SECOND DIVISION and the remaining half to be paid within one year.

and the remaining half to be paid within one year. In the lower portion of the said letter, Al-
Amanah made the following annotation: chanroblesvirtualawlibrary

G.R. NO. 173622 : March 11, 2013

Note: chanroble svirtualawlibrary

ROBERN DEVELOPMENT CORPORATION and RODOLFO M. BERNARDO,

JR., Petitioners, v.PEOPLE'S LANDLESS ASSOCIATION represented by FLORIDA RAMOS
and NARDO LABORA,Respondent.
Subject offer has been acknowledged/received but processing to take effect upon putting up of
the partial amt. of P150,000.00 on or before April 15, 1993.

DECISION

By May 3, 1993, PELA had deposited P150,000.00 as evidenced by four bank receipts.10 For the
first three receipts, the bank labelled the payments as "Partial deposit on sale of TCT No.
DEL CASTILLO, J.:138914", while it noted the 4th receipt as "Partial/Full payment on deposit on sale of A/asset
TCT No. 138914."

"This Court cannot presume the existence of a sale of land, absent any direct proof of it." 1
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In the meantime, the PELA members remained in the property and introduced further
improvements.

Challenged in this Petition for Review on Certiorari are the August 16, 2005 Decision2 and May On November 29, 1993, Al-Amanah, thru Davao Branch Manager Abraham D. Ututalum-Al Haj,
30, 2006 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 66071, which ordered wrote then PELA President Bonifacio Cuizon, Sr. informing him of the Head Office's disapproval
petitioner Robern Development Corporation (Robern) to reconvey the 2,000-square meter lot it of PELA's offer to buy the said 2,000-square meter lot, viz: chanroble svirtualawlibrary

bought from Al-Amanah Islamic Development Bank of the Philippines (Al-Amanah) to

respondent People's Landless Association (PELA).

Dear Mr. Cuizon, Sr.,

Factual Antecedents

Please be inform[ed] that your offer to purchase the lot covered by TCT No. T-138914,
containing an area of 2,000 square meters, located at Bakingan, Barangay Magtuod, Davao City
Al-Amanah owned a 2000-square meter lot located in Magtu-od, Davao City and covered by for P300,000.00 has been turned down by the top management, due to the reason that your
Transfer Certificate of Title (TCT) No. 138914. 4 On December 12, 1992, Al-Amanah Davao offered price is way below the selling price of the Bank which is P500.00 per square meter, or
Branch, thru its officer-in-charge Febe O. Dalig (OIC Dalig), asked 5 some of the members of negotiate but on Cash basis only.
PELA6 to desist from building their houses on the lot and to vacate the same, unless they are
interested to buy it. The informal settlers thus expressed their interest to buy the lot at P100.00
per square meter, which Al-Amanah turned down for being far below its asking
price.7 Consequently, Al-Amanah reiterated its demand to the informal settlers to vacate the You had been told regarding this matter, but you failed to counter offer since you have
lot.8
chanroblesvirtualawlibrary [conferred] with the Bank's local management. Despite x x x the time given to you to counter
offer or to vacate the lot presently and illegally occupied by you and the members of the
association, still you refrain to hear our previous notices. You even deliberately construct more
residential structures without our permission. As such, you are finally instructed to vacate the
In a letter9 dated March 18, 1993, the informal settlers together with other members comprising lot and remove all the house structures erected on the said lot within 15 days upon receipt of
PELA offered to purchase the lot for P300,000.00, half of which shall be paid as down payment this letter. Failure on your part including that of the members, the Bank will be constrained to
take legal action against you.
 to shoulder the relocation of all informal settlers therein. On December 29, 1993, the Head
Office informed the Davao Branch Manager that the Board Operations Committee had accepted
Furthermore, you can withdraw the amount deposited in the name of your association anytime Robern's offer.16
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during banking hours.11 chanroble svirtualawlibrary

Eight days later, Robern was informed of the acceptance. Al-Amanah stressed that it is Robern's
Subsequently, Al-Amanah sent similarly worded letters, 12 all dated December 14, 1993, to 19 responsibility to eject the occupants in the subject lot, if any, as well as the payment of the
PELA members demanding that they vacate the lot. remaining amount within 15 days; otherwise, the P80,000.00 deposit shall be forfeited.17chanroblesvirtualawlibrary

In a letter13 dated December 20, 1993, PELA, through Atty. Pedro S. Castillo, replied that it had In a letter18 dated January 13, 1994, Robern expressed to Al-Amanah its uncertainty on the
already reached an agreement with Al-Amanah regarding the sale of the subject lot based on status of the subject lot, viz.: chanroblesvirtualawlibrary

their offered price:

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This is in connection with TCT No. 138914 which your bank offered to sell to us and which we
Dear Mr. Ututalum-Al-Haj, committed to buy.

The People's Landless Association, Inc., through Mr. Bonifacio Cuizon, Sr. has requested us to A group calling itself PEOPLE'S LANDLESS ASSOCIATION, INC. made representation with our
assist them in communicating with you anent your letter of 29 November 1993. According to Mr. office bringing with them copies of official receipts totalling P150,000.00 issued by your bank
Cuizon the present occupants of the lot covered by T.C.T. No. T-138914 with an area of 2,000 which stated---"PARTIAL PAYMENT/DEPOSIT on sale of TCT #138914".
square meters, had a definite agreement with the Islamic Bank through its previous Manager or
Officer-in-Charge to buy this foreclosed property at P300,000.00. As a matter of fact their
deposit ofP150,000.00 was on that basis. For this reason, the occupants, who are members of
the association, have already made lot allocations among themselves and have improved their While condition no. 6 in the sale of property to us states that the buyer shall be responsible for
respective houses. ejecting the squatters of the property, the occupants of the said lot could hardly be categorized
as squatters considering the supposed transaction previously entered by your bank with them.
We were greatly appalled that we should learn about this not from the bank but from outside
sources.
It would be most unfair if the Bank would now renege on its commitment and eject these
occupants. In line with the national policy of granting landless members of our society the
opportunity of owning land and providing shelter to their families, it would be equitable and
socially justifiable to grant these occupants their occupied areas pursuant to the earlier My company is ready to finalize our transaction provided, however, that the problem with this
agreement with the Bank. group is cleared. In this connection, we are requesting for a definite statement from your bank
on whether the official receipts being brandished by this group are genuine or not, and if they
were, were they ever invalidated by virtue of the return of their deposit and whether there was
a cancellation of your agreement with them.
For the foregoing reasons we hope that the Islamic Bank, for legal, moral and social grounds
would reconsider.

In the meantime, please consider the 15-day period for us to pay the amount of P320,000.00
imposed by your bank suspended until such time that the legal problem with the lot occupants
Meanwhile, acting on Robern's undated written offer,14 Al-Amanah issued a Recommendation is settled.
Sheet15dated December 27, 1993 addressed to its Board Operations Committee, indicating
therein that Robern is interested to buy the lot for P400,000.00; that it has already deposited
20% of the offered purchase price; that it is buying the lot on "as is" basis; and, that it is willing
To convince Robern that it has no existing contract with PELA, Al-Amanah furnished it with
copies of the Head Office's rejection letter of PELA's bid, the demand letters to vacate, and the
proof of consignment of PELA's P150,000.00 deposit to the Regional Trial Court (RTC) of Davao For the occupants/claimants
City that PELA refused to withdraw.19 Thereafter, on February 2, 1994, it informed Robern that
should the latter fail to pay the balance by February 9, 1994, its P80,000.00 deposit will be T.C.T. No. T-13891428chanroblesvirtualawlibrary

forfeited and the lot shall be up for sale to other prospective buyers. Meanwhile, Al-Amanah
requested for assistance for the removal of the houses not only from the Office of the City
Engineer of Davao City21 but also from Mayor Rodrigo Duterte. Gaining a favorable legal opinion
from the City Legal Officer, the matter was indorsed to the Chief of Demolition Consensus of theThree months later, as its members were already facing eviction and possible demolition of their
Department of Public Services for action.22 houses, and in order to protect their rights as vendees, PELA filed a suit for Annulment and
Cancellation of Void Deed of Sale29 against Al-Amanah, its Director Engr. Farouk Carpizo (Engr.
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Carpizo), OIC Dalig, Robern, and Robern's President and General Manager, petitioner Rodolfo
Bernardo (Bernardo) before the RTC of Davao City. It insisted that as early as March 1993 it has
On March 4, 1994, Robern paid the balance of the purchase price. 23 The Deed of Sale24 over the a perfected contract of sale with Al-Amanah. However, in an apparent act of bad faith and in
realty was executed on April 6, 1994 and TCT No. T-212983 25 was issued in Robern's name the cahoots with Robern, Al-Amanah proceeded with the sale of the lot despite the prior sale to
following day. PELA.

A week later, PELA consigned P150,000.00 in the RTC of Davao City.26 Then on April 14, 1994, it Incidentally, the trial court granted PELA's prayer for a temporary restraining order.
wrote27 Al-Amanah asking the latter to withdraw the amount consigned. Part of the letter Subsequently, it issued on August 12, 1994 an Order 31 finding merit in the issuance of the writ
states:chanroblesvirtualawlibrary
of preliminary injunction, inter alia. The RTC's grant of injunctive relief was affirmed by the CA
in CA-G.R. SP No. 3523832 when the factual and legal bases for its issuance were questioned
before the appellate court.

xxx

On March 21, 1994 (almost one month before the April 15, 1994 deadline) we came to your
bank to remit the balance and full payment [for] the abovementioned lot. [Inasmuch] as you
refuse[d] to accept the payment, we have decided to deposit the amount consigned to your
bank.
The respondents in the annulment case filed their respective Answers. 33 Al-Amanah and Engr.
Carpizo claimed that the bank has every right to sell its lot to any interested buyer with the best
offer and thus they chose Robern. They clarified that the P150,000.00 PELA handed to them is
not part of the payment but merely a deposit in connection with its offer. They asserted that
PELA was properly apprised that its offer to buy was subject to the approval of Al-Amanah's
Head Office. They stressed that Al-Amanah never entered into a sale with PELA for there was no
perfected agreement as to the price since the Head Office rejected PELA's offer.

In our dialogue at your office in 1993, we have agreed that documents will be processed as
soon as we pay the P150,000.00 initial deposit. [Inasmuch] as we have not only paid the
deposit but have also made full payment of the account, kindly facilitate processing of the
documents to finalize transaction.
For their part, Robern and Bernardo asserted the corporation's standing as a purchaser in good
faith and for value in the sale of the property, having relied on the clean title of Al-Amanah.
They also alleged that the purported sale to PELA is violative of the Statute of Frauds 34 as there
is no written agreement covering the same.

We have not been remiss in doing our part of the transaction; please do your share.
Ruling of the Regional Trial Court
Thank you.

Very truly yours,

In its August 10, 1999 Decision,35 the RTC dismissed PELA's Complaint. It opined that the March
18, 1993 letter PELA has been relying upon as proof of a perfected contract of sale was a mere
offer which was already rejected. 2. ORDERING the defendant Bank to receive the balance of P150,000.00 of the purchase price
from PELA as consigned in court.

Furthermore, the annotation appearing in the bottom part of the said letter could not be
construed as an acceptance because the same is a mere acknowledgment of receipt of the letter 3. DECLARING the deed of sale executed by defendant Bank in favor or Robern Development
(not the offer) which will still be subject to processing. The RTC likewise ruled that being a Corporation as invalid and, therefore, void.
corporation, only Al-Amanah's board of directors can bind the bank with third persons involving
the sale of its property. Thus, the purported offer made by Al-Amanah's OIC, who was never
conferred authority by the board of directors to sell the lot, cannot bind the bank. In contrast,
when the Head Office accepted Robern's offered price, it was duly approved by the board of 4. ORDERING defendant Bank to return to Robern the full amount of P400,000.00 which Robern
directors, giving birth to a perfected contract of sale between Al-Amanah and Robern. paid as the purchase price of the subject property within ten (10) days from finality of this
decision. It shall earn a legal interest of twelve percent (12%) per annum from the tenth (10th)
day aforementioned if there is delay in payment.

Refusing to accept the Decision, PELA elevated its case to the CA. 36 chanroblesvirtualawlibrary

5. ORDERING Robern Development Corporation to reconvey the land covered by T.C.T. No.
212983 in favor of People's Landless Association within a similar period of ten (10) days from
Ruling of the Court of Appeals finality of this decision.

Reversing the RTC in its assailed Decision37 of August 16, 2005, the CA ruled that there was 6. ORDERING defendant Bank to pay plaintiffs-appellants the following: chanroblesvirtualawlibrary

already a perfected contract of sale between PELA and Al-Amanah. It held that the annotationon
the lower portion of the March 18, 1993 letter could be construed to mean that for Al-Amanah
to accept PELA's offer, the sum of P150,000.00 must be first put up. The CA also observed that
the subsequent receipt by Al-Amanah of the amounts totalling P150,000.00, and the annotation a. The sum of P100,000.00 as moral damages; cralawlibrary

of "deposit on sale of TCT No. 138914," on the receipts it issued explicitly indicated an
acceptance of the association's offer to buy. Consequently, the CA invalidated the sale between b. The sum of P30,000.00 as exemplary damages; cralawlibrary

Robern and Al-Amanah.

c. The sum of P30,000.00 as attorney's fees; cralawlibrary

The CA also concluded that Al-Amanah is guilty of bad faith in dealing with PELA because it took
d. A legal interest of SIX PERCENT (6%) per annum on the sums awarded in (a), (b), and (c)
Al-Amanah almost seven months to reject PELA's offer while holding on to the P150,000.00
from the date of this Decision up to the time of full payment thereof.
deposit. The CA thus adjudged PELA entitled to moral and exemplary damages as well as
attorney's fees.

SO ORDERED.38 chanroble svirtualawlibrary

The dispositive portion of the CA Decision reads: chanroble svirtualawlibrary

Robern and Bernardo filed a Motion for Reconsideration 39 which Al-Amanah adopted. The CA,
however, was firm in its disposition and thus denied40 the same. Aggrieved, Robern and Al-
WHEREFORE, premises considered, the assailed Decision is SET ASIDE. Judgment is hereby
Amanah separately filed Petitions for Review on Certiorari before us. However, Al-Amanah's
rendered:
Petition docketed as G.R. NO. 173437, was denied on September 27, 2006 on procedural
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1. DECLARING the contract of sale between PELA and defendant Bank valid and subsisting. grounds.41 Al-Amanah's Motion for Reconsideration of the said Resolution of dismissal was
denied with finality on December 4, 2006.42 chanroblesvirtualawlibrary
Hence, only the Petition of Robern and Bernardo subsists. Issue

Petitioners' Arguments At issue before us is whether there was a perfected contract of sale between PELA and Al-
Amanah, the resolution of which will decide whether the sale of the lot to Robern should be
sustained or not.

Petitioners stress that there was no sale between PELA and Al-Amanah, for neither a deed nor
any written agreement was executed. They aver that Dalig was a mere OIC of Al-Amanah's
Davao Branch, who was never vested with authority by the board of directors of Al-Amanah to Our Ruling
sell the lot. With regard to the notation on the March 18, 1993 letter and the four bank receipts,
Robern contends that these are only in connection with PELA's offer.

We shall first briefly address some matters raised by PELA.

Petitioners likewise contend that Robern is a purchaser in good faith. The PELA members are
mere informal settlers. The title to the lot was clean on its face, and at the time Al-Amanah
accepted Robern's offer, the latter was unaware of the alleged transaction with PELA. And when PELA's contention that Robern cannot assail the alleged sale between PELA and Al-Amanah is
PELA later represented to Robern that it entered into a transaction with Al-Amanah regarding untenable. Robern is one of the parties who claim title to the disputed lot. As such, it is a real
the subject lot, Robern even wrote Al-Amanah to inquire about PELA's claim over the property. party in interest since it stands to be benefited or injured by the judgment.
45
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And when informed by Al-Amanah that it rejected the offer of PELA and of its action of
requesting assistance from the local government to remove the occupants from the subject
property, only then did Robern push through with the sale.
Petitioners' failure to attach the material portions of the record that would support the
allegations in the Petition is not fatal. We ruled in F.A.T. Kee Computer Systems, Inc. v. Online
Networks International, Inc.,46 thus: chanroblesvirtualawlibrary

Respondent's Arguments

PELA, on the other hand, claims that petitioners are not the proper parties who can assail the
contract of sale between it and the bank. It likewise argues that the Petition should be
dismissed because the petitioners failed to attach the material portions of the records that
would support its allegations, as required by Section 4, Rule 45 of the Rules of Court. 43
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x x x However, such a requirement failure to attach material portions of the record was not
meant to be an ironclad rule such that the failure to follow the same would merit the outright
dismissal of the petition. In accordance with Section 7 of Rule 45, the Supreme Court may
require or allow the filing of such pleadings, briefs, memoranda or documents as it may deem
necessary within such periods and under such conditions as it may consider appropriate. More
importantly, Section 8 of Rule 45 declares that [i]f the petition is given due course, the Supreme
Court may require the elevation of the complete record of the case or specified parts thereof
within fifteen (15) days from notice. x x x47 chanroblesvirtualawlibrary

Aside from echoing the finding of the CA that Al-Amanah has a perfected contract of sale with
PELA, the latter further invokes the reasoning of the RTC and the CA (CA-G.R. SP No. 35238) in Anent the statement of the courts below that there was an apparent perfection of contract (of
finding merit in the issuance of the writ of preliminary injunction, that is, that there was an sale) between Al-Amanah and PELA , we hold that the same is strictly confined to the resolution
apparent perfection of contract (of sale) between the Bank and PELA. 44 Furthermore, PELA of whether a writ of preliminary injunction should issue since the PELA members were then
claims that Al-Amanah accepted its offered price and the P150,000.00, thus barring the about to be evicted. PELA should not rely on such statement as the same is not decisive of the
application of the Statute of Frauds as the contract was already partially executed. As to the rights of the parties and the merits of this case.
non-existence of a written contract evidencing the same, PELA ascribes fault on the bank
claiming that nothing happened despite its repeated follow-ups for the OIC of Al-Amanah to
execute the deed after payment of the P150,000.00 in May 1993.
We shall now delve into the crucial issue of whether there was a perfected contract of sale After scrutinizing the testimonial and documentary evidence in the records of the case, we find
between PELA and Al-Amanah. no proof of a perfected contract of sale between Al-Amanah and PELA. The parties did not agree
on the price and no consent was given, whether express or implied.

Essential Elements of a Contract of Sale

When PELA Secretary Florida Ramos (Ramos) testified, she referred to the March 18, 1993
letter which PELA sent to Al-Amanah as the document supposedly embodying the perfected
contract of sale.58However, we find that the March 18, 1993 letter referred to was merely an
A contract of sale is perfected at the moment there is a meeting of minds upon the thing which offer to buy, viz: chanroblesvirtualawlibrary

is the object of the contract and upon the price. 48 Thus, for a contract of sale to be valid, all of
the following essential elements must concur: "a) consent or meeting of the minds; b) March 18, 1993
determinate subject matter; and c) price certain in money or its equivalent." 49 chanroble svirtualawlibrary

In the case at bench, there is no controversy anent the determinate subject matter, i.e., the
2,000-square meter lot. This leaves us to resolve whether there was a concurrence of the The Manager
remaining elements. Islamic Bank
Davao Branch

Davao City
As for the price, fixing it can never be left to the decision of only one of the contracting
parties.50 "But a price fixed by one of the contracting parties, if accepted by the other, gives rise
to a perfected sale."51
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Sir/Madam: chanroble svirtualawlibrary

As regards consent, "when there is merely an offer by one party without acceptance of the
other, there is no contract."52 The decision to accept a bidder's proposal must be communicated This has reference to the offer made by Messrs. Alejandro Padilla, Leonardo Labora, Boy
to the bidder.53However, a binding contract may exist between the parties whose minds have Bartiana, Francisco Paig, and Mr. Asterio Aki for the purchase of the acquired asset of the bank
met, although they did not affix their signatures to any written document, 54 as acceptance may with an area of 2,000 square meters and covered by T.C.T. No. T-138914, portions of which are
be expressed or implied.55 It "can be inferred from the contemporaneous and subsequent acts of occupied by their houses. These occupants have formed and registered a group of x x x landless
the contracting parties."56 Thus, we held: chanroblesvirtualawlibrary
families who have occupied shoulders of National Highways, to be able to raise an amount that
would meet the approval of the Bank as the consideration for the purchase of the property. The
group which is known as PELA or People's Landless Association, is offering the bank the amount
of THREE HUNDRED THOUSAND PESOS (P300,000.00) for the whole 2,000 sq. meters. Of this
x x x The rule is that except where a formal acceptance is so required, although the acceptance amount the buyers will pay a down payment of ONE HUNDRED FIFTY THOUSAND PESOS
must be affirmatively and clearly made and must be evidenced by some acts or conduct (P150,000.00) and the balance payable in one (1) year.
communicated to the offeror, it may be made either in a formal or an informal manner, and may
be shown by acts, conduct, or words of the accepting party that clearly manifest a present
intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by
the acts, conduct, or words of a party recognizing the existence of the contract of sale. 57 According to the plan of PELA, about 24 landless families can be accommodated in the property.
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We hope the Bank can help these families own even a small plot for their shelter. This would be
in line with the government's program of housing which the present administration promised to
put in high gear this year.59 (Emphasis supplied)
There is no perfected contract of sale between PELA and Al-Amanah for want of consent and
agreement on the price.

Neither can the note written by the bank that "subject offer has been acknowledged/received
but processing to take effect upon putting up of the partial amount of P150,000.00 on or before
April 15, 1993" be construed as acceptance of PELA's offer to buy. Taken at face value, the
annotation simply means that the bank merely acknowledged receipt of PELA's letter-offer. Q: And according to you, the bank does not entertain any offer to buy the property without
Furthermore, by processing, Al-Amanah only meant that it will act on the offer , i.e., it still has deposits?
to evaluate whether PELA's offer is acceptable. Until and unless Al-Amanah accepts, there is as
yet no perfected contract of sale. Notably here, the bank never signified its approval or A: Yes, sir.
acceptance of the offer.
Q: In this case since the plaintiffs made a deposit x x x they were properly entertained, correct?

A: Yes because it is under negotiation, now while their offer price is below the selling price of
We cannot agree with the CA's ratiocination that receipt of the amount, coupled with the phrase the bank.
61
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written on the four receipts as "deposit on sale of TCT No. 138914," signified a tacit acceptance
by Al-Amanah of PELA's offer. For sure, the money PELA gave was not in the concept of an
earnest money. Besides, as testified to by then OIC Dalig, it is the usual practice of Al-Amanah
to require submission of a bid deposit which is acknowledged by way of bank receipts before it The absence of a perfected contract of sale was further buttressed by the testimony of PELA
entertains offers. Thus: chanroble svirtualawlibrary
Secretary Ramos on cross examination, viz: chanroble svirtualawlibrary

Atty. Bolcan: chanroble svirtualawlibrary

Atty. Rabor: chanroble svirtualawlibrary

Now, as far as you can remember, these receipts state that these are partial deposits, what do Since it was x x x hard earned money you did not require the Amanah Bank when you gave
you mean by that? thatP150,000.00 to reduce your agreement into writing regarding the sale of this property?

WITNESS: chanroblesvirtualawlibrary
A: I insisted but she will not issue that. 62 chanroblesvirtualawlibrary

A: x x x, we normally request an offeror to submit or make deposit, actually the bank does not
entertain any offer without any deposit and just like that, during my time x x x in buying the
property for those interested the bank does not entertain any offer unless they make a deposit. xxx

Atty. Bolcan: chanroble svirtualawlibrary

xxx Now, on April 15, 1993 when the deposit was made, you were present?

Q: Why do you issue receipts as officer-in-charge stating only partial deposits? A: Yes, sir.

A: Because there was no sale, there was no consu[m]mated sale, so any amount which you will Q: Now, after making the deposit of One Hundred Fifty Thousand (P150,000.00) Pesos on April
give as a deposit will be accepted by the bank for the offer and that if their offer will be 15, 1993 did you not request for the bank to execute a document to prove that actually you are
disapproved we will return the deposit because their offer was very low and this might be buying the property?
disapproved by the head office in Manila. 60
A: I even said to the OIC or the manager that ma am, now that you have received our money,
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where is our paper that we were the ones to buy that property, sir.

xxx Q: To whom are you referring to?

Atty. Taasan: chanroble svirtualawlibrary

A: Febe Dalig, the OIC, sir.

Do you confirm that based on the interest of the plaintiff to acquire the property they made a Q: And this OIC Febe Dalig informed you that the Offer on your part to buy the property is
deposit with said bank, as evidenced by the receipts that were shown to you by your counsel, subject for approval by the head office in Manila, is that correct?
correct?
A: Yes she told me that it would be subject to approval in Manila x x x.
A: Yes, sir.
Q: And later on you were informed by the bank that your offer was not accepted by the head A: Yes as head of the branch, we have to forward the offer whether it was acceptable or
office in Manila, is that correct? not.64
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A: She did not inform us but we kept on following it up with their office and she told us that it
did not arrive yet, sir.63 (Emphasis supplied)
PELA Secretary Ramos' testimony thus corroborated OIC Dalig's consistent stand that it is the
Head Office which will decide whether Al-Amanah would accept PELA's offer: chanroblesvirtualawlibrary
It is thus undisputed, and PELA even acknowledges, that OIC Dalig made it clear that the
acceptance of the offer, notwithstanding the deposit, is subject to the approval of the Head
Office. Recognizing the corporate nature of the bank and that the power to sell its real
properties is lodged in the higher authorities,65 she never falsely represented to the bidders that
she has authority to sell the bank's property. And regardless of PELA's insistence that she
execute a written agreement of the sale, she refused and told PELA to wait for the decision of
the Head Office, making it clear that she has no authority to execute any deed of sale.

Atty. Bolcan: chanroble svirtualawlibrary

And now, if there are interested persons making offer x x x what would you do? Contracts undergo three stages: "a) negotiation which begins from the time the prospective
contracting parties indicate interest in the contract and ends at the moment of their
A: Well, we have to screen the offer before we forward the offer to Manila for approval because agreement[; b) perfection or birth, x x x which takes place when the parties agree upon all the
essential elements of the contract x x x; and c) consummation, which occurs when the parties
Court: chanroble svirtualawlibrary

fulfill or perform the terms agreed upon, culminating in the extinguishment thereof." 66 chanroble svirtualawlibrary

What would you do before you forward that to Manila?

A: We will be screening the offer x x x. In the case at bench, the transaction between Al-Amanah and PELA remained in the negotiation
stage. The offer never materialized into a perfected sale, for no oral or documentary evidence
Atty. Bolcan:
categorically proves that Al-Amanah expressed amenability to the offered P300,000.00
chanroble svirtualawlibrary

And you said that it is referred to Manila?
A: Yes, sir.
Q: Who will eventually approve the offer made by the interested persons to buy the property?
A: We have a committee in Manila to approve the sale of the property.
purchase price. Before the lapse of the 1-year period PELA had set to pay the remaining
balance, Al-Amanah expressly rejected its offered purchase price, although it took the latter
around seven months to inform the former and this entitled PELA to award of damages. 67 Al-
Amanah's act of selling the lot to another buyer is the final nail in the coffin of the negotiation
with PELA. Clearly, there is no double sale, thus, we find no reason to disturb the consummated
sale between Al-Amanah and Robern.

Q: Do you have any idea who will approve the offer of the property?
At this juncture, it is well to stress that Al-Amanah's Petition before this Court docketed as G.R.
A: I have no idea but the president, rather it consists of the president I think and then signed NO. 173437 was already denied with finality on December 4, 2006. Hence, we see no reason to
also by the vice-president and some officers in the office, sir. disturb paragraph 6 of the CA's Decision ordering Al-Amanah to pay damages to PELA.

xxx WHEREFORE, we PARTIALLY GRANT the Petition. Except for paragraph 6 of the Court of Appeals
Decision which had already been long settled,68 the rest of the judgment in the assailed August
Q: Now, in case of offers of the property of the bank, x x x the officer-in-charge of the bank, Al- 16, 2005 Decision and May 30, 2006 Resolution of the Court of Appeals in CA-G.R. NO. CV No.
Amanah Bank branch, usually refers this matter to the head office in Manila? 66071 are hereby ANNULLED and SET ASIDE. The August 10, 1999 Decision of the Regional
Trial Court of Davao City, Branch 12, dismissing the Complaint for Annulment and Cancellation
A: Yes, sir. of Void Deed of Sale filed by respondent People's Landless Association is REINSTATED and
AFFIRMED. The amount of Pesos: Three Hundred Thousand (P300,000.00) consigned with the
Q: And it is the head office that will decide whether the offer will be approved or not? Regional Trial Court of Davao City may now be withdrawn by People's Landless Association.

SO ORDERED.
FIRST DIVISION
[G.R. No. L-36821. June 22, 1978.]
JOSE P. DIZON, Petitioner, v. ALFREDO G. GABORRO (Substituted by PACITA DE
GUZMAN GABORRO as Judicial Administratrix of the Estate of Alfredo G. Gaborro) and
the DEVELOPMENT BANK OF THE PHILIPPINES, Respondents.
Leonardo Abola for Petitioner.
Carlos J . Antiporda for Respondents.
SYNOPSIS
After his properties were extrajudicially foreclosed but before the expiration of the redemption
period, petitioner executed a "Deed of Sale with Assumption of Mortgage" in favor of private
respondent, who in turn executed on the same day an "Option to Purchase Real Estate" in favor 4. ID.; ID.; RIGHT OF REDEMPTION, TRANSFERABLE. The right to redeem land sold under
of petitioner. Thereafter, private respondent made several payments to the mortgagee, took
possession of, cultivated, and paid taxes, on the land.
Two years later, petitioner offered to reimburse what private respondent had paid to the
mortgagee, and demanded an accounting. When private respondent dishonored the request,
petitioner sued the former for accounting, alleging that the two deeds did not express their true
intent, the transaction being one of an equitable mortgage and not an absolute sale.
The trial court ordered the instruments reformed in the sense that the true agreement is one
whereby private respondent, in consideration of the use of petitioners properties, would assume
the latters debts. The Court of Appeals affirmed the decision, with the modification that
petitioner "has the right to reimburse" respondent at 8% per annum, which right shall be
exercised within one year from the finality of decision.
The Supreme Court affirmed the decision of the Court of Appeals, holding that after foreclosure,
the only right that the mortgagee may transfer is that of redemption; that the disputed
agreement is one of innominate contracts, under Article 1307 of the Civil Code, partaking of
antichresis; and that the agreement may be reformed pursuant to Articles 1359 and 1361 of the
Civil Code, because a mutual mistake of the parties caused the failure of the instrument to
disclose their true agreement.
SYLLABUS
1. CONTRACTS; FORECLOSURE SALE; REFORMATION OF INSTRUMENTS; NECESSITY TO
DETERMINE LEGALITY OF THE RIGHTS AND OBLIGATIONS STIPULATED. Where the "Deed of
Sale with Assumption of Mortgage" and "Option to Purchase Real Estate" stipulate rights and
obligations between the parties thereto pertaining to and involving parcels of land that had
already been foreclosed and sold extrajudicially, and purchased by the mortgage creditor, it
becomes necessary to determine the legality of said rights and obligations arising from the
foreclosure and sale proceedings not only between the two contracting parties to the
instruments executed between them but also insofar as the agreement affects the rights of third
parties.
2. ID.; ID.; REDEMPTION; DEBTOR MAY REDEEM PROPERTY WITHIN ONE YEAR. Under
Section 6 of Act 3135, as amended by Act 4118, the judgment debtor may redeem the property
extrajudicially sold within one year from and after the date of the foreclosure sale.
3. ID.; ID.; ID.; RIGHTS OF JUDGMENT DEBTOR. Under Section 33, Rule 39, Revised Rules of
Court, the judgment debtor in possession of the property foreclosed and sold is entitled to
remain therein during the period of redemption, shall receive its fruits and may transfer his
right of redemption to any one whom he may desire. This is so because the purchaser who has
an inchoate right over the property during the redemption period is not entitled to such
possession.
execution within 12 months is a property right and may sold voluntarily by its owner and may
also be attached and sold under execution.
5. ID.; ID.; PURCHASER; RIGHTS OF PURCHASER AT AN AUCTION SALE. Upon foreclosure
and sale, the purchaser is entitled to a certificate of sale executed by the sheriff. (Section 27,
 Revised Rules of Court) After the termination of the period of redemption and no redemption stand on the literal meaning of the terms and stipulations used therein the instruments must,
having been made, the purchaser is entitled to a deed of conveyance and to the possession of therefore be reformed in accordance with the intention and legal rights and obligations of the
the properties. (Section 35, Revised Rules of Court). The weight of authority is to the effect that parties.
the purchaser of land sold at public auction under a writ of execution only has an inchoate right
in the property, subject to be defeated and terminated within the period of 12 months from the 10. ID.; ID.; REFORMATION OF INSTRUMENTS; FRUITS RECEIVED BY PURCHASER OFFSET BY
date of sale, by a redemption on the part of the owner. TAXES AND INTERESTS PAID BY HIM. Where a contract of absolute sale of real properties
had been ordered reformed in the sense that it is one whereby the supposed buyer, in
6. ID.; ID.; MORTGAGOR CANNOT SELL PROPERTY SOLD EXTRAJUDICIALLY. After the consideration of the use and enjoyment of the property of the owner, would assume and pay the
extrajudicial foreclosure and a sale, the mortgagor retains the right to redeem the lands, the latters debts, and judgment is rendered whereby the owner is allowed to reacquire the property
possession, use and enjoyment of the same during the period of redemption. And these are the upon reimbursement of the amounts paid by the buyer to the owners creditors, the buyer need
only rights that the mortgagor could legally transfer, cede and convey under an instrument not account for the fruits, harvests, and other income received by him while the properties had
captioned "Deed of Sale with Assumption of Mortgage" and likewise the same rights that said been in his (buyers) possession, the same being offset by the taxes and interests on the
transferee could acquire in consideration of the latters promise to pay and assume the loans of owners indebtedness that have accrued and paid by the buyer.
the mortgagor with the mortgagee.
11. ID.; EXTENSION OF PERIOD TO EXERCISE OPTION EXTENDED ON EQUITABLE GROUNDS.
7. ID.; ID.; ID.; TRANSFEREE OF PROPERTY ALREADY SOLD EXTRAJUDICIALLY ACQUIRES Where the period within which a contracting party must exercise the option to purchase
MERELY THE LIMITED RIGHTS OF JUDGMENT DEBTOR. Where the mortgagors properties had property had expired by reasons and circumstances beyond his control, the court may fix a
been extrajudicially sold and the mortgagor subsequently conveys the property by way of "Deed reasonable time within which to exercise the same. A period of one year from the date of finality
of Sale with Assumption of Mortgage", the transferee did not thereby purchase or acquire the of judgment would be a reasonable period to exercise such right.
full title and ownership of the properties, but only certain limited rights or interests such as the
right of redemption. Consequently, the transferee of these certain limited rights or interests,
cannot grant more than said rights to the transferor, such as the option to purchase the lands.
The only legal effect of the option deed is to grant the transferor the right to recover the
properties upon reimbursing the transferee of the total sums of money that the latter may have DECISION
paid to the mortgagee on account of the mortgage debts.

8. ID.; ANTICHRESIS; AN AGREEMENT "TO GIVE AND TO DO" IS CLASSIFIED AS ONE OF THE
INNOMINATE CONTRACTS UNDER ARTICLE 1307 OF THE NEW CIVIL CODE. Where the true
intention of the parties as found by the trial and appellate courts was for the transferee to GUERRERO, J.:
assume the mortgage debts of the mortgagor and in consideration thereof the transferee was
given possession, enjoyment and use of the lands until the mortgagor can reimburse fully the
transferee the amounts paid by the latter to the mortgagee, to accomplish the following ends:
(a) payment of the bank obligations; (b) make the lands productive for the benefits of the
possessor; (c) assure the return of the land to the original owner, thus rendering equity and Petition for review on certiorari of the decision of the Court of Appeals 1 in CA-G.R. No. 46975-R
fairness to all parties, the Supreme Court held that he agreement between the mortgagor and entitled "Jose P. Dizon, Plaintiff-Appellant, versus Alfredo G. Gaborro (substituted by Pacita de
transferee is one of those innominate contracts under Article 1307 of the new Civil Code Guzman Gaborro as Judicial Administratrix of the Estate of Alfredo G. Gaborro) and the
whereby the mortgagor and transferee agreed "to give and to do" certain rights and obligations Development Bank of the Philippines, Defendants-Appellees," affirming with modification the
respecting the lands and the mortgage debts of mortgagor which would be acceptable to the decision of the Court of First Instance of Pampanga, Branch II in Civil Case No. 2184.
mortgagee, but partaking of the nature of antichresis insofar as the principal parties, mortgagor
and transferee are concerned. The dispositive portion of the decision sought to be reviewed reads: jgc:chanrobles.com .ph

9. ID.; ID.; ID.;MISTAKE; MISTAKE GROUND FOR REFORMATION OF DOCUMENT. Mistake is a "IN VIEW OF THE FOREGOING, the judgment appealed therefrom is hereby affirmed with
ground for the reformation of an instrument when, there having been a meeting of the minds of modification that the plaintiff-appellant has the right to refund or reimburse the defendant
the parties to a contract, their true intention is not expressed in the instrument purporting to appellees the sum of P131,831.91 with interest at 8% per annum from October 6, 1959 until
embody the agreement, and one of the parties may ask for such reformation to the end that full payment, said right to be exercised within one year from the date this judgment becomes
such true intention may be expressed. (Art. 1359, New Civil code). When a mutual mistake of final, with the understanding that, if he fails to do so within the said period, then he is deemed
the parties causes the failure of the instrument to disclose their real agreement, said instrument to have lost his right over the lands forever. With costs against the appellant." 2
may be reformed. (Art. 1361, New Civil Code.) Since it was a mistake for the parties to execute
the Deed of Sale With Assumption of Mortgage and the Option to Purchase Real Estate and
MODIFIED.
The basic issue to be resolved in this case is whether the "Deed of Sale with Assumption of
Mortgage" and the "Option to Purchase Real Estate", two instruments executed by and between
petitioner Jose P. Dizon and Alfredo G. Gaborro (defendant below) on the same day, October 6,
1969 constitute in truth and in fact an absolute sale of the three parcels of land therein
described or merely an equitable mortgage or conveyance thereof by way of security for
reimbursement, refund or repayment by petitioner Jose P. Dizon of any and all sums which may
have been paid to the Development Bank of the Philippines and the Philippine National Bank by
Alfredo G. Gaborro (later substituted herein by his wife Pacita de Guzman Gaborro as
administratrix of the estate of Alfredo G. Gaborro) who had died during the pendency of the
case.chanrobles law library
JOSE P. DIZON, of legal age, Filipino, married to Norberta Torres, with residence and postal
address at Mabalacat, Pampanga. hereinafter referred to as the VENDOR,
ALFREDO G. GABORRO, likewise of legal age, Filipino, married to Pacita de Guzman, with
residence and postal address at 46, 7th St., Gilmore Avenue, Quezon City, hereinafter referred
to as the VENDEE,
W I T N E S S E T H: That
WHEREAS, the VENDOR is the registered owner of three (.!3) parcels of land covered by
Transfer Certificate of Title No. 15679 of the land records of Pampanga, situated in the
Municipality of Mabalacat, Province of Pampanga, and more particularly described and bounded
as follows:
chanrob1es virtual 1aw library

A supplementary issue raised is whether or not Gaborro or the respondent administratrix of the
estate should account for all the fruits produced and income received by them from the lands 1. A parcel of land (Lot No. 188 of the Cadastral Survey of Mabalacat), with the improvements
mentioned and described in the aforesaid "Deed of Sale with Assumption of Mortgage." thereon, situated in the Municipality of Mabalacat. Bounded on the NE., by Lot No. 187; on the
cralaw virtua1aw library

SE., by Lots Nos. 183, 189, 191 and 192; on the SW. by Lot No. 192 and on the NW., by the
The antecedent facts established in the record are not disputed. Petitioner Jose P. Dizon was the unimproved provincial road to Magalang Containing an area of TWO HUNDRED AND TWENTY
owner of the three (3) parcels of land, subject matter of this litigation, situated in Mabalacat, ONE THOUSAND ONE HUNDRED SEVENTY TWO SQUARE METERS (221,172),more or less.
Pampanga with an aggregate area of 130.58 hectares, as evidenced by Transfer Certificate of
Title No. 15679. He constituted a first mortgage lien in favor of the Development Bank of the 2. A parcel of land (Lot No. 193 of the Cadastral Survey of Mabalacat), with the improvements
Philippines in order to secure a loan in the sum of P38,000.00 and a second mortgage lien in thereon, situated in the Municipality of Mabalacat. Bounded on the NE. by a road and Lots Nos.
favor of the Philippine National Bank to secure his indebtedness to said bank in the amount of 569, 570 and 571; on the SE., by Lot No. 571 and the unimproved road to Magalang; on the
P93,831.91. SW., by a road and on the NE., by a road and the Sapang Pritil. Containing an area of NINE
HUNDRED SEVENTY EIGHT THOUSAND SEVEN HUNDRED AND SEVENTEEN SQUARE METERS
Petitioner Dizon having defaulted in the payment of his debt, the Development Bank of the (978,717), more or less.
Philippines foreclosed the mortgage extrajudicially pursuant to the provisions of Act No. 3135.
On May 26, 1959, the lands were sold to the DBP for P31,459.21, which amount covered the 3. A parcel of land (Lot No. 568 of the Cadastral Survey of Mabalacat), with the improvements
loan, interest and expenses, and the corresponding "Certificate of Sale," (Exhibit A-2, Exhibit 1- thereon, situated in the Municipality of Mabalacat. Bounded on the NE., by Lot No. 570, on the
b) was executed in favor of the said bank. On November 12, 1959, Dizon himself executed the SE., SW and NW by roads. Containing an area of ONE HUNDRED FIVE THOUSAND NINE
deed of sale (Exhibit A-1-a) over the properties in favor of the DBP which deed was recorded in HUNDRED AND TWENTY ONE SQUARE METERS (105,921), more or less.
the Office of the Register of Deeds on October 6, 1960.
WHEREAS, the above-described properties are presently mortgaged (first mortgage) to the
Sometime prior to October 6, 1959 Alfredo G. Gaborro and Jose P. Dizon met. Gaborro became Development Bank of the Philippines (formerly Rehabilitation Finance Corporation) to secure the
interested in the lands of Dizon. Dizon originally intended to lease to Gaborro the property payment of a loan, plus interest, of THIRTY EIGHT THOUSAND PESOS ONLY (38,000.00),
which had been lying idle for some time. But as the mortgage was already foreclosed by the Philippine currency, as evidenced by a deed of mortgage for P. . . . .dated . . . . . . . . ., which
DBP and the bank in fact purchased the lands at the foreclosure sale on May 26, 1959, they deed was ratified and acknowledged before Notary Public of Manila, Mr. . . . .as Doc. No....;
abandoned the projected lease. They then entered into the following contract on October 6, Page No. . . . .; Reg. No. . . . .Series of 196. . . . .;
1959 captioned and quoted, to wit: chanrob1es virtual 1aw library

WHEREAS, the aforesaid properties are likewise mortgage (second mortgage) to the Philippine
DEED OF SALE WITH ASSUMPTION National Bank to secure the payment of a loan of NINETY THREE THOUSAND EIGHT HUNDRED
THIRTY ONE PESOS & 91/100 (93,331.91), Philippine Currency, plus interest up to August 13,
OF MORTGAGE 1957, as evidenced by deed of Mortgage for P. . . . . dated. . . . . . . .which deed was ratified
and acknowledged before Notary Public of Manila, Mr. . . . ., as Doc. No. . . . ., Page No. . . .,
KNOW ALL MEN BY THESE PRESENTS: chanrob1es virtual 1aw library Reg. No. . . . Series of 196. . . .;

This DEED OF SALE WITH ASSUMPTION OF MORTGAGE, made and executed at the City of WHEREAS, the VENDOR, has offered to sell and the VENDEE is willing to purchase the above-
Manila, Philippines, on this 6th day of October, 1959 by and between described properties for ONE HUNDRED THIRTY ONE THOUSAND EIGHT HUNDRED THIRTY ONE
PESOS & 91/100 (131,831.91), Philippine Currency, under the terms and conditions herein
below set forth;
NOW, THEREFORE, for and in consideration of the above premises and the amount of ONE
HUNDRED THIRTY ONE THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91/100
(P131,831.91), Philippine Currency, in hand paid in cash by the VENDEE unto the VENDOR,
receipt whereof is hereby acknowledged by the VENDOR to his entire and full satisfaction, and
the assumption by the VENDEE of the entire mortgage indebtedness, both with the
Development Bank of the Philippines and the Philippine National Bank above mentioned, the
VENDOR does by these presents, sell, transfer and convey, as he had sold, transferred, and
conveyed, by way of absolute sale, perpetually and forever, unto the VENDEE, his heirs,
successors and assigns, above described properties, with all the improvements thereon, free
from all liens and encumbrances of whatever nature, except the pre-existing mortgage
obligations with the Development Bank of the Philippines and the Philippine National Bank
aforementioned. The VENDOR does hereby warrant title, ownership and possession over the
properties herein sold and conveyed, and binds himself to defend the same from any and all
claimants.
That the VENDEE, does by these presents, assume as he has assumed, under the same terms
and conditions of the mortgage contracts dated . . . . . . . . . . .and . . . . . . . . . . . ., of the
mortgage indebtedness of the VENDOR in favor of the Development Bank of the Philippines and
the Philippine National Bank, respectively, as if the aforesaid documents were personally
executed by the VENDEE and states and reiterates all the terms and conditions stipulated in
said both documents, making them to all intents and purposes, parts hereof by reference.
IN WITNESS WHEREOF, the VENDOR and the VENDEE, together with their instrumental
witnesses, have signed this deed of the place, date, month and year first above written.
(Sgd.) JOSE P. DIZON (Sgd.) ALFREDO G. GABORRO
Vendor Vendee
Signed in the Presence of: chanrob1es virtual 1aw library
(Sgd.) (Illegible) (Sgd.) (Illegible)
(Acknowledgment Omitted)
The second contract executed the same day, October 6, 1959 is called option to Purchase Real
Estate, and is in the following wise and manner:
OPTION TO PURCHASE REAL ESTATE
KNOW ALL MEN BY THESE PRESENTS: chanrob1es virtual 1aw library
That I, ALFREDO G. GABORRO, of legal age, Filipino, married to Pacita de Guzman, with
residence and postal address at 46, 7th St., Gilmore Ave., Quezon City, for valuable
consideration, do hereby give to JOSE P. DIZON, of legal age, Filipino, married to Norberta
Torres, resident of Mabalacat, Pampanga, his heirs, successors and assigns, the option of
repurchasing the following described properties:.
chanrob1es virtual 1aw library
TRANSFER CERTIFICATE OF TITLE
NO. 15679 PROVINCE OF PAMPANGA
1. A parcel of land (Lot No. 188 of Cadastral Survey of Mabalacat, Pamp.), containing an area of
(211,172) more or less.
2. A parcel of land (Lot No. 193 of the Cadastral Survey of Mabalacat, Pampanga), containing an
area of (978,172) more or less.
3. A parcel of land (Lot No. 568 of the Cadastral Survey of Mabalacat, Pamp.), containing an
area of (105, 921), more or less.
which I acquired from the said Jose P. Dizon by purchase by virtue of that document entitled
Deed of Sale with Assumption of Mortgage dated October 6, 1959, acknowledged by both of us
before Notary Public of Manila GREGORIO SUMBILIO as Doc. No. 342, Page No. 70, Reg. No. VII
Series of 1959.
Said option shall be valid and effective within the period comprised from January, 1965 to
December 31, 1970, inclusive, upon payment of the amount of ONE HUNDRED THIRTY ONE
THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91/100 P131,831.91), Philippine Currency,
plus an interest of eight per centum (8%) thereof, per annum. This is without prejudice at any
time to the payment by Mr. Dizon of any partial amount to be applied to the principal obligation,
without any way disturbing the possession and/or ownership of the above properties since only
full payment can effect the necessary change.
In the event that Mr. Jose P. Dizon may be able to find a purchaser for the foregoing properties
on or the fifth year from the date the execution of this document, the GRANTEE, Mr. JOSE P.
DIZON, may do so provided that the aggregate amount which was paid to Development Bank of
the Philippines and to the Philippine National Bank together with the interests thereon at the
rate of 8% shall be refunded to the undersigned.
Furthermore, in case Mr. Jose P. Dizon shall be able to find a purchaser for the said properties, it
shall be his duty to first notify the undersigned of the contemplated sale, naming the price and
the purchaser therefor, and awarding the first preference in the sale hereof to the undersigned.
IN WITNESS WHEREOF, I have hereunto signed these presents at the City of Manila, on this 6th
day of October, 1959.
(Sgd.) ALFREDO G. GABORRO
CONFORME: chanrob1es virtual 1aw library
(Sgd.) JOSE P. DIZON
SIGNED IN THE PRESENCE OF: chanrob1es virtual 1aw library
(Acknowledgment Omitted)
 Gilmore Ave., Quezon City, hereinafter referred to as the ASSIGNEE,
The sum of P131,813.91 which purports to be the consideration of the sale was not actually
paid by Alfredo G. Gaborro to the petitioner. The said amount represents the aggregate debts of W I T N E S S E T H: chanrob1es virtual 1aw library

the petitioner with the Development Bank of the Philippines and the Philippine National Bank.
WHEREAS, the Assignor is the owner and mortgagor of three (3) parcels agricultural land
After the execution of said contracts, Alfredo G. Gaborro took possession of the three parcels of together with all the improvements existing thereon and more particularly described and
land in question. bounded as follows:.

On October 7, 1959, Gaborro wrote the Development Bank of the Philippines a letter (Exh. J), TRANSFER CERTIFICATE OF TITLE NO. 1567
as follows: jgc:chanrobles.com .ph

PROVINCE OF PAMPANGA
"Sir: chanrob1es virtual 1aw library

1. A parcel of land (Lot No. 188 of the Cadastral Survey of Mabalacat), with the improvements
This is with reference to your mortgage lien of P38,000.00 more or less over the properties thereon. situated in the Municipality of Mabalacat. Bounded on the NE, by Lot No. 187; on the
more particularly described in TCT No. 15679 of the land records of Pampanga in the name of SE. by Lots Nos. 183, 189, 191 and 192; on the SW. by Lot No. 192; and on the NW, by the
Jose P. Dizon. In this connection, we have the honor to inform you that pursuant to a Deed of unimproved provincial road to Magalang. Containing an area of two hundred twenty-one
Sale with Assumption of Mortgage executed on October 6, 1959 by Jose P. Dizon in my favor, thousand one hundred and seventy two square meters (221,172), more or less.
copy of which is hereto attached, the ownership of the same has been transferred to me subject
of course to your conformity to the assumption of mortgage. As a consequence of the foregoing 2. A parcel of land (Lot No. 193 of the Cadastral Survey of Mabalacat), with the improvements
document, the obligation therefore of paying your goodselves the total amount of indebtedness thereon, situated in the Municipality of Mabalacat. Bounded on the NE. by a road and Lots Nos.
has shifted to me. 569, 670 and 571; on the SE. by Lot No. 571 and the unimproved road to Magalan; on the SW.
by a road; and on the NW. by a road and the Sapang Pritil. Containing an area of nine hundred
Considering that these agricultural properties have not been under cultivation for quite a long seventy eight thousand seven hundred and seventeen square meters (978,717), more or less.
time, I would therefore request that, on the premise that the assumption of mortgage would be
agreeable to you, that I be allowed to pay the outstanding obligation, under the same terms 3. A parcel of land (Lot No. 568 of the Cadastral Survey of Mabalacat), with the improvements
and conditions as embodied in the original contract of mortgage within ten (10) years to be thereon, situated in the Municipality of Mabalacat. Bounded on the NE. by Lot No. 570; and on
divided in 10 equal annual amortizations. I am enclosing herewith a check in the amount of the SE., SW. and NW. by roads. Containing an area of one hundred five thousand nine hundred
P3,609.95 representing 10% of the indebtedness of Jose P. Dizon to show my honest intention and twenty-one square meters (105,921), more or less.
in assuming the mortgage obligation to you. . . ." cralaw virtua1aw library

WHEREAS, the above described properties were mortgaged with the Rehabilitation Finance
The Board of Governors of the DBP, in its Resolution No. 7066 dated October 21, 1959 approved Corporation, now Development Bank of the Philippines, which mortgage has been foreclosed on
the offer of Gaborro but said Board required him to pay 20% of the purchase price as initial May 26, 1959;
payment. (Exh. D) Accordingly, on July 11, 1960, the DBP and Gaborro executed a conditional
sale of the properties in consideration of the sum of P36,090.95 (Exh. C) payable 20% down AND WHEREAS, the herein Assignor has still the right to redeem the said properties from the
and the balance in 10 years in the yearly amortization plan at 8 % per annum. said Development Bank of the Philippines within a period of one (1) year counted from the date
of foreclosure of the said mortgage.
On January 7, 1960, Dizon assigned his right of redemption to Gaborro in an instrument (Exh,
9) entitled: chanrob1es virtual 1aw library NOW, THEREFORE, for ___________________________, and other valuable considerations,
receipt whereof is hereby acknowledged by the Assignor from the Assignee, the herein Assignor
ASSIGNMENT OF RIGHT OF REDEMPTION does hereby transfer and assign to the herein Assignee, his heirs, successors and assigns the
aforesaid right to redeem the aforementioned properties above described.
AND ASSUMPTION OF OBLIGATION
That with this document the herein Assignor relinquishes any and all rights to the said
KNOW ALL MEN BY THESE PRESENTS: properties including the improvements existing thereon.
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This instrument, made and executed by and between JOSE P. DIZON, married to Norberta P. That the Assignee, by these presents, hereby assumes the obligation in favor of the said
Torres, Filipino, of legal age, with residence and postal address at Mabalacat, Pampanga, Development Bank of the Philippines, as paying whatever legal indebtedness the Assignor has
hereinafter referred to as the ASSIGNOR and ALFREDO G. GABORRO, married to Pacita de with the said Bank in connection with the transaction regarding the above mentioned properties
Guzman, likewise of legal age, Filipino, with residence and postal address at 46, 7th Street, subject to the terms and conditions that the said Bank may require and further recognizes the
second mortgage in favor of the Philippine National Bank. chanroble s.com : virtual law library
IN WITNESS WHEREOF, the parties have hereunto set their hands in the City of Manila,
Philippines this day of 1959.
(Sgd.) JOSE P. DIZON (Sgd.) ALFREDO G. GABORRO
(Assignor) (Assignee)
(Acknowledgment Omitted)
After the execution of the conditional sale to him, Gaborro made several payments to the DBP
and PNB. He introduced improvements, cultivated the lands, raised sugarcane and other crops
and appropriated the produce to himself. He also paid the land taxes thereon.
On July 5, 1961, Jose P. Dizon through his lawyer, Atty. Leonardo Abola, wrote a letter to
Gaborro informing him that he is formally offering to reimburse Gaborro of what he paid to the
banks but without, however, tendering any cash, and demanding an accounting of the income
and of the property, contending that the transaction they entered into was one of antichresis.
Gaborro did not accede to the demands of the petitioner, whereupon, on July 30, 1962, Jose P.
Dizon instituted a complaint in the Court of First Instance of Pampanga, against Gaborro,
alleging that the documents Deed of Sale With Assumption of Mortgage and the Option to
Purchase Real Estate did not express the true intention and agreement between the parties.
Petitioner Dizon, as plaintiff below, contended that the two deeds constitute in fact a single
transaction; that their real agreement was not an absolute sale of the said parcels of land but
merely an equitable mortgage or conveyance by way of security for the reimbursement or
refund by Dizon to Gaborro of any and all sums which the latter may have paid on account of
the mortgage debts in favor of the DBP and the PNB. Plaintiff prayed that defendant Gaborro be
ordered to accept plaintiffs offer to reimburse him of what he paid to the banks; to surrender
the possession of the lands to plaintiff; to make an accounting of all the fruits, produce, harvest
and other income which he had received from the three (3) parcels of land; and to pay the
plaintiff for the loss of two barns and for damages.
In its answer, the DBP specifically denied the material averments of the complaint and stated
that on October 6, 1959, the plaintiff Dizon was no longer the owner of the land in question
because the DBP acquired them at the extrajudicial foreclosure sale held on May 26, 1959, and
that the only right which plaintiff possessed was a mere right to redeem the lands under Act
3135 as amended.
Defendant Alfredo G. Gaborro also answer, denying the material averments of the complaint,
stating that the "Deed of Sale with Assumption of Mortgage" expresses the true agreement of
the parties "fully, truthfully and religiously" but the "Option to Purchase Real Estate" does not
express the true intention of the parties because it was made only to protect the reputation of
the plaintiff among his townmates, and even in the supposition that said option is valid, the
action is premature. He also filed a counterclaim for damages, which plaintiff denied. The issues
having been joined, a pre-trial was held and the following stipulation of facts admitted by the
parties was approved by the Court in the following order dated February 22, 1963:
ORDER
Development Bank of the Philippines:
5. That the Development Bank of the Philippines admits that the first mortgage referred to
chanrob1es virtual 1aw library
At todays initial trial, the following were present: Mr. Leonardo Abola, for the plaintiff; Mr.
Carlos Antiporda, for the defendant Alfredo Gaborro; and Mr. Virgilio Fugoso, for the
chanrobles law library : red
The parties have stipulated on the following facts: chanrob1es virtual 1aw library
1. That Annex A attached to the complaint is marked Exhibit A-Stipulation. The parties have
admitted the due execution, authenticity and genuineness of said Exhibit A-Stipulation. This fact
has been admitted by all the three parties.
2. That the defendant Gaborro executed Annex B, which is marked Exhibit B-Stipulation. This
fact has been admitted only between plaintiff and defendant Gaborro.
3. That the three parcels of land referred to in paragraph 3 of the complaint, on or before
October 6, 1959, were subject to a first mortgage lien in favor of the Development Bank of the
Philippines, formerly Rehabilitation Finance Corporation, to secure payment of a loan obtained
by the plaintiff Jose P. Dizon in the original sum of P38,000.00 plus interest, which has been
assumed by defendant Gaborro by virtue of a document, Exhibit A-Stipulation, and also subject
to a second mortgage lien in favor of the Philippine National Bank to secure the payment of a
loan in the sum of P93,831.91 plus interest up to August 30, 1951, which mortgage liens were
duly annotated on TCT 15679. This fact has been admitted by the plaintiff and defendant
Gaborro.
4. In respect to the foreclosure of the first mortgage referred to above, it was admitted that the
same was foreclosed on May 26, 1959, the second mortgage has not been admitted nor
foreclosed.
above was foreclosed on May 26, 1959 under the provisions of Public Act No. 3135, as
amended.
6. That subsequently the Development Bank and the defendant Gaborro executed a document
entitled Conditional Sale over the same parcels of land referred to in paragraph 3 of the
complaint, and copy thereof will be furnished by the Development Bank of the Philippines and
marked Exhibit C-Stipulation.
7. That on or before October 6, 1960, TCT No. 15679 of the Register of Deeds of Pampanga in
the name of Jose P. Dizon covering the three parcels of land referred to in the complaint was
cancelled and in lieu thereof TCT NO. 24292 of the Register of Deeds of Pampanga was issued in
the name of the Development Bank of the Philippines. This fact has been admitted by all the
parties.
8. That after the execution of the deed of conditional sale, certain payments were made by the
defendant Gaborro to the Development Bank, the exact amount to be determined later and
receipts of payments to be also exhibited later. This fact has been admitted by all the three
parties.
9. That since October 6, 1959, the defendant Gaborro has made several payments to the PNB in
the amounts appearing on the receipts which will be shown later, such payments being made on appealed to the Court of Appeals, which, however, affirmed the decision with the modification
account of the sum of P38,831.91. The payment was assumed by said defendant Gaborro. This that the plaintiff-appellant has the right to refund or reimburse the defendant-appellee the sum
fact has been admitted by plaintiff and defendant Gaborro only. of P131,831.91 with interest at 8% per annum from October 6, 1959 until full payment, said
right to be exercised within one (1) year from the date the judgment becomes final, with the
10. That since the execution of Exhibits A and B-Stipulation, the defendant Gaborro has been understanding that, if he fails to do so within the said period, then he is deemed to have lost his
and still is in the actual possession of the three parcels of land in question and he is actually right over the lands forever.
cultivating the same and that the land taxes thereon have been paid by said defendant Gaborro,
the amounts of said taxes appearing on the official receipts to be shown later. This fact has been Petitioners motion for reconsideration and/or rehearing having been denied by the Court of
admitted by plaintiff and defendant Gaborro only. Appeals, hence the present petition for review on certiorari. The petitioner assigns the following
errors, to wit:jgc:chanrobles.com .ph

11. That since defendant Gaborro took possession of the lands in question, he has been
appropriating all the fruits produced and other income of said lands without giving to the "I. The Court of Appeals, like the lower court, erred in not holding that upon established facts
plaintiff any share thereof. This fact has been admitted by plaintiff and defendant Gaborro only. and undisputed documentary evidence, the deed of sale with assumption of mortgage (Exhibit
A-Stipulation) constitutes an equitable mortgage or conveyance to secure petitioners obligation
Let a copy of this order be served upon the plaintiff, defendant Gaborro and the Development to reimburse or refund to defendant Alfredo Gaborro any and all sums to the extent of
Bank of the Philippines with the understanding that, if, within fifteen (15) days, none of the P131,831.91, paid by said defendant in total or partial satisfaction of petitioners mortgage
parties questions the correctness of the facts set forth above, this stipulation of facts shall be debts to the DBP and the PNB. In this connection, the Court of Appeals erred: chanrob1es virtual 1aw library

conclusive upon the parties interested in this case.

(A) In not finding that the petitioner was the lawful owner of the lands in question: chanrob1es virtual 1aw library

Set the trial on the controversial facts on April 18, 1963, at 9:00 oclock in the morning.
(B) In not finding that the deed of sale in question is not a real and unconditional sale; and
Paragraphs 3 and 10 of the above quoted order were deleted in an order dated July 26, 1963.
(C) In not holding that the option to purchase real estate (Exhibit B-Stipulation) is conclusive
The records disclose that during the pendency of the case in the trial court, motions were filed evidence that the transaction in question is in fact an equitable mortgage.
by the plaintiff for the appointment of a receiver of the properties but all were denied. Plaintiff
also reiterated the same motion before the appellate court which, however, dismissed the same, "II. The Court of Appeals also erred in funding that the instrument entitled Assignment of Right
reserving to him the right to file in the trial court. Plaintiff did file but with the same of Redemption and Assumption of Obligation is conclusive evidence that the real transaction
result, Certiorari proceedings were resorted to in the Court of Appeals in CA-G.R. No. SP-01403 evidenced by the Deed of Sale with Assumption of Mortgage is not an equitable mortgage. In
entitled "Jose P. Dizon v. Hon. Felipe Buencamino, Et. Al." which the respondent court denied. this connection the said court also erred or at least committed a grave abuse of discretion: chanrob1es virtual 1aw library

After trial the court held that the true agreement between Jose P. Dizon, the plaintiff therein,
and the defendant Alfredo G. Gaborro is that the defendant would assume and pay the
indebtedness of the plaintiff to the Development Bank of the Philippines and the Philippine
National Bank, and in consideration therefor, the defendant was given the possession and
enjoyment of the properties in question until the plaintiff shall have reimbursed to defendant
fully the amount of P131,831.91 plus 6% interest per annum.
Accordingly, on March 14, 1970, the lower court rendered judgment, the dispositive part of
which reads: chanrobles law library
(A) In not finding that the said deed of assignment is in fact a mere reiteration of the terms and
condition of the deed of sale;
(B) In finding that the price or consideration of the aforesaid assignment of right of redemption
consisted of 300 cavans of palay delivered by Mrs. Gaborro to the petitioner;
(C) In finding that defendant Gaborro purchased the lands in question by virtue of the
aforementioned deed of assignment.

"III. The Court of Appeals, like the trial court, also erred in not finding that the estate of Alfredo
"IN VIEW OF THE FOREGOING, the documents entitled Deed of Sale with Assumption of G. Gaborro is under obligation to render an accounting of all the produce, fruits and other
Mortgage (Exhibit A-Stipulation) and Option to Purchase Real Estate (Exhibit B-Stipulation) are income of the lands in question from October 6, 1959, and to reconvey the said lands to the
hereby reformed to the extent indicated above. However, since this action was filed before the herein petitioner. In this connection, the said court also erred: chanrob1es virtual 1aw library

period allowed the plaintiff to redeem his property, the prematurity of this action aside from not
being principally alleged in the complaint, deters this Court from ordering further reliefs and
remedies. The counterclaim of the defendant is dismissed.
The plaintiffs motion for new trial and for reconsideration, and motion for admission of
supplemental complaint having been denied for lack of merit, on June 6, 1970, plaintiff
(A) In not holding that as a mortgagee in possession, the Gaborro estate has the obligation to
either render an accounting of the produce or fruits of the lands, or to pay rentals for the
occupation of said lands;
(B) In not finding that the Gaborro estate has the obligations to reconvey the lands in
controversy to the herein petitioner, upon payment of the balance due from him after deducting the possession of the properties. (Section 35, Revised Rules of Court). The weight of authority is
either the net value of the produce or fruits of the said lands or the rentals thereof; to the effect that the purchaser of land sold at public auction under a writ of execution only has
an inchoate right in the property, subject to be defeated and terminated within the period of 12
(C) In not finding that further reliefs or remedies may be granted the herein petitioner; and months from the date of sale, by a redemption on the part of the owner. Therefore, the
judgment debtor in possession of the property is entitled to remain therein during the period
(D) In not ordering the admission of herein petitioners Supplemental Complaint dated April allowed for redemption. (Riosa v. Verzosa, 26 Phil. 86; 89; Gonzales v. Calimbas, 51 Phil, 355.)
30, 1970.
In the case before Us, after the extrajudicial foreclosure and sale of his properties, petitioner
"IV. The Court of Appeals finally erred in not reversing the decision of the trial court, and in not Dizon retained the right to redeem the lands, the possession, use and enjoyment of the same
rendering judgment declaring that the deed of sale with assumption of mortgage (Exhibit A- during the period of redemption. And these are the only rights that Dizon could legally transfer,
Stipulation) is in fact an equitable mortgage; and in not ordering the Gaborro estate either to cede and convey unto respondent Gaborro under the instrument captioned Deed of Sale with
render an accounting of all the produce or fruits of the lands in question or to pay rentals for Assumption of Mortgage (Exh A-Stipulation), likewise the same rights that said respondent
the occupation thereof, from October 6, 1959: and in not ordering the estate of Alfredo G. could acquire in consideration of the latters promise to pay and assume the loan of petitioner
Gaborro to reconvey, transfer and assign unto the petitioner the aforementioned lands." Dizon with DBP and PNB.
cralaw virtua1aw library chanroble s law library : red

The two instruments sought to be reformed in this case appear to stipulate rights and Such an instrument cannot be legally considered a real and unconditional sale of the parcels of
obligations between the parties thereto pertaining to and involving parcels of land that had land, firstly, because there was absolutely no money consideration therefor, as admittedly
already been foreclosed and sold extrajudicially, and purchased by the mortgage creditor, a third stipulated, the sum of P131,831.91 mentioned in the document as the consideration "receipt of
party. It becomes, therefore, necessary to determine the legality of said rights and obligations which was acknowledged" was not actually paid; and secondly, because the properties had
arising from the foreclosure and sale proceedings not only between the two contracting parties already been previously sold by the sheriff at the foreclosure sale, thereby divesting the
to the instruments executed between them but also in so far as the agreement affects the rights petitioner of his full right as owner thereof to dispose and sell the lands.
of the third party, the purchaser Bank.
In legal consequence thereby, respondent Gaborro as transferee of these certain limited rights
Act 3135, Section 6 as amended by Act 4118, under which the properties were extrajudicially or interests under Exh. A-Stipulation, cannot grant to petitioner Dizon more than said rights,
foreclosed and sold, provides that:jgc:chanroble s.com.ph such as the option to purchase the lands as stipulated in the document called Option to
Purchase Real Estate (Exhibit B-Stipulation). This is necessarily so for the reason that
"Sec. 6. In all cases in which an extrajudicial sale is made under the special power herein before respondent Gaborro did not purchase or acquire the full title and ownership of the properties by
referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of virtue of the Deed of Sale With Assumption of Mortgage (Exh. A-Stipulation), earlier executed
sale debtor, or any person having a lien on the property subsequent to the mortgage or deed of between them which We have ruled out as an absolute sale. The only legal effect of this Option
trust under which the property is sold, may redeem the same at any time within the term or Deed is the grant to petitioner the right to recover the properties upon reimbursing respondent
one year from and after the date of the sale; and such redemption shall be governed by the Gaborro of the total sums of money that the latter may have paid to DBP and PNB on account of
provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the the mortgage debts, the said right to be exercised within the stipulated 5 years period.
Code of Civil Procedure, in so far as these are not consistent with the provisions of this Act.
In the light of the foreclosure proceedings and sale of the properties, a legal point of primary
Under the Revised Rules of Court, Rule 39, Section 33, the judgment debtor remains in importance here, as well as other relevant facts and circumstances, We agree with the findings
possession of the property foreclosed and sold, during the period of redemption. If the of the trial and appellate courts that the true intention of the parties is that respondent Gaborro
judgment debtor is in possession of the property sold, he is entitled to retain it and receive the would assume and pay the indebtedness of petitioner Dizon to DBP and PNB, and in
fruits, the purchaser not being entitled to such possession. (Riosa v. Verzosa, 26 Phil. 86; consideration therefor, respondent Gaborro was given the possession, the enjoyment and use of
Velasco v. Rosenbergs Inc., 32 Phil. 72; Pabico v. Pauco, 43 Phil, 572; Power v. PNB, 54 Phil. the lands until petitioner can reimburse fully the respondent the amounts paid by the latter to
54; Gorospe v. Gochangco, L-12735, Oct. 30, 1959). DBP and PNB, to accomplish the following ends: (a) payment of the bank obligations; (b) make
the lands productive for the benefit of the possessor, respondent Gaborro; (c) assure the return
A judgment debtor, whose property is levied on execution, may transfer his right of redemption of the land to the original owner, petitioner Dizon, thus rendering equity and fairness to all
to any one whom he may desire. The right to redeem land sold under execution within 12 parties concerned.
months is a property right and may be sold voluntarily by its owner and may also be attached
and sold under execution. (Magno v. Viola and Sotto, 61 Phil. 80). In view of all these considerations, the law and jurisprudence, and the facts established, We find
that the agreement between petitioner Dizon and respondent Gaborro is one of those
Upon foreclosure and sale, the purchaser is entitled to a certificate of sale executed by the innominate contracts under Art. 1307 of the New Civil Code whereby petitioner and respondent
sheriff. (Section 27, Revised Rules of Court) After the termination of the period of redemption agreed "to give and to do" certain rights and obligations respecting the lands and the mortgage
and no redemption having been made, the purchaser is entitled to a deed of conveyance and to debts of petitioner which would be acceptable to the bank, but partaking of the nature of the
antichresis insofar as the principal parties, petitioner Dizon and respondent Gaborro, are the interests that may have accrued thereon or may have been paid by Gaborro, on the basis of
concerned. duly certified statements issued by said banks;

Mistake is a ground for the reformation of an instrument when, there having been a meeting of (b) Any outstanding balance due on Dizons original principal loan of P38,000.00 with the
the minds of the parties to a contract, their true intention is not expressed in the instrument Development Bank of the Philippines assumed by Gaborro and on Dizons original principal loan
purporting to embody the agreement, and one of the parties may ask for such reformation to of 93,831.91 with the PNB shall be deducted from the above-fixed reconveyance price payable
the end that such true intention may be expressed. (Art. 1359, New Civil code). When a mutual to Gaborro, in order to enable Dizon to pay off the said mortgage loans directly to the said
mistake of the parties causes the failure of the instrument to disclose their real agreement, said banks, in accordance with terms mutually agreed upon with them by Dizon;
instrument may be reformed. (Art. 1361, New Civil Code.) It was a mistake for the parties to
execute the Deed of Sale With Assumption of Mortgage and the Option to Purchase Real Estate (c) In other words, the maximum reconveyance price that Dizon is obligated to pay is the total
and stand on the literal meaning of the terms and stipulations used therein. sum of P31,831.91 (the sum total of the principals of his two original loans with the DBP and
PNB), and should the amounts due to the said banks exceed this total of P31,831.91 (because
The instruments must, therefore be reformed in accordance with the intention and legal rights of delinquent interests and other charges), nothing shall be due Gaborro by way of
and obligations of the parties the petitioner, the respondent and the Banks. We agree with reimbursement and Dizon will thereupon step into the shoes of Gaborro as owner-mortgagor of
the reformation decreed by the trial and appellate courts, but in the sense that petitioner Jose P. the properties and directly arrange with the bars for the settlement of the amounts still due and
Dizon has the right to reacquire the three parcels of land within the one-year period indicated payable to them, subject to the right of Dizon to recover such amounts in excess of P31,831.91
below by refunding or reimbursing to respondent Alfredo G. Gaborro or the Judicial from Gaborro by writ of execution in this case; and
Administratrix of his Estate whatever amount the latter has actually paid on account of the
principal only, of the loans of Dizon with the DBP and PNB, excluding the interests and land (d) As already stated, Dizon is not entitled to an accounting of the fruits, harvests and other
taxes that may have been paid or may have accrued, on duly certified financial statements income received by Gaborro from the land while Gaborro in turn is not entitled to the payment
issued by the said banks. of any interests on any amounts paid by him on account of the principal loans to the banks nor
reimbursement of any interests paid by him to the banks.
On the issue of the accounting of the fruits, harvests and other income received from the three
parcels of land from October 6, 1959 up to the present, prayed and demanded by Dizon of WHEREFORE, the judgment appealed from is hereby affirmed with the modification that
Gaborro or the Judicial Administratrix of the latters estate, We hold that in fairness and equity petitioner Dizon is granted the right within one year from finality of this decision to a
and in the interests of justice that since We have ruled out the obligation of petitioner Dizon to reconveyance of the properties in litigation upon payment and reimbursement to respondent
reimburse respondent Gaborro of any interests and land taxes that have accrued or been paid estate of Alfredo G. Gaborro of the amounts actually paid by Gaborro or his estate on account of
by the latter on the loans of Dizon with DBP and PNB, petitioner Dizon in turn is not entitled to the principal only of Dizons original loans with the Development Bank of the Philippines and
an accounting of the fruits, harvests and other income received by respondent Gaborro from the Philippine National Bank in and up to the total amount of P31,831.91, under the terms and
lands, for certainly, petitioner cannot have both benefits and the two may be said to offset each conditions set forth in the preceding paragraph with subparagraphs (a) to (d), which are hereby
other.
chanroble s virtual lawlibrary incorporated by reference as an integral part of this judgment, and upon the exercise of such
right, respondent estate shall forthwith execute the corresponding deed of reconveyance in
By virtue of the Option to Purchase Real Estate (Exh. B-Stipulation) which on its face granted favor of petitioner Dizon and deliver possession of the properties to him. Without
Dizon the option to purchase the properties which must be exercised within the period from pronouncement as to costs. chanroble s.com:cralaw:red

January, 1960 to December 31, 1965 but which We held to be simply the grant of the right to
petitioner Dizon to recover his properties within the said period, although already expired by Teehankee (Chairman), Makasiar, Muoz Palma and Fernandez, JJ., concur.
reasons and circumstances beyond his control, petitioner is entitled to a reconveyance of the
properties within a reasonable period. The period of one year from the date of the finality of this
judgment as laid down by the Court of Appeals for the exercise of such right by petitioner Dizon
appears fair and reasonable and We approve the same.

Since We are not informed of the status of Dizons loan of P93,831.91 with the Philippine
National Bank which appears to be on a subsisting basis, it is proper to indicate here how
petitioner Dizon may exercise the right to a reconveyance of the properties as herein affirmed,
as follows: chanrob1es virtual 1aw library

(a) Dizon is granted the right to a reconveyance of the properties by reimbursing Gaborro (or
his estate) whatever amount(s) the latter has actually paid on account of the principal only, of
Dizons loans of P38,000.00 and P93,831.91 which the DBP and PNB, respectively, exclusive of
 EN BANC

[G.R. No. 47806. April 14, 1941.]

DECISION
LEONCIO GABRIEL, Petitioner, v. MONTE DE PIEDAD Y CAJA DE AHORROS and THE
COURT OF APPEALS, Respondents.

Vicente J. Francisco and Rody M. Jalandoni, for Petitioner.

LAUREL, J.:
Cavanna, Jazmines & Tianco, for Respondent.

SYLLABUS

1. CONTRACTS, FREEDOM OF CONTRACT. A contract is to be judged by its character, and The herein petitioner was employed as appraiser of jewels in the pawnshop of the Monte de
courts will look to the substance and not to the mere form of the transaction. The freedom of Piedad from 1913 up to May, 1933. On December 13, 1932, he executed a chattel mortgage to
contract is both a constitutional and statutory right and to uphold this right, courts should move secure the payment of the deficiencies which resulted from his erroneous appraisal of the jewels
with all the necessary caution and prudence in holding contracts void. (People v. Pomar, 46 Phil., pawned to the appellee, amounting to P14,679.07, with six per cent (6 %) interest from said
440; Ferrazzini v. Gsell, 34 Phil., 697.) date. In this chattel mortgage, the appellant promised to pay to the appellee the sum of P300 a
month until the sum of P14,679.07, with interest is fully paid. The document was registered on
2. ID.; PUBLIC POLICY. Courts should not rashly extend the rule which holds that a contract December 22, 1932 (statement, decision of Court of Appeals). To recover the aforementioned
is void as against public policy. The term "public policy" is vague and uncertain in meaning, sum less what had been paid, amounting to P3,333.25 or the balance of P11,346.75, and in
floating and changeable in connotation. It may be said, however, that, in general, a contract case of default to effectuate the chattel mortgage, an action was instituted against the
which is neither prohibited by law nor condemned by judicial decision, nor contrary to public petitioner by the respondent Monte de Piedad in the Court of First Instance of Manila (civil case
morals, contravenes no public policy. In the absence of express legislation or constitutional No. 50847). The petitioner answered, denying generally and specifically all the specifications
prohibition, a court, in order to declare a contract void as against public policy, must and that therein, and also denied under oath the geniuses of the execution of the alleged chattel
the contract as to the consideration or thing to be done, has a tendency to injure the public, is mortgage attached thereto. By way of special defense, he alleged (1) that the chattel mortgage
against the public good, or contravenes some established interests of society, or is inconsistent was a part of a scheme on the part of the management of the Monte de Piedad to cover up
with sound policy and good morals, or tends clearly to undermine the security of individual supposed losses incurred in its pawnshop department; (2) that a criminal action had been
rights, whether of personal liability or of private property. Examining the contract at bar, we are instituted at the instance of the plaintiff against him wherein said chattel mortgage was
of the opinion that it does not in anyway militate against the public good. Neither does it presented by the prosecution with regard to his supposed responsibility as expert appraiser of
contravene the policy of the law nor the established interests of society. jewels of the plaintiff entity but he was therein acquitted; and (3) that said acquittal constituted
a bar to the civil case. By way of cross-complaint, the petitioner alleged (1) that the chattel
3. ID.; CONSIDERATION. A consideration, in the legal sense of the word, is some right, mortgage was entered into by E. Marco for and in behalf of the Monte de Piedad without being
interest, benefit, or advantage conferred upon the primrose, to which he is otherwise not duly authorized to do so by the latter; (2) that the defendant was induced, through false
lawfully entitled, or any detriment, prejudice, loss, or disadvantage suffered or undertaken by representation, to sign said chattel mortgage against his will; (3) that the chattel mortgage was
the promises other than to such as he is at the time of consent bound to suffer. We think that based upon all nonexisting subject matter and nonexisting consideration; and (4) that the
there is sufficient consideration in this contract, for, according to the Court of Appeals, "it haschattel mortgage was null and void ab initio. By way of counterclaim, the petitioner alleged (1)
been satisfactorily established that it was executed voluntarily by the latter to grantee the that the payments made by him for the account of the chattel mortgage amounting to
deficiencies resulting from his erroneous appraisals of the jewelry." A preexisting admitted P3,333.25 were made through deceit and without his consent and consisted of P300 monthly
liability is a good consideration for a promise. The fact that the bargain is a hard one will not deductions from his salary, printing job for plaintiff done by him in his printing press, and
deprive it of validity. The exception to this rule in modern legislation is where the inadequacy is reimbursement made from the pocket of E. Marco; (2) that he has received P356.25 a month as
so gross as to amount to fraud, oppression or undue influence, or when statutes require the expert appraiser of the plaintiff and that he was separated arbitrarily at the end of the month of
consideration to be adequate. We are not convinced that the instant case falls within the May 1933, from the plaintiff entity without lawful cause and one month notice and plaintiff failed
exception. to pay him his salary for the month of May, 1933 and the month of June, 1933, in accordance
with law; and (3) that due to the malicious and systematic prosecution brought in criminal case
4. ID.; CHATTEL MORTGAGE; AFFIDAVIT. Statutory requirements as to forms or words of the No. 49078 and in the present case, he suffered damages and losses both materially and in his
affidavits in chattel mortgage contracts must be substantially, but need not be literally, complied reputation in the amount of at least P15,000. Wherefore, Petitioner, among others, prayed that
with. the Monte de Piedad be ordered to return the unlawful deductions from his monthly
remuneration, to pay his salary for the months of May and June, 1933, and damages and losses Piedad." Statutory requirements as to forms or words of the affidavits in chattel mortgage
he suffered amounting to P15,000. contracts must be substantially, but need not be literally, complied with.

The lower court rendered judgment in favor of the Monte de Piedad against the herein The second assignment of error made by the petitioner ix that the Court of Appeals erred in not
petitioner. Petitioner brought the case on appeal to the Court of Appeals, which affirmed the holding that the acquittal of the petitioner in criminal case No. 49078 of the Court of First
judgment of the lower court in a decision rendered May 29, 1940. Hence, this petition for review Instance of Manila bars the action to enforce any civil liability under said chattel mortgage. We
by certiorari. do not need to dwell at length on this assignment of error, for we find no reason for disturbing
the conclusion reached by the Court of Appeals on this point:
jgc:chanroble s.com.ph

Petitioner contends that the provisions of the chattel mortgage contract by which he guaranteed
to pay the deficiencies amounting to P14,679.07 are contrary to law, morals and public policy, "The appellant claims that his acquittal in criminal case No. 49078 of the Court of First Instance
and hence, the chattel mortgage contract is ineffective and the principal obligation secured by it of Manila is a bar to the institution of the present case. The evidence of record does not bear
is void. A contract is to be judged by its character, and courts will look to the substance and not out this contention. There is no identity of subject matter between the two cases; nor is the
to the mere form of the transaction. The freedom of contract is both a constitutional and instant case dependent upon the said criminal action. We agree with the trial court that the
statutory right and to uphold this right, courts should move with all the necessary caution and transactions involved in this case are different from those involved in criminal case No. 49078.
prudence in holding contracts void. (People v. Pomar, 46 Phil., 440; Ferrazzini v. Gsell, 34 Phil., The courts finding that the transactions involved in the case at bar commenced in August,
697.) At any rate, courts should not rashly extend the rule which holds that a contract is void as 1932, can not be considered erroneous simply because Exhibit F-32 of the plaintiff is allegedly
against public policy. The term "public policy" is vague and uncertain in meaning, floating and dated August 20, 1931. Exhibit F-22 can not be given any probative value, it was undated
changeable in connotation. It may be said, however, that, in general, a contract which is neither during the hearing of the case."cralaw virtua1aw library

prohibited by law nor condemned by judicial decision, nor contrary to public morals,
contravenes no public policy. In the absence of express legislation or constitutional prohibition, We do not find it necessary to discuss the last assignment of error.
a court, in order to declare a contract void as against public policy, must find that the contract
as to the consideration or thing to be done, has a tendency to injure the public, is against the The petition is hereby dismissed and the judgment sought to be reviewed is affirmed, with costs
public good, or contravenes some established interests of society. or is inconsistent with sound against the petitioner. So ordered.
policy and good morals, or tends clearly to undermine the security of individual rights, whether
of personal liability or of private property. Examining the contract at bar, we are of the opinion Imperial, Diaz, Moran and Horrilleno, JJ., concur.
that it does not in anyway militate against the public good. Neither does it contravene the policy
of the law nor the established interests of society.

