latter will pay the former the
whole balance of One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos.
On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz
(hereinafter referred to as Concepcion), mother of Ramona, paid the down payment
of Fifty Thousand (P50,000.00) Pesos (Exh. "B", Exh. "2").
On February 6, 1985, the property originally registered in the name of the Coronels'
father was transferred in their names under TCT
No. 327043 (Exh. "D"; Exh. "4")
On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to
intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for
One Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter
has paid Three Hundred Thousand (P300,000.00) Pesos (Exhs. "F-3"; Exh. "6-C")
For this reason, Coronels canceled and rescinded the contract (Exh. "A") with
Ramona by depositing the down payment paid by Concepcion in the bank in trust for
Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et al., filed a complaint for specific performance
against the Coronels and caused the annotation of a notice of lis pendens at the
back of TCT No. 327403 (Exh. "E"; Exh. "5").
On April 2, 1985, Catalina caused the annotation of a notice of adverse claim
covering the same property with the Registry of Deeds of Quezon City (Exh. "F";
Exh. "6").
On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject
property in favor of Catalina (Exh. "G"; Exh. "7").
On June 5, 1985, a new title over the subject property was issued in the name of
Catalina under TCT No. 351582 (Exh. "H"; Exh. "8").
(Rollo, pp. 134-136)

In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the parties
agreed to submit the case for decision solely on the basis of documentary exhibits. Thus, plaintiffs
therein (now private respondents) proffered their documentary evidence accordingly marked as
Exhibits "A" through "J", inclusive of their corresponding submarkings. Adopting these same exhibits
as their own, then defendants (now petitioners) accordingly offered and marked them as Exhibits "1"
through "10", likewise inclusive of their corresponding submarkings. Upon motion of the parties, the
trial court gave them thirty (30) days within which to simultaneously submit their respective
memoranda, and an additional 15 days within which to submit their corresponding comment or reply
thereof, after which, the case would be deemed submitted for resolution.
On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura, who was
then temporarily detailed to preside over Branch 82 of the RTC of Quezon City. On March 1, 1989,
judgment was handed down by Judge Roura from his regular bench at Macabebe, Pampanga for
the Quezon City branch, disposing as follows:
WHEREFORE, judgment for specific performance is hereby rendered ordering
defendant to execute in favor of plaintiffs a deed of absolute sale covering that parcel
of land embraced in and covered by Transfer Certificate of Title No. 327403 (now
TCT No. 331582) of the Registry of Deeds for Quezon City, together with all the
improvements existing thereon free from all liens and encumbrances, and once
accomplished, to immediately deliver the said document of sale to plaintiffs and upon
receipt thereof, the said document of sale to plaintiffs and upon receipt thereof, the
plaintiffs are ordered to pay defendants the whole balance of the purchase price
amounting to P1,190,000.00 in cash. Transfer Certificate of Title No. 331582 of the
Registry of Deeds for Quezon City in the name of intervenor is hereby canceled and
declared to be without force and effect. Defendants and intervenor and all other
persons claiming under them are hereby ordered to vacate the subject property and
deliver possession thereof to plaintiffs. Plaintiffs' claim for damages and attorney's
fees, as well as the counterclaims of defendants and intervenors are hereby
dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioner before the new presiding judge of the Quezon
City RTC but the same was denied by Judge Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul the decision and to render
anew decision by the undersigned Presiding Judge should be denied for the
following reasons: (1) The instant case became submitted for decision as of April 14,
1988 when the parties terminated the presentation of their respective documentary
evidence and when the Presiding Judge at that time was Judge Reynaldo Roura.
The fact that they were allowed to file memoranda at some future date did not
change the fact that the hearing of the case was terminated before Judge Roura and
therefore the same should be submitted to him for decision; (2) When the defendants
and intervenor did not object to the authority of Judge Reynaldo Roura to decide the
case prior to the rendition of the decision, when they met for the first time before the

undersigned Presiding Judge at the hearing of a pending incident in Civil Case No.
Q-46145 on November 11, 1988, they were deemed to have acquiesced thereto and
they are now estopped from questioning said authority of Judge Roura after they
received the decision in question which happens to be adverse to them; (3) While it
is true that Judge Reynaldo Roura was merely a Judge-on-detail at this Branch of the
Court, he was in all respects the Presiding Judge with full authority to act on any
pending incident submitted before this Court during his incumbency. When he
returned to his Official Station at Macabebe, Pampanga, he did not lose his authority
to decide or resolve such cases submitted to him for decision or resolution because
he continued as Judge of the Regional Trial Court and is of co-equal rank with the
undersigned Presiding Judge. The standing rule and supported by jurisprudence is
that a Judge to whom a case is submitted for decision has the authority to decide the
case notwithstanding his transfer to another branch or region of the same court (Sec.
9, Rule 135, Rule of Court).
Coming now to the twin prayer for reconsideration of the Decision dated March 1,
1989 rendered in the instant case, resolution of which now pertains to the
undersigned Presiding Judge, after a meticulous examination of the documentary
evidence presented by the parties, she is convinced that the Decision of March 1,
1989 is supported by evidence and, therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the "Motion for Reconsideration and/or to Annul
Decision and Render Anew Decision by the Incumbent Presiding Judge" dated
March 20, 1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of Appeals
(Buena, Gonzaga-Reyes, Abad Santos (P), JJ.) rendered its decision fully agreeing with the trial
court.
Hence, the instant petition which was filed on March 5, 1992. The last pleading, private respondents'
Reply Memorandum, was filed on September 15, 1993. The case was, however, re-raffled to
undersigned ponente only on August 28, 1996, due to the voluntary inhibition of the Justice to whom
the case was last assigned.
While we deem it necessary to introduce certain refinements in the disquisition of respondent court
in the affirmance of the trial court's decision, we definitely find the instant petition bereft of merit.
The heart of the controversy which is the ultimate key in the resolution of the other issues in the case
at bar is the precise determination of the legal significance of the document entitled "Receipt of
Down Payment" which was offered in evidence by both parties. There is no dispute as to the fact
that said document embodied the binding contract between Ramona Patricia Alcaraz on the one
hand, and the heirs of Constancio P. Coronel on the other, pertaining to a particular house and lot
covered by TCT No. 119627, as defined in Article 1305 of the Civil Code of the Philippines which
reads as follows:

Art. 1305. A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service.
While, it is the position of private respondents that the "Receipt of Down Payment" embodied a
perfected contract of sale, which perforce, they seek to enforce by means of an action for specific
performance, petitioners on their part insist that what the document signified was a mere executory
contract to sell, subject to certain suspensive conditions, and because of the absence of Ramona P.
Alcaraz, who left for the United States of America, said contract could not possibly ripen into a
contract absolute sale.
Plainly, such variance in the contending parties' contentions is brought about by the way each
interprets the terms and/or conditions set forth in said private instrument. Withal, based on whatever
relevant and admissible evidence may be available on record, this, Court, as were the courts below,
is now called upon to adjudge what the real intent of the parties was at the time the said document
was executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The
essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in
exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the
first essential element is lacking. In a contract to sell, the prospective seller explicity reserves the
transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or
consent to transfer ownership of the property subject of the contract to sell until the happening of an
event, which for present purposes we shall take as the full payment of the purchase price. What the
seller agrees or obliges himself to do is to fulfill is promise to sell the subject property when the
entire amount of the purchase price is delivered to him. In other words the full payment of the
purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the
obligation to sell from arising and thus, ownership is retained by the prospective seller without further
remedies by the prospective buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had
occasion to rule:
Hence, We hold that the contract between the petitioner and the respondent was a
contract to sell where the ownership or title is retained by the seller and is not to pass
until the full payment of the price, such payment being a positive suspensive
condition and failure of which is not a breach, casual or serious, but simply an event
that prevented the obligation of the vendor to convey title from acquiring binding
force.

Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, the prospective seller's obligation to sell the subject property by entering into a
contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the
Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain
is binding upon the promissor if the promise is supported by a consideration distinct
from the price.
A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the prospective
buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of
the condition agreed upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a conditional contract of
sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment
of a suspensive condition, because in a conditional contract of sale, the first element of consent is
present, although it is conditioned upon the happening of a contingent event which may or may not
occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely
abated (cf. Homesite and housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if
the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had
already been previous delivery of the property subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law without any further act having to be
performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, ownership will not automatically transfer to the buyer although the property may
have been previously delivered to him. The prospective seller still has to convey title to the
prospective buyer by entering into a contract of absolute sale.
It is essential to distinguish between a contract to sell and a conditional contract of sale specially in
cases where the subject property is sold by the owner not to the party the seller contracted with, but
to a third person, as in the case at bench. In a contract to sell, there being no previous sale of the
property, a third person buying such property despite the fulfillment of the suspensive condition such
as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and
the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale
in such case. Title to the property will transfer to the buyer after registration because there is no
defect in the owner-seller's title per se, but the latter, of course, may be used for damages by the
intending buyer.
In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale
becomes absolute and this will definitely affect the seller's title thereto. In fact, if there had been
previous delivery of the subject property, the seller's ownership or title to the property is
automatically transferred to the buyer such that, the seller will no longer have any title to transfer to
any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who
may have had actual or constructive knowledge of such defect in the seller's title, or at least was
charged with the obligation to discover such defect, cannot be a registrant in good faith. Such
second buyer cannot defeat the first buyer's title. In case a title is issued to the second buyer, the
first buyer may seek reconveyance of the property subject of the sale.

With the above postulates as guidelines, we now proceed to the task of deciphering the real nature
of the contract entered into by petitioners and private respondents.
It is a canon in the interpretation of contracts that the words used therein should be given their
natural and ordinary meaning unless a technical meaning was intended (Tan vs. Court of
Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the said "Receipt of Down
Payment" that they
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of
Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT
No. 1199627 of the Registry of Deeds of Quezon City, in the total amount of
P1,240,000.00.
without any reservation of title until full payment of the entire purchase price, the natural and
ordinary idea conveyed is that they sold their property.
When the "Receipt of Down Payment" is considered in its entirety, it becomes more manifest that
there was a clear intent on the part of petitioners to transfer title to the buyer, but since the transfer
certificate of title was still in the name of petitioner's father, they could not fully effect such transfer
although the buyer was then willing and able to immediately pay the purchase price. Therefore,
petitioners-sellers undertook upon receipt of the down payment from private respondent Ramona P.
Alcaraz, to cause the issuance of a new certificate of title in their names from that of their father,
after which, they promised to present said title, now in their names, to the latter and to execute the
deed of absolute sale whereupon, the latter shall, in turn, pay the entire balance of the purchase
price.
The agreement could not have been a contract to sell because the sellers herein made no express
reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which
prevented the parties from entering into an absolute contract of sale pertained to the sellers
themselves (the certificate of title was not in their names) and not the full payment of the purchase
price. Under the established facts and circumstances of the case, the Court may safely presume
that, had the certificate of title been in the names of petitioners-sellers at that time, there would have
been no reason why an absolute contract of sale could not have been executed and consummated
right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell the
properly to private respondent upon the fulfillment of the suspensive condition. On the contrary,
having already agreed to sell the subject property, they undertook to have the certificate of title
changed to their names and immediately thereafter, to execute the written deed of absolute sale.
Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by
the buyer with certain terms and conditions, promised to sell the property to the latter. What may be
perceived from the respective undertakings of the parties to the contract is that petitioners had
already agreed to sell the house and lot they inherited from their father, completely willing to transfer
full ownership of the subject house and lot to the buyer if the documents were then in order. It just
happened, however, that the transfer certificate of title was then still in the name of their father. It
was more expedient to first effect the change in the certificate of title so as to bear their names. That
is why they undertook to cause the issuance of a new transfer of the certificate of title in their names
upon receipt of the down payment in the amount of P50,000.00. As soon as the new certificate of
title is issued in their names, petitioners were committed to immediately execute the deed of
absolute sale. Only then will the obligation of the buyer to pay the remainder of the purchase price
arise.

There is no doubt that unlike in a contract to sell which is most commonly entered into so as to
protect the seller against a buyer who intends to buy the property in installment by withholding
ownership over the property until the buyer effects full payment therefor, in the contract entered into
in the case at bar, the sellers were the one who were unable to enter into a contract of absolute sale
by reason of the fact that the certificate of title to the property was still in the name of their father. It
was the sellers in this case who, as it were, had the impediment which prevented, so to speak, the
execution of an contract of absolute sale.
What is clearly established by the plain language of the subject document is that when the said
"Receipt of Down Payment" was prepared and signed by petitioners Romeo A. Coronel, et al., the
parties had agreed to a conditional contract of sale, consummation of which is subject only to the
successful transfer of the certificate of title from the name of petitioners' father, Constancio P.
Coronel, to their names.
The Court significantly notes this suspensive condition was, in fact, fulfilled on February 6, 1985
(Exh. "D"; Exh. "4"). Thus, on said date, the conditional contract of sale between petitioners and
private respondent Ramona P. Alcaraz became obligatory, the only act required for the
consummation thereof being the delivery of the property by means of the execution of the deed of
absolute sale in a public instrument, which petitioners unequivocally committed themselves to do as
evidenced by the "Receipt of Down Payment."
Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at
bench. Thus,
Art. 1475. The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.
From the moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts.
Art. 1181. In conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening
of the event which constitutes the condition.
Since the condition contemplated by the parties which is the issuance of a certificate of title in
petitioners' names was fulfilled on February 6, 1985, the respective obligations of the parties under
the contract of sale became mutually demandable, that is, petitioners, as sellers, were obliged to
present the transfer certificate of title already in their names to private respondent Ramona P.
Alcaraz, the buyer, and to immediately execute the deed of absolute sale, while the buyer on her
part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of their petition, petitioners
conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves "to effect the transfer in our
names from our deceased father Constancio P. Coronel, the transfer certificate of
title immediately upon receipt of the downpayment above-stated". The sale was still
subject to this suspensive condition. (Emphasis supplied.)
(Rollo, p. 16)