Petitioner also contends that the chattel mortgage in question is void because it lacks
consideration. A consideration, in the legal sense of the word, is some right, interest, benefit, or
advantage conferred upon the promissory, to which he is otherwise not lawfully entitled, or any
detriment, prejudice, loss, or disadvantage suffered or undertaken by the promise other than to
such as he is at the time of consent bound to suffer. We think that there is sufficient
consideration in this contract, for, according to the Court of Appeals, "it has been satisfactorily
established that it was executed voluntarily by the latter to guarantee the deficiencies resulting
from his erroneous appraisals of the jewels." A preexisting admitted liability is a good
consideration for a promise. The fact that the bargain is a hard one will not deprive it of validity.
The exception to this rule in modern legislation is where the inadequacy is so gross as to
amount to fraud, oppression or undue influence, or when statutes require the consideration to
be adequate. We are not convinced that the instant case falls within the exception.

Another objection raised is that the requirement of section 5 of Act No. 1508 has not been
complied with. We think that there is substantial compliance with the requirements of the
Chattel Mortgage Law on this point. The wording of the affidavit under discussion, as it appears
from the record, is almost in the same language of the statute. Likewise, it appears that it was
signed by E. Marco, who was Director-General of the Monte de Piedad at the time of the
execution of the contract of chattel mortgage. The Court of Appeals found that "the contention
that director Marco had no authority to enter into the agreement is without merit. It appears
that there was confirmation of Exhibit A by the Consejo de administracion of the Monte de
 THIRD DIVISION this agreement at any time by giving the EMPLOYEE notice in writing in advance one month
before the intended termination or in lieu thereof, by paying the EMPLOYEE wages equivalent to
[G.R. No. 61594. September 28, 1990.] one months salary.

PAKISTAN INTERNATIONAL AIRLINES CORPORATION, Petitioner, v. HON. BLAS F. x x x

OPLE, in his capacity as Minister of Labor; HON. VICENTE LEOGARDO, JR., in his
capacity as Deputy Minister; ETHELYNNE B. FARRALES and MARIA MOONYEEN
MAMASIG, Respondents.
10. APPLICABLE LAW: chanrob1es virtual 1aw library

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for Petitioner.

This agreement shall be construed and governed under and by the laws of Pakistan, and only
Ledesma, Saludo & Associates for Private Respondents. the Courts of Karachi, Pakistan shall have the jurisdiction to consider any matter arising out of
or under this agreement." cralaw virtua1aw library

Respondents then commenced training in Pakistan. After their training period, they began
discharging their job functions as flight attendants, with base station in Manila and flying
DECISION assignments to different parts of the Middle East and Europe.

On 2 August 1980, roughly one (1) year and four (4) months prior to the expiration of the
contracts of employment, PIA through Mr. Oscar Benares, counsel for and official of the local
branch of PIA, sent separate letters both dated 1 August 1980 to private respondents Farrales
FELICIANO, J.:and Mamasig advising both that their services as flight stewardesses would be terminated
"effective 1 September 1980, conformably to clause 6 (b) of the employment agreement [they
had] executed with [PIA]." 2

On 9 September 1980, private respondents Farrales and Mamasig jointly instituted a complaint,
On 2 December 1978, petitioner Pakistan International Airlines Corporation ("PIA"), a foreign docketed as NCR-STF-9-5151-80, for illegal dismissal and non-payment of company benefits
corporation licensed to do business in the Philippines, executed in Manila two (2) separate and bonuses, against PIA with the then Ministry of Labor and Employment ("MOLE"). After
contracts of employment, one with private respondent Ethelynne B. Farrales and the other with several unfruitful attempts at conciliation, the MOLE hearing officer Atty. Jose M. Pascual
private respondent Ma. M.C. Mamasig. 1 The contracts, which became effective on 9 January ordered the parties to submit their position papers and evidence supporting their respective
1979, provided in pertinent portion as follows: positions. The PIA submitted its position paper, 3 out no evidence, and there claimed that both
private respondents were habitual absentees; that both were in the habit of bringing in from
jgc:chanroble s.com.ph

"5. DURATION OF EMPLOYMENT AND PENALTY abroad sizeable quantities of "personal effects" ; and that PIA personnel at the Manila
International Airport had been discreetly warned by customs officials to advise private
This agreement is for a period of three (3) years, but can be extended by the mutual consent of respondents to discontinue that practice. PIA further claimed that the services of both private
the parties. respondents were terminated pursuant to the provisions of the employment contract.

x x
6. TERMINATION
x x
Notwithstanding anything to contrary as herein provided, PIA reserves the right to terminate
x In his Order dated 22 January 1981, Regional Director Francisco L. Estrella ordered the
reinstatement of private respondents with full backwages or, in the alternative, the payment to
them of the amounts equivalent to their salaries for the remainder of the fixed three-year period
of their employment contracts; the payment to private respondent Mamasig of an amount
equivalent to the value of a round trip ticket Manila-USA-Manila; and payment of a bonus to
each of the private respondents equivalent to their one-month salary. 4 The Order stated that
private respondents had attained the status of regular employees after they had rendered more
x
than a year of continued service; that the stipulation limiting the period of the employment
contract to three (3) years was null and void as violative of the provisions of the Labor Code and
its implementing rules and regulations on regular and casual employment; and that the
dismissal, having been carried out without the requisite clearance from the MOLE, was illegal
and entitled private respondents to reinstatement with full backwages.
 "Under PD 850, termination cases with or without CBA are now placed under the original
On appeal, in an Order dated 12 August 1982, Hon. Vicente Leogardo, Jr., Deputy Minister, jurisdiction of the Regional Director. Preventive suspension cases, now made cognizable for the
MOLE, adopted the findings of fact and conclusions of the Regional Director and affirmed the first time, are also placed under the Regional Director. Before PD 850, termination cases where
latters award save for the portion thereof giving PIA the option, in lieu of reinstatement, "to pay there was a CBA were under the jurisdiction of the grievance machinery and voluntary
each of the complainants [private respondents] their salaries corresponding to the unexpired arbitration, while termination cases where there was no CBA were under the jurisdiction of the
portion of the contract[s] [of employment] . . ." 5 Conciliation Section.

In the instant Petition for Certiorari, petitioner PIA assails the award of the Regional Director In more details, the major innovations introduced by PD 850 and its implementing rules and
and the Order of the Deputy Minister as having been rendered without jurisdiction; for having regulations with respect to termination and preventive suspension cases are: chanrob1es virtual 1aw library

been rendered without support in the evidence of record since, allegedly, no hearing was
conducted by the hearing officer, Atty. Jose M. Pascual; and for having been issued in disregard 1. The Regional Director is now required to rule on every application for clearance, whether
and in violation of petitioners rights under the employment contracts with private respondents. there is opposition or not, within ten days from receipt thereof.

1. Petitioners first contention is that the Regional Director, MOLE, had no jurisdiction over the x x x"
subject matter of the complaint initiated by private respondents for illegal dismissal, jurisdiction
over the same being lodged in the Arbitration Branch of the National Labor Relations (Emphasis supplied)
Commission ("NLRC"). It appears to us beyond dispute, however, that both at the time the
complaint was initiated in September 1980 and at the time the Orders assailed were rendered 2. The second contention of petitioner PIA is that, even if the Regional Director had jurisdiction,
on January 1981 (by Regional Director Francisco L. Estrella) and August 1982 (by Deputy still his order was null and void because it had been issued in violation of petitioners right to
Minister Vicente Leogardo, Jr.), the Regional Director had jurisdiction over termination cases. procedural due process. 6 This claim, however, cannot be given serious consideration. Petitioner
was ordered by the Regional Director to submit not only its position paper but also such
Article 278 of the Labor Code, as it then existed, forbade the termination of the services of evidence in its favor as it might have. Petitioner opted to rely solely upon its position paper; we
employees with at least one (1) year of service without prior clearance from the Department of must assume it had no evidence to sustain its assertions. Thus, even if no formal or oral hearing
Labor and Employment: jgc:chanroble s.com.ph was conducted, petitioner had ample opportunity to explain its side. Moreover, petitioner PIA
was able to appeal his case to the Ministry of Labor and Employment. 7
"Art. 278. Miscellaneous Provisions . . .
There is another reason why petitioners claim of denial of due process must be rejected. At the
(b) With or without a collective agreement, no employer may shut down his establishment or time the complaint was filed by private respondents on 21 September 1980 and at the time the
dismiss or terminate the employment of employees with at least one year of service during the Regional Director issued his questioned order on 22 January 1981, applicable regulation, as
last two (2) years, whether such service is continuous or broken, without prior written authority noted above, specified that a "dismissal without prior clearance shall be conclusively presumed
issued in accordance with such rules and regulations as the Secretary may promulgate . . ." to be termination of employment without a just cause", and the Regional Director was required
(Emphasis supplied) in such case to "order the immediate reinstatement of the employee and the payment of his
wages from the time of the shutdown or dismissal until . . . reinstatement." In other words,
Rule XIV, Book No. 5 of the Rules and Regulations Implementing the Labor Code, made clear under the then applicable rule, the Regional Director did not even have to require submission of
that in case of a termination without the necessary clearance, the Regional Director was position papers by the parties in view of the conclusive (juris et de jure) character of the
authorized to order the reinstatement of the employee concerned and the payment of presumption created by such applicable law and regulation. In Cebu Institute of Technology v.
backwages; necessarily, therefore, the Regional Director must have been given jurisdiction over Minister of Labor and Employment, 8 the Court pointed out that "under Rule 14, Section 2, of
such termination cases: jgc:chanroble s.com.ph the Implementing Rules and Regulations, the termination of [an employee] which was without
previous clearance from the Ministry of Labor is conclusively presumed to be without [just]
"Section 2. Shutdown or dismissal without clearance. Any shutdown or dismissal without prior cause . . . [a presumption which] cannot be overturned by any contrary proof however strong." cralaw

clearance shall be conclusively presumed to be termination of employment without a just cause.

virtua1aw library

The Regional Director shall, in such case order the immediate reinstatement of the employee
and the payment of his wages from the time of the shutdown or dismissal until the time of
reinstatement." (Emphasis supplied)
Policy Instruction No. 14 issued by the Secretary of Labor, dated 23 April 1976, was similarly
very explicit about the jurisdiction of the Regional Director over termination of employment
cases:jgc:chanroble s.com.ph
3. In its third contention, petitioner PIA invokes paragraphs 5 and 6 of its contract of
employment with private respondents Farrales and Mamasig, arguing that its relationship with
them was governed by the provisions of its contract rather than by the general provisions of the
Labor Code. 9
Paragraph 5 of that contract set a term of three (3) years for that relationship, extendible by
agreement between the parties; while paragraph 6 provided that, notwithstanding any other
provision in the contract, PIA had the right to terminate the employment agreement at any time
by giving one-months notice to the employee or, in lieu of such notice, one-months salary. "There can of course be no quarrel with the proposition that where from the circumstances it is
apparent that periods have been imposed to preclude acquisition of tenurial security by the
A contract freely entered into should, of course, be respected, as PIA argues, since a contract is employee, they should be struck down or disregarded as contrary to public policy, morals, etc.
the law between the parties. 10 The principle of party autonomy in contracts is not, however, an But where no such intent to circumvent the law is shown, or stated otherwise, where the reason
absolute principle. The rule in Article 1306, of our Civil Code is that the contracting parties may for the law does not exist, e.g. where it is indeed the employee himself who insists upon a
establish such stipulations as they may deem convenient," provided they are not contrary to period or where the nature of the engagement is such that, without being seasonal or for a
law, morals, good customs, public order or public policy." Thus, counter-balancing the principle specific project, a definite date of termination is a sine qua non, would an agreement fixing a
of autonomy of contracting parties is the equally general rule that provisions of applicable law, period be essentially evil or illicit, therefore anathema? Would such an agreement come within
especially provisions relating to matters affected with public policy, are deemed written into the the scope of Article 280 which admittedly was enacted `to prevent the circumvention of the
contract. 11 Put a little differently, the governing principle is that parties may not contract away right of the employee to be secured in . . (his) employment?
applicable provisions of law especially peremptory provisions dealing with matters heavily
impressed with public interest. The law relating to labor and employment is clearly such an area As it is evident from even only the three examples already given that Article 280 of the Labor
and parties are not at liberty to insulate themselves and their relationships from the impact of Code, under a narrow and literal interpretation, not only fails to exhaust the gamut of
labor laws and regulations by simply contracting with each other. It is thus necessary to employment contracts to which the lack of a fixed period would be an anomaly, but would also
appraise the contractual provisions invoked by petitioner PIA in terms of their consistency with appear to restrict, without reasonable distinctions, the right of an employee to freely stipulate
applicable Philippine law and regulations. with his employer the duration of his engagement, it logically follows that such a literal
interpretation should be eschewed or avoided. The law must be given reasonable interpretation,
As noted earlier, both the Labor Arbiter and the Deputy Minister, MOLE, in effect held that to preclude absurdity in its application. Outlawing the whole concept of term employment and
paragraph 5 of that employment contract was inconsistent with Articles 280 and 281 of the subverting to boot the principle of freedom of contract to remedy the evil of employers using it
Labor Code as they existed at the time the contract of employment was entered into, and hence as a means to prevent their employees from obtaining security of tenure is like cutting off the
refused to give effect to said paragraph 5. These Articles read as follows:jgc:chanroble s.com.ph nose to spite the face or, more relevantly, curing a headache by lopping off the head.

"Art. 280. Security of Tenure. In cases of regular employment, the employer shall not x x x
terminate the services of an employee except for a just cause or when authorized by this Title.
An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss
of seniority rights and to his backwages computed from the time his compensation was withheld
from him up to the time his reinstatement. Accordingly, and since the entire purpose behind the development of legislation culminating in
the present Article 280 of the Labor Code clearly appears to have been, as already observed, to
Article 281. Regular and Casual Employment. The provisions of written agreement to the prevent circumvention of the employees right to be secure in his tenure, the clause in said
contrary notwithstanding and regardless of the oral agreements of the parties, an employment article indiscriminately and completely ruling out all written or oral agreements conflicting with
shall be deemed to be regular where the employee has been engaged to perform activities the concept of regular employment as defined therein should be construed to refer to the
which are usually necessary or desirable in the usual business or trade of the employer, except substantive evil that the Code itself has singled out: agreements entered into precisely to
where the employment has been fixed for a specific project or undertaking the completion or circumvent security of tenure. It should have no application to instances where a fixed period of
termination of which has been determined at the time of the engagement of the employee or employment was agreed upon knowingly and voluntarily by the parties, without any force,
where the work or services to be performed is seasonal in nature and the employment is for the duress or improper pressure being brought to bear upon the employee and absent any other
duration of the season. circumstances vitiating his consent, or where it satisfactorily appears that the employer and
employee dealt with each other on more or less equal terms with no moral dominance whatever
An employment shall be deemed to be casual if it is not covered by the preceding paragraph: being exercised by the former over the latter. Unless thus limited in its purview, the law would
provided, that, any employee who has rendered at least one year of service, whether such be made to apply to purposes other than those explicitly stated by its framers; it thus becomes
service is continuous or broken, shall be considered as regular employee with respect to the pointless and arbitrary, unjust in its effects and apt to lead to absurd and unintended
activity in which he is employed and his employment shall continue while such actually exists." consequences." cralaw virtua1aw library

(Emphasis supplied)
In Brent School, Inc., Et. Al. v. Ronaldo Zamora, etc., Et Al., 12 the Court had occasion to
examine in detail the question of whether employment for a fixed term has been outlawed
under the above quoted provisions of the Labor Code. After an extensive examination of the
history and development of Articles 280 and 281, the Court reached the conclusion that a
contract providing for employment with a fixed period was not necessarily unlawful:
(Emphasis supplied)
It is apparent from Brent School that the critical consideration is the presence or absence of a
substantial indication that the period specified in an employment agreement was designed to
circumvent the security of tenure of regular employees which is provided for in Articles 280 and
281 of the Labor Code. This indication must ordinarily rest upon some aspect of the agreement
jgc:chanroble s.com.ph

other than the mere specification of a fixed term of the employment agreement, or upon
evidence aliunde of the intent to evade. unlawfully terminated, petitioner should be required to pay separation pay to private
respondents amounting to one (1) months salary for every year of service rendered by them,
Examining the provisions of paragraphs 5 and 6 of the employment agreement between including the three (3) years service putatively rendered.
petitioner PIA and private respondents, we consider that those provisions must be read together
and when so read, the fixed period of three (3) years specified in paragraph 5 will be seen to ACCORDINGLY, the Petition for Certiorari is hereby DISMISSED for lack of merit, and the Order
have been effectively neutralized by the provisions of paragraph 6 of that agreement. Paragraph dated 12 August 1982 of public respondent is hereby AFFIRMED, except that (1) private
6 in effect took back from the employee the fixed three (3)-year period ostensibly granted by respondents are entitled to three (3) years backwages, without deduction or qualification; and
paragraph 5 by rendering such period in effect a facultative one at the option of the employer (2) should reinstatement of private respondents to their former positions or to substantially
PIA. For petitioner PIA claims to be authorized to shorten that term, at any time and for any equivalent positions not be feasible, then petitioner shall, in lieu thereof, pay to private
cause satisfactory to itself, to a one-month period, or even less by simply paying the employee respondents separation pay amounting to one (1)-months salary for every year of service
a months salary. Because the net effect of paragraphs 5 and 6 of the agreement here involved actually rendered by them and for the three (3) years putative service by private respondents.
is to render the employment of private respondents Farrales and Mamasig basically employment The Temporary Restraining Order issued on 13 September 1982 is hereby LIFTED. Costs against
at the pleasure of petitioner PIA, the Court considers that paragraphs 5 and 6 were intended to petitioner.
prevent any security of tenure from accruing in favor of private respondents even during the
limited period of three (3) years, 13 and thus to escape completely the thrust of Articles 280 SO ORDERED.
and 281 of the Labor Code.
Fernan C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.
Petitioner PIA cannot take refuge in paragraph 10 of its employment agreement which specifies,
firstly, the law of Pakistan as the applicable law of the agreement and, secondly, lays the venue
for settlement of any dispute arising out of or in connection with the agreement "only [in]
courts of Karachi, Pakistan." The first clause of paragraph 10 cannot be invoked to prevent the
application of Philippine labor laws and regulations to the subject matter of this case, i.e., the
employer-employee relationship between petitioner PIA and private respondents. We have
already pointed out that relationship is much affected with public interest and that the otherwise
applicable Philippine laws and regulations cannot be rendered illusory by the parties agreeing
upon some other law to govern their relationship. Neither may petitioner invoke the second
clause of paragraph 10, specifying the Karachi courts as the sole venue for the settlement of
disputes between the contracting parties. Even a cursory scrutiny of the relevant circumstances
of this case will show the multiple and substantive contacts between Philippine law and
Philippine courts, on the one hand, and the relationship between the parties, upon the other:
the contract was not only executed in the Philippines, it was also performed here, at least
partially; private respondents are Philippine citizens and residents, while petitioner, although a
foreign corporation, is licensed to do business (and actually doing business) and hence resident
in the Philippines; lastly, private respondents were based in the Philippines in between their
assigned flights to the Middle East and Europe. All the above contacts point to the Philippine
courts and administrative agencies as a proper forum for the resolution of contractual disputes
between the parties. Under these circumstances, paragraph 10 of the employment agreement
cannot be given effect so as to oust Philippine agencies and courts of the jurisdiction vested
upon them by Philippine law. Finally, and in any event, the petitioner PIA did not undertake to EN BANC
plead and prove the contents of Pakistan law on the matter; it must therefore be presumed that
the applicable provisions of the law of Pakistan are the same as the applicable provisions of [G.R. No. L-15127. May 30, 1961.]
Philippine law. 14
EMETERIO CUI, Plaintiff-Appellant, v. ARELLANO UNIVERSITY, Defendant-Appellee.
We conclude that private respondents Farrales and Mamasig were illegally dismissed and that
public respondent Deputy Minister, MOLE, had not committed any grave abuse of discretion nor G.A.S. Sipin, Jr., for Plaintiff-Appellant.
any act without or in excess of jurisdiction in ordering their reinstatement with backwages.
Private respondents are entitled to three (3) years backwages without qualification or E. Voltaire Garcia,, for Defendant-Appellee.
deduction. Should their reinstatement to their former or other substantially equivalent positions
not be feasible in view of the length of time which has gone by since their services were
 deanship and chancellorship of the College of Law of Abad Santos University, plaintiff left the
defendants law college and enrolled for the last semester of his fourth year law in the college of
law of the Abad Santos University graduating from the college of law of the latter university.
SYLLABUS Plaintiff, during all the time he was studying law in defendant university was awarded
scholarship grants, for scholastic merit, so that his semestral tuition fees were returned to him
after the ends of semesters and when his scholarship grants were awarded to him. The whole
amount of tuition fees paid by plaintiff to defendant and refunded to him by the latter from the
first semester up to and including the first semester of his last year in the college of law or the
1. CONTRACTS; STUDENTS AND EDUCATIONAL INSTITUTIONS; SCHOLARSHIPS; STIPULATION fourth year, is in total P1,033.87. After graduating in law from Abad Santos University he
WHEREBY STUDENT CANNOT TRANSFER TO ANOTHER SCHOOL WITHOUT REFUNDING applied to take the bar examination. To secure permission to take the bar he needed the
SCHOLARSHIP CASH NULL AND VOID. The stipulation in a contract, between a student and transcripts of his records in defendant Arellano University. Plaintiff petitioned the latter to issue
the school, that the students scholarship is good only if he continues in the same school, and to him the needed transcripts. The defendant refused until after he had paid back the P1,033.87
that he waives his right to transfer to another school without refunding the equivalent of his which defendant refunded to him as above stated. As he could not take the bar examination
scholarship in cash, is contrary to public policy and, hence, null and void, because scholarships without those transcripts, plaintiff paid to defendant the said sum under protest. This is the sum
are awarded in recognition of merit and to help gifted students in whom society has an which plaintiff seeks to recover from defendant in this case.
established interest or a first lien, and not to keep outstanding students in school to bolster its
prestige and increase its business potential. "Before defendant awarded to plaintiff the scholarship grants as above stated, he was made to
sign the following contract, covenant and agreement: chanrob1es virtual 1aw library

In consideration of the scholarship granted to me by the University, I hereby waive my right to

transfer to another school without having refunded to the University (defendant) the equivalent
DECISION of my scholarship cash.

(Sgd.) Emeterio Cui." cralaw virtua1aw library

It is admitted that, on August 16, 1949, the Director of Private Schools issued Memorandum No.
38, series of 1949, on the subject of "Scholarships", addressed to "All heads of private schools,
CONCEPCION, J.:
colleges and universities", reading: jgc:chanroble s.com.ph

Appeal by plaintiff Emeterio Cui from a decision of the Court of First Instance of Manila,
absolving defendant Arellano University from plaintiffs complaint, with costs against the
plaintiff, and dismissing defendants counterclaim, for insufficiency of proof thereon.
In the language of the decision appealed from: jgc:chanroble s.com.ph
"1. School catalogs and prospectuses submitted to this Bureau show that some schools offer full
or partial scholarships to deserving students for excellence in scholarship or for leadership in
extracurricular activities. Such inducements to poor but gifted students should be encouraged.
But to stipulate the condition that such scholarships are good only if the students concerned
continue in the same school nullifies the principle of merit in the award of these scholarships.
"2. When students are given full or partial scholarships, it is understood that such scholarships

are merited and earned. The amount in tuition and other fees corresponding to these
scholarships should not be subsequently charged to the recipient students when they decide to
"The essential facts of this case are short and undisputed. As established by the agreement of quit school or to transfer to another institution. Scholarships should not be offered merely to
facts Exhibit X and by the respective oral and documentary evidence introduced by the parties, attract and keep students in a school.
it appears conclusive that plaintiff, before the school year 1948-1949 took up preparatory law
course in the defendant University. After finishing his preparatory law course plaintiff enrolled in "3. Several complaints have actually been received from students who have enjoyed
the College of Law of the defendant from the school year 1948-1949. Plaintiff finished his law scholarships, full or partial, to the effect that they could not transfer to other schools since their
studies in the defendant university up to and including the first semester of the fourth year. credentials would not be released unless they would pay the fees corresponding to the period of
During all the school years in which plaintiff was studying law in defendant law college, the scholarships. Where the Bureau believes that the right of the student to transfer is being
Francisco R. Capistrano, brother of the mother of plaintiff, was the dean of the College of Law denied on this ground, it reserves the right to authorize such transfer."
and legal counsel of the defendant university. Plaintiff enrolled for the last semester of his law
cralaw virtua1aw library

studies in the defendant university but failed to pay his tuition fees, because his uncle Dean that defendant herein received a copy of this memorandum; that plaintiff asked the Bureau of
Francisco R. Capistrano having severed his connection with defendant and having accepted the Private Schools to pass upon the issue on his right to secure the transcript of his record in
defendant University, without being required to refund the sum of P1,033.87; that the Bureau of operation, or tendency, is calculated to be prejudicial to the public welfare, to sound morality, or
Private Schools upheld the position taken by the plaintiff and so advised the defendant; and to civic honesty (Ritter v. Mutual Life Ins. Co., 169 U. S. 139; Heding v. Gallaghere, 64 L.R.A.
that, this notwithstanding, the latter refused to issue said transcript of record, unless said 811; Veazy v. Allen, 173 N.Y. 359). If Arellano University understood clearly the real essence of
refund were made, and even recommended to said Bureau that it issue a written order directing scholarships and the motives which prompted this office to issue Memorandum No. 38, s. 1949,
the defendant to release said transcript of record, "so that the case may be presented to the it should have not entered into a contract of waiver with Cui on September 10, 1951, which is a
court for judicial action." As above stated, plaintiff was, accordingly, constrained to pay, and did direct violation of our Memorandum and an open challenge to the authority of the Director of
pay under protest, said sum of P1,033.87, in order that he could take the bar examinations in Private Schools because the contract was repugnant to sound morality and civic honesty. And
1953. Subsequently, he brought this action for the recovery of said amount, aside from P2,000 finally, in Gabriel v. Monte de Piedad, Off. Gazette Supp. Dec. 6, 1941, p. 67 we read: In order
as moral damages, P500 as exemplary damages, P2,000 as attorneys fees, and P500 as to declare a contract void as against public policy, a court must find that the contract as to
expenses of litigation. consideration or the thing to be done, contravenes some established interest of society, or is
inconsistent with sound policy and good morals, or tends clearly to undermine the security of
In its answer, defendant reiterated the stand it took vis-a-vis the Bureau of Private Schools, individual rights. The policy enunciated in Memorandum No. 33, s. 1949 is sound policy.
namely, that the provisions of its contract with plaintiff are valid and binding, and that the Scholarships are awarded in recognition of merit not to keep outstanding students in school to
memorandum above-referred to is null and void. It, likewise, set up a counterclaim for bolster its prestige. In the understanding of that university scholarships award is a business
P10,000.00 as damages, and P3,000 as attorneys fees. scheme designed to increase the business potential of an educational institution. Thus conceived
it is not only inconsistent with sound policy but also good morals. But what is morals? Manresa
The issue in this case is whether the above quoted provision of the contract between plaintiff has this definition. It is good customs; those generally accepted principles of morality which
and the defendant whereby the former waived his right to transfer to another school without have received some kind of social and practical confirmation. The practice of awarding
refunding to the latter the equivalent of his scholarships in cash, is valid or not. The lower court scholarships to attract students and keep them in school is not good customs nor has it received
resolved this question in the affirmative, upon the ground that the aforementioned some kind of social and practical confirmation except in some private institutions as in Arellano
memorandum of the Director of Private Schools is not a law; that the provisions thereof are University. The University of the Philippines which implements Section 5 of Article XIV of the
advisory, not mandatory in nature; and that, although the contractual provision "may be Constitution with reference to the giving of free scholarships to gifted children, does not require
unethical, yet it was more unethical for plaintiff to quit studying with the defendant without scholars to reimburse the corresponding value of the scholarships if they transfer to other
good reasons and simply because he wanted to follow the example of his uncle." Moreover, schools. So also with the leading colleges and universities of the United States after which our
defendant maintains in its brief that the aforementioned memorandum of the Director of Private educational practices or policies are patterned. In these institutions scholarships are granted not
Schools is null and void because said officer had no authority to issue it, and because it had to attract and to keep brilliant students in school for their propaganda value but to reward merit
been neither approved by the corresponding department head nor published in the official or help gifted students in whom society has an established interest or a first lien." (Emphasis
gazette. supplied.)

We do not deem it necessary or advisable to consider, as the lower court did, the question WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered
whether plaintiff had sufficient reasons or not to transfer from defendant University to the Abad sentencing the defendant to pay to the plaintiff the sum of P1,033.87, with interest thereon at
Santos University. The nature of the issue before us, and its far reaching effects, transcend the legal rate from September 1, 1954, date of the institution of this case, as well as the costs,
personal equations and demand a determination of the case from a high impersonal plane. and dismissing defendants counterclaim. It is so ordered.
Neither do we deem it essential to pass upon the validity of said Memorandum No. 38, for,
regardless of the same, we are of the opinion that the stipulation in question is contrary to
public policy and hence, null and void. The aforesaid memorandum merely incorporates a sound
principle of public policy. As the Director of Private Schools correctly pointed out in his letter, EN BANC
Exhibit B, to the defendant,
[G.R. No. 10551. March 3, 1917. ]
"There is one more point that merits refutation and that is whether or not the contract entered
into between Cui and Arellano University on September 10, 1951 was void as against public IGNACIO ARROYO, Plaintiff-Appellant, v. ALFRED BERWIN, Defendant-Appellee.
policy. In the case of Zeigler v. Illinois Trust and Savings Bank, 245 Ill. 180, 19 Ann. Case 127,
the court said: In determining a public policy of the state, courts are limited to a consideration J. M. Arroyo for Appellant.
of the Constitution, the judicial decisions, the statutes, and the practice of government officers.
It might take more than a government bureau or office to lay down or establish a public policy, No appearance for Appellee.
as alleged in your communication, but courts consider the practices of government officials as
one of the four factors in determining a public policy of the state. It has been consistently held SYLLABUS
in America that under the principles relating to the doctrine of public policy, as applied to the
law of contracts, courts of justice will not recognize or uphold a transaction which in its object,
 1. THEFT; AGREEMENT TO STIFLE PROSECUTION. An agreement by the owner of stolen
goods to stifle the prosecution of the person charged with the theft, for a pecuniary or other
valuable consideration, is manifestly contrary to public policy and the due administration of
justice and will not be enforced in a court of law.
"Therefore, the plaintiff prays the court to render judgment ordering the defendant to comply
with the agreement by causing the latters said client Marcela Juaneza to sign the document in
which she recognizes the plaintiffs ownership of the land on which she ordered the cane cut and
states that she will not oppose the plaintiffs application for the registration of the said land;
and, further, by awarding to the plaintiff the costs of the present suit, as well as any other relief
that justice and equity require." cralaw virtua1aw library

DECISION The trial judge dismissed this complaint on the ground of the illegality of the consideration of
the alleged contract, and without stopping to consider any other objection to the complaint than
CARSON, J. :that indicated by the court below, we are of opinion that the order appealed from must be
affirmed.

The complaint filed in this action is as follows: jgc:chanroble s.com.ph An agreement by the owner of stolen goods to stifle the prosecution of the person charged with
the theft, for a pecuniary or other valuable consideration, is manifestly contrary to public policy
"1. That both the plaintiff and the defendant are residents of the municipality of Iloilo, Province and the due administration of justice. In the interest of the public it is if the utmost importance
of Iloilo, Philippine Islands. that criminals should be prosecuted, and that all criminal proceedings should be instituted and
maintained in the form and manner prescribed by law; and to permit an offender to escape the
"2. That the defendant is a procurador judicial in the law office of the Attorney John Bordman, penalties prescribed by law by the purchase of immunity from private individuals would result in
and is duly authorized by the court to practice in justice of the peace courts of the Province of a manifest perversion of justice.
Iloilo.
Article 1255 of the Civil Code provides that: jgc:chanroble s.com.ph

"3. That the defendant, as such procurador judicial, represented Marcela Juaneza in the justice
of the peace court of Iloilo in proceeding for theft prosecuted by the plaintiff Ignacio Arroyo; "The contracting parties may make the agreement and establish the clauses and conditions
that said cause was decided by the said justice of the peace against the accused, and the latter which they may deem advisable, provided they are not in contravention of law, morals, or public
appealed to the Court of First Instance of Iloilo. order."
cralaw virtua1aw library

"4. That on August 14, 1914, which was the day set for the hearing of the appeal of the said Article 1275 provides that: jgc:chanrobles.com .ph

cause against Marcela Juaneza for theft, Case No. 3120, the defendant requested the plaintiff to
agree to dismiss the said criminal proceeding, and, on August 14, 1914, stipulated with the "Contracts without consideration or with an illicit one have no effect whatsoever. A consideration
plaintiff in the presence of Roque Samson, among other things, that his client Marcela Juaneza is illicit when it is contrary to law and good morals." cralaw virtua1aw library

would recognize the plaintiffs ownership in the land situated on Calle San Juan, suburb of Molo,
municipality of Iloilo, Province of Iloilo, where his said client ordered the cane cut, which land The order entered in the court below should, therefore, be affirmed, with the costs of this
and which cut cane are referred to in the cause for theft above-mentioned; and the defendant instance against the appellant. So ordered.
furthermore agreed that the plaintiff should obtain a Torrens title to the said land during the
next term of the court for the trial of cadastral cases, and that the defendants client, Marcela Torres, Moreland, Trent and Araullo, JJ., concur.
Juaneza, would not oppose the application for registration to be filed by the said applicant;
provided that the plaintiff would ask the prosecuting attorney to dismiss the said proceedings EN BANC
filed against Marcela Juaneza and Alejandro Castro for the crime of theft.
[G.R. No. L-19638. June 20, 1966.]
"5. That the plaintiff on his part complied with the agreement, and requested the prosecuting
attorney to dismiss the above-mentioned criminal cause; that the latter petitioned the court and FILIPINAS COMPAIA DE SEGUROS, ET AL., Petitioners-Appellees, v. HON.
the court did dismiss the said cause; that in exchange the defendant does not wish to comply FRANCISCO Y. MANDANAS, in his capacity as Insurance Commissioner, respondent-
with the above-mentioned agreement; that the plaintiff delivered to the defendant for the appellant, AGRICULTURAL FIRE INSURANCE & SURETY CO., INC., ET AL., intervenors-
signature of the said Marcela Juaneza a written agreement attesting that the defendants said appellees.
client recognized the plaintiffs ownership in the described land and that she would not oppose
the plaintiffs application for registration; and that up to the present time, the defendant has not Jalandoni & Jamir for Petitioners-Appellees.
returned to the plaintiff the said written agreement, notwithstanding the plaintiffs many
demands. Solicitor General Arturo A. Alafriz, 1st Assistant. Solicitor General Esmeraldo Umali
and Solicitor Conrado T. Limcaoco, for intervenors-appellees.
 This is a special civil action for a declaratory relief. Thirty- nine (39) non-life insurance
companies instituted it, in the Court of First Instance of Manila, to secure a declaration of
legality of Article 22 of the constitution of the Philippine Rating Bureau, of which they are
SYLLABUS members, inasmuch as respondent Insurance Commissioner assails its validity upon the ground
that it constitutes an illegal or undue restraint of trade. Subsequently to the filing of the
petition, twenty (20) other non-life insurance companies, likewise, members of said Bureau,
were allowed to intervene in support of the petition. After appropriate proceedings, said court
rendered judgment declaring that the aforementioned Article 22 is neither contrary to law nor
1. TRADE MONOPOLIES AND COMBINATIONS; TEST TO DETERMINE WHETHER AN AGREEMENT against public policy, and that, accordingly, petitioners herein, as well as the intervenors and
CONSTITUTES UNLAWFUL MACHINATION OR COMBINATION IN RESTRAINT OF TRADE; ARTICLE other members of the aforementioned Bureau, may lawfully observe and enforce said Article,
22, CONSTITUTION OF PHILIPPINE RATING BUREAU, NOT ILLEGAL; CASE AT BAR. The test and are bound to comply with the provisions thereof, without special pronouncement as to
on whether a given agreement constitutes an unlawful machination or a combination in restraint costs. Hence this appeal by respondent Insurance Commissioners, who insists that the Article in
of trade is whether, under the particular circumstances of the case and the nature of the question constitutes an illegal or undue restraint of trade and, hence, null and void.
particular contract involved in it, the contract is, or is not, unreasonable (Ferrazini v. Gsell, 34
Phil., 697, 712-13). Restriction upon trade may be upheld when not contrary to the public The record discloses that on March 11, 1960, respondent wrote to said Bureau, a
welfare and not greater than is necessary to afford a fair and reasonable protection to the party communication expressing his doubts or the validity of said Article 22, reading: chanrob1es virtual 1aw library

in whose favor it is imposed (Ollendorf v. Abrahamson, 38 Phil., 585). The question to be

determined is whether the restraint imposed is such as merely regulates and perhaps thereby
promotes competition, or whether it is such as may suppress or even destroy competition
(Board of Trade of Chicago v. U.S. 246, U.S. 231, 62 L. ed. 683 [1918]). Applying this test to
the case at bar, there is nothing unlawful, immoral, unreasonable or contrary to public policy
either in the objectives sought to be attained by the Bureau of Philippine Rating in adopting
Article 22 of its constitution, or in the means availed of to achieve said objectives, or in the
consequences of the accomplishment thereof. The said Article 22 provides that the members of
the Bureau "agree not to represent nor to effect reinsurance with nor accept reinsurance from
any company, body, or underwriter licensed to do business in the Philippines not a member of
good standing in the Bureau." Its purpose is not to eliminate competition, but to promote
ethical practices among non-life insurance companies, although incidentally, it may discharge,
and hence, eliminate unfair competition, through underrating, which in itself, is eventually
injurious to the public. The limitation upon reinsurance contained in Article 22 does not affect
the public at all, for whether there is reinsurance or not, the liability of the insurer in favor of
the insured is the same. What is more, whatever the Bureau may do in the matter of rate-fixing
is not decisive insofar as the public is concerned, for no insurance company in the Philippines
may charge a rate of premium that has not been approved by the Insurance Commissioner. The
said Article 22 does not, therefore, constitute an illegal or undue restraint of trade.
x x x
"In respect to the classes of insurance specified in the Objects of the Bureau 1 and for Philippine
business only, the members of this Bureau agree not to represent nor to effect reinsurance
from, any Company, Body, or Underwriter licensed to do business in the Philippines not a
Member in good standing of this Bureau"
and requesting that said provision, be accordingly, repealed. On April 11, 1960, respondent
wrote another letter to the Bureau inquiring on the action taken on the subject-matter of his
previous communication. In reply thereto, the Bureau advised respondent that the suggestion
to delete said Article 22 was under consideration by a committee of said Bureau. Soon
thereafter, or on May 9, 1961, the latter was advised by respondent that, being an illegal
agreement or combination in restraint of trade, said Article should not be given force and effect;
that failure to comply with this requirement would compel respondent to suspend the license
issued to the Bureau; and that the latter would circularize all of its members on this matter and
advise them that "violation of this requirement by any member of the Bureau" would also
compel respondent "to suspend the certificate of authority of the company concerned to do
business in the Philippines." Thereupon, or on May 16, 1961, the present action was
commenced.

DECISION Briefly, appellant maintains that, since, in the aforementioned Article 22, members of the
Bureau "agree not to represent nor to effect reinsurance with, nor to accept reinsurance from
any company, body, or underwriter, licensed to do business in the Philippines not a member in
good standing of the Bureau", said provision is illegal as a combination in restraint of trade. As
early as August 10, 1916, this Court had occasion to declare that the test on whether a given
agreement constitutes an unlawful machination or a combination in restraint of trade.
CONCEPCION, C.J.:
". . . is whether, under the particular circumstances of the case and the nature of the particular
contract involved in it, the contract is, or is not, unreasonable." (Ferrazini v. Gzell, 34 Phil. 697,
712-13.)
This view was reiterated in Ollendorf v. Abrahamson (38 Phil., 585) and Red Line Transportation We find nothing unlawful, or immoral, or unreasonable, or contrary to public policy either in the
Co. v. Bachrach Motor Co. (67 Phil., 77), in the following language: jgc:chanrobles.com .ph objectives thus sought to be attained by the Bureau, or in the means availed of to achieve said
objectives, or in the consequences of the accomplishment thereof. The purpose of said Article
". . . The general tendency, we believe, of modern authority, is to make the test whether the 22 is not to eliminate competition, but to promote ethical practices among non-life insurance
restrain is reasonably necessary for the protection of the contracting parties. If the contract is companies, although, incidentally, it may discourage, and, hence, eliminate unfair competition,
reasonably necessary to protect the interest of the parties, it will be upheld. through underrating, which, in itself, is eventually injurious to the public. Indeed in the words of
Mr. Justice Brandeis: jgc:chanroble s.com.ph

x x x
". . . the legality of an agreement or regulation cannot be determined by so simple a test, as
whether it restrains competition. Every agreement concerning trade, every regulation of trade,
restrains. To bind, to restrain, is of their very essence. The true test of legality is whether the
". . . we adopt the modern rule that the validity of restraints upon trade or employment is to be restraint imposed is such as merely regulates and perhaps thereby promotes competition, or
determined by the intrinsic reasonableness of the restriction in each case, rather than by any whether it is such as may suppress or even destroy competition. To determine that question the
fixed rule, and that such restrictions may be upheld when not contrary to the public welfare and court must ordinarily consider the facts peculiar to the business to which the restraint is
not greater than is necessary to afford a fair and reasonable protection to the party in whose applied; its condition before and after the restraint was imposed; the nature of the restraint,
favor it is imposed." (Ollendorf v. Abrahamson, 38 Phil., 585.) and its effect, actual or probable." (Board of Trade of Chicago v. U.S., 246 U.S. 231, 62 Led. 683
[1918].)
". . . The test of validity is whether under the particular circumstances of the case and
considering the nature of the particular contract involved, public interest and welfare are not Thus, in Sugar Institute, Inc. v. U.S. (297 U.S. 553), the Federal Supreme Court added: jgc:chanroble s.com.ph

involved and the restraint is not only reasonably necessary for the protection of the contracting
parties but will not affect public interest or service." (Red Line Transportation Co. v. Bachrach "The restrictions imposed by the Sherman Act are not mechanical or artificial. We have
Motor Co., 67 Phil. 77.) (See, also, Del Castillo v. Richmond, 45 Phil. 483.) repeatedly said that they set up the essential standard of reasonableness. Standard Oil Co. v.
United States 221 U.S. 1, 55 L. ed. 619 31 S. Ct. 502, 34 L.R.A. (N.S.) 834, Ann. Cas. 1912D,
The issue in the case at bar hinges, therefore, on the purpose or effect of the disputed 734, United States v. American Tobacco Co., 221 U.S. 106, 55 L. ed. 663, 31 S. Ct. 632. They
provision. The only evidence on this point is the uncontradicted testimony of Salvador Estrada, are aimed at contracts and combinations which by reason of intent or the inherent nature of the
Chairman of the Bureau when it was first organized and when he took the witness stand. Briefly contemplated acts, prejudice the public interests by unduly restraining competition or unduly
stated, he declared that the purpose of Article 22 is to maintain a high degree or standard of obstructing the course of trade. Nash v. United States, 229 U.S. 373, 376, 57 L. ed. 1232,
ethical practice, so that insurance companies may earn and maintain the respect of the public, 1235, 33 S. Ct. 780; United States v. American Linseed Oil Co., 262 U.S. 371, 388, 389, 67 L.
because the intense competition between the great number of non-life insurance companies ed. 1035, 1040, 1041, 43 S. Ct. 607. Designed to frustrate unreasonable restraints, they do not
operating in the Philippines, is conducive to unethical practices, oftentimes taking the form prevent the adoption of reasonable means to protect interstate commerce from destructive or
underrating; that to achieve this purpose it is highly desirable to have cooperative action injurious practices and to promote competition upon a sound basis. Voluntary action to end
between said companies in the compilation of their total experience in the business, so that the abuses and to foster fair competitive opportunities in the public interest may be more effective
Bureau could determine more accurately the proper rate of premium to be charged from the than legal processes. And cooperative endeavor may appropriately have wider objectives than
insured; that, several years ago, the very Insurance Commissioner had indicated to the Bureau merely the removal of evils which are infractions of positive law"
the necessity of doing something to combat underrating, for, otherwise, he would urge the
amendment of the law so that appropriate measures could be taken therefor by this office; that Hence, the City Fiscal of Manila refused to prosecute criminally the Manila Fire Insurance
much of the work of the Bureau has to do with rate-making and policy wording; that rate- Association for following a policy analogous to that incorporated in the provision disputed in this
making is actually dependent very much on statistics; that, unlike life insurance companies, case and the action of said official was sustained by the Secretary of Justice, upon the ground
which have tables of mortality to guide them in the fixing of rates, non-life insurance companies that: jgc:chanrobles.com .ph

have, as yet, no such guides, that, accordingly, non-life insurance companies need an adequate
record of losses and premium collections that will enable them to determine the amount of risk ". . . combinations among insurance companies or their agents to fix and control rates of
involved in each type of risk and, hence, to determine the rates or premiums that should be insurance do not constitute indictable conspiracies, provided no unlawful means are used in
charged in insuring every type of risk; that this information cannot be compiled without full accomplishing their purpose (41 C.J. 161; Aetna Ins. Co. v. Commonwealth, 106 Ky. 864, 51
cooperation on the part of the companies concerned, which cannot be expected from non- SW 624; Queen Ins. Co. v. State, 86 Tex. 250, 24 SW 397; I Joyce on Insurance, par. 329-a)"
members of the Bureau, over which the latter has no control; and that; in addition to
submitting information about their respective experience, said Bureau members must, likewise, Indeed, Mr. Estradas testimony shows that the limitation upon insurance contained in the
share in the rather appreciable expenses entailed in compiling the aforementioned data and aforementioned Article 22 does not affect the public at all, for, whether there is reinsurance or
analyzing the same. not, the liability of the insurer is the same. Besides, there are sufficient foreign reinsurance
companies operating in the Philippines from which non-members of the Bureau may secure
reinsurance. What is more, whatever the Bureau may do in the matter of rate-fixing is not "V. prohibiting Non-Life Insurance Companies and their Agents from Insuring Any Property in
decisive insofar as the public is concerned, for insurance company in the Philippines may charge this Country at a Rate Different from that in the Schedules: Unethical Practices.
a rate of premium that has not been approved by the Insurance Commissioner.
"No insurance company shall engage or participate in the insurance of any property located in
In fact, respondents Circular No. 54, dated February 26, 1954, provides: jgc:chanrobles.com .ph the Philippines . . . unless the schedule if rates under which property is insured has been filed
and approved in accordance with the provisions of this Circular . . ." (Emphasis ours.)
"II. Non-life Insurance company or Group Association of such Companies.
On the same date, the Constitution of the Bureau, containing a provision substantially identical
"Every non-life insurance company or group or association of such companies doing business in to the one now under consideration was approved. Article 2 of said Constitution reads: jgc:chanroble s.com.ph

the Philippines shall file with the Insurance Commissioner for approval general basic schedules
showing the premiums rates on all classes of risk except marine, as distinguished from inland "2. OBJECTS
marine, insurable by such insurance company or association of insurance companies in this
country. The objects of the Bureau shall be: jgc:chanrobles.com .ph

x x x "a. To establish rates in respect of Fire, Earthquake, Riot and Civil Commotion, Automobile and
Workmens Compensation, and whenever applicable, Marine Insurance business.

x x x
"An insurance company or group of such companies may satisfy its obligation to make such
filing by becoming a member of or subscriber to a rating organization which make such filing
and by authorizing the insurance commissioner to accept such filings of the raring organization
on such companys or groups behalf. "c. To file the rates referred to above, tariff rules, and all other conditions or data which may in
any way affect premium rates with the Office of the Insurance Commissioner on behalf of
"III. Requiring Previous Application to and Approval by the Insurance Commissioner before any members for approval." (Emphasis ours.)
Change in the Rates Schedules filed with Him Shall Take Effect.
In compliance with the aforementioned Circular No. 54, in April, 1954, the Bureau applied for
"No change in the schedules filed in compliance with the requirements of the next preceding the license required therein, and submitted with its application a copy of said Constitution. On
paragraph shall be made except upon application duly filed with and approved by the Insurance April 28, 1954, respondents office issued to the Bureau the license applied for, certifying, not
Commissioner. Said application shall state the changes proposed and the date of their only that it had complied with the requirements of Circular No. 54, but, also, the license
effectivity; all changes finally approved by the Insurance Commissioner shall be incorporated in empowered it "to engage in the making of rates or policy conditions to be used by insurance
the old schedules or otherwise indicated as new in the new schedules. companies in the Philippines." Subsequently, thereafter, the Bureau applied for and was granted
yearly the requisite license to operate in accordance with the provisions of its Constitution.
"IV. Empowering the Insurance Commissioner to Investigate All Non-Life Insurance Rates. During all this time, respondents office did not question, but impliedly acknowledged, the
legality of Article 22. It was not until March 11, 1960, that it assailed its validity.
"The Insurance Commissioner shall have power to examine any or all rates established by non-
life insurance companies or group or association of such insurance companies in the country. Respondents contention is anchored mainly on Paramount Famous Lasky Corp. v. U.S., 282 U.S.
Should any rate appear, in the opinion of the Insurance Commissioner, unreasonably high or not 30, but the same is not in point, not only because it refers to the conditions under which movie
adequate to the financial safety or soundness to the company charging same, or prejudicial to film producers and distributors determine the terms under which theaters or exhibitors may be
policy-holders, the Commissioner shall, in such case, hold a hearing and/or conduct an allowed to run movie films thereby placing the contributors under the control of the
investigation. Should the result of such hearing and/or investigation show that the rate is producers or distributors and giving the exhibitors, in effect, no choice as to what films and
unreasonably high or so low that it is not adequate to the financial safety and soundness of the whose films they will show but, also, because there is, in the film industry, no agency or
company charging same, or is prejudicial to policy-holders, the Insurance Commissioner shall officer with powers or functions comparable to those in the Insurance Commissioner, as regards
direct a revision of the said rate in accordance with his findings. Any insurance company or the regulation of the business concerned and of the transactions involved therein.
group or association of insurance companies may be required to publish the schedule of rates
which may have been revised in accordance herewith. WHEREFORE, the decision appealed from should be, as it is hereby affirmed, without costs. It is
so ordered.
"The decision of the Insurance Commissioner shall be appealable within thirty days after it has
been rendered to the Secretary of Finance. Dizon, Regala, Makalintal, J.P. Bengzon, Zaldivar and Sanchez, JJ., concur.
J.B.L. Reyes and Barrera, JJ., took no part.

FIRST DIVISION
[G.R. No. 126800. November 29, 1999.]

NATALIA P. BUSTAMANTE, Petitioner, v. SPOUSES RODITO F. ROSEL and NORMA A.

ROSEL,Respondents.

RESOLUTION

PARDO, J.:

The case before the Court is a petition for review on certiorari 1 to annul the decision of the
Court of Appeals, 2 reversing and setting aside the decision of the Regional Trial Court, 3
Quezon City, Branch 84, in an action for specific performance with consignation. chanrobles virtual lawlibrary

On March 8, 1987, at Quezon city, Norma Rosel entered into a loan agreement with petitioner
Natalia Bustamante and her late husband Ismael C. Bustamante, under the following terms and
conditions:jgc:chanroble s.com.ph

"1. That the borrowers are the registered owners of a parcel of land, evidenced by TRANSFER
CERTIFICATE OF TITLE No. 80667, containing an area of FOUR HUNDRED TWENTY THREE (423)
SQUARE Meters, more or less, situated along Congressional Avenue.

"2. That the borrowers were desirous to borrow the sum of ONE HUNDRED THOUSAND
(P100,000.00) PESOS from the LENDER, for a period of two (2) years, counted from March 1,
1987, with an interest of EIGHTEEN (18%) PERCENT per annum, and to guaranty the payment
thereof, they are putting as a collateral SEVENTY (70) SQUARE METERS portion, inclusive of the
apartment therein, of the aforestated parcel of land, however, in the event the borrowers fail to
pay, the lender has the option to buy or purchase the collateral for a total consideration of TWO "3. To pay Attorneys Fees in the amount of P5,000.00 plus costs of suit.
HUNDRED THOUSAND (P200,000.00) PESOS, inclusive of the borrowed amount and interest
therein; "SO ORDERED. chanroblesvirtuallawlibrary

"3. That the lender do hereby manifest her agreement and conformity to the preceding "Quezon City, Philippines, November 10, 1992.
paragraph, while the borrowers do hereby confess receipt of the borrowed amount." 4
"TEODORO P. REGINO
When the loan was about to mature on March 1, 1989, respondents proposed to buy at the pre-
set price of P200,000.00, the seventy (70) square meters parcel of land covered by TCT No. "Judge" 11
80667, given as collateral to guarantee payment of the loan. Petitioner, however, refused to sell
and requested for extension of time to pay the loan and offered to sell to respondents another On November 16, 1992, respondents appealed from the decision to the Court of Appeals. 12 On
residential lot located at Road 20, Project 8, Quezon City, with the principal loan plus interest to July 8, 1996, the Court of Appeals rendered decision reversing the ruling of the Regional Trial
be used as down payment. Respondents refused to extend the payment of the loan and to Court. The dispositive portion of the Court of Appeals decision reads:
jgc:chanrobles.com .ph

accept the lot in Road 20 as it was occupied by squatters and petitioner and her husband were
not the owners thereof but were mere land developers entitled to subdivision shares or "IN VIEW OF THE FOREGOING, the judgment appeal (sic) from is REVERSED and SET ASIDE
commission if and when they developed at least one half of the subdivision area. 5 and a new one entered in favor of the plaintiffs ordering the defendants to accept the amount of
P 47,000.00 deposited with the Clerk of Court of Regional Trial Court of Quezon City under
Hence, on March 1, 1989, petitioner tendered payment of the loan to respondents which the Official Receipt No. 0719847, and for defendants to execute the necessary Deed of Sale in favor
latter refused to accept, insisting on petitioners signing a prepared deed of absolute sale of the of the plaintiffs over the 70 SQUARE METER portion and the apartment standing thereon being
collateral. occupied by the plaintiffs and covered by TCT No. 80667 within fifteen (15) days from finality
hereof. Defendants, in turn, are allowed to withdraw the amount of P153,000.00 deposited by
On February 28, 1990, respondents filed with the Regional Trial Court, Quezon City, Branch 84, them under Official Receipt No. 0116548 of the City Treasurers Office of Quezon City. All other
a complaint for specific performance with consignation against petitioner and her spouse. 6 claims and counterclaims are DISMISSED, for lack of sufficient basis. No costs.

Nevertheless, on March 4, 1990, respondents sent a demand letter asking petitioner to sell the "SO ORDERED." 13
collateral pursuant to the option to buy embodied in the loan agreement.
Hence, this petition. 14
On the other hand, on March 5, 1990, petitioner filed in the Regional Trial Court, Quezon City a
petition for consignation, and deposited the amount of P153,000.00 with the City Treasurer of On January 20, 1997, we required respondents to comment on the petition within ten (10) days
Quezon City on August 10, 1990. 7 from notice. 15 On February 27, 1997 respondents filed their comment. 16

When petitioner refused to sell the collateral and barangay conciliation failed, respondents
consigned the amount of P47,500.00 with the trial court. 8 In arriving at the amount deposited,
respondent considered the principal loan of P100,000.00 and 18% interest per annum thereon,
which amounted to P52,500.00. 9 The principal lot and the interest taken together amounted to
P152,500.00, leaving balance of P47,500.00. 10
On February 9, 1998, we resolved to deny the petition on the ground that there was no
reversible error on the part of respondent court in ordering the execution of the necessary deed
of sale in conformity with the parties stipulated agreement. The contract is the law between the
parties thereof (Syjuco v. Court of Appeals, 172 SCRA 111, 118, citing Phil. American General
Insurance v. Mutuc, 64 SCRA 22; Herrera v. Petrophil Corporation, 146 SCRA 360). 17

After due trial, on November 10, 1992, the trial court rendered decision holding: jgc:chanroble s.com.ph On March 17, 1998, petitioner filed with this Court a motion for reconsideration of the denial
alleging that the real intention of the parties to the loan was to put up the collateral as
"WHEREFORE, premises considered, judgment is hereby rendered as follows: jgc:chanroble s.com.ph guarantee similar to as equitable mortgage according to Article 1602 of the Civil Code. 18

"1. Denying the plaintiffs prayer for the defendants execution of the Deed of Sale to Convey
the collateral in plaintiffs favor;
"2. Ordering the defendants to pay the loan of P100,000.00 with interest thereon at 18% per
annum commencing on March 2, 1989, up to and until August 10, 1990, when defendants
deposited the amount with the Office of the City Treasurer under Official Receipt No. 0116548
(Exhibit "2"); and
On April 21, 1998, respondents filed an opposition to petitioners motion for reconsideration.
They contend that the agreement between the parties was not a sale with right of re-purchase,
but a loan with interest at 18% per annum for a period of two years and if petitioner fails to
pay, the respondent was given the right to purchase the property or apartment for
P200,000.00, which is not contrary to law, moral good customs, public order or public policy.
19
Upon due consideration of petitioners motion, we now resolve to grant the motion for
reconsideration. A significant task in contract interpretation is the ascertainment of the intention of the parties and looking
into the words used by the parties to project that intention. In this case, the intent to appropriate the
The questions presented are whether petitioner failed to pay the loan at its maturity date and property given as collateral in favor of the creditor appears to be evident, for the debtor is obliged to
dispose of the collateral at the pre-agreed consideration amounting to practically the same amount as the
whether the stipulation in the loan contract was valid and enforceable.
loan. In effect, the creditor acquires the collateral in the event of non-payment of the loan. This is within the
concept of pactum commissorium. Such stipulation is void.25cralaw:red
We rule that petitioner did not fail to pay the loan.
All persons in need of money are liable to enter into contractual relationships whatever the condition if only
The loan was due for payment on March 1, 1989. On said date, petitioner tendered payment to to alleviate their financial burden albeit temporarily. Hence, courts are duty bound to exercise caution in the
settle the loan which respondents refused to accept, insisting that petitioner sell to them the interpretation and resolution of contracts lest the lenders devour the borrowers like vultures do with their
collateral of the loan. prey.

WHEREFORE, we GRANT petitioners motion for reconsideration and SET ASIDE the Courts resolution of
When respondents refused to accept payment, petitioner consigned the amount with the trial
February 9. 1998. We REVERSE the decision of the Court of Appeals in CA-G. R. CV No. 40193. In lieu
court. thereof, we hereby DISMISS the complaint in Civil Case No. Q-90-4813.

We note the eagerness of respondents to acquire the property given as collateral to guarantee No costs.
the loan. The sale of the collateral is an obligation with a suspensive condition. 20 It is
dependent upon the happening of an event, without which the obligation to sell does not arise. SO ORDERED.chanrobles law library
Since the event did not occur, respondents do not have the right to demand fulfillment of EN BANC
petitioners obligation, especially where the same would not only be disadvantageous to
petitioner but would also unjustly enrich respondents considering the inadequate consideration [G.R. No. 13505. February 4, 1919. ]
(P200,000.00) for a 70 square meter property situated at Congressional Avenue, Quezon City.
GEO. W. DAYWALT, Plaintiff-Appellant, v. LA CORPORATION DE LOS PADRES
Respondents argue that contracts have the force of law between the contracting parties and AGUSTINOS RECOLETOS ET. AL., Defendants-Appellees.
must be complied with in good faith. 21 There are, however, certain exceptions to the rule;
specifically Article 1306 of the Civil Code, which provides: C.C. Cohn ahd Thos. D. Aitken, for Appellant.
jgc:chanrobles.com .ph

"ARTICLE 1306. The contracting parties may establish such stipulations, clauses, terms and Crossfield & OBrien, for Appellee.
conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy." chanroble s.com : virtual law library
SYLLABUS

A scrutiny of the stipulation of the parties reveals a subtle intention of the creditor to acquire
the property given as security for the loan. This is embraced in the concept of pactum
commissorium, which is proscribed by law. 22
"The elements of pactum commissorium are as follows: (1) there should be a property
mortgaged by way of security for the payment of the principal obligation, and (2) there should
be a stipulation automatic appropriation by the creditor of the thing mortgaged in case of non-
payment of the principal obligation within the stipulated period." 23
In Nakpil v. Intermediate Appellate Court, 24 we said: jgc:chanrobles.com .ph
"The arrangement entered into between the parties, whereby Pulong Maulap was to be "considered sold to
him (respondent) . . . in case petitioner fails to reimburse Valdes, must then be construed as tantamount to damages possible will not make them recoverable. Special damages of this character cannot be
pactum commissorium which is expressly prohibited by Art. 2088 of the Civil Code. For, there was to be
automatic appropriation of the property by Valdes in the event of failure of petitioner to pay the value of the
advances. Thus, contrary to respondents manifestation, all the elements of a pactum commissorium were
present: there was a creditor-debtor relationship between the parties; the property was used as security for
the loan; and there was automatic appropriation by respondent of Pulong Maulap in case of default of
petitioner."cralaw virtua1aw library
1. CONTRACTS; DAMAGES FOR BREACH; LIABILITY OF THIRD PARTY. Whatever may be the
character of the liability, if any, which a stranger to a contract may incur by advising or assisting
one of the parties to evade performance, he cannot become more extensively liable in damages
for the nonperformance of the contract than the party in whose behalf he inter meddles.
2. ID.; ID.; MEASURE OF DAMAGES FOR BREACH OF CONTRACT. The damages recoverable
upon breach of contract are, primarily, the ordinary, natural and in a sense the necessary
damage resulting from the breach. Other damages, known as special damages, are recoverable
where it appears that the particular conditions which made such damages a probable
consequence of the breach were known to the delinquent party at the time the contract was
made. This proposition must be understood with the qualification that, if the damages are in the
legal sells remote or speculative, knowledge of the special conditions which render such
recovered unless made the subject of special stipulation.
3. ID; ID.; ID.; DAMAGES FOR BREACH OF CONTRACT FOR SALE OF LAND. The damages
ordinarily recoverable against a vendor for failure to deliver land which he has contracted to
deliver is the value of the use and occupation of the land for the tune during which it is
wrongfully withheld.
 domicile in the city of Manila. Said corporation was formerly the owner of a large tract of land,
known as the San Jose Estate, on the island of Mindoro, which was sold to the Government of
the Philippine Islands in the year 1909. The same corporation was at this time also the owner of
DECISION another estate on the same island immediately adjacent to the land which Teoderica Endencia
had sold to Geo. W. Daywalt; and for many years the Recoletos Fathers had maintained large
herds of cattle on the farms referred to. Their representative, charged with the management of
these farms, was father Isidoro Sanz, himself a member of the order. Father Sanz had long
been well acquainted with Teodorica Endencia and exerted over her an influence and as
STREET, J. :cendency due to his religious character as well as to the personal friendship which existed
between them. Teodorica appears to be a woman of little personal force, easily subject to
influence, and upon all the important matters of business was accustomed to seek, and was
given, the advice of Father Sanz and other members of his order with whom she came in
contact.
In the year 1902, Teodorica Endencia, an unmarried woman, resident in the Province of
Mindoro, executed a contract whereby she obligated herself to convey to Geo. W. Daywalt,. a Father Sanz was fully aware of the existence of the contract of 1902 by which Teodorica
tract of land situated in the barrio of Mangarin, municipality of Bulalacao, now San Jose, in said Endencia agreed to sell her land to the plaintiff as well as of the later important developments
province. It was agreed that a deed should be executed as soon as the title to the land should connected with the history of that contract and the contract substituted successively for it; and
be perfected by proceedings in the Court of Land Registration and a Torrens certificate should in particular Father Sanz, as well as other members of the defendant corporation, knew of the
be procured therefor in the name of Teodorica Endencia. A decree recognizing the right of existence of the contract of October 3, 1908, which, as we have already seen, finally fixed the
Teodorica as owner was entered in said court in August 1906, but the Torrens certificate was not rights of the parties to the property in question. When the Torrens certificate was finally issued
issued until later. The parties, however, met immediately upon the entering of this decree and in 1909 in favor of Teodorica Endencia, she delivered it for safekeeping to the defendant
made a new contract with a view to carrying their original agreement into effect. This new corporation, and it was then taken to Manila where it remained in the custody and under the
contract was executed in the form of a deed of conveyance and bears date of August 16, 1906. control of P. Juan Labarga the procurador and chief official of the defendant corporation, until
The stipulated price was fixed at P4,000, and the area of the land enclosed in the boundaries the delivery thereof to the plaintiff was made compulsory by reason of the decree of the
defined in the contract was stated to be 452 hectares and a fraction. Supreme Court in 1914.

The second contract was not immediately carried into effect for the reason that the Torrens
certificate was not yet obtainable and in fact said certificate was not issued until the period of
performance contemplated in the contract had expired. Accordingly, upon October 3, 1908, the
parties entered into still another agreement, superseding the old, by which Teodorica Endencia
agreed, upon receiving the Torrens title to the land in question, to deliver the same to the
Hongkong and Shanghai Bank in Manila, to be forwarded to the Crocker National Bank in San
Francisco, where it was to be delivered to the plaintiff upon payment of a balance of P3,100.
When the defendant corporation sold the San Jose Estate, it was necessary to bring the cattle
off of that property; and, in the first half of 1909, some 2,368 head were removed to the estate
of the corporation immediately adjacent to the property which the plaintiff had purchased from
Teodorica Endencia. As Teodorica still retained possession of said property Father Sanz entered
into an arrangement with her whereby large numbers of cattle belonging to the defendant
corporation were pastured upon said land during a period extending from June 1, 1909, to May
1, 1914.

The Torrens certificate was in time issued to Teodorica Endencia, but in the course of the
proceedings relative to the registration of the land, it was found by official survey that the area
of the tract inclosed in the boundaries stated in the contract was about 1,248 hectares instead
of 452 hectares as stated in the contract. In view of this development Teodorica Endencia
became reluctant to transfer the whole tract to the purchaser, asserting that she never intended
to sell so large an amount of land and that she had been misinformed as to its area.
This attitude of hers led to litigation in which Daywalt finally succeeded, upon appeal to the
Supreme Court, in obtaining a decree for specific performance; and Teodorica Endencia was
ordered to convey the entire tract of land to Daywalt pursuant to the contract of October 3,
1908, which contract was declared to be in full force and effect. This decree appears to have
become finally effective in the early part of the year 1914.1
The defendant, La Corporacion de los Padres Recoletos, is a religious corporation, with its
Under the first cause stated in the complaint in the present action the plaintiff seeks to recover
from the defendant corporation the sum of P24,000, as damages for the use and occupation of
the land in question by reason of the pasturing of cattle thereon during the period stated. The
trial court came to the conclusion that the defendant corporation was liable for damages by
reason of the use and occupation of the premises in the manner stated; and fixed the amount
to be recovered at P2,497. The plaintiff appealed and has assigned error to this part of the
judgment of the court below, insisting that damages should have been awarded in a much
larger sum and at least to the full extent of P24,000, the amount claimed in the complaint.
As the defendant did not appeal, the propriety of allowing damages for the use and occupation
of the land to the extent of P2,497, the mount awarded, is not now in question; and the only
thing here to be considered, in connection with this branch of the case, is whether the damages
allowed under this head should be increased. The trial court lightly ignored the fact that the
defendant corporation had paid Teodorica Endencia for use and occupation of the same land
during the period in question at the rate of P425 per annum, inasmuch as the final decree of
this court in the action for specific performance is conclusive against her right, and as the for its own selfish purposes, unlawfully induced Teodorica Endencia to refrain from the
defendant corporation had notice of the rights of the plaintiff under his contract of purchase, it performance of her contract for the sale of the land in question and to withhold delivery to the
can not be permitted that the corporation should escape liability in this action by proving plaintiff of the Torrens title, and further, maliciously and without reasonable cause, maintained
payment of rent to a person other than the true owner. her in her defense to the action of specific performance which was finally decided in favor of the
plaintiff in this court. The cause of action here stated is based on a liability derived from the
With reference to the rate at which compensation should be estimated the trial court came to wrongful interference of the defendant in the performance of the contract between the plaintiff
the following conclusion:jgc:chanroble s.com.ph and Teodorica Endencia; and the large damages laid in the complaint were, according to the
proof submitted by the plaintiff, incurred as a result of a combination of circumstances of the
"As to the rate of the compensation, the plaintiff contends that the defendant corporation following nature: In 1911, it appears, the plaintiff, as the owner of the land which he had
maintained at least one thousand head of cattle on the land and that the pasturage was of the bought from Teodorica Endencia entered into a contract (Exhibit C) with S.B. Wakefield, of San
value of forty centavos per head monthly, or P4,800 annually, for the whole tract. The court can Francisco, for the sale and disposal of said lands to a sugar growing and milling enterprise, the
not accept this view. It is rather improbable that 1,248 hectares of wild Mindoro land would successful launching of which depended on the ability of Daywalt to get possession of the land
furnish sufficient pasturage for one thousand head of cattle during the entire year, and, and the Torrens certificate of title. In order to accomplish this end, the plaintiff returned to the
considering the locality, the rate of forty centavos per head monthly seems too high. The Philippine Islands, communicated his arrangement to the defendant, and made repeated efforts
evidence shows that after having recovered possession of the land the plaintiff rented it to the to secure the registered title for delivery in compliance with said agreement with Wakefield.
defendant corporation for fifty centavos per hectare annually, the tenant to pay the taxes on the Teodorica Endencia seems to have yielded her consent to the consummation of her contract, but
land, and this appears to be a reasonable rent. There is no reason to suppose that the land was the Torrens title was then in the possession of Padre Juan Labarga in Manila, who refused to
worth more for grazing purposes during the period from 1909 to 1913, than it was at the later deliver the document. Teodorica also was in the end prevailed upon to stand out against the
period. Upon this basis the plaintiff is entitled to damages in the sum of P2,497, and is under no performance of her contract with the plaintiff with the result that the plaintiff was kept out of
obligation to reimburse the defendants for the land taxes paid by either of them during the possession until the Wakefield project for the establishment of a large sugar growing and milling
period the land was occupied by the defendant corporation. It may be mentioned in this enterprise fell through. In the light of what has happened in recent years in the sugar industry,
connection that the Lontok tract adjoining the land in question and containing over three we feel justified in saying that the project above referred to, if carried into effect, must
thousand hectares appears to have been leased for only P1,000 a year, plus the taxes." inevitably have proved a great success.
cralaw virtua1aw library

From this it will be seen that the trial court estimated the rental value of the land for grazing The determination of the issue presented in this second cause of action requires a consideration
purposes at 50 centavos per hectare per annum, and roughly adopted the period of four years of two points. The first is whether a person who is not a party to a contract for the sale of land
as the time for which compensation at that rate should be made. As the court had already found makes himself liable for damages to the vendee, beyond the value of the use and occupation,
that the defendant was liable for these damages from June, 1, 1909, to May 1, 1914, or a by colluding with the vendor and maintaining him in the effort to resist an action for specific
period of four years and eleven months, there seems some ground for the contention made in performance. The second is whether the damages which the plaintiff seeks to recover under this
the appellants first assignment of error that the courts computation was erroneous, even head are too remote and speculative to be the subject of recovery.
accepting the rule upon which the damages were assessed, as it is manifest that at the rate of
50 centavos per hectare per annum, the damages for four years and eleven months would be As preliminary to a consideration of the first of these questions, we deem it well to dispose of
P3,090. the contention that the members of the defendant corporation, in advising and prompting
Teodorica Endencia not to comply with the contract of sale, were actuated by improper and
Notwithstanding this circumstance, we are of the opinion that the damages assessed are malicious motives. The trial court found that this contention was not sustained, observing that
sufficient to compensate the plaintiff for the use and occupation of the land during the whole while it was true that the circumstances pointed to an entire sympathy on the part of the
time it was used. There is evidence in the record strongly tending to show that the wrongful use defendant corporation with the efforts of Teodorica Endencia to defeat the plaintiffs claim to the
of the land by the defendant was not continuous throughout the year but was confined mostly land, the fact that its officials may have advised her not to carry the contract into effect would
to the season when the forage obtainable on the land of the defendant corporation was not not constitute actionable interference with such contract. It may be added that when one
sufficient to maintain its cattle, for which reason it became necessary to allow them to go over considers the hardship that the ultimate performance of that contract entailed on the vendor,
to pasture on the land in question; and it is not clear that the whole of the land was used for and the doubt in which the issue was involved to the extent that the decision of the Court of
pasturage at any time. Considerations of this character probably led the trial court to adopt four the First Instance was unfavorable to the plaintiff and the Supreme Court itself was divided
years as roughly being the period during which compensation should be allowed. But whether the attitude of the defendant corporation, as exhibited in the conduct of its procurador, Juan
this was advertently done or not, we see no sufficient reason, in the uncertainty of the record Labarga, and other members of the order of the Recollect Fathers, is not difficult to understand.
with reference to the number of the cattle grazed and the period when the land was used, for To our mind a fair conclusion on this feature of the case is that father Juan Labarga and his
substituting our guess for the estimate made by the trial court. associates believed in good faith that the contract could not be enforced and that Teodorica
would be wronged if it should be carried into effect. Any advice or assistance which they may
In the second cause of action stated in the complaint the plaintiff seeks to recover from the have given was, therefore, prompted by no mean or improper motive. It is not, in our opinion,
defendant corporation the sum of P500,000, as damages, on the ground that said corporation, to be denied that Teodorica would have surrendered the documents of title and given possession
of the land but for the influence and promptings of members of the defendant corporation. But immaterial. Malice in the sense of ill-will or spite is not essential.
we do not credit the idea that they were in any degree influenced to the giving of such advice
by the desire to secure to themselves the paltry privilege of grazing their cattle upon the land in Upon the question as to what constitutes legal justification, a good illustration was put in the
question to the prejudice of the just rights of the plaintiff. leading case. If a party enters into contract to go for another upon a journey to a remote and
unhealthful climate, and a third per son, with a bona fide purpose of benefiting the one who is
The attorney for the plaintiff maintains that, by interfering in the performance of the contract in under contract to go, dissuades him from the step, no action will lie. But if the advice is not
question and obstructing the plaintiff in his efforts to secure the certificate of title to the land, disinterested and the persuasion is used for "the indirect purpose of benefiting the defendant at
the defendant corporation made itself a co-participant with Teodorica Endencia in the breach of the expense of the plaintiff," the intermedler is liable if his advice is taken and the contract
said contract; and inasmuch as father Juan Labarga, at the time of said unlawful intervention broken.
between the contracting parties, was fully aware of the existence of the contract (Exhibit C)
which the plaintiff had made with S.B. Wakefield, Francisco, it is insisted that the defendant The doctrine embodied in the cases just cited has sometimes been found useful, in the
corporation is liable for the loss consequent upon the failure of the project outlined in said complicated relations of modern industry, as a means of restraining the activities of labor unions
contract. and industrial societies when improperly engaged in the promotion of strikes. An illustration of
the application of the doctrine in question in a case of this kind is found in South Wales Miners
In this connection reliance is placed by the plaintiff upon certain American and English decisions Federation v. Glamorgan Coal Co. ([1905], A. C., 239) . It there appeared that certain miners
in which it is held that a person who is a stranger to a contract may, by an unjustifiable employed in the plaintiffs collieries, acting under the order of the executive council of the
interference in the performance thereof, render himself liable for the damages consequent upon defendant federation, violated their contract with the plaintiff by abstaining from work on
non-performance. It is said that the doctrine of these cases was recognized by this court in certain days. The federation and council acted without any actual malice or ill-will towards the
Gilchrist v. Cuddy (29 Phil. Rep., 542); and we have been earnestly pressed to extend the rule plaintiff, and the only object of the order in question was that the price of coal might thereby be
there enunciated to the situation here presented. kept up, a factor which affected the miners wage scale. It was held that no sufficient
justification was shown and that the federation was liable.
Somewhat more than half a century ago the English Court of the Queens Bench saw its way
clear to permit an action for damages to be maintained against a stranger to a contract In the United States, the rule established in England by Lumley v. Gye [supra] and subsequent
wrongfully interfering in its performance. The leading case on this subject is Lumley v. Gye cases is commonly accepted, though in a few of the States the broad idea that a stranger to a
([1853], 2 El. & Bl., 216). It there appeared that the plaintiff, as manager of a theatre, had contract can be held liable upon it is rejected, and in these jurisdictions the doctrine, if accepted
entered into a contract with Miss Johanna Wagner, an opera singer, whereby she bound herself at all, is limited to the situation where the contract is strictly for personal service. (Boyson v.
for a period to sing in the plaintiffs theatre and nowhere else. The defendant, knowing of the Thorn, 98 Cal., 578; Chambers & Marshall v. Baldwin 91 Ky., 121; bourlier v. Macauley, 91 Ky.,
existence of this contract, and, as the declaration alleged, "maliciously intending to injure the 135; Glencoe Land & Gravel Co. v. Hudson Bros. Com. Co., 138 Mo., 439.)
plaintiff," enticed and procured Miss Wagner to leave the plaintiffs employment. It was held that
the plaintiff was entitled to recover damages. The right which was here recognized had its origin It should be observed in this connection that, according to the English and American authorities,
in a rule, long familiar to the courts of the common law, to the effect that any person who no question can be made as to the liability of one who interferes with a contract existing
entices a servant from his employment is liable in damages to the master. The masters interest between others by means which, under known gal canons, can be denominated an unlawful
in the service rendered by his employee is here considered as a distinct subject of juridical means. Thus, if performance is prevented by force, intimidation, coercion, or threats, or by false
right. It being thus accepted that it is a legal wrong to break up a relation of personal service, or defamatory statements, or by nuisance or riot, the person using such unlawful means is,
the question now arose whether it is illegal for one person to interfere with any contract relation under all the authorities, liable for the damage which ensues. And in jurisdictions where the
subsisting between others. Prior to the decision of Lumley v. Gye [ supra] it had been supposed doctrine of Lumley is. Gye [supra] is rejected, no liability can arise from a neddlesome and
that the liability here under consideration was limited to the cases of the enticement of menial malicious interference with a contract relation unless some such unlawful means as those just
servants, apprentices, and others to whom the English Statutes of Laborers were applicable. But indicated are used. (See cases last above cited.)
in the case cited the majority of the judges concurred in the opinion that the principle extended
to all cases of hiring. This doctrine was followed by the Court of Appeal in Bowen v. Hall This brings us to the decision made by this court in Gilchrist v. Cuddy (29 Phil. Rep., 542) It
([1881], 6 Q.B., Div., 333); and in Temperton v. Russell ([1893], 1 Q.B., 715), it was held that there appeared that one Cuddy, the owner of a cinematographic film, let it under a rental
the right of action for maliciously procuring a breach of contract is not confined to contracts for contract to the plaintiff Gilchrist for a specified period of time. In violation of the terms of this
personal services, but extends to contracts in general. In that case the contract which the agreement, Cuddy proceeded to turn over the film also under a rental contract, to the
defendant had procured to be breached was a contract for the supply of building material. defendants Espejo and Zaldarriaga. Gilchrist thereupon restored to the Court of First Instance
and procured an injunction restraining the defendants from exhibiting the film in question in
Malice in some form is generally supposed to be an essential ingredient in cases of interference their theater during the period specified in the contract of Cuddy with Gilchrist. Upon appeal to
with contract relations. But upon the authorities it is enough if the wrongdoer, having knowledge this court it was in effect held that the injunction was not improperly granted, although the
of the existence of the contract relation, in bad faith sets about to break it up. Whether his defendants did not, at the time their contract was made, know the identity of the plaintiff as the
motive is to benefit himself or gratify his spite by working mischief to the employer is person holding the prior contract but did know of the existence of a contracting favor of
someone. It was also said argue do, that the defendants would have been liable in damages here to pursue the matter further, inasmuch as, for reasons presently to be stated, we are of
under Article 1902 of the Civil Code, if the action had been brought by the plaintiff to recover the opinion that neither the doctrine of Lumley v. Gye [supra] nor the application made of it by
damages. The force of the opinion is, we think, somewhat weakened by the criticism contained this court in Gilchrist v. Cuddy (29 Phil. Rep., 542), affords any basis for the recovery of the
in the concurring opinion, wherein it is said that the question of breach of contract by damages which the plaintiff is supposed to have suffered by reason of his inability to comply
inducement was not really involved in the case. Taking the decision upon the point which was with the terms of the Wakefield contract.
really decided, it is authority for the proposition that one who buys something which he knows
has been sold to some other person can be restrained from using that thing to the prejudice of Whatever may be the character of the liability which a stranger to a contract may incur by
the person having the prior and better right. advising or assisting one of the parties to evade performance, there is one proposition upon
which all must agree. This is, that the stranger cannot become more extensively liable in
Translated into terms applicable to the case at bar, the decision in Gilchrist v. Cuddy (29 Phil. damages for the nonperformance of the contract than the party in whose behalf he
Rep., 542), indicates that the defendant corporation, having notice of the sale of the land in intermeddles. To hold the stranger liable for damages in excess of those that could be recovered
question to Daywalt, might have been enjoined by the latter from using the property for grazing against the immediate party to the contract would lead to results at once grotesque and unjust.
its cattle thereon. That the defendant corporation is also liable in this action for the damage In the case at bar, as Teodorica Endencia was the party directly bound by the contract, it is
resulting to the plaintiff from the wrongful use and occupation of the property has also been obvious that the liability of the defendant corporation, even admitting that it has made itself co-
already determined. But it will be observed that in order to sustain this liability it is not participant in the breach of the contract, can in no event exceed hers. This leads us to consider
necessary toresort to any subtle exegesis relative to the liability of a stranger to a contract for at this point the extent of the liability of Teodorica Endencia to the plaintiff by reason of her
unlawful interference in the performance thereof. It is enough that defendant used the property failure to surrender the certificate of title and to place the plaintiff in possession.
with notice that the plaintiff had a prior and better right.
It should in the first place be noted that the liability of Teodorica Endencia for damages resulting
Article 1902 of the Civil Code declares that any person who by an act or omission, characterized from the breach of her contract with Daywalt was a proper subject for adjudication in the action
by fault or negligence, causes damage to another shall be liable for the damage so done. for specific performance which Daywalt instituted against her in 1909 and which was litigated by
Ignoring so much of this article as relates to liability for negligence, we take the rule to be that him to a successful conclusion in this court, but without obtaining any special adjudication with
a person is liable for damage done to another by any culpable act and by "culpable act" we reference to damages. Indemnification for damages resulting from the breach of a contract is a
mean any act which is blameworthy when judged by accepted legal standards. The idea thus right inseparably annexed to every action for the fulfillment of the obligation (Art. 1124, Civil
expressed is undoubtedly broad enough to include any rational conception of liability for the Code); and it is clear that if damages are not sought or recovered in the action to enforce
tortious acts likely to be developed in any society. Thus considered, it cannot be said that the performance they cannot be recovered in an independent action. As to Teodorica Endencia,
doctrine of Lumley v. Gye [supra] and related cases is repugnant to the principles of the civil therefore, it should be considered that the right of action to recover damages for the breach of
law. the contract in question was exhausted in the prior suit. However, her attorneys have not seen
fit to interpose the defense of res judicata in her behalf; and as the defendant corporation was
Nevertheless, it must be admitted that the codes and jurisprudence of the civil law furnish a not a party to that action, and such defense could not in any event be of any avail to it, we
somewhat uncongenial field in which to propagate the idea that a stranger to a contract may be proceed to consider the question of the liability of Teodorica Endencia for damages without
sued for the breach thereof. Article 1257 of the Civil Code declares that contracts are binding reference to this point.
only between the parties and their privies. In conformity with this it has been held that a
stranger to a contract has no right of action for the nonfulfillment of the contract except in the The most that can be said with reference to the conduct of Teodorica Endencia is that she
case especially contemplated in the second paragraph of the same article. (Uy Tam and Uy Yet refused to carry out a contract for the sale of certain land and resisted to the last an action for
v. Leonard, 30 Phil. Rep., 471.) As observed by this court in Manila Railroad Co. v. Compania specific performance in court. The result was that the plaintiff was prevented during a period of
Trasatlantica, R.G. No. 11318 (38 Phil. Rep., 875), a contract, when effectually entered into several years from exerting that control over the property which he was entitled to exert and
between certain parties, determines not only the character and extent of the liability of the was meanwhile unable to dispose of the property advantageously. Now, what is the measure of
contracting parties but also the person or entity by whom the obligation is exigible. The same damages for the wrongful detention of real property by the vender after the time has come for
idea should apparently be applicable with respect to the person against whom the obligation of him to place the purchaser in possession?
the contract may be enforced; for it is evident that there must be a certain mutuality in the
obligation, and if the stranger to a contract is not permitted to sue to enforce it, he cannot The damages ordinarily and normally recoverable against a vendor for failure to deliver land
consistently be held liable upon it. which he has contracted to deliver is the value of the use and occupation of the land for the
time during which it is wrongfully withheld. And of course where the purchaser has not paid the
If the two antagonistic ideas which we have just brought into juxtaposition are capable of purchase money, a deduction may be made in respect to the interest on the money which
reconciliation, the process must be accomplished by distinguishing clearly between the right of constitutes the purchase price. Substantially the same rule holds with respect to the liability of a
action arising from the improper interference with the contract by a stranger thereto, landlord who fails to put his tenant in possession pursuant to a contract of lease. The measure
considered as an independent act generative of civil liability, and the right of action ex contractu of damages is the value of the leasehold interest, or use and occupation, less the stipulated
against a party to the contract resulting from the breach thereof. However, we do not propose rent, where this has not been paid. The rule that the measure of damages for the wrongful
detention of land is normally to be found in the value of use and occupation is, we believe, one The discussion contained in the opinion of the court in that case leads to the conclusion that the
of the things that may be considered certain in the law (39 Cyc., 1630; 24 Cyc., 1052; damages recoverable in case of the breach of a contract are two sorts, namely, (1) the ordinary,
Sedgewick on Damages, Ninth ed., Sec. 185.) almost as well settled, indeed, as the rule that natural, and in a sense necessary damage; and (2) special damages.
the measure of damages for the wrongful detention of money is to be found in the interest.
Ordinary damages is found in all breaches of contract where there are no special circumstances
We recognize the possibility that more extensive damages may be recovered where, at the time to distinguish the case specially from other contracts. The consideration paid for an
of the creation of the contractual obligation, the vendor, or lessor, is aware of the use to which unperformed promise is an instance of this sort of damage. In all such cases the damages
the purchaser or lessee desires to put the property which is the subject of the contract, and the recoverable are such as naturally and generally would result from such a breach, "according to
contract is made with the eyes of the vendor or lessor open to the possibility of the damage the usual course of things." In cases involving only ordinary damage no discussion is ever
which may result to the other party from his own failure to give possession. The case before us indulged as to whether that damage was contemplated or not. This is conclusively presumed
is not of this character, inasmuch as at the time when the rights of the parties under the from the immediateness and inevitableness of the damage, and the recovery of such damage
contract were determined, nothing was known to any of them about the San Francisco capitalist follows as a necessary legal consequence of the breach. Ordinary damage is assumed as a
who would be willing at back the project portrayed in Exhibit C. matter of law to be within the contemplation of the parties.

The extent of the liability for the breach of a contract must be determined in the light of the Special damage, on the other hand, is such as follows less directly from the breach than
situation in existence at the time the contract is made; and the damages ordinarily recoverable ordinary damage. It is only found in case where some external condition, apart from the actual
are in all events limited to such as might be reasonably foreseen in the light of the facts then terms to the contract exists or intervenes, as it were, to give a turn to affairs and to increase
known to the contracting parties. Where the purchaser desires to protect himself, in the damage in a way that the promisor, without actual notice of that external condition, could not
contingency of the failure of the vendor promptly to give possession, from the possibility of reasonably be expected to foresee. Concerning this sort of damage, Hadley v. Baxendale (1854)
incurring other damages than such as are incident to the normal value of the use and [supra] lays down the definite and just rule that before such damage can be recovered the
occupation, he should cause to be inserted in the contract a clause providing for stipulated plaintiff must show that the particular condition which made the damage a possible and likely
amount to be paid upon failure of the vendor to give possession; and no case has been called to consequence of the breach was known to the defendant at the time the contract was made.
our attention where, in the absence of such a stipulation, damages have been held to be
recoverable by the purchaser in excess of the normal value of use and occupation. On the The statement that special damages may be recovered where the likelihood of such damages
contrary, the most fundamental conceptions of the law relative to the assessment of damages flowing from the breach of the contract is contemplated and foreseen by the parties needs to be
are inconsistent with such idea. supplemented by a proposition which, though not enunciated in Hadley v. Baxendale, is yet
clearly to be drawn from subsequent cases. This is that where the damage which a plaintiff
The principles governing this branch of the law were profoundly considered in the case of seeks to recover as special damage is so far speculative as to be in contemplation of law
Hadley v. Baxendale (9 Exch., 341), decided in the English Court of Exchequer in 1854; and a remote, notification of the special conditions which make that damage possible cannot render
few words relative to the principles governing the recovery of damages, as expounded in that the defendant liable therefor. To bring damages which would ordinarily be treated as remote
decision, will here be found instructive. The decision in that case is considered a leading within the category of recoverable special damages, it is necessary that the condition should be
authority in the jurisprudence of the common law. The plaintiffs in that case were proprietors of made the subject of contract in such sense as to become an express or implied term of the
a mill in Gloucester, which was propelled by steam, and which was engaged in grinding and engagement. Horne v. Midland R. Co. (L R., 8 C.P., 131) is a case where the damage which was
supplying meal and flour to customers. The shaft of the engine got broken, and it became sought to be recovered as special damage was really remote, and some of the judges rightly
necessary that the broken shaft be sent to an engineer or foundry man at Greenwich, to serve placed the disallowance of the damage on the ground that to make such damage recoverable, it
as a model for casting or manufacturing another that would fit into the machinery. The broken must so far have been within the contemplation of the parties as to form at least an implied
shaft could be delivered at Greenwich on the second day after its receipt by the carrier It was term of the contract. But others proceeded on the idea that the notice given to the defendant
delivered to the defendants, who were common carriers engaged in that business between was not sufficiently full and definite. The result was the same in either view. The facts in that
these points, and who had told plaintiffs it would be delivered at Greenwich on the second day case were as follows: The plaintiffs, shoe manufacturers at K, were under contract to supply by
after its delivery to them, if delivered at a given hour. The carriers were informed that the mill a certain day shoes to a firm in London for the French government. They delivered the shoes to
was stopped, but were not informed of the special purpose for which the broken shaft was a carrier in sufficient time for the goods to reach London at the time stipulated in the contract
desired to be forwarded. They were not told the mill would remain idle until the new shaft would and informed the railroad agent that the shoes would be thrown back upon their hands if they
be returned, or that the new shaft could not be manufactured at Greenwich until the broken one did not reach the destination in time. The defendants negligently failed to forward the good in
arrived to serve as a model. There was delay beyond the two days in delivering the broken shaft due season. The sale was therefore lost, and the market having fallen, the plaintiffs had to sell
at Greenwich, and a corresponding delay in starting the mill. No explanation of the delay was at a loss.
offered by the carriers. The suit was brought to recover damages for the lost profits of the mill,
caused by the delay in delivering the broken shaft. It was held that the plaintiff could not In the preceding discussion we have considered the plaintiffs right chiefly as against Teodorica
recover. Endencia; and what has been said suffices in our opinion to demonstrate that the damages laid
under the second cause of action in the complaint could not be recovered from her, first,
because the damages in question are special damages which were not within contemplation of [G.R. No. 120554. September 21, 1999.]
the parties when the contract was made, and secondly, because said damages are too remote
to be the subject of recovery. This conclusion is also necessarily fatal to the right of the plaintiff SO PING BUN, Petitioner, v. COURT OF APPEALS, TEK HUA ENTERPRISING CORP. and
to recover such damages from the defendant corporation, for, as already suggested, by advising MANUEL C. TIONG, Respondents.
Teodorica not to perform the contract, said corporation could in no event render itself more
extensively liable than the principal in the contract. DECISION

Our conclusion is that the judgment of the trial court should be affirmed, and it is so ordered,
with costs against the Appellant.

QUISUMBING, J.:

This petition for certiorari challenges the Decision 1 of the Court of Appeals dated October 10,
1994, and the Resolution 2 dated June 5, 1995, in CA-G.R. CV No. 38784. The appellate court
affirmed the decision of the Regional Trial Court of Manila, Branch 35, except for the award of
attorneys fees, as follows: chanrobles lawlibrary : rednad

"WHEREFORE, foregoing considered, the appeal of respondent-appellant So Ping Bun for lack of
merit is DISMISSED. The appealed decision dated April 20, 1992 of the court a quo is modified
by reducing the attorneys fees awarded to plaintiff Tek Hua Enterprising Corporation from
P500,000.00 to P200,000.00." 3

The facts are as follows: chanrob1es virtual 1aw library

In 1963, Tek Hua Trading Co, through its managing partner, So Pek Giok, entered into lease
agreements with lessor Dee C. Chuan & Sons Inc. (DCCSI). Subjects of four (4) lease contracts
were premises located at Nos. 930, 930-Int., 924-B and 924-C, Soler Street, Binondo, Manila.
Tek Hua used the areas to store its textiles. The contracts each had a one-year term. They
provided that should the lessee continue to occupy the premises after the term, the lease shall
be on a month-to-month basis.

When the contracts expired, the parties did not renew the contracts, but Tek Hua continued to
occupy the premises. In 1976, Tek Hua Trading Co. was dissolved. Later, the original members
of Tek Hua Trading Co. including Manuel C. Tiong, formed Tek Hua Enterprising Corp., herein
respondent corporation.

So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So Pek Gioks grandson,
petitioner So Ping Bun, occupied the warehouse for his own textile business, Trendsetter
Marketing.

On August 1, 1989, lessor DCCSI sent letters addressed to Tek Hua Enterprises, informing the
latter of the 25% increase in rent effective September 1, 1989. The rent increase was later on
reduced to 20% effective January 1, 1990, upon other lessees demand. Again on December 1,
1990, the lessor implemented a 30% rent increase. Enclosed in these letters were new lease
SECOND DIVISION
contracts for signing. DCCSI warned that failure of the lessee to accomplish the contracts shall
be deemed as lack of interest on the lessees part, and agreement to the termination of the 1. Annulling the four Contracts of Lease (Exhibits A, A-1 to A-3, inclusive) all dated March 11,
lease. Private respondents did not answer any of these letters. Still, the lease contracts were 1991, between defendant So Ping Bun, doing business under the name and style of Trendsetter
not rescinded. chanrobles virtualawlibrary chanroble s.com :chanrobles.com .ph Marketing, and defendant Dee C. Chuan & Sons, Inc. over the premises located at Nos. 924-B,
924-C, 930 and 930, Int., respectively, Soler Street, Binondo Manila;
On March 1, 1991, private respondent Tiong sent a letter to petitioner, which reads as follows:
1aw library
chanrob1es virtual

2. Making permanent the writ of preliminary injunction issued by this Court on June 21, 1991;
March 1, 1991
3. Ordering defendant So Ping Bun to pay the aggrieved party, plaintiff Tek Hua Enterprising
"Mr. So Ping Bun Corporation, the sum of P500,000.00, for attorneys fees;

930 Soler Street 4. Dismissing the complaint, insofar as plaintiff Manuel C. Tiong is concerned, and the
respective counterclaims of the defendant;
Binondo, Manila
5. Ordering defendant So Ping Bun to pay the costs of this lawsuit;
Dear Mr. So,
This judgment is without prejudice to the rights of plaintiff Tek Hua Enterprising Corporation and
Due to my closed (sic) business associate (sic) for three decades with your late grandfather Mr. defendant Dee C. Chuan & Sons, Inc. to negotiate for the renewal of their lease contracts over
So Pek Giok and late father, Mr. So Chong Bon, I allowed you temporarily to use the warehouse the premises located at Nos. 930, 930-Int., 924-B and 924-C Soler Street, Binondo, Manila,
of Tek Hua Enterprising Corp. for several years to generate your personal business. under such terms and conditions as they agree upon, provided they are not contrary to law,
public policy, public order, and morals. cralawnad

Since I decided to go back into textile business, I need a warehouse immediately for my stocks.
Therefore, please be advised to vacate all your stocks in Tek Hua Enterprising Corp. Warehouse. SO ORDERED." 5
You are hereby given 14 days to vacate the premises unless you have good reasons that you
have the right to stay. Otherwise, I will be constrained to take measure to protect my interest. Petitioners motion for reconsideration of the above decision was denied.

Please give this urgent matter your preferential attention to avoid inconvenience on your part. chanroble s virtual
On appeal by So Ping Bun, the Court of Appeals upheld the trial court. On motion for
reconsideration, the appellate court modified the decision by reducing the award of attorneys
lawlibrary

Very truly yours, fees from five hundred thousand (P500,000.00) pesos to two hundred thousand (P200,000.00)

(Sgd) Manuel C. Tiong Petitioner is now before the Court raising the following issues: chanrob1es virtual 1aw library

MANUEL C. TIONG I. WHETHER THE APPELLATE COURT ERRED IN AFFIRMING THE TRIAL COURTS DECISION
FINDING SO PING BUN GUILTY OF TORTUOUS INTERFERENCE OF CONTRACT?
President" 4
II. WHETHER THE APPELLATE COURT ERRED IN AWARDING ATTORNEYS FEES OF P200,000.00
Petitioner refused to vacate. On March 4, 1992, petitioner requested formal contracts of lease IN FAVOR OF PRIVATE RESPONDENTS.
with DCCSI in favor of Trendsetter Marketing. So Ping Bun claimed that after the death of his
grandfather, So Pek Giok, he had been occupying the premises for his textile business and The foregoing issues involve, essentially, the correct interpretation of the applicable law on
religiously paid rent. DCCSI acceded to petitioners request. The lease contracts in favor of tortuous conduct, particularly unlawful interference with contract. We have to begin, obviously,
Trendsetter were executed. with certain fundamental principles on torts and damages. chanroblesvirtual|awlibrary

In the suit for injunction, private respondents pressed for the nullification of the lease contracts Damage is the loss, hurt, or harm which results from injury, and damages are the recompense
between DCCSI and petitioner. They also claimed damages. or compensation awarded for the damage suffered. 6 One becomes liable in an action for
chanroble svirtuallawlibrary:red

damages for a nontrespassory invasion of anothers interest in the private use and enjoyment of
After trial, the trial court ruled: asset if (a) the other has property rights and privileges with respect to the use or enjoyment
jgc:chanrobles.com .ph

interfered with, (b) the invasion is substantial, (c) the defendants conduct is a legal cause of
"WHEREFORE, judgment is rendered: the invasion, and (d) the invasion is either intentional and unreasonable or unintentional and
chanrob1es virtual 1aw library

actionable under general negligence rules. 7

The elements of tort interference are: (1) existence of a valid contract; (2) knowledge on the While we do not encourage tort interferers seeking their economic interest to intrude into
part of the third person of the existence of contract; and (3) interference of the third person is existing contracts at the expense of others, however, we find that the conduct herein
without legal justification or excuse. 8 complained of did not transcend the limits forbidding an obligatory award for damages in the
absence of any malice. The business desire is there to make some gain to the detriment of the
A duty which the law of torts is concerned with is respect for the property of others, and a cause contracting parties. Lack of malice, however, precludes damages. But it does not relieve
of action ex delicto may be predicated upon an unlawful interference by one person of the petitioner of the legal liability for entering into contracts and causing breach of existing ones.
enjoyment by the other of his private property. 9 This may pertain to a situation where a third The respondent appellate court correctly confirmed the permanent injunction and nullification of
person induces a party to renege on or violate his undertaking under a contract. In the case the lease contracts between DCCSI and Trendsetter Marketing, without awarding damages. The
before us, petitioners Trendsetter Marketing asked DCCSI to execute lease contracts in its favor,injunction saved the respondents from further damage or injury caused by petitioners
and as a result petitioner deprived respondent corporation of the latters property right. Clearly, interference.
chanroblesvirtuallawlibrary

and as correctly viewed by the appellate court, the three elements of tort interference above-
mentioned are present in the instant case. cralawnad Lastly, the recovery of attorneys fees in the concept of actual or compensatory damages, is
allowed under the circumstances provided for in Article 2208 of the Civil Code. 16 One such
Authorities debate on whether interference may be justified where the defendant acts for the occasion is when the defendants act or omission has compelled the plaintiff to litigate with third
sole purpose of furthering his own financial or economic interest. 10 One view is that, as a persons or to incur expenses to protect his interest. 17 But we have consistently held that the
general rule, justification for interfering with the business relations of another exists where the award of considerable damages should have clear factual and legal bases. 18 In connection with
actors motive is to benefit himself. Such justification does not exist where his sole motive is to attorneys fees, the award should be commensurate to the benefits that would have been
cause harm to the other. Added to this, some authorities believe that it is not necessary that the derived from a favorable judgment. Settled is the rule that fairness of the award of damages by
interferers interest outweigh that of the party whose rights are invaded, and that an individual the trial court calls for appellate review such that the award if far too excessive can be reduced.
acts under an economic interest that is substantial, not merely de minimis, such that wrongful 19 This ruling applies with equal force on the award of attorneys fees. In a long line of cases we
and malicious motives are negatived, for he acts in self-protection. 11 Moreover, justification for said, "It is not sound policy to place a penalty on the right to litigate. To compel the defeated
protecting ones financial position should not be made to depend on a comparison of his party to pay the fees of counsel for his successful opponent would throw wide open the door of
economic interest in the subject matter with that of others. 12 It is sufficient if the impetus of temptation to the opposing party and his counsel to swell the fees to undue proportions." 20
his conduct lies in a proper business interest rather than in wrongful motives. 13
Considering that the respondent corporations lease contract, at the time when the cause of
As early as Gilchrist v. Cuddy, 14 we held that where there was no malice in the interference of action accrued, ran only on a month-to-month basis whence before it was on a yearly basis, we
a contract, and the impulse behind ones conduct lies in a proper business interest rather than find even the reduced amount of attorneys fees ordered by the Court of Appeals still exorbitant
in wrongful motives, a party cannot be a malicious interferer. Where the alleged interferer is in the light of prevailing jurisprudence. 21 Consequently, the amount of two hundred thousand
financially interested, and such interest motivates his conduct, it cannot be said that he is an (P200,000.00) awarded by respondent appellate court should be reduced to one hundred
officious or malicious intermeddler. 15 thousand (P100,000.00) pesos as the reasonable award for attorneys fees in favor of private
respondent corporation.
In the instant case, it is clear that petitioner So Ping Bun prevailed upon DCCSI to lease the
warehouse to his enterprise at the expense of respondent corporation. Though petitioner took WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the Court
interest in the property of respondent corporation and benefited from it, nothing on record of Appeals in CA-G.R. CV No. 38784 are hereby AFFIRMED, with MODIFICATION that the award
imputes deliberate wrongful motives or malice on him. of attorneys fees is reduced from two hundred thousand (P200,000.00) to one hundred
thousand (P100,000.00) pesos. No pronouncement as to costs. chanroble svirtual|awlibrary

Section 1314 of the Civil Code categorically provides also that, "Any third person who induces
another to violate his contract shall be liable for damages to the other contracting party." SO ORDERED.
Petitioner argues that damage is an essential element of tort interference, and since the trial
court and the appellate court ruled that private respondents were not entitled to actual, moral
or exemplary damages, it follows that he ought to be absolved of any liability, including
attorneys fees.
chanroble s.com : virtual law library

It is true that the lower courts did not award damages, but this was only because the extent of
damages was not quantifiable. We had a similar situation in Gilchrist, where it was difficult or
impossible to determine the extent of damage and there was nothing on record to serve as
basis thereof. In that case we refrained from awarding damages. We believe the same
conclusion applies in this case.
 DECISION

CORONA, J.:

On June 23, 1982, petitioner Jose Lagon purchased from the estate of Bai Tonina Sepi, through
an intestate court,1 two parcels of land located at Tacurong, Sultan Kudarat. A few months after
the sale, private respondent Menandro Lapuz filed a complaint for torts and damages against
petitioner before the Regional Trial Court (RTC) of Sultan Kudarat.

In the complaint, private respondent, as then plaintiff, claimed that he entered into a contract of
lease with the late Bai Tonina Sepi Mengelen Guiabar over three parcels of land (the "property")
in Sultan Kudarat, Maguindanao beginning 1964. One of the provisions agreed upon was for
private respondent to put up commercial buildings which would, in turn, be leased to new
tenants. The rentals to be paid by those tenants would answer for the rent private respondent
was obligated to pay Bai Tonina Sepi for the lease of the land. In 1974, the lease contract ended
but since the construction of the commercial buildings had yet to be completed, the lease
contract was allegedly renewed.

When Bai Tonina Sepi died, private respondent started remitting his rent to the court-appointed
administrator of her estate. But when the administrator advised him to stop collecting rentals
from the tenants of the buildings he constructed, he discovered that petitioner, representing
himself as the new owner of the property, had been collecting rentals from the tenants. He thus
filed a complaint against the latter, accusing petitioner of inducing the heirs of Bai Tonina Sepi to
sell the property to him, thereby violating his leasehold rights over it.

In his answer to the complaint, petitioner denied that he induced the heirs of Bai Tonina to sell
the property to him, contending that the heirs were in dire need of money to pay off the
THIRD DIVISION obligations of the deceased. He also denied interfering with private respondent's leasehold
rights as there was no lease contract covering the property when he purchased it; that his
[G.R. NO. 119107 : March 18, 2005] personal investigation and inquiry revealed no claims or encumbrances on the subject lots.

JOSE V. LAGON, Petitioner, v. HONORABLE COURT OF APPEALS and MENANDRO V. Petitioner claimed that before he bought the property, he went to Atty. Benjamin Fajardo, the
LAPUZ,Respondents. lawyer who allegedly notarized the lease contract between private respondent and Bai Tonina
Sepi, to verify if the parties indeed renewed the lease contract after it expired in 1974.
Petitioner averred that Atty. Fajardo showed him four copies of the lease renewal but these were d) Exemplary or corrective damages in the amount of One Hundred Eighty Thousand Five
all unsigned. To refute the existence of a lease contract, petitioner presented in court a Hundred Pesos (P187,500.00)
certification from the Office of the Clerk of Court confirming that no record of any lease contract
notarized by Atty. Fajardo had been entered into their files. Petitioner added that he only e) Temperate or moderate damages in the amount of Sixty Two Thousand Five Hundred Pesos
learned of the alleged lease contract when he was informed that private respondent was (P62,500.00);
collecting rent from the tenants of the building.
f) Nominal damages in the amount of Sixty Two Thousand Five Hundred Pesos (P62,500.00);
Finding the complaint for tortuous interference to be unwarranted, petitioner filed his
counterclaim and prayed for the payment of actual and moral damages. g) Attorney's fees in the amount of One Hundred Twenty Five Thousand Pesos (P125,000.00);

On July 29, 1986, the court a quo found for private respondent (plaintiff below):
ACCORDINGLY, judgment is hereby rendered in favor of the plaintiff:
h) Expenses of litigation in the amount of Sixty Two Thousand Five Hundred Pesos
(P62,500.00);
i) Interest on the moral damages, actual or compensatory damages temperate or moderate
damages, nominal damages, attorney's fees and expenses of litigation in the amounts as
specified hereinabove from May 24, 1982 up to June 27, 1986, in the total amount of Nine
Hundred Thousand Pesos (P900,000.00); all of which will continue to bear interests at a legal
rate of 12% per annum until the whole amounts are fully paid by the defendants to the
plaintiffs;

1. Declaring the "Contract of Lease" executed by Bai Tonina Sepi Mangelen Guiabar in favor of
the plaintiff on November 6, 1974 (Exh. "A" and "A-1") over Lot No. 6395, Pls-73. Lot No 6396.
Pls.-73. Lot No. 6399. 3ls-73, and Lot no.9777-A. CSD-11-000076-D (Lot No. 3-A. 40124), all 4. For failure of the defendant to deposit with this Court all the rentals he had collected from the
situated along Ledesma St., Tacurong, Sultan Kudarat, which document was notarized by Atty. thirteen (13) tenants or occupants of the commercial buildings in question, the plaintiff is
Benjamin S. Fajardo, Sr. and entered into his notarial register as Doc. No. 619. Page No. 24. hereby restored to the possession of his commercial buildings for a period of seventy-three (73)
Book No. II. Series of 1974, to be authentic and genuine and as such valid and binding for a months which is the equivalent of the total period for which he was prevented from collecting
period of ten (10) years specified thereon from November 1, 1974 up to October 31, 1984; the rentals from the tenants or occupants of his commercial buildings from October 1, 1978 up
to October 31, 1984, and for this purpose a Writ of Preliminary Injunction is hereby issued, but
the plaintiff is likewise ordered to pay to the defendant the monthly rental of Seven Hundred
Pesos (P700.00) every end of the month for the entire period of seventy three (73) months.
2. Declaring the plaintiff as the lawful owner of the commercial buildings found on the aforesaid This portion of the judgment should be considered as a mere alternative should the defendant
lots and he is entitled to their possession and the collection (of rentals) of the said commercial fail to pay the amount of Five Hundred Five Pesos and Fifty Six Centavos (P506,805.56)
buildings within the period covered by this "Contract of Lease" in his favor; hereinabove specified;

3. Ordering the defendant to pay to the plaintiff the following: 5. Dismissing the counterclaim interposed by the defendant for lack of merit;

a) Rentals of the commercial buildings on the lots covered by the "Contract of Lease" in favor of
the plaintiff for the period from October 1, 1978 up to October 31, 1984, including accrued
interests in the total amount of Five Hundred Six Thousand Eight Hundred Five Pesos and Fifty 6. With costs against the defendant.2
Six Centavos (P506, 850.56), the same to continue to bear interest at the legal rate of 12% per
annum until the whole amount is fully paid by the defendant to the plaintiff; Petitioner appealed the judgment to the Court of Appeals. 3 In a decision dated January 31,
1995,4 the appellate court modified the assailed judgment of the trial court as follows:
b) Moral damages in the amount of One Million Sixty Two Thousand Five Hundred Pesos
(P1,062,500.00); a) The award for moral damages, compensatory damages, exemplary damages, temperate or
moderate damages, and nominal damages as well as expenses of litigation in the amount
c) Actual or compensatory damages in the amount of Three Hundred Twelve Thousand Five of P62,500.00 and interests under paragraph 3-a(a), (b), (c), (d), (e), (f), (g), (h), and (i) are
Hundred Pesos (P312, 500.00); deleted;
b) The award for attorney's fees is reduced to P30,000.00; because it violates the property rights of a party in a contract to reap the benefits that should
result therefrom.8
c) Paragraphs 1,2,5 and 6 are AFFIRMED;

d) Additionally, the defendant is hereby ordered to pay to the plaintiff by way of actual damages
the sum of P178,425.00 representing the amount of rentals he collected from the period of
October 1978 to August 1983, and minus the amount of P42,700.00 representing rentals due
the defendant computed at P700.00 per month for the period from August 1978 to August
1983, with interest thereon at the rate until the same is fully paid;
The core issue here is whether the purchase by petitioner of the subject property, during the
supposed existence of private respondent's lease contract with the late Bai Tonina Sepi,
constituted tortuous interference for which petitioner should be held liable for damages.

e) Paragraph 4 is deleted.5
The Court, in the case of So Ping Bun v. Court of Appeals,9 laid down the elements of tortuous
interference with contractual relations: (a) existence of a valid contract; (b) knowledge on the
part of the third person of the existence of the contract and (c) interference of the third person
Before the appellate court, petitioner disclaimed knowledge of any lease contract between the without legal justification or excuse. In that case, petitioner So Ping Bun occupied the premises
late Bai Tonina Sepi and private respondent. On the other hand, private respondent insisted that which the corporation of his grandfather was leasing from private respondent, without the
it was impossible for petitioner not to know about the contract since the latter was aware that knowledge and permission of the corporation. The corporation, prevented from using the
he was collecting rentals from the tenants of the building. While the appellate court disbelieved premises for its business, sued So Ping Bun for tortuous interference.
the contentions of both parties, it nevertheless held that, for petitioner to become liable for
damages, he must have known of the lease contract and must have also acted with malice or
bad faith when he bought the subject parcels of land.
As regards the first element, the existence of a valid contract must be duly established. To
Via this Petition for Review , petitioner cites the following reasons why the Court should rule in prove this, private respondent presented in court a notarized copy of the purported lease
his favor: renewal.10 While the contract appeared as duly notarized, the notarization thereof, however, only
proved its due execution and delivery but not the veracity of its contents. Nonetheless, after
undergoing the rigid scrutiny of petitioner's counsel and after the trial court declared it to be
valid and subsisting, the notarized copy of the lease contract presented in court appeared to be
1. The Honorable Court of Appeals seriously erred in holding that petitioner is liable for incontestable proof that private respondent and the late Bai Tonina Sepi actually renewed their
interference of contractual relation under Article 1314 of the New Civil Code; lease contract. Settled is the rule that until overcome by clear, strong and convincing evidence,
a notarized document continues to be prima facie evidence of the facts that gave rise to its
execution and delivery.11

2. The Honorable Court of Appeals erred in not holding that private respondent is precluded
from recovering, if at all, because of laches;
3. The Honorable Court of Appeals erred in holding petitioner liable for actual damages and
attorney's fees, and;
4. The Honorable Court of Appeals erred in dismissing petitioner's counterclaims. 6
The second element, on the other hand, requires that there be knowledge on the part of the
interferer that the contract exists. Knowledge of the subsistence of the contract is an essential
element to state a cause of action for tortuous interference. 12 A defendant in such a case cannot
be made liable for interfering with a contract he is unaware of.13 While it is not necessary to
prove actual knowledge, he must nonetheless be aware of the facts which, if followed by a
reasonable inquiry, will lead to a complete disclosure of the contractual relations and rights of
the parties in the contract.14

In this case, petitioner claims that he had no knowledge of the lease contract. His sellers (the
heirs of Bai Tonina Sepi) likewise allegedly did not inform him of any existing lease contract.
Article 1314 of the Civil Code provides that any third person who induces another to violate his
contract shall be liable for damages to the other contracting party. The tort recognized in that
provision is known as interference with contractual relations. 7 The interference is penalized
After a careful perusal of the records, we find the contention of petitioner meritorious. He The foregoing disquisition applies squarely to the case at bar. In our view, petitioner's purchase
conducted his own personal investigation and inquiry, and unearthed no suspicious circumstance of the subject property was merely an advancement of his financial or economic interests,
that would have made a cautious man probe deeper and watch out for any conflicting claim over absent any proof that he was enthused by improper motives. In the very early case of Gilchrist
the property. An examination of the entire property's title bore no indication of the leasehold v. Cuddy,21 the Court declared that a person is not a malicious interferer if his conduct is
interest of private respondent. Even the registry of property had no record of the same. 15
impelled by a proper business interest. In other words, a financial or profit motivation will not
necessarily make a person an officious interferer liable for damages as long as there is no
malice or bad faith involved.

Assuming ex gratia argumenti that petitioner knew of the contract, such knowledge alone was
not sufficient to make him liable for tortuous interference. Which brings us to the third element.
According to our ruling in So Ping Bun, petitioner may be held liable only when there was no In sum, we rule that, inasmuch as not all three elements to hold petitioner liable for tortuous
legal justification or excuse for his action16 or when his conduct was stirred by a wrongful interference are present, petitioner cannot be made to answer for private respondent's losses.
motive. To sustain a case for tortuous interference, the defendant must have acted with
malice17 or must have been driven by purely impious reasons to injure the plaintiff. In other This case is one of damnun absque injuria or damage without injury. "Injury" is the legal
words, his act of interference cannot be justified. 18 invasion of a legal right while "damage" is the hurt, loss or harm which results from the
injury.22 In BPI Express Card Corporation v. Court of Appeals,,23 the Court turned down the
claim for damages of a cardholder whose credit card had been cancelled by petitioner
corporation after several defaults in payment. We held there that there can be damage without
Furthermore, the records do not support the allegation of private respondent that petitioner injury where the loss or harm is not the result of a violation of a legal duty. In that instance, the
induced the heirs of Bai Tonina Sepi to sell the property to him. The word "induce" refers to consequences must be borne by the injured person alone since the law affords no remedy for
situations where a person causes another to choose one course of conduct by persuasion or damages resulting from an act which does not amount to legal injury or wrong. 24Indeed, lack of
intimidation. The records show that the decision of the heirs of the late Bai Tonina Sepi to sell malice in the conduct complained of precludes recovery of damages. 25
19

the property was completely of their own volition and that petitioner did absolutely nothing to
influence their judgment. Private respondent himself did not proffer any evidence to support his
claim. In short, even assuming that private respondent was able to prove the renewal of his
lease contract with Bai Tonina Sepi, the fact was that he was unable to prove malice or bad
faith on the part of petitioner in purchasing the property. Therefore, the claim of tortuous
interference was never established.
With respect to the attorney's fees awarded by the appellate court to private respondent, we
rule that it cannot be recovered under the circumstances. According to Article 2208 of the Civil
Code, attorney's fees may be awarded only when it has been stipulated upon or under the
instances provided therein.26Likewise, being in the concept of actual damages, the award for
attorney's fees must have clear, factual and legal bases 27 which, in this case, do not exist.

In So Ping Bun, the Court discussed whether interference can be justified at all if the interferer
acts for the sole purpose of furthering a personal financial interest, but without malice or bad
faith. As the Court explained it: Regarding the dismissal of petitioner's counterclaim for actual and moral damages, the appellate
court affirmed the assailed order of the trial court because it found no basis to grant the amount
of damages prayed for by petitioner. We find no reason to reverse the trial court and the Court
of Appeals. Actual damages are those awarded in satisfaction of, or in recompense for, loss or
x x x, as a general rule, justification for interfering with the business relations of another exists injury sustained. To be recoverable, they must not only be capable of proof but must actually be
where the actor's motive is to benefit himself. Such justification does not exist where the actor's proved with a reasonable degree of certainty.28 Petitioner was unable to prove that he suffered
motive is to cause harm to the other. Added to this, some authorities believe that it is not loss or injury, hence, his claim for actual damages must fail. Moreover, petitioner's prayer for
necessary that the interferer's interest outweigh that of the party whose rights are invaded, and moral damages was not warranted as moral damages should result from the wrongful act of a
that an individual acts under an economic interest that is substantial, not merely de minimis, person. The worries and anxieties suffered by a party hailed to court litigation are not
such that wrongful and malicious motives are negatived, for he acts in self-protection. Moreover, compensable.29
justification for protecting one's financial position should not be made to depend on a
comparison of his economic interest in the subject matter with that of the others. It is sufficient With the foregoing discussion, we no longer deem it necessary to delve into the issue of laches.
if the impetus of his conduct lies in a proper business interest rather than in wrongful motives. 20

WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed decision of
the Court of Appeals is hereby REVERSED and SET ASIDE.
 The facts show that on December 18, 1963, the petitioner GSIS conducted a lottery draw for
the allocation of lots and housing units in Project 8-C of GSIS Village. Private respondent
No costs. Esperanza Leuterio won and was issued a Certificate of Acknowledgment to purchase the
subject house and lot 2 on December 27, 1963. In 1965, the parties entered into a Deed of
Conditional Sale evidencing the conveyance of the subject property and all improvements
thereon to the Leuterio spouses for the purchase price of P19,740.00, payable over a fifteen-
SO ORDERED. year period, in 180 equal monthly installments of P168.53 each. Paragraph 11 of the Deed of
Conditional Sale provides: chanroble s law library

"Upon the full payment by the Vendee of the purchase price of the lot and
dwelling/improvement above referred to together with all the interest due thereon, taxes and
other charges and upon his faithful compliance with all the conditions of the Contract, the
Vendor agrees to execute in favor of the Vendee, or his/their heirs and successors-in-interest a
final Deed of Sale of the aforementioned land and dwelling/improvements . . ." 3

Three years elapsed before the Deed was notarized, and a copy of the same was given to the
private respondents.

After the land development and housing construction of Project 8-C were completed in 1966,
SECOND DIVISION petitioners Board of Trustees increased the purchase price indicated in the Deeds of Conditional
Sale covering houses and lots therein. The new price was based on the alleged final cost of
[G.R. No. 105567. November 25, 1993.] construction of the GSIS Village. It is noted that, on the face of the Leuterios Conditional Deed
of Sale is the marginal notation "subject to adjustment pending approval of the Board of
GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), Petitioner, v. HONORABLE COURTTrustees." The Leuterio spouses alleged that this notation was not in the Deed when they signed
OF APPEALS and SPOUSES RAUL and ESPERANZA LEUTERIO, Respondents. the same in 1965. Resolving this factual issue, the trial court found that the appended words
were inserted into the document without the knowledge or consent of the Leuterio spouses. This
The Legal Services Group for Petitioner. finding of fact went undisturbed on appeal to the respondent court. 4 cralawnad

Jaime M. Posadas for Private Respondents. Sometime in the early 1970s, a group (not including the Leuterios) of conditional vendees of
houses and lots in Project 8-C of GSIS Village brought suit 5 against herein petitioner,
questioning the increase in purchase price. They likewise wrote a "A Plea For Justice" to then
President Ferdinand E. Marcos, requesting for a directive to petitioners management to "accept
payments of amortization installments on the original amounts stated in the Deed(s) of
Conditional Sale."
DECISION
cralaw virtua1aw library

As a result, the Office of the President created a three-man Ad Hoc committee, composed of
representatives of the Office of the President, the petitioner System, and the GSIS Village
Association. The committee found that the final cost of the Village justified a higher price range
for the houses and lots in the project.
PUNO, J.:
Based on the ad hoc committees findings, the petitioner System, with the approval of its Board
of Trustees, increased the purchase prices of houses and lots in the GSIS Village.chanroble svirtualawlibrary

On May 30, 1973, however, then Presidential Executive Assistant Jacobo C. Clave, through a
This is a petition for review on certiorari to set aside the Decision of the 10th Division of the memorandum, advised petitioner that then President Marcos has approved the "Plea" and
Court of Appeals ordering the petitioner GSIS to execute a Final Deed of Sale in favor of the wanted its "immediate implementation." The attempt by petitioner to have the presidential
spouses Raul and Esperanza Leuterio involving a house and lot in the GSIS Village, Project 8-C, endorsement reconsidered was denied on December 18, 1980.
Quezon City. 1
Meanwhile, after years of diligently paying the monthly amortizations 6 and real estate taxes on
the subject property, the private respondents spouses informed 7 petitioner that the payments signed the Deed of Conditional Sale in 1965, the notation "subject to adjustment pending
8 for the property had been completed, and hence, the execution of an absolute deed of sale in approval of the Board of Trustees" was not in the Deed. 14 Likewise, the Answer of petitioner to
their favor was in order. No action on the matter was taken by petitioner. the Complaint of the private respondents admitted the non-existence of this notation at the
time the Deed of Conditional Sale was signed, albeit, it called the omission an honest mistake.
The instant case was initiated on May 20, 1984 in the RTC of Manila, Br. 11, with the filing of a 15 We quote paragraph 5 of said Answer, viz: chanrobles virtualawlibrary chanroble s.com :chanrobles.com .ph

Complaint for Specific Performance With Damages to compel petitioner to execute in private
respondents favor, the final Deed of Sale over the subject property. 9 The trial court found for "5. The omission of the marginal notation reading (x) subject to adjustment pending approval
the Leuterios.chanroblesvirtualawlibrary of the Board of Trustees (Annexes B to B-1-b of the Complaint) on the Deed of Conditional Sale
signed by the plaintiffs, as alleged in paragraph VII of the Complaint, must have been an honest
On January 24, 1992, the Court of Appeals 10 , in its impugned Decision, upheld the trial court mistake on the part of the clerk who typed the document." cralaw virtua1aw library

solely on the basis of estoppel. It held that petitioner cannot increase the price of the subject
house and lot after it failed, through the years, to protest against private respondents P200.00- This was also confirmed by the petitioner in the instant Petition for Review on Certiorari where it
amortization or to require the payment by them of bigger monthly installments. 11 is alleged that." . . the respondents-spouses Leuterio were not required to sign a new contract
as provided in Resolution No. 996 but instead, the words subject to adjustment pending
Petitioner now urges the setting aside of the impugned Decision of the Court of Appeals, approval of the Board of Trustees were inserted in the Deed of Conditional Sale executed in
alleging that it erred in: jgc:chanroble s.com.ph 1965." Petitioner is bound by these judicial admissions.

"I. . . . HOLDING THAT THE PETITIONER GSIS IS ESTOPPED FROM ENFORCING THE
ADJUSTMENT OF THE SELLING PRICE
"II. . . . NOT HOLDING THAT THE SPOUSES LEUTERIO MUST BE BOUND BY THE
RECOMMENDATION MADE BY THE AD HOC COMMITTEE
Quite clearly, therefore, the purchase price mutually agreed upon by the parties was
P19,740.00. The spouses Leuterio did not give their consent for petitioner to make a unilateral
upward adjustment of this purchase price depending on the final cost of construction of the
subject house and lot. It is illegal for petitioner to claim this prerogative, for Article 1473 of the
Civil Code provides that "the fixing of the price can never be left to the discretion of one of the
contracting parties . . . ."
cralaw virtua1aw library

"III. . . . FAILING TO CONSIDER THE JUSTIFICATION FOR THE ADJUSTMENT IN THE SELLING
PRICE OF THE LOTS AND HOUSING UNITS We also reject petitioners contention that the spouses Leuterio are bound by the
recommendation of the ad hoc committee as this was set aside by then President Ferdinand E.
"IV . . . AFFIRMING THE DECISION OF THE TRIAL COURT WHICH ORDERED THE PETITIONER Marcos. 16 The rejection was communicated by then Presidential Assistant Jacobo Clave to
GSIS TO EXECUTE THE FINAL DEED OF SALE" 12 petitioner in a Memorandum dated May 30, 1973. 17 Petitioner moved for its reconsideration
chanroble s lawlibrary : rednad

but the motion was denied by the former President thru Presidential Assistant Joaquin Venus, in
Upon the other hand, private respondents, in their Comment, 13 contend that the Petition only a letter dated December 18, 1990. 18 chanroble s virtual lawlibrary

raises factual issues, which cannot be settled by this Court in the instant proceedings. They
further contend that no reversible errors were committed by the Court of Appeals in its
impugned Decision.
We find no merit in the petition, but for reasons different from those espoused by the
respondent Court of Appeals.
The decisive issue really involves a question of fact whether or not the spouses Leuterio
agreed to the notation "subject to adjustment pending approval of the Board of Trustees"
appearing on the margin of the parties Conditional Deed of Sale. If there was no agreement,
Next, petitioner would impress on us the need to adjust the purchase price of the spouses
house and lot in view of the change in the final cost of construction. If petitioner failed to factor
this increase in the cost of construction in the purchase price of the subject house and lot, it has
nobody to blame but itself and it alone should suffer the loss. To be sure, given the expertise of
its technical people, it has no reason to be shortsighted. In any event, our law on contract does
not excuse a party from specifically performing his obligation on the ground that he made a bad
business judgment.
IN VIEW WHEREOF, the petition for review on certiorari is DISMISSED. Cost against petitioner. chanroble s.com :

the Leuterio spouses are only obligated to pay the purchase price of P19,740.00 as stipulated in
virtual law library

the main body of the Conditional Deed of Sale. SO ORDERED.

Trite to state, this Court is not a trier of facts. In a multitude of cases, we have laid down the
unbending rule that findings of fact of lower courts are binding on us unless they are marred by
manifest errors. The pleadings before us do not demonstrate that the trial court grossly erred
when it found that the purchase price agreed upon by the parties was P19,740.00 and this
agreement was not made subject to any posterior event or condition. This finding of fact was
based on the explicit testimony of private respondent Raul Leuterio that when he and his wife

SECOND DIVISION
[G.R. NO. 148599. March 14, 2005]
PROFESSIONAL ACADEMIC PLANS, INC., FRANCISCO COLAYCO and BENJAMIN
DINO, Petitioners, v.DINNAH L. CRISOSTOMO, Respondents.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review of the Decision1 of the Court of Appeals (CA) affirming the
decision of the Regional Trial Court in Civil Case No. 93-197, and its Resolution denying the
motion for reconsideration thereof filed by petitioner Professional Academic Plans, Inc. (PAPI).
The Antecedents
Respondent Dinnah L. Crisostomo was the PAPI District Manager for Metro Manila. As such
officer, she did not receive any salary but was entitled to a franchise commission equivalent to
10% of the payments on remittances of clients whose contracts or agreements had been
negotiated by her, for and in behalf of PAPI. She was later promoted as Regional Manager.
On May 17, 1988, petitioner PAPI wrote Col. Noe S. Andaya, the President of the Armed Forces
of the Philippines Savings and Loan Association, Inc. (AFPSLAI) offering an Academic Assistance
Program for its members, their children and dependents.
Noel Rueda, a sales consultant of petitioner PAPI, initiated negotiations for the sale of pre-need
educational plans under the said program with the AFPSLAI. However, before an agreement was
reached, Rueda's services were terminated. Respondent Crisostomo, as the district manager
and the immediate supervisor of Rueda, continued the negotiation of the account together with
Guillermo R. Macariola, the Assistant Vice-President for Sales. 2 The AFPSLAI agreed to the
proposal.
On November 9, 1988, the AFPSLAI and PAPI executed a Memorandum of Agreement (MOA) 3 in
connection with scholarship funding agreements to be entered into by PAPI and the AFPSLAI
members. These agreements shall then embody the provisions of the Professional Academic
Program Agreement. The parties agreed that all support services would be provided by PAPI and
that any amendments and/or modifications to the MOA would be effective only upon approval of
the parties thereto.
By then, Rueda was no longer connected with the petitioner corporation, hence, was disqualified
to receive the franchise commission. Thus, the said commission was offered to Macariola who,
however, declined and waived his right thereto in favor of respondent Crisostomo, Rueda's
immediate supervisor. The Executive Committee of petitioner PAPI agreed to give the franchise
commission to respondent Crisostomo.4
Initially, respondent Crisostomo received the 10% franchise commission from December 1988
until April 1989. Later, upon the instance of petitioner Benjamin Dino, then Assistant Vice-
President for Marketing, respondent Crisostomo's franchise commission was reduced to 5% to
support the operational expenses of PAPI. After a few months, the said commission was again
reduced to 4%. Two months later, petitioner PAPI asked for another .25% reduction; hence,
respondent Crisostomo's franchise commission was further reduced to 3.75%. Finally, in
January 1991, petitioner PAPI again asked for a final reduction of the commission to 2% to
which respondent Crisostomo agreed, on the condition that it be reduced into writing. 5
Thus, on February 7, 1991, petitioner Dino, and Angelito B. Cruz, Vice-President for Finance and
Administration, signed a Memorandum which reads as follows:
This will confirm your company franchise on all AFPSLAI business with Professional Academic
Plans, Inc. under the following terms and conditions:
1. Your franchise commission shall remain at 2% excluding Entrance and Service Fees of the
first year premium for as long as you are connected with the company at whatever capacity.
2. This franchise is not transferable.
For your guidance.
(Sgd.) (Sgd.)
BENJAMIN S. DINO ANGELITO B. CRUZ6
Crisostomo received her 2% commission until October 1991. In the meantime, Col. Victor M.
7
Punzalan succeeded Col. Noe S. Andaya as President of the AFPSLAI. 8 In a Letter dated
December 16, 1991, Col. Punzalan informed PAPI of the AFPSLAI's decision to review the 1988
MOA.
As an aftermath of the negotiation, petitioner PAPI and the AFPSLAI executed a MOA in April
1992, amending their prior MOA.9
The AFPSLAI resumed its remittances of the installment payments of its members to petitioner
PAPI in June 1992.10 This time, however, Crisostomo was not paid her commission. In an Inter-
Office Memorandum11 dated June 1, 1992, respondent Crisostomo's franchise commission on
sales transacted with the AFPSLAI was terminated, for the following reasons: (1) the new
AFPSLAI management cancelled the old MOA in October 1991 due to various anomalies and the
misrepresentation committed by PAPI's sales force; (2) the new MOA is largely due to
management's effort; hence, no franchise would be granted to any sales associates; and (3) the
franchise guidelines as per the Memorandum dated November 1988 prescribed that in order to
maintain her franchise, 100 new paid plans should be completed on a month to month basis and
respondent Crisostomo was not able to meet these parameters for the period of November 1991
to May 1992.
Nonetheless, respondent Crisostomo insisted on the release of her 2% franchise
commission.12 She first approached her immediate supervisor, Mrs. Editha Bayoneta, the Senior
Assistant Vice-President, but to no avail. She then went to petitioner Dino, who allegedly
threatened her with termination if she persisted with her demand. Unfazed, she sought a
dialogue with the President himself, petitioner Francisco Colayco. They, however, failed to arrive
at a settlement.13 On July 6, 1992, respondent Crisostomo sent a demand letter to petitioner
PAPI. The latter informed her that it could not accede to her demand for the reasons stated in
the Inter-Office Memorandum dated June 1, 1992.
Thereafter, Crisostomo again approached Colayco who advised her to make a formal proposal.
She complied and submitted a letter14 on August 13, 1992 where she made the following
proposal:
Option 1: That I am willing to settle for a P5 Million amount settlement and an immediate
irrevocable resignation from your good company,
Option 2: That the 2% franchise fee/commission be retained even if and when the undersigned
is no longer connected with Professional Group, Inc. for as long as the AFPSLAI is still doing
business with the Professional Group. This is considered as the royalty fee. 15
However, in a Letter16 dated August 17, 1992, petitioner Colayco informed the respondent that
her settlement proposal was totally unacceptable and that she was being placed under
preventive suspension in order to abort any untoward reaction resulting from the denial of her
request, which may be detrimental to the company's interest. Worse, she was advised not to
come back after the suspension. Thus, her services in the company were terminated.
On January 21, 1993, respondent Crisostomo filed a complaint for sum of money and damages
against petitioners PAPI, Colayco and Dino. She alleged therein that as of October 2, 1992,
petitioner PAPI's sales of pre-need plans to the AFPSLAI amounted to P9,193,367.20; that she
was entitled to 2% of such amount or the sum of P183,867.34 as franchise commission; and
that notwithstanding the said franchise, petitioner PAPI refused to give her the said
commissions. She, likewise, prayed for the grant of moral and exemplary damages, plus
attorney's fees.17
The petitioners averred in their answer to the complaint that Crisostomo was not entitled to the
franchise commission because she did not participate in the execution of the 1988 MOA. They
pointed out that under the December 1989 company guidelines, a franchise holder shall be
maintained only when 100 new paid plans are completed on a month-to-month basis. They
argued that since respondent Crisostomo was unable to meet this requirement for the period of SO ORDERED.19
November 1991 to May 1992, her franchise was terminated. The petitioners also claimed that
the AFPSLAI did not resume payments in 1992 but entered into a new MOA after it undertook
new negotiations. They maintained that under the new MOA, no one is entitled to a franchise,
much less respondent Crisostomo.18
The petitioners adduced testimonial evidence to show that respondent Crisostomo had no
participation whatsoever in the negotiations which culminated in the execution of the two MOAs
between petitioner PAPI and the AFPSLAI. Petitioner Dino testified that before respondent
Crisostomo became the regional manager, she was not an employee of PAPI. According to him,
after the termination of Rueda's employment for cause, the franchise commission should revert
back to petitioner PAPI as a rule. While the Executive Committee agreed to award the
commission, it agreed to give respondent Crisostomo only a 5% commission, which was
reduced to 2% until June 1992 under the 1992 MOA. Moreover, Crisostomo had no participation
whatsoever in the negotiations of the two agreements.
After due proceedings, the trial court rendered a Decision on November 20, 1997, the
dispositive portion of which reads:
Premises considered, judgment is hereby rendered in favor of the plaintiff and as against
defendants. Wherefore, defendants are hereby ordered to release to plaintiff:
1. the sum of one hundred eighty-three thousand eight hundred sixty-seven thousand and
twenty-five centavos (P183,867.25) which constitutes her commission from the AFPSLAI
contract as of October 1992, and the sum equivalent to 2% of all future remittances by AFPSLAI The CA ruled that the requirement of completing 100 new plans monthly as a condition for a
to defendant PAPI;
2. moral damages in the amount of P200,000.00;
3. exemplary [damages] of P50,000.00;
4. attorney's fees of P50,000.00;
5. cost of suit.
The petitioners appealed the decision to the CA which rendered judgment 20 on August 31, 2000
affirming in toto the decision of the trial court.
The Ruling of the Court of Appeals
According to the CA, the letter of Col. Punzalan did not indicate any intention to abrogate the
first MOA. At most, it merely suspended the acceptance of the application for pre-need plans
while a thorough review of the terms and conditions of the first MOA was being made. The CA
held that the second MOA did not disclose any incompatibility with the first MOA that would
amount to an implied extinguishment of the latter; nor did the new MOA use any word
suggesting the cancellation of the first. The CA then ruled that what was executed in 1992 was
a mere modification of the first MOA.21
The CA further held that the fact that military and political support intervened in facilitating the
revival of the AFPSLAI account did not diminish the respondent's right to the franchise
commission, considering that it was awarded to her by the executive committee for successfully
initiating the deal with the AFPSLAI in 1988.22
franchisee to be entitled to the commission was superseded by the Memorandum dated
February 7, 1991, which reduced the commission to 2% from the earlier 10%. Respondent
Crisostomo was entitled to receive such reduced commission as long as she was connected with
the petitioner corporation in whatever capacity. Moreover, assuming that such condition was still
in effect, its non-fulfillment from November 1991 to May 1992 could not be imputed to the
respondent since it was brought about by Col. Punzalan's order to suspend the acceptance of
plan applications pending a review of the first MOA. 23
The CA found that the award of moral and exemplary damages, attorney's fees and the costs of
the suit, in favor of the respondent, was fully supported by the evidence on record and was
justified, in light of the petitioner corporation's wanton disregard of respondent's claim for her
franchise commission.24
On June 13, 2001, the CA denied the petitioners' motion for reconsideration for lack of merit.
Hence, they filed this Petition for Review on Certiorari .
 The Present Petition cancelled, the respondent, therefore, had no right to the franchise commission on the AFPSLAI
account under the new MOA.29

The petitioners assert that the award of moral and exemplary damages and attorney's fees has
The petitioners submit the following issues for our consideration: no basis since they did not act in bad faith in denying the respondent's claim. 30

A) WHETHER OR NOT THE OLD MEMORANDUM OF AGREEMENT HAD BEEN CANCELLED AND
RESCINDED BY AFPSLAI;
B) WHETHER OR NOT RESPONDENT IS ENTITLED TO THE FRANCHISE FEE OR COMMISSION
UNDER THE NEW MEMORANDUM OF AGREEMENT UNDER WHICH SHE HAD NO PARTICIPATION
WHATSOEVER IN THE NEGOTIATION AND EXECUTION;
In her Comment on the petition, the respondent counters that regardless of the execution of the
new MOA and her non-participation in its negotiation and execution, her right to the
commissions from all sales emanating from the AFPSLAI transactions subsists as long as she
remained connected with PAPI. She asserts that the petitioners are now in estoppel to question
the grant of her commission since it was granted through the petitioner corporation's authority
and it was reduced into writing. 31

In their Reply, the petitioners stress that the respondent's entitlement to the commission was
not absolute. It was subject to certain conditions, i.e., the fact that the respondent must be
C) WHETHER OR NOT PETITIONERS, IN DENYING RESPONDENT'S CLAIM, HAVE COMMITTED connected with the company in order to be entitled to it, and that the old MOA must remain
ACTS THAT RENDER THEM LEGALLY LIABLE FOR MORAL AND EXEMPLARY DAMAGES AND effective, since it was the basis for the grant of the commission. With its cancellation, the right
ATTORNEY'S FEES AND COST OF SUIT.25 of respondent to the commission, likewise, ceased to exist. Without the new MOA, there would
no longer be any applications for academic plans from the AFPSLAI and, consequently, no
commission to be earned.32
Primarily, the petitioners assert that the respondent is not entitled to a franchise commission.
They aver that the respondent did not participate in initiating, conceptualizing, and negotiating
the first MOA with the AFPSLAI, except that she was present during its signing. The franchise The Ruling of the Court
commission for the AFPSLAI account under the old MOA should have been granted to Noel
Rueda, who initiated and conceptualized the transaction. The petitioners maintain that the
franchise commission was only awarded to the respondent because those who were entitled to it
were disqualified to be franchise holders - Rueda was disqualified for being no longer connected Rule 45 of the Rules of Court provides that only legal issues may be raised. Factual issues are
with the petitioner company, while Macariola was disqualified for being an employee. 26 beyond the province of the Supreme Court in a Petition for Review , for it is not the Court's
function to weigh the evidence all over again. 33 While the Court may, in exceptional cases,
resolve factual issues, the petitioners herein failed to establish any such exceptional
circumstances. Moreover, it is doctrinal that findings of facts of the CA upholding those of the
Assuming that the respondent was entitled to the franchise commission under the old MOA, the trial court are binding upon the Supreme Court. 34
petitioners argue that such privilege was already extinguished, considering that the old MOA
was cancelled by the AFPSLAI thru the Letter dated December 16, 1991. They maintain that in
writing the said letter, Col. Punzalan intended to abrogate the old MOA and not merely suspend
the same, otherwise, the intention to enter into "a new agreement mutually beneficial" to both Even after a review of the factual issues raised by the petitioners, we find and so rule that the
parties would not have been mentioned therein.27 They conclude that since there has already CA was correct in declaring that the first MOA had not been cancelled, but was merely modified
been an express cancellation of the old MOA, there is no longer a need to delve into the issue of by the second MOA.
whether the new MOA declared in unequivocal terms that the old MOA was being cancelled, or
whether the new MOA is incompatible with the old one. 28

A reading of the letter of Col. Punzalan to the petitioner corporation indicates that it merely
signified the suspension of the acceptance of new applications under the first MOA, until such
The petitioners point out that the respondent had no participation whatsoever in the negotiation time that a thorough study was undertaken, and a new agreement mutually beneficial to both
or execution of the new MOA. Considering this and the fact that the old MOA had been duly parties was entered into. By his letter, Col. Punzalan did not unilaterally cancel or rescind the
first MOA. Indeed, the petitioners failed to adduce a morsel of evidence to prove that AFPSLAI
PAYMENT and COLLECTION PAYMENT and COLLECTION
had agreed to such cancellation or rescission of the first MOA. It bears stressing that
abandonment of contract rights requires proof of actual intent to abandon. 35
'Financing of the 1st annual payment 'Financing in the form of a 5-year loan in favor of the
by AFPSLAI in the form of educational member equivalent to the Gross Contract Price (GCP) of
Once a contract is entered into, no party can renounce it unilaterally or without the consent of loan to the member the plan
the other.36 This is the essence of the principle of mutuality of contracts entombed in Article
130837 of the Civil Code. To effectuate abandonment of a contract, mutual assent is always 'AFPSLAI as the authorized collecting 'Schedule of drawing out the loan proceeds within 5 years
required.38 The mere fact that one has made a poor bargain may not be a ground for setting agent of monthly installments of the
aside the agreement.39 members - 20% of GCP upon submission of the complete
documentation by PAPI and upon approval of the loan
'Remittance of collections to the PAPI
from the 2nd year until the plan is - 80% of the GCP to be drawn out in 48 equal monthly
As can be gleaned from the second MOA, the parties merely made substantial modifications to fully paid installments to start upon receipt by AFPSLAI of the 13th
monthly amortization of the member
the first MOA, and agreed that only those provisions inconsistent with those of the second were
'Direct payment to PAPI of the 1st
considered rescinded, modified and/or superseded. 40 year assistance granted by AFPSLAI to
the member

As graphically shown below, the parties agreed to continue with the implementation of the
Academic Assistance Program under the acronym "LOVES" (Loans to Offset Very Expensive BENEFITS TO AFPSLAI BENEFITS TO AFPSLAI
Schooling) and to continue implementing the same. The rights and obligations of the parties
'47.5% of the net Initial Cash '53.5% out of the 20% of the GCP as service fee and
under the first MOA were maintained albeit with modifications, to wit: Brought-In of all the 1st year discount
assistance
'5% out of the 80% of the GCP as service fee
1988 MOA 1992 MOA
'5% of all total collections from the
2nd year up to the 5th year

IN GENERAL
'Agreement between PAPI and
AFPSLAI to implement the terms and
conditions of the Academic Assistance
Program
'Benefits to accrue directly to the
member and the designated heirs
IMPLEMENTATION
IN GENERAL
IN CASE OF NON-PAYMENT IN CASE OF NON-PAYMENT
'Agreement between AFPSLAI and the PAPI to implement
the terms and conditions of the Loans to Offset Very
'AFPSLAI to become the receiver of 'AFPSLAI to automatically become the receiver of the
Expensive Schooling (LOVES) Program
the contract in case of failure to pay 3 contract in case of failure to pay the monthly
monthly amortizations amortization(s), with dispositive right over the plan
'Benefits to accrue directly to the member and the
designated heirs
'AFPSLAI to acquire all interests from
the contract in case the 1st year
assistance is not fully paid by the
member
IMPLEMENTATION

'Assistance by PAPI to AFPSLAI in 'Putting up of an extension office near the AFPSLAI

terms of support services building at the expense of PAPI

'Creation of a Committee to supervise 'Support and services by PAPI in the implementation of

the initial implementation of the the program
program

IN CASE OF CANCELLATION
'Due to fraud, forgery or misrepresentation of PAPI
personnel
- AFPSLAI to act on it and notify PAPI
We agree with the respondent that the petitioners are now in estoppel to question her
entitlement to the franchise commission under the old MOA. It must be noted that from
December 1988 until October 1991 the respondent was continuously receiving her franchise
commission from the petitioner corporation. It was only when the remittances for AFPSLAI were
suspended that the respondent stopped receiving her commission.

- Member's loan to be deducted from the amounts due to

PAPI, or to be billed to PAPI, in case the former is
insufficient
- no rebate on the service fee and discount
'Due to death of either the member or beneficiary
- the plan shall be deemed fully paid for
On the issue of damages, we rule for the petitioners. Moral damages are recoverable for breach
of contract where the breach was wanton, reckless, malicious or in bad faith, oppressive or
abusive.42 However, moral damages are improperly awarded, absent a specific finding and
pronouncement from the trial court that petitioners acted in such manner.43 In the instant case,
despite the trial court's award of moral damages, it did not make any pronouncement as to the
basis of such award. Therefore, the award of moral damages must be deleted.

- to be acted upon by PAPI

As a consequence, the award for exemplary damages is also vacated. Exemplary damages are
- outstanding accounts to be deducted from AFPSLAI's not recoverable as a matter of right, and although such damages need not be proved, the
future releases or to be billed to PAPI subject to certain plaintiff must first show that he is entitled to moral, temperate or compensatory damages
conditions. before a court can favorably consider an award of exemplary damages. 44 In this case, there was
no finding that the respondent is entitled to any such damages; hence, no exemplary damages
may be awarded. Finally, we also vacate the award of attorney's fees since the trial court did
MISCELLANEOUS MISCELLANEOUS not make any finding that any of the instances enumerated in Art. 2208 of the Civil Code exists.

'AFPSLAI to be free from any legal
implication that may arise as to the
agreement between the member and
PAPI
'Effectivity of the MOA immediately
upon signing
'Amendments and modifications to
become effective only upon approval
of the parties
'AFPSLAI to be free from any liability
arising between the member and PAPI
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. The
'Effectivity of the MOA immediately upon awards for moral and exemplary damages and attorney's fees are DELETED. No pronouncement
signing as to costs.
'Amendments and modifications to
become effective only upon approval of
the parties
SO ORDERED.
'Prior inconsistent agreements deemed
rescinded, modified, or superseded.

The fact that the respondent did not participate in the negotiations of the new MOA is of no
moment. As culled from the petitioners' testimonial evidence, the franchise commission was
awarded as an incentive to the one who initiated and successfully negotiated the AFPSLAI
account within a certain period.41 The franchise commission was granted subject to two
conditions only: (1) that the respondent must remain connected with the company, and (2) that
it is not transferable. At the time the new MOA was executed, the respondent was still
connected with the petitioner corporation; hence, she was still entitled to her commission. Even
with the modification of the first MOA by the second one, the respondent had the right to
continue receiving her franchise commission from the petitioner corporation.
 EN BANC

[G.R. No. 11318. October 26, 1918. ]

THE MANILA RAILROAD CO., Plaintiff-Appellant, v. LA COMPAIA TRASATLANTICA,

defendant-appellee, and THE ATLANTIC, GULF & PACIFIC CO., Defendant-Appellant.

William A. Kincaid & Thomas L. Hartigan, for plaintiff and Appellant.

Lawrence, Ross & Block, for defendant and appellant Atlantic, Gulf & Pacific Co.

Gilbert, Cohn & Fisher, for defendant and appellee Compaia Trasatlantica.

SYLLABUS

1. CARRIERS; CONTRACTS; LIABILITY FOR DAMAGE DONE IN DISCHARGING CARGO. A

steamship company is liable upon its contract of carriage for damage resulting to cargo by
reason of the negligence of a contracting company in discharging the freight from the ships
hold; and the circumstance that the steamship company had used due diligence in selecting a
competent person to discharge the cargo does not exempt the ships company from liability. The
failure to comply with a contractual obligation cannot be excused by proof that the damage was
due to the negligence of one whom the contracting party has selected to perform the contract.

2. NEGLIGENCE; EXEMPTION FROM LIABILITY FOR DAMAGES. A contract exempting a party

from liability for the damages consequent upon accidents occurring in the course of certain
operations will not be construed to extend to damages resulting from the negligence of the
contracting party or its servants in conducting such operations, unless the contract is so explicit
as to leave no room for doubt that the parties so intended. Contracts against liability for
negligence are not favored in the law and should be strictly construed, with every intendment
against the party claiming the benefit of the exemption from such liability.

3. ID.; ID.; CASE AT BAR. A contracting company was employed by a steamship company to
lift a number of heavy steamboilers from the ships hold and place them on a lighter alongside,
with the understanding that while the contracting company would use due care in getting the
boilers out, no responsibility would be assumed by it for accidents due to any hidden defect in
the lifting apparatus or other unforeseen occurrence. There was no express reservation with
regard to damage attributable to the negligence of the contracting company, or its agents in the
lifting operations. In the course of discharging the boilers, serious damage was done to one of
them by reason of the negligence of the person in charge of the lifting operations. Held: That
the contracting company was liable for the damage thus done in the performance of its contract
and could not be exempted by- reason of the fact that it had used due care in selecting the
servant whom it had placed in charge of the work.
 middle of the boiler, and it was thus raised nearly in an horizontal position. The boiler was too
4. ID.; "CULPA CONTRACTUAL" AND "CULPA AQUILIANA" DISTINGUISHED. Negligence long to clear the hatch in this position, and after one end of the boiler had emerged on one side
incident to the performance of a contractual obligation (culpa contractual) is entirely distinct of the hatch, the other still remained below on the other side. When the boiler had been gotten
from negligence considered as an independent source of liability in the absence of special into this position and was being hoisted still further, a rivet near the head of the boiler was
relation. The latter species of negligence is the culpa aquiliana of the civil law; and liability caught under the edge of the hatch. The weight on the crane was thus increased by a strain
arising therefrom is governed by articles 1902-1904 of the Civil Code; while the liability incident estimated at fifteen tons with the result that the cable of the sling parted and the boiler fell to
to the performance of contractual obligations is governed by articles 1101 et seq. and other the bottom of the ships hold. The sling was again adjusted to the boiler but instead of being
special provisions relative to contractual obligations. placed near the middle it was now slung nearer one of the ends, as should have been done at
first. The boiler was again lifted; but as it was being brought up, the bolt at the end of the
5. ID.; LIABILITY OF OFFICIOUS MEDDLER (GESTOR OFICIOSO). A party who, in the derrick boom broke, and again the boiler fell.
absence of any contract whatever, officiously undertakes to do a service with respect to the
property of another, as in moving it from one place to another, is liable for any damage resulting The crane was repaired and the boiler discharged, but it was found to be so badly damaged that
thereto by reason of negligence on his part or that of his servants in performing such service. it had to be reshipped to England where it was rebuilt, and afterwards was returned to Manila.
The Railroad Companys damage by reason of the cost of repairs, expenses, and loss of the use
6. CONTRACTS; PRIVITY OF CONTRACT; ACTION BY OWNER FOR DAMAGE IN DISCHARGE OF of the boiler proved to be P22,343.29; and as to the amount of the damage so resulting there is
FREIGHT. A contracting company which undertakes to remove freight from a ships hold, practically no dispute. To recover these damages the present action was instituted by the
subject to certain conditions defined in a contract made with the steamship company, is not Railroad Company against the Steamship Company. The latter caused the Atlantic Company to
liable to the owner of freight for damage done thereto in the lifting operations. In such case the be brought in as a codefendant, and insisted that whatever liability existed should be fixed upon
owner of the freight must look for redress to the ships company and for lack of privity cannot the Atlantic Company as an independent contractor who had undertaken to discharge the boilers
maintain an action on the contract made between the ships company and the other. and had become responsible for such damage as had been done.

The judge of the Court of First Instance gave judgment in favor of the plaintiff against the
Atlantic Company, but absolved the Steamship Company from the complaint. The plaintiff has
appealed from the action of the court in failing to give judgment against the Steamship
DECISION Company, while the Atlantic Company has appealed from the judgment against it.

The mishap was undoubtedly due, as the lower court found, to the negligence of one Leyden,
the foreman in charge; and we may add that the evidence tends to show that his negligence
was of a type which may without exaggeration be denominated gross. The sling was in the first
STREET, J. :place improperly adjusted, and the attention of Leyden was at once called to this by the man in
charge of the stevedores. Nevertheless he proceeded and, instead of lowering the boiler when it
was seen that it could not readily pass through the hatch, he attempted to force it through; and
the ships tackle was brought into use to assist in this maneuver. The second fall was, it
appears, caused by the weakening of the bolt at the head of the derrick boom, due to the shock
In March, 1914, the steamship Alicante, belonging to the Compaia Trasatlantica de Barcelona, incident to the first accident. This defect was possibly such as not to be patent to external
arrived at Manila with two locomotive boilers aboard, the property of The Manila Railroad observation but we are of the opinion that a person of sufficient skill to be trusted with the
Company. The equipment of the ship for discharging heavy cargo was not sufficiently strong to operation of machinery of this character should have known that the crane had possibly been
handle these boilers, and it was therefore necessary for the Steamship Company to procure weakened by the jar received in the first accident. The foreman was therefore guilty of
assistance in the port of Manila. negligence in attempting to hoist the boiler the second time under the conditions that had thus
developed. It should be noted that the operation was at all its stages entirely under Leydens
The Atlantic, Gulf and Pacific Company (hereafter called the Atlantic Company) was accordingly control; and, although in the first lift he utilized the ships tackle to aid in hoisting the boiler,
employed by the Steamship Company, as having probably the best equipment for this purpose everything was done under his immediate supervision. There is no evidence tending to show
of any contracting company in the city. The service to be performed by the Atlantic Company that the first fall of the boiler might have been due to any hidden defect in the lifting apparatus;
consisted in bringing its floating crane alongside the Alicante, lifting the boilers out of the ships and if it had not been for the additional strain caused by one end of the boiler catching under
hold, and transferring them to a barge which would be placed ready to receive them. the hatch, the operation would doubtless have been accomplished without difficulty. The
accident is therefore to be attributed to the failure of Leyden to exercise the degree of care
Upon the arrival of the Alicante, the Atlantic Company sent out its crane in charge of one which an ordinarily competent and prudent person would have exhibited under the
Leyden. In preparing to hoist the first boiler the sling was unfortunately adjusted near the circumstances which then confronted him. This conclusion of fact cannot be refuted; and,
indeed, no attempt is here made by the appellant to reverse this finding of the trial court.
Three questions are involved in the case, namely: (1) Is the Steamship Company liable to the
plaintiff by reason of having delivered the boiler in question in a damaged condition? (2) Is the
Atlantic Company liable to be made to respond to the steamship company for the amount the
latter may be required to pay to the plaintiff for the damage done? (3) Is the Atlantic Company
directly liable to the plaintiff, as the trial court held?
It will be observed that a contractual relation existed between the Railroad Company and the
Steamship Company; and the duties of the latter with respect to the carrying and delivery of
the boilers are to be discovered by considering the terms and legal effect of that contract. A
contractual relation also existed between the Steamship Company and the Atlantic Company;
and the duties owing by the latter to the former with respect to the lifting and the transferring
of the boilers are likewise to be discovered by considering the terms and legal effect of the
contract between these parties. On the other hand, no contractual relation existed directly
between the Railroad Company and the Atlantic Company.
We are all agreed, that, under the contract for transportation from England to Manila, the
Steamship Company is liable to the plaintiff for the injury done to the boiler while it was being
discharged from the ship. The obligation to transport the boiler necessarily involves the duty to
convey and deliver it in a proper condition according to its nature, and conformably with good
faith, custom, and the law (art. 1258, Civ. Code). The contract to convey imports the duty to
convey and deliver safely and securely with reference to the degree of care which, under the
circumstances, are required by law and custom applicable to the case. The duty to carry and to
carry safely is all one.
Such being the contract of the Steamship Company, said company is necessarily liable, under
articles 1103 and 1104 of the Civil Code, for the consequences of the omission of the care
necessary to the proper performance of its obligation. The contract to transport and deliver at
the port of Manila a locomotive boiler, which was received by it in proper condition, is not
complied with by delivery at the port of destination of a mass of iron the utility of which had
been destroyed.
At the hearing in first instance the Atlantic Company introduced four witnesses to prove that at
the time said company agreed to lift the boilers out of the Alicante, as upon other later
occasions, the Steamship Company was notified that the service would only be rendered upon
the distinct understanding that the Atlantic Company would not be responsible for damage. In
this connection the president of the company testified that he stipulated that the company
would assume no responsibility for any damage which might be done to the lifts or to the
steamer or to its contents or to individuals during the progress of making these lifts, from any
source whatever in connection with the breaking of the lifting equipment. The vice-president of
the Atlantic Company testified that he was present upon the occasion when the agent of the
Steamship Company made arrangements for the discharge of the boilers and he heard the
conversation between the president and said agent. According to this witness the substance of
the agreement was that, while the Atlantic Company would use all due care in getting the
boilers out, no responsibility was assumed for damage done either to ship or cargo. The
intermediary who acted as agent for the Steamship Company in arranging for the performance
of this service stoutly denied that any such terms were announced by the officials or anybody
else connected with the Atlantic Company at any time while the arrangements were pending.
In the conflict of the evidence, we recognize that, by a preponderance of the evidence, some
reservation or other was made as to the responsibility of the Atlantic Company; and though the
agent who acted on behalf of the Steamship Company possibly never communicated this
reservation to his principal, the latter should nevertheless be held bound thereby. It thus
becomes necessary to discover what the exact terms of this supposed reservation were.
We think that we must put aside at once the words of studied precision with which the president
of the Atlantic Company would exclude the possibility of any liability attaching to his company,
though we may accept his statement as showing that the excepted risk contemplated breakage
of the lifting equipment. There is undoubtedly a larger element of truth in the more reasonable
statement by the vice-president of the company. According to this witness the contract
combined two features. namely, an undertaking on the part of the Atlantic Company to use all
due care, combined with a reservation concerning the companys liability for damage.

Nor does the Steamship Company escape liability by reason of the fact that it employed a The Atlantic Company offered in evidence a number of letters which had been written by it at
competent independent contractor to discharge the boilers. The law applicable to this feature of
different times, extending over a period of years, in response to inquiries made by other firms
the case will be more fully discussed further on in this opinion. At this point we merely observe
and persons in Manila concerning the terms upon which the Atlantic Company would make
that in the performance of this service the Atlantic Company was no more than a servant or heavy lifts. These letters tend to show that the Atlantic Company was not accustomed to
employee of the Steamship Company, and it has never yet been held that the failure to comply assume the risk incident to such work and required the parties for whom the service might be
with a contractual obligation can be excused by showing that such delinquency was due to the rendered either to carry the risk or insure against it. One such letter, dated nearly four years
negligence of one to whom the contracting party had committed the performance of the prior to the occurrence which gave rise to this lawsuit, was addressed to the Compaia
contract. Trasatlantica de Barcelona one of the defendants in this case. It was stated in this
communication that the companys derrick would be subject to inspection prior to making the
Coming to the question of the liability of the Atlantic Company to respond to the Steamship lift but that the Atlantic Company would not assume responsibility for any damage that might
Company for the damages which the latter will be compelled to pay to the plaintiff, we observe occur either to ship or cargo from any cause whatsoever. The Steamship Company rejected the
that the defense of the Atlantic Company comprises two contentions, to-wit, first, that by the services of the Atlantic Company in that instance as being too onerous.
terms of the engagement in accordance with which the Atlantic Company agreed to render the
service, all risk incident to the discharge of the boilers was assumed by the Steamship The letters directed to third parties, it may be observed, would not, generally speaking, be
Company; and secondly, that the Atlantic Company should be absolved under the last paragraph admissible as against the plaintiff for the purpose of proving that a similar reservation was
of article 1903 of the Civil Code, inasmuch as it had used due care in the selection of the inserted in the contract with it on this occasion; but if knowledge of such custom is brought
employee whose negligent act caused the damage in question. home to the Steamship Company, the fact that such reservation was commonly made is of
some probative force. Reference to a number of these letters will show that no particular a foreign jurisdiction, and the question at issue involved a doctrine peculiar to contracts of
formula was used by the Atlantic Company in defining its exemption, and the tenor of these common carriers. Nevertheless the case is instructive as illustrating the universal attitude of
various communications differs materially. We think, however, that some of the letters are of courts upon the right of a contracting party to stipulate against the consequences of his own
value as an aid in interpreting the reservation which the Atlantic Company may have intended negligence. It there appeared that the plaintiff had purchased from the defendant company a
to make. We therefore quote from some of these letters as follows: jgc:chanroble s.com.ph ticket for the transportation of himself and baggage from Hongkong to Manila. By the terms of
the contract printed in legible type upon the back of the ticket it was provided that the company
"We will use our best endeavors to carry out the work successfully and will ask you to inspect would not hold itself responsible for any loss or damage to luggage, under any circumstances
our plant but we wish it distinctly understood that we cannot assume responsibility for damage whatsoever, unless it had been paid for as freight. It was held that this limitation upon the
which may occur . . . while the lift is being made." (To Rear Admiral, U. S. N., Oct. 4, 1909.) liability of the defendant company did not relieve it from liability for negligence of its servants
by which the baggage of the passenger was lost. Said the court: "Ordinarily this language would
"Our quotation is based on the understanding that we assume no responsibility whatever from seem to be broad enough to cover every possible contingency, including the negligent act of the
any accident which may happen during our operations. We always insert this clause as a defendants servants. To so hold, however, would run counter to the established law of England
precautionary measure, but we have never had to avail ourselves of it as yet and do not expect and the United States on that subject. The court then quoted the following proposition from the
to now." (To "El Varadero de Manila," Nov. 1, 1913.) decision of the Kings Bench Division in Price & Co. v. Union Lighterage Co. ([1903], 1 K. B. D.,
750, 754): jgc:chanroble s.com.ph

"As is customary in these cases, we will use all precautions necessary to handle the gun in a
proper manner. Our equipment has been tested and will be again, before making the lift, but we "An exemption in general words not expressly relating to negligence, even though the words
do not assume any responsibility for damage to the gun ship, or cargo." (To Warner, Barnes & are wide enough to include loss by negligence or default of carriers servants, must be
Co., June 7, 1909.) construed as limiting the liability of the carrier as assurer, and not as relieving him from the
duty of exercising reasonable skill and care."
The idea expressed in these letters is, we think, entirely consonant with the interpretation which
the vice-president of the company placed upon the contract which was made with the Even admitting that, generally speaking, a person may stipulate against liability for the
Steamship Company upon this occasion, that is the company recognized its duty to exercise due consequences of negligence, at least in those cases where the negligence is not gross or wilful,
supervisory care; and the exemption from liability, whatever may have been its precise words, the contract conferring such exemption must be so clear as to leave no room for the operation
had reference to disasters which might result from some inherent hidden defect in the lifting of the ordinary rules of liability consecrated by experience and sanctioned by the express
apparatus or other unforeseen occurrence not directly attributable to negligence of the company provisions of law.
in the lifting operations. Neither party could have supposed for a moment that it was intended
to absolve the Atlantic Company from its duty to use due care in the work. If the exemption should be understood in the sense which counsel for the Atlantic Company now
insists it should bear, that is, as an absolute exemption from all responsibility for negligence, it
It is not pretended that negligence on the part of the Atlantic Company or its employees was is evident that the agreement was a most inequitable and unfair one, and hence it is one that
expressly included in the excepted risk, and we are of the opinion that the contract should not the Steamship Company can not be lightly assumed to have made. Understood in that sense it
be understood as covering such an exemption. It is a rudimentary principle that the contractor is the equivalent of licensing the Atlantic Company to perform its tasks in any manner and
is responsible for the work executed by persons whom he employs in its performance, and this fashion that it might please, and to hold it harmless from the consequences.
is expressed in the Civil Code in the form of a positive rule of law (art. 1596). It is also
expressly declared by law that liability arising from negligence is demandable in the fulfillment It is true that, in these days, insurance can usually be obtained in the principal ports of
of all kinds of obligations (art. 1103, Civil Code). Every contract for the prestation of service commerce by parties circumstanced as was the steamship company in the case now before us.
therefore has annexed to it, as an inseparable implicit obligation, the duty to exercise due care But the best insurance against disasters of this kind is found in the exercise of due care; and
in the accomplishment of the work; and no reservation whereby the person rendering the the chief incentive to the exercise of care is a feeling of responsibility on the part of him who
services seeks to escape from the consequences of a violation of this obligation can be viewed undertakes the work. Naturally the courts are little inclined to aid in the efforts of contractors to
with favor. evade this responsibility.

"Contracts against liability for negligence are not favored by the law. In some instances, such as There may have been in the minds of the officials of the Atlantic Company an idea that the
common carriers, they are prohibited as against public policy. In all cases such contracts should promise to use due care in the lifting operations was not accompanied by a legal obligation,
be construed strictly, with every intendment against the party seeking its protection." (Crew v. such promise being intended merely for its moral effect as an assurance to the steamship
Bradstreet Company, 134 Pa. St., 161; 7 L. R. A., 661; 19 Am. St. Rep., 681.) company that the latter might rely upon the competence and diligence of the employees of the
Atlantic Company to accomplish the work in a proper way. The contract can not be permitted to
The strictness with which contracts conferring such an unusual exemption are construed is operate in this one-sided manner. The two features of the engagement, namely, the promise to
illustrated in Bryan v. Eastern & Australian S. S. Co. (28 Phil. Rep., 310). The decision in that use due care and the exemption from liability for damage should be so construed as to give
case is not precisely applicable to the case at bar, since the court was there applying the law of some legal effect to both. The result is, as already indicated, that the Atlantic Company was
bound by its undertaking to use due care and that the exemption was intended to cover existing obligation."
accidents due to hidden defects in the apparatus or other unforeseeable occurrences not having
their origin in the immediate personal negligence of the party in charge of the operations. Justice Tracey, the author of the opinion from which we have quoted, proceeds to observe that
Manresa, in commenting on articles 1102 and 1104, has described these two species of
We now proceed to consider the contention that the Atlantic Company should be absolved from negligence as contractual and extra-contractual, the latter being the culpa aquiliana of the
liability to the Steamship Company under the last paragraph of article 1903 of the Civil Code, Roman law. "This terminology is unreservedly accepted by Sanchez Roman (Derecho Civil,
which declares that the liability there referred to shall cease when the persons mentioned fourth section, chapter XI, article II, No. 12), and the principle stated is supported by decisions
therein prove that they employed all the diligence of a good father of a family to avoid the of the supreme court of Spain, among them those of November 20, 1896 (80 Jurisprudencia
damage. In this connection the conclusion of fact must be conceded in favor of the Atlantic Civil, No. 151), and June 27, 1894 (75 Jurisprudencia Civil, No. 182.)"
Company that it had used proper care in the selection of Leyden and that, so far as the
company was aware, he was a person to whom might properly be committed the task of The principle that negligence in the performance of a contract is not governed by article 1903 of
discharging the boilers. The answer to the contention, however, is that the obligation of the the Civil Code but rather by article 1104 of the same Code was directly applied by this court in
Atlantic Company was created by contract, and article 1903 is not applicable to negligence the case of Baer Senior & Co.s Successors v. Compaia Maritima (6 Phil. Rep., 215); and the
arising in the course of the performance of a contractual obligation. Article 1903 is exclusively same idea has been impliedly if not expressly recognized in other cases (N. T. Hashim & Co. v.
concerned with cases where the negligence arises in the absence of agreement. Rocha & Co., 18 Phil. Rep., 315; Tan Chiong Sian v. Inchausti & Co., 22 Phil. Rep., 152).