Petitioners themselves recognized that they entered into a contract of sale subject to a suspensive
condition. Only, they contend, continuing in the same paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first transferring the title
to the property under their names, there could be no perfected contract of sale.
(Emphasis supplied.)
(Ibid.)
not aware that they set their own trap for themselves, for Article 1186 of the Civil Code
expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more controlling than these mere
hypothetical arguments is the fact that the condition herein referred to was actually and indisputably
fulfilled on February 6, 1985, when a new title was issued in the names of petitioners as evidenced
by TCT No. 327403 (Exh. "D"; Exh. "4").
The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated
as "Receipt of Down Payment" (Exh. "A"; Exh. "1"), the parties entered into a contract of sale subject
only to the suspensive condition that the sellers shall effect the issuance of new certificate title from
that of their father's name to their names and that, on February 6, 1985, this condition was fulfilled
(Exh. "D"; Exh. "4").
We, therefore, hold that, in accordance with Article 1187 which pertinently provides
Art. 1187. The effects of conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation . . .
In obligation to do or not to do, the courts shall determine, in each case, the
retroactive effect of the condition that has been complied with.
the rights and obligations of the parties with respect to the perfected contract of sale became
mutually due and demandable as of the time of fulfillment or occurrence of the suspensive
condition on February 6, 1985. As of that point in time, reciprocal obligations of both seller
and buyer arose.
Petitioners also argue there could been no perfected contract on January 19, 1985 because they
were then not yet the absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of transferring ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of which the property, rights
and obligations to be extent and value of the inheritance of a person are transmitted
through his death to another or others by his will or by operation of law.

Petitioners-sellers in the case at bar being the sons and daughters of the decedent
Constancio P. Coronel are compulsory heirs who were called to succession by operation of
law. Thus, at the point their father drew his last breath, petitioners stepped into his shoes
insofar as the subject property is concerned, such that any rights or obligations pertaining
thereto became binding and enforceable upon them. It is expressly provided that rights to the
succession are transmitted from the moment of death of the decedent (Article 777, Civil
Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners' claim that succession may not be declared unless the creditors have
been paid is rendered moot by the fact that they were able to effect the transfer of the title to the
property from the decedent's name to their names on February 6, 1985.
Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter into
an agreement at that time and they cannot be allowed to now take a posture contrary to that which
they took when they entered into the agreement with private respondent Ramona P. Alcaraz. The
Civil Code expressly states that:
Art. 1431. Through estoppel an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against the person
relying thereon.
Having represented themselves as the true owners of the subject property at the time of
sale, petitioners cannot claim now that they were not yet the absolute owners thereof at that
time.
Petitioners also contend that although there was in fact a perfected contract of sale between them
and Ramona P. Alcaraz, the latter breached her reciprocal obligation when she rendered impossible
the consummation thereof by going to the United States of America, without leaving her address,
telephone number, and Special Power of Attorney (Paragraphs 14 and 15, Answer with Compulsory
Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners
conclude, they were correct in unilaterally rescinding rescinding the contract of sale.
We do not agree with petitioners that there was a valid rescission of the contract of sale in the instant
case. We note that these supposed grounds for petitioners' rescission, are mere allegations found
only in their responsive pleadings, which by express provision of the rules, are deemed controverted
even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are
absolutely bereft of any supporting evidence to substantiate petitioners' allegations. We have
stressed time and again that allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng
Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]. Mere allegation is not an
evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on February
6, 1985, we cannot justify petitioner-sellers' act of unilaterally and extradicially rescinding the
contract of sale, there being no express stipulation authorizing the sellers to extarjudicially rescind
the contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon, 132 SCRA
722 [1984])
Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because
although the evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the
buyer, the sellers had been dealing with Concepcion D. Alcaraz, Ramona's mother, who had acted
for and in behalf of her daughter, if not also in her own behalf. Indeed, the down payment was made
by Concepcion D. Alcaraz with her own personal check (Exh. "B"; Exh. "2") for and in behalf of

Ramona P. Alcaraz. There is no evidence showing that petitioners ever questioned Concepcion's
authority to represent Ramona P. Alcaraz when they accepted her personal check. Neither did they
raise any objection as regards payment being effected by a third person. Accordingly, as far as
petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the
contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her obligation to
pay the full purchase price is concerned. Petitioners who are precluded from setting up the defense
of the physical absence of Ramona P. Alcaraz as above-explained offered no proof whatsoever to
show that they actually presented the new transfer certificate of title in their names and signified their
willingness and readiness to execute the deed of absolute sale in accordance with their agreement.
Ramona's corresponding obligation to pay the balance of the purchase price in the amount of
P1,190,000.00 (as buyer) never became due and demandable and, therefore, she cannot be
deemed to have been in default.
Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may
be considered in default, to wit:
Art. 1169. Those obliged to deliver or to do something, incur in delay from the time
the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
xxx xxx xxx
In reciprocal obligations, neither party incurs in delay if the other does not comply or
is not ready to comply in a proper manner with what is incumbent upon him. From
the moment one of the parties fulfill his obligation, delay by the other begins.
(Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the contract of sale between petitioners and
respondents.
With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise to a
case of double sale where Article 1544 of the Civil Code will apply, to wit:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should if be immovable property, the ownership shall belong to the person acquiring
it who in good faith first recorded it in Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof to the person who
presents the oldest title, provided there is good faith.
The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of the
second contract of sale was registered with the Registry of Deeds of Quezon City giving rise to the
issuance of a new certificate of title in the name of Catalina B. Mabanag on June 5, 1985. Thus, the
second paragraph of Article 1544 shall apply.