In discussing the liability of the Steamship Company to the plaintiff Railroad Company we have What has been said suffices in our opinion to demonstrate that the Atlantic Company is liable to
already shown that a party is bound to the full performance of his contractual engagements the Steamship Company for the damages brought upon the latter by the failure of the Atlantic
under articles 1101 et seq. of the Civil Code, and other special provisions of the Code relative to Company to use due care in discharging the boiler, regardless of the fact that the damage was
contractual obligations; and if he falls short of complete performance by reason of his own caused by the negligence of an employee who was qualified for the work and who had been
negligence or that of any person to whom he may commit the work, he is liable for the damages chosen by the Atlantic Company with due care.
resulting therefrom. What was there said is also applicable with reference to the liability of the
Atlantic Company upon its contract with the Steamship Company, and the same need not be This brings us to the last question here to be answered, which is; Can the Atlantic Company be
here repeated. It is desirable, however, in this connection, to bring out somewhat more fully the held directly liable to the Railroad Company? In other words, can the judgment entered in the
distinction between negligence in the performance of a contractual obligation (culpa contractual) trial court directly in favor of the plaintiff against the Atlantic Company be sustained? To answer
and negligence considered as an independent source of obligation between parties not this it is necessary to examine carefully the legal relations existing between the Atlantic
previously bound (culpa aquiliana). Company and the Railroad Company with reference to this affair; and we shall for a moment
ignore the existence of the contract between the Steamship Company and the Atlantic
This distinction is well established in legal jurisprudence and is fully recognized in the provisions Company, to which the railroad company was not a party.
of the Civil Code. As illustrative of this, we quote the following passage from the opinion of this
Court in the well-known case of Rakes v. Atlantic, Gulf & Pacific Co. (7 Phil. Rep., 359, 365), and Having regard then to the bare fact that the Atlantic Company undertook to remove the boiler
in this quotation we reproduce the first paragraph of the passage from Manresa chiefly for the from the ships hold and for this purpose took the property into its power and control, there
purpose of here presenting a more correct English version of said passage. arose a duty to the owner to use due care in the performance of that service and to avoid
damaging the property in the course of such operation. This duty was obviously in existence
"The acts to which these articles are applicable are understood to be those not growing out of before the negligent act was done which resulted in damage, and said negligent act may, if we
preexisting duties of the parties to one another. But where relations already formed give rise to still ignore the existence of the express contract, be considered as an act done in violation of
duties, whether springing from contract or quasi contract, then breaches of those duties are this duty.
subject to articles 1101, 1103, and 1104 of the same code. A typical application of this
distinction may be found in the consequences of a railway accident due to defective machinery The duty thus to use due care is an implied obligation, of a quasi contractual nature, since it is
supplied by the employer. His liability to his employee would arise out of the contract of created by implication of law in the absence of express agreement. The conception of liability
employment, that to the passengers out of the contract for passage, while that to the injured with which we are here confronted is somewhat similar to that which is revealed in the case of
by-stander would originate in the negligent act itself. This distinction is thus clearly set forth by the depositary, or commodatary, whose legal duty with respect to the property committed to
Manresa in his commentary on article 1033: jgc:chanrobles.com .ph their care is defined by law even in the absence of express contract; and it can not be doubted
that a person who takes possession of the property of another for the purpose of moving or
"We see with reference to such obligations, that culpa, or negligence, may be understood in conveying it from one place to another, or for the purpose of performing any other service in
two different senses, either as culpa, substantive and independent, which of itself constitutes connection therewith (locatio operis faciendi), owes to the owner a positive duty to refrain from
the source of an obligation between two persons not formerly bound by any other obligation; or damaging it, to the same extent as if an agreement for the performance of such service had
as an incident in the performance of an obligation which already existed, which can not be been expressly made with the owner. The obligation here is really a species of contract le, and it
presumed to exist without the other, and which increases the liability arising from the already has its source and explanation in the vital fact that the active party has taken upon himself to
do something with or to the property and has taken it into his power and control for the purpose Company introduces, however, an important, and in our opinion, controlling factor into this
of performing such service. (Compare art. 1889, Civil Code.) branch of the case. It cannot be denied that the Steamship Company had possession of this
boiler in the capacity of carrier and that, as such, it was authorized to make a contract with the
In the passage which we have already quoted from the decision in the Rakes case this Court Atlantic Company to discharge the same from the ship. Indeed, it appears in evidence that even
recognized the fact that the violation of a quasi contractual duty is subject to articles 1101, before the contract of affreightment was made the Railroad Company was informed that it
1103, and 1104 of the Civil Code and not within the purview of article 1903. Manresa also, in would be necessary for the Steamship Company to procure the services of some contractor in
the paragraph reproduced above, is of the opinion that negligence, considered as a substantive the port of Manila to effect the discharge, as the ships tackle was inadequate to handle heavy
and independent source of liability, does not include cases where the parties are previously cargo. It is therefore to be assumed that the Railroad Company had in fact assented to the
bound by any other obligation. Again, it is instructive in this connection to refer to the contents employment of a contractor to perform this service.
of article 1103 of the Civil Code, where it is declared that the liability proceeding from
negligence is demandable in the fulfillment of all kinds of obligations. These words evidently Now, it cannot be admitted that a person who contracts to do a service like that rendered by the
comprehend both forms of positive obligations, whether arising from express contract or from Atlantic Company in this case incurs a double responsibility upon entering upon performance,
implied contract (quasi contract). namely, a responsibility to the party with whom he contracted, and another entirely different
responsibility to the owner, based on an implied contract. The two liabilities can not in our
In this connection it is instructive to recall the celebrated case of Coggs v. Bernard (2 Ld. Raym, opinion coexist. It is a general rule that an implied contract never arises where an express
909), decided in the court of the Kings Bench of England in the year 1703. The action was contract has been made.
brought by the owner of certain casks of brandy to recover damages from a person who had
undertaken to transport them from one place to another. It was alleged that in so doing the If double responsibility existed in such a case as this, it would result that a person who had
defendant so negligently and improvidently put them down that one of the casks was staved limited his liability by express stipulation might find himself liable to the owner without regard
and the brandy lost. The complaint did not allege that the defendant was a common carrier or to the limitation which he had seen fit to impose by contract. There appears to be no possibility
that he was to be paid for his services. It was therefore considered that the complaint did not of reconciling the conflict that would be developed in attempting to give effect to those
state facts sufficient to support an action for breach of any express contract. This made it inconsistent liabilities. The contract which was in fact made, in our opinion, determines not only
necessary for the court to go back to fundamental principles and to place liability on the ground the character and extent of the liability of the Atlantic Company but also the person or entity by
of a violation of the legal duty incident to the mere fact of carriage. Said Powell, J. : "An action whom the obligation is exigible. It is of course quite clear that if the Atlantic Company had
indeed will not lie for not doing the thing, for want of a sufficient consideration; but yet if the refused to carry out its agreement to discharge the cargo, the plaintiff could not have enforced
bailee will take the goods into his custody, he shall be answerable for them; for the taking of the specific performance and could not have recovered damages for non-performance. (Art. 1257,
goods into his custody is his own act." So Gould, J. : ". . . any man that undertakes to carry Civil Code; Donaldson, Sim & Co. v. Smith, Bell & Co., 2 Phil. Rep., 766; Uy Tam and Uy Yet v.
goods is liable to an action, be he a common carrier or whatever he is, if through his neglect Leonard, 30 Phil. Rep., 471.) In view of the preceding discussion it is equally obvious that, for
they are lost or come to any damage: . . . ." Behind these expressions was an unbroken line of lack of privity with the contract, the Railroad Company can have no right of action to recover
ancient English precedents holding persons liable for damage inflicted by reason of a damages from the Atlantic Company for the wrongful act which constituted the violation of said
misfeasance in carrying out an undertaking. The principle determined by the court in the case contract. The rights of the plaintiff can only be made effective through the Compaia
cited is expressed in the syllabus in these words: "If a man undertakes to carry goods safely Trasatlantica de Barcelona with whom the contract of affreightment was made.
and securely, he is responsible for any damage they may sustain in the carriage through his
neglect, though he was not a common carrier and was to have nothing for the carriage." Though The judgment entered in the Court of First Instance must, therefore, be reversed not only with
not stated in so many words, this decision recognizes that from the mere fact that a person respect to the judgment entered in favor of the plaintiff directly against the Atlantic Company
takes the property of another into his possession and control there arises an obligation in the but also with respect to the absolution of the Steamship Company and the further failure of the
nature of an assumpsit that he will use due care with respect thereto. This must be considered a court to enter judgment in favor of the latter against the Atlantic Company. The Compaia
principle of universal jurisprudence, for it is consonant with justice and common sense and as Trasatlantica de Barcelona should be and is hereby adjudged to pay to the Manila Railroad
we have already seen harmonizes with the doctrine above deduced from the provisions of the Company the sum of twenty two thousand three hundred forty three pesos and twenty nine
Civil Code. centavos (P22,343.29), with interest from May 11, 1914, until paid; and when this judgment is
satisfied, the Compaia Trasatlantica de Barcelona is declared to be entitled to recover the same
The conclusion must therefore be that if there had been no contract of any sort between the amount from the Atlantic Gulf & Pacific Company, against whom judgment is to this end hereby
Atlantic Company and the Steamship Company, an action could have been maintained by the rendered in favor of the Compaia Trasatlantica de Barcelona. No express adjudication of costs
Railroad Company, as owner, against the Atlantic Company to recover the damages sustained by of either instance will be made. So ordered.
the former. Such damages would have been demandable under article 1103 of the Civil Code
and the action would not have been subject to the qualification expressed in the last paragraph Arellano, C.J., Torres, Araullo and Avancea, JJ., concur.
of article 1903.
Separate Opinions
The circumstance that a contract was made between the Atlantic Company and the Steamship
 terms said company (A. G. & P.) was relieved "of any responsibility for any damage which might
occur either to the ship, cargo or persons, from any cause whatsoever." cralaw virtua1aw library

JOHNSON, J., dissenting: chanrob1es virtual 1aw library

The contract is the law governing the rights and obligations of the parties, subject to certain
The only question presented by the appellant, the Atlantic, Gulf & Pacific Company, is whether well defined exceptions. Persons have a right to enter into any contract with any clauses, or
or not it is liable, either to the Manila Railroad Company, or to the Compaia Trasatlantica, for conditions, or limitations which they may deem convenient and advisable so long as such
the damage caused to a certain locomotive boiler while being discharged at the port of Manila. clauses or conditions do not conflict with the existing laws, morals or public order. (Art. 1255,
Civil Code.) There are some well defined exceptions to that rule, the most notable of which are
The essential facts important for a decision upon the rights and liabilities of the Atlantic, Gulf & contracts with common carriers. (Hartford F. Ins. Co., v. Chicago, M. & St. P. Railway Co., 175 U.
Pacific Company may be stated as follows: chanrob1es virtual 1aw library S., 91, 97.) The Atlantic, Gulf & Pacific Company, so far as the record shows, is not a common
carrier, and the exception, therefore, just noted does not apply to it. Neither was the contract
(1) That the Manila Railroad Company purchased certain locomotive boilers in Europe and between the Compaia Trasatlantica and the Atlantic, Gulf & Pacific Company a contract for the
contracted with the Compaia Trasatlantica to transport the same to Manila by its steamship carriage of merchandise. It was a contract for services of an entirely different character from
Alicante; (2) That the tackle and equipment of the steamship Alicante being insufficient to that of a common carrier.
discharge said locomotive boilers, the Compaia Trasatlantica entered into a contract with the
Atlantic, Gulf & Pacific Company by virtue of the terms of which the latter company agreed to If then, generally speaking, persons may enter into contractual relations with any clauses or
discharge the said locomotive boilers from the said steamship Alicante by using its tackle and conditions which they may deem advisable and convenient, which do not conflict with existing
equipment for that purpose; (3) That in the effort of the Atlantic, Gulf & Pacific Company to laws, morals or public order, we may ask: Is a contract of the character of that before us in
discharge the said locomotive boilers from the said steamship, the apparatus used, broke and which one of the parties stipulates "that he will not assume any responsibility for any damage
one of the boilers was discharged in the manner described in the complaint and damaged to the which may occur from any cause whatsoever" in the execution of said contract, contrary to the
amount found by the lower court; (4) That while the Atlantic, Gulf & Pacific Company attempted laws, morals or public order?
to show, during the trial of the cause, that it and its employees exercised due care and
diligence, it admitted in this court that its employees had perhaps been negligent in the The contract in question was not one which the parties were obliged to enter into. In that
performance of their duties. respect, it differed from contracts with common carriers, wherein the latter have no option,
generally speaking. In the present case, the Atlantic, Gulf & Pacific Company had a perfect right
Considering that the relations between the Compaia Trasatlantica and the Atlantic, Gulf & to refuse to enter into the contract in question until and unless its terms were satisfactory and
Pacific Company were contractual, it becomes important to ascertain what were the terms of the acceptable. The parties being at perfect liberty to enter into the contract or to refuse so to do,
contract, in order to properly understand the rights and liabilities of the parties thereto, in they must be bound by the law which they themselves have made for themselves. Having
relation to the admission of the Atlantic, Gulf & Pacific Company that its employees had perhaps voluntarily made the law (contract), they must abide by its terms until it can be shown that the
been guilty of negligence in the discharge of said boiler. same is contrary to the laws, morals or public order.

The contract was not wholly reduced to writing; it was partly written and partly oral. The It is a fundamental rule of the law that what one may refuse to do entirely, he may agree to do
Compania Trasatlantica alleged that under the terms of the contract the Atlantic, Gulf & Pacific upon such terms as he pleases so long as he does not contravene the laws, morals or public
Company was to discharge said boilers from the steamship Alicante, using its tackle and order. The Atlantic, Gulf & Pacific Company having had the right to refuse absolutely to enter
apparatus therefor, and that no condition of any character was imposed, while the Atlantic, Gulf into the contract, it must have had the right to refuse to enter into it except upon just such
& Pacific Company alleged that it agreed to discharge said boilers and to use its tackle and terms and conditions as it saw fit to require. The Atlantic, Gulf & Pacific Company, therefore,
equipment for that purpose, but with the express condition that it was, under no circumstances had a right to refuse to enter into the contract in question until and unless the Compaia
or conditions, to assume any responsibility for any damage whatever which might be occasioned Trasatlantica agreed to relieve it of all responsibility for any damages which might occur either
thereby, either to the cargo, ship or persons. to the ship, cargo or persons from any cause whatsoever. By the terms of the contract the
Compaia Trasatlantica assumed all responsibility for damages in the discharge of the said
In support of the allegation of the Compaia Trasatlantica, it really presented but one witness, locomotive boilers. That must be true considering that, by the terms of the contract, the
while the Atlantic, Gulf & Pacific Company presented several witnesses, including its president, Atlantic, Gulf & Pacific Company was relieved from any and all damages whatsoever which
vice-president and several others, together with a number of documents showing that the might occur.
contract was in conformity with its usual custom in making similar contracts. The Atlantic, Gulf
& Pacific Company also showed that the Compaia Trasatlantica had actual knowledge of such The only purpose on the part of the Atlantic, Gulf & Pacific Company, in imposing the condition
custom. above-mentioned, was to avoid the consequences of the negligence of its agents or employees
or of any act or accident which might cause damage, and to avoid possible lawsuits growing out
A careful examination of the proof, in our opinion, clearly shows by a large preponderance, that of the alleged negligent acts.
the contract in question was as the Atlantic, Gulf & Pacific Company alleged and that by its
The question which we are discussing is not a new one in jurisprudence. The courts have been parties.
called upon many times to interpret contracts with conditions like those contained in the
contract before us. (Coup v. Wabash, St. Louis & Pac. Railway Co., 56 Mich., 111; 56 Am. Rep., An example may serve to make the rule which we have announced plainer: chanrob1es virtual 1aw library

374; Mann v. Pere Marquette R. Co., 135 Mich., 210; Stephens v. Southern Pacific Co., 109 Cal.,
86; 29 L. R. A., 751; Quimby v. Boston & Maine R., 150 Mass., 365; 5 L. R. A., 846; Pittsburgh, A is the owner of an automobile at Manila which he desires to deliver at Baguio. B is the owner
etc. Railway Co. v. Mahoney, 148 Ind., 196; Russell v. Pittsburgh, etc., R. Co., 157 Ind., 305; 55 of a garage at Manila and has in his employ experienced chauffeurs. A desires to employ B to
L. R. A., 253; Hartford Fire Ins. Co. v. Chicago, M. & St. P. Railway Co., 175 U. S., 91, 97; take the automobile to Baguio and offers a certain price for the services. B accepts As
Baltimore, etc. Railway Co. v. Voigt, 176 U. S., 498; Osgood v. Railway Co., 77 Vermont, 334; proposition with the condition that he will assume no responsibility whatever for any damages
70 L. R. A., 930.) which might occur to the said automobile in the course of its delivery. In passing the zigzag on
the way to Baguio, an unforeseen accident happens through the casual neglect or lack of care
In the case of the Hartford Insurance Company v. Chicago, M. & St. P. Railway Co. (175 U. S., on the part of the chauffeur and the automobile is damaged. Can B be held liable, in an action
91, 97, supra). a contract was made by which one of the parties was relieved from all liability upon the contract, for the damages in the face of the fact that A had relieved him of all liability
for damage, et cetera, et cetera, even the liability for damage which might result "from the for any damages which might occur? The cases which we have cited above, together with many
carelessness or negligence of employees or agents of said railway company," and the Supreme others which might be cited, all answer that question in the negative. That question is answered
Court of the United States held that such a condition in contracts of that character was not void in the negative upon the theory that A, by the terms of his contract, relieved B, in an action
as against public policy, or public morals or contrary to law. (Baltimore, etc. Railway Co. v. upon the contract, from all liability whatsoever.
Voigt, 176 U. S., 498; Osgood v. Central Vermont R. Co., 77 Vermont, 334; 70 L. R. A., 930.)
It must not be forgotten that what we have said relates to actions upon the contract with the
Courts must not forget that they are not to extend, arbitrarily, those rules which say that a conditions mentioned and not to actions for damages in an action ex delicto resulting from the
given contract is void as being against public policy, or public laws, because if there is one thing negligent performance of duties and obligations assumed.
which more than another public policy requires, it is that men of full age and competent
understanding shall have the utmost liberty of contracting, and that their contracts when The appellant, the Atlantic, Gulf & Pacific Company, contends that inasmuch as it had exercised
entered into freely and voluntarily, shall be held sacred and must be enforced in courts of the care of a good father of a family in selecting its employees, that it should be relieved from
justice. Courts should not lightly interfere with the freedom of contracts. (Baltimore, etc., all liability by virtue of the provisions of article 1903 of the Civil Code. We do not believe that
Railway Co. v. Voigt, 176 U. S., 498; Printing, etc. Company v. Sampson, Law Reps., 19 Equity, the provisions of said article can be invoked when the rights and liabilities of parties to an action
465; Osgood v. Central Vermont R. Co., 77 Vermont, 334.) depend upon a contract. The rights of parties are defined by the contract and there is no
occasion to invoke the statute. The argument employed by the Atlantic, Gulf & Pacific Company,
The record shows that the Atlantic, Gulf & Pacific Company had, at various times, discharged if valid, would also relieve the Compaia Trasatlantica from all liability. Certainly, the Atlantic,
other freight from steamships in Manila Bay of much greater weight than the boiler in question, Gulf & Pacific Company would not deny that the Compaia Trasatlantica had not exercised the
by means of the same tackle and equipment and by the same employees which were used in care of a good father of a family in selecting it for the discharge of said boilers. Neither do we
the present case. The record also shows that the tackle and equipment was ample and that the believe that the provisions of article 1902 of the Civil Code can be invoked in favor of the
men in charge were experienced in the work they were to perform. The record further shows Compaia Trasatlantica, for the reason that the contract governs the rights and liabilities and by
that the Atlantic, Gulf & Pacific Company undertook the discharge of said boilers at a very low the terms of the contract the Atlantic, Gulf & Pacific Company is relieved from all liability
price, for the very reason that they were relieved of all liability whatsoever for damages in the whatsoever. A relief from all liability is a relief from any liability caused by negligence, especially
discharge of the same. The record further shows that the representative of the Compaia so when the action is based upon a contract. Whether or not that rule should be followed in an
Trasatlantica, who made the contract in question, was requested to and did make a casual action of tort growing out of wilful negligence, quaere?
examination of the tackle and equipment which were to be used in the discharge of the boilers.
The record further shows that said company, after receiving the information that the tackle and From all of the foregoing, we are persuaded that the judgment of the lower court should be
equipment and employees of the Atlantic, Gulf & Pacific Company had discharged, on various modified and that the Atlantic, Gulf & Pacific Company should be relieved from all liability under
occasions, other and heavier freight without accident or mishap, and after having made a casual the complaint.
examination of such equipment, voluntarily and willingly and without any objection or protest
for and on behalf of the Compaia Trasatlantica, entered into the contract as above described, Malcolm, J., concurs.
accepting fully and without protest the conditions imposed by the Atlantic, Gulf & Pacific
Company. Having entered into the contract in question and the same not being in contravention
of the laws, morals or public order, the Compaia Trasatlantica is bound by its terms.

The rule above announced may seem to be a hard one, but when we remember that the right to
enter into contracts carries with it the freedom to impose such conditions as the parties may
see fit to impose, subject to specific limitations, the hardship, if any, is one self-imposed by the
 On March 16, 1988, petitioner entered into a Contract of Lease with Option to Buy with
Encarnacion Bartolome, whereby petitioner was given the option to lease or lease with purchase
the subject land, which option must be exercised within a period of two years counted from the
signing of the Contract. In turn, petitioner undertook to pay P3,000.00 a month as consideration
for the reservation of its option. Within the two-year period, petitioner shall serve formal written
notice upon the lessor Encarnacion Bartolome of its desire to exercise its option. The contract
also provided that in case petitioner chose to lease the property, it may take actual possession
of the premises. In such an event, the lease shall be for a period of six years, renewable for
another six years, and the monthly rental fee shall be P15,000.00 for the first six years and
P18,000.00 for the next six years, in case of renewal.

Petitioner regularly paid the monthly P3,000.00 provided for by the Contract to Encarnacion
until her death in January 1990. Thereafter, petitioner coursed its payment to private
respondent Victor Bartolome, being the sole heir of Encarnacion. Victor, however, refused to
accept these payments.

Meanwhile, on January 10, 1990, Victor executed an Affidavit of Self-Adjudication over all the
properties of Encarnacion, including the subject lot. Accordingly, respondent Register of Deeds
cancelled Transfer Certificate of Title No. B-37615 and issued Transfer Certificate of Title No. V-
14249 in the name of Victor Bartolome.

On March 14, 1990, petitioner served upon Victor, via registered mail, notice that it was
exercising its option to lease the property, tendering the amount of P15,000.00 as rent for the
month of March. Again, Victor refused to accept the tendered rental fee and to surrender
possession of the property to petitioner.
FIRST DIVISION
[G.R. No. 118248. April 5, 2000.]
Petitioner thus opened Savings Account No. 1-04-02558-I-1 with the China Banking
Corporation, Cubao Branch, in the name of Victor Bartolome and deposited therein the
DKC HOLDINGS CORPORATION, Petitioner, v. COURT OF APPEALS, VICTOR U.
P15,000.00 rental fee for March as well as P6,000.00 reservation fees for the months of
BARTOLOME and REGISTER OF DEEDS FOR METRO MANILA, DISTRICT
February and March.
III, Respondents.
Petitioner also tried to register and annotate the Contract on the title of Victor to the property.
DECISION
Although respondent Register of Deeds accepted the required fees, he nevertheless refused to
YNARES-SANTIAGO, J.:register or annotate the same or even enter it in the day book or primary register.
Thus, on April 23, 1990, petitioner filed a Complaint for specific performance and damages
against Victor and the Register of Deeds, 3 docketed as Civil Case No. 3337-V-90 which was
This is a petition for review on certiorari seeking the reversal of the December 5, 1994 Decision
raffled off to Branch 171 of the Regional Trial Court of Valenzuela. Petitioner prayed for the
of the Court of Appeals in CA-G.R. CV No. 40849 entitled "DKC Holdings Corporation v. Victor U.
surrender and delivery of possession of the subject land in accordance with the Contract terms;
Bartolome, Et. Al.", 1 affirming in toto the January 4, 1993 Decision of the Regional Trial Court
the surrender of title for registration and annotation thereon of the Contract; and the payment
of Valenzuela, Branch 172, 2 which dismissed Civil Case No. 3337-V-90 and ordered petitioner
of P500,000.00 as actual damages, P500,000.00 as moral damages, P500,000.00 as exemplary
to pay P30,000.00 as attorneys fees.
damages and P300,000.00 as attorneys fees.
chanroble svirtual|awlibrary

The subject of the controversy is a 14,021 square meter parcel of land located in Malinta,
Meanwhile, on May 8, 1990, a Motion for Intervention with Motion to Dismiss 4 was filed by one
Valenzuela, Metro Manila which was originally owned by private respondent Victor U.
Andres Lanozo, who claimed that he was and has been a tenant-tiller of the subject property,
Bartolomes deceased mother, Encarnacion Bartolome, under Transfer Certificate of Title No. B-
which was agricultural riceland, for forty-five years. He questioned the jurisdiction of the lower
37615 of the Register of Deeds of Metro Manila, District III. This lot was in front of one of the
court over the property and invoked the Comprehensive Agrarian Reform Law to protect his
textile plants of petitioner and, as such, was seen by the latter as a potential warehouse site.
rights that would be affected by the dispute between the original parties to the case.
On May 18, 1990, the lower court issued an Order 5 referring the case to the Department of entered into by the late Encarnacion Bartolome with petitioner was terminated upon her death
Agrarian Reform for preliminary determination and certification as to whether it was proper for or whether it binds her sole heir, Victor, even after her demise.
trial by said court.
Both the lower court and the Court of Appeals held that the said contract was terminated upon
On July 4, 1990, the lower court issued another Order 6 referring the case to Branch 172 of the the death of Encarnacion Bartolome and did not bind Victor because he was not a party thereto.
RTC of Valenzuela which was designated to hear cases involving agrarian land, after the
Department of Agrarian Reform issued a letter-certification stating that referral to it for Article 1311 of the Civil Code provides, as follows-
preliminary determination is no longer required.
"ARTICLE 1311. Contracts take effect only between the parties, their assigns and heirs, except
On July 16, 1990, the lower court issued an Order denying the Motion to Intervene, 7 holding in case where the rights and obligations arising from the contract are not transmissible by their
that Lanozos rights may well be ventilated in another proceeding in due time. nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the
property he received from the decedent.
After trial on the merits, the RTC of Valenzuela, branch 172 rendered its Decision on January 4,
1993, dismissing the Complaint and ordering petitioner to pay Victor P30,000.00 as attorneys x x x." cralaw virtua1aw library

fees. On appeal to the CA, the Decision was affirmed in toto.

The general rule, therefore, is that heirs are bound by contracts entered into by their
Hence, the instant Petition assigning the following errors:
chanrob1es virtual 1aw library predecessors-in-interest except when the rights and obligations arising therefrom are not
transmissible by (1) their nature, (2) stipulation or (3) provision of law.
(A)
FIRST ASSIGNMENT OF ERROR In the case at bar, there is neither contractual stipulation nor legal provision making the rights
and obligations under the contract intransmissible. More importantly, the nature of the rights
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PROVISION ON THE NOTICE and obligations therein are, by their nature, transmissible.
TO EXERCISE OPTION WAS NOT TRANSMISSIBLE.
The nature of intransmissible rights as explained by Arturo Tolentino, an eminent civilist, is as
(B) follows:chanroblesvirtual|awlibrary

SECOND ASSIGNMENT OF ERROR

"Among contracts which are intransmissible are those which are purely personal, either by
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE NOTICE OF OPTION MUST provision of law, such as in cases of partnerships and agency, or by the very nature of the
BE SERVED BY DKC UPON ENCARNACION BARTOLOME PERSONALLY. obligations arising therefrom, such as those requiring special personal qualifications of the
obligor. It may also be stated that contracts for the payment of money debts are not
(C) transmitted to the heirs of a party, but constitute a charge against his estate. Thus, where the
THIRD ASSIGNMENT OF ERROR client in a contract for professional services of a lawyer died, leaving minor heirs, and the
lawyer, instead of presenting his claim for professional services under the contract to the
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE CONTRACT WAS ONE-SIDED probate court, substituted the minors as parties for his client, it was held that the contract could
AND ONEROUS IN FAVOR OF DKC. not be enforced against the minors; the lawyer was limited to a recovery on the basis of
quantum meruit." 9
(D)
FOURTH ASSIGNMENT OF ERROR In American jurisprudence," (W)here acts stipulated in a contract require the exercise of special
knowledge, genius, skill, taste, ability, experience, judgment, discretion, integrity, or other
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE EXISTENCE OF A personal qualification of one or both parties, the agreement is of a personal nature, and
REGISTERED TENANCY WAS FATAL TO THE VALIDITY OF THE CONTRACT. terminates on the death of the party who is required to render such service." 10

(E) It has also been held that a good measure for determining whether a contract terminates upon
FIFTH ASSIGNMENT OF ERROR the death of one of the parties is whether it is of such a character that it may be performed by
the promissors personal representative. Contracts to perform personal acts which cannot be as
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PLAINTIFF-APPELLANT WAS well performed by others are discharged by the death of the promissor. Conversely, where the
LIABLE TO DEFENDANT-APPELLEE FOR ATTORNEYS FEES. 8 service or act is of such a character that it may as well be performed by another, or where the
contract, by its terms, shows that performance by others was contemplated, death does not
The issue to be resolved in this case is whether or not the Contract of Lease with Option to Buy terminate the contract or excuse nonperformance. 11
In the case at bar, there is no personal act required from the late Encarnacion Bartolome. "ATTY. MOJADO: chanrob1es virtual 1aw library

Rather, the obligation of Encarnacion in the contract to deliver possession of the subject One request, Your Honor. The last payment which was allegedly made in January 1990 just
property to petitioner upon the exercise by the latter of its option to lease the same may very indicate in that stipulation that it was issued November of 1989 and postdated January 1990
well be performed by her heir Victor. and then we will admit all.

As early as 1903, it was held that" (H)e who contracts does so for himself and his heirs." 12 In COURT: chanrob1es virtual 1aw library

1952, it was ruled that if the predecessor was duty-bound to reconvey land to another, and at All reservation fee?
his death the reconveyance had not been made, the heirs can be compelled to execute the
proper deed for reconveyance. This was grounded upon the principle that heirs cannot escape ATTY. MOJADO: chanrob1es virtual 1aw library

the legal consequence of a transaction entered into by their predecessor-in-interest because Yes, Your Honor.
they have inherited the property subject to the liability affecting their common ancestor. 13

It is futile for Victor to insist that he is not a party to the contract because of the clear provision COURT:
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of Article 1311 of the Civil Code. Indeed, being an heir of Encarnacion, there is privity of All as part of the lease?
interest between him and his deceased mother. He only succeeds to what rights his mother had
and what is valid and binding against her is also valid and binding as against him. 14 This is
clear from Paraaque Kings Enterprises v. Court of Appeals, 15 where this Court rejected a
similar defense ATTY. MOJADO: chanrob1es virtual 1aw library

Reservation fee, Your Honor. There was no payment with respect to payment of rentals." 18
With respect to the contention of respondent Raymundo that he is not privy to the lease
contract, not being the lessor nor the lessee referred to therein, he could thus not have violated Petitioner also paid the P15,000.00 monthly rental fee on the subject property by depositing the
its provisions, but he is nevertheless a proper party. Clearly, he stepped into the shoes of the same in China Bank Savings Account No. 1-04-02558-I-1, in the name of Victor as the sole heir
owner-lessor of the land as, by virtue of his purchase, he assumed all the obligations of the of Encarnacion Bartolome, 19 for the months of March to July 30, 1990, or a total of five (5)
lessor under the lease contract. Moreover, he received benefits in the form of rental payments. months, despite the refusal of Victor to turn over the subject property. 20
Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the
properties to him. Both pleadings also alleged collusion between him and respondent Santos Likewise, petitioner complied with its duty to inform the other party of its intention to exercise
which defeated the exercise by petitioner of its right of first refusal. its option to lease through its letter dated March 12, 1990, 21 well within the two-year period
for it to exercise its option. Considering that at that time Encarnacion Bartolome had already
In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if passed away, it was legitimate for petitioner to have addressed its letter to her heir.
not indispensable, party to the case. A favorable judgment for the petitioner will necessarily
affect the rights of respondent Raymundo as the buyer of the property over which petitioner It appears, therefore, that the exercise by petitioner of its option to lease the subject property
would like to assert its right of first option to buy. was made in accordance with the contractual provisions. Concomitantly, private respondent
Victor Bartolome has the obligation to surrender possession of and lease the premises to
In the case at bar, the subject matter of the contract is likewise a lease, which is a property petitioner for a period of six (6) years, pursuant to the Contract of Lease with Option to Buy.
right. The death of a party does not excuse nonperformance of a contract which involves a
property right, and the rights and obligations thereunder pass to the personal representatives of Coming now to the issue of tenancy, we find that this is not for this Court to pass upon in the
the deceased. Similarly, nonperformance is not excused by the death of the party when the present petition. We note that the Motion to Intervene and to Dismiss of the alleged tenant,
other party has a property interest in the subject matter of the contract. 16 Andres Lanozo, was denied by the lower court and that such denial was never made the subject
of an appeal. As the lower court stated in its Order, the alleged right of the tenant may well be
Under both Article 1311 of the Civil Code and jurisprudence, therefore, Victor is bound by the ventilated in another proceeding in due time.
subject Contract of Lease with Option to Buy.
WHEREFORE, in view of the foregoing, the instant Petition for Review is GRANTED. The Decision
That being resolved, we now rule on the issue of whether petitioner had complied with its of the Court of Appeals in CA-G.R. CV No. 40849 and that of the Regional Trial Court of
obligations under the contract and with the requisites to exercise its option. The payment by Valenzuela in Civil Case No. 3337-V-90 are both SET ASIDE and a new one rendered ordering
petitioner of the reservation fees during the two-year period within which it had the option to private respondent Victor Bartolome to:
lease or purchase the property is not disputed. In fact, the payment of such reservation fees,
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except those for February and March, 1990 were admitted by Victor. 17 This is clear from the (a) surrender and deliver possession of that parcel of land covered by Transfer Certificate of
transcripts, to wit
Title No. V-14249 by way of lease to petitioner and to perform all obligations of his predecessor- in the presence of the PPI distribution officer/assistant sales representative two
in-interest, Encarnacion Bartolome, under the subject Contract of Lease with Option to Buy; documents9 labelled Trust Receipt/Special Credit Scheme, indicating the invoice number,
quantity, value, and names of the agricultural inputs (i.e., fertilizer or agricultural chemicals)
(b) surrender and deliver his copy of Transfer Certificate of Title No. V-14249 to respondent she received upon the trust of PPI. Gloria thereby subscribed to specific undertakings, as
Register of Deeds for registration and annotation thereon of the subject Contract of Lease with follows:
Option to Buy;
For and in consideration thereof, I/We hereby agree to hold said goods in trust for PPI, as its
(c) pay costs of suit. property, with liberty to deliver and sell the same for PPIs account, in favor of farmers accepted
to participate in PPIs Special Credit Scheme within 60 days from receipt of inputs from PPI. In
Respondent Register of Deeds is, accordingly, ordered to register and annotate the subject case of such delivery and sale, I/We agree to require the execution of a Trust Agreement by the
Contract of Lease with Option to Buy at the back of Transfer Certificate of Title No. V-14249 farmer-participants in my/our favor, which Agreement will in turn be Assigned by me/us in favor
upon submission by petitioner of a copy thereof to his office. of PPI with Recourse. In the event, I/We cannot deliver/serve to the farmer-participants all the
inputs as enumerated above within 60 days, then I/We agree that the undelivered inputs will be
SO ORDERED. chanroble s virtual lawlibrary
charged to my/our credit line, in which case, the corresponding adjustment of price and
interests shall be made by PPI.10
FIRST DIVISION
Gloria expressly agreed to: (a) supervise the collection of the equivalent number of cavanes of
[G.R. No. 158649, February 18, 2013] palay and/or corn from the farmer-participant and to turn over the proceeds of the sale of the
deposited palay and corn as soon as received, to PPI to be applied against the listed invoices;
SPOUSES QUIRINO V. DELA CRUZ AND GLORIA DELA CRUZ, Petitioners, v. PLANTERS (b) keep said fertilizer and pesticides insured at their full value against fire and other casualties
PRODUCTS, INC., Respondents. prior to delivery to farmer-participants, the sum insured to be payable in case of loss to PPI,
with the understanding that PPI is not to be chargeable with the storage, insurance premium, or
DECISION
any other expenses incurred on said goods; (c) keep the said fertilizer and pesticides, prior to
delivery to the farmer-participants, separate and capable of identification as the property of PPI
BERSAMIN, J.:
inside my/our warehouse; and (d) require the farmer-participants to deposit the palay or corn
If the terms of a contract are clear and leave no doubt upon the intention of the contracting sufficient to cover their respective accounts within 72 hours after the harvest of the farmer-
parties, the literal meaning of its stipulations shall control. 1 In determining their intention, their participants and should the farmer-participants refuse to make the required deposit, Gloria
contemporaneous and subsequent acts shall be principally considered. 2 would notify PPI thereof within 24 hours. For that purpose, negligence on her part would make
her obligation under the Trust Receipt direct and primary.11
Under review on certiorari are the Decision promulgated on April 11, 2003 in C.A.-G.R. No. CV
No. 57446,3 whereby the Court of Appeals (CA) affirmed the judgment rendered on October 29, Gloria further expressly agreed that her obligation as stipulated in the contract would continue
1997 by the Regional Trial Court, Branch 66, (RTC) in Makati City (ordering the petitioners liable in force and be applicable to all transactions, notwithstanding any change in the individuals
to pay the respondent the amount of P240,335.10 plus 16% interest per annum commencing composing any firm, parties to or concerned x x x whether such change shall arise from
from July 9, 1985 until full payment, and the sum of P20,000.00 as attorneys fees and cost of accession of one or more new partners or from the death or cession of any partner or partners;
litigation);4 and the resolution promulgated on June 9, 2003, whereby the CA denied the motion that her liability for payment at maturity of the invoice(s) x x x shall not be extinguished or
for reconsideration of the petitioners.5 modified by the following, namely: (a) any priority, act of war, or restriction on the use,
transportation, hypothecation, or disposal thereof imposed by any administrative, political or
legislative enactments, regulations or orders whatsoever; (b) government appropriation of the
Antecedents
same, or of any seizure or destruction thereof or damage thereto, whether insured against or
not; and (c) any acts or regulation affecting this Trust Receipt or the inputs subject thereto.12
Spouses Quirino V. Dela Cruz and Gloria Dela Cruz, petitioners herein, operated the Barangay
Agricultural Supply, an agricultural supply store in Aliaga, Nueva Ecija engaged in the
In addition, Glorias obligation included the following terms and conditions, to wit:
distribution and sale of fertilizers and agricultural chemical products, among others. At the time
material to the case, Quirino, a lawyer, was the Municipal Mayor of Aliaga, Nueva Ecija. 6
All obligations of the undersigned under this Trust Receipt shall bear interest at the rate of
On March 23, 1978, Gloria applied for and was granted by respondent Planters Products, Inc. twelve per cent (12%) per annum plus two percent (2%) service charges, reckoned from the
(PPI) a regular credit line of P200,000.00 for a 60-day term, with trust receipts as date Dealer delivers to farmer-participants the fertilizer and agchem products. Where I/We have
collaterals.7 Quirino and Gloria submitted a list of their assets in support of her credit application notst delivered within 60 days, interest and service charges shall become effective on the
for participation in the Special Credit Scheme (SCS) of PPI. 8 On August 28, 1978, Gloria signed 61 day.
 On November 17, 1981, PPI brought against Quirino and Gloria in the erstwhile Court of First
If there are two or more signatories, our obligations hereunder shall in all cases be joint and Instance in Pasig, Metro Manila a complaint for the recovery of a sum of money with prayer for
several. a writ of preliminary attachment.23 PPI alleged that Gloria had violated the fiduciary
undertaking in the Trust Receipt agreement covering product withdrawals under the Special
All expenses and charges incurred by PPI in re-possession of said fertilizer and agchem Credit Scheme which were subsequently charged to defendant dealers regular credit line;
products, and in securing delivery of the same to a bodega or storage place in Manila or at therefore, she is guilty of fraudulently misapplying or converting to her own use the items
some other place selected by it shall be for my/our account and shall be repaid to PPI by me/us. delivered to her as contained in the invoices. It charged that Gloria did not return the goods
indicated in the invoices and did not remit the proceeds of sales.
Should it become necessary for PPI to avail of the services of an attorney-at-law to initiate legal
steps to enforce any or all of its rights under this contract, we jointly and severally, shall pay to PPI prayed for judgment holding the petitioners liable for the principal amount of P161,203.60
PPI for and as attorneys fees a sum equivalent to twenty per cent (20%) per annum of the total as of October 25, 1981, inclusive of interest and service charges; additional daily interest of
amount involved, principal and interest, then unpaid, but in no case less than FIVE HUNDRED P80.60 from October 26, 1981 until fully paid; and 20% of the total amount due as attorneys
PESOS (P500.00), exclusive of all costs or fees allowed by law. fees. As of July 9, 1985, the statement of account showed a grand total liability of
P240,355.10.24
In consideration of PPI complying with the foregoing we jointly and severally agree and
undertake to pay on demand to PPI all sums of money which PPI may call upon us to pay In her answer, the petitioners alleged that Gloria was only a marketing outlet of PPI under its
arising out of or pertaining to and/or in any event connected with the default of and/or non- SCS Program, not a dealer primarily obligated to PPI for the products delivered to her; that she
fulfillment in any respect of the undertaking of the aforesaid. 13 had not collected from the farmers participating in the SCS Program because of the October 27-
28, 1979 typhoon Kading that had destroyed the participating farmers crops; and that she had
Gloria executed three more documents on September 14, 1978, 14 and one document each on paid P50,000.00 to PPI despite the failure of the farmers to pay.25
September 28, 1978, September 18, 1978, and September 20, 1978. On the corresponding
15 16 17

dates, Gloria filled up customer order forms for fertilizer and agricultural chemical Decision of the RTC
products.18 Written at the upper portion of each order form was the following:
On October 29, 1997, the trial court, then already the RTC, rendered its judgment ordering the
This invoice is subject to the terms and conditions stipulated in our contract. Under no petitioners to pay the plaintiff the amount of P240,335.10 plus 16% interest per
circumstance is this invoice to be used as a receipt for payment. Interest at 14% per annum annum commencing from July 9, 1985 until fully paid and the sum of P20,000.00 as attorneys
plus service and handling charges at the rate of 10% per annum shall be charged on all overdue fees and cost of litigation.26
accounts, and in the event of judicial proceedings to enforce collection, customer shall pay the
Company an amount equivalent to 25% of the amount due for and as attorneys fees which in The RTC found that based on the terms and conditions of the SCS Program, a creditor-debtor
no case shall be less than P200 in addition to cost of suit. relationship was created between Gloria and PPI; that her liability was predicated on Section 4
of theTrust Receipts Law (Presidential Decree No. 115) and on the ruling in Robles v. Court of
The products were released to Gloria under the supervision of Cristina G. Llanera of PPI. Appeals27 to the effect that the failure of the entrustee (Gloria) to turn over to the entruster
(plaintiff) the proceeds of the sale of goods covered by the delivery trust receipts or to return
The 60-day credit term lapsed without Gloria paying her obligation under the Trust Receipt/SCS. the goods constituted estafa punishable under Article 315(1)(b) of the Revised Penal Code; and
Hence, PPI wrote collection letters to her on April 24, 1979 and May 22, 1979. Receiving no that the petitioners could not use as a defense the occurrence of typhoon Kading because there
response from her, Inocencio E. Ortega, PPI District Distribution Manager, sent her on June 8, was no privity of contract between the participating farmers and PPI.
1979 a demand letter on her long overdue account of P191,205,25. 19
Ruling of the CA
On February 24, 1979, PPI sent Gloria a credit note for P127,930.60 with these particulars: To
transfer to dealers regular line inputs withdrawn VS. SCS line still undelivered to farmers after The petitioners appealed to the CA28 upon the following assignment of errors, to wit:
60 days.20Another credit note, also dated February 24, 1979 and with the same particulars,
indicated the amount of P46,622.80.21 THE LOWER COURT ERRED IN HOLDING THAT DEFENDANT GLORIA DELA CRUZ WAS AN
ACCREDITED DEALER UNDER THE SPECIAL CREDIT SCHEME AND PURCHASED ON CREDIT
The follow-up letter of October 11, 1979 culminated in the final demand letter of May 30, 1980 FERTILIZERS AND CHEMICALS FROM PLAINTIFF.
from Atty. R. M. Rivera, PPI Collection Officer,22 stating that the total accountability of Gloria as
of April 25, 1980 was P156,755.00 plus interest, service charges, and penalty charges, all of THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANTS ARE PRIMARILY LIABLE FOR THE
which she should pay by June 18, 1980. PPI warned that should she fail to do so, PPI would file FERTILIZERS AND CHEMICALS COVERED BY THE ORDER FORMS, DELIVERY RECEIPTS AND
the necessary civil and criminal cases against her based on the Trust Receipts. TRUST RECEIPTS.
 respondents right under Article 1248 will be negated, the sanctity of its contract with petitioner
THE TRIAL COURT ERRED IN HOLDING THAT THE SPECIAL CREDIT SCHEME/LINE GRANTED TO defiled. The principle of autonomy of contracts must be respected. (Emphasis supplied)
DEFENDANT GLORIA DELA CRUZ WAS CONVERTED TO A REGULAR LINE.
Moreover, Defendants-appellants cannot pass their obligation to pay the equivalent value of the
THE TRIAL COURT ERRED IN FINDING FOR THE PLAINTIFF AND NOT FOR THE DEFENDANTS- undelivered and/or unused fertilizers and agricultural chemical products under the trust receipts
APPELLANTS. to the farmers-participants considering that the contract was between plaintiff-appellee
Planters Products Inc. and defendants-appellants Quirino and Gloria Dela Cruz, and the farmers-
On April 11, 2003, the CA affirmed the judgment of the RTC, 29viz: participants were never privy to the said transaction.31

WHEREFORE, premises considered, the instant appeal is hereby DENIED, and the impugned In their motion for reconsideration,32 the petitioners mainly contended that the farmers as
Decision dated 29 October 1997 of Regional Trial Court of Makati City, Branch 66 is participants in the SCS, not Gloria, were liable because the inputs had been delivered to them;
hereby AFFIRMED in toto. Costs against Defendants-appellants. that such was the tenor of the demand letters they had sent to the farmers; that PPI would not
have made a second delivery if it had not been satisfied that they (petitioners) had delivered
SO ORDERED. the products to the farmers, who, however, had not paid their loan because of
typhoon Kading destroying their crops; that in the aftermath of the typhoon, PPI
The CA held the petitioners liable to PPI for the value of the fertilizers and agricultural chemical representatives led by one Noel David had inspected the Municipality of Aliaga, and had forged
products covered by the trust receipts because a creditor-debtor relationship existed between an agreement with the petitioners whereby they bound themselves to help PPI in collecting
the parties when, pursuant to the credit line of P200,000.00 and the SCS Program, the from the farmers in the succeeding palay crop their indebtedness; and that PPI had
petitioners withdrew several fertilizers and agricultural chemical products on credit; that the subsequently made them the principal debtor notwithstanding that they had not incurred any
petitioners then came under obligation to pay the equivalent value of the withdrawn goods, or account with PPI because all the transactions had been on a cash on delivery basis or cash
to return the undelivered and/or unused products within the specified period. It elucidated withdrawal basis.
thus:
On June 9, 2003, the CA denied the petitioners motion for reconsideration.
The trust receipts covering the said fertilizers and agricultural chemical products under the
special credit scheme, and signed by defendant-appellant Gloria de la Cruz specifically provides Issues
for their direct and primary liability over the same, to wit:
Hence, the petitioners are now before the Court via their petition for review on certiorari.
x x x. In the event, I/We cannot deliver/serve to the farmer-participants all the inputs as
enumerated above within 60 days, then I/We agree that the undelivered inputs will be charged The petitioners ascribe to the CA grave reversible error in affirming the decision of the RTC
to my/our regular credit line, in which case, the corresponding adjustment of price and interest notwithstanding that the award to PPI of the amount of P240,335.10 plus 16% interest per
shall be made by PPI. annum was based on hearsay evidence, leaving absolutely no other evidence to support the
award. They assail the award of attorneys fees for its lack of factual and legal bases; and insist
and in case of failure on the part of Defendants-appellants to liquidate within the specified that the CA did not consider certain facts and circumstances on record which would otherwise
period the undelivered or unused fertilizers and agricultural chemical products, its corresponding justify a different decision.
value will be charged to the regular credit line of Defendants-appellants, which was eventually
done by Plaintiff-appellee, when it converted and/or credited Defendants-appellants accounts Ruling
payable under the special credit scheme to their regular credit line as per credit notes.
The appeal has no merit.
Pursuant to said credit line account and trust receipts, plaintiff-appellee Planters Products, Inc.
and defendants-appellants Spouses de la Cruz are bound to fulfill what has been expressly I.
stipulated therein. It is well-settled in Barons Marketing Corporation v. Court of Appeals, 30 to Parties entered into a creditor-debtor relationship
wit:
The petitioners did not deny that Gloria applied with PPI for a credit line of P200,000.00; and
It may not be amiss to state that petitioners contract with private respondent has that Gloria signed up for the SCS Program of PPI. The principal issue they now raise is whether
the force of law between them. Petitioner is thus bound to fulfill what has been the two transaction documents signed by Gloria expressed the intent of the parties to establish
expressly stipulated therein. In the absence of any abuse of right, private respondent cannot a creditor-debtor relationship between them. The resolution of the issue is necessary to resolve
be allowed to perform its obligation under such contract in parts. Otherwise, private the corollary issue of whether the petitioners were liable to PPI for the value of the fertilizers
and agricultural chemical products delivered to Gloria, and, if so, by how much.
 the importation or purchase of merchandise, and who may not be able to acquire credit except
It is apparent, however, that the petitioners are focusing on the evidentiary value of Exhibit V, through utilization, as collateral, of the merchandise imported or purchased.40 It is a security
the statement of account showing that Gloria was liable in the total amount of P240,355.10 as agreement that secures an indebtedness and there can be no such thing as security interest
of July 9, 1985, and are in the process avoiding the pivotal issue concerning the nature of the that secures no obligation.41
contract between them and PPI. Nonetheless, the issue of liability sprang from the terms of the
contractual documents Gloria had signed. For them to question the amount of their liabilities The third circumstance was the offer of Gloria and Quirino to have their conjugal real properties
without explaining why they should not be held liable veritably constituted their tacit admission beef up the collaterals for the credit line. Gloria signed the list of the properties involved as
of the existence of the loan but assailing only how much they should repay to PPI. dealer, thereby ineluctably manifesting that Gloria considered herself a dealer of the products
delivered by PPI under the credit line. In this connection, a dealer is a person who makes a
The petitioners aver that in a surprising turn of events, when it appeared that no further business of buying and selling goods, especially as distinguished from a manufacturer, without
collection could be had, [PPI] unilaterally and arbitrarily converted and charged its receivables altering their condition. In other words, a dealer is one who buys to sell again.42
from the farmers-participants against petitioners regular credit line, and PPI thereafter sent
the demand letters to Gloria.33 Considering that the documents signed by Gloria governed the The fourth circumstance had to do with the undertakings under the trust receipts. The position
relationship between her and PPI, the controversy can be resolved only by an examination of of the petitioners was that the farmers-participants alone were obligated to pay for the goods
the contractual documents. delivered to them by Gloria. However, such position had no factual and legal legs to prop it up.
A close look at the Trust Receipt/SCS indicates that the farmer-participants were mentioned
As earlier mentioned, Gloria signed the application for credit facilities on March 23, 1978, therein only with respect to the duties and responsibilities that Gloria personally assumed to
indicating that a trust receipt would serve as collateral for the credit line. On August 4, 1978, undertake in holding goods in trust for PPI. Under the notion of relativity of contracts
Gloria, as dealer, signed together with Quirino the list of their assets having a total value of embodied in Article 1311 of the Civil Code, contracts take effect only between the parties, their
P260,000.00 (consisting of a residential house and lot, 10-hectare agricultural lands in Aliaga assigns and heirs. Hence, the farmer-participants, not being themselves parties to the
and Talavera, and two residential lots) that they tendered to PPI to support our credit contractual documents signed by Gloria, were not to be thereby liable.
application in connection with our participation to your Special Credit Scheme.34 Gloria further
signed the Trust Receipt/SCS documents defining her obligations under the agreement, and also At this juncture, the Court clarifies that the contract, its label notwithstanding, was not a trust
the invoices pursuant to the agreement with PPI, indicating her having received PPI products on receipt transaction in legal contemplation or within the purview of the Trust Receipts
various dates. Law (Presidential Decree No. 115) such that its breach would render Gloria criminally liable
for estafa. Under Section 4 of theTrust Receipts Law, the sale of goods by a person in the
These established circumstances comprised by the contemporaneous and subsequent acts of business of selling goods for profit who, at the outset of the transaction, has, as against the
Gloria and Quirino that manifested their intention to enter into the creditor-debtor relationship buyer, general property rights in such goods, or who sells the goods to the buyer on credit,
with PPI show that the CA properly held the petitioners fully liable to PPI. The law of contracts retaining title or other interest as security for the payment of the purchase price, does not
provides that in determining the intention of the parties, their contemporaneous and constitute a trust receipt transaction and is outside the purview and coverage of the law, to wit:
subsequent acts shall be principally considered. 35 Consequently, the written terms of their
contract with PPI, being clear upon the intention of the contracting parties, should be literally Section. 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the
applied.36 meaning of this Decree, is any transaction by and between a person referred to in this Decree
as the entruster, and another person referred to in this Decree as the entrustee, whereby the
The first circumstance was the credit line of P200,000.00 that commenced the business entruster, who owns or holds absolute title or security interests over certain specified goods,
relationship between the parties. A credit line is really a loan agreement between the parties. documents or instruments, releases the same to the possession of the entrustee upon the
According to Rosario Textile Mills Corporation v. Home Bankers Savings and Trust Co.:37 latters execution and delivery to the entruster of a signed document called a trust receipt
wherein the entrustee binds himself to hold the designated goods, documents or instruments in
x x x [A] credit line is that amount of money or merchandise which a banker, a merchant, or trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments
supplier agrees to supply to a person on credit and generally agreed to in advance. It is a fixed with the obligation to turn over to the entruster the proceeds thereof to the extent of the
limit of credit granted by a bank, retailer, or credit card issuer to a customer, to the full extent amount owing to the entruster or as appears in the trust receipt or the goods, documents or
of which the latter may avail himself of his dealings with the former but which he must not instruments themselves if they are unsold or not otherwise disposed of, in accordance with the
exceed and is usually intended to cover a series of transactions in which case, when the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent
customers line of credit is nearly exhausted, he is expected to reduce his indebtedness by to any of the following:
payments before making any further drawings.38
1. In the case of goods or documents, (a) to sell the goods or procure their sale; or (b) to
The second circumstance was the offer by Gloria of trust receipts as her collateral for securing manufacture or process the goods with the purpose of ultimate sale: Provided, That, in the case
the loans that PPI extended to her.39 A trust receipt is a security transaction intended to aid in of goods delivered under trust receipt for the purpose of manufacturing or processing before its
financing importers and retail dealers who do not have sufficient funds or resources to finance ultimate sale, the entruster shall retain its title over the goods whether in its original or
processed form until the entrustee has complied fully with his obligation under the trust receipt; after the default of the person who is primarily liable.44 An indorsement with recourse of a
or (c) to load, unload, ship or tranship or otherwise deal with them in a manner preliminary or note, for instance, makes the indorser a general indorser, because the indorsement is without
necessary to their sale; or qualification. Accordingly, the term with recourse confirms the obligation of a general indorser,
who has the same liability as the original obligor.45 As the assignor with recourse of the Trust
2. In case of instruments x x x. Agreement executed by the farmer participating in the SCS, therefore, Gloria made herself
directly liable to PPI for the value of the inputs delivered to the farmer-participants. Obviously,
The sale of goods, documents or instruments by a person in the business of selling the signature of the representative of PPI found in the demand letters Gloria sent to the farmer-
goods, documents or instruments for profit who, at the outset of the transaction, has, participants only indicated that the Trust Agreement was part of the SCS of PPI.
as against the buyer, general property rights in such goods, documents or
instruments, or who sells the same to the buyer on credit, retaining title or other The petitioners could not validly justify the non-compliance by Gloria with her obligations under
interest as security for the payment of the purchase price, does not constitute a trust the Trust Receipt/SCS by citing the loss of the farm outputs due to typhoon Kading. There is no
receipt transaction and is outside the purview and coverage of this Decree. (Bold question that she had expressly agreed that her liability would not be extinguished by the
emphasis supplied.) destruction or damage of the crops. The use of the term with recourse was, in fact, consonant
with the provision of the Trust Receipt/SCS stating that if Gloria could not deliver or serve all
In Land Bank v. Perez,43 the Court has elucidated on the coverage of Section 4, supra, to wit: the inputs to the farmer-participants within 60 days, she agreed that the undelivered inputs
will be charged to her regular credit line. Under her arrangement with PPI, the trust receipts
There are two obligations in a trust receipt transaction. The first is covered by the provision that were mere securities for the credit line granted by PPI, having in fact indicated in her
46

refers to money under the obligation to deliver it (entregarla) to the owner of the merchandise application for the credit line that the trust receipts were collaterals or separate obligations
sold. The second is covered by the provision referring to merchandise received under the attached to any other contract to guaranty its performance.47
obligation to return it (devolverla) to the owner. Thus, under the Trust Receipts Law, intent to
defraud is presumed when (1) the entrustee fails to turn over the proceeds of the sale of goods It is worthwhile to note that the application for credit facilities was a form contract that Gloria
covered by the trust receipt to the entruster; or (2) when the entrustee fails to return the goods filled out only with respect to her name, address, credit limit, term, and collateral. Her act of
under trust, if they are not disposed of in accordance with the terms of the trust receipts. signing the application signified her agreement to be bound by the terms of the application,
specifically her acquiescence to use trust receipts as collaterals, as well as by the terms and
In all trust receipt transactions, both obligations on the part of the trustee exist in the conditions of the Trust Receipt/SCS.
alternative the return of the proceeds of the sale or the return or recovery of the goods,
whether raw or processed. When both parties enter into an agreement knowing that the In this regard, whether or not the Trust Receipt/SCS was a contract of adhesion apparently
return of the goods subject of the trust receipt is not possible even without any fault prepared by PPI would neither dilute nor erase her liabilities. A contract of adhesion prepared by
on the part of the trustee, it is not a trust receipt transaction penalized under Section one party, usually a corporation, is generally not a one-sided document as long as the signatory
13 of P.D. 115; the only obligation actually agreed upon by the parties would be the is not prevented from studying it before signing. Gloria did not show that she was deprived of
return of the proceeds of the sale transaction. This transaction becomes a mere loan, that opportunity to study the contract. At any rate, the social stature of the parties, the nature
where the borrower is obligated to pay the bank the amount spent for the purchase of of the transaction, and the amount involved were also factors to be considered in determining
the goods. (Bold emphasis supplied) whether the aggrieved party exercised adequate care and diligence in studying the contract
prior to its execution.48 Thus, [u]nless a contracting party cannot read or does not understand
It is not amiss to point out that the RTC even erred in citing Section 4 of the Trust Receipts the language in which the agreement is written, he is presumed to know the import of his
Law as its basis for ordering Gloria to pay the total amount of P240,355.10. Section 13 of contract and is bound thereby.49 Here, Gloria was married to a lawyer who was also then the
the Trust Receipts Lawconsiders the failure of an entrustee to turn over the proceeds of the Municipal Mayor of Aliaga. Both of them signed the list of conjugal assets that they used to
sale of the goods, documents or instruments covered by a trust receipt to the extent of the support the application for the credit line.
amount owing to the entruster or as appears in the trust receipt or to return said goods,
documents or instruments if they were not sold or disposed of in accordance with the terms of The last circumstance was that the petitioners now focus on the amount of liabilities adjudged
the trust receipt as constituting the crime of estafa under Article 315 (b) of the Revised Penal against them by the lower courts. They thereby bolster the finding that they fully knew and
Code. However, had PPI intended to charge Gloria with estafa, it could have then done so. accepted the legal import of the documents Gloria had signed of rendering them personally
Instead, it brought this collection suit, a clear indication that the trust receipts were only liable towards PPI for the value of the inputs granted to the farmer-participants through them.
collaterals for the credit line as agreed upon by the parties. The finding is further confirmed by her admission of paying to PPI the amount of P50,000.00,
which payment, albeit allegedly made grudgingly, solidified the existence of a creditor-debtor
To be clear, the obligation assumed by Gloria under the Trust Receipt/SCS involved the relationship between them. Indeed, Gloria would not have paid that amount except in
execution of a Trust Agreement by the farmer-participants in her favor, which, in turn, she acknowledgement of an indebtedness towards PPI.
would assign in favor of PPI with recourse in case of delivery and sale to the farmer-
participants. The term recourse as thus used means resort to a person who is secondarily liable
 II.
Statement of account was not hearsay
The petitioners insist that they could not be held liable for the balance stated in Exhibit V due to authenticated and trustworthy. Indeed, the Court is in no position to review and overturn the
such document being hearsay as a mere statement of account.50 They argue that Cristina
Llanera, the witness of PPI on the matter, was only a warehouse assistant who was not shown involved an issue of fact.55
to be either an accountant, or bookkeeper, or auditor or a person knowledgeable in accounting.
They posit that Llaneras testimony on Exhibit V was limited to stating that she had prepared
the statement of account contained therein; that she did not affirm the correctness or veracity
of the contents of the document;51and that, consequently, Exhibit V had no evidentiary value as
proof of their total liability for P240,355.10, the amount stated therein.
We do not agree with the petitioners.
With Exhibit V being a private document, authentication pursuant to the rules on evidence was the principal obligation as usurious.
a condition for its admissibility.52 Llanera, admittedly the person who had prepared the
document, was competent to testify on the due execution and authenticity of Exhibit V. Such
authentication was done in accordance with Rule 132 of the Rules of Court, whose Section 20
states:
Section 20. Proof of private document. Before any private document offered as authentic is
received in evidence, its due execution and authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting of the maker.
Any other private document need only be identified as that which it is claimed to be.
Further, the petitioners dispute the contents of Exhibit V by invoking Section 43, Rule 130 of
the Rules of Court, to wit:
Nor have the petitioners proved that the entries contained in Exhibit V were incorrect and
untruthful. They cannot be permitted to do so now at this stage of final appeal, especially after
the lower courts found and accepted the statement of account contained therein to be properly
lower courts unanimous finding and acceptance without strong and valid reasons because they
III.
Interest of 16% per annum,
being usurious, must be reversed
The statement of account discloses that the interest rate was 14% per annum for the SCS
Account from the invoice date to 7/09/85; and that the interest rate was 16% per annum for
the Reg. Account from 8/16/80 to 7/09/85. The petitioners assail the interest charged on
The matter of interest, being a question of law, must have to dealt with and resolved.
In 1978, when Gloria and PPI entered into the credit line agreement, the Usury Law (Act No.
2655) was still in effect. Section 2 of the Usury Law prescribed an interest rate of 12% per
annum on secured loans, while Section 1 provided that [t]he rate of interest for the loan or
forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence
of express contract as to such rate of interest, shall be six per centum per annum or such rate
as may be prescribed by the Monetary Board of the Central Bank.
It is noted, of course, that the Usury Law allowed the parties in a loan agreement to exercise
discretion on the interest rate to be charged. Once a judicial demand for payment has been
made, however, Article 2212 of the Civil Code should apply, that is: Interest due shall earn
legal interest from the time it is judicially demanded, although the obligation may be silent upon
this point.

Section 43. Entries in the course of business. Entries made at, or near the time of the The Central Bank circulars on interest rates granted to the parties leeway on the rate of interest
transactions to which they refer, by a person deceased, or unable to testify, who was in a agreed upon. In this regard, the Court has said:
position to know the facts therein stated, may be received as prima facie evidence, if such
person made the entries in his professional capacity or in the performance of duty and in the The Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3 December
ordinary or regular course of business. 1982 of the Monetary Board of the Central Bank, and later by Central Bank Circular No. 905
which took effect on 1 January 1983. These circulars removed the ceiling on interest rates for
The invocation of the rule is misplaced, however, because the rule speaks of a situation where secured and unsecured loans regardless of maturity. The effect of these circulars is to allow the
the person who made the entries is dead or unable to testify, which was not the situation here. parties to agree on any interest that may be charged on a loan. The virtual repeal of the Usury
Regardless, we have to point out that entries made in the course of business enjoy the Law is within the range of judicial notice which courts are bound to take into account. Although
presumption of regularity.53If properly authenticated, the entries serve as evidence of the status interest rates are no longer subject to a ceiling, the lender does not have an unbridled license to
of the account of the petitioners. InLand Bank v. Monets Export and Manufacturing impose increased interest rates. The lender and the borrower should agree on the imposed rate,
Corporation,54 the Court has explained that such entries are accorded unusual reliability because and such imposed rate should be in writing.56
their regularity and continuity are calculated to discipline record keepers in the habit of
precision; and that if the entries are financial, the records are routinely balanced and audited; Accordingly, the interest rate agreed upon should not be excessive, iniquitous, unconscionable
hence, in actual experience, the whole of the business world function in reliance of such kind of and exorbitant; otherwise, the Court may declare the rate illegal. 57
records.
Considering that the credit line agreement was entered into in 1978, the rate of interest was
still governed by the Usury Law. The 16% per annum interest imposed by the RTC was attorneys fees in its own decision.
erroneous, therefore, because the loan was secured by the Trust Receipt/SCS. In view of this,
12% per annum is the legal rate of interest that should apply, to be reckoned from the filing of The award of attorneys fees is deleted because of the absence of any factual and legal
the action. This rate accords withEastern Shipping Lines, Inc. v. Court of Appeals, 58 whereby the justification being expressly stated by the CA as well as by the RTC. To start with, the Court has
Court has defined the following formula for the computation of legal interest for the guidance of nothing to review if the CA did not tender in its decision any justification of why it was awarding
the Bench and the Bar, viz: attorneys fees. The award of attorneys fees must rest on a factual basis and legal justification
stated in the body of the decision under review. Absent the statement of factual basis and legal
TOTAL AMOUNT DUE = [principal partial payments made] + [interest + interest on interest], justification, attorneys fees are to be disallowed. In Abobon v. Abobon, the Court has
61 62

where expounded on the requirement for factual basis and legal justification in order to warrant the
grant of attorneys fees to the winning party, viz:
Interest = remaining balance x 12% per annum x no. of years from due date until date of sale
to a third party (payment). As to attorneys fees, the general rule is that such fees cannot be recovered by a successful
litigant as part of the damages to be assessed against the losing party because of the policy
Interest on interest = interest computed as of the filing of the complaint x no. of years until that no premium should be placed on the right to litigate. Indeed, prior to the effectivity of the
date of sale to a third party (payment).59 present Civil Code, such fees could be recovered only when there was a stipulation to that
effect. It was only under the present Civil Code that the right to collect attorneys fees in the
Relevantly, the likelihood of the aggregate interest charged exceeding the principal cases mentioned in Article 2208 of the Civil Code came to be recognized. Such fees are now
indebtedness is not remote. In Apo Fruits Corporation v. Land Bank of the Philippines, 60 a case included in the concept of actual damages.
involving just compensation for landholdings with legal interest, however, the Court has
appropriately observed that the realization of such likelihood was not necessarily inequitable or Even so, whenever attorneys fees are proper in a case, the decision rendered therein should
unconscionable due to its resulting directly from the application of law and jurisprudence, to still expressly state the factual basis and legal justification for granting them. Granting them in
wit: the dispositive portion of the judgment is not enough; a discussion of the factual basis
and legal justification for them must be laid out in the body of the decision. Considering that the
That the legal interest due is now almost equivalent to the principal to be paid is not per se an award of attorneys fees in favor of the respondents fell short of this requirement, the Court
inequitable or unconscionable situation, considering the length of time the interest has disallows the award for want of the factual and legal premises in the body of the decision. The
remained unpaid almost twelve long years. From the perspective of interest income, twelve requirement for express findings of fact and law has been set in order to bring the case within
years would have been sufficient for the petitioners to double the principal, even if invested the exception and justify the award of the attorneys fees. Otherwise, the award is a conclusion
conservatively, had they been promptly paid the principal of the just compensation due them. without a premise, its basis being improperly left to speculation and conjecture.
Moreover, the interest, however enormous it may be, cannot be inequitable and unconscionable
because it resulted directly from the application of law and jurisprudence standards that have The lack of any assignment of error upon the matter of attorneys fees is of no moment, for the
taken into account fairness and equity in setting the interest rates due for the use or award, being devoid of any legal and factual basis, can be corrected and removed as a matter of
forbearance of money. law.

That is true herein. Although this case was commenced in 1981, the decision of the trial court
was rendered only in 1997, or more than 15 years ago. By appealing to the CA and then to this
Court, the petitioners chose to prolong the final resolution of the case; hence, they cannot
complain, but must bear the consequences to them of the application of the pertinent law and
jurisprudence, no matter how unfavorable to them.
Finally, the petitioners charge that the CA failed to consider certain facts and circumstances on
record which would otherwise justify a different decision. The facts and circumstances
pertained to details relevant to the nature of the agreement of the petitioners, and to the
amount of their liabilities. However, an examination reveals that the facts and circumstances
do not warrant a conclusion that they were not debtors of PPI under the credit line agreement.

IV. WHEREFORE, the Court AFFIRMS the Decision promulgated on April 11, 2003 by the Court of
Attorneys fees to be deleted Appeals, subject to the MODIFICATIONS that: (a) the rate of interest is 12% per
annum reckoned from the filing of the complaint until full payment; and (b) the award of
In granting attorneys fees, the RTC merely relied on and adverted to PPIs allegation that the attorneys fees is deleted.
failure of the petitioners to comply with their obligations under the contracts had compelled
[them] to hire the services of a counsel for which it had agreed to an attorneys fee equivalent The petitioners shall pay the costs of suit.
to 25% of the total amount recovered exclusive of appearance fee of P1,500.00 as its sole
basis for holding the petitioners liable to pay P20,000.00 as attorneys fee and cost of SO ORDERED.
litigation. In affirming the RTC thereon, the CA did not even mention or deal with the matter of
 TORRES, J. :

EN BANC

[G.R. No. 9188. December 4, 1914. ]

GUTIERREZ HERMANOS, Plaintiff-Appellee, v. ENGRACIO ORENSE, Defendant-
Appellant.
William A. Kincaid, Thos. L. Harligan, and Ceferino M Villareal, for Appellant.
Appeal through bill of exceptions filed by counsel for the appellant from the judgment rendered
on April 14, 1913 by the Honorable P. M. Moir, judge, wherein he sentenced the defendant to
make immediate delivery of the property in question, through a public instrument, by
transferring and conveying to the plaintiff all his rights in the property described in the
complaint and to pay it the sum of P780, as damages, and the costs of the suit.

Rafael de la Sierra, for Appellee. On March 5, 1913, counsel for Gutierrez Hermanos filed a complaint, afterwards amended, in
the Court of First Instance of Albay against Engracio Orense, in which he set forth that on and
SYLLABUS before February 14, 1907, the defendant Orense had been the owner of a parcel of land, with
the buildings and improvements thereon, situated in the pueblo of Guinobatan, Albay, the
1. PRINCIPAL AND AGENT; RATIFICATION OF AGENTS ACTS; RETRACTION. When a person location, area and boundaries of which were specified in the complaint; that the said property
who sold a parcel of real estate for P1,500 appears later not to be its owner and when the real has up to date been recorded in the new property registry in the name of the said Orense,
owner thereof, upon being questioned in a criminal case instituted against the vendor, states according to certificate No. 5, with the boundaries therein given; that, on February 14. 1907,
that he consented to such sale, so that the vendor was acquitted of the charge against him, it is Jose Duran, a nephew of the defendant, with the latters knowledge and consent, executed
neither lawful nor permissible for said owner later to retract and deny his former sworn before a notary a public instrument whereby he sold and conveyed to the plaintiff company, for
statement that he had consented to said sale by a third person who was a relative of his (Civil P1,500, the aforementioned property, the vendor Duran reserving to himself the right to
Code, arts. 1709, 1710, 1727.) repurchase it for the same price within a period of four years from the date of the said
instrument; that the plaintiff company had not entered into possession of the purchased
2. ID.; ID.; EFFECT IN ACTION FOR ESTAFA. The sworn statement of the owner of the real property, owing to its continued occupancy by the defendant and his nephew, Jose Duran, by
estate in the action for estafa secured the acquittal of the accused by destroying the fraud virtue of a contract of lease executed by the plaintiff to Duran, which contract was in force up to
which at first appeared to have been perpetrated to the owners prejudice and became a February 14, 1911; that the said instrument of sale of the property, executed by Jose Duran,
confirmation and ratification of the sale; therefore, the owner must fulfill the obligations was publicly and freely confirmed and ratified by the defendant Orense in a verbal declaration
contracted by his agent, who made the sale as though he had had prior authorization and made by him on March 14, 1912, in the Court of First Instance of Albay, to the effect that the
express instructions in writing. (Conlu v. Araneta and Guanko, 15 Phil. Rep., 387.) said instrument of sale was executed by Duran with the knowledge and consent of the
defendant, Orense; that, in order to perfect the title to the said property, the plaintiff had to
3. ID; ID.; RATIFICATION AS EXPRESS AGENCY. Even though the owner of the real estate demand of the defendant that he execute in legal form a deed of conveyance of the property,
had not previously authorized the sale and his consent was given subsequent to the act, yet but that the defendant Orense refused to do so, without any justifiable cause or reason,
when the fact is established that he approved the action of his relative in selling it as his agent, wherefore he should be compelled to execute the said deed by an express order of the court, for
this subsequent ratification by the owner in giving his approval and consent to the sale Jose Duran is notoriously insolvent and cannot reimburse the plaintiff company for the price of
produced the effect of an express agency and so purified the contract of the flaws it contained the sale which he received, nor pay any sum whatever for the losses and damages occasioned
at the time it was executed. (Civil Code, arts. 1259, 1313.) by the said sale, aside from the fact that the plaintiff had suffered damage by losing the present
value of the property, which was worth P3,000; that, unless such deed of final conveyance were
4. ID.; ID.; ACTION FOR NULLITY. The action for nullity that could have at first been executed in behalf of the plaintiff company, it would be injured by the fraud perpetrated by the
instituted was legally extinguished at the moment when said contract of sale was validly ratified vendor, Duran, in connivance with the defendant; that the latter had been occupying the said
and confirmed. (Civil Code, art. 1309.) property since February 14, 1911, and refused to pay the rental thereof, notwithstanding the
demand made upon him for its payment at the rate of P30 per month, the just and reasonable
value for the occupancy of the said property, the possession of which the defendant likewise
refused to deliver to the plaintiff company, in spite of the continuous demands made upon him,
the defendant, with bad faith and to the prejudice of the firm of Gutierrez Hermanos, claiming
DECISION to have rights of ownership and possession in the said property Therefore it was prayed that
judgment be rendered by holding that the land and improvements in question belong
legitimately and exclusively to the plaintiff, and ordering the defendant to execute in the
plaintiffs behalf the said instrument of transfer and conveyance of the property and of all the
right, interest, title and share which the defendant has therein; that the defendant be sentenced
to pay P30 per month for damages and rental of the property from February 14, 1911, to the name; and that, prior to the execution of the deed of sale, the defendant performed no act such
date of the restitution of the property to the plaintiff, and that, in case these remedies were not as might have induced the plaintiff to believe that Jose Duran was empowered and authorized
granted to the plaintiff, the defendant be sentenced to pay to it the sum of P3,000 as damages, by the defendant to effect the said sale.
together with interest thereon since the date of the institution of this suit, and to pay the costs
and other legal expenses. The plaintiff firm, therefore, charged Jose Duran, in the Court of First Instance of the said
province, with estafa, for having represented himself in the said deed of sale to be the absolute
The demurrer filed to the amended complaint was overruled, with exception on the part of the owner of the aforesaid land and improvements, whereas in reality they did not belong to him,
defendant, whose counsel made a general denial of the allegations contained in the complaint, but to the defendant Orense. However, at the trial of the case Engracio Orense, called as a
excepting those that were admitted, and specifically denied paragraph 4 thereof to the effect witness, being interrogated by the fiscal as to whether he had consented to Durans selling the
that on February 14, 1907, Jose Duran executed the deed of sale of the property in favor of the said property under right of redemption to the firm of Gutierrez Hermanos, replied that he had.
plaintiff with the defendants knowledge and consent. In view of this statement by the defendant, the court acquitted Jose Duran of the charge of
estafa.
As the first special defense, counsel for the defendant alleged that the facts set forth in the
complaint with respect to the execution of the deed did not constitute a cause of action, nor did As a result of the acquittal of Jose Duran, based on the explicit testimony of his uncle, Engracio
those alleged in the other form of action for the collection of P3,000, the value of the realty. Orense, the owner of the property, to the effect that he had consented to his nephew Durans
selling the property under right of repurchase to Gutierrez Hermanos, counsel for this firm filed
As the second special defense, he alleged that the defendant was the lawful owner of the a complaint praying, among other remedies, that the defendant Orense be compelled to execute
property claimed in the complaint, as his ownership was recorded in the property registry, and a deed for the transfer and conveyance to the plaintiff company of all the right, title and interest
that, since his title had been registered under the proceedings in rem prescribed by Act No. which Orense had in the property sold, and to pay to the same the rental of the property due
496, it was conclusive against the plaintiff and the pretended rights alleged to have been from February 14, 1911.
acquired by Jose Duran prior to such registration could not now prevail; that the defendant had
not executed any written power of attorney nor given any verbal authority to Jose Duran in Notwithstanding the allegations of the defendant, the record in this case shows that he did give
order that the latter might, in his name and representation, sell the said property to the plaintiff his consent in order that his nephew, Jose Duran, might sell the property in question to
company; that the defendants knowledge of the said sale was acquired long after the execution Gutierrez Hermanos, and that he did thereafter confirm and ratify the sale by means of a public
of the contract of sale between Duran and Gutierrez Hermanos, and that prior thereto the instrument executed before a notary.
defendant did not intentionally and deliberately perform any act such as might have induced the
plaintiff to believe that Duran was empowered and authorized by the defendant and which It having been proven at the trial that he gave his consent to the said sale, it follows that the
would warrant him in acting to his own detriment, under the influence of that belief. Counsel defendant conferred verbal, or at least implied, power of agency upon his nephew Duran, who
therefore prayed that the defendant be absolved from the complaint and that the plaintiff be accepted it in the same way by selling the said property. The principal must therefore fulfill all
sentenced to pay the costs and to hold his peace forever. the obligations contracted by the agent, who acted within the scope of his authority. (Civil Code,
arts. 1709, 1710 and 1727)
After the hearing of the case and an examination of the evidence introduced by both parties,
the court rendered the judgment aforementioned, to which counsel for the defendant excepted Even should it be held that the said consent was granted subsequently to the sale, it is
and moved for a new trial. This motion was denied, an exception was taken by the defendant unquestionable that the defendant, the owner of the property, approved the action of his
and, upon presentation of the proper bill of exceptions, the same was approved, certified and nephew, who in this case acted as the manager of his uncles business, and Orenses ratification
forwarded to the clerk of this court. produced the effect of an express authorization to make the said sale. (Civil Code, arts. 1888
and 1892.)
This suit involves the validity and efficacy of the sale under right of redemption of a parcel of
land and a masonry house with a nipa roof erected thereon, effected by Jose Duran, a nephew Article 1259 of the Civil Code prescribes: "No one can contract in the name of another without
of the owner of the property, Engracio Orense, for the sum of P1,500 by means of a notarial being authorized by him or without having his legal representation according to law.
instrument executed and ratified on February 14, 1907.
"A contract executed in the name of another by one who has neither his authorization nor legal
After the lapse of the four years stipulated for the redemption, the defendant refused to deliver representation shall be void, unless it should be ratified by the person in whose name it was
the property to the purchaser, the firm of Gutierrez Hermanos, and to pay the rental thereof at executed before being revoked by the other contracting party." cralaw virtua1aw library

the rate of P30 per month for its use and occupation since February 14, 1911, when the period
for its repurchase terminated. His refusal was based on the allegations that he had been and
was then the owner of the said property, which was registered in his name in the property
registry; that he had not executed any written power of attorney to Jose Duran, nor had he
given the latter any verbal authorization to sell the said property to the plaintiff firm in his
The sworn statement made by the defendant, Orense, while testifying as a witness at the trial
of Duran for estafa, virtually confirms and ratifies the sale of his property effected by his
nephew, Duran, and, pursuant to article 1313 of the Civil Code, remedies all defects which the
contract may have contained from the moment of its execution.
The sale of the said property made by Duran to Gutierrez Hermanos was indeed null and void in Arellano, C.J., Johnson, Carson, Moreland and Araullo, JJ., concur.
the beginning, but afterwards became perfectly valid and cured of the defect of nullity it bore at
its execution by the confirmation solemnly made by the said owner upon his stating under oath
to the judge that he himself consented to his nephew Jose Durans making the said sale.
Moreover, pursuant to article 1309 of the Code, the right of action for nullification that could
have been brought became legally extinguished from the moment the contract was validly
confirmed and ratified, and, in the present case, it is unquestionable that the defendant did
confirm the said contract of sale and consent to its execution.

On the testimony given by Engracio Orense at the trial of Duran for estafa, the latter was
acquitted, and it would not be just that the said testimony, expressive of his consent to the sale
of his property, which determined the acquittal of his nephew, Jose Duran, who then acted as
his business manager, and which testimony wiped out the deception that in the beginning
appeared to have been practiced by the said Duran, should not now serve in passing upon the
conduct of Engracio Orense in relation to the firm of Gutierrez Hermanos in order to prove his
consent to the sale of his property, for, had it not been for the consent admitted by the
defendant Orense, the plaintiff would have been the victim of estafa.

If the defendant Orense acknowledged and admitted under oath that he had consented to Jose
Durans selling the property in litigation to Gutierrez Hermanos, it is not just nor is it permissible
for him afterward to deny that admission, to the prejudice of the purchaser, who gave P1,500
for the said property.

The contract of sale of the said property contained in the notarial instrument of February 14,
1907, is alleged to be invalid, null and void under the provisions of paragraph 5 of section 335
of the Code of Civil Procedure, because the authority which Orense may have given to Duran to
make the said contract of sale is not shown to have been in writing and signed by Orense, but
the record discloses satisfactory and conclusive proof that the defendant Orense gave his
consent to the contract of sale executed in a public instrument by his nephew Jose Duran. Such
consent was proven in a criminal action by the sworn testimony of the principal and presented
in this civil suit by other sworn testimony of the same principal and by other evidence to which
the defendant made no objection. Therefore the principal is bound to abide by the
consequences of his agency as though it had actually been given in writing. (Conlu v. Araneta
and Guanko, 15 Phil. Rep., 387; Gallemit v. Tabiliran, 20 Phil. Rep., 241; Kuenzle & Streiff v.
Jiongco, 22 Phil. Rep., 110.)

The repeated and successive statements made by the defendant Orense in two actions, wherein
he affirmed that he had given his consent to the sale of his property, meet the requirements of
the law and legally excuse the lack of written authority, and, as they are a full ratification of the
acts executed by his nephew Jose Duran, they produce the effects of an express power of
agency.

The judgment appealed from is in harmony with the law and the merits of the case, and the
errors assigned thereto have been duly refuted by the foregoing considerations, so it should be
affirmed.

The judgment appealed from is hereby affirmed, with the costs against the Appellant. FIRST DIVISION
 [G.R. No. L-27696. September 30, 1977.] whatsoever was filed except that of the Director of Lands which was later withdrawn, thereby
leaving the application unopposed. Thereupon, an order of general default was issued against
MIGUEL FLORENTINO, ROSARIO ENCARNACION de FLORENTINO, MANUEL ARCE, JOSE the whole world. Upon application of the applicants, the Clerk of Court was commissioned and
FLORENTINO, VICTORINO FLORENTINO, ANTONIO FLORENTINO, REMEDION authorized to receive the evidence of the applicants and ordered to submit the same for the
ENCARNACION and SEVERINA ENCARNACION, Petitioners-Appellants, v. SALVADOR Courts proper resolution.
ENCARNACION, SR., SALVADOR ENCARNACION, JR., and ANGEL ENCARNACION,
oppositors to encumbrance-petitioners-appellees. The crucial point in controversy in this registration case is centered in the stipulation marked
Exhibit O-1 embodied in the deed of extrajudicial partition (Exhibit O) dated August 24, 1947
Jose F. Singson and Miguel Florentino for Appellants. which states: jgc:chanrobles.com .ph

Pedro Singson for Appellees. "Los productos de esta parcela de terreno situada en el Barrio Lubong, Dacquel, Cabugao,
Ilocos Sur, se destinan para costear los gastos de procesion de la Tercera Caida, celebracion y
sermon de Siete Palabras, Seis Estaciones de Cuaresma, procesion del Nio Jesus, reparacion y
conservacion de los mismos, construccion de un camarin en donde se depositan los carros,
mesas y otras cosas que sirven para la celebracion de Siete Palabras y otras cosas mas. Lo que
DECISION sobra de dichos productos despues de descontados todos los gastos, se repartira entre nosotros
los herederos." cralaw virtua1aw library

GUERRERO, J.:entry of the same on the face of the title that will finally be issued. Opposing its entry on the
Appeal from the decision of the Court of First Instance of Ilocos Sur, acting as a land registration
court, in Land Registration Case No. N-310.
On May 22, 1964, the petitioners-appellants Miguel Florentino, Rosario Encarnacion de
In his testimony during the trial, applicant Miguel Florentino asked the court to include the said
stipulation (Exhibit O-1) as an encumbrance on the land sought to be registered, and cause the
title as an encumbrance, petitioners-appellees Salvador Encarnacion, Sr., Salvador Encarnacion,
Jr. and Angel Encarnacion filed on October 3, 1966 a manifestation seeking to withdraw their
application on their respective shares of the land sought to be registered. The withdrawal was
opposed by the Petitioners-Appellants.
The Court after hearing the motion for withdrawal and the opposition thereto issued on
November 17, 1966 an order and for the purpose of ascertaining and implifying the issues
therein stated that all the applicants admit the truth of the following: chanrob1es virtual 1aw library

Florentino, Manuel Arce, Jose Florentino, Victorino Florentino, Antonio Florentino, Remedios
Encarnacion and Severina Encarnacion, and the petitioners-appellees Salvador Encarnacion, Sr.,
Salvador Encarnacion, Jr. and Angel Encarnacion filed with the Court of First Instance of Ilocos
Sur an application for the registration under Act 496 of a parcel of agricultural land located at
Barrio Lubong, Dacquel, Cabugao, Ilocos Sur. chanroble s.com.ph : virtual law library
(1) That just after the death of Doa Encarnacion Florentino in 1941 up to last year, and as had
always been the case since time immemorial, the products of the land made subject matter of
this land registration case had been used in answering for the payment of expenses for the
religious functions specified in the Deed of Extrajudicial Partition, dated August 24, 1947;

The application alleged among other things that the applicants are the common and pro-indiviso (2) That this arrangement about the products answering for the payment of expenses for
owners in fee simple of the said land with the improvements existing thereon; that to the best religious functions as mentioned above was not registered in the office of the Register of Deeds
of their knowledge and belief, there is no mortgage, lien or encumbrance of any kind under Act No. 3344, Act 496 or any other system of registration;
whatsoever affecting said land, nor any other person having any estate or interest thereon,
legal or equitable, remainder, reservation or in expectancy; that said applicants had acquired (3) That all the herein applicants know of the existence of this arrangement as specified in the
the aforesaid land thru and by inheritance from their predecessors in interest, lately from their Deed of Extrajudicial Partition of August 24, 1947;
aunt, Doa Encarnacion Florentino who died in Vigan, Ilocos Sur in 1941, and for which the said
land was adjudicated to them by virtue of the deed of extrajudicial partition dated August 24, (4) That the Deed of Extrajudicial Partition of August 24, 1947 was not signed by Angel
1947; that applicants Salvador Encarnacion, Jr. and Angel Encarnacion acquired their respective Encarnacion or Salvador Encarnacion, Jr.
shares of the land thru purchase from the original heirs, Jesus, Caridad, Lourdes and Dolores,
all surnamed Singson, on one hand and from Asuncion Florentino on the other. The court denied the petitioners-appellees motion to withdraw for lack of merit, and rendered a
decision under date of November 29, 1966 confirming the title of the property in favor of the
After due notice and publication, the Court set the application for hearing. No opposition following applicants with their respective shares as follows: chanrob1es virtual 1aw library
Spouses Miguel Florentino and Rosario Encarnacion de Florentino, both of legal age, Filipinos, merit, but the court modified its earlier decision of November 29, 1966, to wit: jgc:chanroble s.com.ph

and residents of Vigan, Ilocos Sur, consisting of an undivided 31/297 and 8.25/297 portions,
respectively;
Manuel Arce, of legal age, Filipino, married to Remedios Pichay and resident of Vigan, Ilocos
Sur, consisting of an undivided 66/297 portion;.
Salvador Encarnacion, Jr., of legal age, Filipino, married to Angelita Nagar, and resident of
Vigan, Ilocos Sur, consisting of an undivided 66/297;.
Jose Florentino, of legal age, Filipino, married to Salvacion Florendo and resident of 16 South
Ninth Diliman, Quezon City, consisting of an undivided 33/297 portion;.
Angel Encarnacion, of legal age, Filipino, single and resident of 1514 Milagros St., Sta. Cruz,
Manila, consisting of an undivided 33/297 portion;
"This Court believes, and so holds, that the contention of the movants (proponents of the
encumbrance) is without merit because the arrangement, stipulation or grant as embodied in
Exhibit O (Escritura de Particion Extrajudicial), by whatever name it may be called, whether
donation, usufruct or ellemosynary gift, can be revoked, as in fact the oppositors Salvador
Encarnacion, Sr., who is the only one of the three oppositors who is a party to said Exhibit O
(the two others, Salvador Encarnacion, Jr. and Angel Encarnacion were no parties to it) did
revoke it as shown by acts accompanying his refusal to have the same appear as an
encumbrance on the title to be issued. In fact, legally, the same can also be ignored or
disregarded by all the three oppositors. The reasons are: First, if the said stipulation as
embodied in Exhibit O-1 is to be viewed as a stipulation pour autrui the same cannot now be
enforced because the Church in whose favor it was made has not communicated its acceptance
to the oppositors before the latter revoked it. Says the 2nd par. of Art. 1311 of the New Civil
Code:jgc:chanrobles.com .ph

Victorino Florentino, of legal age, Filipino, married to Mercedes L. Encarnacion and resident of "If a contract should contain some stipulation in favor of a third person, he may demand its
Vigan, Ilocos Sur, consisting of an undivided 17.5/297 portion; fulfillment provided he communicated his acceptance to the obligor before its revocation. A
mere incidental benefit or interest of a person is not sufficient. The contracting parties must
Antonio Florentino, of legal age, Filipino, single and resident of Vigan, Ilocos Sur, consisting of have clearly and deliberately conferred a favor upon a third person." No evidence has ever been
an undivided 17.5/297; submitted by the Church to show its clear acceptance of the grant before its revocation by the
oppositor Salvador Encarnacion, Sr. (or of the two other oppositors, Salvador Encarnacion, Jr.
Salvador Encarnacion, Sr., of legal age, Filipino, married to Dolores Singson, consisting of an and Angel Encarnacion, who didnt even make any grant, in the first place), and so not even the
undivided 8.25/297; movants who have officiously taken into themselves the right to enforce the grant cannot now
maintain any action to compel compliance with it. (Bank of the P.I. v. Concepcion y Hijos, Inc.,
Remedios Encarnacion, of legal age, Filipino, single and resident of Vigan, Ilocos Sur, consisting 53 Phil. 806). Second, the Church in whose favor the stipulation or grant had apparently been
of an undivided 8.25/297 portion; and. made ought to be the proper party to compel the herein three oppositors to abide with the
stipulation. But it has not made any appearance nor registered its opposition to the application
Severina Encarnacion, of legal age, Filipino, single and resident of Vigan, Ilocos Sur, consisting even before Oct. 18, 1966 when an order of general default was issued. Third, the movants are
of 8.25/297 undivided portion. not, in the contemplation of Section 2, Rule 3 of the Rules of Court, the real party in interest to
raise the present issue; and Fourth, the movants having once alleged in their application for
The court, after ruling "that the contention of the proponents of the encumbrance is without registration that the land is without encumbrance (par. 3 thereof), cannot now be allowed by
merit because, taking the self-imposed arrangement in favor of the Church as a pure and simple the rules of pleading to contradict said allegation of theirs. (McDaniel v. Apacible, 44 Phil. 248)"
donation, the same is void for the reason that the done here has not accepted the donation
(Art. 745, Civil Code) and for the further reason that, in the case of Salvador Encarnacion, Jr. SO ORDERED." 2
and Angel Encarnacion, they had made no oral or written grant at all (Art. 748) as in fact they
are even opposed to it," 1 held in the dispositive portion, as follows: jgc:chanroble s.com.ph After Motions for Reconsideration were denied by the court, the petitioners-appellants appealed
directly to this Court pursuant to Rule 41, Rules of Court, raising the following assignment of
"In view of all these, therefore, and insofar as the question of encumbrance is concerned, let errors: chanrob1es virtual 1aw library

the religious expenses as herein specified be made and entered on the undivided shares,
interests and participations of all the applicants in this case, except that of Salvador
Encarnacion, Sr., Salvador Encarnacion, Jr. and Angel Encarnacion." cralaw virtua1aw library
On January 3, 1967, petitioners-appellants filed their Reply to the Opposition reiterating their
previous arguments, and also attacking the jurisdiction of the registration court to pass upon
the validity or invalidity of the agreement Exhibit O-1, alleging that such is litigable only in an embodied in Exhibit O, the extrajudicial partition between the co-heirs, is binding only on the
ordinary action and not proper in a land registration proceeding.
The Motion for Reconsideration and of New Trial was denied on January 14, 1967 for lack of
I. The lower court erred in concluding that the stipulation embodied in Exhibit O on religious
expenses is just an arrangement, stipulation, or grant revocable at the unilateral option of the
co-owners.
II. The lower court erred in finding and concluding that the encumbrance or religious expenses
applicants Miguel Florentino, Rosario Encarnacion de Florentino, Manuel Arce, Jose Florentino,
Antonio Florentino, Victorino Florentino, Remedios Encarnacion and Severina Encarnacion.
III. The lower court as a registration court erred in passing upon the merits of the encumbrance Doa Encarnacion Florentino they agreed that with respect to the land situated in Barrio
(Exhibit O-1) as the same was never put to issue and as the question involved is an Lubong, Dacquel, Cabugao, Ilocos Sur, the fruits thereof shall serve to defray the religious
adjudication of rights of the parties. expenses specified in Exhibit O-1. The evidence on record shows that the true intent of the
parties is to confer a direct and material benefit upon the Church. The fruits of the aforesaid
We find the first and second assignments of error impressed with merit and, therefore, tenable. land were used thenceforth to defray the expenses of the Church in the preparation and
The stipulation embodied in Exhibit O-1 on religious expenses is not revocable at the unilateral celebration of the Holy Week, an annual Church function. Suffice it to say that were it not for
option of the co-owners and neither is it binding only on the petitioners-appellants Miguel Exhibit O-1, the Church would have necessarily expended for this religious occasion, the annual
Florentino, Rosario Encarnacion de Florentino, Manuel Arce, Jose Florentino, Victorino Florentino, religious procession during the Holy Week and also for the repair and preservation of all the
Antonio Florentino, Remedios Encarnacion and Severina Encarnacion. It is also binding on the statutes, tables, carriages and all other things necessary for the celebration of the Seven Last
oppositors-appellees Angel Encarnacion, Salvador Encarnacion, Sr. and Salvador Encarnacion, Jr.Words.

The stipulation (Exhibit O-1) is part of an extrajudicial partition (Exh. O) duly agreed and signed We find that the trial court erred in holding that the stipulation, arrangement or grant (Exhibit
by the parties, hence the same must bind the contracting parties thereto and its validity or O-1) is revocable at the option of the co-owners. While a stipulation in favor of a third person
compliance cannot be left to the will of one of them (Art. 1308, N.C.C.). Under Art. 1311 of the has no binding effect in itself before its acceptance by the party favored, the law does not
New Civil Code, this stipulation takes effect between the parties, their assigns and heirs. This provide when the third person must make his acceptance. As a rule, there is no time limit; such
article provides:
re d:chanroble s.com.ph third Person has all the time until the stipulation is revoked. Here, We find that the Church
accepted the stipulation in its favor before it is sought to be revoked by some of the co-owners,
"Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in namely the petitioners-appellees herein. It is not disputed that from the time of the death of
cases where the rights and obligations arising from the contract are not transmissible by their Doa Encarnacion Florentino in 1941, as had always been the case since time immemorial, up
nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the to a year before the filing of their application in May 1964, the Church had been enjoying the
property he received from the decedent. benefits of the stipulation. The enjoyment of benefits flowing therefrom for almost seventeen
years without question from any quarters can only be construed as an implied acceptance by
If a contract should contain a stipulation in favor of a third person, he may demand its the Church of the stipulation pour autrui before its revocation.
fulfillment provided he communicated his acceptance to the obligor before its revocation. A
mere incidental benefit or interest of a person is not sufficient. The contracting parties must "The acceptance does not have to be in any particular form, even when the stipulation is for the
have clearly and deliberately conferred a favor upon a third person." cralaw virtua1aw library third person an act of liberality or generosity on the part of the promisor or promisee." 5

The second paragraph of Article 1311 above-quoted states the law on stipulations pour autrui. "It need not be made expressly and formally. Notification of acceptance, other than such as is
Considering the nature and purpose of the stipulation (Exh. O-1), We hold that said stipulation involved in the making of demand, is unnecessary." 6
is a stipulation pour autrui. A stipulation pour autrui is a stipulation in favor of a third person
conferring a clear and deliberate favor upon him, and which stipulation is merely a part of a "A trust constituted between two contracting parties for the benefit of a third person is not
contract entered into by the parties, neither of whom acted as agent of the third person, and subject to the rules governing donation of real property. The beneficiary of a trust may demand
such third person may demand its fulfillment provided that he communicates his acceptance to performance of the obligation without having formally accepted the benefit of the trust in a
the obligor before it is revoked. 3 The requisites are: (1) that the stipulation in favor of a third public document, upon mere acquiescence in the formation of the trust and acceptance under
person should be a part, not the whole, of the contract; (2) that the favorable stipulation should the second paragraph of Art. 1257 of the Civil Code." 7
not be conditioned or compensated by any kind of obligation whatever; and (3) neither of the
contracting parties bears the legal representation or authorization of third party. Hence, the stipulation (Exhibit O-1) cannot now be revoked by any of the stipulators at their
own option. This must be so because of Article 1257, Civil Code and the cardinal rule of
To constitute a valid stipulation pour autrui, it must be the purpose and intent of the stipulating contracts that it has the force of law between the parties. 8 Thus, this Court ruled in Garcia v.
parties to benefit the third person, and it is not sufficient that the third person may be Rita Legarda, Inc., 9 "Article 1309 is a virtual reproduction of Article 1256 of the Civil Code, so
incidentally benefited by the stipulation. The fairest test to determine whether the interest of phrased to emphasize that the contract must bind both parties, based on the principles (1) that
third person in a contract is a stipulation pour autrui or merely an incidental interest, is to rely obligation arising from contracts have the force of law between the contracting parties; and (2)
upon the intention of the parties as disclosed by their contract. In applying this test, it matters that there must be mutuality between the parties based on their essential equality, to which is
not whether the stipulation is in the nature of a gift or whether there is an obligation owing from repugnant to have one party bound by the contract leaving the other free therefrom." cralaw virtua1aw library

the promises to the third person. That no such obligation exists may in some degree assist in
determining whether the parties intended to benefit a third person. 4
In the case at bar, the determining point is whether the co-owners intended to benefit the
Church when in their extrajudicial partition of several parcels of land inherited by them from
Consequently, Salvador Encarnacion, Sr. must bear with Exhibit O-1, being a signatory to the
Deed of Extrajudicial Partition embodying such beneficial stipulation. Likewise, with regards to
Salvador, Jr. and Angel Encarnacion, they too are bound to the agreement. Being subsequent
purchasers, they are privies or successors in interest; it is axiomatic that contracts are
enforceable against the parties and their privies. 10 Furthermore, they are shown to have given
their conformity to such agreement when they kept their peace in 1962 and 1963, having
already bought their respective shares of the subject land but did not question the enforcement
of the agreement as against them. They are also shown to have knowledge of Exhibit O-1 as
they had admitted in a Deed of Real Mortgage executed by them on March 8, 1962 involving
their shares of the subject land, that, "This parcel of land is encumbered as evidenced by the
document No. 420, page 94, Book I, series 1947, executed by the heirs of the late Encarnacion
Florentino, on August 26, 1947, before M. Francisco Ante, Notary Public of Vigan, Ilocos Sur, in
its page 10 of the said document of partition, and also by other documents."
IN VIEW OF THE FOREGOING, the decision of the Court of First Instance of Ilocos Sur in Land
Registration Case No. N-310 is affirmed but modified to allow the annotation of Exhibit O-1 as
an encumbrance on the face of the title to be finally issued in favor of all the applicants (herein
appellants and herein appellees) in the registration proceedings below.
No pronouncement as to costs.
cralaw virtua1aw library SO ORDERED.

The annotation of Exhibit O-1 on the face of the title to be issued in this case is merely a
guarantee of the continued enforcement and fulfillment of the beneficial stipulation. It is error
for the lower court to rule that the petitioners-appellants are not the real parties in interest, but
the Church. That one of the parties to a contract pour autrui is entitled to bring an action for its
enforcement or to prevent its breach is too clear to need any extensive discussion. Upon the
other hand, that the contract involved contained a stipulation pour autrui amplifies this settled
rule only in the sense that the third person for whose benefit the contract was entered into may
also demand its fulfillment provided he had communicated his acceptance thereof to the obligor
before the stipulation in his favor is revoked. 11

Petitioners-appellants third assignment of error is not well-taken. Firstly, the otherwise rigid
rule that the jurisdiction of the Land Registration Court, being special and limited in character
and proceedings thereon summary in nature, does not extend to cases involving issues properly
litigable in other independent suits or ordinary civil actions, has time and again been relaxed in
special and exceptional circumstances. (See Government of the Phil. Islands v. Serafica, 61 Phil.
93 (1934); Caoibes v. Sison, 102 Phil. 19 (1957); Luna v. Santos, 102 Phil. 588 (1957); Cruz v.
Tan, 93 Phil. 348 (1953); Gurbax Singh Pabla & Co. v. Reyes, 92 Phil. 177 (1952). From these
cases, it may be gleaned and gathered that the peculiarity of the exceptions is based not alone
on the fact that Land Registration Courts are likewise the same Courts of First Instance, but also
the following premises: (1) Mutual consent of the parties or their acquiescence in submitting the
aforesaid issues for determination by the court in the registration proceedings; (2) Full
opportunity given to the parties in the presentation of their respective sides of the issues and of
the evidence in support thereto; (3) Consideration by the court that the evidence already of
record is sufficient and adequate for rendering a decision upon these issues. 12 In the case at EN BANC
bar, the records clearly show that the second and third premises enumerated above are fully
met. With regards to the first premise, the petitioners-appellants cannot claim that the issues [G.R. No. L-23276. November 29, 1968.]
anent Exhibit O-1 were not put in issue because this is contradictory to their stand before the
lower court where they took the initial step in praying for the courts determination of the merits MELECIO COQUIA, MARIA ESPANUEVA and MANILA YELLOW TAXICAB CO.,
of Exhibit O-1 as an encumbrance to be annotated on the title to be issued by such court. On INC., Plaintiffs-Appellees, v. FIELDMENS INSURANCE CO., INC., Defendant-Appellant.
the other hand, the petitioners-appellees who had the right to invoke the limited jurisdiction of
the registration court failed to do so but met the issues head on. chanrobles virtual lawlibrary
Antonio de Venecia for Plaintiffs-Appellees.

Secondly, for this very special reason, We will uphold the actuation of the lower court in Rufino Javier, for Defendant-Appellant.
determining the conflicting interests of the parties in the registration proceedings before it. This
case has been languishing in our courts for thirteen long years. To require that it be remanded
to the lower court for another proceeding under its general jurisdiction is not in consonance with
our avowed policy of speedy justice. It would not be amiss to note that if this case be remanded
to the lower court, and should appeal again be made, the same issues will once more be raised SYLLABUS
before Us; hence, Our decision to resolve at once the issues in the instant petition.
 negotiations preceding the institution of the present case. In fact, counsel for both parties
stipulated, in the trial court, that none of them had, at any time during said negotiations, even
suggested the settlement of the issue between them by arbitration, as provided in said section.
1. CIVIL LAW; CONTRACTS; CONTRACTS POUR AUTRUI; MAY BE ENFORCED BY A THIRD PARTY Their aforementioned acts or omissions had the effect of a waiver of their respective right to
FOR WHOSE BENEFIT IT WAS MADE. Although, in general, only parties to a contract may demand an arbitration (Kahnweiler v. Phenix Insurance Co. of Brooklyn, 67 Fed. 483;
bring an action based thereon, this rule is subject to exceptions, one of which is found in the Independent School District No. 35, St. Louis County v. A. Hedenberg & Co., Inc., 7 NW 2nd,
second paragraph of Article 1311 of the Civil Code of the Philippines, reading: "If a contract 511).
should contain some stipulation in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person." This is but the restatement of a well-known
principle concerning contracts pour autrui, the enforcement of which may be demanded by a DECISION
third party for whose benefit it was made, although not a party to the contract, before the
stipulation in his favor has been revoked by the contracting parties.

2. ID.; ID.; ID.; INSURANCE CONTRACT CONTAINING A STIPULATION IN FAVOR OF THE

AUTHORIZED DRIVER OF INSUREDS MOTOR VEHICLE, A CONTRACT POUR AUTRUI; HEIRS OF
THE DECEASED DRIVER MAY BRING AN ACTION AGAINST THE INSURANCE COMPANY. In the
case at bar, the insurance policy contains stipulations pursuant to which the insurance company
"will indemnify any authorized Driver who is driving the Motor Vehicle" of the Insured and, in
the event of death of said driver, the Company shall, likewise, "indemnify his personal
representatives," and the Company "may, at its option, make indemnity payable directly to the
claimants or heirs of claimants . . . it being the true intention of this Policy to protect . . . the
liabilities of the Insured towards the passengers of the Motor Vehicle and the Public" in other
words, third parties. Thus, the policy under consideration is typical of contracts pour autrui this
character being made more manifest by the fact that the deceased driver paid fifty percent
(50%) of the corresponding premiums, which were deducted from his weekly commissions.
Under these conditions, it is clear that the Coquias who, admittedly, are the sole heirs of the
deceased have a direct cause of action against the Company (Uy Tam v. Leonard, 30 Phil.
471, 485-486; Kauffman v. Philippine National Bank, 42 Phil. 182, 187, 189), and, since they
CONCEPCION, C.J.:
This is an appeal from a decision of the Court of First Instance of Manila, certified to us by the
Court of Appeals, only questions of law being involved therein. Indeed, the pertinent facts have
been stipulated and/or, admitted by the parties at the hearing of the case in the trial court, to
dispense with the presentation of evidence therein.
It appears that on December 1, 1961, appellant Fieldmens Insurance Company, Inc. herein
after referred to as the Company issued, in favor of the Manila Yellow Taxicab Co., Inc.
herein after referred to as the Insured a common carrier accident insurance policy, covering
the period from December 1, 1961 to December ,1962. It was stipulated in said policy that: jgc:chanrobles.com .ph

could have maintained this action by themselves, without the assistance of the insured it goes
without saying that they could and did properly join the latter in filing the complaint herein "The Company will, subject to the Limits of Liability and under the Terms of this Policy,
(Guingon v. Capital Insurance & Surety Co., Inc., L-22042, Aug. 17, 1967). indemnify the Insured in the event of accident caused by or arising out of the use of Motor
Vehicle against all sums which the Insured will become legally liable to pay in respect of: Death
3. ID.; ID.; ID.; ID.; REFERENCE OF DISPUTE TO ARBITRATORS AS PROVIDED IN THE POLICY, or bodily injury to any fare-paying passenger including the Driver, Conductor and/or Inspector
DEEMED WAIVED BY THE ACTS OR OMISSIONS OF THE PARTIES. Section 17 of the policy who is riding in the Motor Vehicle insured at the time of accident or injury." 1
under consideration reads: "If any difference or dispute shall arise with respect to the amount of
the Companys liability under this Policy, the same shall be referred to the decision of a single While the policy was in force, or on February 10, 1962, a taxicab of the Insured, driven by
arbitrator to be agreed upon by both parties or failing such agreement of a single arbitrator, to Carlito Coquia, met a vehicular accident at Maagaldan, Pangasinan, in consequence of which
the decision of two arbitrators, one to be appointed in writing by each of the parties within one Carlito died. The Insured filed therefor a claim for P5,000.00 to which the Company replied with
calendar month after having been required in writing so to do by either of the parties and in an offer to pay P2,000.00, by way of compromise. The Insured rejected the same and made a
case of disagreement between the arbitrator to the decision of an umpire who shall have been counter-offer for P4,000.00, but the Company did not accept it. Hence, on September 18, 1962,
appointed in writing by the arbitrators before entering on the reference and the costs of and the Insured and Carlitos parents, namely, Melecio Coquia and Maria Espanueva hereinafter
incidental to the reference shall be dealt with in the Award. And it is hereby expressly stipulated referred to as the Coquias filed a complaint against the Company to collect the proceeds of
and declared that it shall be a condition precedent to any right of action or suit upon this Policy the aforementioned policy. In its answer, the Company admitted the existence thereof, but
that the award by such arbitrator, arbitrators or umpire of the amount of the Companys liability pleaded lack of cause of action on the part of the plaintiffs.
hereunder if disputed shall be first obtained." The record shows, however, that none of the
parties to the contract invoked this section, or made any reference to arbitration, during the After appropriate proceedings, the trial court rendered a decision sentencing the Company to
pay to the plaintiffs the sum of P4,000.00 and the costs. Hence, this appeal by the Company, of claimants, with or without securing the consent of or prior notification to the Insured, it being
which contends that plaintiffs have no cause of action because: 1) the Coquias have no the true intention of this Policy to protect, to the extent herein specified and subject always to
contractual relation with the Company; and 2) the Insured has not complied with the provisions the Terms of this Policy, the liabilities of the Insured towards the passengers of the Motor
of the policy concerning arbitration. Vehicle and the Public."cralaw virtua1aw library

As regards the first defense, it should be noted that, although, in general, only parties to a
contract may bring an action based thereon, this rule is subject to exceptions, one of which is
found in the second paragraph of Article 1311 of the Civil Code of the Philippines, reading:
"If a contract should contain some stipulation in favor of a third person, he may demand its
fulfillment provided he communicated his acceptance of the obligor before its revocation. A
mere incidental benefit or interest of a person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a third person." 2
This is but the restatement of a well-known principle concerning contracts pour autrui, the
enforcement of which may be demanded by a third party for whose benefit it was made,
although not a party to the contract, before the stipulation in his favor has been revoked by the have a direct cause of action against the Company, 3 and, since they could have maintained this
contracting parties. Does the policy in question belong to such class of contracts pour autrui?
In this connection, said policy provides, inter alia:
jgc:chanrobles.com .ph
Pursuant to these stipulations, the Company "will indemnify any authorized Driver who is driving
the Motor Vehicle" of the Insured and, in the event of death of said driver, the Company shall,
jgc:chanrobles.com .ph likewise, "indemnify his personal representatives." In fact the Company "may, at its option,
make indemnity payable directly to the claimants . . . or heirs of claimants .. it being the true
intention of this Policy to protect . . . the liabilities of the Insured towards the passengers of the
Motor Vehicle and the Public" in other words, third parties.
Thus, the policy under consideration is typical of contracts pour autrui, this character being
made more manifest by the fact that the deceased driver paid fifty percent (50%) of the
corresponding premiums, which were deducted from his weekly commissions. Under these
conditions, it is clear that the Coquias who, admittedly, are the sole heirs of the deceased
action by themselves, without the assistance of the Insured, it goes without saying that they
could and did properly join the latter in filing the complaint herein. 4

The second defense set up by the Company is based upon Section 17 of the policy reading: jgc:chanrobles.com .ph

"Section I Liability to Passengers. 1. The Company will, subject to the Limits of Liability and
under the Terms of this Policy, indemnify the Insured in the event of accident caused by or
arising out of the use of Motor Vehicle against all sums which the Insured will become legally
liable to pay in respect of: Death or bodily injury to any fare-paying passenger including the
Driver. . . who is riding in the Motor Vehicle insured at the time of accident or injury.
"Section II. Liability to the Public
x x x incidental to the reference shall be dealt with in the Award. And it is hereby expressly stipulated
"If any difference or dispute shall arise with respect to the amount of the Companys liability
under this Policy, the same shall be referred to the decision of a single arbitrator to be agreed
upon by both parties or failing such agreement of a single arbitrator, to the decision of two
arbitrators, one to be appointed in writing by each of the parties within one calendar month
after having been required in writing so to do by either of the parties and in case of
disagreement between the arbitrators, to the decision of an umpire who shall have been
appointed in writing by the arbitrators before entering on the reference and the costs of and
and declared that it shall be a condition precedent to any right of action or suit upon this Policy
that the award by such arbitrator, arbitrators or umpire of the amount of the Companys liability
hereunder if disputed shall be first obtained." cralaw virtua1aw library

"3. In terms of and subject to the limitations of and for the purposes of this Section, the
Company will indemnify any authorized Driver who is driving the Motor Vehicle . . ." The record shows, however, that none of the parties to the contract invoked this section, or
cralaw virtua1aw library

made any reference to arbitration, during the negotiations preceding the institution of the
"Conditions present case. In fact, counsel for both parties stipulated, in the trial court, that none of them
had, at any time during said negotiations, even suggested the settlement of the issue between
x x x them by arbitration, as provided in said section. Their aforementioned acts or omissions had the
effect of a waiver of their respective right to demand an arbitration. Thus, in Kahnweiler v.
Phenix Ins. Co. of Brooklyn, 5 it was held: jgc:chanroble s.com.ph

"7. In the event of death of any person entitled to indemnify under this Policy, the Company
will, in respect of the liability incurred by such person, indemnify his personal representatives in
terms of and subject to the limitations of this Policy, provided, that such representatives shall,
as though they were the Insured, observe, fulfill and be subject to the Terms of this Policy
insofar as they can apply.
"8. The Company may, at its option, make indemnity payable directly to the claimants or heirs
"Another well-settled rule for interpretation of all contracts is that the court will lean to that
interpretation of a contract which will make it reasonable and just. Bish. Cont. Sec. 400.
Applying these rules to the tenth clause of this policy, its proper interpretation seems quite
clear. When there is a difference between the company and the insured as to the amount of the
loss the policy declares: `The same shall then be submitted to competent and impartial
arbitrators, one to be selected by each party . . . It will be observed that the obligation to
procure or demand an arbitration is not, by this clause, in terms imposed on either party. It is
not said that either the company or the insured shall take the initiative in setting the arbitration
on foot. The company had no more right to say the insured must do it than the insured has to IT IS SO ORDERED
say the company must do it. The contract in this respect is neither unilateral nor self-executing.
To procure a reference to arbitrators, the joint and concurrent action of both parties to the
contract is indispensable. The right it gives and the obligation it creates to refer the differences
between the parties to arbitrators are mutual. One party to the contract cannot bring about an
arbitration. Each party is entitled to demand a reference, but neither can compel it, and neither
has the right to insist that the other shall first demand it, and shall forfeit any right by not doing
so. If the company demands it, and the insured refuses to arbitrate, his right of action is
suspended until he consents to an arbitration; and if the insured demands an arbitration, and
the company refuses to accede to the demand, the insured may maintain a suit on the policy,
notwithstanding the language of the twelfth section of the policy, and, where neither party
demands an arbitration, both parties thereby waive it." 6

To the same effect was the decision of the Supreme Court of Minnesota in Independent School
Dist. No. 35, St. Louis County v. A. Hedenberg & Co., Inc. 7 from which we quote: jgc:chanroble s.com.ph

"This rule is not new in our state. In Meyer v. Berlandi, 53 Minn. 59, 54 N.W. 937, decided in
1893, this court held that the parties to a construction contract, having proceeded throughout
the entire course of their dealings with each other in entire disregard of the provision of the
contract regarding the mode of determining by arbitration the value of the extras, thereby
waived such provision." cralaw virtua1aw library

x x x
EN BANC

[G.R. No. L-22404. May 31, 1971.]

"The test for determining whether there has been a waiver in a particular case is stated by the
author of an exhaustive annotation in 117 A.L.R. p. 304, as follows: `Any conduct of the parties PASTOR B. CONSTANTINO, Plaintiff-Appellant, v. HERMINIA ESPIRITU, Defendant-
inconsistent with the notion that they treated the arbitration provision as in effect, or any Appellee.
conduct which might be reasonably construed as showing that they did not intend to avail
themselves of such provision, may amount to a waiver thereof and estop the party charged with David Guevara, for Plaintiff-Appellant.
such conduct from claiming its benefits." cralaw virtua1aw library

x x x

SYLLABUS

"The decisive facts here are that both parties from the inception of their dispute proceeded in
entire disregard of the provisions of their contract relating arbitration and that neither at any
stage of such dispute, either before or after commencement of the action, demanded
arbitration, either by oral or written demand, pleading, or otherwise. Their conduct was as 1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; STIPULATION POUR AUTRUI; DEMAND FOR
effective a rejection of the right to arbitrate as if, in the best Coolidge tradition, they had said, FULFILLMENT BY THIRD PERSON BENEFITED BY CONTRACT. That one of the parties to a
`We do not choose to arbitrate. As arbitration under the express provisions of article 40 was contract is entitled to bring an action for its enforcement or to prevent its breach is too clear to
`at the choice of either party, and was chosen by neither, a waiver by both of the right to need any extensive discussion. Upon the other hand, that the contract involved contained a
arbitration followed as a matter of law." cralaw virtua1aw library
stipulation pour atrui amplifies this settled rule only in the sense that the third person for whose
benefit the contract was entered into may also demand its fulfillment provided he had
WHEREFORE, the decision appealed from should be as it is hereby affirmed in toto, with costs communicated his acceptance thereof to the obligor before the stipulation in his favor is revoked
against the herein defendant-appellant, Fieldmens Insurance Co., Inc.
 20174 issued by the Register of Deeds of Rizal on October 25, 1950 in the name of Pastor B.
2. ID.; ID.; STATUTE OF FRAUDS; PARTIALLY PERFORMED CONTRACTS EXCLUDED FROM Constantino, married to Honorata Geukeko, with ,the understanding that appellee would hold
APPLICATION THEREOF. The contention that the contract in question is not enforceable by the properties in trust for their illegitimate son, Pastor Constantino, Jr., still unborn at the time
action by reason of the provisions of the Statute of Frauds does not appear to be indubitable, it of the conveyance; that thereafter appellee mortgaged said properties to the Republic Savings
being clear upon the facts alleged in the amended complaint that the contract between the Bank of Manila twice to secure payment of two loans, one of P3.000.00 and the other of
parties had already been partially performed by the execution of the deed of sale, the action P2,000.00, and that thereafter she offered them for sale. The complaint then prayed for the
brought below being only for the enforcement of another phase thereof, namely, the execution issuance of a writ of preliminary injunction restraining appellee and her agents or
by appellee of a deed of conveyance in favor of the beneficiary thereunder. representatives from further alienating or disposing of the properties, and for judgment ordering
her to execute a deed of absolute sale of said properties in favor of Pastor B. Constantino, Jr.,
BARREDO, J., concurring: chanrob1es virtual 1aw library the beneficiary (who, at the filing of said complaint, was about five years of age), and to pay
attorneys fees in the sum of P2,000.00.
1. REMEDIAL LAW; EVIDENCE; PAROL EVIDENCE RULE; NOT APPLICABLE WHEN REAL
AGREEMENT OR ADDITIONAL TERMS INTENDED TO BE PROVED ARE SPECIFICALLY ALLEGED IN As a result of the conveyance mentioned heretofore, TCT No. 20714 in the name of plaintiff was
THE PLEADING; RULE MAY NOT BE UTILIZED AS INSTRUMENT TO CONCEAL OR SHIELD FRAUD. partially cancelled and in lieu thereof, TCT No. 32744 was issued by the Register of Deeds of
The general rule of admissibility which excludes evidence aliunde tending to vary the terms of Rizal in the name of appellee Herminia Espiritu.
a written agreement is subject to the exception, among others, that the same does not apply
when the party wishing to prove the real agreement or the additional terms specifically alleges On December 16, 1959, appellee moved to dismiss the complaint on the ground that it stated
such agreement or terms in his pleading. Otherwise stated, the matter of whether or not there no cause of action because Pastor Constantino, Jr., the beneficiary of the alleged trust, was not
is really an obligation on the part of the appellee to convey the land in question to her child with included as party-plaintiff, and on the further ground that appellants cause of action was
appellee is only one of proof, there being no technical bar to the evidence, much less to unenforceable under the Statute of Frauds.
appellants action. Withal, like the Statute of Frauds, the parol evidence rule may not be used as
a shield to commit fraud with impunity, particularly, when, as in this case, it is alleged that an In his opposition to said motion to dismiss, appellant argued that the Statute of Frauds does not
implied trust is involved. I would even go further. I venture to add that even if this case were apply to trustee and cestui que trust as in the case of appellee and her illegitimate child, and
considered as one involving an express trust under Article 1443 of the Civil Code which provides that for this reason appellant would not be barred from proving by parol evidence an implied
that an express trust affecting realty may not be proved by parol evidence. I would still hold trust existing under Article 1453 of the Civil Code. On the other hand, in her rejoinder to
that appellants case is subject to this exception. It is a fundamental principle underlying all appellants opposition,, appellee argued that what the former was invoking in his complaint
rules of proof that never may the same be utilized as instruments to conceal or shield fraud. (Paragraph V, Complaint) was an implied trust under Article 1453 of the Civil Code and not an
express trust under Section 3, Rule 3 of the Revised Rules of Court. Finding the grounds alleged
in the motion to dismiss to be meritorious, the trial court dismissed the complaint, with costs.

Immediately after receiving notice of said order of dismissal, appellant filed a motion for the
DECISION admission of an amended complaint, attaching thereto a copy hereof, the amendment consisting
mainly of the inclusion of the minor, Pastor Constantino, Jr. as co-plaintiff. The amended
complaint further prayed for the appointment of appellant as said minors guardian ad litem. An
opposition thereto was filed on the ground that the amendment aforesaid was not an inclusion
but a substitution of the party plaintiff. As the latter had no interest whatsoever in the subject
DIZON, J.:matter of the case, it was argued that the substitution was not allowed in this jurisdiction.
Appellants answer to appellees opposition alleged that, as the ground relied upon in the said
opposition was purely technical, even the substitution of the party plaintiff should be allowed
under Section 2, Rule 17 of the Rules of Court. Thereafter the lower court issued the appealed
order denying appellants motion for the admission of his amended complaint. Hence, the
This is a direct appeal on a question of law taken by Pastor B. Constantino from an order of the instant direct appeal.
Court of First Instance of Rizal denying his motion for the admission of his amended complaint
in Civil Case No. 5924, entitled "Pastor B. Constantino v. Herminia Espiritu." The original as well as the amended complaint mentioned above allege that the sale made by
appellant Constantino in favor of appellee of the properties described in said pleadings was
cralaw virtua1aw library

Appellants complaint alleged, inter alia, that he had, by a fictitious deed of absolute sale subject to the agreement that the vendee would hold them in trust for their at that time already
annexed thereto, conveyed to appellee on October 30, 1953, for a consideration of P8,000.00, conceived but unborn illegitimate child; that the vendee violated this agreement, firstly, by
the two-storey house and four (4) subdivision lots covered by Transfer Certificate of Title No. subjecting them to two different contracts of mortgage, and later by trying to sell them, this
being not only in violation of the aforesaid agreement but prejudicial to the cestui que trust;
that the action was commenced to compel the vendee to comply with their agreement by nominal beneficiary, Adoracion Rosales de Echaus, directly for the purpose of obtaining the
executing the corresponding deed of conveyance in favor of their minor son, and to desist from benefit which said contract purports to confer upon her. The purpose of the action is to compel
further doing any act prejudicial to the interests of the latter. the defendants to execute a contract pursuant to the tenor of the contract Exhibit A, but
containing an adequate description of the property contained in the two haciendas, for the
It appears then that, upon the facts alleged by appellant, the contract between him and purpose of enabling Echaus to procure the annotation of said contract on the Torrens certificates
appellee was a contract pour autrui, although couched in the form of a deed of absolute sale, of title. It is therefore evident that, technically speaking, the proper person to bring this action
and that appellants action was, in effect, one for specific performance. That one of the parties is Enrique Echaus, the person with whom the contract was made by Yulingco. It is,
to a contract is entitled to bring an action for its enforcement or to prevent its breach is too nevertheless, equally obvious that the wife of Enrique Echaus is a party in interest, and she is
clear to need any extensive discussion. Upon the other hand, that the contract involved certainly a proper, if not an entirely necessary party to the action. It results that there is really
contained a stipulation pour autrui amplifies this settled rule only in the sense that the third no improper joinder of parties plaintiff." cralaw virtua1aw library

person for whose benefit the contract was entered into may also demand its fulfillment provided
he had communicated his acceptance thereof to the obligor before the stipulation in his favor is Whether the contract of sale entered into between appellant and appellee was as claimed in
revoked. the amended complaint subject to the agreement that appellee would hold the properties in
trust for their unborn child is a question of fact that appellee may raise in her answer for the
It appearing that the amended complaint submitted by appellant to the lower court impleaded lower court to determine after trial. On the other hand, the contention that the contract in
the beneficiary under the contract as a party co-plaintiff, it seems clear that the three parties question is not enforceable by action by reason of the provisions of the Statute of Frauds does
concerned therewith would, as a result, be before the court and the latters adjudication would not appear to be indubitable, it being clear upon the facts alleged in the amended complaint
be complete and binding upon them. that the contract between the parties had already been partially performed by the execution of
the deed of sale, the action brought below being only for the enforcement of another phase
The ruling in the case of Echaus v. Gan, 55 Phil. 527 involving facts similar to the ones before thereof, namely, the execution by appellee of a deed of conveyance in favor of the beneficiary
Us is of obvious application to the latter. We quote the following pertinent portions of our thereunder.
decision in said case:jgc:chanroble s.com.ph

WHEREFORE, the appealed order is hereby set aside and the case is remanded to the lower
"This action was instituted in the Court of First Instance of Occidental Negros by Adoracion court for further proceedings in accordance with law.
Rosales de Echaus, assisted by her husband Enrique Echaus, for the purpose of obtaining a
judicial order requiring the defendant Maria Gan, as administratrix of the estate of her deceased Concepcion, C.J., Reyes, J.B.L., Zaldivar, Castro, Fernando, Teehankee, Villamor and
husband, Manuel Gay Yulingco, as well as the heirs of said decedent, to execute in due form a Makasiar, JJ., concur.
contract, with appropriate description of the real property involved, in conformity with the terms
of an agreement dated September 3, 1927, executed by the deceased Manuel Gay Yulingco, in Makalintal, J., concurs in the result.
life, and Enrique Echaus, one of the plaintiffs in the case (Exhibit A). To this action the
defendants interposed a general answer and cross-complaint, in the latter of which they sought Separate Opinions
a decree annulling the contract Exhibit A as excessively onerous and illegal. Upon hearing the
cause the trial court absolved the plaintiffs from the cross-complaint and gave judgment in
favor of the plaintiffs upon the complaint, requiring the defendants, within thirty days from the
date of the finality of the decision, to execute before a notary public and deliver to the plaintiffs BARREDO, J., concurring: chanrob1es virtual 1aw library

a contract similar in terms to that indicated in the Exhibit A but containing, in addition, a
description of the real property involved, in such form as would enable the plaintiffs to procure I concur, but it may not be amiss for me to state briefly my humble view as regards appellees
said contract to be inscribed on the certificate of title corresponding to said property, with costs claim that appellants action is barred by the Statute of Frauds.
against the defendants. From this judgment the defendants appealed.
As I understand the nature of appellants action, it is not to enforce an entirely unwritten
x x x contract, which is what is generally barred by the Statute of Frauds; rather, it is for the
enforcement of a condition not appearing in the written agreement herein involved but which
condition, according to appellant, was in fact part thereof but which the parties had agreed not
to include in the deed, probably because of doubt that such a stipulation in favor of an already
The contract in question, Exhibit A, on which this action is based, was executed by Manuel Gay conceived but still unborn illegitimate child may not be judicially permissible. On the other hand,
Yulingco and Enrique Echaus, and although the contract binds Yulingco to pay to Adoracion under the theory of appellee, even assuming, alternatively, that there w as such an
Rosales de Echaus, the wife of Enrique Echaus, the sum of fifty centavos for each picul of sugar understanding to benefit their unborn child, the conveyance to her of the land in question is an
that may be produced upon the two haciendas covered by the contract during the fourteen entirely separate contract from the obligation assumed by her of turning over the property in
years beginning with the crop for 1927-1928, nevertheless this action is not instituted by the question to said child with the appellant, hence this separate agreement not being in writing is
unenforceable by action under the Statute of Frauds. I consider such posture of appellee name only temporarily for the benefit of their child is the main question of fact which by this
untenable. decision the court a quo may now try and decide.

To my mind, the obligation of the appellee to execute the conveyance in favor of their child was I concur in this opinion of Mr. Justice Barredo. Makasiar, J.
part and parcel of one single verbal agreement, in partial implementation of which the said
property was conveyed to her. In other words, appellants action is simply one for the
enforcement of an implied trust under Article 1453 of the Civil Code which provides thus: jgc:chanrobles.com .ph

"ART. 1453. When property is conveyed to a person in reliance upon his declared intention to
hold it for, or transfer it to another or the grantor, there is an implied trust in favor of the person
whose benefit is contemplated." cralaw virtua1aw library

Accordingly, the only rule, that can possibly have any relevance to appellees situation, instead
of the Statute of Frauds, would be the parol evidence rule which, in any event, is not one of the
grounds for dismissal of a complaint, since it is a rule exclusively of admissibility of evidence
and not of any other branch of procedure. As a matter of fact, under the known circumstances
of this case, I even doubt very much if the appellee will be able to successfully invoke the parol SECOND DIVISION
evidence rule when the trial is eventually held, for the simple reason that appellant has in effect
specifically alleged in his complaint that the deed of sale in favor of appellee was subject to the [G.R. No. 79518. January 13, 1989.]
condition already mentioned that their illegitimate child would be the real beneficiary thereof.
The general rule of admissibility which excludes evidence aliunde 1 tending to vary the terms of REBECCA C. YOUNG, assisted by her husband ANTONIO GO, Petitioner, v. COURT OF
a written agreement is subject to the exception, among others, that the same does not apply APPEALS, PH CREDIT CORP., PHIL. HOLDING, INC. FRANCISCO VILLAROMAN, FONG
when the party wishing to prove the real agreement or the additional terms specifically alleges YOOK LU, ELLEN YEE FONG and THE REGISTER OF DEEDS OF MANILA, Respondents.
such agreement or terms in his pleading. Otherwise stated, the matter of whether or not there
is really an obligation on the part of the appellee to convey the land in question to her child with Diego O. Untalan for Petitioner.
appellee is only the one of proof, there being no technical bar to the evidence, much less to
appellants action. Withal, like the Statute of Frauds, the parol evidence rule may not be used as Esteban B. Bautista for respondents Fong Yook Lu and Ellen Yee Fong.
a shield to commit fraud with impunity, particularly, when, as in this case, it is alleged that an
implied trust is involved. I would even go further. I venture to add that even if this case were Jonette Borres for Respondents.
considered as one involving an express trust under Article 1443 of the Civil Code which provides
that an express trust affecting realty may not be proved by parol evidence, I would still hold
that appellants case is subject to this exception It is a fundamental principle underlying all rules
of proof that never may the same be utilized as instruments to conceal or shield fraud.
SYLLABUS
The main opinion holds that the execution of the deed of conveyance in favor of the appellant
was a partial execution or consummation of the agreement between appellant and appellee
which puts the enforcement of the obligation in question beyond the pale of the Statute of
Frauds. Evidently, the predicate of said proposition is that the conveyance of the property in
question to appellee and her obligation to hold the same only in trust for their illegitimate child
still unborn at that time constitute one single contract, albeit verbal, as I have already explained 1. REMEDIAL LAW; JUDGMENT; COMPROMISE AGREEMENT; MAY NOT BE ENFORCED BY ONE
above. Consequently, one part of the contract having been complied with already by appellant WHO IS NOT PARTY. Appellant is not entitled to enforce a compromise agreement to which he
by executing the formal deed in favor of appellee, the latter cannot now excuse herself from was not a party and that as to its effect and scope, it has been determined in the sense that its
complying with her part of the bargain by invoking the Statute of Frauds. effectivity if at all, is limited to the parties thereto and those mentioned in the exhibits (J.M.
Tuason & Co., Inc. v. Aguirre, 7 SCRA 112 [1963]). The rule was reiterated later that a
Indeed, from whatever angle one views this case, most of all from the standpoint of the compromise agreement cannot bind persons who are not parties thereto (Guerrero v. C.A., 29
innocent child begotten by the parties out of wedlock and whose future seems uncertain, the SCRA 791 [1969]).
conclusion is inescapable that the trial court erred in sustaining appellees motion to dismiss.
With the procedural technicalities now set aside, whether the property in question was indeed 2. CIVIL LAW; OBLIGATIONS AND CONTRACT; STIPULATION POUR AUTRUI; REQUISITES.
intended by appellant and appellee to remain with appellee for her own benefit or to be in her The requisites of a stipulation pour autrui or a stipulation in favor of a third person are the
following: (1) there must be a stipulation in favor of a third person. (2) the stipulation must be On September 17, 1981, Philippine Holding, Inc. had previously sold the above said property
a part, not the whole of the contract. (3) the contracting parties must have clearly and described in the compromise agreement by way of dacion in payment to PH Credit Corporation
deliberately conferred a favor upon a third person, not a mere incidental benefit or interest. (4) (Rollo, p. 49).
chanroblesvirtualawlibrary

the third person must have communicated his acceptance to the obligor before its revocation.
(5) neither of the contracting parties bears the legal representation or authorization of the third
party. (Florentino v. Encarnacion, Sr., 79 SCRA 193 [1977]).
On November 9, 1982, the property was subdivided into two parcels, one 244.09 sq.m. in area
covering Units 1350, 1352 and 1354 (TCT No. 152439) and the other 241.71 sq.m. in area
covering Units 1356, 1358 and 1360 (TCT No. 152440) and both titles were placed in the name
of PH Credit Corporation.

On December 8, 1982, PH Credit Corporation sold the property covered by TCT 152439 to the
DECISION Blessed Land Development Corporation represented by its President Antonio T.S. Young; and on
September 16, 1983, PH Credit Corporation sold the property covered by TCT 152440
embracing Units 1356, 1358 and 1360 to spouses Fong Yook Lu and Ellen Yee Fong (Rollo, p.
15).

PARAS, J.:Thereafter, petitioner Rebecca C. Young and her co-plaintiffs, the spouses Chui Wan and Felisa
Tan Yu filed in the Regional Trial Court of Manila, Civil Case No. 84-22676 for the annulment of
the sale in favor of herein respondent spouses, Fong Yook Lu and Ellen Yee Fong and for specific
performance and damages against the PH Credit Corporation and Philippine Holding,
Incorporated.
This is a petition for review on certiorari seeking to set aside the decision of the Court of
Appeals 1 in CA-G.R. No. 1002, entitled Spouses Chui Wan and Felisa Tan Yu and Rebecca Young Plaintiff spouses Chui Wan and Felisa Tan Yu alleged that defendant corporation and Francisco
v. PH Credit Corporation Et. Al., which affirmed the decision of the Regional Trial Court of Manila, Villaroman, sold the property without affording them (the plaintiffs-spouses) the right of first
Branch XXXII, earlier dismissing the complaint of petitioners for Annulment of Sale, Specific refusal to purchase that portion of the property which they are renting.
Performance and Damages, against respondents.
Plaintiff Rebecca C. Young, now petitioner, also claimed the right of first refusal purportedly
The facts of the case are as follows: granted to her under the aforestated proviso of the abovesaid compromise agreement and
prayed that the sale be annulled and that they be allowed to exercise her right of first refusal to
chanrob1es virtual 1aw library

Defendant Philippine Holding, Inc. is the former owner of a piece of land located at Soler St.,
Sta. Cruz, Manila, and a two storey building erected thereon, consisting of six units; Unit 1350
which is vacant, Unit 1352 occupied by Antonio Young, Unit 1354 by Rebecca C. Young, Unit
1356 by Chui Wan and Felisa Tan Yu, Unit 1358 by Fong Yook Lu and Ellen Yee Fong and Unit
1360 by the Guan Heng Hardware (Rollo, pp. 14-15).
The owner Philippine Holding, Inc. secured an order from the City Engineer of Manila to
demolish the building. Antonio Young, then a tenant of said Unit 1352, filed an action to annul
the City Engineers demolition Order (Civil Case No. 123883) entitled Antonio S. Young v.
Philippine Holding, Inc. before the then Court of First Instance of Manila, Branch XXX. As an
incident in said case, the parties submitted a Compromise Agreement to the Court on
September 24, 1981. Paragraph 3 of said agreement provides that plaintiff (Antonio S. Young)
and Rebecca Young and all persons claiming rights under them bind themselves to voluntarily
and peacefully vacate the premises which they were occupying as lessees (Units 1352 and
1354, respectively) which are the subject of the condemnation and demolition order and to
surrender possession thereof to the defendant Philippine Holding, Inc. within sixty (60) days
from written notice, subject to the proviso that should defendant decided to sell the subject
purchase subject property (Rollo, p. 50).
The lower court decided in favor of the defendants and against the plaintiffs, thus dismissing the
complaint together with defendants counterclaims (Rollo, p. 15)
On the other hand, the claim of Rebecca C. Young was similarly rejected by the trial court on
the following grounds: (1) that she was not a party in the Civil Case No. 123883, wherein
subject compromise agreement was submitted and approved by the trial court apart from the
fact that she did not even affix her signature to the said compromise agreement; (2) that
Rebecca Young had failed to present any evidence to show that she had demanded from the
defendants-owners, observance of her right of first refusal before the said owners sold units
1356, 1358 and 1360; (3) that even assuming that her supposed right of first refusal is a
stipulation for the benefit of a third person, she did not inform the obligor of her acceptance as
required by the second paragraph of Article 1311 of the Civil Code.
Chui Wan and Felisa Tan Yu and Rebecca C. Young, assisted by her husband, appealed to the
Court of Appeals which dismissed the same on August 7, 1987, for lack of merit. cralawnad

property or portion thereof, "plaintiff and Rebecca C. Young have the right of first refusal
thereof." (Rollo, p. 49). Hence this petition, which was brought to this Court only by Rebecca Young, assisted by her
husband Antonio Go.
On October 2, 1987, respondents Fong Yook Lu, moved to strike out or dismiss outright the the end of the joint motion for approval of the Compromise Agreement, she did not affix her
instant petition (Rollo, p. 35). In the resolution of November 4, 1987, the Second Division of signature above her printed name, nor on the left margin of each and every page thereof. chanroble s virtual lawlibrary

this Court required the petitioner to comment on said motion (Rollo, p. 37), which comment was
filed on December 17, 1987 (Rollo, p. 38). Thereafter, in the resolution of January 20, 1988, In fact, on cross-examination, she admitted that she was not a party to the case and that she
respondents were required to file a reply thereto (Rollo, p. 42) which was filed on January 11, did not sign the aforesaid joint motion because it was not presented to her (Rollo, p. 18).
1988 (Rollo, p. 43). On March 24, 1988, petitioner filed a rejoinder to reply (Rollo, p. 46) in
compliance with the resolution of February 29, 1988 (Rollo, p. 45). More than that, by the aforesaid actuations of the parties and petitioners apparent lack of
interest, the intention is evident, not to include the latter either in the onerous, or in the
In the resolution of May 11, 1988, the petition was given due course and the parties were beneficient provisions of said agreement.
required to submit simultaneously their respective memoranda (Rollo, p. 47). Respondents filed
their memorandum on June 29, 1988 (Rollo, p. 48), while petitioners memorandum was filed Petitioner further argued that the stipulation giving her the right of first refusal is a stipulation
on July 14, 1988 (Rollo, p. 64). pour autrui or a stipulation in favor of a third person under Article 1311 of the Civil Code.

Petitioner raised the following assignments of error: chanrob1es virtual 1aw library The requisites of a stipulation pour autrui or a stipulation in favor of a third person are the
following:chanrob1es virtual 1aw library

1. The lower court erred in holding that Rebecca C. Young cannot enforce the stipulation in her
favor in the compromise agreement as she is not party therein. (1) there must be a stipulation in favor of a third person.

2. The lower court erred in holding that even if par. 3 of the compromise agreement is (2) the stipulation must be a part, not the whole of the contract.
construed as a stipulation pour autrui Rebecca Young cannot enforce it because she did not
communicate her acceptance thereof to the obligor. (Rollo, p. 7) (3) the contracting parties must have clearly and deliberately conferred a favor upon a third
person, not a mere incidental benefit or interest.
The petition is devoid of merit.
(4) the third person must have communicated his acceptance to the obligor before its
The main issue in this case is whether or not petitioner can enforce a compromise agreement to revocation.
which she was not a party.
(5) neither of the contracting parties bears the legal representation or authorization of the third
This issue has already been squarely settled by this Court in the negative in J.M. Tuason & Co., party. (Florentino v. Encarnacion, Sr., 79 SCRA 193 [1977]).
Inc. v. Cadampog (7 SCRA 808 [1963] where it was ruled that appellant is not entitled to
enforce a compromise agreement to which he was not a party and that as to its effect and Assuming that petitioner is correct in claiming that this is a stipulation pour autrui, it is
scope, it has been determined in the sense that its effectivity if at all, is limited to the parties unrebutted that she did not communicate her acceptance whether expressly or impliedly. She
thereto and those mentioned in the exhibits (J.M. Tuason & Co., Inc. v. Aguirre, 7 SCRA 112 insists however, that the stipulation has not yet been revoked, so that her present claim or
[1963]). It was reiterated later that a compromise agreement cannot bind persons who are not demand is still timely.
parties thereto (Guerrero v. C.A., 29 SCRA 791 [1969]).
As correctly observed by the Court of Appeals, the above argument is pointless, considering that
The pertinent portion of the Compromise Agreement reads: the sale of subject property to some other person or entity constitutes in effect a revocation of
jgc:chanrobles.com .ph

the grant of the right of first refusal to Rebecca C. Young.

"Plaintiff Antonio T.S. Young and the Defendant HOLDING hereby agree to implead in this action
as necessary party-plaintiff, plaintiffs daughter Rebecca C. Young who is the recognized lawful PREMISES CONSIDERED, the petition is DENIED for lack of merit, and the decision of the Court
lessee of the premises known and identified as 1354 Soller St., Sta. Cruz, Manila and whose of Appeals is AFFIRMED.
written conformity appears hereunder." (Rollo, p. 18)
SO ORDERED.
From the terms of this agreement, the conditions are very clear, such as: (1) that Rebecca C.
Young shall be impleaded in the action and (2) that she shall signify her written conformity
thereto.

For unknown reasons, the above conditions were not complied with. The parties did not make
any move to implead Rebecca as necessary party in the case. Neither did her written conformity
appear in said agreement. While there is the printed name of Rebecca C. Young appearing at
 THIRD DIVISION

[G.R. No. 79734. December 8, 1988.]

MARMONT RESORT HOTEL ENTERPRISES, Petitioner, v. FEDERICO GUIANG, AURORA

GUIANG, and COURT OF APPEALS, Respondents.

Isagani M. Jungco for Petitioner.

Regalado C. Salvador for Respondents.

SYLLABUS

1. REMEDIAL LAW; JUDICIAL ADMISSIONS; CANNOT BE CONTRADICTED UNLESS A CLEAR

SHOWING OF PALPABLE MISTAKE HAS BEEN COMMITTED IN MAKING THE SAME. The record
shows, however, as noted earlier, that at the pre-trial conference held on 2 October 1980, both
petitioner Marmont and respondent spouses had agreed upon a stipulation of facts and issues
recognizing the existence of those same two (2) agreements. Such stipulation of facts
constitutes a judicial admission, the veracity of which requires no further proof and which may
be controverted only upon a clear showing that such stipulation had been entered into through
"palpable mistake as provided for under Section 2, Rule 129 of the Revised Rules of Court.

2. ID.; ID.; STIPULATION OF FACT IN CASE AT BAR INCONTROVERTIBLE ABSENT OF PALPABLE

MISTAKE. There has been no showing and respondent spouses do not claim that "palpable
mistake" had intervened here, in respect of the formulation of the facts stipulated by the parties
at the pre-trial conference. Absent any such showing, that stipulation of facts is incontrovertible,
and may be relied upon by the courts. Respondent spouses are estopped from raising as an
issue in this case the existence and admissibility in evidence of both the first and second the land where well and pump and piping had been installed, was to supply the water
Memoranda of Agreement which, having been marked as exhibits during pre-trial, properly form requirements of petitioners hotel. That said purpose was known by respondent spouses, is
part of the record of this case, even though not formally offered in evidence after trial. made explicit by the second Memorandum of Agreement. Maris Trading itself had no need for a
water supply facility; neither did the respondent spouses. The water facility was intended solely
3. CIVIL LAW; CONJUGAL PARTNERSHIP; WILL NOT BE BOUND WITHOUT THE CONSENT OF for Marmont Resort Hotel. The interest of Marmont cannot therefore be regarded as merely
THE HUSBAND AS THE ADMINISTRATOR; CASE AT BAR. Article 165 and 172 state the "incidental."
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general principle under our civil law, that the wife may not validly bind the conjugal partnership
without the consent of the husband, who is legally the administrator of the conjugal 5. ID.; ID.; ID.; RESPONDENT ACTED IN BAD FAITH; MUST BE HELD LIABLE FOR DAMAGES.
partnership. In this particular case, however, as noted earlier, the second Memorandum of Even if it be assumed (for purposes of argument merely) that the second Memorandum of
Agreement, although ostensibly contracted solely by Aurora Guiang with Maris Trading, was also Agreement did not constitute a stipulation pour autrui, still respondent spouses, in the
signed by her husband Federico, as one of the witnesses thereto. This circumstance indicates circumstances of this case, must be regarded as having acted contrary to the principles of
not only that Federico was present during the execution of the agreement but also that he had, honesty, good faith and fair dealing embodied in Articles 19 and 21 of the Civil Code when they
in fact, given his consent to the execution thereof by his wife Aurora. Otherwise, he should not refused petitioner Marmont access to the water facility to inspect and repair the same and to
have appended his signature to the document as witness. Respondent spouses cannot now increase its capacity and thereby to benefit from it. In so doing, respondent spouses forced
disown the second Memorandum of Agreement as their effective consent thereto is sufficiently petitioner Marmont to locate an alternative source of water for its hotel which of course involved
manifested in the document itself. expenditure of money and perhaps loss of hotel revenues. We believe they should respond in
damages.
4. ID.; CONTRACTS; SECOND MEMORANDUM OF AGREEMENT EXECUTED FOR THE BENEFIT OF
PETITIONER; STIPULATION POUR AUTRUI, DEFINED. A closer scrutiny of the second and
third paragraphs of the second Memorandum of Agreement discloses that the first Memorandum
of Agreement, including the obligations imposed thereunder upon Maris Trading, had been
acknowledged therein: "That the First Party (i.e., Maris Trading) has dug, drilled and tapped DECISION
water source for Marmont Resort, located at Bo. Barretto, Olongapo City in accordance with
their agreement executed on May 2, 1975 and notarized before Isagani M. Jungco, Notary Public
and entered as Doc. No. 166; Page No. 135; Book No. XV; Series of 1975. That the First Party
has erected, built and drilled for the water source of Marmont Resort on the land owned by the
Second Party [respondent spouses] at the corner of J. Montelibano Street and Maquinaya Drive FELICIANO, J.:
(Provincial Road) with the latters permission; . . ." The above paragraphs establish, among
other things, that construction work had been performed by Maris Trading on the land occupied
by respondent spouses; that such construction work had been performed in accordance with
terms and conditions stipulated in the first Memorandum of Agreement and that the purpose of
the work was to build a water supply facility for petitioner Marmont. It is clear from the The present Petition for Review seeks to set aside the Decision dated 9 December 1986 of the
foregoing stipulations that petitioner Marmont was to benefit from the second Memorandum of Court of Appeals in C.A. - G.R. CV 03299. The appellate court affirmed a Decision dated 31 May
Agreement. In fact, said stipulations appear to have been designed precisely to benefit 1983 of Branch 83 of the Regional Trial Court of Olongapo City dismissing the complaint in Civil
petitioner and, thus, partake of the nature of stipulations pour autrui, contemplated in Article Case No. 2896-C filed by petitioner company against private respondent spouses.
1311 of the Civil Code. A stipulation pour autrui is a stipulation in favor of a third person
chanrobles.com :cralaw:re d

conferring a clear and deliberate favor upon him, which stipulation is found in a contract entered On 2 May 1975, a Memorandum of Agreement was executed between Maris Trading and
into by parties neither of whom acted as agent of the beneficiary. We believe and so hold that petitioner Marmont Resort Hotel Enterprises, Inc. ("Marmont"), a corporation engaged in the
the purpose and intent of the stipulating parties (Maris Trading and respondent spouses) to hotel and resort business with office and establishment at Olongapo City. Under the agreement,
benefit the third person (petitioner Marmont) is sufficiently clear in the second Memorandum of Maris Trading undertook to drill for water and to provide all equipment necessary to install and
Agreement. Marmont was not of course a party to that second Agreement but, as correctly complete a water supply facility to service the Marmont Resort Hotel in Olongapo, for a
pointed out by the trial court and the appellate court, the respondent spouses could not have stipulated fee of P40,000.00. In fulfillment of its contract, Maris Trading drilled a well and
prevented Maris Trading from entering the property possessory rights over which had thus been installed a water pump on a portion of a parcel of land situated in Olongapo City, then occupied
acquired by Maris Trading. That respondent spouses remained in physical possession of that by respondent spouses Federico and Aurora Guiang.
particular bit of land, is of no moment; they did so simply upon the sufferance of Maris Trading.
Had Maris Trading, and not the respondent spouses, been in physical possession, we believe Five (5) months later, a second Memorandum of Agreement was executed between Maris
that Marmont would have been similarly entitled to compel Maris Trading to give it (Marmont) Trading and Aurora Guiang, with Federico Guiang signing as witness. This second agreement in
access to the site involved. The two (2) courts below failed to take adequate account of the fact essential part read: 1
that the sole purpose of Maris Trading in acquiring possessory rights over that specific portion of
"That the First Party [Maris Trading] has dug, drilled and tapped water source for Marmont 2. The contract referred to in paragraph 2 of the complaint between the plaintiff and Maris
Resort, located at Bo. Barretto, Olongapo City in accordance with their agreement executed on Trading is contained in a document captioned Memorandum Agreement executed on May 2,
May 2, 1975 and notarized before Isagani M. Jungco, Notary Public and entered as Doc. No. 1975, a xerox copy of which is Annex A of plaintiffs complaint;
166; Page No. 135; Book No. XV; Series of 1975.
3. On October 7, 1975, the Maris Trading represented by Ceferino Cabral and defendant Aurora
That the First Party has erected, built and drilled for the water source of Marmont Resort on the Guiang entered into a memorandum agreement;
land owned by the Second Party [Aurora Guiang] at the corner of J. Montelibano Street and
Maquinaya Drive (Provincial Road) with the latters permission. 4. The portion sold under Annex A is still a part of the public domain.

That for and in consideration of the sum of P1,500.00 the Second Party hereby Sell, Transfer IV
and Cede all possessory rights, interest and claims over that portion of the lot wherein the
water source of Marmont Resort is located unto and in favor of Maris Trading." cralaw virtua1aw library

After some time, the water supply of the Marmont Resort Hotel became inadequate to meet the The plaintiff marked the following exhibits in evidence: chanrob1es virtual 1aw library

hotels water requirements. Petitioner Marmont secured the services of another contractor (the
name of which was not disclosed), which suggested that in addition to the existing water pump, Exhibit A Memorandum Agreement dated May 2, 1975
a submersible pump be installed to increase the pressure and improve the flow of water to the
hotel. Accordingly, Juan Montelibano, Jr., manager of the Marmont Resort Hotel, sought Exhibit B Memorandum Agreement dated October 7, 1975.
permission from the Guiang spouses to inspect the water pump which had been installed on the
portion of the land previously occupied by the spouses and to make the necessary additional V
installations thereon. No such permission, however, was granted.

On 13 May 1980, petitioner Marmont filed a Complaint 2 against the Guiang spouses for
damages resulting from their refusal to allow representatives of petitioner and the second The issues left to be ventilated during the trial are the following: chanrob1es virtual 1aw library

contractor firm entry into the water facility site. The claimed damages were broken down as
follows: (a) P10,000.00 representing the amount advanced in payment to the second
contractor; (b) P40,000.00 representing the total project cost of the installation made by Maris
Trading: (c) P50,000.00 representing additional expenses incurred and incidental losses
resulting from failure of the original pump to cope with the water requirements of the Marmont
Resort Hotel; and (d) P10,000.00 for Attorneys fees. chanroblesvirtualawlibrary
1. Whether defendants has actually prohibited the plaintiff [from] making repairs, [on] the
pump constructed by Maris Trading for the plaintiff under the agreement Exhibit A, if so;
2. Whether defendants [have] the right to prohibit the Maris Trading from performing the
repairs; and if not

In their Answer, 3 the Guiang spouses (defendants below) denied having had any previous 3. Whether defendants are liable for damages under the human relations provision of the Civil
knowledge of the first Memorandum of Agreement and asserted that the second Memorandum Code."cralaw virtua1aw library

of Agreement was invalid for not having been executed in accordance with law. The spouses
added a counterclaim for damages in the amount of P200,000.00. On 1 January 1980, the Guiang spouses moved to dismiss the Complaint. 5 The spouses there
assailed the validity of the second Memorandum of Agreement, alleging that the subject matter
On 2 October 1980, at the pre-trial conference, the parties agreed on the following stipulation of thereof involved conjugal property alienated by Aurora Guiang without the marital consent of
facts and issues embodied in a Pre-Trial Order: 4 her husband, Federico Guiang. Further, it was alleged that the land upon which the hotels water
supply facility was installed and which the Guiang spouses occupied formed part of the
"III public domain and was then still the subject of a Miscellaneous Sales Application submitted by
Federico Guiang. The Motion to Dismiss, however, was denied by the trial court. chanroble s law library : red

No evidence having been adduced by the Guiang spouses on their behalf, the case was
In addition to the admission made elsewhere in their respective pleadings, the parties entered submitted for decision. On 31 May 1983, the trial court rendered a decision, 6 dismissing the
into the following stipulation of facts:
chanrob1es virtual 1aw library complaint. The trial court found that Aurora Guiang had validly alienated her rights over the
disputed portion of land to Maris Trading, but held that the evidence failed to show that Maris
1. Plaintiff is a corporation duly organized and existing under the laws of the Philippines with Trading, in turn, had transferred such rights to petitioner Marmont.
office at Montelibano Street, Barrio Barretto, Olongapo City;
Petitioner Marmont appealed to the Court of Appeals which affirmed the decision of the trial This circumstance indicates not only that Federico was present during the execution of the
court and dismissed the appeal for lack of merit. 7 The appellate court, citing Section 55, Rule agreement but also that he had, in fact, given his consent to the execution thereof by his wife
132 of the Revised Rules of Court, held that the first and second Memoranda of Agreement Aurora. Otherwise, he should not have appended his signature to the document as witness.
could not legally be considered by the court as included in the body of evidence of the case, as Respondent spouses cannot now disown the second Memorandum of Agreement as their
neither document had been formally offered in evidence by either party. It also held that, in any effective consent thereto is sufficiently manifested in the document itself.
event, neither document showed that Marmont had in fact acquired from Maris Trading
whatever rights the latter had over the land in dispute. That the land in dispute was, at the time of execution of the second Memorandum of
Agreement, public land, is of no consequence here. Pending approval of Federicos Miscellaneous
In the instant Petition for Review, petitioner assigns the following errors: 8 Sales Application over said land, respondent spouses enjoyed possessory and other rights over
the same which could validly be assigned or transferred in favor of third persons. In this case,
"1. The Court of Appeals erred in not considering the Memorandum of Agreement of May 2, respondent spouses chose to transfer such rights (over the portion upon which the water pump
1975 and 7 October 1975 as the same were already admitted in the pre-trial order; and was installed) to Maris Trading, as evidenced by the fourth paragraph of the second
Memorandum of Agreement, quoted earlier. Further more, assuming (though only for the sake
2. The Court of Appeals erred in deciding that ownership belongs to Maris Trading hence, private of argument) that the alienation to Maris Trading was legally objectionable, respondent spouses
respondent Guiang can prohibit Marmont Resort from entering the land." are not the proper parties to raise the issue of invalidity, they and Maris Trading being in pari
cralaw virtua1aw library

delicto. Only the government may raise that issue.

We find for the petitioner.
Finally, respondent spouses allege that dismissal of the complaint by the trial court was not
Both the trial and appellate courts held that the first and second Memoranda of Agreement are improper as petitioner Marmont was not privy to the second Memorandum of Agreement, and
not properly considered as forming part of the record of this case, because neither had been that accordingly, petitioner had no valid cause of action against respondents.
formally presented and offered in evidence at the trial of Civil Case No. 2896-C. The record
shows, however, as noted earlier, that at the pre-trial conference held on 2 October 1980, both A closer scrutiny of the second and third paragraphs of the second Memorandum of Agreement
petitioner Marmont and respondent spouses had agreed upon a stipulation of facts and issues discloses that the first Memorandum of Agreement, including the obligations imposed
recognizing the existence of those same two (2) agreements. Such stipulation of facts thereunder upon Maris Trading, had been acknowledged therein: jgc:chanrobles.com .ph

constitutes a judicial admission, the veracity of which requires no further proof and which may
be controverted only upon a clear showing that such stipulation had been entered into through "That the First Party (i.e., Maris Trading) has dug, drilled and tapped water source for Marmont
"palpable mistake." On this point, Section 2, Rule 129 of the Revised Rules of Court provides: Resort, located at Bo. Barretto, Olongapo City in accordance with their agreement executed on
jgc:chanroble s.com.ph

May 2, 1975 and notarized before Isagani M. Jungco, Notary Public and entered as Doc. No.
"Section 2. Judicial Admissions. Admission made by the parties in the pleadings, or in the 166; Page No. 135; Book No. XV; Series of 1975.
course of the trial or other proceedings do not require proof and cannot be contradicted unless
previously shown to have been made through palpable mistake." (Emphasis supplied). That the First Party has erected, built and drilled for the water source of Marmont Resort on the
land owned by the Second Party [respondent spouses] at the corner of J. Montelibano Street
There has been no showing and respondent spouses do not claim that "palpable mistake" had and Maquinaya Drive (Provincial Road) with the latters permission; . . ." (Emphasis supplied).
intervened here, in respect of the formulation of the facts stipulated by the parties at the pre-
trial conference. Absent any such showing, that stipulation of facts is incontrovertible, 9 and The above paragraphs establish, among other things, that construction work had been
may be relied upon by the courts. 10 Respondent spouses are estopped from raising as an issue performed by Maris Trading on the land occupied by respondent spouses; that such construction
in this case the existence and admissibility in evidence of both the first and second Memoranda work had been performed in accordance with terms and conditions stipulated in the first
of Agreement which, having been marked as exhibits during pre-trial, properly form part of the Memorandum of Agreement and that the purpose of the work was to build a water supply
record of this case, even though not formally offered in evidence after trial. 11 facility for petitioner Marmont. The same excerpts also show that the work so performed was
with the knowledge and consent of the Guiang spouses, who were then occupying the land. chanroblesvirtualawlibrary

We consider briefly respondent spouses argument that the second Memorandum of Agreement
was invalid for having been executed by Aurora Guiang without the marital consent of Federico, It is clear from the foregoing stipulations that petitioner Marmont was to benefit from the
contrary to Articles 165 and 172 of the Civil Code.
chanroble s law library : red second Memorandum of Agreement. In fact, said stipulations appear to have been designed
precisely to benefit petitioner and, thus, partake of the nature of stipulations pour autrui,
Article 165 and 172 state the general principle under our civil law, that the wife may not validly contemplated in Article 1311 of the Civil Code.
bind the conjugal partnership without the consent of the husband, who is legally the
administrator of the conjugal partnership. In this particular case, however, as noted earlier, the A stipulation pour autrui is a stipulation in favor of a third person conferring a clear and
second Memorandum of Agreement, although ostensibly contracted solely by Aurora Guiang deliberate favor upon him, which stipulation is found in a contract entered into by parties
with Maris Trading, was also signed by her husband Federico, as one of the witnesses thereto. neither of whom acted as agent of the beneficiary. 12 We believe and so hold that the purpose
and intent of the stipulating parties (Maris Trading and respondent spouses) to benefit the third
person (petitioner Marmont) is sufficiently clear in the second Memorandum of Agreement.
Marmont was not of course a party to that second Agreement but, as correctly pointed out by THIRD DIVISION
the trial court and the appellate court, the respondent spouses could not have prevented Maris
Trading from entering the property possessory rights over which had thus been acquired by [G.R. No. 119850. June 20, 1996.]
Maris Trading. That respondent spouses remained in physical possession of that particular bit of
land, is of no moment; they did so simply upon the sufferance of Maris Trading. Had Maris MANDARIN VILLA, INC., Petitioner, v. COURT OF APPEALS, and CLODUALDO DE
Trading, and not the respondent spouses, been in physical possession, we believe that Marmont JESUS,Respondents.
would have been similarly entitled to compel Maris Trading to give it (Marmont) access to the
site involved. The two (2) courts below failed to take adequate account of the fact that the sole
purpose of Maris Trading in acquiring possessory rights over that specific portion of the land
where well and pump and piping had been installed, was to supply the water requirements of
petitioners hotel. That said purpose was known by respondent spouses, is made explicit by the RESOLUTION
second Memorandum of Agreement. Maris Trading itself had no need for a water supply facility;
neither did the respondent spouses. The water facility was intended solely for Marmont Resort
Hotel. The interest of Marmont cannot therefore be regarded as merely "incidental." 13 Finally,
even if it be assumed (for purposes of argument merely) that the second Memorandum of
Agreement did not constitute a stipulation pour autrui, still respondent spouses, in the FRANCISCO, J.:
circumstances of this case, must be regarded as having acted contrary to the principles of
honesty, good faith and fair dealing embodied in Articles 19 and 21 of the Civil Code when they
refused petitioner Marmont access to the water facility to inspect and repair the same and to
increase its capacity and thereby to benefit from it. In so doing, respondent spouses forced
petitioner Marmont to locate an alternative source of water for its hotel which of course involved With ample evidentiary support are the following antecedent facts: chanrob1es virtual 1aw library

expenditure of money and perhaps loss of hotel revenues. We believe they should respond in
damages. In the evening of October 19, 1989, private Respondent. Clodualdo de Jesus, a practicing
lawyer and businessman, hosted a dinner for his friends at the petitioners restaurant, the
The evidence on record, however, appears insufficient for determination of the amount of Mandarin Villa Seafoods Village. Greenhills, Mandaluyong City. After dinner the waiter handed to
damages for which respondent spouses should be liable. For this reason, the Court is compelled him the bill in the amount of P2,658.50. Private respondent offered to pay the bill through his
to remand this case to the trial court for determination of such damages in appropriate further credit card issued by Philippine Commercial Credit Card Inc. (BANKARD). This card was
proceedings.chanrobles law library : red

WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED. The Decision dated 9
December 1986 of the Court of Appeals in C.A. G.R. CV No. 03299, as well as the Decision
dated 31 May 1983 of the Regional Trial Court of Olongapo City in Civil Case No. 2896-C, are
REVERSED. This case is REMANDED to the trial court for determination, in further proceedings who again passed the credit card over the verification computer. The same information was
consistent with this decision, of the amount of damages petitioner is entitled to receive from
respondent spouses.
No pronouncement as to costs.
SO ORDERED.
accepted by the waiter who immediately proceeded to the restaurants cashier for card
verification. Ten minutes later, however, the waiter returned and audibly informed private
respondent that his credit card had expired. 1 Private respondent remonstrated that said credit
card had yet to expire on September 1990, as embossed on its face. 2 The waiter was
unmoved, thus, private respondent and two of his guests approached the restaurants cashier
produced, i.e., CARD EXPIRED. Private respondent and his guests returned to their table and at
this juncture, Professor Lirag, another guest, uttered the following remarks: "Clody [referring to
Clodualdo de Jesus], may problema ba? Baka kailangang maghugas na kami ng pinggan?" 3
Thereupon, private respondent left the restaurant and got his BPI Express Credit Card from his
car and offered it to pay their bill. This was accepted and honored by the cashier after
verification. 4 Petitioner and his companions left afterwards.

The incident triggered the filing of a suit for damages by private Respondent. Following a full-
dress trial, judgment was rendered directing the petitioner and BANKARD to pay jointly and
severally the private respondent: (a) moral damages in the amount of P250,000.00: (b)
exemplary damages in the amount of P100,000.00; and (c) attorneys fees and litigation
expenses in the amount of P50,000 00.
Both the petitioner and BANKARD appealed to the respondent Court of Appeals which rendered only an acceptance of the said stipulation but also an explicit communication of his acceptance
a decision, thus:
jgc:chanroble s.com.ph to the obligor.