The above-cited provision on double sale presumes title or ownership to pass to the first buyer, the
exceptions being: (a) when the second buyer, in good faith, registers the sale ahead of the first
buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer, in
good faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer
satisfies these requirements, title or ownership will not transfer to him to the prejudice of the first
buyer.
In his commentaries on the Civil Code, an accepted authority on the subject, now a distinguished
member of the Court, Justice Jose C. Vitug, explains:
The governing principle is prius tempore, potior jure (first in time, stronger in right).
Knowledge by the first buyer of the second sale cannot defeat the first buyer's rights
except when the second buyer first registers in good faith the second sale (Olivares
vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second buyer of
the first sale defeats his rights even if he is first to register, since knowledge taints his
registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26
December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129 SCRA
656), it has held that it is essential, to merit the protection of Art. 1544, second
paragraph, that the second realty buyer must act in good faith in registering his deed
of sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R.
No. 95843, 02 September 1992).
(J. Vitug Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).
Petitioner point out that the notice of lis pendens in the case at bar was annoted on the title of the
subject property only on February 22, 1985, whereas, the second sale between petitioners Coronels
and petitioner Mabanag was supposedly perfected prior thereto or on February 18, 1985. The idea
conveyed is that at the time petitioner Mabanag, the second buyer, bought the property under a
clean title, she was unaware of any adverse claim or previous sale, for which reason she is buyer in
good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is not whether or not the second buyer
was a buyer in good faith but whether or not said second buyer registers such second sale in good
faith, that is, without knowledge of any defect in the title of the property sold.
As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good faith,
registered the sale entered into on February 18, 1985 because as early as February 22, 1985, a
notice of lis pendens had been annotated on the transfer certificate of title in the names of
petitioners, whereas petitioner Mabanag registered the said sale sometime in April, 1985. At the time
of registration, therefore, petitioner Mabanag knew that the same property had already been
previously sold to private respondents, or, at least, she was charged with knowledge that a previous
buyer is claiming title to the same property. Petitioner Mabanag cannot close her eyes to the defect
in petitioners' title to the property at the time of the registration of the property.
This Court had occasions to rule that:
If a vendee in a double sale registers that sale after he has acquired knowledge that
there was a previous sale of the same property to a third party or that another person
claims said property in a pervious sale, the registration will constitute a registration in
bad faith and will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349

[1978]; citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43
Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)
Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected on
February 6, 1985, prior to that between petitioners and Catalina B. Mabanag on February 18, 1985,
was correctly upheld by both the courts below.
Although there may be ample indications that there was in fact an agency between Ramona as
principal and Concepcion, her mother, as agent insofar as the subject contract of sale is concerned,
the issue of whether or not Concepcion was also acting in her own behalf as a co-buyer is not
squarely raised in the instant petition, nor in such assumption disputed between mother and
daughter. Thus, We will not touch this issue and no longer disturb the lower courts' ruling on this
point.
WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed
judgment AFFIRMED.
SO ORDERED.
Narvasa, C.J., Davide, Jr. and Francisco, JJ., concur.
Panganiban, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 129760 December 29, 1998

RICARDO CHENG, petitioner,
vs.
RAMON B. GENATO and ERNESTO R. DA JOSE & SOCORRO DA JOSE, respondents.

MARTINEZ, J.:
This petition for review on certiorari seeks to annul and set aside the Decision of the Court of
Appeals (CA) 1 dated July 7, 1997 in CA-G.R. No. CV No. 44706 entitled "Ricardo Cheng, plaintiffappellee vs. Ramon B. Genato, defendant-appellant, Ernesto R. Da Jose & Socorro B. Da Jose,
Intervenors-Appellants" which reversed the ruling of the Regional Trial Court, Branch 96 of Quezon City
dated January 18, 1994. The dispositive portion of the CA Decision reads:
WHEREFORE, based on the foregoing, appealed decision is hereby REVERSED
and SET ASIDE and judgment is rendered ordering;
1. The dismissal of the complaint;
2. The cancellation of the annotations of the defendant-appellant's Affidavit to Annul
Contract to Sell and plaintiff-appellee's Notice of Adverse Claim in the subject TCT's,
namely, TCT No. T-76.196 (M) and TCT No. T-76.197 (M);
3. Payment by the intervenors-appellants of the remaining balance of the purchase
price pursuant to their agreement with the defendant-appellant to suspend
encashment of the three post-dated checks issued since 1989.
4. Ordering the execution by the defendant-appellant Genato of the Deed of Absolute
Sale over the subject two lots covered by TCT No. T-76.196 (M) and TCT No. T76.197 (M) in favor of intervenors-appellants Spouses Da Jose;
5. The return by defendant-appellant Genato of the P50,000.00 paid to him by the
plaintiff-appellee Cheng, and
6. Payment by plaintiff-appellee Cheng of moral damages to herein intervenorsappellants Da Jose of P100,000.00, exemplary damages of P50,000.00, attorney's
fees of P50,000.00, and costs of suit; and to defendant-appellant, of P100,000.00 in
exemplary damages, P50,000.00 in attorney's fees. The amounts payable to the
defendant-appellant may be compensated by plaintiff appellee with the amount

ordered under the immediately foregoing paragraph which defendant-appellant has

to pay the plaintiff-appellee.
SO ORDERED. 2
The antecedents of the case are as follows:
Respondent Ramon B. Genato (Genato) is the owner of two parcels of land located at Paradise
Farms, San Jose del Monte, Bulacan covered by TCT No. T-76.196 (M) 3 and TCT No. T-76.197
(M) 4 with an aggregate area of 35,821square meters, more or less.
On September 6, 1989, respondent Genato entered into an agreement with respondent-spouses
Ernesto R. Da Jose and Socorro B. Da Jose (Da Jose spouses) over the above-mentioned two
parcels of land. The agreement culminated in the execution of a contract to sell for which the
purchase price was P80.00 per square meter. The contract was in a public instrument and was duly
annotated at the back of the two certificates of title on the same day. Clauses 1and 3 thereof
provide:
1. That the purchase price shall be EIGHTY (P80.00) PESOS, Philippine Currency
per square meter, of which the amount of FIFTY THOUSAND (P50,000.00) PESOS
shall be paid by the VENDEE to the VENDOR as partial down payment at the time of
execution of this Contract to Sell.
xxx xxx xxx
3. That the VENDEE, Thirty (30) DAYS after the execution of this contract, and only
after having satisfactorily verified and confirmed the truth and authenticity of
documents, and that no restrictions, limitations, and developments imposed on
and/or affecting the property subject of this contract shall be detrimental to his
interest, the VENDEE shall pay to the VENDOR, NINE HUNDRED FIFTY
THOUSAND (P950,00.00) PESOS. Philippine Currency, representing the full
payment of the agreed Down Payment, after which complete possession of the
property shall be given to the VENDEE to enable him to prepare the premises and
any development therein.
On October 4, 1989, the Da Jose spouses, not having finished verifying the titles mentioned in
clause 3 as aforequoted, asked for and was granted by respondent Genato an extension of another
30 days or until November 5, 1989. However, according to Genato, the extension was granted on
condition that a new set of documents is made seven (7) days from October 4, 1989. 6 This was
denied by the Da Jose spouses.
Pending the effectivity of the aforesaid extension period, and without due notice to the Da Jose
spouses, Genato executed an Affidavit to Annul the Contract to Sell, 7 on October 13, 1989. Moreover,
no annotation of the said affidavit at the back of his titles was made right away. The affidavit
contained, inter alia, the following paragraphs;
xxx xxx xxx
That it was agreed between the parties that the agreed downpayment of
P950,000.00 shall be paid thirty (30) days after the execution of the Contract, that is
on or before October 6, 1989;