"WHEREFORE, the decision appealed from is hereby MODIFIED by: chanrob1es virtual 1aw library In addition, the record shows that petitioner posted a logo inside Mandarin Villa Seafood Village
stating that "Bankard is accepted here" 9 This representation is conclusive upon the petitioner
1. Finding appellant MANDARIN solely responsible for damages in favor of appellee; which it cannot deny or disprove as against the private respondent, the party relying thereon.
Petitioner, therefore, cannot disclaim its obligation to accept private respondents BANKARD
2 Absolving appellant BANKARD of any responsibility for damages; credit card without violating the equitable principle of estoppel. 10

3. Reducing moral damages awarded to appellee to TWENTY FIVE THOUSAND and 00/100
(P25,000.00) PESOS,
4. Reducing exemplary damages awarded to appellee to TEN THOUSAND and 00/100
(P10,000.00) PESOS;
5. Reversing and setting aside the award of P50,000.00 for attorneys fees as well as interest
awarded; and
6. AFFIRMING the dismissal of all counterclaims and cross-claims.
Costs against appellant Mandarin
SO ORDERED" 5
Mandarin Villa, thus, interposed this present petition, faulting the respondent court with six (6)
assigned errors which may be reduced to the following issues, to wit: (1) whether or not
petitioner is bound to accept payment by means of credit card; (2) whether or not petitioner is
negligent under the circumstances obtaining in this case; and (3) if negligent, whether or not
such negligence is the proximate cause of the private respondents damage.
Petitioner contends that it cannot be faulted for its cashiers refusal to accept private
respondents BANKARD credit card, the same not being a legal tender. It argues that private
respondents offer to pay by means of credit card partook of the nature of a proposal to novate
an existing obligation for which petitioner, as creditor, must first give its consent otherwise there b.2. If in CB as Lost, do procedures 2a to 2e.,
will be no binding contract between them. Petitioner cannot seek refuge behind this averment.
We note that Mandarin Villa Seafood Village is affiliated with BANKARD. In fact, an "Agreement"
6 entered into by petitioner and BANKARD dated June 23, 1989, provides inter alia:
Anent the second issue, petitioner insists that it is not negligent. In support thereof, petitioner
cites its good faith in checking, not just once but twice, the validity of the aforementioned credit
card prior to its dishonor. It argues that since the verification machine flashed an information
that the credit card has expired, petitioner could not be expected to honor the same much less
be adjudged negligent for dishonoring it. Further, petitioner asseverates that it only followed the
guidelines and instructions issued by BANKARD in dishonoring the aforementioned credit card.
The argument is untenable.
The test for determining the existence of negligence in a particular case may be stated as
follows: Did the defendant in doing the alleged negligent act use the reasonable care and
caution which an ordinary prudent person would have used in the same situation? If not, then
he is guilty of negligence. 11 The Point of Sale (POS) Guidelines which outlined the steps that
petitioner must follow under the circumstances provides.
"x x x
"CARD EXPIRED
a. Check expiry date on card.
b. If unexpired, refer to CB.
b 1. If valid, honor up to maximum of SPL only.
b.3. If in CB as Suspended/Cancelled, do not honor card
c. If expired, do not card." 12
jgc:chanroble s.com.ph

"The MERCHANT shall honor validly issued PCCCI credit cards presented by their corresponding A cursory reading of said rule reveals that whenever the words CARD EXPIRED flashes on the
holders in the purchase of goods and/or services supplied by it provided that the card expiration screen of the verification machine petitioner should check the credit cards expiry date
date has not elapsed and the card number does not appear on the latest cancellation bulletin of embossed on the card itself. If unexpired, petitioner should honor the card provided it is not
lost, suspended and canceled PCCCI credit cards and, no signs of tampering, alterations or invalid cancelled or otherwise suspended. But if expired, petitioner should not honor the card. In
irregularities appear on the face of the credit card" 7 While private respondent may not be a this case, private respondents BANKARD credit card has an embossed expiry date of September
party to the said agreement, the above-quoted stipulation conferred a favor upon the private 1990. 13 Clearly, it has not yet expired on October 19, 1989, when the same was wrongfully
respondent, a holder of credit card validly issued by BANKARD. This stipulation is a stipulation dishonored by the petitioner. Hence, petitioner did not use the reasonable care and caution
pour autri and under Article 1311 of the Civil Code private respondent may demand its which an ordinary prudent person would have used in the same situation and as such petitioner
fulfillment provided he communicated his acceptance to the petitioner before its revocation. 8 In is guilty of negligence. In this connection, we quote with approval the following observations of
this case, private respondents offer to pay by means of his BANKARD credit card constitutes not the respondent Court.
 EN BANC
"Mandarin argues that based on the POS Guidelines (supra), it has three options in case the
verification machine flashes CARD EXPIRED It chose to exercise option (c) by not honoring [G.R. No. L-25494. June 14, 1972.]
appellees credit card. However appellant apparently intentionally glossed over option (a) Check
expiry date on card" (id.) which would have shown without any shadow of doubt that the expiry NICOLAS SANCHEZ, Plaintiff-Appellee, v. SEVERINA RIGOS, Defendant-Appellant.
date embossed on the BANKARD was SEP 90. (Exhibit "D" .) A cursory look at the appellees
BANKARD would also reveal that appellee had been as of that date a cardholder since 1982, a Santiago F . Bautista for Plaintiff-Appellee.
fact which would have entitled the customer the courtesy of better treatment." 14
Jesus G. Villamar, for Defendant-Appellee.
Petitioner, however, argues that private respondents own negligence in not bringing with him
sufficient cash was the proximate cause of his damage. It likewise sought exculpation by
contending that the remark of Professor Lirag 15 is a supervening event and at the same time
the proximate cause of private respondents injury.
SYLLABUS
We find this contention also devoid of merit. While it is true that private respondent did not
have sufficient cash on hand when he hosted a dinner at petitioners restaurant, this fact alone
does not constitute negligence on his part. Neither can it be claimed that the same was the
proximate cause of private respondents damage. We take judicial notice 16 of the current
practice among major establishments, petitioner included, to accept payment by means of 1. CIVIL LAW; CONTRACTS; CONTRACT TO BUY AND SELL; OPTION WITHOUT
credit cards in lieu of cash Thus, petitioner accepted private respondents BPI Express Credit CONSIDERATION; CASE AT BAR. Where both parties indicated in the instrument in the
Card after verifying its validity, 17 a fact which all the more refutes petitioners imputation of caption, as an "Option to Purchase," and under the provisions thereof, the defendant "agreed,
negligence on the private Respondent. promised and committed" herself to sell the land therein described to the plaintiff for P1,510.00,
but there is nothing in the contract to indicate that her aforementioned agreement, promise and
Neither can we conclude that the remark of Professor Lirag was a supervening event and the undertaking is supported by a consideration "distinct from the price" stipulated for the sale of
proximate cause of private respondents injury. The humiliation and embarrassment of the the land, it is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy.
private respondent was brought about not by such a remark of Professor Lirag but by the fact of
dishonor by the petitioner of private respondents valid BANKARD credit card. If at all, the 2. ID.; ID.; ID.; ID.; ARTICLES 1354 AND 1479, NEW CIVIL CODE; APPLICABILITY. It should
remark of Professor Lirag served only to aggravate the embarrassment then felt by private be noted that: Article 1354 applies to contracts in general, whereas the second paragraph of
respondent, albeit silently within himself. Article 1479 refers to "sales" in particular, and, more specifically, to "an accepted unilateral
promise to buy or to sell." cralaw virtua1aw library

WHEREFORE, the instant petition is hereby DISMISSED.

3. ID.; ID.; REQUISITE OF A UNILATERAL PROMISE IN ORDER TO BIND PROMISOR; BURDEN
SO ORDERED. OF PROOF REST UPON PROMISEE. In order that a unilateral promise may be "binding" upon
the promisor, Article 1479 requires the concurrence of a condition namely, that the promise be
"supported by a consideration distinct from the price." Accordingly, the promisee can not compel
the promisor to comply with the promise, unless the former establishes the existence of said
distinct consideration. In other words, the promisee has the burden of proving such
consideration.

4. ID.; ID.; WHERE A UNILATERAL PROMISE TO SELL GENERATED TO A BILATERAL CONTRACT

OF PURCHASE AND SALE; ARTICLES 1324 AND 1479, NCC., NO DISTINCTION. This Court
itself, in the case of Atkins, Kroll & Co., Inc. v. Cua Hian Tek (102 Phil., 948), decided later than
Southwestern Sugar & Molasses Co. v. Atlantic & Pacific Co., 97 Phil., 249, saw no distinction
between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral
promise to sell similar to the one sued upon was involved, treating such promise as an option
which, although not binding as a contract in itself for lack of a separate consideration,
nevertheless generated a bilateral contract of purchase and sale upon acceptance. In other
words, since there may be no valid contract without a cause or consideration promisor is not
bound by his promise and may, accordingly withdraw it. Pending notice of its withdrawal, his such length of time as to permit the offeree to decide whether to accept or not, and therefore
accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results cannot arbitrarily revoke the offer without being liable for damages which the offeree may
in a perfected contract of sale. suffer. A contrary view would remove the stability and security of business transactions.

5. REMEDIAL LAW; PLEADINGS AND PRACTICE; JUDGMENT ON THE PLEADINGS; IMPLIED
ADMISSION. Defendant explicitly averred in her answer, and pleaded as a special defense,
the absence of said consideration for her promise to sell and, by joining in the petition for a
judgment on the pleadings, plaintiff has impliedly admitted the truth of said averment in
defendants answer.
4. ID.; ID.; ID.; A BILATERAL RECIPROCAL CONTRACT; CASE AT BAR. Where, as in the
present case, the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the sum of
P1,510.00 before any withdrawal from the contract has been made by the Defendant (Severina
Rigos)," and Rigos offer to sell was accepted by Sanchez, before she could withdraw her offer, a
bilateral reciprocal contract to sell and to buy was generated.

6. STATUTORY CONSTRUCTION; INTERPRETATION OF PROVISIONS OF SAME LAW; CARDINAL

RULE. The view that an option to sell can still be withdrawn, even if accepted, if the same is
not supported by any consideration, has the advantage of avoiding a conflict between Article
1324 on the general principles on contracts and 1479 on sales of the Civil Code, in DECISION
line with the cardinal rule of statutory construction that, in construing different provisions of one
and the same law or code, such interpretation should be favored as will reconcile or harmonize
said provisions and avoid a conflict between the same. Indeed, the presumption is that, in the
process of drafting the Code, its author has maintained a consistent philosophy or position.
Moreover, the decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., CONCEPCION, J.:
supra, holding that Article 1324 is modified by Article 1479 of the Civil Code, in effect, considers
the latter as an exception to the former, and exceptions are not favored, unless the intention to
the contrary is clear, and it is not so, insofar as said two (2) articles are concerned. What is
more, the reference, in both the second paragraph of Article 1479 and Article 1324, to an option
or promise supported by or founded upon a consideration, strongly suggests that the two (2) Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals,
provisions intended to enforce or implement the same principle. which certified the case to Us, upon the ground that it involves a question purely of law.

ANTONIO, J., concurring opinion: chanrob1es virtual 1aw library

The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos
executed an instrument, entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised
1. CIVIL LAW; CONTRACTS; OPTION TO SELL; EFFECT OF ACCEPTANCE. I fully agree with and committed . . . to sell" to Sanchez, for the sum of P1,510.00, a parcel of land situated in
the abandonment of the view previously adhered to in Southwestern Sugar & Molasses Co. v. the barrios of Abar and Sibot, municipality of San Jose, province of Nueva Ecija, and more
Atlantic Gulf and Pacific Co. (97 Phil., 249), which holds that an option to sell can still be particularly described in Transfer Certificate of Title No. NT-12528 of said province, within two
withdrawn, even if accepted if the same is not supported by any consideration, and the (2) years from said date with the understanding that said option shall be deemed "terminated
reaffirmance of the doctrine in Atkins, Kroll & Co. Inc. v. Cua Hian Tech (102 Phil., 948), holding and elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the
that "an option implies . . . the legal obligation to keep the offer (to sell) open for the time stipulated period. Inasmuch as several tenders of payment of the sum of P1,510.00, made by
specified" ; that it could be withdrawn before acceptance, if there was no consideration for the Sanchez within said period, were rejected by Mrs. Rigos, on March 12, 1963, the former
option, but once the "offer to sell" is accepted, a bilateral promise to sell and to buy ensues, deposited said amount with the Court of First Instance of Nueva Ecija and commenced against
and the offeree ipso facto assumes the obligations of a purchaser. the latter the present action, for specific performance and damages.

2. ID.; ID.; ID.; OPTION WITHOUT CONSIDERATION IS A MERE OFFER TO SELL, NOT BINDING
UNTIL ACCEPTED. If the option to sell is given without a consideration, it is a mere offer to
sell, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it
constitutes a binding contract of sale. The concurrence of both acts the offer and the
acceptance could in such event generate a contract.
3. ID.; ID.; ID.; WITHDRAWAL OF OFFER BEFORE ACCEPTANCE, OFFER IMPLIES AN
OBLIGATION ON THE PART OF OFFEROR. While the law permits the offeror to withdraw the
offer at any time before acceptance even before the period has expired, some writers hold the
view, that the offeror can not exercise this right in an arbitrary or capricious manner. This is
upon the principle that an offer implies an obligation on the part of the offeror to maintain it for
After the filing of defendants answer admitting some allegations of the complaint, denying
other allegations thereof, and alleging, as special defense, that the contract between the parties
"is a unilateral promise to sell, and the same being unsupported by any valuable consideration,
by force of the New Civil Code, is null and void" on February 11, 1964, both parties, assisted
by their respective counsel, jointly moved for a judgment on the pleadings. Accordingly, on
February 28, 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to
accept the sum judicially consigned by him and to execute, in his favor, the requisite deed of
conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as attorneys fees, and the
costs. Hence, this appeal by Mrs. Rigos.
This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which
provides: jgc:chanroble s.com.ph
"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."
cralaw virtua1aw library
In his complaint plaintiff alleges that, by virtue of the option under consideration, "defendant
agreed and committed to sell" and "the plaintiff agreed and committed to buy" the land
described in the option, copy of which was annexed to said pleading as Annex A thereof and is which We quote:
"One who prays for judgment on the pleadings without offering proof as to the truth of hie own
allegations, and without giving the opposing party an opportunity to introduce evidence, must
be understood to admit the truth of all the material and relevant allegations of the opposing
party, and to rest his motion for judgment on those allegations taken together with such of his
own as are admitted in the pleading. (La Yebana Company v. Sevilla, 9 Phil. 210)." (Emphasis
supplied.).
This view was reiterated in Evangelista V. De la Rosa 4 and Mercys Incorporated v. Herminia
Verde. 5
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 6 from
jgc:chanrobles.com .ph

quoted on the margin. 1 Hence, plaintiff maintains that the promise contained in the contract is
"reciprocally demandable," pursuant to the first paragraph of said Article 1479. Although "The main contention of appellant is that the option granted to appellee to sell to it barge No.
defendant had really "agreed, promised and committed" herself to sell the land to the plaintiff, it 10 for the sum of P30,000 under the terms stated above has no legal effect because it is not
is not true that the latter had, in turn, "agreed and committed himself" to buy said property supported by any consideration and in support thereof it invokes article 1479 of the new Civil
Said Annex A does not bear out plaintiffs allegation to this effect. What is more, since Annex A Code, The article provides:.
has bean made "an integral part" of his complaint, the provisions of said instrument form part
"and parcel" 2 of said pleading. ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
The option did not impose upon plaintiff the obligation to purchase defendants property. Annex
A is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy. And both An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding
parties so understood it, as indicated by the caption, "Option to Purchase," given by them to upon the promisor if the promise is supported by a consideration distinct from the price.
said instrument. Under the provisions thereof, the defendant "agreed, promised and committed"
herself to sell the land therein described to the plaintiff for P1,510.00, but there is nothing in "On the other hand, appellee contends that, even granting that the offer of option is not
the contract to indicate that her aforementioned agreement, promise and undertaking is supported by any consideration, that option became binding on appellant when the appellee
supported by a consideration "distinct from the price" stipulated for the sale of the land. gave notice to it of its acceptance, and that having accepted it within the period of option, the
offer can no longer be withdrawn and in any event such withdrawal is ineffective. In support of
Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said this contention, appellee invokes article 1324 of the Civil Code which provides: chanrob1es virtual 1aw library

consideration, and this would seem to be the main factor that influenced its decision in plaintiffs
favor. It should be noted, however, that: ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may
chanrob1es virtual 1aw library

be withdrawn at any time before acceptance by communicating such withdrawal, except when
(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 the option is founded upon consideration, as something paid or promised.
refers to "sales" in particular, and, more specifically, to "an accepted unilateral promise to buy
or to sell." In other words, Article 1479 is controlling in the case at bar. "There is no question that under article 1479 of the new Civil Code an option to sell, or a
promise to buy or to sell, as used in said article, to be valid must be supported by a
(2) In order that said unilateral promise may be "binding" upon the promisor, Article 1479 consideration distinct from the price. This is clearly inferred from the context of said article that
requires the concurrence of a condition, namely, that the promise be "supported by a a unilateral promise to buy or to sell, even if accepted, is only binding if supported by a
consideration distinct from the price." Accordingly, the promisee can not compel the promisor to consideration. In other words, an accepted unilateral promise can only have a binding effect if
comply with the promise, unless the former establishes the existence of said distinct supported by a consideration, which means that the option can still be withdrawn, even if
consideration. In other words, the promisee has the burden of proving such consideration. accepted, if the same is not supported by any consideration. Here it is not disputed that the
Plaintiff herein has not even alleged the existence thereof in his complaint. option is without consideration. It can therefore be withdrawn notwithstanding the acceptance
made of it by appellee.
(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special
defense, the absence of said consideration for her promise to sell and, by joining in the petition "It is true that under article 1324 of the new Civil Code, the general rule regarding offer and
for a judgment on the pleadings, plaintiff has impliedly admitted the truth of said averment in acceptance is that, when the offerer gives to the offeree a certain period to accept, the offer
defendants answer. Indeed, as early as March 14, 1908, it had been held, in Bauermann v. may be withdrawn at any time before acceptance except when the option is founded upon
Casas, 3 that: jgc:chanrobles.com .ph consideration, but this general rule must be interpreted as modified by the provision of article
1479 above referred to, which applies to a promise to buy and sell specifically. As already accepted, results in a perfected contract of sale.
stated, this rule requires that a promise to sell to be valid must be supported by a consideration
distinct from the price. This view has the advantage of avoiding a conflict between Articles 1324 on the general
principles on contracts and 1479 on sales of the Civil Code, in line with the cardinal rule
"We are net oblivious of the existence of American authorities which hold that an offer, once of statutory construction that, in construing different provisions of one and the same law or
accepted, cannot be withdrawn, regardless of whether it is supported or not by a consideration code, such interpretation should be favored as will reconcile or harmonize said provisions and
(12 Am. Jur. 528). These authorities, we note, uphold the general rule applicable to offer and avoid a conflict between the same. Indeed, the presumption is that, in the process of drafting
acceptance as contained in our new Civil Code. But we are prevented from applying them in the Code, its author has maintained a consistent philosophy or position. Moreover, the decision
view of the specific provision embodied in article 1479. While under the offer of option in in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & pacific Co., 10 holding that Art. 1324 is
question appellant has assumed a clear obligation to sell its barge to appellee and the option modified by Art. 1479 of the Civil Code, in effect, considers the latter as an exception to the
has been exercised in accordance with its terms, and there appears to be no valid or justifiable former, and exceptions are not favored, unless the intention to the contrary is clear, and it is not
reason for appellant to withdraw its offer, this Court cannot adopt a different attitude because so, insofar as said two (2) articles are concerned. What is more, the reference, in both the
the law on the matter is clear. Our imperative duty is to apply it unless modified by Congress." second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or founded
7 upon a consideration, strongly suggests that the two (2) provisions intended to enforce or
implement the same principle.
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, 8 decided
later than Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 9 saw no distinction Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby
between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar all inconsistent
promise to sell similar to the one sued upon here was involved, treating such promise as an therewith, the view adhered to in the South western Sugar & Molasses Co. case should be
option which, although not binding as a contract in itself for lack of a separate consideration, deemed abandoned or modified.
nevertheless generated a bilateral contract of purchase and sale upon acceptance. Speaking
through Associate Justice, later Chief Justice, Cesar Bengzon, this Court said: WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-
jgc:chanroble s.com.ph

appellant Severina Rigos. It is so ordered.

"Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree
should decide to exercise his option within the specified time. After accepting the promise and Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo and Makasiar, JJ., concur.
before he exercises his option, the holder of the option is not bound to buy. He is free either to
buy or not to buy later. In this case however, upon accepting herein petitioners offer a bilateral Castro, J., did not take part.
promise to sell and to buy ensued, and the respondent ipso facto assumed the obligation of a
purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere Separate Opinions
option then; it was bilateral contract of sale.

"Lastly, even supposing that Exh. A granted an option which is not binding for lack of
consideration, the authorities hold that. ANTONIO, J., concurring: chanrob1es virtual 1aw library

If the option is given without a consideration, it is a mere offer of a contract of sale, which is I concur in the opinion of the Chief Justice.
not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a
binding contract of sale, even though the option was not supported by a sufficient consideration. I fully agree with the abandonment of the view previously adhered to in Southwestern Sugar &
. . . (77 Corpus Juris Secundum p. 652. See also 27 Ruling Case Law 339 and cases cited.) Molasses Co. v. Atlantic Gulf and Pacific Co. 1 which holds that an option to sell can still be
withdrawn, even if accepted, if the same is not supported by any consideration, and the
It can be taken for granted, as contended by the defendant, that the option contract was not reaffirmance of the doctrine in Atkins, Kroll & Co., Inc. v. Cua Hian Tek, 2 holding that "an
valid for lack of consideration. But it was, at least, an offer to sell, which was accepted by latter, option implies . . . the legal obligation to keep the offer (to sell) open for the time specified;"
and of the acceptance the offerer had knowledge before said offer was withdrawn. The that it could be withdrawn before acceptance, if there was no consideration for the option, but
concurrence of both acts the offer and the acceptance could at all events have generated a once the "offer to sell" is accepted, a bilateral promise to sell and to buy ensues, and the offeree
contract, if none there was before (arts. 1254 and 1262 of the Civil Code). (Zayco v. Serra, 44 ipso facto assumes the obligations of a purchaser In other words, if the option is given without a
Phil. 331.)" consideration, it is a mere offer to sell, which is not binding until accepted. If, however,
acceptance is made before a withdrawal, it constitutes a binding contract of sale. The
In other words, since there may be no valid contract without a cause or consideration, the concurrence of both acts the offer and the acceptance could in such event generate a
promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its contract.
withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if
While the law permits the offeror to withdraw the offer at any time before acceptance even Camus & Delgado, for Plaintiff-Appellant.
before the period has expired, some writers hold the view, that the offeror can not exercise this
right in an arbitrary or capricious manner. This is upon the principle that an offer implies an Crossfield & OBrien, for Defendant-Appellant.
obligation on the part of the offeror to maintain it for such length of time as to permit the
offeree to decide whether to accept or not, and therefore cannot arbitrarily revoke the offer Hartigan & Welch for Intervenor-Appellee.
without being liable for damages which the offeree may suffer. A contrary view would remove
the stability and security of business transactions. 3 SYLLABUS

In the present case the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the 1. CONTRACTS; PURCHASE AND SALE; OFFER TO PURCHASE; INTERPRETATION. The
sum of P1,510.00 before any withdrawal from the contract has been made by the Defendant expression "I am in position to entertain the purchase of the vessel upon the following
(Severina Rigos)." Since Rigos offer to sell was accepted by Sanchez, before she could terms . . ." does not mean a definite offer to purchase, but merely the idea that a proposition
withdraw her offer, a bilateral reciprocal contract to sell and to buy was generated. be made to him which he would accept or reject according to the result of his deliberation.

2. ID.; ID.; ID.; INTENTION. The question whether or not an expression is a definite offer to
purchase or merely an invitation to a proposition being made to him, is one of intention of the
person using said expression, which is to be determined by the circumstances surrounding the
case.

DECISION

AVANCEA, J. :

The defendant Edwin Burke owned a motor yacht, known as Bronzewing, which he acquired in
Australia in the year 1920 for the purpose of selling it here. This yacht was purely for recreation
and as no purchaser presented himself, it had been moored for several months until the plaintiff
H. W. Elser, at the beginning of the year 1922, began negotiations with the defendant for the
purchase thereof. At that time this yacht was mortgaged to the Asia Banking Corporation to
secure the payment of a debt of P100,000 which was due and unpaid since one year prior
thereto, contracted by the defendant in favor of said bank of which Mr. Avery was then the
manager. The plan of the plaintiff was to organize a yacht club and sell it afterwards the yacht
for P120,000 of which P20,000 was to P100,000 to be paid to the defendant. To this end, on
February 12, 1922, the defendant obtained from the plaintiff an option in writing in the following
SECOND DIVISION terms:jgc:chanrobles.com .ph

[G.R. No. L-20732. September 26, 1924. ] "For the purpose expressed by you of organizing a yacht club, I take pleasure in confirming my
verbal offer to you of the motor yacht Bronzewing, at a price of one hundred and twenty
C. W. ROSENSTOCK, as administrator of the estate of H. W. Elser, Plaintiff-Appellant, thousand pesos (120,00). This offer is open for thirty days from date." cralaw virtua1aw library

v. EDWIN BURKE, Defendant-Appellant. THE COOPER COMPANY, Intervenor-Appellee.

To carry out his plan, the plaintiff proposed to the defendant to make a voyage on board the
yacht to the south, with prominent business men for the purpose, undoubtedly, of making an "Proposition Accepted.
advertisement of the vessel and paving the way to an advantageous sale. But as the yacht
needed some repairs to make it seaworthy for this voyage, and as, on the other hand, the (Sgd.) "E. BURKE
defendant said that he had no funds to make said repairs, the plaintiff paid almost all their
amount. It has been stipulated that the plaintiff was not to pay anything for the use of the "MANILA, April 3, 1922.
yacht. The cost of those repairs was P6,972.21, which was already paid by the plaintiff, plus
P1,730.84 due to the Cooper Company which still remains unpaid, P832.93, due to the plaintiff, "ASIA BKG. CORP.
which also remains unpaid. Once the yacht was repaired, the plaintiff gage receptions on board,
and on March 6, 1922, made his pleasure voyage to the south, coming back on the 23d of the "Agreed to as above.
same month. The plaintiff never accepted the offer of the defendant for the purchase of the
yacht contained in the letter of option of February 12, 1922. The plaintiff believed, in view of the (Sgd.) "W. G. AVERY
result of that voyage, that it was convenient to replace the engine of the yacht with a new one
which would cost P20,000. In this connection the plaintiff had negotiated with Mr. Avery for "Mgr.
another loan of P20,000 with which to purchase this new engine. On the 31st of that month of
March the plaintiff wrote the defendant a letter informing him, among other things, that after he "Asia Bkg. Corp." cralaw virtua1aw library

had tried to obtain from Mr. Avery said new loan of P20,000 for the purchase of the engine, and
that he was not disposed to purchase the vessel for more than P70,000, Mr. Avery had told him The defendant took this letter and went to the Asia Banking Corporation and after holding an
that he was not in position to give one cent more. In this letter the plaintiff suggested to the interview with Mr. Avery, both of them signed at the bottom of the letter of Mr. Elser, as appears
defendant that he should speak with Mr. Avery about the matter. The defendant, after an there. On the 5th of the same month of April the plaintiff sent the defendant another letter,
interview with Mr. Avery held on the same day, answered the plaintiff that he had arrived at an telling him that in view of the attitude of Mr. Avery as to the loan of P20,000 in connection with
agreement with Mr. Avery about the sale of the yacht to the plaintiff for P80,000 payable as the installation of a new engine in the yacht, it was impossible for him to take charge of the
follows: P5,000 each month during the first six months and P10,000 thereafter until full boat and he made delivery thereof to the defendant. On the 8th of the same month of April the
payment of the price, the yacht to be mortgaged to secure payment thereof. On the first of April defendant answered the plaintiff that as he had accepted, with the consent of the Asia Banking
next, the plaintiff informed the defendant that he was not inclined to accept this proposition. On Corporation, through Mr. Avery, the offer for the purchase of the yacht made by the plaintiff in
the morning of the 3d of the same month, the defendant called at the office of the plaintiff to his letter of the 3d of April (Exhibit 1), he made demand on him for the performance thereof.
speak with him about the matter and as a result of the interview held between them the plaintiff
in the presence of the defendant wrote a letter addressed to the latter which is literally as The plaintiff brings this action against the defendant to recover the sum of P6,139.28, the value
follows:jgc:chanroble s.com.ph of the repairs made on the yacht which he had paid for.

"MY DEAR MR. BURKE: jgc:chanrobles.com .ph The defendant alleges as a defense against this action that the agreement he had had with the
plaintiff about these repairs was that the latter was to pay for them for his own account in
"In connection with the yacht Bronzewing, I am in position and am willing to entertain the exchange of the gratuitous use of the yacht, and prays that he be absolved from the complaint.
purchase of it under the following terms: jgc:chanrobles.com .ph As a counterclaim he prays that the plaintiff be compelled to pay him the sum of P832.93, one-
half of the price of the canvas used in the repair of the yacht, which has not as yet been paid by
"(a) The purchase price to be P80,000, Philippine currency. the plaintiff. Furthermore, alleging that the plaintiff purchased the vessel in accordance with his
letter of April 3, 1922, he prays as a cross-complaint that the plaintiff be compelled to comply
"(b) Initial payment of P10,000 to be made within sixty (60) days. with the terms of this contract and to pay damages in the sum of P10,000.

"(c) Payment of the balance to be made in installments of P5,000 per month, with interest on The Cooper Company was admitted to intervene in this action and claims in turn its credit of
deferred payments at 9 per cent payable semiannually. P1,730.84 for the repairs made on the yacht, the amount of which has not as yet been paid.

"(d) As security for the above, I am to deposit with you P80,000, in stock of the J. K. Pickering The trial court rendered judgment sentencing the defendant to pay the plaintiff the sum of
Co., commercial value P400,000, book value P600,000. Statement covering this will be P6,139.28 with legal interest thereon at the rate of 6 per cent from April 18, 1922, and to pay
furnished you on request. the intervenor, the Cooper Company, the sum of P1,730.84 with legal interest at 6 per cent from
May 19, 1922. The plaintiff was sentenced to comply in all its parts with the contract for the
"Yours very truly, purchase of the yacht, according to the terms of his letter of April 3d (Exhibit 1). Both the
plaintiff and the defendant appealed from this judgment.
(Sgd.) "H. W. ELSER
The plaintiff appeals from the judgment in so far as it compels him to purchase the yacht upon
the conditions stated in the letter of April 3, 1922 (Exhibit 1). This appeal raises the question
whether or not this letter was a definite offer to purchase, and the same having been accepted But above all, there is in the record positive proof that in writing this letter of the 3d of April the
by the defendant with the consent of Mr. Avery on behalf of the Asia Banking Corporation, plaintiff had no intention to make thereby a definite offer. This letter was written by his
whether or not it is a contract of sale valid and binding against the plaintiff. The trial court stenographer Mr. Parkins in his office and in the presence of the defendant who has been there
solved this question in the affirmative. We are of the opinion that this is an error. precisely for the purpose of speaking about this purchase. According to the plaintiff when he
was dictating that part wherein he said that he was in position to entertain the purchase of the
As we seen, this letter begins as follows: "In connection with the yacht Bronzewing, I am in yacht, the defendant interrupted him and suggested the elimination of the word entertain and
position and am willing to entertain the purchase of it under the following terms . . ." The whole the substitution therefore of a definite offer, but after a discussion between them during which
question is reduced to determining what the intention of the plaintiff was in using that the plaintiff clearly said that he was not in position to make a definite offer, the word entertain
language. now appearing in the letter was preserved. The stenographer Mr. Parkins and another employee
of the plaintiff Mr. Guzman, who were present, corroborate this statement of the plaintiff.
To convey the idea of a resolution to pursue, a man of ordinary intelligence and common culture
would use these clear and simple words, I offer to purchase, I want to purchase, I am in The lower court seems to have been impressed by the consideration that it was anomalous for
position to purchase. And the stronger is the reason why the plaintiff should have expressed his the plaintiff to write that letter if his purpose was only to indicate to the defendant that he
intention in the same way, because, according to the defendant, he was a prosperous and wanted the latter to make a proposal which he (plaintiff) might reject or accept. We see nothing
progressive merchant. It must be presumed that a man in his transactions in good faith uses anomalous in this. A proposition may be acceptable in itself, but its acceptance may depend on
the best means of expressing his mind that his intelligence and culture permit so as to convey other circumstances; thus one may say that a determinate proposition is acceptable, and yet he
and exteriorize his will faithfully and unequivocally. But the plaintiff instead of using in his letter may not be in a position to accept the same at the moment.
the expression I want to purchase, I offer to purchase, I am in position to purchase, or other
similar language of easy and unequivocal meaning, used this other, I am in position and am The letter of the plaintiff not containing a definite offer but a mere invitation to an offer being
willing to entertain the purchase of the yacht. The word "entertain" applied to an act does not made to him, the acceptance of the defendant placed at the bottom of this letter has no other
mean the resolution to perform said, act, but simply a position to deliberate for deciding to meaning than that of accepting the proposition to make this offer, as must have been
perform or not to perform said act. Taking into account only the literal and technical meaning of understood by the plaintiff.
the word "entertain," it seems to us clear that the letter of the plaintiff cannot be interpreted as
a definite offer to purchase the yacht, but simply a position to deliberate whether or not he The appeal of the defendant raises the question as to who must pay the repairs made on the
would purchase the yacht. It was but a mere invitation to a proposal being made to him, which yacht. The lower court decided that it is the defendant. We are of the opinion that this is also an
might be accepted by him or not. error. The plaintiff was the one who directly and personally ordered these repairs. It was agreed
between the plaintiff and the defendant that the former was not to pay anything for the use of
Furthermore there are other circumstances which show that in writing this letter it was really the yacht. This, at the first glance, would make us believe that it was the plaintiff who was to
not the intention of the plaintiff to make a definite offer. The plaintiff never thought of acquiring pay for the repairs in exchange for the use of the yacht in order that the profit should be
the yacht for his personal use, but for the purpose of selling it to another or to acquire it for reciprocal. But the plaintiff claims that his agreement was that the defendant was at last the
another, thereby obtaining some gain from the transaction, and it can be said that the only one to pay therefor. The defendant, in turn, claims that the agreement was that the plaintiff was
thing the plaintiff wanted in connection with this yacht was that the defendant should procure to pay for these repairs in exchange for the use of the yacht. Upon this contention there is, on
its sale, naturally with some profit for himself. For this reason the original idea of the plaintiff the one hand, but the testimony of the plaintiff and, on the other, the testimony of the
was to organize a yacht club that would afterwards acquire the yacht through him, realizing defendant. But it having been the plaintiff who ordered and made these repairs, and in view of
some gain from the sale. This is clearly stated in the letter containing the option that the the fact that he was not obliged to pay anything for the use of the yacht, his mere testimony
defendant gave him on February 12, 1922. This accounts for the fact that the plaintiff was not contradicted by that of the defendant, cannot be considered as a sufficient evidence to
in a position to make a definite offer to purchase, he being sure to be able to resell the yacht to established the latters obligation. Furthermore according to the defendant, nothing was agreed
another, and this explains why he did not say in his letter of the 3d of April that he was in upon about the kind of the repairs to be made on the yacht and there was no limit to said
position to purchase the yacht, but only to entertain this purchase. repairs. It seems strange that the defendant should accept liability for the amount of these
repairs, leaving their extent entirely to the discretion of the plaintiff. and this discretion,
On the other hand, the plaintiff thought it necessary to replace the engine of the yacht with a according to the contention of the plaintiff, includes even that of determining what repairs must
new one which was to cost P20,000 and has been negotiating with Mr. Avery a loan of P20,000 be paid by the defendant, as evidenced by the fact that the plaintiff has not claimed the amount
to make the replacing. When the plaintiff wrote his letter of the 3d of April, he knew that Mr. of any, such as the wireless telegraph that was installed in the yacht, and yet he claims as a
Avery was not in position to grant this loan. According to this, the resolution of the plaintiff to part thereof the salaries of the officers and the crew which do not represent any improvement
acquire the yacht depended upon him being able to replace the engine, and this, in turn, on the vessel.
depended upon the plaintiff being successful in obtaining the P20,000 that the new engine was
to cost. This accounts also for the fact that the plaintiff was not in position to make a definite Our conclusion is that the letter of the plaintiff of April 3, 1922, was not a definite offer and that
offer. the plaintiff is bound to pay the amount of the repairs of the yacht in exchange for the use
thereof.
On receipt of this letter, and upon the same day, Burke had an interview with Avery, and on
For all of the foregoing the judgment appealed from is reversed, the defendant is absolved from March 31, 1922, wrote Mr. Elser the following letter: jgc:chanrobles.com .ph

the complaint, the plaintiff is sentenced to pay to the cooper Company the sum of P1,730.84
with interest and to the defendant the sum of P832.93, and the plaintiff is declared to be under "I had a long talk this morning with Mr. Avery in regard to the Bronzewing. At first he was not
no obligation to purchase the yacht upon the terms of his letter of April 3, 1922, without special inclined to discuss the matter but after a while he decided that he would accept the proposition
pronouncement as to costs. So ordered. relative to the disposal of the boat and has agreed on the following terms: jgc:chanrobles.com .ph

Malcolm, Villamor, and Ostrand, JJ., concur. "He will turn the boat over to you for P80,000, taking the mortgage on the same and you on
your part will agree to pay P5,000 a month for the first six months and P10,000 a month until
Johnson, J., dissents. the balance is paid. This is absolutely the best he can do. I on my part am agreeable to accept
this proposition and if you feel the same please advise me at once." cralaw virtua1aw library

Street, J., did not sign.

In answer to which, and on April 1, Elser wrote a letter to Burke, the material portion of which
Separate Opinions is as follows:
jgc:chanroble s.com.ph

"With reference to your letter of March 31, I do not feel that I am in a position right now to
accept the proposition of Mr. Avery, of paying him five thousand pesos monthly for the first six
JOHNS, J., with whom concurs ROMUALDEZ, J., concurring and dissenting: chanrob1es virtual 1aw library months and ten thousand a month until balance is paid." cralaw virtua1aw library

I have read with much interest the opinion of Mr. Justice Avancea, and in so far as the facts April 3, Burke went to Elsers office and obtained from him the letter, known in the record as
are stated they are correctly stated. In my opinion many important and material facts are not Exhibit 1, which is as follows: jgc:chanrobles.com .ph

stated.
"In connection with the yacht Bronzewing, I am in position and am willing to entertain the
The storm center in this case is the legal construction to be placed upon Exhibit 1. To arrive at a purchase of it under the following terms: jgc:chanrobles.com .ph

correct conclusion, it is necessary and important to analyze the preceding and subsequent
letters which passed between the parties. The first is a letter from Mr. Burke written on February "(a) The purchase price to be P80,000, Philippine currency.
12, 1922, known as Exhibit D, to the effect that for the purpose of organizing a yacht club, he
placed a price on the yacht of P120,000, which was open for thirty days, P20,000 of which was "(b) Initial payment of P10,000 to be made within sixty (60) days.
to go to Mr. Elser as a commission for making the sale.
"(c) Payment of the balance to be made in installments of P5,000 per month, with interest on
The testimony is conclusive that at the time the proposition was made, Mr. Burke told Mr. Elser deferred payments at 9 per cent, semi-annually.
that he had no faith that such a deal would ever be made, and that later it was abandoned.
"(d) As security for the above, I am to deposit with you P80,000, in stock of the J. K. Pickering
On March 31, after his return from the southern islands trip, and after a conference with Avery, Co., commercial value P400,000, book value P600,000. Statement covering this will be
Elser wrote Burke a letter, known as Exhibit B, in which he said:jgc:chanroble s.com.ph furnished you on request." cralaw virtua1aw library

"I explained to him that I would take over the boat with your consent and be responsible to him Upon receipt of this letter, Burke went direct from Elsers office to Averys office, and obtained
for the payment for these engines as well as the other obligations to the bank. However, I told from Avery the written consent of the bank to sell the yacht under the terms and conditions
him I wasnt disposed to pay more than P70,000 for the boat as she now stands. proposed by Elser, and then unconditionally accepted the offer, and on the same day notified
Elser of the consent and acceptance. The acceptance and agreement was made in writing on the
"After my talk with him in regard to the matter, he advised me that he wasnt disposed to bottom of the same sheet of Elsers letter and are as follows: jgc:chanroble s.com.ph

advance another cent, and refused to advise me as what his attitude is towards the P100,000
which you now owe him on the boat, stating that he would settle the matter with you." "Proposition Accepted. cralaw virtua1aw library

From this it clearly appears that Elser was then willing to pay Burke P70,000 for the yacht, and (Sgd.) "E. BURKE
that the only thing which prevented the making of the deal at that time was the price, and the
further fact that the bank was not willing to release its mortgage for P100,000, which it held on "MANILA, April 3, 1992.
the yacht.
"ASIA BKG. CORP. Avery, Burke wrote Elser to the effect that they would sell the boat to him for P80,000, and take
a mortgage upon it for the purchase price to be paid at the rate of P5,000 a month for the first
"Agreed to as above. six months, and P10,000 a month until the balance is paid. From this it appears that Burke and
the bank were not willing to accept Elsers proposition to sell the boat for P70,000, but that they
(Sgd.) "W. G. AVERY were ready and willing to sell it for P80,000 upon the terms and conditions stated. In answer to
that, Elser wrote Burke as follows: jgc:chanroble s.com.ph

"Mgr.
"I do not feel that I am in a position right now to accept the proposition of Mr. Avery, of paying
"Asia Bkg. Corp." cralaw virtua1aw library him five thousand pesos monthly for the first six months and ten thousand a month until
balance is paid."cralaw virtua1aw library

With such endorsements and in this form, the letter was returned to Elsers office on the day it
was received. From this letter it will be noted that Elser did not object to the price of P80,000, and that his
only objection was to the terms of payment of P5,000 monthly for the first six months, and
April 5, two days later, Elser wrote Burke a letter, the material provisions of which are as P10,000 a month until the balance is paid.
follows:jgc:chanroble s.com.ph

"I have decided, because of the attitude of Mr. Avery regarding the advancement to me of
P20,000 to install new engines and put the boat in first class condition, that it is impossible for
me to assume the liability of the yacht Bronzewing."
But nowhere in this letter does Elser claim or assert that his letter of April 3 above quoted,
known in the record as Exhibit 1, was not an offer to purchase the yacht, or that it was not
intended as an offer.
Analyzing the combined letters, we are clearly of the opinion that the letter of April 3 should be
construed as an offer to purchase, an that when it was accepted and agreed to by both Burke
and the bank, it then became and is now a valid and binding contract to purchase.
Elser and Burke were not children. They were both men of affairs and experience in business.
They were not fooling or flirting with one another. Neither were they playing marbles, but as
businessmen, they were dealing with a business proposition which involved P80,000.
In this connection, Burke testified:
The letters above quoted resulted in the conference between Burke and Elser in Elsers office in
which Elser personally dictated and signed Exhibit 1, in which the price is P80,000, P10,000 of
which is to be paid within sixty days, and the balance in installments of P5,000 per month, with
cralaw virtua1aw library interest, and, as security, Elser was to deposit P80,000 in stock of the J. K. Pickering Company.
From which it will be noted that the only real difference between Burkes proposition to Elser,
and Elsers proposition to Burke is in the terms and conditions of payment, and the fact that, as
security, Elser was to pledge stock in the Pickering Company, as collateral, in lieu of the
mortgage on the yacht. Both propositions were specific, definite and certain as to time, terms
and conditions of payment, and the price to be paid.
When you take into consideration the previous negotiations between the parties, and the
purpose and intent with which Exhibit 1 was written, and Elsers letter of April 6. Exhibit 1 must
be construed as an offer to purchase the yacht upon the terms and conditions therein specified.
Suppose the conditions were the reverse, and after the offer had been made and accepted,
Elser made a tender of performance, and that Burke and Avery refused to perform, would any
member of this court claim that both Burke and Avery are not bound by the acceptance, or that
either of them could refuse to carry out the contract? Suppose Elser had offered to perform and
jgc:chanrobles.com .ph

complete the purchase, and Burke had refused to complete the sale, would any member of this
"I called on Mr. Elser personally in his office and asked him to make a proposition in writing that court claim that Elser could not enforce the specific performance of the contract? If it is legally
he would be agreeable to, and that I could take to Mr. Avery, and if he accepted would binding upon Avery and Burke, then by the same token and for the same reason, the contract of
terminate the whole transaction." purchase is legally binding upon Elser.
cralaw virtua1aw library

It is very significant that this testimony is not denied, and that it stands as an admitted fact in The acceptance was written on the offer and delivered to Elser on April 3. All of them were
the record. residents of Manila and had their respective offices in the city, and it is fair to telephone.

Analyzing the letters above quoted, on March 31, speaking about a conference with Avery, Elser Applying the rule of everyday business dealings between businessmen, what would the ordinary
says to Burke: jgc:chanroble s.com.ph businessman do under the same conditions? Here, the parties had been negotiating some little
time for the purchase and sale of the yacht. To find out whether they could finally get together,
"However, I told him I wasnt disposed to pay more than P70,000 for the boat as she now Burke went to Elsers office and asked him to make him a written proposition "that he would be
stands." cralaw virtua1aw library agreeable to," and that he would then submit it to Avery, "and if he accepted would terminate
the whole transaction." With that end in view, and for that purpose, Elser wrote the letter in
This can only be construed as an admission by Elser that he was then ready and willing to pay question.
"P70,000 for the boat as she now stands." In response to that letter and after a conference with
It is very apparent that Burke understood it that way because upon receipt of the letter, he went effect? As a witness Elser testified: jgc:chanrobles.com .ph

direct to see Avery and after some discussion between them, Avery agreed to the proposition,
and Burke accepted it, and returned the letter to Elsers office the day it was written. Upon "Q. And at Mr. Burkes request you wrote this letter Exhibit 1? A. Yes." cralaw virtua1aw library

seeing the letter, with the acceptance of Mr. Burke and the conforme of Mr. Avery, what would
the ordinary businessman have done, knowing that they treated it as a valid binding contract? Why was it written? Why was it signed by Elser? Why did Avery give his conforme? Why was it
Would he have remained silent for two whole days? When he received and read the returned approved by Burke? And why was it returned on the same day to Elser? Why did he remain
letter, he knew how Burke and Avery construed the transaction, and what they understood it to silent for two days after the receipt of the returned letter? And why, two days later when he did
be. Yet, having that knowledge, he did not call either of them by phone and say that, I did not answer, he never said that he did not intend that the letter should be a final proposition? And
intend to make you a final proposition to purchase, and two days later notified them by letter why did he base his refusal to carry out the contract upon the sole ground of the attitude of
that he did not then want to purchase the yacht on account of the attitude of Avery. Business is Avery, and not for any other reason?
not done between businessmen in that way. If, upon the receipt of the returned letter, Elser had
called either of them by phone, and said in effect that he never intended to make a final Under Elsers contention, and as sustained by Mr. Justice Avancea opinion, all of the previous
proposition to purchase, another and a different question would have been presented, and his negotiations did not mean anything. The letter was a blank piece of paper which Elser gave to
position would be tenable, and it would have been far more forcible, if he had said that in Burke to deceive and mislead him, and yet he knew that Burke took and received it in good
substance in the letter which he wrote two days later. faith as a proposition, which Elser was ready and willing to carrying out in the event that it
received the conforme of Avery and was approved by Burke. That is a strained and unnatural
In the final analysis, Elser said in his letter of March 31 that he was not "disposed to pay more construction, and imputes to Elser bad faith and a deceptive motive in the writing and the giving
than P70,000 for the boat as she now stands." That was after the conference which he had with of the letter to Burke. Avery and Burke had made their proposition to which Elser had declined
Avery. Burke then had a conference with Avery in which they agreed upon and submitted the to agree. Then, as a result of a personal conference, Elser made his proposition to Avery and
following terms to Elser: jgc:chanroble s.com.ph Burke in which the price, terms of payment and the security to be given for the sale and
purchase of the yacht were all specified, and his proposition was by them accepted and
"He will turn the boat over to you for P80,000, taking the mortgage on the same and you on approved and returned to Elser the day it was received. Everything was in writing and signed by
your part will agree to pay P5,000 a month for the first six months and P10,000 a month until the respective parties in interest. Why is that not a valid and binding contract What more is
the balance is paid." cralaw virtua1aw library required? When Elsers own proposition was accepted and approved and delivered to him, the
minds of the parties had met, and they had mutually agreed in writing upon the price of the
In other words, Burke and Avery made a proposition to Elser that they were ready and willing to yacht, terms of payment and the security to be given.
sell the yacht for P80,000 upon those terms and conditions. In answer to that, Elser said: jgc:chanrobles.com .ph

There was a completed contract by which Elser proposed to purchase the yacht and Burke and
"I do not feel that I am in a position right now to accept the proposition of Mr. Avery, of paying Avery agreed to sell upon the terms and conditions specified in Elsers proposition. The yacht
him five thousand pesos monthly for the first six months and then thousand a month until was then in Elsers possession, and nothing remained to be done, except the payment of the
balance is paid."
cralaw virtua1aw library purchase price by Elser.

In other words, Elser apparently was satisfied with the price, but objected only to the terms and The record is conclusive that Elser remained silent for two whole days when he wrote Burke that
conditions of payment. This resulted in the final conference between Elser and Burke in which because of the attitude of Mr. Avery regarding the advance to him of P20,000, "that he would
Elser made a proposition, specifying the terms and conditions upon which he was "willing to not assume liability" or make the purchase. In other words, after a lapse of two days, and
entertain the purchase" of the yacht, and Burke and Avery accepted his proposition in and by because of the attitude of Avery, and for no other or different reason, Elser declined to make
which their proposition was modified only as to the terms and conditions of payment. No change the purchase. It will be noted that Exhibit 1 is unconditional, and that the proposition is not
was made in the price, and the only difference as to the payments was that in the Burke and made contingent on the attitude of Avery or anything else, and that it expressly says: jgc:chanroble s.com.ph

Avery proposition, Elser was to pay P5,000 a month for the first six months, and P10,000 a
month until the balance is paid, and in Elsers proposition, he was to make an initial payment of "I am in position and am willing to entertain the purchase of it (the yacht) under the following
P10,000 within sixty days, and the payment of the balance was to be made in installments of terms." cralaw virtua1aw library

P5,000 per month, with interest.

In his letter of April 1, he says: jgc:chanroble s.com.ph

When Elser gave the letter to Burke, he knew that Burke would submit it to Avery, and he knew
that if Avery gave his conforme, it would be accepted by Burke. Otherwise, why was the letter "I do not feel that I am in a position right now to accept the proposition of Mr. Avery." cralaw virtua1aw library

given to Burke? Why was it submitted to Avery?

In his letter of April 3, he says: jgc:chanroble s.com.ph

In the light of preceding events, can this court assume that Elser intended to mislead and
deceive Burke and to give him a blank piece of paper which would not have any legal force or "I am in position and am to entertain the purchase, etc." cralaw virtua1aw library
 Corpus Juris, vol. 13, page 263, says: jgc:chanroble s.com.ph

In one letter he says in legal effect that "I am not in position to accept the proposition of Mr.
Avery," and two days later, he says: "I am in position." The use of the words "I am not in "(SEC. 48) 2. Common intention (a) In general. In order that there may be an agreement,
position" on April 1, and the use of the words "I am in position" two days later are, indeed; very the parties must have a distinct intention common to both and without doubt or difference. Until
significant. Yet, in the face of those letters, on April 6, he declined to make the purchase solely all understand alike, there can be no assent, and, therefore, no contract. Both parties must
on account of the attitude of Avery, and for no other or different reason. assent to the same thing in the same sense, and their minds must meet as to all the
terms. . . ." cralaw virtua1aw library

The proof brings the case squarely within the provisions of Article 1254 of the Civil Code, which
says:jgc:chanroble s.com.ph Page 226

"A contract exists from the moment one or more persons consent to be bound with respect to "(SEC. 53) 2. Offer (a) Definition. An offer, as the term is used in the law of contracts, is a
another or others to deliver something or to render some service." cralaw virtua1aw library proposal to enter into a contract." cralaw virtua1aw library

Cyc., vol. 9, page 244, says: jgc:chanrobles.com .ph Page 271

"E. Agreement defined. Agreement is the expression by two or more persons of a common "(SEC. 61) (d) Terms of offer (1) In general. One who makes an offer to enter into a
intention to affect their legal relations; it consists in their being of the same mind and intention contract may do so on any terms that he may see fit to make, as long as they are not illegal;
concerning the matter agreed upon." and if the offer is accepted, such terms are binding on both parties. If the terms are expressed
cralaw virtua1aw library

and are legal, the only difficulty is in ascertaining the intention of the parties." cralaw virtua1aw library

Page 247
Page 277
"2. Offer (a) Definition. An offer, as the term is used in the law of contracts, is a proposal
to enter into a contract." cralaw virtua1aw library "(SEC. 76) (6) Acceptance by accepting paper containing terms (a) In general. A contract
may be formed by accepting a paper containing terms. If an offer is made by delivering to
Page 252 another a paper containing the terms of a proposed contract, and the paper is accepted, the
acceptor is bound by its terms; and this is true as a rule whether he reads the paper or
"(d) Terms of offer (I) In general. One who makes an offer to enter it a contract may do so not. . . ." cralaw virtua1aw library

of course upon any terms he may see fit, so long as they are not illegal, and if the offer is
accepted they are binding on both parties. if the terms are expressed and are legal, the only Page 277 (Note)
difficulty is in ascertaining the intention of the parties." cralaw virtua1aw library

Page 260
"(VI) Acceptance by accepting paper containing terms (A) In general. A contract may be
formed by accepting a paper containing terms. If an offer is made by delivering to another a
paper containing the terms of a proposed contract, and the paper is accepted, the accepter is
bound by its terms; and this is true as a rule whether he reads the paper or not. . . ."
"A great number of contracts are in the present state of society made by the delivery by one of
the contracting parties to the other of a document in a common form, stating the terms by
which the person delivering it will enter into the proposed contract. Such a form constitutes the
offer of the party who tenders it. If the form is accepted without objection by the person to
whom it is tendered this person is as a general rule bound by its contents, and his act amounts
to an acceptance of the offer made to him, whether he reads the document or otherwise
informs himself of its contents or not." (Eng. Watkins v. Rymill, 10 Q. B. D., 178, 183.)
cralaw virtua1aw library

Page 282 Ruling Case Law, vol. 6, page 599: jgc:chanrobles.com .ph

". . . On the other hand an agreement to make and execute a certain written agreement, the "21. Generally. In order that contract may be formed there must be, as has been seen, a
terms of which are mutually understood and agreed upon, is in all respects as valid and concurrence of intention between a promisor and a promise. Frequently this idea is expressed
obligatory as the written contract itself would be if executed. If therefore it appears that the by saying that it is essential to the information of a contract that there should be a meeting of
minds of the parties have met, that a proposition for a contract has been made by one party the minds of the parties. It must appear that their minds met on the same distinct and definite
and accepted by the other, that the terms of this contract are in all respects definitely terms. . . ." cralaw virtua1aw library

understood and agreed upon, and that a part of the mutual understanding is that a written
contract embodying these terms shall be drawn and executed by the respective parties, this is Page 600
an obligatory agreement." cralaw virtua1aw library

"23. Offer or proposal. A contract is ordinarily formed by an offer and an acceptance. . . ." cralaw virtua1aw library
 would deposit P80,000 in stock of the J. K. Pickering Co., of a commercial value of P400,000,
Page 605 and a book value of P600,000, which said offer was on the same date and while it was in full
force and effect unconditionally accepted by this defendant, with the written consent of the said
"Necessity and effect of acceptance. From the discussion in reference to the right to revoke Asia Banking Corporation, and which said offer and acceptance is more fully set out in a certain
an offer, it is apparent that the acceptance on an offer is essential. To constitute a contract there letter, a true copy of which is attached hereto, marked Exhibit 1 and made a part hereof, and
must be an acceptance of the offer, because until the offer is accepted both parties have not constitutes a binding contract of purchase and sale and is obligatory on each of the parties
assented to the contract, or, in the figurative language frequently used by the courts, their thereto." cralaw virtua1aw library

minds have not met. The effect of acceptance is to convert the offer into a binding
contract. . . ." cralaw virtua1aw library Yet, in the face of those allegations and over the vigorous protests and objections of Burkes
attorneys. the oral testimony of Elsers employees was admitted, for the purpose of showing
Upon the question of contemporaneous writings and agreements, Cyc., vol. 35, page 97, that the written contract not mean that it says.
says: jgc:chanroble s.com.ph

There is no rule of law by which oral testimony is admissible for any such purpose, and least of
"In construing contracts of sale all contemporaneous instruments and agreements in regard to all should it be considered by an appellate court.
the transaction should be construed together, and if possible so as to give effect to all of them. .
. ."
cralaw virtua1aw library The stubborn fact remains that Elser wrote and signed the letter, and the specified terms of the
purchase were accepted and approved by both Avery and Burke, and the letter was returned to
Much has been said in this case about the definition of the word "entertain" was used in Elsers Elser, and that all of the previous conversations between Elser and Burke were merged in that
letter, it should be construed to read, "I am now in a position to buy your yacht for P80,000 letter, and that it is writing and speaks for itself. But it is contended that in preparing the letter,
upon the specified terms and conditions, and if you will make an offer to sell it at that price and Burke wanted Elser to use the words "firm offer," and that Elser declined to do so. Assuming
upon those conditions, I will purchase the yacht. But before I will enter into a formal agreement that to be true, what difference does it make? The fact remains that Elser did write and sign the
to purchase on those terms, you must submit a proposition to me that you are ready and willing letter as it was written, and that it was accepted as written, and that parol testimony is not
to sell on those terms, and until such time as you do submit such a proposition and I formally admissible to change or alter the words or the meaning of the letter as it was written, and that
accept it, I am not bound to purchase, even though we do agree upon the amount of the plaintiff relies upon the contract as it was written.
purchase price, the terms and conditions of payment, and the security to be given." That is a
strained and unnatural construction, and nullifies the undisputed testimony of both Burke and It will be noted that all through this case, Burke relies upon evidence in writing, which is signed
Elser, and overlooks and does not take into consideration the purpose and intent with which the by the respective parties, and about which there is not and cannot be any dispute, because the
letter was written, and the language used in the previous letters and the subsequent letter of writings speak for themselves. it will also noted that Elsers defense is largely founded upon oral
April 6. When they are considered, the meaning of the word "entertain" is very apparent. The testimony. That is specially true as to the construction which should be placed upon Exhibit 1.
minds of the parties had met. They had agreed upon the price, the terms and conditions of the
sale, and the security to be given, all of which was reduced to writing, and signed by the The rule is elementary that the court does not have any right to consider oral testimony for any
respective parties, and when that is done, under the authorities above cited, it constitutes a such purpose.
valid and binding contract.
Again, all of the dealings between Elser and Burke were confined to the sale and purchase of
Stress is also laid upon the oral testimony of the employees of Elser, who were in his office at the yacht, and the repairs which were made upon it. Upon the question of repairs, Justice
the time the contract was prepared and signed. Avancea finds against Elser and in favor of Burke. If the parol testimony on behalf of Elser
upon the question of repairs is not true, as the court finds, it should materially weaken his parol
This case forcibly illustrates the reason for the inflexible rule that oral testimony is not evidence as to the sale and purchase of the yacht. But the court finds that Elsers parol
admissible to change or vary the terms of a written contract. Here, the contract was in writing, testimony as to the repairs upon the yacht is not true, and finds that his parol testimony as to
and Elser admits that he signed it. There is no dispute about any one or either of the letters the sale and purchase of the yacht is true.
quoted in this opinion, and Burkes cause of action is founded upon that letter.
Why should the court find that his testimony is true in one case and false in the other? All of the
The complaint alleges: jgc:chanroble s.com.ph transactions in question arose out of, and pertained to, mutual dealings concerning the yacht. If
Elsers testimony is not true as to the repairs, it is not true as to the sale and purchase of the
"That on the 3d day of April, 1922, the said plaintiff made an offer in writing to this defendant yacht.
to purchase from him the said yacht Bronzewing, in its then condition and including, of course
the repairs placed thereon by him, for the sum of P80,000, payable P10,000 within sixty days, Upon all other matters, I agree with the opinion of Justice Avancea. But in the reversal of the
and the balance in installments of P5,000 per month, with interest on deferred payments at 9 judgment in favor of Burke and against Elser, I vigorously dissent.
per cent per annum, payable semi-annually, and that as security for such purchase price, he
 Louis Da Costa met with the petitioner on two occasions, one of which was on February 5, 1990
to discuss the amount of the 1989 incentive compensation petitioner was entitled to, and the
mode of payment thereof. Da Costa ventured that the petitioner would be entitled to an
incentive compensation in the amount of P395,000.

On March 14, 1990, the respondent, through Senen Valero, signed a letter-offer addressed to
the petitioner 3 stating therein that petitioners resignation from all the positions in the SEADC
group of companies had been accepted by the respondent, and that he was entitled to an
incentive compensation in the amount of P251,057.67, and proposing that the amount be
satisfied, thus: chanrob1es virtual 1aw library

- The 1982 Mitsubishi Super saloon car assigned to you by the company shall be transferred to
you at a value of P220,000.00. (Although you have indicated a value of P180,000.00, our
survey in the market indicates that P220,000.00 is a reasonable reflection of the value of the
car.)

- The membership share of our subsidiary, Tradestar International, Inc. in the Architectural
Center, Inc. will be transferred to you. (Although we do not as yet have full information as to
SECOND DIVISION the value of these shares, we have been informed that the shares have traded recently in the
[G.R. No. 125761. April 30, 2003.] vicinity of P60,000.00.) 4

SALVADOR P. MALBAROSA, Petitioner, v. HON. COURT OF APPEALS and S.E.A. The respondent required that if the petitioner agreed to the offer, he had to affix his conformity
DEVELOPMENT CORP., Respondents. on the space provided therefor and the date thereof on the right bottom portion of the letter,
thus:chanrob1es virtual 1aw library

DECISION
Agreed: chanrob1es virtual 1aw library

CALLEJO, SR., J.:

SALVADOR P. MALBAROSA

Philtectic Corporation and Commonwealth Insurance Co., Inc. were only two of the group of Date: _____________________ 5
companies wholly-owned and controlled by respondent S.E.A. Development Corporation
(SEADC). The petitioner Salvador P. Malbarosa was the president and general manager of On March 16, 1990, Da Costa met with the petitioner and handed to him the original copy of the
Philtectic Corporation, and an officer of other corporations belonging to the SEADC group of March 14, 1990 Letter-offer for his consideration and conformity. The petitioner was dismayed
companies. The respondent assigned to the petitioner one of its vehicles covered by Certificate when he read the letter and learned that he was being offered an incentive compensation of
of Registration No. 04275865 1 described as a 1982 model Mitsubishi Gallant Super Saloon, only P251,057.67. He told Da Costa that he was entitled to no less than P395,000 as incentive
with plate number PCA 180 for his use. He was also issued membership certificates in the compensation. The petitioner refused to sign the letter-offer on the space provided therefor. He
Architectural Center, Inc. Louis Da Costa was the president of the respondent and received the original of the letter and wrote on the duplicate copy of the letter-offer retained by
Commonwealth Insurance Co., Inc., while Senen Valero was the Vice-Chairman of the Board of Da Costa, the words: "Recd original for review purposes." 6 Despite the lapse of more than two
Directors of the respondent and Vice-Chairman of the Board of Directors of Philtectic weeks, the respondent had not received the original of the March 14, 1990 Letter-offer of the
Corporation. respondent with the conformity of the petitioner on the space provided therefor. The respondent
decided to withdraw its March 14, 1990 Offer. On April 3, 1996, the Board of Directors of the
Sometime in the first week of January 1990, the petitioner intimated to Senen Valero his desire respondent approved a resolution authorizing the Philtectic Corporation and/or Senen Valero to
to retire from the SEADC group of companies and requested that his 1989 incentive demand from the petitioner for the return of the car and to take such action against the
compensation as president of Philtectic Corporation be paid to him. On January 8, 1990, the petitioner, including the institution of an action in court against the petitioner for the recovery of
petitioner sent a letter to Senen Valero tendering his resignation, effective February 28, 1990 the motor vehicle. 7
from all his positions in the SEADC group of companies, and reiterating therein his request for
the payment of his incentive compensation for 1989. 2 On April 4, 1990, Philtectic Corporation, through its counsel, wrote the petitioner withdrawing
the March 14, 1990 Letter-offer of the respondent and demanding that the petitioner return the
car and his membership certificate in the Architectural Center, Inc. within 24 hours from his Agreed: chanrob1es virtual 1aw library

receipt thereof. 8 The petitioner received the original copy of the letter on the same day. chanrob1es virtua1 1aw 1ibrary

(Sgd.)
On April 7, 1990, the petitioner wrote the counsel of Philtectic Corporation informing the latter
that he cannot comply with said demand as he already accepted the March 14, 1990 Letter- SALVADOR P. MALBAROSA
offer of the respondent when he affixed on March 28, 1990 his signature on the original copy of
the letter-offer. 9 The petitioner enclosed a xerox copy of the original copy of the March 14, Date: 3-28-90 15
1990 Letter-offer of the respondent, bearing his signature on the space provided therefore
dated March 28, 1990. 10 The petitioner adduced evidence that on March 9, 1990, he had written Senen Valero that he
was agreeable to an incentive compensation of P218,000 to be settled by the respondent by
With the refusal of the petitioner to return the vehicle, the respondent, as plaintiff, filed a transferring the car to the petitioner valued at P180,000 and P38,000 worth of shares of the
complaint against the petitioner, as defendant, for recovery of personal property with replevin Architectural Center, Inc. on the claim of Da Costa that respondent was almost bankrupt.
with damages and attorneys fees, thus: chanrob1es virtual 1aw library However, the petitioner learned that the respondent was financially sound; hence, he had
decided to receive his incentive compensation of P395,000 in cash. 16 On March 29, 1990, the
WHEREFORE, PREMISES CONSIDERED, it is respectfully prayed before this Honorable Court petitioner called up the office of Louis Da Costa to inform the latter of his acceptance of the
that:chanrob1es virtual 1aw library letter-offer of the Respondent. However, the petitioner was told by Liwayway Dinglasan, the
telephone receptionist of Commonwealth Insurance Co., that Da Costa was out of the office. The
1. Before hearing and upon approval of plaintiffs bond, a writ be issued immediately for the petitioner asked Liwayway to inform Da Costa that he had called him up and that he had
seizure of the vehicle described in paragraph 3 hereof, wherever it may be found, and for its already accepted the letter-offer. Liwayway promised to relay the message to Da Costa.
delivery to plaintiff; Liwayway testified that she had relayed the petitioners message to Da Costa and that the latter
merely nodded his head.
2. After trial of the issues, judgment be rendered adjudging that plaintiff has the right to the
possession of the said motor vehicle, and, in the alternative, that defendant must deliver such After trial, the court a quo rendered its Decision 17 on July 28, 1992, the dispositive portion of
motor vehicle to plaintiff or pay to plaintiff the value thereof in case delivery cannot be made; which reads as follows: chanrob1es virtual 1aw library

3. After trial, hold the defendant liable to plaintiff for the use of the motor vehicle in the amount WHEREFORE, in view of all the foregoing, judgment is rendered ordering the defendant: chanrob1es virtual 1aw library

of P1,000.00 per day from date of demand until the motor vehicle is returned to plaintiff.
1. To deliver the motor vehicle prescribed [sic] in the complaint to plaintiff SEADC, or pay its
4. After trial, hold the defendant liable to plaintiff for attorneys fees and costs of litigation in the value of P220,000 in case delivery cannot be made;
amount of P100,000.00.
2. pay plaintiff SEADC P50,000 as and for attorneys fees; and
Plaintiffs likewise prays for such other reliefs as are just and equitable under the circumstances.
11 3. Cost of litigation.

On April 30, 1990, the trial court issued an order for the issuance of a writ of replevin. 12 SO ORDERED. 18
Correspondingly, the writ of replevin was issued on May 8, 1990. 13
The trial court stated that there existed no perfected contract between the petitioner and the
On May 11, 1990, the Sheriff served the writ on the petitioner and was able to take possession respondent on the latters March 14, 1990 Letter-offer for failure of the petitioner to effectively
of the vehicle in question. On May 15, 1990, the petitioner was able to recover the possession notify the respondent of his acceptance of said letter-offer before the respondent withdrew the
of the vehicle upon his filing of the counter-bond. 14 same. The respondent filed a motion for the amendment of the decision of the trial court,
praying that the petitioner should be ordered to pay to the respondent reasonable rentals for
In his Answer to the complaint, the petitioner, as defendant therein, alleged that he had already the car. On October 10, 1992, the court a quo issued an order, granting plaintiffs motion and
agreed on March 28, 1990 to the March 14, 1990 Letter-offer of the respondent, the plaintiff amending the dispositive portion of its July 28, 1992 Decision: chanrob1es virtual 1aw library

therein, and had notified the said plaintiff of his acceptance; hence, he had the right to the
possession of the car. Philtectic Corporation had no right to withdraw the offer of the respondent 1. Ordering defendant to pay to plaintiff lease rentals for the use of the motor vehicle at the
SEADC. The petitioner testified that after conferring with his counsel, he had decided to accept rate of P1,000.00 per Day from May 8, 1990 up to the date of actual delivery to the plaintiff of
the offer of the respondent, and had affixed his signature on the space below the word "Agree" the motor vehicle; and
in the March 14, 1990 Letter-offer, thus: chanrob1es virtual 1aw library

2. Ordering First Integrated Bonding & Insurance Co. to make good on its obligations to plaintiff
under the Counterbond issued pursuant to this case.
We do not agree with the petitioner.
SO ORDERED. 19
Under Article 1318 of the Civil Code, the essential requisites of a contract are as follows: chanrob1es virtual 1aw library

The petitioner appealed from the decision and the order of the court a quo to the Court of
Appeals. Art. 1318. There is no contract unless the following requisites concur: chanrob1es virtual 1aw library

On February 8, 1996, the Court of Appeals rendered its Decision, 20 affirming the decision of (1) Consent of the contracting parties;
the trial court. The dispositive portion of the decision reads: chanrob1es virtual 1aw library

(2) Object certain which is the subject matter of the contract;

WHEREFORE, the Decision dated July 28, 1992 and the Order dated October 10, 1992 of the
Regional Trial Court of Pasig (Branch 158) are hereby AFFIRMED with the MODIFICATION that (3) Cause of the obligation which is established.
the period of payment of rentals at the rate of P1,000.00 per day shall be from the time this
decision becomes final until actual delivery of the motor vehicle to plaintiff-appellee is made. Under Article 1319 of the New Civil Code, the consent by a party is manifested by the meeting
of the offer and the acceptance upon the thing and the cause which are to constitute the
Costs against the defendant-appellant. contract. An offer may be reached at any time until it is accepted. An offer that is not accepted
does not give rise to a consent. The contract does not come into existence. 24 To produce a
SO ORDERED. 21 contract, there must be acceptance of the offer which may be express or implied 25 but must
not qualify the terms of the offer. The acceptance must be absolute, unconditional and without
The Court of Appeals stated that the petitioner had not accepted the respondents March 14, variance of any sort from the offer. 26
1990 Letter-offer before the respondent withdrew said offer on April 4, 1990.
The acceptance of an offer must be made known to the offeror. 27 Unless the offeror knows of
The petitioner filed a petition for review on certiorari of the decision of the Court of Appeals. the acceptance, there is no meeting of the minds of the parties, no real concurrence of offer and
acceptance. 28 The offeror may withdraw its offer and revoke the same before acceptance
The petitioner raises two issues, namely: (a) whether or not there was a valid acceptance on his thereof by the offeree. The contract is perfected only from the time an acceptance of an offer is
part of the March 14, 1990 Letter-offer of the respondent; 22 and (b) whether or not there was made known to the offeror. If an offeror prescribes the exclusive manner in which acceptance of
an effective withdrawal by the respondent of said letter-offer. his offer shall be indicated by the offeree, an acceptance of the offer in the manner prescribed
will bind the offeror. On the other hand, an attempt on the part of the offeree to accept the offer
The petition is dismissed. in a different manner does not bind the offeror as the absence of the meeting of the minds on
the altered type of acceptance. 29 An offer made inter praesentes must be accepted
Anent the first issue, the petitioner posits that the respondent had given him a reasonable time immediately. If the parties intended that there should be an express acceptance, the contract
from March 14, 1990 within which to accept or reject its March 14, 1990 Letter-offer. He had will be perfected only upon knowledge by the offeror of the express acceptance by the offeree of
already accepted the offer of the respondent when he affixed his conformity thereto on the the offer. An acceptance which is not made in the manner prescribed by the offeror is not
space provided therefor on March 28, 1990 23 and had sent to the respondent corporation on effective but constitutes a counter-offer which the offeror may accept or reject. 30 The contract
April 7, 1990 a copy of said March 14, 1990 Letter-offer bearing his conformity to the offer of is not perfected if the offeror revokes or withdraws its offer and the revocation or withdrawal of
the respondent; hence, the respondent can no longer demand the return of the vehicle in the offeror is the first to reach the offeree. 31 The acceptance by the offeree of the offer after
question. He further avers that he had already impliedly accepted the offer when after said knowledge of the revocation or withdrawal of the offer is inefficacious. The termination of the
respondents offer, he retained possession of the car. chanrob1es virtua1 1aw 1ibrary contract when the negotiations of the parties terminate and the offer and acceptance concur, is
largely a question of fact to be determined by the trial court. 32
For its part, the respondent contends that the issues raised by the petitioner are factual. The
jurisdiction of the Court under Rule 45 of the Rules of Court, as amended, is limited to revising In this case, the respondent made its offer through its Vice-Chairman of the Board of Directors,
and correcting errors of law of the CA. As concluded by the Court of Appeals, there had been no Senen Valero. On March 16, 1990, Da Costa handed over the original of the March 14, 1990
acceptance by the petitioner of its March 14, 1990 Letter-offer. The receipt by the petitioner of Letter-offer of the respondent to the petitioner. The respondent required the petitioner to accept
the original of the March 14, 1990 Letter-offer for review purposes amounted merely to a the offer by affixing his signature on the space provided in said letter-offer and writing the date
counter-offer of the petitioner. The findings of the Court of Appeals are binding on the petitioner. of said acceptance, thus foreclosing an implied acceptance or any other mode of acceptance by
The petitioner adduced no proof that the respondent had granted him a period within which to the petitioner. However, when the letter-offer of the respondent was delivered to the petitioner
accept its offer. The latter deemed its offer as not accepted by the petitioner in light of on March 16, 1990, he did not accept or reject the same for the reason that he needed time to
petitioners ambivalence and indecision on March 16, 1990 when he received the letter-offer decide whether to reject or accept the same. 33 There was no contract perfected between the
of Respondent. petitioner and the respondent corporation. 34 Although the petitioner claims that he had affixed
his conformity to the letter-offer on March 28, 1990, the petitioner failed to transmit the said Valero stated that the April 4, 1990 letter of Philtectic Corporation to the petitioner was upon his
copy to the Respondent. It was only on April 7, 1990 when the petitioner appended to his letter instruction and conformably with the aforesaid resolution of the Board of Directors of the
to the respondent a copy of the said March 14, 1990 Letter-offer bearing his conformity that he respondent: chanrob1es virtual 1aw library

notified the respondent of his acceptance to said offer. But then, the respondent, through
Philtectic Corporation, had already withdrawn its offer and had already notified the petitioner of
said withdrawal via respondents letter dated April 4, 1990 which was delivered to the petitioner
on the same day. Indubitably, there was no contract perfected by the parties on the March 14,
1990 Letter-offer of the Respondent. chanrob1es virtua1 1aw 1ibrary
Q Mr. Valero, after the Board passed this resolution. (sic) What action did you take, if any?
A After that resolution was passed. (sic) I instructed our lawyers to proceed with the demand
letter for the recovery of the vehicle.

The petitioners plaint that he was not accorded by the respondent reasonable time to accept or Q Do you know if that demand letter was every (sic) made by your lawyer?
reject its offer does not persuade. It must be underscored that there was no time frame fixed by
the respondent for the petitioner to accept or reject its offer. When the offeror has not fixed a A Yes. I know that because I was the one who gave the instruction and before it was finally
period for the offeree to accept the offer, and the offer is made to a person present, the served on Malbarosa, I was shown about the demand letter.
acceptance must be made immediately. 35 In this case, the respondent made its offer to the
petitioner when Da Costa handed over on March 16, 1990 to the petitioner its March 14, 1990 C/Pltf. Your honor, or rather . . .
Letter-offer but that the petitioner did not accept the offer. The respondent, thus, had the option
to withdraw or revoke the offer, which the respondent did on April 4, 1990. Mr. Valero, if I show you a copy of that letter, will you be able to identify the same?

Even if it is assumed that the petitioner was given a reasonable period to accept or reject the A Yes, sir.
offer of the respondent, the evidence on record shows that from March 16, 1990 to April 3,
1990, the petitioner had more than two weeks which was more than sufficient for the petitioner Q I am now showing to you a copy of the letter dated April 4, 1990, addressed to Mr. Salvador
to accept the offer of theRespondent. Although the petitioner avers that he had accepted the P. Malbarosa and signed by Romulo, Mabanta, Buenaventura, Sayoc and Delos Angeles by
offer of the respondent on March 28, 1990, however, he failed to transmit to the respondent the ________. What relation, if any, does that demand letter have with the demand letter that you
copy of the March 14, 1990 Letter-offer bearing his conformity thereto. Unless and until the are talking about?
respondent received said copy of the letter-offer, it cannot be argued that a contract had
already been perfected between the petitioner and theRespondent. A Its the same one I am referring to.

On the second issue, the petitioner avers that Philtectic Corporation, although a wholly-owned C/Pltf. Your honor, we manifest that the letter has been previously marked as our exh. "D" .
and controlled subsidiary of the respondent, had no authority to withdraw the offer of
the Respondent. The resolution of the respondent authorizing Philtectic Corporation to take such Q Mr. Valero, on the first paragraph of this demand letter, you stated that the letter is written in
action against the petitioner including the institution of an action against him for the recovery of behalf of Philtectic Corporation. Do you have any knowledge why it was written this way?
the subject car does not authorize Philtectic Corporation to withdraw the March 14, 1990 Letter-
offer of the Respondent. The withdrawal by Philtectic Corporation on April 4, 1990 of the offer of A Yes. Because Philtectic, being the agent used here by S.E.A. Development Corporation for the
the respondent was ineffective insofar as the petitioner was concerned. The respondent, for its one using the car, it was only deemed proper that Philtectic will be the one to send the demand
part, asserts that the petitioner had failed to put in issue the matter of lack of authority of letter.
Philtectic Corporation to withdraw for and in behalf of the respondent its March 14, 1990 Letter-
offer. It contends that the authority of Philtectic Corporation to take such action including the Q In the second paragraph of that letter, Mr. Valero, you stated that there was an allusion made
institution of an action against the petitioner for the recovery of the car necessarily included the to the offer made on March 14, 1990. That the 1982 Mitsubishi Galant Super Saloon car with
authority to withdraw the respondents offer. Even then, there was no need for the respondent plate# M-PCA-189 assigned to you by the company, and the membership share in the
to withdraw its offer because the petitioner had already rejected the respondents offer on Architectural Center Inc., be transferred to you in settlement. You previously stated about this
March 16, 1990 when the petitioner received the original of the March 14, 1990 Letter-offer of March 14 letter. What relation, if any, does this second paragraph with the letter-offer that you
the respondent without the petitioner affixing his signature on the space therefor. previously stated.

We do not agree with the petitioner. Implicit in the authority given to Philtectic Corporation to C/Def. Objection, your honor. This witness is incompetent . . .
demand for and recover from the petitioner the subject car and to institute the appropriate
action against him to recover possession of the car is the authority to withdraw the respondents C/Pltf. But he was the one who instructed, your honor.
March 14, 1990 Letter-offer. It cannot be argued that respondent authorized Philtectic
Corporation to demand and sue for the recovery of the car and yet did not authorize it to Court LET the witness answer.
withdraw its March 14, 1990 Letter-offer to the petitioner. Besides, when he testified, Senen
Witness (Stenographer reads back the previous question asked by counsel for him to answer, square meter. Despite his repeated demands for the execution of a final deed of sale in his
and . . ..) favor, respondents allegedly refused.

A It is the same. 36 In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta and
when the total advances of Pacita reached fifty thousand pesos (P50,000.00), the latter and
IN LIGHT OF ALL THE FOREGOING, the petition is dismissed. The Decision of the Court of Babasanta, without the knowledge and consent of Miguel Lu, had verbally agreed to transform
Appeals is AFFIRMED. chanrob1es virtua1 1aw 1ibrary the transaction into a contract to sell the two parcels of land to Babasanta with the fifty
thousand pesos (P50,000.00) to be considered as the downpayment for the property and the
SO ORDERED. balance to be paid on or before 31 December 1987. Respondents Lu added that as of November
1987, total payments made by Babasanta amounted to only two hundred thousand pesos
SECOND DIVISION (P200,000.00) and the latter allegedly failed to pay the balance of two hundred sixty thousand
[G.R. NO. 124242 - January 21, 2005] pesos (P260,000.00) despite repeated demands. Babasanta had purportedly asked Pacita for a
reduction of the price from fifteen pesos (P15.00) to twelve pesos (P12.00) per square meter
SAN LORENZO DEVELOPMENT CORPORATION, Petitioner, v. COURT OF APPEALS, PABLO and when the Spouses Lu refused to grant Babasanta's request, the latter rescinded the
S. BABASANTA, SPS. MIGUEL LU and PACITA ZAVALLA LU, Respondents. contract to sell and declared that the original loan transaction just be carried out in that the
spouses would be indebted to him in the amount of two hundred thousand pesos
DECISION (P200,000.00). Accordingly, on 6 July 1989, they purchased Interbank Manager's Check No.
05020269 in the amount of two hundred thousand pesos (P200,000.00) in the name of
Babasanta to show that she was able and willing to pay the balance of her loan obligation.
TINGA, J.:
Babasanta later filed an Amended Complaint dated 17 January 19903 wherein he prayed for the
From a coaptation of the records of this case, it appears that respondents Miguel Lu and Pacita issuance of a writ of preliminary injunction with temporary restraining order and the inclusion of
Zavalla, (hereinafter, the Spouses Lu) owned two (2) parcels of land situated in Sta. Rosa, the Register of Deeds of Calamba, Laguna as party defendant. He contended that the issuance
Laguna covered by TCT No. T-39022 and TCT No. T-39023 both measuring 15,808 square of a preliminary injunction was necessary to restrain the transfer or conveyance by the Spouses
meters or a total of 3.1616 hectares. Lu of the subject property to other persons.

On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to respondent The Spouses Lu filed their Opposition4 to the amended complaint contending that it raised new
Pablo Babasanta, (hereinafter, Babasanta) for the price of fifteen pesos (P15.00) per square matters which seriously affect their substantive rights under the original complaint. However,
meter. Babasanta made a downpayment of fifty thousand pesos (P50,000.00) as evidenced by a the trial court in its Order dated 17 January 1990 5 admitted the amended complaint.
memorandum receipt issued by Pacita Lu of the same date. Several other payments totaling two
hundred thousand pesos (P200,000.00) were made by Babasanta. On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC) filed
a Motion for Intervention6 before the trial court. SLDC alleged that it had legal interest in the
Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution of a final subject matter under litigation because on 3 May 1989, the two parcels of land involved, namely
deed of sale in his favor so that he could effect full payment of the purchase price. In the same Lot 1764-A and 1764-B, had been sold to it in a Deed of Absolute Sale with Mortgage. 7 It
letter, Babasanta notified the spouses about having received information that the spouses sold alleged that it was a buyer in good faith and for value and therefore it had a better right over
the same property to another without his knowledge and consent. He demanded that the the property in litigation.
second sale be cancelled and that a final deed of sale be issued in his favor.
In his Opposition to SLDC's motion for intervention,8 respondent Babasanta demurred and
In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having agreed to argued that the latter had no legal interest in the case because the two parcels of land involved
sell the property to him at fifteen pesos (P15.00) per square meter. She, however, reminded herein had already been conveyed to him by the Spouses Lu and hence, the vendors were
Babasanta that when the balance of the purchase price became due, he requested for a without legal capacity to transfer or dispose of the two parcels of land to the intervenor.
reduction of the price and when she refused, Babasanta backed out of the sale. Pacita added
that she returned the sum of fifty thousand pesos (P50,000.00) to Babasanta through Eugenio Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene. SLDC
Oya. filed its Complaint-in-Intervention on 19 April 1990.9 Respondent Babasanta's motion for the
issuance of a preliminary injunction was likewise granted by the trial court in its Order dated 11
On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court (RTC), January 199110 conditioned upon his filing of a bond in the amount of fifty thousand pesos
Branch 31, of San Pedro, Laguna, a Complaint for Specific Performance and Damages1 against (P50,000.00).
his co-respondents herein, the Spouses Lu. Babasanta alleged that the lands covered by TCT
No. T - 39022 and T-39023 had been sold to him by the spouses at fifteen pesos (P15.00) per
SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu purchaser in bad faith. The Spouses Lu were further ordered to return all payments made by
executed in its favor an Option to Buy the lots subject of the complaint. Accordingly, it paid an SLDC with legal interest and to pay attorney's fees to Babasanta.
option money in the amount of three hundred sixteen thousand one hundred sixty pesos
(P316,160.00) out of the total consideration for the purchase of the two lots of one million two SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate
hundred sixty-four thousand six hundred forty pesos (P1,264,640.00). After the Spouses Lu court.12 However, in a Manifestation dated 20 December 1995,13 the Spouses Lu informed the
received a total amount of six hundred thirty-two thousand three hundred twenty pesos appellate court that they are no longer contesting the decision dated 4 October 1995.
(P632,320.00) they executed on 3 May 1989 a Deed of Absolute Sale with Mortgage in its favor.
SLDC added that the certificates of title over the property were delivered to it by the spouses In its Resolution dated 11 March 1996,14 the appellate court considered as withdrawn the
clean and free from any adverse claims and/or notice of lis pendens. SLDC further alleged that motion for reconsideration filed by the Spouses Lu in view of their manifestation of 20
it only learned of the filing of the complaint sometime in the early part of January 1990 which December 1995. The appellate court denied SLDC's motion for reconsideration on the ground
prompted it to file the motion to intervene without delay. Claiming that it was a buyer in good that no new or substantial arguments were raised therein which would warrant modification or
faith, SLDC argued that it had no obligation to look beyond the titles submitted to it by the reversal of the court's decision dated 4 October 1995.
Spouses Lu particularly because Babasanta's claims were not annotated on the certificates of
title at the time the lands were sold to it. Hence, this petition.
After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the sale of the
property to SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two hundred SLDC assigns the following errors allegedly committed by the appellate court:
thousand pesos (P200,000.00) with legal interest plus the further sum of fifty thousand pesos THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A BUYER IN GOOD
(P50,000.00) as and for attorney's fees. On the complaint-in-intervention, the trial court FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU OBTAINED FROM IT THE CASH
ordered the Register of Deeds of Laguna, Calamba Branch to cancel the notice of lis ADVANCE OF P200,000.00, SAN LORENZO WAS PUT ON INQUIRY OF A PRIOR TRANSACTION
pendens annotated on the original of the TCT No. T-39022 (T-7218) and No. T-39023 (T-7219). ON THE PROPERTY.

Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta and SLDC THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED FACT THAT THE
did not register the respective sales in their favor, ownership of the property should pertain to ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT IN POSSESSION OF THE
the buyer who first acquired possession of the property. The trial court equated the execution of DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT AND TOOK POSSESSION OF THE
a public instrument in favor of SLDC as sufficient delivery of the property to the latter. It PROPERTY AND NO ADVERSE CLAIM, LIEN, ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED
concluded that symbolic possession could be considered to have been first transferred to SLDC ON THE TITLES.
and consequently ownership of the property pertained to SLDC who purchased the property in
good faith. THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT RESPONDENT
BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN LORENZO WAS AWARE OF
Respondent Babasanta appealed the trial court's decision to the Court of Appeals alleging in the HIS RIGHTS OR INTERESTS IN THE DISPUTED PROPERTY.
main that the trial court erred in concluding that SLDC is a purchaser in good faith and in
upholding the validity of the sale made by the Spouses Lu in favor of SLDC. THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS FULL
CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED AND SET
Respondent spouses likewise filed an appeal to the Court of Appeals. They contended that the ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING THE TITLE OF SAN LORENZO AS A
trial court erred in failing to consider that the contract to sell between them and Babasanta had BUYER AND FIRST POSSESSOR IN GOOD FAITH.15
been novated when the latter abandoned the verbal contract of sale and declared that the
original loan transaction just be carried out. The Spouses Lu argued that since the properties SLDC contended that the appellate court erred in concluding that it had prior notice of
involved were conjugal, the trial court should have declared the verbal contract to sell between Babasanta's claim over the property merely on the basis of its having advanced the amount of
Pacita Lu and Pablo Babasanta null and void ab initio for lack of knowledge and consent of two hundred thousand pesos (P200,000.00) to Pacita Lu upon the latter's representation that
Miguel Lu. They further averred that the trial court erred in not dismissing the complaint filed by she needed the money to pay her obligation to Babasanta. It argued that it had no reason to
Babasanta; in awarding damages in his favor and in refusing to grant the reliefs prayed for in suspect that Pacita was not telling the truth that the money would be used to pay her
their answer. indebtedness to Babasanta. At any rate, SLDC averred that the amount of two hundred
thousand pesos (P200,000.00) which it advanced to Pacita Lu would be deducted from the
On 4 October 1995, the Court of Appeals rendered its Decision11 which set aside the judgment balance of the purchase price still due from it and should not be construed as notice of the prior
of the trial court. It declared that the sale between Babasanta and the Spouses Lu was valid and sale of the land to Babasanta. It added that at no instance did Pacita Lu inform it that the lands
subsisting and ordered the spouses to execute the necessary deed of conveyance in favor of had been previously sold to Babasanta.
Babasanta, and the latter to pay the balance of the purchase price in the amount of two
hundred sixty thousand pesos (P260,000.00). The appellate court ruled that the Absolute Deed
of Sale with Mortgage in favor of SLDC was null and void on the ground that SLDC was a
Moreover, SLDC stressed that after the execution of the sale in its favor it immediately took property until full payment of the price which is a distinguishing feature of a contract to sell, the
possession of the property and asserted its rights as new owner as opposed to Babasanta who subsequent acts of the parties convince us that the Spouses Lu never intended to transfer
has never exercised acts of ownership. Since the titles bore no adverse claim, encumbrance, or ownership to Babasanta except upon full payment of the purchase price.
lien at the time it was sold to it, SLDC argued that it had every reason to rely on the Babasanta's letter dated 22 May 1989 was quite telling. He stated therein that despite his
correctness of the certificate of title and it was not obliged to go beyond the certificate to repeated requests for the execution of the final deed of sale in his favor so that he could effect
determine the condition of the property. Invoking the presumption of good faith, it added that full payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta himself
the burden rests on Babasanta to prove that it was aware of the prior sale to him but the latter recognized that ownership of the property would not be transferred to him until such time as he
failed to do so. SLDC pointed out that the notice of lis pendens was annotated only on 2 June shall have effected full payment of the price. Moreover, had the sellers intended to transfer title,
1989 long after the sale of the property to it was consummated on 3 May 1989. they could have easily executed the document of sale in its required form simultaneously with
their acceptance of the partial payment, but they did not. Doubtlessly, the receipt signed by
Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu informed Pacita Lu should legally be considered as a perfected contract to sell.
the Court that due to financial constraints they have no more interest to pursue their rights in
the instant case and submit themselves to the decision of the Court of Appeals. 16 The distinction between a contract to sell and a contract of sale is quite germane. In a contract
of sale, title passes to the vendee upon the delivery of the thing sold; whereas in a contract to
On the other hand, respondent Babasanta argued that SLDC could not have acquired ownership sell, by agreement the ownership is reserved in the vendor and is not to pass until the full
of the property because it failed to comply with the requirement of registration of the sale in payment of the price.22 In a contract of sale, the vendor has lost and cannot recover ownership
good faith. He emphasized that at the time SLDC registered the sale in its favor on 30 June until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is
1990, there was already a notice of lis pendens annotated on the titles of the property made as retained by the vendor until the full payment of the price, such payment being a positive
early as 2 June 1989. Hence, petitioner's registration of the sale did not confer upon it any suspensive condition and failure of which is not a breach but an event that prevents the
right. Babasanta further asserted that petitioner's bad faith in the acquisition of the property is obligation of the vendor to convey title from becoming effective.
23

evident from the fact that it failed to make necessary inquiry regarding the purpose of the
issuance of the two hundred thousand pesos (P200,000.00) manager's check in his favor. The perfected contract to sell imposed upon Babasanta the obligation to pay the balance of the
purchase price. There being an obligation to pay the price, Babasanta should have made the
The core issue presented for resolution in the instant petition is who between SLDC and proper tender of payment and consignation of the price in court as required by law. Mere
Babasanta has a better right over the two parcels of land subject of the instant case in view of sending of a letter by the vendee expressing the intention to pay without the accompanying
the successive transactions executed by the Spouses Lu. payment is not considered a valid tender of payment. 24 Consignation of the amounts due in
court is essential in order to extinguish Babasanta's obligation to pay the balance of the
To prove the perfection of the contract of sale in his favor, Babasanta presented a document purchase price. Glaringly absent from the records is any indication that Babasanta even
signed by Pacita Lu acknowledging receipt of the sum of fifty thousand pesos (P50,000.00) as attempted to make the proper consignation of the amounts due, thus, the obligation on the part
partial payment for 3.6 hectares of farm lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa, of the sellers to convey title never acquired obligatory force.
Laguna.17 While the receipt signed by Pacita did not mention the price for which the property
was being sold, this deficiency was supplied by Pacita Lu's letter dated 29 May 1989 18 wherein On the assumption that the transaction between the parties is a contract of sale and not a
she admitted that she agreed to sell the 3.6 hectares of land to Babasanta for fifteen pesos contract to sell, Babasanta's claim of ownership should nevertheless fail.
(P15.00) per square meter.
Sale, being a consensual contract, is perfected by mere consent 25 and from that moment, the
An analysis of the facts obtaining in this case, as well as the evidence presented by the parties, parties may reciprocally demand performance. The essential elements of a contract of sale, to
26

irresistibly leads to the conclusion that the agreement between Babasanta and the Spouses Lu wit: (1) consent or meeting of the minds, that is, to transfer ownership in exchange for the
is a contract to sell and not a contract of sale. price; (2) object certain which is the subject matter of the contract; (3) cause of the obligation
which is established.27
Contracts, in general, are perfected by mere consent, which is manifested by the meeting of
19

the offer and the acceptance upon the thing which are to constitute the contract. The offer must The perfection of a contract of sale should not, however, be confused with its consummation. In
be certain and the acceptance absolute.20 Moreover, contracts shall be obligatory in whatever relation to the acquisition and transfer of ownership, it should be noted that sale is not a mode,
form they may have been entered into, provided all the essential requisites for their validity are but merely a title. A mode is the legal means by which dominion or ownership is created,
present.21 transferred or destroyed, but title is only the legal basis by which to affect dominion or
ownership.28 Under Article 712 of the Civil Code, "ownership and other real rights over property
The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos are acquired and transmitted by law, by donation, by testate and intestate succession, and in
(P50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta. consequence of certain contracts, by tradition." Contracts only constitute titles or rights to the
Rosa, Laguna. While there is no stipulation that the seller reserves the ownership of the transfer or acquisition of ownership, while delivery or tradition is the mode of accomplishing the
same.29 Therefore, sale by itself does not transfer or affect ownership; the most that sale does
is to create the obligation to transfer ownership. It is tradition or delivery, as a consequence of good faith' that is, the registrant must have no knowledge of the defect or lack of title of his
sale, that actually transfers ownership. vendor or must not have been aware 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.39
Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee from
the moment it is delivered to him in any of the ways specified in Article 1497 to 1501. 30 The Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired knowledge
word "delivered" should not be taken restrictively to mean transfer of actual physical possession of Babasanta's claim. Babasanta, however, strongly argues that the registration of the sale by
of the property. The law recognizes two principal modes of delivery, to wit: (1) actual delivery; SLDC was not sufficient to confer upon the latter any title to the property since the registration
and (2) legal or constructive delivery. was attended by bad faith. Specifically, he points out that at the time SLDC registered the sale
on 30 June 1990, there was already a notice of lis pendens on the file with the Register of
Actual delivery consists in placing the thing sold in the control and possession of the Deeds, the same having been filed one year before on 2 June 1989.
vendee.31 Legal or constructive delivery, on the other hand, may be had through any of the Did the registration of the sale after the annotation of the notice of lis pendens obliterate the
following ways: the execution of a public instrument evidencing the sale; 32 symbolical tradition effects of delivery and possession in good faith which admittedly had occurred prior to SLDC's
such as the delivery of the keys of the place where the movable sold is being kept; 33 traditio knowledge of the transaction in favor of Babasanta?
longa manu or by mere consent or agreement if the movable sold cannot yet be transferred to
the possession of the buyer at the time of the sale; 34 traditio brevi manu if the buyer already We do not hold so.
had possession of the object even before the sale; 35 and traditio constitutum possessorium,
where the seller remains in possession of the property in a different capacity.36 It must be stressed that as early as 11 February 1989, the Spouses Lu executed the Option to
Buy in favor of SLDC upon receiving P316,160.00 as option money from SLDC. After SLDC had
Following the above disquisition, respondent Babasanta did not acquire ownership by the mere paid more than one half of the agreed purchase price of P1,264,640.00, the Spouses Lu
execution of the receipt by Pacita Lu acknowledging receipt of partial payment for the property. subsequently executed on 3 May 1989 a Deed of Absolute Sale in favor or SLDC. At the time
For one, the agreement between Babasanta and the Spouses Lu, though valid, was not both deeds were executed, SLDC had no knowledge of the prior transaction of the Spouses Lu
embodied in a public instrument. Hence, no constructive delivery of the lands could have been with Babasanta. Simply stated, from the time of execution of the first deed up to the moment of
effected. For another, Babasanta had not taken possession of the property at any time after the transfer and delivery of possession of the lands to SLDC, it had acted in good faith and the
perfection of the sale in his favor or exercised acts of dominion over it despite his assertions subsequent annotation of lis pendens has no effect at all on the consummated sale between
that he was the rightful owner of the lands. Simply stated, there was no delivery to Babasanta, SLDC and the Spouses Lu.
whether actual or constructive, which is essential to transfer ownership of the property. Thus,
even on the assumption that the perfected contract between the parties was a sale, ownership A purchaser in good faith is one who buys property of another without notice that some other
could not have passed to Babasanta in the absence of delivery, since in a contract of sale person has a right to, or interest in, such property and pays a full and fair price for the same at
ownership is transferred to the vendee only upon the delivery of the thing sold. 37 the time of such purchase, or before he has notice of the claim or interest of some other person
in the property.40 Following the foregoing definition, we rule that SLDC qualifies as a buyer in
However, it must be stressed that the juridical relationship between the parties in a double sale good faith since there is no evidence extant in the records that it had knowledge of the prior
is primarily governed by Article 1544 which lays down the rules of preference between the two transaction in favor of Babasanta. At the time of the sale of the property to SLDC, the vendors
purchasers of the same property. It provides: were still the registered owners of the property and were in fact in possession of the lands.

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be Time and again, this Court has ruled that a person dealing with the owner of registered land is
transferred to the person who may have first taken possession thereof in good faith, if it should not bound to go beyond the certificate of title as he is charged with notice of burdens on the
be movable property. property which are noted on the face of the register or on the certificate of title. 41 In assailing
knowledge of the transaction between him and the Spouses Lu, Babasanta apparently relies on
Should it be immovable property, the ownership shall belong to the person acquiring it who in the principle of constructive notice incorporated in Section 52 of the Property Registration
good faith first recorded it in the Registry of Property. Decree (P.D. No. 1529) which reads, thus:

Should there be no inscription, the ownership shall pertain to the person who in good faith was Sec. 52. Constructive notice upon registration. 'Every conveyance, mortgage, lease, lien,
first in the possession; and, in the absence thereof, to the person who presents the oldest title, attachment, order, judgment, instrument or entry affecting registered land shall, if registered,
provided there is good faith. filed, or entered in the office of the Register of Deeds for the province or city where the land to
which it relates lies, be constructive notice to all persons from the time of such registering,
The principle of primus tempore, potior jure (first in time, stronger in right) gains greater filing, or entering.
significance in case of double sale of immovable property. When the thing sold twice is an
immovable, the one who acquires it and first records it in the Registry of Property, both made in However, the constructive notice operates as such by the express wording of Section 52 from
good faith, shall be deemed the owner.38 Verily, the act of registration must be coupled with the time of the registration of the notice of lis pendens which in this case was effected only on 2
June 1989, at which time the sale in favor of SLDC had long been consummated insofar as the At any rate, the above discussion on the rules on double sale would be purely academic for as
obligation of the Spouses Lu to transfer ownership over the property to SLDC is concerned. earlier stated in this decision, the contract between Babasanta and the Spouses Lu is not a
contract of sale but merely a contract to sell. In Dichoso v. Roxas,47 we had the occasion to rule
More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta the that Article 1544 does not apply to a case where there was a sale to one party of the land itself
annotation of the notice of lis pendens cannot help Babasanta's position a bit and it is irrelevant while the other contract was a mere promise to sell the land or at most an actual assignment of
to the good or bad faith characterization of SLDC as a purchaser. A notice of lis pendens, as the the right to repurchase the same land. Accordingly, there was no double sale of the same land
Court held in Natao v. Esteban,42 serves as a warning to a prospective purchaser or in that case.
incumbrancer that the particular property is in litigation; and that he should keep his hands off
the same, unless he intends to gamble on the results of the litigation." Precisely, in this case WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals
SLDC has intervened in the pending litigation to protect its rights. Obviously, SLDC's faith in the appealed from is REVERSED and SET ASIDE and the decision of the Regional Trial Court, Branch
merit of its cause has been vindicated with the Court's present decision which is the ultimate 31, of San Pedro, Laguna is REINSTATED. No costs.
denouement on the controversy.
SO ORDERED.
The Court of Appeals has made capital43 of SLDC's averment in its Complaint-in-
Intervention44 that at the instance of Pacita Lu it issued a check for P200,000.00 payable to
Babasanta and the confirmatory testimony of Pacita Lu herself on cross-examination. 45However,
there is nothing in the said pleading and the testimony which explicitly relates the amount to
the transaction between the Spouses Lu and Babasanta for what they attest to is that the
amount was supposed to pay off the advances made by Babasanta to Pacita Lu. In any event,
the incident took place after the Spouses Lu had already executed theDeed of Absolute Sale
with Mortgage in favor of SLDC and therefore, as previously explained, it has no effect on the
legal position of SLDC.

Assuming ex gratia argumenti that SLDC's registration of the sale had been tainted by the prior
notice of lis pendens and assuming further for the same nonce that this is a case of double sale,
still Babasanta's claim could not prevail over that of SLDC's. In Abarquez v. Court of
Appeals,46 this Court had the occasion to rule that if a vendee in a double sale registers the sale
after he has acquired knowledge of a previous sale, the registration constitutes a registration in
bad faith and does not confer upon him any right. If the registration is done in bad faith, it is as
if there is no registration at all, and the buyer who has taken possession first of the property in
good faith shall be preferred.

In Abarquez, the first sale to the spouses Israel was notarized and registered only after the
second vendee, Abarquez, registered their deed of sale with the Registry of Deeds, but the
Israels were first in possession. This Court awarded the property to the Israels because
registration of the property by Abarquez lacked the element of good faith. While the facts in the
instant case substantially differ from that in Abarquez, we would not hesitate to rule in favor of
SLDC on the basis of its prior possession of the property in good faith. Be it noted that delivery
of the property to SLDC was immediately effected after the execution of the deed in its favor, at
which time SLDC had no knowledge at all of the prior transaction by the Spouses Lu in favor of
Babasanta.

The law speaks not only of one criterion. The first criterion is priority of entry in the registry of THIRD DIVISION
property; there being no priority of such entry, the second is priority of possession; and, in the
absence of the two priorities, the third priority is of the date of title, with good faith as the [G.R. No. 147465. January 30, 2002.]
common critical element. Since SLDC acquired possession of the property in good faith in
contrast to Babasanta, who neither registered nor possessed the property at any time, SLDC's METROPOLITAN MANILA DEVELOPMENT AUTHORITY, Petitioner, v. JANCOM
right is definitely superior to that of Babasanta's. ENVIRONMENTAL CORPORATION and JANCOM INTERNATIONAL DEVELOPMENT
PROJECTS PTY. LIMITED OF AUSTRALIA, Respondents.
 Subsequently, JANCOM entered into a partnership with Asea Brown Boveri (ABB) to form
DECISION JANCOM Environmental Corporation while First Philippines formed a partnership with OGDEN.
Due to the change in the composition of the proponents, particularly in their technology
partners and contractors, the PBAC conducted a post pre-qualification evaluation.

During the second bid conference, the bid proposals of First Philippines for the Carmona site and
MELO, J.:JANCOM for the San Mateo site were found to be complete and responsive. Consequently, on
February 12, 1997, JANCOM and First Philippines were declared the winning bidders,
respectively, for the San Mateo and the Carmona projects.

In a letter dated February 27, 1997, then MMDA Chairman Prospero I. Oreta informed
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Civil JANCOMs Chief Executive Officer Jay Alparslan that the EXECOM had approved the PBAC
Procedure filed by petitioner Metropolitan Manila Development Authority (MMDA), seeking to recommendation to award to JANCOM the San Mateo Waste-to-Energy Project on the basis of
reverse and set aside the November 13, 2000 decision of the Court of Appeals declaring valid the final Evaluation Report declaring JANCOM International Ltd., Pty., together with Asea Brown
and perfected the waste management contract entered into by the Republic of the Philippines, Boveri (ABB), as the sole complying (winning) bidder for the San Mateo Waste Disposal site,
represented by the Secretary of National Resources and the Executive Committee to oversee subject to negotiation and mutual approval of the terms and conditions of the contract of award.
the build-operate-transfer implementation of solid waste management projects, and JANCOM The letter also notified Alparslan that the EXECOM had created a negotiating team composed
Environmental Corporation. of Secretary General Antonio Hidalgo of the Housing and Urban Development Coordinating
Council, Director Ronald G. Fontamillas, General Manager Roberto Nacianceno of MMDA, and
The pertinent facts are as follows:
chanrob1es virtua1 1aw 1ibrary
Atty. Eduardo Torres of the host local government unit to work out and finalize the contract
award. Chairman Oreta requested JANCOM to submit to the EXECOM the composition of its own
In 1994, then President Fidel V. Ramos issued Presidential Memorandum Order No. 202 creating negotiating team.
the Executive Committee (EXECOM) to oversee the BOT implementation of solid waste
management projects, headed by the Chairman of the MMDA and the Cabinet Officer for Thereafter, after a series of meetings and consultations between the negotiating teams of
Regional Development-National Capital Region (CORD-NCR). The EXECOM was to oversee and EXECOM and JANCOM, a draft BOT contract was prepared and presented to the Presidential Task
develop waste-to-energy projects for the waste disposal sites in San Mateo, Rizal and Carmona, Force on Solid Waste Management.
Cavite under the build-operate-transfer (BOT) scheme. The terms of reference for the waste-to-
energy projects provided that its proponents should have the capability to establish municipal On December 19, 1997, the BOT Contract for the waste-to-energy project was signed between
solid waste thermal plants using incineration technology. This type of technology was selected JANCOM and the Philippine Government, represented by the Presidential Task Force on Solid
because of its alleged advantages of greatly reduced waste volume, prolongation of the service Waste Management through DENR Secretary Victor Ramos, CORD-NCR Chairman Dionisio dela
life of the disposal site, and generation of electricity. Serna, and MMDA Chairman Prospero Oreta.

While eleven (11) proponents submitted their pre-qualification documents, most failed to On March 5, 1998, the BOT contract was submitted to President Ramos for approval but this
comply with the requirements under Section 5.4 of the Implementing Rules and Regulations was too close to the end of his term which expired without him signing the contract. President
(IRR) of Republic Act No. 6957, otherwise known as the Build-Operate-Transfer Law. On July 21, Ramos, however, endorsed the contract to incoming President Joseph E. Estrada.
1995, the Pre-qualification, Bids and Awards Committee (PBAC) recommended the pre-
qualification of three proponents, namely: i) JANCOM International Pty. Ltd.; ii) First Philippine With the change of administration, the composition of the EXECOM also changed. Memorandum
International W-E Managers; and iii) PACTECH Development Corporation. On July 26, 1995, the Order No. 19 appointed the Chairman of the Presidential Committee on Flagship Programs and
EXECOM approved the recommendation of the PBAC. On July 27, 1995, MMDA forwarded to the Project to be the EXECOM chairman. Too, Republic Act No. 8749, otherwise known as the Clean
Investment Coordinating Committee (ICC) Secretariat the pre-feasibility study on the Air Act of 1999 was passed by Congress. And due to the clamor of residents of Rizal province,
privatization of the Carmona and San Mateo landfill sites. The project was later presented to the President Estrada had, in the interim, also ordered the closure of the San Mateo landfill. Due to
ICC-Technical Board (ICC-TB) and then endorsed to the ICC-Cabinet Committee (ICC-CC). these circumstances, the Greater Manila Solid Waste Management Committee adopted a
resolution not to pursue the BOT contract with JANCOM. Subsequently in a letter dated
On May 2, 1996, the PBAC conducted a pre-bid conference where it required the three pre- November 4, 1999, Roberto Aventajado, Chairman of the Presidential Committee on Flagship
qualified bidders to submit, within ninety (90) days, their bid proposals. On August 2, 1996, Programs and Project informed Mr. Jay Alparslan, Chairman of JANCOM, that due to changes in
JANCOM and First Philippines requested for an extension of time to submit their bids. PACTECH, policy and economic environment (Clean Air Act and non-availability of the San Mateo landfill),
on the other hand, withdrew from the bidding. the implementation of the BOT contract executed and signed between JANCOM and the
Philippine Government would no longer be pursued. The letter stated that other alternative
implementation arrangements for solid waste management for Metro Manila would be
considered instead. and a companion case, CA-G.R. SP No. 60303. MMDAs motion for reconsideration of said
decision having been denied, MMDA filed the instant petition, alleging that the Court of Appeals
JANCOM appealed to President Joseph Estrada the position taken by the EXECOM not to pursue gravely erred in finding that: chanrob1es virtual 1aw library

the BOT Contract executed and signed between JANCOM and the Philippine Government,
refuting the cited reasons for non-implementation. Despite the pendency of the appeal, MMDA, 1) There is a valid and binding contract between the Republic of the Philippines and JANCOM
on February 22, 2000, caused the publication in a newspaper of an invitation to pre-qualify and given that: a) the contract does not bear the signature of the President of the Philippines; b)
to submit proposals for solid waste management projects for Metro Manila. JANCOM thus filed the conditions precedent specified in the contract were not complied with; and c) there was no
with the Regional Trial Court of Pasig a petition for certiorari to declare i) the resolution of the valid notice of award.
Greater Metropolitan Manila Solid Waste Management Committee disregarding the BOT Contract
and ii) the acts of MMDA calling for bids and authorizing a new contract for Metro Manila waste 2) The MMDA had not seasonably appealed the Decision of the lower court via a petition
management, as illegal, unconstitutional, and void; and for prohibition to enjoin the Greater for certiorari.
Metropolitan Manila Solid Waste Management Committee and MMDA from implementing the
assailed resolution and disregarding the Award to, and the BOT contract with, JANCOM, and Before taking up the substantive issue in question, we shall first dispose of the question as to
from making another award in its place. On May 29, 2000, the trial court rendered a decision, whether it is fatal to petitioners cause, that rather than appealing the trial courts decision to
the dispositive portion of which reads: chanrob1es virtual 1aw library the Court of Appeals, it instead filed a petition for certiorari. While petitioner claims that the trial
courts decision never became final by virtue of its having appealed by certiorari to the Court of
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of Appeals, the trial court ruled that petitioners failure to file an appeal has made its decision final
petitioners JANCOM ENVIRONMENTAL CORPORATION, and JANCOM INTERNATIONAL and executory. At bottom, the question involves a determination of the propriety of petitioners
DEVELOPMENT PROJECTS PTY., LIMITED OF AUSTRALIA, and against respondent GREATER choice of the remedy of certiorari in questioning the decision of the trial court.
METROPOLITAN MANILA SOLID WASTE MANAGEMENT COMM., and HON. ROBERTO N.
AVENTAJADO, in his Capacity as Chairman of the said Committee, METRO MANILA Section 1, Rule 65 of the 1997 Rules of Civil Procedure provides: chanrob1es virtual 1aw library

DEVELOPMENT AUTHORITY and HON. JEJOMAR C. BINAY, in his capacity as Chairman of said
Authority, declaring the Resolution of respondent Greater Metropolitan Manila Solid Waste
Management Committee disregarding petitioners BOT Award Contract and calling for bids for
and authorizing a new contract for the Metro Manila waste management ILLEGAL and VOID.
Moreover, respondents and their agents are hereby PROHIBITED and ENJOINED from
implementing the aforesaid Resolution and disregarding petitioners BOT Award Contract and
from making another award in its place.
Section 1. Petition for certiorari. When any tribunal, board or officer exercising judicial or
quasi-judicial functions has acted without or in excess of its or his jurisdiction, or with grave
abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal, or any
plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby
may file a verified petition in the proper court, alleging the facts with certainty and praying that
judgment be rendered annulling or modifying the proceedings of such tribunal, board or officer,
and granting such incidental reliefs as law and justice may require.

Let it be emphasized that this Court is not preventing or stopping the government from The petition shall be accompanied by a certified true copy of the judgment, order, or resolution
implementing infrastructure projects as it is aware of the proscription under PD 1818. On the subject thereof, copies of all pleadings and documents relevant and pertinent thereto, and a
contrary, the Court is paving the way for the necessary and modern solution to the perennial sworn certification of non-forum shopping as provided in the third paragraph of Section 3, Rule
garbage problem that has been the major headache of the government and in the process 46.
would serve to attract more investors in the country.
Plain it is from a reading of the above provision that certiorari will lie only where a court has
(Rollo, p. 159.) acted without or in excess of jurisdiction or with grave abuse of discretion. If the court has
jurisdiction over the subject matter and of the person, its rulings upon all questions involved are
Instead of appealing the decision, MMDA filed a special civil action for certiorari with prayer for awithin its jurisdiction, however irregular or erroneous these may be, they cannot be corrected
temporary restraining order with the Court of Appeals which was later docketed therein as CA- by certiorari. Correction may be obtained only by an appeal from the final decision.
G.R. SP No. 59021. The appellate court not only required JANCOM to comment on the petition,
it also granted MMDAs prayer for a temporary restraining order. During the pendency of the Verily, Section 1, Rule 41 of the 1997 Rules of Civil Procedure provides: chanrob1es virtual 1aw library

petition for certiorari, JANCOM moved for the execution of the RTC decision, which was opposed
by MMDA. However, the RTC granted the motion for execution on the ground that its decision SEC. 1. Subject of appeal. An appeal may be taken from a judgment or final order that
had become final since MMDA had not appealed the same to the Court of Appeals. MMDA moved completely disposes of the case or of a particular matter therein when declared by these Rules
to declare respondents and the RTC judge in contempt of court, alleging that the RTCs grant of to be appealable.
execution was abuse of and interference with judicial rules and processes.
x x x
On November 13, 2001, the Court of Appeals dismissed the petition in CA-G.R. SP No. 59021
 hereafter be declared to be immediately executory shall be enforced after their rendition and
shall not be stayed by an appeal therefrom, unless otherwise ordered by the trial court (Sec. 4,
In all the above instances where the judgment or final order is not appealable, the aggrieved rule 39, id.).
party may file an appropriate special civil action under Rule 65.
Since the RTC decision is not immediately executory, appeal would have stayed its execution.
There can be no dispute that the trial courts May 29, 2000 decision was a final order or Consequently, the adverse effects of said decision will not visit upon petitioners during the
judgment which MMDA should have appealed, had it been so minded. In its decision, the trial appeal. In other words, appeal is a plain, speedy and adequate remedy in the ordinary course of
court disposed of the main controversy by "declaring the Resolution of respondent Greater the law.
Metropolitan Manila Solid Waste Management Committee disregarding petitioners BOT Award
Contract and calling for bids for and authorizing a new contract for the Metro Manila waste But as no appeal was taken within the reglementary period, the RTC decision had become final
management ILLEGAL and VOID." This ruling completely disposed of the controversy between and executory. Well-settled is the rule that the special civil action for certiorari may not be
MMDA and JANCOM. In BA Finance Corporation v. CA (229 SCRA 5667 [1994]), we held that a invoked as a substitute for the remedy of appeal (BF Corporation v. Court of Appeals, 288 SCRA
"final" order or judgment is one which "disposes of the whole subject matter or terminates a 267). Therefore, the extraordinary remedy of certiorari does not lie.
particular proceeding or action, leaving nothing to be done but to enforce by execution what has
been determined." An order or judgment is deemed final when it finally disposes of the pending Moreover, petitioners instituted the instant action without filing a motion for reconsideration of
action so that nothing more can be done with it in the trial court. In other words, a final order is the RTC decision. Doctrinal is the rule that certiorari will not lie unless a motion for
that which gives an end to the litigation. A final order or judgment finally disposes of, reconsideration is first filed before the respondent tribunal to allow it an opportunity to correct
adjudicates, or determines the rights, or some right or rights of the parties, either on the entire its errors (Zapanta v. NLRC, 292 SCRA 580).
controversy or on some definite and separate branch thereof, and concludes them until it is
reversed or set aside. Where no issue is left for future consideration, except the fact of (Rollo, pp. 47-48.)
compliance or non-compliance with the terms of the judgment or doer, such judgment or order
is final and appealable (Investments, Inc. v. Court of Appeals, 147 SCRA 334 [1987]). Admittedly, there are instances where the extraordinary remedy of certiorari may be resorted to
despite the availability of an appeal. In Ruiz, Jr. v. Court of Appeals (220 SCRA 490 [1993]), we
However, instead of appealing the decision, MMDA resorted to the extraordinary remedy held:
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of certiorari, as a mode of obtaining reversal of the judgment. This cannot be done. The
judgment was not in any sense null and void ab initio, incapable of producing any legal effects Considered extraordinary, [certiorari] is made available only when there is no appeal, nor any
whatever, which could be resisted at any time and in any court it was attempted. It was a plain, speedy or adequate remedy in the ordinary course of the law (Rule 65, Rules of Court,
judgment which could or may have suffered from some substantial error in procedure or in Section 1). The long line of decisions denying the petition for certiorari, either before appeal was
findings of fact or of law, and on that account, it could have been reversed or modified on availed or specially in instances where the appeal period has lapsed, far outnumbers the
appeal. But since it was not appealed, it became final and has thus gone beyond the reach of instances when certiorari was given due course. The few significant exceptions were: when
any court to modify in any substantive aspect. The remedy to obtain reversal or modification of public welfare and the advancement of public policy dictate; or when the broader interests of
the judgment on the merits is appeal. This is true even if the error, or one of the errors, justice so require, or when the writs issued are null . . . or when the questioned order amounts
ascribed to the court rendering the judgment is its lack of jurisdiction over the subject matter, to an oppressive exercise of judicial authority.
or the exercise of power in excess thereof, or grave abuse of discretion in the findings of fact or
of law set out in the decision. The existence and availability of the right of appeal proscribes a In the instant case, however, MMDA has not sufficiently established the existence of any fact or
resort to certiorari, because one of the requirements for availment of the latter remedy is reason to justify its resort to the extraordinary remedy of certiorari. Neither does the record
precisely that "there should be no appeal" (Mercado v. CA, 162 SCRA 75 [1988]). As incisively show that the instant case, indeed, falls under any of the exceptions aforementioned.
observed by the Court of Appeals: chanrob1es virtual 1aw library

The Court thus holds that the Court of Appeals did not err in declaring that the trial courts
The special civil action for certiorari is available only when there is no appeal nor any plain, decision has become final due to the failure of MMDA to perfect an appeal within the
speedy and adequate remedy in the ordinary course of law (Sec. 1, rule 65, id.) reglementary period.

Admittedly, appeal could have been taken from the assailed RTC decision. However, petitioners With the foregoing disquisition, it would appear unnecessary to discuss and resolve the
maintain that appeal is not a speedy remedy because the RTC decision prohibiting them from substantive issue posed before the Court. However, the procedural flaw notwithstanding, the
conducting a bidding for a new waste disposal project has adverse and serious effects on the Court deems it judicious to take cognizance of the substantive question, if only to put
citys garbage situation. petitioners mind to rest.

Nevertheless, the RTC decision is not immediately executory. Only judgments in actions for In its second assignment of errors, petitioner MMDA contends that there is no valid and binding
injunction, receivership, accounting and support and such other judgments as are now or may contract between the Republic of the Philippines and respondents because: a) the BOT contract
does not bear the signature of the President of the Philippines; b) the conditions precedent existing between the parties giving to them certain rights and obligations (conditions
specified in the contract were not complied with; and that c) there was no valid notice of award. precedents) in accordance with the terms and conditions thereof. We borrow the words of the
Court of Appeals: chanrob1es virtual 1aw library

These contentions hold no water.

Petitioners belabor the point that there was no valid notice of award as to constitute acceptance
Under Article 1305 of the Civil Code," [a] contract is a meeting of minds between two persons of private respondents offer. They maintain that former MMDA Chairman Oretas letter to
whereby one binds himself, with respect to the other, to give something or to render some JANCOM EC dated February 27, 1997 cannot be considered as a valid notice of award as it does
service." A contract undergoes three distinct stages preparation or negotiation, its perfection, not comply with the rules implementing Rep. Act No. 6957, as amended. The argument is
and finally, its consummation. Negotiation begins from the time the prospective contracting untenable.
parties manifest their interest in the contract and ends at the moment of agreement of the
parties. The perfection or birth of the contract takes place when the parties agree upon the The fact that Chairman Oretas letter informed JANCOM EC that it was the "sole complying
essential elements of the contract. The last stage is the consummation of the contract wherein (winning) bidder for the San Mateo project leads to no other conclusion than that the project
the parties fulfill or perform the terms agreed upon in the contract, culminating in the was being awarded to it. But assuming that said notice of award did not comply with the legal
extinguishment thereof (Bugatti v. CA, 343 SCRA 335 [2000]). Article 1315 of the Civil Code, requirements, private respondents cannot be faulted therefore as it was the government
provides that a contract is perfected by mere consent. Consent, on the other hand, is representatives duty to issue the proper notice.
manifested by the meeting of the offer and the acceptance upon the thing and the cause which
are to constitute the contract (See Article 1319, Civil Code). In the case at bar, the signing and In any event, Petitioners, as successors of those who previously acted for the government
execution of the contract by the parties clearly show that, as between the parties, there was a (Chairman Oreta, Et. Al.), are estopped from assailing the validity of the notice of award issued
concurrence of offer and acceptance with respect to the material details of the contract, thereby by the latter. As private respondents correctly observed, in negotiating on the terms and
giving rise to the perfection of the contract. The execution and signing of the contract is not conditions of the BOT contract and eventually signing said contract, the government had led
disputed by the parties. As the Court of Appeals aptly held:chanrob1es virtual 1aw library private respondents to believe that the notice of award given to them satisfied all the
requirement of the law.
[C]ontrary to petitioners insistence that there was no perfected contract, the meeting of the
offer and acceptance upon the thing and the cause, which are to constitute the contract (Arts. While the government cannot be estopped by the erroneous acts of its agents, nevertheless,
1315 and 1319, New Civil Code), is borne out by the records. petitioners may not now assail the validity of the subject notice of award to the prejudice of
private respondents. Until the institution of the original action before the RTC, invalidity of the
Admittedly, when petitioners accepted private respondents bid proposal (offer), there was, in notice of award was never invoked as a ground for termination of the BOT contract. In fact, the
effect, a meeting of the minds upon the object (waste management project) and the cause reasons cited for terminating the San Mateo project, per Chairman Aventajados letter to
(BOT scheme). Hence, the perfection of the contract. In City of Cebu v. Heirs of Candido Rubi JANCOM EC dated November 4, 1999, were its purported non-implementability and non-viability
(306 SCRA 108), the Supreme Court held that "the effect of an unqualified acceptance of the on account of supervening events, e.g., passage of the Clean Air Act, etc.
offer or proposal of the bidder is to perfect a contract, upon notice of the award to the bidder.
(Rollo, pp. 49-50.)
(Rollo, pp. 48-49.)
MMDA also points to the absence of the Presidents signature as proof that the same has not yet
In fact, in asserting that there is no valid and binding contract between the parties, MMDA can been perfected. Not only that, the authority of the signatories to bind the Republic has even
only allege that there was no valid notice of award; that the contract does not bear the been put to question. Firstly, it is pointed out that Memorandum Order No. 202 creating the
signature of the President of the Philippines; and that the conditions precedent specified in the Executive Committee to oversee the BOT implementation of solid waste management projects
contract were not complied with. only charged the officials thereof with the duty of recommending to the President the specific
project to be implemented under the BOT scheme for both San Mateo and Carmona sites.
In asserting that the notice of award to JANCOM is not a proper notice of award, MMDA points Hence, it is concluded that the signatories, CORD-NCR Chairman Dionisio dela Serna and MMDA
to the Implementing Rules and Regulations of Republic Act No. 6957, otherwise known as the Chairman Prospero Oreta, had no authority to enter into any waste management project for and
BOT Law, which require that i) prior to the notice of award, an Investment Coordinating in behalf of the Government. Secondly, Section 59 of Executive Order No. 292 is relied upon as
Committee clearance must first be obtained; and ii) the notice of award indicate the time within authority for the proposition that presidential approval is necessary for the validity of the
which the awardee shall submit the prescribed performance security, proof of commitment of contract.
equity contributions and indications of financing resources.
The first argument conveniently overlooks the fact that then Secretary of Environment and
Admittedly, the notice of award has not complied with these requirements. However, the defect Natural Resources Victor Ramos was likewise a signatory to the contract. While dela Serna and
was cured by the subsequent execution of the contract entered into and signed by authorized Oreta may not have had any authority to sign, the Secretary of Environment and Natural
representatives of the parties; hence, it may not be gainsaid that there is a perfected contract Resources has such an authority. In fact, the authority of the signatories to the contract was not
denied by the Solicitor General. Moreover, as observed by the Court of Appeals," [i]t was not would actually be Section 1 of Executive Order No. 380, Series of 1989 which provides that "The
alleged, much less shown, that those who signed in behalf of the Republic had acted beyond the Secretaries of all Departments and Governing Boards of government-owned or controlled
scope of their authority."
cralaw virtua1aw library corporations [except the Secretaries of Public Works and Highways, Transportation and
Communication, and Local Government with respect to Rural Road Improvement projects] can
In truth, the argument raised by MMDA does not focus on the lack of authority of the enter into publicly bidded contracts regardless of amount (See also Section 515, Government
signatories, but on the amount involved as placing the contract beyond the authority of the Accounting and Auditing Manual Volume I)." Consequently, MMDA may not claim that the
signatories to approve. Section 59 of Executive Order No. 292 reads: BOT contract is not valid and binding due to the lack of presidential approval.
chanrob1es virtual 1aw library

Section 59. Contracts for Approval by the President. Contracts for infrastructure projects, Significantly, the contract itself provides that the signature of the President is necessary only for
including contracts for the supply of materials and equipment to be used in said projects, which its effectivity (not perfection), pursuant to Article 19 of the contract. which reads: chanrob1es virtual 1aw library

involve amounts above the ceilings provided in the preceding section shall be approved by the
President: Provided, That the President may, when conditions so warrant, and upon
recommendation of the National Economic and Development Authority, revise the aforesaid
ceilings of approving authority.
However, the Court of Appeals trenchantly observed in this connection:
This contract shall become effective upon approval by the President of the Republic of the
Philippines pursuant to existing laws subject to the condition precedent in Article 18. This
contract shall remain in full force and effect for twenty-five (25) years subject to renewal for
another twenty-five (25) years from the date of Effectivity. Such renewal will be subject to
chanrob1es virtual 1aw library mutual agreement of the parties and approval of the President of the Republic of the Philippines.

As regards the Presidents approval of infrastructure projects required under Section 59 of (Rollo, p. 94.)
Executive Order No. 292, said section does not apply to the BOT contract in question. Sec. 59
should be correlated with Sec. 58 of Exec. Order No. 292. Said sections read: chanrob1es virtual 1aw library Stated differently, while the twenty-five year effectivity period of the contract has not yet
started to run because of the absence of the Presidents signature, the contract has,
SECTION 58. Ceiling for Infrastructure Contracts. The following shall be the ceilings for all nonetheless, already been perfected.
civil works, construction and other contracts for infrastructure projects, including supply
contracts for said projects, awarded through public bidding or through negotiation, which may As to the contention that there is no perfected contract due to JANCOMs failure to comply with
be approved by the Secretaries of Public Works and Highways, Transportation and several conditions precedent, the same is, likewise, unmeritorious. Article 18 of the BOT
Communications, Local Government with respect to Rural Road Improvement Project and contract reads: chanrob1es virtual 1aw library

governing boards of government-owned or controlled corporations: chanrob1es virtual 1aw library

ARTICLE 18
x x x
CONDITIONS PRECEDENT

x x x
Save as provided for above, the approval ceilings assigned to the departments/agencies
involved in national infrastructure and construction projects shall remain at the levels provided
in existing laws, rules and regulations.
18.2.1 The BOT COMPANY hereby undertakes to provide the following within 2 months from
Contrary to petitioners claim that all infrastructure contracts require the Presidents approval execution of this Contract as an effective document: chanrob1es virtual 1aw library

(Petition, p. 16), Sec. 59 provides that such approval is required only in infrastructure contracts
involving amounts exceeding the ceilings set in Sec. 58. Significantly, the infrastructure
contracts treated in Sec. 58 pertain only to those which may be approved by the Secretaries of
Public Works and Highways, Transportation and Communications, Local Government (with
respect to Rural Road Improvement Project) and the governing boards of certain government-
owned or controlled corporations. Consequently, the BOT contract in question, which was
approved by the DENR Secretary and the EXCOM Chairman and Co-Chairman, is not covered by
Exec. Order No. 292.
(Rollo, pp. 51-52.)
a) sufficient proof of the actual equity contributions from the proposed shareholders of the BOT
COMPANY in a total amount not less than PHP500,000,000 in accordance with the BOT Law and
the implementing rules and regulations;
b) sufficient proof of financial commitment from a lending institution sufficient to cover total
project cost in accordance with the BOT Law and the implementing rules and regulations;
c) to support its obligation under this Contract, the BOT COMPANY shall submit a security bond
to the CLIENT in accordance with the form and amount required under the BOT Law.

The provision pertinent to the authority of the Secretary of Environment and Natural Resources x x x
 As regards the projected closure of the San Mateo landfill vis-a-vis the implementability of the
18.2.3 Completion of Documentary Requirements as per Schedule 4 by the BOT Company contract, Art. 2.3 thereof expressly states that" [i]n the event the project Site is not
delivered . . ., the Presidential Task Force on Solid Waste Management (PTFSWM) and the
As clearly stated in Article 18, JANCOM undertook to comply with the stated conditions within 2 Client, shall provide within a reasonable period of time, a suitable alternative acceptable to the
months from execution of the Contract as an effective document. Since the President of the BOT COMPANY." cralaw virtua1aw library

Philippines has not yet affixed his signature on the contract, the same has not yet become an
effective document. Thus, the two-month period within which JANCOM should comply with the With respect to the alleged financial non-viability of the project because the MMDA and the local
conditions has not yet started to run. It cannot thus be said that JANCOM has already failed to government units cannot afford the tipping fees under the contract, this circumstance cannot,
comply with the "conditions precedent" mandated by the contract. By arguing that "failure [of by itself, abrogate the entire agreement.
JANCOM] to comply with the conditions results in the failure of a contract or prevents the
judicial relation from coming into existence," MMDA reads into the contract something which is Doctrinal is the rule that neither the law nor the courts will extricate a party from an unwise or
not contemplated by the parties. If the terms of a contract are clear and leave no doubt upon undesirable contract, or stipulation for that matter, he or she entered into with full awareness of
the intention of the contracting parties, the literal meaning of its stipulations shall control (Art. its consequences (Opulencia v. CA, 293 SCRA 385). Indeed, the terms and conditions of the
1370, Civil Code). subject contract were arrived at after due negotiations between the parties thereto. chanrob1es virtua1 1aw 1ibrary

We, therefore, hold that the Court of Appeals did not err when it declared the existence of a (Rollo, p. 54.)
valid and perfected contract between the Republic of the Philippines and JANCOM. There being a
perfected contract, MMDA cannot revoke or renounce the same without the consent of the other.WHEREFORE, premises considered, the petition is hereby DISMISSED for lack of merit and the
From the moment of perfection, the parties are bound not only to the fulfillment of what has decision of the Court of Appeals in CA-G.R. SP No. 59021 dated November 13, 2001 AFFIRMED.
been expressly stipulated but also to all the consequences which, according to their nature, may No costs.
be in keeping with good faith, usage, and law (Article 1315, Civil Code). The contract has the
force of law between the parties and they are expected to abide in good faith by their respective SO ORDERED.
contractual commitments, not weasel out of them. Just as nobody can be forced to enter into a
contract, in the same manner, once a contract is entered into, no party can renounce it
unilaterally or without the consent of the other. It is a general principle of law that no one may
be permitted to change his mind or disavow and go back upon his own acts, or to proceed SECOND DIVISION
contrary thereto, to the prejudice of the other party. Nonetheless, it has to be repeated that
although the contract is a perfected one, it is still ineffective or unimplementable until and [G.R. No. 20435. October 23, 1923. ]
unless it is approved by the President.
LUIS ASIAN, Plaintiff-Appellant, v. BENJAMIN JALANDONI, Defendant-Appellee.
Moreover, if after a perfected and binding contract has been executed between the parties, it
occurs to one of them to allege some defect therein as reason for annulling it, the alleged defect Arroyo & Gurrea for Appellant.
must be conclusively proven, since the validity and the fulfillment of contracts cannot be left to
the will of one of the contracting parties. In the case at bar, the reasons cited by MMDA for not Francisco Soriano for Appellee.
pushing through with the subject contract were: 1) the passage of the Clean Air Act, which
allegedly bans incineration; 2) the closure of the San Mateo landfill site; and 3) the costly SYLLABUS
tipping fee. These reasons are bereft of merit.
1. CONTRACTS; VENDOR AND VENDEES; RESCISSION OF CONTRACTS FOR ERROR OR
Once again, we make reference to the insightful declarations of the Court of Appeals: MISTAKE; ARTICLE 1471 OF THE CIVIL CODE CONSTRUED. J thought he was buying, and A
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thought he was selling, a tract of land containing between 25 and 30 hectares, with a standing
Sec. 20 of the Clean Air Act pertinently reads: chanrob1es virtual 1aw library
crop capable of producing 2,000 piculs of sugar. As a matter of fact the tract of land contained
slightly more than 18 hectares and produced 800 piculs of sugar. Held: Not a contract of hazard
SECTION 20. Ban on Incineration. Incineration, hereby defined as the burning of municipal, but a contract for the sale of land in gross which will be avoided for mutual error or mistake.
bio-chemical and hazardous wastes, which process emits poisonous and toxic fumes, is hereby
prohibited: . . ."
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2. ID.; ID.; ID.; ID. If land is sold within boundaries with an expression of the area and if the
area is grossly deficient, the vendee has option, either to have the price reduced proportionately
Section 20 does not absolutely prohibit incineration as a mode of waste disposal; rather only or to ask for the rescission of the contract.
those burning processes which emit poisonous and toxic fumes are banned.
 3. ID.; ID.; ID.; ID. Mutual mistake of the contracting parties to a sale in regard to the
subject-matter of the sale which is so material as to go the to go the essence of the contract, is "HDA. MARIA, May 26, 1920.
a ground for relief and rescission. It has been held that, when the parties saw the premises and
knew the boundaries, it cannot prevent relief when there was mutual gross mistake a to "Mr. BENJAMIN JALANDONI.
quantity.
"DEAR BENJAMIN: I am in receipt of your letter and with regard to your statement that parcel
4. ID.; ID.; ID.; ID. Equity will rescind a contract for the sale of land which the boundaries does not contain 21 hectares I do not believe. I bet anything that part only which is planted
given in the contract contained, where the deficiency is material. with cane contains more than 20 hectares, I bet 2 against 1.

5. ID.; ID.; ID.; ID. Sales in gross for the purpose of equitable relief may be divided into four "If you agree, I would bet that you pay only one-half. I am not a surveyor, but these days I had
subordinate classifications. One class concerns sales in which it is evident from extraneous of the pleasure to survey the land and I know more or less its area.
the parties that they did not contemplate or intend to risk more than the usual rates of excess
or deficiency in similar cases, or than such as might reasonably be calculated, or as within the "Here we are not to deceive each other. If you like that parcel and if you want to buy it I will
range of ordinary contingency. In sales of this class an unreasonable surplus or deficiency may give you good propositions. I dont know where and how they learned that I was selling the
entitle the injured party to equitable relief, unless he has, by his conduct, waived or forfeited his hacienda and they made me a good offer, but as we do not want to part but with that parcel,
equity. hence my propositions are the following, in view of the time that elapse and the progress of the
cane.
6. ID.; ID.; ID.; ID. The phrase "more or less" or others of like import, added to a statement
of the quantity, can only be considered as covering inconsiderable or small differences one way "I assure (aseguro) that there are 2,000 piculs and sell on that basis, provided that the cane is
or other. The use of such phrases in designating the quantity covers only a reasonable excess or milled in due time. In case the sugar does not amount to 2,000 piculs, I will pay in sugar
deficiency. amount as will be necessary to complete the 2,000 piculs, all the excess over 2,000 piculs, all
the excess shall be mine. So that if you like, I make the sale for the same price that we talked
7. ID.; ID.; ID.; ID. Irureta Goyena v. Tambunting ([1902], 1 Phil., 490), distinguished. about and the same conditions, not a dime more or less.

"Since you left it did not rain, so the alociman (Philippine herb) of Guimib must die on the field,
whether of the hacienda or the lagatio. You have a contract for a lump sum. Now they have
begun to plow the old plantations within the boundary some days ago and you may rest and
DECISION throw one (unintelligible), answer yes or no, so that I may decide.

"Your friend LUIS ASIAIN"

Sometime later, in July of the same year, Asiain and Jalandoni having met at Iloilo, they
MALCOLM, J. :prepared and signed the memorandum-agreement which follows: jgc:chanroble s.com.ph

Luis Asian, the plaintiff-appellant in this case, is the owner of the hacienda known as "Maria"
situated in the municipality of La Carlota, Province of Occidental Negros, containing about 106
hectares. Benjamin Jalandoni, the defendant-appellee, is the owner of another hacienda
adjoining that of Asiain.
Asiain and Jalandoni happening to meet on one of the days of May, 1920, Asiain said to
Jalandoni that he was willing to sell a portion of his hacienda for the sum of P55,000. With a
wave of his hand, Asiain indicated the tract of land in question, affirming that it contained
between 25 and 30 hectares, and that the crop of sugar cane the planted would produce not
less than 2,000 piculs of sugar. But Jalandoni, remaining doubtful as to the extent of the land
and as to the amount of the crop on it, Asiain wrote Jalandoni the letter which follows: jgc:chanroble s.com.ph
"Purchase of land of Mr. Luis Asiain and his wife Maria Cadenas, by B. Jalandoni, containing 25
hectares more or less of land bounded by property of the purchaser, with its corresponding
crop, estimated at 2,000 piculs; the total value of which is 55 thousand. The price is to be paid
by paying 30 thousand at the signing of the document, and 25 thousand within one year, with
interest at the rate of 10 per cent.
"Mr. Asiain is under obligation to take care of all the plantation until the planting is finished and
in case the crop exceeds 2,000 piculs, all the excess will belong to Mr. Asiain.
"The adjacent landowner on the north and the west is the vendor himself, on the east, b.
Jalandoni, and on the south B. Jalandoni and the widow of Abdon Ferrer.
"The purchaser is under obligation to answer for all the rights and obligations of the land with
the Central of Inchausti.
"After the planting of the cane is completely finished Mr. Asiain shall vacate the parcel sold to
the purchaser. (Sgd.) "ENGRACIO PADILLA

"The expenses for taking care of said plantation until the planting is completely finished will be "P. T. TREAS"
for the account of the vendor Mr. Asiain.
Once in possession of the land, Jalandoni did two things. He had the sugar cane ground in La
(Sgd.) "LUIS ASIAIN Carlota Sugar Central with the result that it gave an output of 800 piculs and 23 cates of
centrifugal sugar. When opportunity offered, he secured the certificate of title of Asiain and
"BENJAMIN JALANDONI" procured a parcel in question contained an area of 18 hectares, 54 ares, and 22 centiares.

During all of the period of negotiations, Jalandoni remained a doubting Thomas and was Of the purchase price of P55,000, Jalandoni had paid P30,000, leaving a balance unpaid of
continually suggesting that, in his opinion, the amount of the land and of the crop was P25,000. To recover the sum of P25,000 for Jalandoni or to obtain the certificate of title and the
overestimated. Asiain on his part always gave assurances in conformity with the letter which he rent from him, action was begun by Asiain in the Court of First Instance of Occidental Negros.
had written intended to convince Jalandoni that the latter was in error in his opinion. As a To the complaint, an answer and a counter-complaint were interposed by the defendant, by
result, the parties executed the agreement follows: jgc:chanrobles.com .ph which it was asked that he be absolved from the complaint, that the contract be annulled, both
parties to return whatever they had received, and that he recover from the plaintiff the sum of
"This document, executed in the city of Iloilo, Province of Iloilo, Philippine Islands, by and P3,600 annually as damages. In a well-reason decision, the Honorable Eduardo Gutierrez David,
between Messrs. Luis Asiain and Benjamin Jalandoni, of age and residents of the municipality of Judge of First Instance, declared null the document of purchase and its related memorandum;
La Carlota, Province of Occidental Negros, Philippine Islands, absolved the defendant from the payment of P25,000; ordered the plaintiff to return to the
defendant the sum of P30,000 with legal interest from July 12, 1920; ordered the defendant to
"Witnesseth: jgc:chanroble s.com.ph turn over to the plaintiff the tract of land and the certificate of title No. 468, and absolved the
plaintiff from the counter-complaint, all without special finding as to the costs. It is from said
"(1) That Luis Asiain does hereby promise and bind himself to sell to Benjamin Jalandoni a judgment that the plaintiff has appealed.
parcel of land of the hacienda Maria of the aforesaid Luis Asiain, situated in the municipality of
La Carlota, Province of Occidental Negros, P. I. The true facts need not give us pause. They are as found by the trial judge and as practically
agreed to by the parties. It is only necessary to keep in mind that apparently there was always
"(2) That Benjamin Jalandoni does hereby promise and bind himself to purchase the aforesaid a difference of opinion between Asiain and Jalandoni as the area of the tract and as to the crop
parcel of land in the sum of P55,000 upon certain conditions specified in a memorandum signed of sugar cane; that the agreement between them mentions land containing 25 hectares more or
by the parties which is in the hands of Attorneys Padilla & Treas. less, giving the boundaries, and a crop estimated and in one sense warranted at 2,000 piculs,
and that in reality the land contained only a little more that in reality the land contained only a
"(3) That upon the signing of this agreement, the vendor shall have the right to collect from the little more than 18 hectares and produced a crop of only about 800 piculs. The legal
purchaser part of the price giving receipts therefor signed by said vendor. consequences arising from these facts are more difficult of determination.

"(4) That in case the vendor should withdraw from the contract and desist from signing the Our Civil Code contains provisions which must be taken into consideration. Codal articles 1265,
document of final sale, the purchaser shall have the right to collect from said vendor all such 1266, and 1269 relate to consent given by reason of error and deceit. They provide the rules
amount as may have been advanced on account of this sale, with an indemnity of P15,000 as which shall avoid contracts for these and other reasons. But the provisions of the Civil Code
penalty. most directly pertinent are found in articles 1469, 1470, and 1471.

"(5) In case it is the purchaser who should withdraw from the contract of sale, then he will lose The first two mentioned articles, 1469 and 1470, are not applicable because of the proviso
all such amount as may have been paid in advance on account of this transaction. relating to the sale being made at a certain price for each unit of measure or number which is
not our case. The facts seem to fall within article 1471. Its first paragraph provides that in case
"In witness whereof, we have hereunto affixed our signatures, at Iloilo, Iloilo, this 12th day of of the sale of real estate for a lump sum and not at the rate of specified price for each unit or
July, 1920. measure, there shall be no increase or decrease of the price even if the area be found to be
more or less than that stated in the contract. The next paragraph provides that the same rule is
(Sgd.) "LUIS ASIAIN applicable when two or more estates are sold for a single price. Then comes the following: . . .
but, if in addition to a statement of the boundaries, which is indispensable in every conveyance
"BENJAMIN JALANDONI of real estate, the area of the estate should be designated in the contract, the vendor shall be
obliged to deliver all that is included within such boundaries, even should it exceed the area
"Signed in the presence of: chanrob1es virtual 1aw library specified in the contract; and, should be not be able to do so, he shall suffer a deduction of the
price in proportion to what is lacking of the area, unless the contract be annulled by reason of number. It is added as a ground for this solution that if the vendor fulfills the obligation, as
the vendees refusal to accept anything other than that which was stipulated." stated in the article, by delivering what is not included within the boundaries, there can never
cralaw virtua1aw library

be any case of proportionate reduction of the price on account of shortage of area, because he
A study of the Spanish commentators discloses that the meaning of article 1471 is not as clear does not give less who delivers all that he bound himself to.
as it might be and, that they are not unanimous in their views. Manresa gives emphasis to the
intention of the parties and the option on the part of the purchaser to rescind the contact. To "According to this opinion, which we believe erroneous, if within the boundaries of the property
quote from Manresa: jgc:chanrobles.com .ph sold, there is included more area than that expressed in the title deeds, nothing can be claimed
by the vendor who loses the value of that excess, but if there is less area, then he loses also,
"The rule in the latter case is found in the second paragraph of article 1471, with the exception because either the price is reduced or the contract is annulled. This theory would be anomalous
of the first clause which refers to the former hypothesis. This rule may be formulated as follows: in case of sale of properties in bulk, but, above all, would do gross injustice which the legislator
Whether the case is one of sale of realty for a lump sum and, consequently, not at the rate of a never intended.
specified price for each unit of measure or number, the vendor shall be bound to deliver all that
is within the boundaries stated although it may exceed the area or number expressed in the "There is no such thing. So long as the vendor can deliver, and for that reason, delivers all the
contract; in case he cannot deliver it, the purchaser shall have the right to reduce the price land included within the boundaries assigned to the property, there can be no claim whatsoever
proportionately to what is lacking of the area or number, or rescind the contract at his option. either on his part, although the area may be found to be much greater than what was
expressed, nor on the part of the purchaser although what area may be in reality much smaller.
x x x But as he sold everything within boundaries and this is all the purchaser has paid, or must pay,
for whether much or little, if afterwards, it is found that he cannot deliver all, because, for
instance, a part, a building, a valley, various pieces of land, a glen, etc.,., are not his, there is
no sale of a specified thing, there is no longer a sale of the object agreed upon, and the solution
"The manner in which the matter covered by this article was distributed in its two paragraphs given by the article is then just and logical: Either the contract is annulled or the piece is
contributes to making it difficult to understand. This rule may be formulated as follows: reduced proportionately." (10 Comentarios al Codigo Civil, p. 157.)
Whether the case is one of sale of realty for a lump sum or of two or more for a single price
which is also a lump sum and, consequently, not at the rate of a specified price for each unit of The principle is deducted from the Code, that if land shall be sold within boundaries with an
measure or number, the vendor shall be bound to deliver all that is within the boundaries stated expression of the area and if the area is grossly deficient, the vendee has an option, either to
although it may exceed the area or number expressed in the contract; in case he cannot deliver have the price reduced proportionately or to ask for the rescission of the contract. The rule of
it, the purchaser shall have the right to reduce the price proportionately to what is lacking of the civil law is more favorable to the purchaser than is the common law. It gives the excess to
the area or number, or rescind the contract at his option. the purchaser than is the common law. It gives the excess to the purchaser without
compensation to the vendor, where the property is sold by a specific description followed by the
"The manner in which the matter covered by this article was distributed in its two paragraphs mention of the quantity or measure, but allows the purchaser either to secure a deduction from
contributes to making it difficult to understand. The rule might have been clearly stated had the the price in case of a deficiency or to annul the contract.
first clause of the second paragraph been included in the first paragraph, the latter to end with
the words, "The same rule shall apply when two or more estates are sold for a single price." The decision of this court which gave most direct consideration to article 1471 of the Civil Code,
And if by constituting an independent paragraph, with the rest of the second paragraph, it were now chiefly relied upon by the appellant, is found in Irureta Goyena v. Tambunting ([1902], 1
made to appear more expressly that the rule of second paragraph thus drawn referred to all the Phil., 490). The rule announced in the syllabus is this: "An agreement to purchase a certain
cases of paragraph thus drawn referred to all the cases of paragraph one, as we have we have specified price is obligatory and enforceable regardless of the fact that its area is less than that
expounded, namely, to the case of a sale of one single estate and that of two or more for one mentioned in the contract." Taken literally, this rule would lead to the result desired by the
single price, the precept would have been clearer. appellant. But the syllabus naturally must be understood in relation with what is found in the
decision itself; and the fact was that the tract of land was mentioned as being located at No. 20
"In our opinion, this would have better answered what we deem to be the indubitable intention Calle San Jose, Ermita, Manila. The private contract expressed a specific thing as the object of
of the legislator. the contract and specified thing as the object of the contract and specified a certain price. There
was no statement in the document of the superficial area and no hint in the record that either or
"Some eminent commentators construe the last part of article 1471 in a different way. To them both parties were misled. The facts, therefore, are different than those before us and the
the phrase and should he not be able to do so as applied to the vendor, does not mean as doctrine in the Irureta Goyena v. Tambunting case, can well be followed and distinguished.
apparently it does should he not be able to deliver all that is included within the boundaries
stated, but this other thing, namely, that if by reason of the fact that a less area is included A comparative study of the American authorities throws considerable light on the situation. In
within the boundaries than that expressed in the contract, it is not possible for the vendor to volume 39 Cyc., page 1250, under the subject "Vendor and Purchaser," is found the
comply therewith according to its literal sense, he must suffer either the effects of the nullity of following:jgc:chanrobles.com .ph

the contract or a reduction of the price proportionately to what may be lacking of the area or
"If, in a contract of sale the quantity of the realty to be conveyed is indicated by a unit of area, general rule may not carry into effect the real intention of the parties it is calculated to prevent
as by the acre, a marked excess or deficiency in the quantity stipulated for is a ground for litigation. From a nearly date courts of equity under their general jurisdiction to grant relief on
avoiding the contract. Since it is difficult, if not impossible, to ascertain the quantity of a tract the ground of mistake have in case of a mistake in the estimation of the acreage in the tract
with perfect accuracy, a slight excess or deficiency does not affect the validity of the contract. sold and conveyed interposed their aid to grant relief to the vendor where there was a large
surplus over the estimated acreage, and to the purchaser where there was a large deficit. For
"Where, however, the contract is not for the sale of a specific quantity of land, but for the sale the purpose of determining whether relief shall granted the courts have divided the cases into
of a particular tract, or designated lot or parcel, by name or description, for a sum in gross, and two general classes: (1) Where the sale is of a specific quantity which is usually denominated a
the transaction is bona fide, a mutual mistake as to quantity, but not as to boundaries, will not sale by the acre; (2) where the sale is of a specific tract by name or description, which is
generally entitle the purchaser to compensation, and is not ground for rescission. But it is well usually called a sale in gross. . . ." cralaw virtua1aw library

settled that a purchaser of land, when it is sold in gross, or with the description, more or less,
or about, does not thereby ipso facto take all risk of quantity in the tract. If the difference "Sales in gross for the purpose of equitable relief may be divided into various subordinate
between the real and the represented quantity is very great, both parties act obviously under a classifications: strictly and essentially by the tract, without reference in the negotiation or in the
mistake which it is the duty of a court of equity to correct. And relief will be granted when the consideration to any designated or estimated quantity of acres; (2) sales of the like kind, in
mistake is so material that if the truth had been known to the parties the sale would not have which, though a supposed quantity by estimation is mentioned or referred to in the contract,
been made." cralaw virtua1aw library the reference was made only for the purpose of description, and under such circumstances or in
such a manner as to show that the parties intended to risk the contingency of quantity, what
Volume 27 of the Ruling Case Law, pages 354, 434, 436, states what follows: ever it might be, or how much so ever it might exceed or fall short of that which was mentioned
jgc:chanrobles.com .ph

in the contract; (3) sales in which it is evident, from extraneous circumstances of locality, value,
"A mutual mistake as to the quantity of the land sold may afford ground for equitable relief. As price, time, and the conduct and conversations of the parties, that they did not contemplate or
has been said, if, through gross and palpable mistake, more or less land should be conveyed intend to risk more than the usual rates of excess or deficit in similar cases, or than such as
than was in the contemplation of the seller to part with or the purchaser to receive, the injured might reasonably be calculated on as within the range of ordinary contingency; (4) sales which,
party would be entitled to relief in like manner as he would be for an injury produced by a though technically deemed and denominated sales in gross, are in fact sales by the acre, and so
similar cause in a contract of any other species. And when it is evident that there has been a understood by the parties. Contracts belonging to either of the two first mentioned classes,
gross mistake as to quantity, and the complaining party has not been guilty of any fraud or whether executed or executory, should not be modified by the chancellor when there has been
culpable negligence, nor has he otherwise impaired the equity resulting from the mistake, he no fraud. But in sales of either the third or fourth kind, an unreasonable surplus or deficit may
may be entitled to relief from the technical or legal effect of his contract, whether it be executed entitle the injured party to equitable relief, unless he has, by his conduct, waived or forfeited his
or only executory. It has also been held that where there is a very great difference between the equity. . . ." cralaw virtua1aw library

actual and the estimated quantity of acres of land sold in gross, relief may be granted on the
ground of gross mistake. Relief, however will not be granted as a general rule where it appears The memorandum-agreement between Asiain and Jalandoni contains the phrase "more or less."
that the parties intended a contract of hazard, as where the sale is a sale in gross and not by
acreage or quantity as a basis for the price; and it has been held that a mistake on the part of can only be considered as covering inconsiderable or small differences one way or the other, and
the vendor of a town lot sold by description as to number on the plat, as to its area or
dimensions, inducing a sale thereof at a smaller price than he would have asked had been
cognizant of its size, not in any way occasioned or concealed by conduct of the purchaser,
constitutes no ground for the discrepancies in the adjudicated cases involving mistakes as to
quantity arise not from a denial of or a failure to recognize the general principle, but from a
denial of or failure to recognize the general principle, but from the difficulty of its practical
application in particular cases in determining the questions whether the contract was one of
hazard as to quantity or not and whether the variance is unreasonable. The relative extent of
the surplus or deficit cannot furnish, per se, an infallible criterion in each case for its
determination, but each case must be considered with reference not only to that but its other
peculiar circumstances. The conduct of the parties, the value, extent, and locality of the land,
the date of the contract, the price, and other nameless circumstances, are always important,
and generally decisive. In other words, each case must depend on its own peculiar
circumstances and surroundings." cralaw virtua1aw library
"The rule denying relief in case of a deficit or an excess is frequently applied in equity as well as
at law, but a court of equity will not interfere on account of either a surplus or a deficiency
where it is clear that the parties intend a contract of hazard, and it is said that although this
It is the general view that this phrase or others of like import, added to a statement of quantity,
do not in themselves determine the character of the sale as one in gross or by the acre. The use
of this phrase in designating quantity covers only a reasonable excess or deficiency. Such words
may indeed relieve from exactness but not from gross deficiency.
The apparent conflict and discrepancies in the adjudicated cases arise not from a denial of or a
failure to recognize the general principles. These principles, as commonly agreed to, may be
summarized as follows: A vendee of land when it is sold in gross or with the description "more
or less" does not thereby ipso facto take all risk of quantity in the land. The use of "more or
lease" or similar words in designating quantity covers only a reasonable excess or deficiency.
Mutual mistake of the contracting parties to a sale in regard to the subject-matter of the sale
which is so material as to go to the essence of the contract, is a ground for relief and rescission.
It has been held that when the parties saw the premises and knew the boundaries it cannot
prevent relief when there was mutual gross mistake as to quantity. Innocent and mutual
mistake alone are sufficient grounds for rescission. (Bigham v. Madison [1899], 47 L. R. A.,
267.) The difficulty comes from the application of the principles in particular cases.
A practical demonstration of what has just been said is disclosed by the notes in volume 27 of
Ruling Case Law, page 439. In the following cases, relief was denied: Lawson v. Floyd, 124 U.
S., 108 S. Ct., 409; 31 U. S. (L. ed.) , 347 (estimated acreage about 1,000 acres; shortage 368 convenience of such a rule has been insisted on, and in the denial of justice it certainly has the
acres); Frederick v. Youngblood, 19 Ala., 680; 54 Am. Dec., 209 (estimated acreage 500 acres merit of simplicity. If denial of justice it certainly has the merit of simplicity. If the doctrine is
more or less; shortage 39 acres); Jones v. Plater, 2 Gill (Md.) , 125; 41 Am. Dec., 408 (stated true as broadly as stated, then there is one class of contracts to which the settled maxim that
acreage 998 acres; shortage 55 acres); Frenche v. State, 51 N. J. Eq., 624; 27 Atl., 140; 140; equity will relieve against mistake can have no application. Upon a careful examination of the
40 A. S. R., 548 (stated acreage 195-98/100 be the same or less; shortage 1-37/100); Faure v. cases cited, as well as upon principle, my conclusion is, that agreements of this description are
Martin, 7 N. Y., 210; 57 Am. Dec., 515 (stated acreage 96 acres more or less; deficit 10 acres); not necessarily proof against the maxims which apply to all others." Then follows a review of
Smith v. Evans, 6 Bin. (Pa.) , 102; 6 Am. Dec., 436 (shortage of 88 acres in tract conveyed as the cases not alone of the state of New York and other states in the American Union but
containing 991 1/4 acres more or less); Jollife v. Hite, 1 Call (Va.) , 301; 1 Am. Dec., 519 England as well. The rule was announced that equity will rescind a contract for the sale of land
(stated acreage 578 acres more or less; shortage 66 acres); Pendleton v. Stewart, 5 Call (Va.) , for mutual mistakes as to the quantity of land which the boundaries given in the contract
1;2 Am. Dec., 583 (stated acreage 1,100 acres more or less; shortage 160 acres); Nelson v. contained, where the deficiency is material. "More or less," used in the contract in connection
Matthews, 2 Hen. & M. (Va.) , 164; 3 Am. Dec., 620 (stated acreage 852 acres more or less; with the statement of the quantity, will not prevent the granting of such relief.
shortage of 8 acres). In the following cases relief was granted: Harrell v. Hill, 19 Ark., 102; 68
Am. Dec., 372 (stated acreage 121 acres more or less; deficit 36 acres); Hays v. Hays, 126 Coordinating more closely the law and the facts in the instant case, we reach the following
Ind., 92; 25 N. E., 600; 11 L. R. A., 376 (stated acreage 28.4 acres more or less; deficit 5 conclusions: This was not a contract of hazard. It was a sale in gross in which there was a
acres); Baltimore, etc., Land Soc. v. Smith, 54 Md., 187; 39 Am. Rep., 374 (stated acreage mutual mistake as to the quantity of land sold and as to the amount of the standing corp. The
about 65 acres; deficit 30 to 35 acres); Newton v. Tolles, 66 N. H., 136; 19 Atl., 1092; 49 A. S. mistake of fact as disclosed not alone by the terms of the contract but by the attendant
R., 593; 9 L. R. A., 50 (stated acreage about 200 acres; deficit 65 acres); Couse v. Boyles, 4 N. circumstances, which it is proper to consider in order to throw light upon the intention of the
J. Eq., 212; 38 Am. Dec., 212 (stated acreage 135 acres more or less; deficit 30 acres); parties, is, as it is sometimes expressed, the efficient cause of the concoction. The mistake with
Belknap v. Sealey, 14 N. Y., 143; 67 Am. Dec., 120 (stated acreage 8 acres more or less; deficit reference to the subject-matter of the contract is such that, at the option of the purchaser, it is
4 acres); Paine v. Upton, 87 N. Y., 327; 41 Am. Rep., 371 (stated acreage "about 222 acres be rescindable. Without such mistake the agreement would not have been made and since this is
the same more or less;" shortage 18 acres); Bigham v. Madison, 103 Tenn., 358; 52 S. W., true, the agreement is inoperative and void. It is not exactly a case of over reaching on the
1074; 47 L. R. A., 267 (stated acreage 25 acres more or less; deficit 12 acres); Smith v. Fly, 24 plaintiffs part, or of misinterpretation and deception, or of fraud, but it more nearly akin to a
Tex., 345; 76 Am. Dec., 109 (stated acreage 500 acres more or less; deficit 115 acres); Triplett bilateral mistake for which relief should be granted. Specific performance of the contract can
v. Allen, 26 Grat. (Va.) , 721; 21 Am. Rep., 320 (stated acreage 166 acres more or less; deficit therefore not allowed at the instance of the vendor.
10 acres); Epes v. Saunders, 109 Va., 99; 63 S. E., 428; 132 A. S. R., 902 (stated acreage 75
acres more or less; deficit 22 acres); McComb v. Gilkeson, 110 Va., 406; 66 S. E., 77; 135 A. S. The ultimate result is to put the parties back in exactly their respective positions before they
R., 944 (stated acreage 245 acres more or less; deficit 10 acres). became involved in the negotiations and before accomplishment of the agreement. This was the
decision of the trial judge and we think that decision conforms to the facts, the law, and the
A case often cited and which on examination is found to contain a most exhaustive review of the principles of equity.
decisions, is that of Belknap v. Sealey ([1856], 14 N. Y., 143; 67 Am. Dec., 120). The facts
were: "Upon the merits of the controversy the case is quite simple in its facts. The land in Judgment affirmed, without prejudice to the right of the plaintiff to established in this action in
question is situated in the city of Brooklyn; and being valuable only for division and sale as city the lower court the amount of the rent of the land pursuant to the terms of the complaint during
lots, its value is precisely in proportion to the quantity. In consideration of the gross sum of the land was in the possession of the defendant, and to obtain judgment against the appellant.
fourteen thousand dollars, of which one thousand dollars was paid down, the defendant agreed So ordered.
to convey the land to the plaintiff, describing it as the premises conveyed to him by Samuel T.
Roberts, be deed dated about nine months previous. The deed of Roberts contained a definite
description by meets and bounds, and stated the quantity to be about nine acres, more or less,
excepting a certain parcel of one acre and six perches. The quantity in fact is only about half as
much as the deed asserted. The plaintiff, in agreeing to purchase the tract at the sum named,
acted under a mistake which affected the price nearly one half, and the judge has found that
the seller was mistaken also. . . . The judge has found that the actual quantity was substantially
and essentially less than the plaintiff supposed he was purchasing; and although the finding
does not so state in terms, there can be no difficulty, I think, in affirming that if the true
quantity had been known, the contract would not have been made. The agreement has never
been consumated by a conveyance. These are the only essential facts in the case." The learned
Judge remarked: "The counsel for the defendant is obliged to contend, and he does contend,
that mere mistake as to the quantity of land affords no ground of relief against a contract in the
terms of the present one, however serious such mistake may be, and although we can readily
see the contract would never have been made if the quantity had been made known. The
 FIRST DIVISION

[G.R. No. 150179. April 30, 2003.]

HEIRS OF WILLIAM SEVILLA, NAMELY: WILFREDO SEVILLA, WILSON SEVILLA, WILMA

SEVILLA, WILLINGTON SEVILLA, AND WILLIAM SEVILLA, JR., HEIRS OF MARIA
SEVILLA, NAMELY: AMADOR SEVILLA, JENO CORTES, VICTOR CORTES, MARICEL
CORTES, ALELEI * CORTES AND ANJEI ** CORTES, Petitioners, v. LEOPOLDO SEVILLA,
PETER SEVILLA, AND LUZVILLA SEVILLA, Respondents.