The supposed VENDEES failed to pay the said full downpayment even up to this
writing, a breach of contract;
That this affidavit is being executed to Annul the aforesaid Contract to Sell for the
vendee having committed a breach of contract for not having complied with the
obligation as provided in the Contract to Sell; 8
On October 24, 1989, herein petitioner Ricardo Cheng (Cheng) went to Genato's residence and
expressed interest in buying the subject properties. On that occasion, Genato showed to Ricardo
Cheng copies of his transfer certificates of title and the annotations at the back thereof of his
contract to sell with the Da Jose spouses. Genato also showed him the aforementioned Affidavit to
Annul the Contract to Sell which has not been annotated at the back of the titles.
Despite these, Cheng went ahead and issued a check for P50,000.00 upon the assurance by
Genato that the previous contract with the Da Jose spouses will be annulled for which Genato
issued a handwritten receipt (Exh. "D"), written in this wise:
10/24/89
Received from Ricardo Cheng
the Sum of Fifty Thousand Only (P50.000-)
as partial for T-76196 (M)
T-76197 (M) area 35.821 Sq.m.
Paradise Farm, Gaya-Gaya, San Jose Del Monte
P70/m2 Bulacan
plus C. G. T. etc.
Check # 470393 (SGD.) Ramon B. Genato
10/24/89 9
On October 25, 1989, Genato deposited Cheng's check. On the same day, Cheng called up Genato
reminding him to register the affidavit to annul the contract to sell. 10
The following day, or on October 26, 1989, acting on Cheng's request, Genato caused the
registration of the Affidavit to Annul the Contract to Sell in the Registry of Deeds, Meycauayan,
Bulacan as primary entry No. 262702. 11
While the Da Jose spouses were at the Office of the Registry of Deeds of Meycauayan, Bulacan on
October 27, 1989, they met Genato by coincidence. It was only then that the Da Jose spouses
discovered about the affidavit to annul their contract. The latter were shocked at the disclosure and
protested against the rescission of their contract. After being reminded that he (Genato) had given
them (Da Jose spouses) an additional 30-day period to finish their verification of his titles, that the
period was still in effect, and that they were willing and able to pay the balance of the agreed down
payment, later on in the day, Genato decided to continue the Contract he had with them. The

agreement to continue with their contract was formalized in a conforme letter dated October 27,
1989.
Thereafter, Ramon Genato advised Ricardo Cheng of his decision to continue his contract with the
Da Jose spouses and the return of Cheng's P50,000.00 check. Consequently, on October 30, 1989,
Cheng's lawyer sent a letter 12 to Genato demanding compliance with their agreement to sell the
property to him stating that the contract to sell between him and Genato was already perfected and
threatening legal action.
On November 2, 1989, Genato sent a letter 13 to Cheng (Exh. "6") enclosing a BPI Cashier's Check for
P50,000.00 and expressed regret for his inability to "consummate his transaction" with him. After having
received the letter of Genato on November 4, 1989, Cheng, however, returned the said check to the
former via RCPI telegram 14 dated November 6, 1989, reiterating that "our contract to sell your property
had already been perfected."
Meanwhile, also on November 2, 1989, Cheng executed an affidavit of adverse claim
annotated on the subject TCT's.

15

and had it

On the same day, consistent with the decision of Genato and the Da Jose spouses to continue with
their Contract to Sell of September 6, 1989, the Da Jose spouses paid Genato the complete down
payment of P950,000.00 and delivered to him three (3) postdated checks (all dated May 6, 1990, the
stipulated due date) in the total amount of P1,865,680.00 to cover full payment of the balance of the
agreed purchase price. However, due to the filing of the pendency of this case, the three (3)
postdated checks have not been encashed.
On December 8, 1989, Cheng instituted a complaint 16 for specific performance to compel Genato to
execute a deed of sale to him of the subject properties plus damages and prayer for preliminary
attachment. In his complaint, Cheng averred that the P50,000.00 check he gave was a partial payment to
the total agreed purchase price of the subject properties and considered as an earnest money for which
Genato acceded. Thus, their contract was already perfected.
In Answer 17 thereto, Genato alleged that the agreement was only a simple receipt of an option-bid
deposit, and never stated that it was a partial payment, nor is it an earnest money and that it was subject
to condition that the prior contract with the Da Jose spouses be first cancelled.
The Da Jose spouses, in their Answer in Intervention, 18 asserted that they have a superior right to the
property as first buyers. They alleged that the unilateral cancellation of the Contract to Sell was without
effect and void. They also cited Cheng's bad faith as a buyer being duly informed by Genato of the
existing annotated Contract to Sell on the titles.
After trial on the merits, the lower court ruled that the receipt issued by Genato to Cheng unerringly
meant a sale and not just a priority or an option to buy. It cannot be true that the transaction was
subjected to some condition or reservation, like the priority in favor of the Da Jose spouses as first
buyer because, if it were otherwise, the receipt would have provided such material condition or
reservation, especially as it was Genato himself who had made the receipt in his own hand. It also
opined that there was a valid rescission of the Contract to Sell by virtue of the Affidavit to Annul the
Contract to Sell. Time was of the essence in the execution of the agreement between Genato and
Cheng, under this circumstance demand, extrajudicial or judicial, is not necessary. It falls under the
exception to the rule provided in Article 1169 19 of the Civil Code. The right of Genato to unilaterally
rescind the contract is said to be under Article 1191 20 of the Civil Code. Additionally, after reference was
made to the substance of the agreement between Genato and the Da Jose spouses, the lower court also
concluded that Cheng should be preferred over the intervenors-Da Jose spouses in the purchase of the

subject properties. Thus, on January 18, 1994 the trial court rendered its decision the decretal portion of
which reads:

WHEREFORE, judgment is hereby rendered:

1. Declaring the contract to sell dated September 6, 1989 executed between
defendant Ramon Genato, as vendor, and intervenors Spouses Ernesto and Socorro
Da Jose, as vendees, resolved and rescinded in accordance with Art. 1191, Civil
Code, by virtue of defendant's affidavit to annul contract to sell dated October 13,
1989 and as the consequence of intervenors' failure to execute within seven (7) days
from October 4, 1989 another contract to sell pursuant to their mutual agreement
with defendant;
2. Ordering defendant to return to the intervenors the sum of P1,000,000.00, plus
interest at the legal rate from November 2, 1989 until full payment;
3. Directing defendant to return to the intervenors the three (3) postdated checks
immediately upon finality of this judgment;
4. Commanding defendant to execute with and in favor of the plaintiff Ricardo Cheng,
as vendee, a deed of conveyance and sale of the real properties described and
covered in Transfer Certificates of Title No. T-76-196 (M) and T-76.197 (M) of the
Registry of Deeds of Bulacan, Meycauayan Branch, at the rate of P70.000/square
meter, less the amount of P50,000.00 alreaddy paid to defendant, which is
considered as part of the purchase price, with the plaintiff being liable for payment of
the capital gains taxes and other expenses of the transfer pursuant to the agreement
to sell dated October 24, 1989; and
5 Ordering defendant to pay the plaintiff and the intervenors as follows:
a/ P50,000.00, as nominal damages, to plaintiff;
b/ P50,000.00, as nominal damages, to intervenors;
c/ P20,000.00, as and for attorney's fees, to plaintiff;
d/ P20,000.00, as and for attorney's fees, to
intervenors; and
e/ Cost of the suit.
xxx xxx xxx
Not satisfied with the aforesaid decision, herein respondents Ramon Genato and Da Jose spouses
appealed to the court a quo which reversed such judgment and ruled that the prior contract to sell in
favor of the Da Jose spouses was not validly rescinded; that the subsequent contract to sell between
Genato and Cheng, embodied in the handwritten receipt, was without force and effect due to the
failure to rescind the prior contract; and that Cheng should pay damages to the respondents herein
being found to be in bad faith.
Hence this petition. 21

This petition for review, assails the Court of Appeals' Decision on the following grounds: (1) that the
Da Jose spouses' Contract to Sell has been validly rescinded or resolved; (2) that Ricardo Cheng's
own contract with Genato was not just a contract to sell but one of conditional contract of sale which
gave him better rights, thus precluding the application of the rule on double sales under Article 1544,
Civil Code; and (3) that, in any case, it was error to hold him liable for damages.
The petition must be denied for failure to show that the Court of Appeals committed a reversible error
which would warrant a contrary ruling.
No reversible error can be ascribed to the ruling of the Court of Appeals that there was no valid and
effective rescission or resolution of the Da Jose spouses Contract to Sell, contrary to petitioner's
contentions and the trial court's erroneous ruling.
In a Contract to Sell, the payment of the purchase price is a positive suspensive condition, the failure
of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor
to convey title from acquiring an obligatory force. 22 It is one where the happening of the event gives rise
to an obligation. Thus, for its non-fulfillment there will be no contract to speak of, the obligor having failed
to perform the suspensive condition which enforces a juridical relation. In fact with this circumstance,
there can be no rescission of an obligation that is still non-existent, the suspensive condition not having
occurred as yet. 23 Emphasis should be made that the breach contemplated in Article 1191 of the New
Civil Code is the obligor's failure to comply with an obligation already extant, not a failure of a condition to
render binding that obligation. 24
Obviously, the foregoing jurisprudence cannot be made to apply to the situation in the instant case
because no default can be ascribed to the Da Jose spouses since the 30-day extension period has
not yet expired. The Da Jose spouses' contention that no further condition was agreed when they
were granted the 30-days extension period from October 7, 1989 in connection with clause 3 of their
contract to sell dated September 6, 1989 should be upheld for the following reason, to wit; firstly, If
this were not true, Genato could not have been persuaded to continue his contract with them and
later on agree to accept the full settlement of the purchase price knowing fully well that he himself
imposed such sine qua non condition in order for the extension to be valid; secondly, Genato could
have immediately annotated his affidavit to annul the contract to sell on his title when it was
executed on October 13, 1989 and not only on October 26, 1989 after Cheng reminded him of the
annotation; thirdly, Genato could have sent at least a notice of such fact, there being no stipulation
authorizing him for automatic rescission, so as to finally clear the encumbrance on his titles and
make it available to other would be buyers. It likewise settles the holding of the trial court that
Genato "needed money urgently."
Even assuming in gratia argumenti that the Da Jose spouses defaulted, as claimed by Genato, in
their Contract to Sell, the execution by Genato of the affidavit to annul the contract is not even called
for. For with or without the aforesaid affidavit their non-payment to complete the full downpayment of
the purchase price ipso facto avoids their contract to sell, it being subjected to a suspensive
condition. When a contract is subject to a suspensive condition, its birth or effectivity can take place
only if and when the event which constitutes the condition happens or is fulfilled. 25 If the suspensive
condition does not take place, the parties would stand as if the conditional obligation had never
existed. 26
Nevertheless, this being so Genato is not relieved from the giving of a notice, verbal or written, to the
Da Jose spouses for his decision to rescind their contract. In many cases, 27 even though we upheld
the validity of a stipulation in a contract to sell authorizing automatic rescission for a violation of its terms
and conditions, at least a written notice must be sent to the defaulter informing him of the same. The act
of a party in treating a contract as cancelled should be made known to the other. 28 For such act is always
provisional. It is always subject to scrutiny and review by the courts in case the alleged defaulter brings

the matter to the proper courts. In University of the Philippines vs. De Los Angeles, 29 this Court stressed
and we quote:

In other words, the party who deems the contract violated may consider it resolved or
rescinded, and act accordingly, without previous court action, but it proceeds at its
own risk. For it is only the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or was not correct in law.
But the law definitely does not require that the contracting party who believes itself
injured must first file suit and wait for a judgment before taking extrajudicial steps to
protect its interest. Otherwise, the party injured by the other's breach will have to
passively sit and watch its damages accumulate during the pendency of the suit until
the final judgment of rescission is rendered when the law itself requires that he
should exercise due diligence to minimize its own damages (Civil Code, Article
2203).
This rule validates, both in equity and justice, contracts such as the one at bat, in order to avoid and
prevent the defaulting party from assuming the offer as still in effect due to the obligee's tolerance for
such non-fulfillment. Resultantly, litigations of this sort shall be prevented and the relations among
would-be parties may be preserved. Thus, Ricardo Cheng's contention that the Contract to Sell
between Genato and the Da Jose spouses was rescinded or resolved due to Genato's unilateral
rescission finds no support in this case.
Anent the issue on the nature of the agreement between Cheng and Genato, the records of this
case are replete with admissions 30 that Cheng believed it to be one of a Contract to Sell and not one of
Conditional Contract of Sale which he, in a transparent turn-around, now pleads in this Petition. This
ambivalent stance of Cheng is even noted by the appellate court, thus:
At the outset, this Court notes that plaintiff-appellee was inconsistent in
characterizing the contract he allegedly entered into. In his complaint. 31 Cheng
alleged that the P50,000.00 down payment was earnest money. And next, his
testimony 32 was offered to prove that the transaction between him and Genato on
October 24, 1989 was actually a perfected contract to sell. 33
Settled is the rule that an issue which was not raised during the trial in the court below cannot be
raised for the first time on appeal. 34 Issues of fact and arguments not adequately brought to the
attention of the trial court need not be and ordinarily will not be considered by a reviewing court as they
cannot be raised for the first time on appeal. 35 In fact, both courts below correctly held that the receipt
which was the result of their agreement, is a contract to sell. This was, in fact Cheng's contention in his
pleadings before said courts. This patent twist only operates against Cheng's posture which is indicative
of the weakness of his claim.
But even if we are to assume that the receipt, Exh. "D," is to be treated as a conditional contract of
sale, it did not acquire any obligatory force since it was subject to suspensive condition that the
earlier contract to sell between Genato and the Da Jose spouses should first be cancelled or
rescinded a condition never met, as Genato, to his credit, upon realizing his error, redeemed
himself by respecting and maintaining his earlier contract with the Da Jose spouses. In fact, a careful
reading of the receipt, Exh. "D," alone would not even show that a conditional contract of sale has
been entered by Genato and Cheng. When the requisites of a valid contract of sale are lacking in
said receipt, therefore the "sale" is neither valid or enfoceable. 36
To support his now new theory that the transaction was a conditional contract of sale, petitioner
invokes the case of Coronel vs. Court of Appeals 37 as the law that should govern their Petition. We do
not agree. Apparently, the factual milieu in Coronel is not on all fours with those in the case at bar.

In Coronel, this Court found that the petitioners therein clearly intended to transfer title to the buyer
which petitioner themselves admitted in their pleading. The agreement of the parties therein was
definitively outlined in the "Receipt of Down Payment" both as to property, the purchase price, the
delivery of the seller of the property and the manner of the transfer of title subject to the specific
condition that upon the transfer in their names of the subject property the Coronels will execute the
deed of absolute sale.
Whereas, in the instant case, even by a careful perusal of the receipt, Exh. "D," alone such kind of
circumstances cannot be ascertained without however resorting to the exceptions of the Rule on
Parol Evidence.
To our mind, the trial court and the appellate court correctly held that the agreement between Genato
and Cheng is a contract to sell, which was, in fact, petitioner connection in his pleadings before the
said courts. Consequently, both to mind, which read:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring
it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in possession; and in the absence thereof, to the person who presents
he oldest title, provided there is good faith.
However, a meticulous reading of the aforequoted provision shows that said law is not apropos to
the instant case. This provision connotes that the following circumstances must concur:
(a) The two (or more) sales transactions in issue must pertain to exactly the same
subject matter, and must be valid sales transactions.
(b) The two (or more) buyers at odds over the rightful ownership of the subject matter
must each represent conflicting interests; and
(c) The two (or more) buyers at odds over the rightful ownership of the subject matter
must each have bought from the very same seller.
These situations obviously are lacking in a contract to sell for neither a transfer of ownership nor a
sales transaction has been consummated. The contract to be binding upon the obligee or the vendor
depends upon the fulfillment or non-fulfillment of an event.
Notwithstanding this contrary finding with the appellate court, we are of the view that the governing
principle of Article 1544, Civil Code, should apply in this situation. Jurisprudence 38 teaches us that the
governing principle is PRIMUS TEMPORE, PORTIOR JURE (first in time, stronger in right). For not only
was the contract between herein respondents first in time; it was also registered long before petitioner's
intrusion as a second buyer. This principle only applies when the special rules provided in the aforcited
article of the Civil Code do not apply or fit the specific circumstances mandated under said law or by
jurisprudence interpreting the article.

The rule exacted by Article 1544 of the Civil Code for the second buyer to be able to displace the
first buyer are:
(1) that the second buyer must show that he acted in good faith (i.e. in ignorance of the first sale and
of the first buyer's rights) from the time of acquisition until title is transferred to him by registration or
failing registration, by delivery of possession; 39
(2) the second buyer must show continuing good faith and innocence or lack of knowledge of the
first sale until his contract ripens into full ownership through prior registration as provided by law. 40
Thus, in the case at bar, the knowledge gained by the Da Jose spouses, as first buyers, of the new
agreement between Cheng and Genato will not defeat their rights as first buyers except where
Cheng, as second buyer, registers or annotates his transaction or agreement on the title of the
subject properties in good faith ahead of the Da Jose spouses. Moreover, although the Da Jose
spouses, as first buyers, knew of the second transaction it will not bar them from availing of their
rights granted by law, among them, to register first their agreement as against the second buyer.
In contrast, knowledge gained by Cheng of the first transaction between the Da Jose spouses and
Genato defeats his rights even if he is first to register the second transaction, since such knowledge
taints his prior registration with bad faith.
"Registration", as defined by Soler and Castillo, means any entry made in the books of the registry,
including both registration in its ordinary and strict sense, and cancellation, annotation, and even
marginal notes. 41 In its strict acceptation, it is the entry made in the registry which records solemnly and
permanently the right of ownership and other real rights. 42 We have ruled 43 before that when a Deed of
Sale is inscribed in the registry of property on the original document itself, what was done with respect to
said entries or annotations and marginal notes amounted to a registration of the sale. In this light, we see
no reason why we should not give priority in right the annotation made by the Da Jose spouses with
respect to their Contract to Sell dated September 6, 1989.
Moreover, registration alone in such cases without good faith is not sufficient. Good faith must
concur with registration for such prior right to be enforceable. In the instant case, the annotation
made by the Da Jose spouses on the titles of Genato of their "Contract To Sell" more than satisfies
this requirement. Whereas in the case of Genato's agreement with Cheng such is unavailing. For
even before the receipt, Exh. "D," was issued to Cheng information of such pre-existing agreement
has been brought to his knowledge which did not deter him from pursuing his agreement with
Genato. We give credence to the factual finding of the appellate court that "Cheng himself admitted
that it was he who sought Genato in order to inquire about the property and offered to buy the
same. 44 And since Cheng was fully aware, or could have been if he had chosen to inquire, of the rights of
the Da Jose spouses under the Contract to Sell duly annotated on the transfer certificates of titles of
Genato, it now becomes unnecessary to further elaborate in detail the fact that he is indeed in bad faith in
entering into such agreement. As we have held in Leung Yee vs. F.L. Strong Machinery Co.: 45
One who purchases real estate with knowledge of a defect . . . of title in his vendor
cannot claim that he has acquired title thereto in good faith as against . . . . an
interest therein; and the same rule must be applied to one who has knowledge of
facts which should have put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his vendor. A purchaser
cannot close his eyes to facts which should put a reasonable man upon his guard,
and then claim that he acted in good faith under the belief that there was no defect in
the title of the vendor. His mere refusal to believe that such defect exists, or his willful
closing of his eyes to the possibility of the existence of a defect in his vendor's title,

will not make him an innocent purchaser for value, if it afterwards develops that the
title was in fact defective, and it appears that he had such notice of the defect as
would have led to its discovery had he acted with that measure of precaution which
may reasonably be required of a prudent man in a like situation. Good faith, or lack of
it, is in its last analysis a question of intention; but in ascertaining the intention by
which one is actuated on a given occasion, we are necessarily controlled by the
evidence as to the conduct and outward acts by which alone the inward motive may
with safety, be determined. So it is that "the honesty of intention," "the honest lawful
intent," which constitutes good faith implies a "freedom from knowledge and
circumstances which ought to put a person on inquiry," and so it is that proof of such
knowledge overcomes the presumption of good faith in which the courts always
indulge in the absence of the proof to the contrary. "Good faith, or the want of it, is
not a visible, tangible fact that can be seen or touched, but rather a state or condition
of mind which can only be judge of by actual or fancied tokens or signs." (Wilder vs.
Gilman, 55 Vt. 504, 505; Cf. Cardenas vs. Miller, 108 Cal., 250; Breaux-Renoudet,
Cypress Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs.
Bromely, 119 Mich., 8, 10, 17.) (Emphasis ours)
Damages were awarded by the appellate court on the basis of its finding that petitioner "was in bad
faith when he filed the suit for specific performance knowing fully well that his agreement with
Genato did not push through. 46Such bad faith, coupled with his wrongful interference with the
contractual relations between Genato and the Da Jose spouses, which culminated in his filing of the
present suit and thereby creating what the counsel for the respondents describes as "a prolonged and
economically unhealthy gridlock 47 on both the land itself and the respondents' rights provides ample basis
for the damages awarded. Based on these overwhelming evidence of bad faith on the part of herein
petitioner Ricardo Cheng, we find that the award of damages made by the appellate court is in order.
WHEREFORE, premises considered, the instant petition for review is DENIED and the assailed
decision is hereby AFFIRMED EN TOTO.
SO ORDERED.
Belosillo, Puno and Mendoza, JJ., concur.
Footnotes
1 Thirteenth Division.
2 Penned by Justice Demetrio G. Demetria and concurred by Justices Jainal Rasul
and Godardo A. Jacinto.
3 Annex "A," Rollo, p. 105-106.
4 Annex "B," Rollo, p. 107-108.
5 Annex "I," Petition; Rollo, p. 142-143.
6 TSN, June 26, 1992, p. 16; Rollo, p. 77.
7 Annex "D," Petition; Rollo, p. 110.

8 Ibid.
9 Annex "C," Petition; Rollo, p. 109.
10 Annex "I," Petition p. 7; Rollo, p. 145.
11 Annex "B," Petition; Rollo, p. 106 & 108.
12 Annex "E," Petition; Rollo, p. 111.
13 Rollo, p. 115.
14 Rollo, p. 120.
15 Rollo, pp. 106 & 108.
16 Rollo, pp. 99-104.
17 Rollo, pp. 112-114.
18 Rollo, pp. 124-132.
19 Art. 1169. Those obliged to deliver or to do something incur in delay from the time
the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
However the demand by the creditor shall not be necessary in order that the
delay may exist:
(1) . . . ; or
(2) When from the nature and the circumstances of the obligation it appears
that the designation of the time when the thing is to be delivered or the
service is to be rendered was a controlling motive for the establishment of the
contract, or
(3) . . . .
20 Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case
one of the obligators should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have
acquired the thing in accordance with articles 1385 and 1388 and the Mortgage Law.
(1124)
21 Filed on September 4, 1997.
22 Odyssey Park, Inc. vs. CA, 280 SCRA 253.
23 Rillo vs. CA, 274 SCRA 461.
24 Odyssey Park, Inc. vs. CA, supra.
25 Javier vs. CA, 183 SCRA 171 citing Article 1181, Civil Code and Araneta vs. Rural
Progress Administration, 92 Phil. 98.
26 Javier vs. CA, supra. also citing Gaite vs. Fonacier, et al., 2 SCRA 830.
27 Palay, Inc. vs. Clave, 124 SCRA 638 citing Torralba vs. De Los Angeles, 96 SCRA
69; Luzon Brokerage Co., Inc. vs. Maritime Building Co., 43 SCRA 93 and 86 SCRA
305; Lopez vs. Commissioner of Customs, 37 SCRA 327; U.P. vs. De Los Angeles,
35 SCRA 102; Ponce Enrile vs. CA, 29 SCRA 504; Froilan vs. Pan Oriental Shipping
Co., 12 SCRA 276; Taylor vs. Uy Tieng Piao, 43 Phil. 873.
28 Palay, Inc. vs. Clave, supra.
29 35 SCRA 102.
30 Rollo, p. 111; Annex "D" at pp. 1 & 2, Petition, Rollo, pp. 116 & 117; RCPI
Telegram dated November 06, 1989, Rollo, p. 120; CA Brief for Plaintiff-Appellee at
p. 6, Rollo, p. 257.
31 Annex "A" at par. 5. p. 15, Petition; Rollo, p. 87.
32 Ibid.
33 CA Decision at par. p. 5, p. 15, Annex "A," Petition; Rollo, p. 87.
34 Pangilinan vs. CA, 279 SCRA 590 citing Reparations Commission vs. Visayan
Packing Corporation, 193 SCRA 531.
35 Pangilinan vs. CA, supra, citing Berin vs. CA, 194 SCRA 508.
36 Jovan Land, Inc. vs. CA, 268 SCRA 160.
37 263 SCRA 15.
38 Uraca vs. CA, 278 SCRA 702; Cruz vs. Cabana , 129 SCRA 656; Carbonell vs.
CA, 69 SCRA 99, concurring Separate Opinion of then Associate Justice Claudio
Teehankee, later to be the Chief Justice.

39 See Uraca vs. CA, supra.

40 Ibid.
41 Tolentino, Arturo M. , "Commentaries and Jurisprudence on the Civil Code, Vol.
V," 1992, pp. 97-98.
42 Ibid.
43 Veguillas vs. Jaucian, 25 Phil. 315.
44 Annex "A," Petition; Rollo, par. 2, p. 95.
45 37 Phil. 644.
46 Annex "A," Petition; Rollo, p. 95.
47 Comment of Da Jose spouses, p. 3; Rollo, p. 315.