DECISION

YNARES-SANTIAGO, J.:

One who alleges defect or lack of valid consent to a contract by reason of fraud or undue
influence must establish by full, clear and convincing evidence such specific acts that vitiated a
partys consent, otherwise, the latters presumed consent to the contract prevails. 1

The instant petition for review seeks to set aside the September 26, 2000 Decision 2 of the
Court of Appeals in CA-G.R. CV No. 48956, affirming in toto the Decision 3 of the Regional Trial
Court of Dipolog City, Branch 6, in Civil Case No. 4240 which declared, inter alia, the questioned
Deed of Donation Inter Vivos valid and binding on the parties. chanrob1es virtua1 1aw 1ibrary

The undisputed facts reveal that on December 10, 1973, Filomena Almirol de Sevilla died
intestate leaving 8 children, namely: William, Peter, Leopoldo, Felipe, Rosa, Maria, Luzvilla, and
Jimmy, all surnamed Sevilla. William, Jimmy and Maria are now deceased and are survived by
their respective spouses and children. 4 Filomena Almirol de Sevilla left the following
properties: chanrob1es virtual 1aw library

PARCEL I: chanrob1es virtual 1aw library

A parcel of land known as Lot No. 653 situated at General Luna St., Dipolog City, with an area of
about 804 square meters, more or less, duly covered by Transfer Certificate of Title No. (T-
6671)-1448 [in the name of Filomena Almirol de Sevilla, Honorata Almirol and Felisa Almirol]
and assessed at P31,360.00 according to Tax Dec. No. 018-947;
 pending submission by Peter Sevilla of a Special Power of Attorney authorizing him to represent
PARCEL II: chanrob1es virtual 1aw library the other heirs of Filomena Almirol de Sevilla. 13

A parcel of land known as Lot No. 3805-B situated at Olingan, Dipolog City, with an area of
about 18,934 square meters, more or less, duly covered by Transfer Certificate of Title No. T-
6672 and assessed at P5,890 according to Tax Dec. No. 009-761;
PARCEL III: chanrob1es virtual 1aw library
A parcel of land known as Lot No. 837-1/4 situated at Magsaysay Street, Dipolog City, with an
area of about 880 square meters more or less, duly covered by Original Certificate of Title No.
0-6064 and assessed at P12,870.00 according to Tax Dec. No. 020-1078;
PARCEL IV: chanrob1es virtual 1aw library
A parcel of residential land known as Lot No. 1106-B-3 situated at Sta. Filomena, Dipolog City,
with an area of 300 square meters, more or less, assessed at P3,150.00 according to Tax Dec.
No. 006-317;
On June 21, 1990, Felipe Sevilla, Rosa Sevilla, and the heirs of William, Jimmy and Maria, all
surnamed Sevilla, filed the instant case against respondents Leopoldo Sevilla, Peter Sevilla and
Luzvilla Sevilla, for annulment of the Deed of Donation and the Deed of Extrajudicial Partition,
Accounting, Damages, with prayer for Receivership and for Partition of the properties of the late
Filomena Almirol de Sevilla. 14 They alleged that the Deed of Donation is tainted with fraud
because Felisa Almirol, who was then 81 years of age, was seriously ill and of unsound mind at
the time of the execution thereof; and that the Deed of Extra-judicial Partition is void because it
was executed without their knowledge and consent. 15
In their answer, 16 respondents denied that there was fraud or undue pressure in the execution
of the questioned documents. They alleged that Felisa was of sound mind at the time of the
execution of the assailed deeds and that she freely and voluntarily ceded her undivided share in
Lot No. 653 in consideration of Leopoldos and his familys love, affection, and services rendered
in the past. Respondents further prayed that Parcels II, III, and IV be partitioned among the
heirs of Filomena Almirol de Sevilla in accordance with the law on intestate succession. chanrob1es virtua1 1aw 1ibrary

Commercial building erected on Parcel I above-described; and residential building erected just On December 16, 1994, a decision was rendered by the Regional Trial Court of Dipolog City,
at the back of the commercial building above-described and erected on Parcel I above- Zamboanga del Norte, Branch 6, upholding the validity of the Deed of Donation and declaring
described; 5 the Deed of Extra-judicial Partition unenforceable. The dispositive portion thereof, reads: chanrob1es virtual 1aw library

Parcel I, Lot No. 653, is the paraphernal property of Filomena Almirol de Sevilla which she co- WHEREFORE, IN VIEW OF THE FOREGOING, summing up the evidence for both the plaintiffs
owned with her sisters, Honorata Almirol and Felisa Almirol, 6 who were both single and without and the defendants, the Court hereby renders judgment: chanrob1es virtual 1aw library

issue. Parcels II, III and IV are conjugal properties of Filomena Almirol de Sevilla and her late
husband Andres Sevilla. 7 When Honorata died in 1982, her 1/3 undivided share in Lot No. 653 1) Declaring the questioned Deed of Donation Inter Vivos valid and binding, and, therefore, has
was transmitted to her heirs, Felisa Almirol and the heirs of Filomena Almirol de Sevilla, who the full force and effect of law;
thereby acquired the property in the proportion of one-half share each. chanrob1es virtua1 1aw 1ibrary

2) Declaring the questioned Deed of Extra-Judicial Partition as unenforceable as yet as against

During the lifetime of Felisa and Honorata Almirol, they lived in the house of Filomena Almirol de the other heirs, as it lacks the legal requisites of Special Power of Attorney or any other
Sevilla, together with their nephew, respondent Leopoldo Sevilla and his family. Leopoldo appropriate instrument to be executed by the other heirs who were not made parties thereto;
attended to the needs of his mother, Filomena, and his two aunts, Honorata and Felisa. 8
3) Finding the parties herein entitled to the partition of Parcel II, III, IV as designated in the
Felisa died on July 6, 1988. 9 Previous thereto, on November 25, 1985, she executed a last will Complaint, in equal shares, and, as to Lot No. 653 designated as Parcel I, it shall be divided
and testament devising her 1/2 share in Lot No. 653 to the spouses Leopoldo Sevilla and Belen equally into two, between defendant Leopoldo Sevilla on one hand, and, collectively, the Heirs of
Leyson. 10 On August 8, 1986, Felisa executed another document denominated as "Donation William Sevilla, Heirs of Jimmy Sevilla, Heirs of Maria Sevilla, Felipe Sevilla, Leopoldo Sevilla,
Inter Vivos" ceding to Leopoldo Sevilla her 1/2 undivided share in Lot No. 653, which was Peter Sevilla, Luzvilla Sevilla-Tan, on the other hand, as well as the two buildings thereon in
accepted by Leopoldo in the same document. 11 proportionate values;

On September 3, 1986, Felisa Almirol and Peter Sevilla, in his own behalf and in behalf of the 4) Directing the parties, if they can agree, to submit herewith a project of partition, which shall
heirs of Filomena Almirol de Sevilla, executed a Deed of Extra-judicial Partition, identifying and designate the share which pertains to the heirs entitled thereto, that is, the particular and
adjudicating the 1/3 share of Honorata Almirol to the heirs of Filomena Almirol de Sevilla and to specific portions of the properties subject of the partition;
Felisa Almirol. 12
5) Directing defendant Peter Sevilla to pay and/or collect from the parties the amounts
Thereafter, respondents Leopoldo, Peter and Luzvilla Sevilla obtained the cancellation of Transfer corresponding to each one entitled or liable thereto, as recorded in the Statement of Accounts,
Certificate of Title No. (T-6671)-1448, over Lot No. 653, and the issuance of the corresponding except for defendant Leopoldo Sevilla who is found by the Court to have incurred only an
titles to Felisa Almirol and the heirs of Filomena Almirol de Sevilla. However, the requested titles overdraft of P5,742.98 and not P33,204.33 as earlier computed therein.
for Lot Nos. 653-A and 653-B, were left unsigned by the Register of Deeds of Dipolog City,
6) Dismissing the plaintiffs claim for damages, which is not proved with sufficient evidence, and undue influence can be inferred from the following circumstance alleged by the petitioners, to
defendants counterclaim, on the same ground. wit

7) With costs de officio. A. That Felisa Almirol lived with respondent Leopoldo Sevilla in the residential house owned by
petitioners and respondents;
IT IS SO ORDERED. 17
B. That the old woman Felisa Almirol was being supported out of the rentals derived from the
Both parties appealed to the Court of Appeals. Petitioners contended that the Deed of Donation building constructed on the land which was a common fund. . . .
should be declared void and that Lot No. 653 should be divided equally among them.
Respondents, on the other hand, posited that the trial court erred in declaring the Deed of C. That when Felisa Almirol was already 82 years old, he [Leopoldo Sevilla] accompanied her in
Extra-judicial Partition unenforceable against the other heirs of Filomena Almirol de Sevilla who the Office of Atty. Vic T. Lacaya, Sr., for the purpose of executing her last will and testament . . .
were not parties to said Deed.
D. That in the last will and testament executed by Felisa Almirol, she had devised in favor of
On September 26, 2000, the Court of Appeals affirmed in toto the assailed decision of the trial respondent Leopoldo Sevilla one-half of the land in question;
court. 18 Petitioners filed a motion for reconsideration but the same was denied on August 30,
2001. 19 E. That respondent Leopoldo Sevilla not contented with the execution by Felisa Almirol of her
last will and testament, had consulted a lawyer as to how he will be able to own the land
Hence, the instant petition based on the following assignment of errors: immediately;
chanrob1es virtual 1aw library

THAT THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING AS VOID AB INITIO THE F. That upon the advice of Atty. Helen Angeles, Clerk of Court of the Regional Trial Court of
DEED OF DONATION EXECUTED BY FELISA ALMIROL IN FAVOR OF RESPONDENT LEOPOLDO Zamboanga del Norte, Dipolog City, Felisa Almirol executed a Deed of Donation, hence, the
SEVILLA CEDING TO HIM ONE HALF PORTION OF LOT 653, DIPOLOG CADASTRE, IT HAVING questioned Deed of Donation executed in his favor;
BEEN EXECUTED WITH FRAUD, UNDUE PRESSURE AND INFLUENCE;
G. That the subject matter of the Deed of Donation was the one-half portion of Lot 653, Dipolog
THAT THE APPELLATE COURT GREATLY ERRED IN NOT ORDERING THE PARTITION OF LOT 653, Cadastre, which was willed by Felisa Almirol, in favor of respondent Leopoldo Sevilla in her last
DIPOLOG CADASTRE EQUALLY AMONG THE EIGHT (8) HEIRS OF FILOMENA, HONORATA AND will and testament;
FELISA, ALL SURNAMED ALMIROL. 20
H. That at the time of the execution of the Deed of Donation, Lot No. 653, Dipolog Cadastre,
To resolve the issue raised in the instant petition for review, the validity of the donation inter was not yet partitioned between petitioners and respondents they being heirs of the late
vivos executed by Felisa Almirol in favor of Leopoldo Sevilla must first be determined. Filomena and Honorata, all surnamed Almirol;

Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in
favor of another who accepts it. 21 Under Article 737 of the Civil Code, the donors capacity
shall be determined as of the time of the making of the donation. Like any other contract, an
agreement of the parties is essential, 22 and the attendance of a vice of consent renders the
donation voidable. 23
In the case at bar, there is no question that at the time Felisa Almirol executed the deed of
donation she was already the owner of 1/2 undivided portion of Lot No. 653. Her 1/3 undivided
share therein was increased by 1/2 when she and Filomena inherited the 1/3 share of their
sister Honorata after the latters death. Hence, the 1/2 undivided share of Felisa in Lot No. 653
is considered a present property which she can validly dispose of at the time of the execution of
the deed of donation. 24
I. That after the execution of the Deed of Donation, respondent Peter Sevilla and the late Felisa
Almirol were the only ones who executed the Deed of Extra-judicial Partition over Lot 653,
Dipolog Cadastre, the petitioners were not made parties in the said Deed of Extrajudicial
Partition;
J. That on the basis of the Deed of Extrajudicial Partition and Deed of Donation, respondent
Leopoldo Sevilla caused the subdivision survey of Lot 653, Dipolog Cadastre, dividing the same
into two (2) lots, adjudicating one-half of the lot in his favor and the other half in favor of
respondents Peter Sevilla and Luzvilla Sevilla, and to respondent Leopoldo Sevilla himself;
K. That only two persons knew the actual survey of the land, petitioner Felipe Sevilla and
respondent Leopoldo Sevilla himself, the rest of the co-owners were not even notified;

Petitioners, however, insist that respondent Leopoldo Sevilla employed fraud and undue
influence on the person of the donor. This argument involves appreciation of the evidence. 25
The settled rule is that factual findings of the trial court, if affirmed by the Court of Appeals, are
entitled to great respect. 26 There are exceptional circumstances when findings of fact of lower
courts may be set aside 27 but none is present in the case at bar. Indeed, neither fraud nor
L. That on the basis of the Extrajudicial Partition, Deed of Donation, the approved subdivision
plan, respondent Leopoldo Sevilla filed a petition for issuance of the corresponding titles for the
two lots, but the Register of Deeds of Dipolog City refused to issue the corresponding titles for
the two lots to respondent Leopoldo Sevilla so that up to this moment . . . the two titles were
left unsigned by the Register of Deeds. 28
 acceptance by the donee. And once a donation is accepted, the donee becomes the absolute
There is fraud when, through the insidious words or machinations of one of the contracting owner of the property donated.
parties, the other is induced to enter into a contract which, without them, he would not have
agreed to. 29 There is undue influence when a person takes improper advantage of his power Evidently, Felisa did not possess the capacity to give consent to or execute the deed of partition
over the will of another, depriving the latter of a reasonable freedom of choice. The following inasmuch as she was neither the owner nor the authorized representative of respondent
circumstances shall be considered: the confidential, family, spiritual and other relations between Leopoldo to whom she previously transmitted ownership of her undivided share in Lot No. 653.
the parties, or the fact that the person alleged to have been unduly influenced was suffering Considering that she had no legal capacity to give consent to the deed of partition, it follows
from mental weakness, or was ignorant or in financial distress. 30 that there is no consent given to the execution of the deed, and therefore, there is no contract
to speak of. As such, the deed of partition is void ab initio, hence, not susceptible of ratification.
Ei incumbit probatio qui dicit, non qui negat. He who asserts, not he who denies, must prove.
We have consistently applied the ancient rule that if the plaintiff, upon whom rests the burden Nevertheless, the nullity of the deed of extra-judicial partition will not affect the validity of the
of proving his cause of action, fails to show in a satisfactory manner facts on which he bases his donation inter vivos ceding to respondent Leopoldo Sevilla the 1/2 undivided share of Felisa
claim, the defendant is under no obligation to prove his exception or defense. 31 In the instant Almirol in Lot No. 653. Said lot should therefore be divided as follows: 1/2 shall go to
case, the self-serving testimony of the petitioners are vague on what acts of Leopoldo Sevilla respondent Leopoldo Sevilla by virtue of the deed of donation, while the other half shall be
constituted fraud and undue influence and on how these acts vitiated the consent of Felisa divided equally among the heirs of Filomena Almirol de Sevilla including Leopoldo Sevilla,
Almirol. Fraud and undue influence that vitiated a partys consent must be established by full, following the rules on intestate succession.
clear and convincing evidence, otherwise, the latters presumed consent to the contract prevails.
32 Neither does the fact that the donation preceded the partition constitute fraud. It is not Finally, we note that the name of Rosa Sevilla, daughter of Filomena Almirol de Sevilla, and one
necessary that partition should first be had because what was donated to Leopoldo was the 1/2 of the plaintiffs herein, was omitted in the dispositive portion of the trial courts decision. 37 Her
undivided share of Felisa in Lot No. 653. chanrob1es virtua1 1aw 1ibrary name should therefore be included in the dispositive portion as one of the heirs entitled to share
in the properties of the late Filomena Almirol de Sevilla.
Moreover, petitioners failed to show proof why Felisa should be held incapable of exercising
sufficient judgment in ceding her share to respondent Leopoldo. 33 As testified by the notary WHEREFORE, in view of all the foregoing, the Decision of the Court of Appeals in CA-G.R. CV
public who notarized the Deed of Donation, Felisa confirmed to him her intention to donate her No. 48956, affirming in toto the Decision of the Regional Trial Court of Dipolog City, Branch 6, in
share in Lot No. 653 to Leopoldo. He stressed that though the donor was old, she was of sound Civil Case No. 4240, is AFFIRMED with MODIFICATION. The Deed of Extra-judicial Partition
mind and could talk sensibly. Significantly, there is nothing in the record that discloses even an dated September 3, 1986 is declared void, and the name of Rosa Sevilla is ordered included in
attempt by petitioners to rebut said declaration of the notary public. the dispositive portion of the trial courts judgment.
chanrob1es virtua1 1aw 1ibrary chanrob1es virtua1 1aw 1ibrary

Clearly, therefore, the courts below did not err in sustaining the validity of the deed of donation. SO ORDERED.

Anent the Deed of Extra-judicial Partition, we find that the same is void ab initio and not merely
unenforceable. In Delos Reyes v. Court of Appeals, 34 which is a case involving the sale of a lot
by a person who is neither the owner nor the legal representative, we declared the contract void
ab initio. It was held that one of the requisites of a valid contract under Article 1318 of the Civil
Code is the consent and the capacity to give consent of the parties to the contract. The legal
capacity of the parties is an essential element for the existence of the contract because it is an
indispensable condition for the existence of consent. There is no effective consent in law without
the capacity to give such consent. In other words, legal consent presupposes capacity. Thus,
there is said to be no consent, and consequently, no contract when the agreement is entered
into by one in behalf of another who has never given him authorization therefor unless he has
by law a right to represent the latter. 35

In the case at bar, at the time Felisa executed the deed of extra-judicial partition dividing the
share of her deceased sister Honorata between her and the heirs of Filomena Almirol de Sevilla,
she was no longer the owner of the 1/2 undivided portion of Lot No. 653, having previously
donated the same to respondent Leopoldo Sevilla who accepted the donation in the same deed.
A donation inter vivos, as in the instant case, is immediately operative and final. 36 As a mode
of acquiring ownership, it results in an effective transfer of title over the property from the
donor to the donee and the donation is perfected from the moment the donor knows of the
 DOMETILA M. ANDRES, doing business under the name and style "IRENES WEARING
APPAREL,", Petitioner, v. MANUFACTURERS HANOVER & TRUST CORPORATION and
COURT OF APPEALS, Respondents.

Roque A. Tamayo for Petitioner.

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for Private Respondent.

SYLLABUS

1. CIVIL PROCEDURE; REVIEW ON CERTIORARI UNDER RULE 45 OF THE REVISED RULE OF

COURT; CONFINED TO ERRORS OF LAW. Only questions of law may be raised in a petition
for certiorari under Rule 45 of the Revised Rules of Court, the findings of fact of the Court of
Appeals being conclusive.

2. STATUTORY CONSTRUCTION; SPECIFIC PROVISION OF LAW PREVAILS OVER COMMON LAW

PRINCIPLE. Between a common law principle and a statutory provision, the latter must
prevail in this jurisdiction.

3. OBLIGATIONS AND CONTRACTS; ARTICLE 2154 OF THE CIVIL CODE; REQUISITES TO ITS
APPLICATION. For Article 2154 of the Civil Code to apply the following requisites must
concur: (1) that he who paid was not under obligation to do so; and (2) that payment was
made by reason of an essential mistake of fact.

4. ID.; ID.; APPLICABLE IN THE CASE AT BAR. Since Article 2154 of the Civil Code which
embodies the doctrine of solutio indebiti applies in the case at bar, the court must reject the
common law principle that if one of two persons must suffer by the wrongful act of a third
persons, the loss must be borne by one whose negligence was the proximate cause of the loss.

5. ID.; ACTIONS BASED UPON A QUASI-CONTRACT; PRESCRIPTIVE PERIOD THEREOF. An

action for recovery of a sum of money erroneously received by one who has no right to demand
it prescribes in six years.

DECISION

THIRD DIVISION

[G.R. No. 82670. September 15, 1989.]

 CORTES, J.:remittance was made not by mistake but by negligence and petitioner was not unjustly enriched
by virtue thereof [Record, p. 234]. On appeal, the Court of Appeals held that Art. 2154 is
applicable and reversed the RTC decision. The dispositive portion of the Court of Appeals
decision reads as follows:
chanrob1es virtual 1aw library

WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE and another one
Assailed in this petition for review on certiorari is the judgment of the Court of Appeals, which,
applying the doctrine of solutio indebiti, reversed the decision of the Regional Trial Court, entered in favor of plaintiff-appellant and against defendant-appellee Domelita (sic) M. Andres,
Branch CV, Quezon City by deciding in favor of private Respondent. doing business under the name and style "Irenes Wearing Apparel" to reimburse and/or return
to plaintiff-appellant the amount of $10,000.00, its equivalent in Philippine currency, with
Petitioner, using the business name "Irenes Wearing Apparel," was engaged in the manufacture interests at the legal rate from the filing of the complaint on May 12, 1982 until the whole
of ladies garments, childrens wear, mens apparel and linens for local and foreign buyers. amount is fully paid, plus twenty percent (20%) of the amount due as attorneys fees; and to
Among its foreign buyers was Facets Funwear, Inc. (hereinafter referred to as FACETS) of the pay the costs.
United States.
With costs against Defendant-Appellee.
In the course of the business transaction between the two, FACETS from time to time remitted
certain amounts of money to petitioner in payment for the items it had purchased. Sometime in SO ORDERED. [Rollo, pp. 29-30.]
August 1980, FACETS instructed the First National State Bank of New Jersey, Newark, New
Jersey, U.S.A. (hereinafter referred to as FNSB) to transfer $10,000.00 to petitioner via Thereafter, this petition was filed.
Philippine National Bank, Sta. Cruz Branch, Manila (hereinafter referred to as PNB). chanroble s lawlibrary : rednad

The sole issue in this case is whether or not the private respondent has the right to recover the
Acting on said instruction, FNSB instructed private respondent Manufacturers Hanover and Trust second $10,000.00 remittance it had delivered to petitioner. The resolution of this issue would
Corporation to effect the above-mentioned transfer through its facilities and to charge the hinge on the applicability of Art. 2154 of the New Civil Code which provides that: chanrob1es virtual 1aw library

amount to the account of FNSB with private Respondent. Although private respondent was able
to send a telex to PNB to pay petitioner $10,000.00 through the Pilipinas Bank, where petitioner Art. 2154. If something received when there is no right to demand it, and it was unduly
had an account, the payment was not effected immediately because the payee designated in delivered through mistake, the obligation to return it arises.
the telex was only "Wearing Apparel." Upon query by PNB, private respondent sent PNB another
telex dated August 27, 1980 stating that the payment was to be made to "Irenes Wearing This provision is taken from Art. 1895 of the Spanish Civil Code which provided that: chanrob1es virtual 1aw library

Apparel." On August 28, 1980, petitioner received the remittance of $10,000.00 through
Demand Draft No. 225654 of the PNB. Art. 1895. If a thing is received when there was no right to claim it and which, through an error,
has been unduly delivered, an obligation to restore it arises.
Meanwhile, on August 25, 1980, after learning about the delay in the remittance of the money
to petitioner, FACETS informed FNSB about the situation. On September 8, 1980, unaware that In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking through Mr. Justice Bocobo
petitioner had already received the remittance, FACETS informed private respondent about the explained the nature of this article thus: chanrob1es virtual 1aw library

delay and at the same time amended its instruction by asking it to effect the payment through
the Philippine Commercial and Industrial Bank (hereinafter referred to as PCIB) instead of PNB. Article 1895 [now Article 2154] of the Civil Code abovequoted, is therefore applicable. This legal
provision, which determines the quasi-contract of solutio indebiti, is one of the concrete
Accordingly, private respondent, which was also unaware that petitioner had already received manifestations of the ancient principle that no one shall enrich himself unjustly at the expense
the remittance of $10,000.00 from PNB instructed the PCIB to pay $10,000.00 to petitioner. of another. In the Roman Law Digest the maxim was formulated thus: "Jure naturae acquum
Hence, on September 11, 1980, petitioner received a second $10,000.00 remittance. est, neminem cum alterius detrimento et injuria fieri locupletiorem." And the Partidas declared:
"Ninguno non deue enriquecerse tortizeramente con dano de otro." Such axiom has grown
Private respondent debited the account of FNSB for the second $10,000.00 remittance effected through the centuries in legislation, in the science of law and in court decisions. The lawmaker
through PCIB. However, when FNSB discovered that private respondent had made a duplication has found it one of the helpful guides in framing statutes and codes. Thus, it is unfolded in
of the remittance, it asked for a recredit of its account in the amount of $10,000.00. Private many articles scattered in the Spanish Civil Code. (See for example, articles, 360, 361, 464,
respondent complied with the request. 647, 648, 797, 1158, 1163, 1295, 1303, 1304, 1893 and 1895, Civil Code.) This time-honored
aphorism has also been adopted by jurists in their study of the conflict of rights. It has been
Private respondent asked petitioner for the return of the second remittance of $10,000.00 but accepted by the courts, which have not hesitated to apply it when the exigencies of right and
the latter refused to pay. On May 12, 1982 a complaint was filed with the Regional Trial Court, equity demanded its assertion. It is a part of that affluent reservoir of justice upon which
Branch CV, Quezon City which was decided in favor of petitioner as defendant. The trial court judicial discretion draws whenever the statutory laws are inadequate because they do not speak
ruled that Art. 2154 of the New Civil Code is not applicable to the case because the second or do so with a confused voice. [at p. 632.]
 Appeals that the second $10,000.00 remittance was made by mistake, being based on
For this article to apply the following requisites must concur:" (1) that he who paid was not substantial evidence, is final and conclusive. The rule regarding questions of fact being raised
under obligation to do so; and, (2) that payment was made by reason of an essential mistake of with this Court in a petition forcertiorari under Rule 45 of the Revised Rules of Court has been
fact" [City of Cebu v. Piccio, 110 Phil. 558, 563 (1960)].chanroble s virtual lawlibrary stated in Remalante v. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus: chanroble s virtual lawlibrary

It is undisputed that private respondent delivered the second $10,000.00 remittance. However, The rule in this jurisdiction is that only questions of law may be raised in a petition
petitioner contends that the doctrine of solutio indebiti does not apply because its requisites are for certiorari under Rule 45 of the Revised Rules of Court. "The jurisdiction of the Supreme
absent. Court in cases brought to it from the Court of Appeals is limited to reviewing and revising the
errors of law imputed to it, its findings of fact being conclusive" [Chan v. Court of Appeals, G.R.
First, it is argued that petitioner had the right to demand and therefore to retain the second No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of decisions]. This Court has
$10,000.00 remittance. It is alleged that even after the two $10,000.00 remittances are emphatically declared that "it is not the function of the Supreme Court to analyze or weigh such
credited to petitioners receivables from FACETS, the latter allegedly still had a balance of evidence all over again, its jurisdiction being limited to reviewing errors of law that might have
$49,324.00. Hence, it is argued that the last $10,000.00 remittance being in payment of a pre- been committed by the lower court" [Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974,
existing debt, petitioner was not thereby unjustly enriched. 58 SCRA 89; Corona v. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865;
Baniqued v. Court of Appeals, G.R. No. L-47531, February 20, 1984, 127 SCRA 596]. "Barring,
The contention is without merit. therefore, a showing that the findings complained of are totally devoid of support in the record,
or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings
The contract of petitioner, as regards the sale of garments and other textile products, was with must stand, for this Court is not expected or required to examine or contrast the oral and
FACETS. It was the latter and not private respondent which was indebted to petitioner. On the documentary evidence submitted by the parties" [Santa Ana, Jr. v. Hernandez, G.R. No. L-
other hand, the contract for the transmittal of dollars from the United States to petitioner was 16394, December 17, 1966, 18 SCRA 973]. [at pp. 144-145.]
entered into by private respondent with FNSB. Petitioner, although named as the payee was not
privy to the contract of remittance of dollars. Neither was private respondent a party to the Petitioner invokes the equitable principle that when one of two innocent persons must suffer by
contract of sale between petitioner and FACETS. There being no contractual relation between the wrongful act of a third person, the loss must be borne by the one whose negligence was the
them, petitioner has no right to apply the second $10,000.00 remittance delivered by mistake proximate cause of the loss.
by private respondent to the outstanding account of FACETS.
The rule is that principles of equity cannot be applied if there is a provision of law specifically
Petitioner next contends that the payment by respondent bank of the second $10,000.00 applicable to a case [Phil. Rabbit Bus Lines, Inc. v. Arciaga, G.R. No. L-29701, March 16, 1987,
remittance was not made by mistake but was the result of negligence of its employees. 148 SCRA 433; Zabat, Jr. v. Court of Appeals, G.R. No. L-36958, July 10, 1986, 142 SCRA 587;
Rural Bank of Paraaque, Inc. v. Remolado, G.R. No. 62051, March 18, 1985, 135 SCRA 409;
In connection with this the Court of Appeals made the following finding of facts: Cruz v. Pahati, 98 Phil. 788 (1956)]. Hence, the Court in the case of De Garcia v. Court of
chanrobles law library

Appeals, G.R. No. L-20264, January 30, 1971, 37 SCRA 129, citing Aznar v. Yapdiangco, G.R.
The fact that Facets sent only one remittance of $10,000.00 is not disputed. In the written No. L-18536, March 31, 1965, 13 SCRA 486, held: chanrob1es virtual 1aw library

interrogatories sent to the First National State Bank of New Jersey through the Consulate
General of the Philippines in New York, Adelaide C. Schachel, the investigation and reconciliation . . . The common law principle that where one of two innocent persons must suffer by a fraud
clerk in the said bank testified that a request to remit a payment for Facet Funwear Inc. was perpetrated by another, the law imposes the loss upon the party who, by his misplaced
made in August, 1980. The total amount which the First National State Bank of New Jersey confidence, has enabled the fraud to be committed, cannot be applied in a case which is
actually requested the plaintiff-appellant Manufacturers Hanover & Trust Corporation to remit to covered by an express provision of the new Civil Code, specifically Article 559. Between a
Irenes Wearing Apparel was US $10,000.00. Only one remittance was requested by First common law principle and a statutory provision, the latter must prevail in this jurisdiction. [at p.
National State Bank of New Jersey as per instruction of Facets Funwear (Exhibit "J", pp. 4-5). 135.]

That there was a mistake in the second remittance of US$10,000.00 is borne out by the fact Having shown that Art. 2154 of the Civil Code, which embodies the doctrine of solutio indebiti,
that both remittances have the same reference invoice number which is 263 80. (Exhibits "A-1- applies in the case at bar, the Court must reject the common law principle invoked by
Deposition of Mr. Stanley Panasow" and "A-2-Deposition of Mr. Stanley Panasow"). petitioner. chanroblesvirtualawlibrary

Plaintiff-appellant made the second remittance on the wrong assumption that defendant-
appellee did not receive the first remittance of US$10,000.00. [Rollo, pp. 26-27.]
It is evident that the claim of petitioner is anchored on the appreciation of the attendant facts
which petitioner would have this Court review. The Court holds that the finding by the Court of
Finally, in her attempt to defeat private respondents claim, petitioner makes much of the fact
that from the time the second $10,000.00 remittance was made, five hundred and ten days had
elapsed before private respondent demanded the return thereof. Needless to say, private
respondent instituted the complaint for recovery of the second $10,000.00 remittance well
within the six years prescriptive period for actions based upon a quasi-contract [Art. 1145 of the
New Civil Code]. Rosales Law office for Petitioner.

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals is hereby Dominador B. Lao for Private Respondent.
AFFIRMED.

SO ORDERED.

SYLLABUS

CIVIL LAW; OBLIGATIONS AND CONTRACTS; VOIDABLE CONTRACTS; CONSENT VITIATED BY

MISTAKE; CASE AT BAR. Private respondent committed an honest mistake in selling parcel
no. 4. As correctly noted by the Court of Appeals, it is quite impossible for private respondent to
sell the lot in question as the same is not owned by it. The good faith of the private respondent
is evident in the fact that when the mistake was discovered, it immediately offered two other
vacant lots to the petitioners or to reimburse them with twice the amount paid. That petitioners
refused either option left the private respondent with no other choice but to file an action for the
annulment of the deed of sale on the ground of mistake. Art. 1331 of the New Civil Code
provides for the situations whereby mistake may invalidate consent. The concept of error in this
article must include both ignorance, which is the absence of knowledge with respect to a thing
and mistake properly speaking, which is a wrong conception about said thing, or a belief in the
existence of some circumstance, fact, or event, which in reality does not exist. In both cases,
there is a lack of full and correct knowledge about the thing. The mistake committed by the
private respondent in selling parcel no. 4 to the petitioners falls within the second type. Verily,
such mistake invalidated its consent and as such, annulment of the deed of sale is proper. The
petitioners cannot be justified in their insistence that parcel no. 3, upon which private
respondent constructed a two-storey house, be given to them in lieu of parcel no. 4. The cost of
construction for the said house far exceeds the amount paid by the petitioners to the
private Respondent. Moreover, parcel no. 4, the lot mistakenly sold, was a vacant lot. Thus, to
allow the petitioners to take parcel no. 3 would be to countenance unjust enrichment.
Considering that petitioners intended at the outset to purchase a vacant lot, their refusal to
accept the offer of the private respondent to give them two (2) other vacant lots in exchange,
as well as their insistence on parcel no. 3, which is a house and lot, is manifestly
unreasonable. chanrobles.com .ph : virtual law library

FIRST DIVISION
DECISION
[G.R. No. 126013. February 12, 1997.]

SPOUSES HEINZRICH THEIS AND BETTY THEIS, Petitioners, v. HONORABLE COURT OF

APPEALS, HONORABLE ELEUTERIO GUERRERO, ACTING PRESIDING JUDGE, BRANCH
XVIII, REGIONAL TRIAL COURT, TAGAYTAY CITY, CALSONS DEVELOPMENT HERMOSISIMA, JR., J.:
CORPORATION,Respondents.
 already been built thereon even prior to the execution of the contract between the disputing
parties.

In the instant petition, we shall have the occasion to apply the concept of mistake in the Petitioners insisted that they wanted parcel no. 4, which is the idle lot adjacent to parcel no. 3,
annulment of contracts. and persisted in claiming that it was parcel no. 4 that private respondent sold to them.
However, private respondent could not have possibly sold the same to them for it did not own
Private respondent Calsons Development Corporation is the owner of three (3) adjacent parcels parcel no. 4 in the first place.
of land covered by Transfer Certificate of Title (TCT) Nos. 15515 (parcel no. 1 in the location
map), 15516 (parcel no. 2) and 15684 (parcel no. 3), with the area of 1,000 square meters, The mistake in the identity of the lots is traceable to the erroneous survey conducted in 1985.
226 square meters and 1,000 square meters, respectively. All three parcels of land are situated
along Ligaya Drive, Barangay Francisco, Tagaytay City. Adjacent to parcel no. 3, which is the lot To remedy the mistake, private respondent offered parcel nos. 1 and 2 covered by TCT Nos.
covered by TCT No. 15684 is a vacant lot denominated as parcel no. 4. 15515 and 15516, respectively, as these two were precisely the two vacant lots which private
respondent owned and intended to sell when it entered into the transaction with petitioners.
In 1985, private respondent constructed a two-storey house on parcel no. 3. The lots covered Petitioners adamantly rejected the good faith offer. They refused to yield to reason and insisted
by TCT No. 15515 and TCT No. 15516, which are parcel no. 1 and parcel no. 2, respectively, on taking parcel no. 3, covered by TCT No. 155864 and upon which a two-storey house stands,
remained idle. in addition to parcel no. 2, covered by TCT No. 15516, on the ground that these TCTs have
already been cancelled and new ones issued in their name. chanroble s.com : virtual law library

However, in a survey conducted in 1985, parcel no. 3, where the two-storey house stands, was
erroneously indicated to be covered not by TCT No. 15684 but by TCT No. 15515, while the two Such refusal of petitioners prompted private respondent to make another offer, this time, the
idle lands (parcel nos. 1 and 2) were mistakenly surveyed to be located on parcel no. 4 instead return of an amount double the price paid by petitioners. Petitioners still refused and stubbornly
(which was not owned by private respondent) and covered by TCT Nos. 15516 and 15684. insisted in their stand.

On October 26, 1987, unaware of the mistake by which private respondent appeared to be the Private respondent was then compelled to file an action for annulment of deed of sale and
owner of parcel no. 4 as indicated in the erroneous survey, and based on the erroneous reconveyance of the properties subject thereof 1 in the Regional Trial Court. 2
information given by the surveyor that parcel no. 4 is covered by TCT No. 15516 and 15684,
private respondent, through its authorized representative, one Atty. Tarcisio S. Calilung, sold The trial court rendered judgment in favor of private Respondent. Identifying the core issue in
said parcel no. 4 to petitioners. the instant controversy to be the voidability of the contract of sale between petitioners and
private respondent on the ground of mistake, the trial court annulled said contract of sale after
Upon execution of the Deed of Sale, private respondent delivered TCT Nos. 15516 and 15684 to finding that there was indeed a mistake in the identification of the parcels of land intended to be
petitioners who, on October 28, 1987, immediately registered the same with the Registry of the subject matter of said sale. The trial court ratiocinated: jgc:chanrobles.com .ph

Deeds of Tagaytay City. Thus, TCT Nos. 17041 and 17042 in the names of the petitioners were
issued. "Meeting head-on the issue of alleged mistake in the object of the same, defendants in their
answer averred that they relied on the technical descriptions of TCT Nos. 15516 and 15684
Indicated on the Deed of Sale as purchase price was the amount of P130,000.00. The actual appearing in the deed of sale. . .
price agreed upon and paid, however, was P486,000.00. This amount was not immediately paid
to private respondent, rather, it was deposited in escrow in an interest-bearing account in its A resolution of the conflicting claims of the parties to the instant controversy calls for an inquiry
favor with the United Coconut Planters Bank in Makati City. The P486,000.00 in escrow was on their real intent relative to the identity of the parcels which plaintiff intended to sell to
released to, and received by, private respondent on December 4, 1987. defendants and which the latter in turn, intended to buy from the former. For, the Court cannot
ignore the dictates of logic and common sense which, ordinarily, could not push a person to sell
Thereafter, petitioners did not immediately occupy and take possession of the two (2) idle to another, a property which the former does not own in the first place, for fear of adverse
parcels of land purchased from private Respondent. Instead, petitioners went to Germany. consequences. The vendee, following the same reasoning, would not buy a thing unless he is
totally certain that the seller is the real owner of the thing offered for sale. It is equally true that
In the early part of 1990, petitioners returned to the Philippines. When they went to Tagaytay to when one sells or buys a real property, he either sells or buys the property as he sees it, in its
look over the vacant lots and to plan the construction of their house thereon, they discovered actual setting and by its physical metes and bounds, and not be the mere lot number assigned
that parcel no. 4 was owned by another person. They also discovered that the lots actually sold to the same property in the certificate of title or in any document. And, when a buyer of real
to them were parcel nos. 2 and 3 covered by TCT Nos. 15516 and 15684. respectively. Parcel property decides to purchase from his seller, he is ordinarily bound by prudence to ascertain the
no. 3, however, could not have been sold to the petitioners by the private respondents as a two- true nature, identity or character of the property that he intends to buy and ascertain the title of
storey house, the construction cost of which far exceeded the price paid by the petitioners, had his vendor before he parts with his money. It is quite obvious that the foregoing precepts and
precautions were observed by the parties in the case at bar as there is no question at all that
the sale in question was consummated through the initiative of Mrs. Gloria Contreras and then
Vice-Mayor Benjamin Erni. . . both brokers of the sale who, after a chance meeting with
defendants at the Taal Vista Lodge Hotel prior to the sale of plaintiffs parcels, brought
defendants to the vicinity where plaintiffs three (3) adjacent parcels of land are located and
pointed to defendants the two (2) vacant parcels right beside plaintiffs house. It is also
undisputed that when defendants intimated to the brokers their desire to buy the vacant lots
pointed to them when they visited the same place, they were brought to plaintiffs
representative, Tarcisio S. Calilung, at the latters office in Makati where the parties discussed
the terms of the sale.
The Court notes further from the records that defendants desire to buy vacant lots from
plaintiff is not only confirmed by the testimony of Gloria Contreras and the ocular inspection
conducted by the court but by defendant Betty Theis herself when the latter testified as
follows:chanrob1es virtual 1aw library
vacant lots are actually situated on the left side of the same house. Indeed, such mistake on
plaintiffs part appears to be tragic as it turned out later that the vacant lot on the right side of
plaintiffs house did not belong to plaintiff. Worse, is the fact that what was conveyed to
defendants under the deed of sale was the parcel where plaintiffs house already stood at the
time of the sale. This, definitely, is not what the parties intended.
. . . Going by the facts established by defendants evidence, it is clear that defendants did not
intend to buy the parcel of land where plaintiffs house stood as defendant Betty Theis declared
in her testimony that they wanted to buy the parcel at the right side of plaintiffs house where
she and her husband would construct their house (TSN of June 4, 1991, p. 56). Neither can this
Court accept the hypothesis that plaintiff intended to sell that parcel where its house was
already constructed for if this was its true intention, it would not sell its two (2) lots at the price
of P486,000.00 which is way below the costs of its construction of P1,500,000,00.

The law itself explicitly recognizes that consent of the parties is one of the essential elements to
COURT: chanrob1es virtual 1aw library the validity of the contract and where consent is given through mistake, the validity of the
contractual relations between the parties is legally impaired.
Q. Why, what was the lot that you intended to buy?
As earlier stated, the facts obtaining in the case at bar undoubtedly show that when defendants
A. The right side of the house, Your Honor. (TSN of November 8.1991, page 19) bought the properties of plaintiff, they intended to buy the vacant lots owned by the latter. As
the sale that was finally consummated by the parties had covered the parcel where plaintiffs
Similarly, in answer to a question propounded to the same defendant by their counsel, she house was constructed even before the sale took place, this Court can safely assume that the
stated that deed of sale executed by the parties did not truly express their true intention. In other words,
the mistake or error on the subject of the sale in question appears to be substantial as the
ATTY. ROSALES: chanrob1es virtual 1aw library object of the same transaction is different from that intended by the parties. This fiasco could
have been cured and the pain and travails of this litigation avoided, had parties agreed to
Q. In other words, the titles delivered to you were not the titles covering the right side of the reformation of the deed of sale. But, as shown by the sequence of events occurring after the
house? sale was consummated, and the mistake was discovered, the defendants refused, insisting that
they wanted the vacant lots on the right side of plaintiffs house, which was impossible for
A. No, sir. (Ibid., page 20) plaintiff to do, as said vacant lots were not of its own dominion." 3 [Emphasis supplied]

It is relevant to mention that when the defendants attempted to take possession of the parcels Aggrieved by the decision of the trial court, petitioners sought its reversal 4 from respondent
of land they bought from the plaintiff on which they intended to construct their house after their Court of Appeals. 5 Respondent court, however, did not find the appeal meritorious and
return from a foreign sojourn, they admittedly wanted to take that vacant area, which as herein accordingly affirmed 6 the trial court decision. Ruled the respondent appellate court: jgc:chanroble s.com.ph

shown, turns out to be a property not owned by plaintiff. From this act of the defendants, a
clear meaning is shown. Defendants themselves, knew right from the beginning that what they "There is no doubt that when defendants-appellants attempted to take physical possession of
intended to buy was that vacant lot, not the lot where plaintiffs house stands, covered by TCT Parcel No. 4 in May, 1990, they were prevented by the true owner thereof from taking
No. 15684 which was wrongly mentioned as one of the objects of the sale. . . . possession of said land. To clear the matter, plaintiff-appellee hired a new surveyor who
revealed in his survey that Parcel No. 4 is not included in plaintiff-appellees Transfer Certificates
The fact that the Deed of Sale subsequently executed by plaintiff and the defendants on October of Title from which said plaintiff-appellee mistakenly offered defendants-appellants said Parcel
27, 1987 covers the parcel of land where plaintiffs two-storey house was constructed will No. 4. Realizing its mistake, plaintiff-appellee offered defendants-appellants Parcels Nos. 1 and
clearly reflect a situation that is totally different from what defendants had intended to buy from 2 under the same Transfer Certificates of Title or the reimbursement of the purchase price in
the plaintiff viz-a-viz [sic] the latters intention to sell its two (2) vacant lots to defendants. double amount. But defendants-appellants insisted this time to acquire Parcel No. 3 wherein
Notwithstanding defendants claim that it was not possible for plaintiffs representative not to be plaintiff-appellee had already a house, and was not the object of the sale.
familiar with its properties, the acts and circumstances established in this case would clearly
show, and this Court is convinced, that the inclusion of the parcel where plaintiffs house is Said Parcel No. 3 cannot be the object of the sale between the parties as plaintiff-appellees
constructed is solely attributable to a mistake in the object of the sale between the parties. This house already stands in the said area even before defendants-appellants had chosen Parcel No.
mistake, obviously, was made, on the part of plaintiffs representative when the latter mistook 4 which was described to be on the right side of said plaintiff-appellees house in Parcel No. 3.
the vacant lot situated on the right side of plaintiffs house as its vacant parcels of land when its There is no dispute that defendants-appellants wanted to buy Parcel No. 4 as testified to by
defendant-appellant Betty Theis, herself (p. 19, tsn, Nov. 8, 1991), which lot turned out to be
outside of the Transfer Certificates of Title of plaintiff-appellee. Defendants-appellants cannot The petitioners cannot be justified in their insistence that parcel no. 3, upon which private
now insist on Parcel No. 3 as the same was not the object of the sale between the parties. respondent constructed a two-storey house, be given to them in lieu of parcel no. 4. The cost of
construction in 1985 for the said house (P1,500,000.00) far exceeds the amount paid by the
Clearly, therefore, there was honest mistake on the part of plaintiff-appellee in the sale of Parcel petitioners to the private respondent (P486,000.00). Moreover, the trial court, in questioning
No. 4 to defendants-appellants which plaintiff-appellee tried to remedy by offering defendants- private respondents witness, Atty. Tarciso Calilung (who is also its authorized representative)
appellants instead his Parcels Nos. 1 or 2, or reimbursement of the purchase price in double clarified that parcel no. 4, the lot mistakenly sold, was a vacant lot: 10
amount." 7 [Emphasis ours]
"COURT: What property did you point to them?
We find that respondent court correctly affirmed the findings and conclusions of the trial court in
annulling the deed of sale as the former are supported by evidence and the latter are in A. I pointed to parcel No. 4, as appearing in the sketch.
accordance with existing law and jurisprudence.
COURT: Parcel No. 4 is a vacant lot?
Art. 1390 of the New Civil Code provides: jgc:chanroble s.com.ph

A. Yes, your Honor.

"Art. 1390. The following contracts are voidable or annullable, even though there may have
been no damage to the contracting parties: chanrob1es virtual 1aw library COURT: So, there was no house on that lot?

(1) . . . (2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence, or fraud.
x x x"
In the case at bar, the private respondent obviously committed an honest mistake in selling
parcel no. 4. As correctly noted by the Court of Appeals, it is quite impossible for said private
respondent to sell the lot in question as the same is not owned by it. The good faith of the
private respondent is evident in the fact that when the mistake was discovered, it immediately
offered two other vacant lots to the petitioners or to reimburse them with twice the amount
paid. That petitioners refused either option left the private respondent with no other choice but
to file an action for the annulment of the deed of sale on the ground of mistake. As enunciated
in the case of Mariano v. Court of Appeals: 8
"A contract may be annulled where the consent of one of the contracting parties was procured
by mistake, fraud, intimidation, violence, or undue influence."
A. There was no house. There were pineapple crops existing on the property.
COURT: So, you are telling the Court that the intended lot is vacant lot or Parcel 4?
A. Yes, your Honor.
Thus, to allow the petitioners to take parcel no. 3 would be to countenance unjust enrichment.
Considering that petitioners intended at the outset to purchase a vacant lot, their refusal to
accept the offer of the private respondent to give them two (2) other vacant lots in exchange,
as well as their insistence on parcel no. 3, which is a house and lot, is manifestly unreasonable.
As held by this Court in the case of Security Bank and Trust Company v. Court of Appeals: 11
"Hence, to allow petitioner bank to acquire the constructed building at a price far below its
actual construction cost would undoubtedly constitute unjust enrichment for the bank to the
prejudice of the private Respondent. Such unjust enrichment, as previously discussed, is not
cralaw virtua1aw library allowed by law."cralaw virtua1aw library

Art. 1331 of the New Civil Code provides for the situations whereby mistake may invalidate WHEREFORE, the petition is hereby DISMISSED and the decision of the Court Appeals in CA-
consent. It states:jgc:chanrobles.com .ph G.R. 47000 dated May 31, 1996 AFFIRMED. Costs against the petitioner.

"Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the SO ORDERED
thing which is the object of the contract, or to those conditions which have principally moved
one or both parties to enter into the contract." cralaw virtua1aw library

Tolentino 9 explains that the concept of error in this article must include both ignorance, which
is the absence of knowledge with respect to a thing, and mistake properly speaking, which is a
wrong conception about said thing, or a belief in the existence of some circumstance, fact, or
event, which in reality does not exist. In both cases, there is a lack of full and correct
knowledge about the thing. The mistake committed by the private respondent in selling parcel
no. 4 to the petitioners falls within the second type. Verily, such mistake invalidated its consent
and as such, annulment of the deed of sale is proper.
 2. ID.; ID.; EFFECT OF NULLITY. If the consent given by one of the contracting parties in a
contract is null and void, the document in which such contract was set forth is also null, void,
and without force or effect, and, therefore, when the nullity of the obligation has been declared,
the contracting parties shall each restore the things which were the object of the contract, with
the fruits thereof and the price with the interest thereon.

DECISION

TORRES, J. :

An appeal raised, by bill of exceptions, by counsel for defendant from the judgment of
September 21, 1914, in which the Court of First Instance of Cebu held to be null and void the
document, marked as Exhibit 1, executed by the plaintiff Andrea Dumasug, by virtue whereof
defendant claims that the lands and carabao, the subject matter of the complaint, were
conveyed to him. The said judgment further declared the plaintiff to be the exclusive owner of
said lands; ordered defendant to deliver and restore the same to the plaintiff and, moreover, to
pay her the sum of P120, the value of her carabao unlawfully sold by him, and likewise P75 as
rent for the use and occupation of the lands in question during the time they were in
defendants possession, and to pay the costs.

On June 17, 1912, counsel for Andrea Dumasug filed a written complaint in the Court of First
FIRST DIVISION Instance of Cebu, in which he alleged that about the month of November, 1911, defendant
persuaded plaintiff to sign a document by falsely and maliciously making her believe that it
[G.R. No. 10462. March 16, 1916. ] contained an engagement on plaintiffs part to pay defendant a certain sum of money as
expenses occasioned the latter by reason of a lawsuit in which plaintiff Dumasug was one of the
ANDREA DUMASUG, Plaintiff-Appellee, v. FELIX MODELO, Defendant-Appellant. parties and was protected and aided by defendant; that this document, plaintiff, who does not
know how to write, signed by affixing her mark thereto, believing in good faith that defendant
Fortunato Borromeo Veloso for Appellant. had told her the truth and that said document referred to the expenses incurred by defendant;
but that three months after the execution of said document, defendant took possession of a
Tomas Alonso for Appellee. carabao belonging to plaintiff and also of two parcels of land, likewise belonging to her, situated
in the barrio of Katang, pueblo of Argao, Cebu, the area and boundaries of which are specified
SYLLABUS in the complaint, and notified plaintiff that she had conveyed to him by absolute sale said
parcels of land and the plow carabao; that in spite of plaintiffs opposition and protests,
1. CONTRACTS; ASSENT GIVEN BY MISTAKE. A written contract is null and void where one of defendant took possession of said property and, up to the date of the complaint, continued to
the contracting parties gives his assent by a mistake which went to the very substance or hold possession thereof and to enjoy the products of the lands and of the labor of the carabao;
essence of the subject matter of the contract, and where, had he been aware of the true and that, by reason of such acts, defendant had caused loss and damage to plaintiff in the sum
context thereof, he would neither have accepted nor authenticated it with his signature or mark. of P1,000. Said counsel therefore prayed the court to render judgment by declaring null and
(Arts. 1256 and 1266, Civil Code.) void and of no value whatever the alleged contract of purchase and sale of the carabao and the
two parcels of lad described in the complaint, to order defendant to restore to plaintiff said work
animal and lands, and, besides, to pay her the sum of P1,000 for the loss and damage caused Felix Modelo, is neither an attorney nor a procurador judicial, and the record does not show that
her, in addition to the costs of the suit. he acted as an attorney, procurador judicial, or friend of Andrea Dumasug in the case brought
by the latter in the justice of the peace court of Argao, or in the said case No. 1211, prosecuted
The demurrer to the aforementioned complaint having been overruled, counsel for defendant in in the Court of First Instance of Cebu.
his answer denied each and all of the facts alleged in the complaint, and in special defense set
forth that if defendant had in his possession the property described in the complaint, it was due Probably all that Andrea Dumasug did was to ask the advice of Felix Modelo about what she
to the fact that plaintiff sold it to him, which sale was recorded in a public instrument duly ought to do in view of the infringement of her rights on the part of Saniel, and defendant
executed and signed by plaintiff in the presence of witnesses. Defendants counsel therefore probably advised plaintiff to bring the matter before the authorities; and so far as defendants
prayed the court to absolve his client from the complaint and to hold defendant to be the direct intervention in those cases was concerned it was limited to engaging the services of the
absolute owner of the disputed property, and to sentence plaintiff to hold her peace for ever and attorney Andres Jayme to represent plaintiff in the Court of First Instance.
to pay the costs.
The defendant Felix Modelo stated in his sworn testimony that the sale of the parcels of land
After trial and the hearing of evidence by both parties, the court rendered the aforementioned and the carabao was in payment of a debt of P333.49 which the plaintiff was owing him for
judgment, to which defendant excepted and by written motion asked for a reopening of the case money he had advanced her to maintain two actions against Albarracin and Saniel, which sum
and a new trial. This motion was denied, exception to this ruling was taken by defendant and, plaintiff had borrowed of him in small amounts, first P101.87, afterwards P184.85 and finally
upon presentation of the proper bill of exceptions, the same was approved and transmitted to P46.77, making a total of P333.49; and that these sums of money were expended by plaintiff in
the clerk of this court. the payment of attorneys fees, traveling expenses for herself and her witnesses and for their
expenses while in Cebu. The witness Mariano Abear corroborated defendants testimony to the
The sole question to be resolved in this litigation is whether or not the instrument of purchase effect that the document Exhibit 1 was signed by mark of plaintiff before the notary public
and sale of two parcels of land and a plow carabao, Exhibit 1, is null and void. The defendant Anselmo S. Legaspi, after the latter had explained to her that it was a conveyance by absolute
alleges that by means thereof he acquired the possession and ownership of the said property, sale of the lands and carabao now in question. It would be improper to give credence to the
while the plaintiff, in turn, sets forth in her complaint that the said instrument is of no value testimony of the justice of the peace Antonio Minosa, of the pueblo of Argao, with respect to the
whatever, as her consent thereto was obtained by means of fraud and deceit on the part of expenses which plaintiff had to pay on account of her trips to Cebu, because, as he was a party
defendant. defendant in case No. 1211, brought to secure the annulment of the judgment rendered by him,
it is incredible that the other defendant, Andrea Dumasug, should have defrayed Minosas
The instrument, the annulment whereof is requested by the plaintiff, is Exhibit 1 (p. 27 of the expenses in Cebu, allowing him to board in restaurants, to amuse himself in the cinematographs
record). It sets forth that on November 3, 1911, plaintiff Andrea Dumasug, in consideration of and to remain four days in that city each time that he went there all at the expense of his
the sum of P333.49 which she received from defendant, Felix Modelo, sold and conveyed to the codefendant, Andrea Dumasug when the proceedings in the case had not gone beyond the
latter outright two parcels of land and the plow carabao which are the subject matter of the filing of a demurrer and the principal defendant went to Cebu only twice, staying there one day
complaint, and furthermore bound herself to warrant and defend the title thereto. This contract each time.
of sale appears to be authorized by the vendor, Andrea Dumasug, by means of a cross placed
between her Christian name and surname in the presence of the witnesses Mariano Abear and Plaintiff testified that one day in the month of November, 1911, defendant sent for her and after
Apolinar Minosa, and certified before a notary on the very date of its execution. she was inside defendants house he told her to sign a document acknowledging that she owed
him the sum of P101 for the work he had performed in her behalf in the two actions she had
In regard to the events leading up to the said contract, it ought to be stated that on October 12, brought to recover her land; that she did not object to so doing and signed said document by
1910, Andrea Dumasug filed suit in the justice of the peace court of Argao against Rosales mark in the presence of the defendant while they were alone and without any attesting witness
Albarracin and Gaudencio Saniel, for the recovery of a parcel of land belonging to plaintiff, and that when she was afterwards taken by defendant to the house of the notary Anselmo
measuring two gantas, on which were growing seven clumps of bamboo. Judgment was Saniel y Legaspi the latter said nothing to her about the pretended sale of her properties. She
rendered for the plaintiff and the usurped land was ordered restored to her. (See case No. 1211, added that she had never sold her lands or her carabao to defendant; that she neither offered
p. 1, record.) But subsequently, on March 2, 1911, these former defendants, Rosales Albarracin to sell them to defendant, nor did the latter offer to buy them from her; that if defendant was
and Gaudencio Saniel, commenced proceedings in the Court of First Instance of Cebu against now in possession of her two parcels of land and her carabao, it was due to the fact that three
the said Andrea Dumasug in which they prayed for the annulment of the judgment rendered in months after she had signed that acknowledgment of indebtedness defendant took possession
the court of the justice of the peace of Argao. In that case Andrea Dumasug, through her of said property by intimidation and force; and that since then defendant had been harvesting
attorney, Andres Jayme, appeared in the said Court of First Instance and demurred to the the products of her lads and benefiting himself by the labor of her plow carabao. She also stated
complaint. that she signed only one document in favor of the defendant Felix Modelo, which was that in
which she acknowledged she owed him the sum of P101.
Before this demurrer had even been ruled on, counsel for plaintiff moved the court to dismiss
their complaint, and this was done by an order of October 2, 1911, in which ruling attorney It is inconceivable that, in order to recover possession of a parcel of land measuring two gantas,
Jayme acquiesced. (Pages 1 to 13, record, case No. 1211.) The defendant in the case at bar, containing seven clumps of bamboo, by commencing proceedings therefor in the justice of the
peace court in Argao (where Andrea Dumasug lived); and that, in order to defend herself by shall restore to each other the things which have been the object of the contract with their
filing a demurrer in a suit instituted in the Court of First Instance of Cebu (which suit was not fruits, and the value with its interest." In accordance with this legal provision defendant must
continued because plaintiffs themselves moved its dismissal), the defendant in that suit scarcely return and deliver to plaintiff the two parcels of land in question with their fruits, the subject of
commenced, now plaintiff in the case at bar, had already incurred expenses amounting to more the complaint, or the value thereof collected by him, which value was justly estimated by the
than P333. It would have been preferable to have left the small portion of usurped land in the trial judge at P75.
possession of the deforciant, than to have maintained, in order to defend herself from such
usurper, an unterminated suit which might have resulted in the entire loss of all the aggrieved With respect to the plow carabao that died while in defendants possession, the value of which is
partys properties by their being kept, not by the usurper, but by her adviser, a sort of hombre P120, (record, p. 31) defendant is obliged pursuant to the provision of article 1307 of the same
bueno. code (to pay and deliver to plaintiff the value of said animal, with interest as an idemnity for the
detriment caused to its owner.)
The evidence discloses that the only great expense which Andrea Dumasug could have incurred
was the sum that as fees she had to pay the attorney Andres Jayme for filing a demurrer in the Defendant has made no claim whatever for reimbursement of the sum of money which he paid
Court of First Instance. Said attorney testified that he received from Andrea Dumasug only P80 to the attorney Andres Jayme for defending plaintiff in the Court of First Instance of Cebu. It
or P90, the only large sum which the latter had to expend. Therefore if plaintiff finally had to would therefore be improper to decide in the present case whether he is or is not entitled to
admit that she was owing Felix Modelo the sum of P101, and if for this reason she had to such reimbursement. (Secs. 95-97, Code of Civ. Proc.)
execute the receipt to which she referred in her testimony, it is not unreasonable to suppose
that said sum was the principal expense she incurred, in addition to P20 or P30 for her traveling For the foregoing reasons, whereby the errors assigned to the judgment appealed from are
expenses from Argao to Cebu, the two times that she made that trip, and for her stay in the deemed to have been refuted, said judgment should be as it is hereby, affirmed, with the costs
latter city. Defendants allegation that the traveling expenses of the witnesses taken to Cebu of this instance against the appellant. So ordered.
amounted to the large sum of P333.49 cannot be credited, inasmuch as the proceedings in the
Court of First Instance were dismissed before the complaint was answered and the trial was
held, so no witnesses were examined.

The lower court held that the statements of Andrea Dumasug were well worthy of credence,
and, taking into consideration the merits of the case, reached the conclusion that the sole
document which plaintiff signed about the month of November, 1911, related to the sum of
P101 which she acknowledged she was owing to Felix Modelo, and not to the sale of all her
properties. The records shows plaintiff to have stated that she received an offer of P120 for her
carabao, but that she did not wish to sell the animal as she rented it for fifty centavos per day,
her only means of livelihood.

It is, then, perfectly evident that the document Exhibit 1, by means of which defendant made
himself the owner of the properties in question is not the instrument of debt which Andrea
Dumasug had signed, and if it is the same one its contents were not duly and faithfully
explained to plaintiff in the act of its execution. In either case, the consent said to have been
given by Andrea Dumasug in said document Exhibit 1 is null and void, as it was given by
mistake (arts. 1265 and 1266, Civil Code). This error invalidates the contract, because it goes
to the very substance of the thing which was the subject matter of said contract, for, had the
maker thereof truly understood the contents of said document, she would neither have accepted
nor authenticated it by her mark.

If Exhibit 1 is the document signed by her, it is undeniable that she was deceived in order to
obtain her consent thereto, and if the document which she signed is different from the one now
presented as Exhibit 1, then this latter has no value whatever, for the reason that it is not the
one which, of her own free will, she authenticated with her mark.

The consent given by plaintiff being null and void, the document Exhibit 1 is consequently also
null, void, and of no value or effect. Article 1303 of the Civil Code is therefore, applicable, which
prescribes that: "When the nullity of an obligation has been declared, the contracting parties
 Assailed in these petitions for review on certiorari is the decision 1 of the eleventh division of
the Court of Appeals in CA-G.R. CV No. 22010 promulgated on September 11, 1992 affirming in
toto the decision of Branch 24 of the Regional Trial Court of Laguna in Civil Case No. B-1766
dated February 22, 1989, 2 and the resolution dated December 29, 1992 denying petitioner R &
B Insurance Corporations (R & B Insurance) motion for reconsideration. As the factual
antecedents and issues are the same, we shall decide the petitions jointly.

The instant controversy involves a question of ownership over an unregistered parcel of land,
identified as Lot No. 6, plan Psu-111331, with an area of 21,773 square meters, situated in
Sala, Cabuyao, Laguna. It was originally owned by the late Jose Hemedes, father of Maxima
Hemedes and Enrique D. Hemedes. On March 22, 1947 Jose Hemedes executed a document
entitled "Donation Inter Vivos With Resolutory Conditions" 3 whereby he conveyed ownership
over the subject land, together with all its improvements, in favor of his third wife, Justa
Kauapin, subject to the following resolutory conditions:chanrob1es virtual 1aw library

(a) Upon the death or remarriage of the DONEE, the title to the property donated shall revert to
any of the children, or their heirs, of the DONOR expressly designated by the DONEE in a public
document conveying the property to the latter; or

(b) In absence of such an express designation made by the DONEE before her death or
remarriage contained in a public instrument as above provided, the title to the property shall
automatically revert to the legal heirs of the DONOR in common.

Pursuant to the first condition abovementioned, Justa Kausapin executed on September 27,
1960 a "Deed of Conveyance of Unregistered Real Property by Reversion" 4 conveying to
Maxima Hemedes the subject property under the following terms
THIRD DIVISION
That the said parcel of land was donated unto me by the said Jose Hemedes, my deceased
[G.R. No. 107132. October 8, 1999.]
husband, in a deed of "DONATION INTER VIVOS WITH RESOLUTORY CONDITIONS" executed by
the donor in my favor, and duly accepted by me on March 22, 1947, before Notary Public Luis
MAXIMA HEMEDES, Petitioner, v. THE HONORABLE COURT OF APPEALS, DOMINIUM
Bella in Cabuyao, Laguna;
REALTY AND CONSTRUCTION CORPORATION, ENRIQUE D. HEMEDES, and R & B
INSURANCE CORPORATION, Respondents.
That the donation is subject to the resolutory conditions appearing in the said deed of
"DONATION INTER VIVOS WITH RESOLUTORY CONDITIONS," as follows:
[G.R. No. 108472. October 8, 1999.]
jgc:chanrobles.com .ph

"(a) Upon the death or remarriage of the DONEE, the title to the property donated shall revert
R & B INSURANCE CORPORATION, Petitioner, v. THE HONORABLE COURT OF APPEALS
to any of the children, or their heirs, of the DONOR expressly designated by the DONEE in a
DOMINIUM REALTY AND CONSTRUCTION CORPORATION, ENRIQUE D. HEMEDES and
public document conveying the property to the latter; or
MAXIMA HEMEDES, Respondents.
cralawnad

(b) In absence of such an express designation made by the DONEE before her death or
DECISION
remarriage contained in a public instrument as above provided, the title to the property shall
automatically revert to the legal heirs of the DONOR in common." cralaw virtua1aw library

That, wherefore, in virtue of the deed of donation above mentioned and in the exercise of my
right and privilege under the terms of the first resolutory condition therein contained and
GONZAGA-REYES, J.:
hereinabove reproduced, and for and in consideration of my love and affection, I do hereby by warehouses made of steel and asbestos costing about P10,000,000.00 each. Upon learning of
these presents convey, transfer, and deed unto my designee, MAXIMA HEMEDES, of legal age, Asia Brewerys constructions upon the subject property, R & B Insurance sent it a letter on
married to RAUL RODRIGUEZ, Filipino and resident of No. 15 Acacia Road, Quezon City, who is March 16, 1981 informing the former of its ownership of the property as evidenced by TCT No.
one of the children and heirs of my donor, JOSE HEMEDES, the ownership of, and title to the 41985 issued in its favor and of its right to appropriate the constructions since Asia Brewery is a
property hereinabove described, and all rights and interests therein by reversion under the first builder in bad faith. On March 27, 1981, a conference was held between R & B Insurance and
resolutory condition in the above deed of donation; Except the possession and enjoyment of the Asia Brewery but they failed to arrive at an amicable settlement.
said property which shall remain vested in me during my lifetime, or widowhood and which
upon my death or remarriage shall also automatically revert to, and be transferred to my On May 8, 1981, Maxima Hemedes also wrote a letter addressed to Asia Brewery wherein she
designee, Maxima Hemedes. asserted that she is the rightful owner of the subject property by virtue of OCT No. (0-941) 0-
198 and that, as such, she has the right to appropriate Asia Brewerys constructions, to demand
Maxima Hemedes, through her counsel, filed an application for registration and confirmation of its demolition, or to compel Asia Brewery to purchase the land. In another letter of the same
title over the subject unregistered land. Subsequently, Original Certificate of Title (OCT) No. (0- date addressed to R & B Insurance, Maxima Hemedes denied the execution of any real estate
941) 0-198 5 was issued in the name of Maxima Hemedes married to Raul Rodriguez by the mortgage in favor of the latter.
Registry of Deeds of Laguna on June 8, 1962, with the annotation that "Justa Kausapin shall
have the usufructuary rights over the parcel of land herein described during her lifetime or On August 27, 1981, Dominium and Enrique D. Hemedes filed a complaint 7 with the Court of
widowhood." cralaw virtua1aw library First Instance of Binan, Laguna for the annulment of TCT No. 41985 issued in favor of R & B
Insurance and/or the reconveyance to Dominium of the subject property. Specifically, the
It is claimed by R & B Insurance that on June 2, 1964, Maxima Hemedes and her husband Raul complaint alleged that Dominium was the absolute owner of the subject property by virtue of
Rodriguez constituted a real estate mortgage over the subject property in its favor to serve as the February 28, 1979 deed of sale executed by Enrique D. Hemedes, who in turn obtained
security for a loan which they obtained in the amount of P6,000.00. On February 22, 1968, R & ownership of the land from Justa Kausapin, as evidenced by the "Kasunduan" dated May 27,
B Insurance extrajudicially foreclosed the mortgage since Maxima Hemedes failed to pay the 1971. The plaintiffs asserted that Justa Kausapin never transferred the land to Maxima
loan even after it became due on August 2, 1964. The land was sold at a public auction on May Hemedes and that Enrique D. Hemedes had no knowledge of the registration proceedings
3, 1968 with R & B Insurance as the highest bidder and a certificate of sale was issued by the initiated by Maxima Hemedes.
sheriff in its favor. Since Maxima Hemedes failed to redeem the property within the redemption
period, R & B Insurance executed an Affidavit of Consolidation dated March 29, 1974 and on After considering the merits of the case, the trial court rendered judgment on February 22,
May 21, 1975 the Register of Deeds of Laguna cancelled OCT No. (0-941) 0-198 and issued 1989 in favor of plaintiffs Dominium and Enrique D. Hemedes, the dispositive portion of which
Transfer Certificate of Title (TCT) No. 41985 in the name of R & B Insurance. The annotation of states
usufruct in favor of Justa Kausapin was maintained in the new title. 6
WHEREFORE, judgment is hereby rendered: chanrob1es virtual 1aw library

Despite the earlier conveyance of the subject land in favor of Maxima Hemedes, Justa Kausapin
executed a "Kasunduan" on May 27, 1971 whereby she transferred the same land to her
stepson Enrique D. Hemedes, pursuant to the resolutory condition in the deed of donation
executed in her favor by her late husband Jose Hemedes. Enrique D. Hemedes obtained two
declarations of real property - in 1972, and again, in 1974, when the assessed value of the
property was raised. Also, he has been paying the realty taxes on the property from the time
Justa Kausapin conveyed the property to him in 1971 until 1979. In the cadastral survey of
Cabuyao, Laguna conducted from September 8, 1974 to October 10, 1974, the property was
assigned Cadastral No. 2990, Cad. 455-D, Cabuyao Cadastre, in the name of Enrique Hemedes. ownership and possession of Dominium Realty and Construction Corporation and to forever
Enrique Hemedes is also the named owner of the property in the records of the Ministry of
Agrarian Reform office at Calamba, Laguna.
(a) Declaring Transfer Certificate of Title No. 41985 of the Register of Deeds of Laguna null and
void and ineffective;
(b) Declaring Dominium Realty and Construction Corporation the absolute owner and possessor
of the parcel of land described in paragraph 3 of the complaint;
(c) Ordering the defendants and all persons acting for and/or under them to respect such
desist from asserting adverse claims thereon nor disturbing such ownership and possession;
and

On February 28, 1979, Enriques D. Hemedes sold the property to Dominium Realty and (d) Directing the Register of Deeds of Laguna to cancel said Transfer Certificate of Title No.
Construction Corporation (Dominium). On April 10, 1981, Justa Kausapin executed an affidavit 41985 in the name of R & B Insurance Corporation, and in lieu thereof, issue a new transfer
affirming the conveyance of the subject property in favor of Enrique D. Hemedes as embodied in certificate of title in the name of Dominium Realty and Construction Corporation. No
the "Kasunduan" dated May 27, 1971, and at the same time denying the conveyance made to pronouncement as to costs and attorneys fees. 8
Maxima Hemedes.
Both R & B Insurance and Maxima Hemedes appealed from the trial courts decision. On
On May 14, 1981, Dominium leased the property to its sister corporation Asia Brewery, Inc. September 11, 1992 the Court of Appeals affirmed the assailed decision in toto and on
(Asia Brewery) who, even before the signing of the contract of lease, constructed two December 29, 1992, it denied R & B Insurances motion for reconsideration. Thus, Maxima
Hemedes and R & B Insurance filed their respective petitions for review with this Court on
November 3, 1992 and February 22, 1993, respectively.
RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING THAT NO REAL ESTATE MORTGAGE
In G.R. No. 107132 9 , petitioner Maxima Hemedes makes the following assignment of errors as OVER THE SUBJECT PROPERTY WAS EXECUTED BY PETITIONER MAXIMA HEMEDES IN FAVOR
regards public respondents ruling OF RESPONDENT R & B INSURANCE CORPORATION.

I VII

RESPONDENT COURT OF APPEALS GRAVELY ERRED IN APPLYING ARTICLE 1332 OF THE NEW RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING THAT THE VALID TITLE COVERING
CIVIL CODE IN DECLARING AS SPURIOUS THE DEED OF CONVEYANCE OF UNREGISTERED REAL THE SUBJECT PROPERTY IS THE ORIGINAL CERTIFICATE OF TITLE NO. (0-941) 0-198 IN THE
PROPERTY BY REVERSION EXECUTED BY JUSTA KAUSAPIN IN FAVOR OF PETITIONER MAXIMA NAME OF PETITIONER MAXIMA HEMEDES AND NOT THE TRANSFER CERTIFICATE OF TITLE
HEMEDES. (TCT) NO. 41985 IN THE NAME OF R & B INSURANCE CORPORATION. 10

II Meanwhile, in G.R. No. 108472 11 , petitioner R & B Insurance assigns almost the same errors,
except with regards to the real estate mortgage allegedly executed by Maxima Hemedes in its
favor. Specifically, R & B Insurance alleges that:
chanrob1es virtual 1aw library

RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT FINDING AS VOID AND OF NO I

LEGAL EFFECT THE "KASUNDUAN" DATED 27 MAY 1971 EXECUTED BY JUSTA KAUSAPIN IN
FAVOR OF RESPONDENT ENRIQUE HEMEDES AND THE SALE OF THE SUBJECT PROPERTY BY
RESPONDENT ENRIQUE HEMEDES IN FAVOR OF RESPONDENT DOMINIUM REALTY AND
CONSTRUCTION CORPORATION. RESPONDENT COURT ERRONEOUSLY ERRED IN APPLYING ARTICLE 1332 OF THE CIVIL CODE.

III II

RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT FINDING RESPONDENTS ENRIQUE RESPONDENT COURT SERIOUSLY ERRED IN GIVING CREDENCE ON (sic) THE KASUNDUAN BY
AND DOMINIUM IN BAD FAITH. AND BETWEEN JUSTA KAUSAPIN AND ENRIQUE NOTWITHSTANDING THE FACT THAT JUSTA
KAUSAPIN BY WAY OF A DEED OF CONVEYANCE OF UNREGISTERED REAL PROPERTY BY
IV REVERSION CEDED THE SUBJECT PROPERTY TO MAXIMA SOME ELEVEN (11) YEARS EARLIER.

III

RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT ORIGINAL

CERTIFICATE OF TITLE NO. (0-941) 0-198 ISSUED IN THE NAME OF PETITIONER MAXIMA
HEMEDES NULL AND VOID. RESPONDENT COURT SERIOUSLY ERRED IN GIVING CREDENCE ON (sic) THE AFFIDAVIT OF
REPUDIATION OF JUSTA KAUSAPIN NOTWITHSTANDING THE FACT THAT SHE IS A BIAS (sic)
V WITNESS AND EXECUTED THE SAME SOME TWENTY-ONE (21) YEARS AFTER THE EXECUTION
OF THE DEED OF CONVEYANCE IN FAVOR OF MAXIMA.

IV
RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING THAT NO LOAN WAS OBTAINED BY
PETITIONER MAXIMA HEMEDES FROM RESPONDENT R & B INSURANCE CORPORATION.

VI RESPONDENT COURT SERIOUSLY ERRED IN NOT FINDING THAT THE COMPLAINT OF ENRIQUE
AND DOMINIUM HAS PRESCRIBED AND/OR THAT ENRIQUE AND DOMINIUM WERE GUILTY OF thumbmark on the deed of conveyance in favor of Maxima Hemedes and in fact, both Enrique D.
LACHES. Hemedes and Dominium objected to the request of Maxima Hemedes counsel to obtain a
specimen thumbmark of Justa Kausapin. 14
V
Public respondents finding that the "Deed of Conveyance of Unregistered Real Property By
Reversion" executed by Justa Kausapin in favor of Maxima Hemedes is spurious is not supported
by the factual findings in this case.. It is grounded upon the mere denial of the same by Justa
RESPONDENT COURT SERIOUSLY ERRED IN FINDING R & B AS A MORTGAGEE NOT IN GOOD Kausapin. A party to a contract cannot just evade compliance with his contractual obligations by
FAITH. the simple expedient of denying the execution of such contract. If, after a perfect and binding
contract has been executed between the parties, it occurs to one of them to allege some defect
VI therein as a reason for annulling it, the alleged defect must be conclusively proven, since the
validity and fulfillment of contracts cannot be left to the will of one of the contracting parties.
15

RESPONDENT COURT SERIOUSLY ERRED IN NOT GRANTING THE DAMAGES PRAYED FOR BY R & Although a comparison of Justa Kausapins thumbmark with the thumbmark affixed upon the
B IN ITS COUNTERCLAIM AND CROSSCLAIM. 12 deed of conveyance would have easily cleared any doubts as to whether or not the deed was
forged, the records do not show that such evidence was introduced by private respondents and
The primary issue to be resolved in these consolidated petitions is which of the two conveyances the lower court decisions do not make mention of any comparison having been made. 16 It is a
by Justa Kausapin, the first in favor of Maxima Hemedes and the second in favor of Enrique D. legal presumption that evidence willfully suppressed would be adverse if produced. 17 The
Hemedes, effectively transferred ownership over the subject land. failure of private respondents to refute the due execution of the deed of conveyance by making
a comparison with Justa Kausapins thumbmark necessarily leads one to conclude that she did
The Register of Deeds of Laguna issued OCT No. (0-941) 0-198 in favor of Maxima Hemedes on in fact affix her thumbmark upon the deed of donation in favor of her stepdaughter.
the strength of the "Deed of Conveyance of Unregistered Real Property by Reversion" executed
by Justa Kausapin. Public respondent upheld the trial courts finding that such deed is sham and Moreover, public respondents reliance upon Justa Kausapins repudiation of the deed of
spurious and has "no evidentiary value under the law upon which claimant Maxima Hemedes conveyance is misplaced for there are strong indications that she is a biased witness. The trial
may anchor a valid claim of ownership over the property." In ruling thus, it gave credence to the court found that Justa Kausapin was dependent upon Enrique D. Hemedes for financial
April 10, 1981 affidavit executed by Justa Kausapin repudiating such deed of conveyance in assistance. 18 Justa Kausapins own testimony attests to this fact
favor of Maxima Hemedes and affirming the authenticity of the "Kasunduan" in favor of Enrique
D. Hemedes. Also, it considered as pivotal the fact that the deed of conveyance in favor of Atty. Conchu: chanrob1es virtual 1aw library

Maxima Hemedes was in English and that it was not explained to Justa Kausapin, although she
could not read nor understand English; thus, Maxima Hemedes failed to discharge her burden, Q: Aling Justa, can you tell the Honorable Court why you donated this particular property to
pursuant to Article 1332 of the Civil Code, to show that the terms thereof were fully explained Enrique Hemedes?
to Justa Kausapin. Public respondent concluded by holding that the registration of the property
on the strength of the spurious deed of conveyance is null and void and does not confer any A: Because I was in serious condition and he was the one supporting me financially.
right of ownership upon Maxima Hemedes. 13
Q: As of today, Aling Justa are you continuing to receive any assistance from Enrique Hemedes?
Maxima Hemedes argues that Justa Kausapins affidavit should not be given any credence since
she is obviously a biased witness as it has been shown that she is dependent upon Enrique D. A: Yes Sir.
Hemedes for her daily subsistence, and she was most probably influenced by Enrique D.
Hemedes to execute the "Kasunduan" in his favor. She also refutes the applicability of article (TSN pp. 19 and 23, November 17, 1981) 19
1332. It is her contention that for such a provision to be applicable, there must be a party
seeking to enforce a contract; however, she is not enforcing the "Deed of Conveyance of Even Enrique Hemedes admitted that Justa Kausapin was dependent upon him for financial
Unregistered Real Property by Reversion" as her basis in claiming ownership, but rather her support. The transcripts state as follows: chanrob1es virtual 1aw library

claim is anchored upon OCT No. (0-941) 0-198 issued in her name, which document can stand
independently from the deed of conveyance. Also, there exist various circumstances which show Atty. Mora: chanrob1es virtual 1aw library

that Justa Kausapin did in fact execute and understand the deed of conveyance in favor of
Maxima Hemedes. First, the "Donation Intervivos With Resolutory Conditions" executed by Jose Now you said that Justa Kausapin has been receiving from you advances for food, medicine &
Hemedes in favor of Justa Kausapin was also in English, but she never alleged that she did not other personal or family needs?
understand such document. Secondly, Justa Kausapin failed to prove that it was not her
E. Hemedes: chanrob1es virtual 1aw library from which article 1332 is taken. Article 1330 states that

A: Yes.
Q: Was this already the practice at the time this "Kasunduan" was executed?
A: No that was increased, no, no, after this document.
x x x contract, or to those conditions which have principally moved one or both parties to enter into
Q: And because of these accommodations that you have given to Justa Kausapin; Justa
Kausapin has in turn treated you very well because shes very grateful for that, is it not?
A contract where consent is given through mistake, violence, intimidation, undue influence, or
fraud is voidable.
This is immediately followed by provisions explaining what constitutes mistake, violence,
intimidation, undue influence, or fraud sufficient to vitiate consent. 25 In order that mistake
may invalidate consent, it should refer to the substance of the thing which is the object of the
the contract. 26 Fraud, on the other hand, is present when, through insidious words or
machinations of one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. 27 Clearly, article 1332 assumes that the
consent of the contracting party imputing the mistake or fraud was given, although vitiated, and
does not cover a situation where there is a complete absence of consent.

A: I think thats human nature. In this case, Justa Kausapin disclaims any knowledge of the "Deed of Conveyance of
Unregistered Real Property by Reversion" in favor of Maxima Hemedes. In fact, she asserts that
Q: Answer me categorically, Mr. Hemedes shes very grateful? it was only during the hearing conducted on December 7, 1981 before the trial court that she
first caught a glimpse of the deed of conveyance and thus, she could not have possibly affixed
A: Yes she might be grateful but not very grateful. her thumbmark thereto. 28 It is private respondents own allegations which render article 1332
inapplicable for it is useless to determine whether or not Justa Kausapin was induced to execute
(TSN, p. 34, June 15, 1984) 20 said deed of conveyance by means of fraud employed by Maxima Hemedes, who allegedly took
advantage of the fact that the former could not understand English, when Justa Kausapin denies
A witness is said to be biased when his relation to the cause or to the parties is such that he has even having seen the document before the present case was initiated in 1981.
an incentive to exaggerate or give false color to his statements, or to suppress or to pervert the
truth, or to state what is false. 21 At the time the present case was filed in the trial court in It has been held by this Court that." . . mere preponderance of evidence is not sufficient to
1981, Justa Kausapin was already 80 years old, suffering from worsening physical infirmities overthrow a certificate of a notary public to the effect that the grantor executed a certain
and completely dependent upon her stepson Enrique D. Hemedes for support. It is apparent document and acknowledged the fact of its execution before him. To accomplish this result, the
that Enrique D. Hemedes could easily have influenced his aging stepmother to donate the evidence must be so clear, strong and convincing as to exclude all reasonable controversy as to
subject property to him. Public respondent should not have given credence to a witness that the falsity of the certificate, and when the evidence is conflicting, the certificate will be upheld."
was obviously biased and partial to the cause of private respondents. Although it is a well- 29 In the present case, we hold that private respondents have failed to produce clear, strong,
established rule that the matter of credibility lies within the province of the trial court, such rule and convincing evidence to overcome the positive value of the "Deed of Conveyance of
does not apply when the witness credibility has been put in serious doubt, such as when there Unregistered Real Property by Reversion" a notarized document. The mere denial of its
appears on the record some fact or circumstance of weight and influence, which has been execution by the donor will not suffice for the purpose.
overlooked or the significance of which has been misinterpreted. 22
In upholding the deed of conveyance in favor of Maxima Hemedes, we must concomitantly rule
Finally, public respondent was in error when it sustained the trial courts decision to nullify the that Enrique D. Hemedes and his transferee, Dominium, did not acquire any rights over the
"Deed of Conveyance of Unregistered Real Property by Reversion" for failure of Maxima subject property. Justa Kausapin sought to transfer to her stepson exactly what she had earlier
Hemedes to comply with article 1332 of the Civil Code, which states: chanrob1es virtual 1aw librarytransferred to Maxima Hemedes the ownership of the subject property pursuant to the first
condition stipulated in the deed of donation executed by her husband. Thus, the donation in
When one of the parties is unable to read, or if the contract is in a language not understood by favor of Enrique D. Hemedes is null and void for the purported object thereof did not exist at
him, and mistake or fraud is alleged, the person enforcing the contract must show that the the time of the transfer, having already been transferred to his sister. 30 Similarly, the sale of
terms thereof have been fully explained to the former. the subject property by Enrique D. Hemedes to Dominium is also a nullity for the latter cannot
acquire more rights than its predecessor-in-interest and is definitely not an innocent purchaser
Article 1332 was intended for the protection of a party to a contract who is at a disadvantage for value since Enrique D. Hemedes did not present any certificate of title upon which it
due to his illiteracy, ignorance, mental weakness or other handicap. 23 This article contemplates relied. chanroblesvirtuallawlibrary

a situation wherein a contract has been entered into, but the consent of one of the parties is
vitiated by mistake or fraud committed by the other contracting party. 24 This is apparent from The declarations of real property by Enrique D. Hemedes, his payment of realty taxes, and his
the ordering of the provisions under Book IV, Title II, Chapter 2, section 1 of the Civil Code, being designated as owner of the subject property in the cadastral survey of Cabuyao, Laguna
and in the records of the Ministry of Agrarian Reform office in Calamba, Laguna cannot defeat a enter into as such usufructuary shall terminate upon the expiration of the usufruct. 41
certificate of title, which is an absolute and indefeasible evidence of ownership of the property in
favor of the person whose name appears therein. 31 Particularly, with regard to tax declarations Clearly, only the jus utendi and jus fruendi over the property is transferred to the usufructuary.
and tax receipts, this Court has held on several occasions that the same do not by themselves 42 The owner of the property maintains the jus disponendi or the power to alienate, encumber,
conclusively prove title to land. 32 transform, and even destroy the same. 43 This right is embodied in the Civil Code, which
provides that the owner of property the usufruct of which is held by another, may alienate it,
We come now to the question of whether or not R & B Insurance should be considered an although he cannot alter the propertys form or substance, or do anything which may be
innocent purchaser of the land in question. At the outset, we note that both the trial court and prejudicial to the usufructuary. 44
appellate court found that Maxima Hemedes did in fact execute a mortgage over the subject
property in favor of R & B Insurance. This finding shall not be disturbed because, as we stated There is no doubt that the owner may validly mortgage the property in favor of a third person
earlier, it is a rule that the factual findings of the trial court, especially when affirmed by the and the law provides that, in such a case, the usufructuary shall not be obliged to pay the debt
Court of Appeals, are entitled to respect, and should not be disturbed on appeal. 33 of the mortgagor, and should the immovable be attached or sold judicially for the payment of
the debt, the owner shall be liable to the usufructuary for whatever the latter may lose by
In holding that R & B Insurance is not a mortgagee in good faith, public respondent stated that reason thereof. 45
the fact that the certificate of title of the subject property indicates upon its face that the same
is subject to an encumbrance, i.e. usufructuary rights in favor of Justa Kausapin during her Based on the foregoing, the annotation of usufructuary rights in favor of Justa Kausapin is not
lifetime or widowhood, should have prompted R & B Insurance to" investigate further the sufficient cause to require R & B Insurance to investigate Maxima Hemedes title, contrary to
circumstances behind this encumbrance on the land in dispute," but which it failed to do. Also, public respondents ruling, for the reason that Maxima Hemedes ownership over the property
public respondent considered against R & B Insurance the fact that it made it appear in the remained unimpaired despite such encumbrance. R & B Insurance had a right to rely on the
mortgage contract that the land was free from all liens, charges, taxes and encumbrances. 34 certificate of title and was not in bad faith in accepting the property as a security for the loan it
chanroble s virtual

extended to Maxima Hemedes.

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R & B Insurance alleges that, contrary to public respondents ruling, the presence of an
encumbrance on the certificate of title is not reason for the purchaser or a prospective Even assuming in gratia argumenti that R & B Insurance was obligated to look beyond the
mortgagee to look beyond the face of the certificate of title. The owner of a parcel of land may certificate of title and investigate the title of its mortgagor, still, it would not have discovered
still sell the same even though such land is subject to a usufruct; the buyers title over the any better rights in favor of private respondents. Enrique D. Hemedes and Dominium base their
property will simply be restricted by the rights of the usufructuary. Thus, R & B Insurance claims to the property upon the "Kasunduan" allegedly executed by Justa Kausapin in favor of
accepted the mortgage subject to the usufructuary rights of Justa Kausapin. Furthermore, even Enrique Hemedes. As we have already stated earlier, such contract is a nullity as its subject
assuming that R & B Insurance was legally obliged to go beyond the title and search for any matter was in existent. Also, the land was mortgaged to R & B Insurance as early as 1964,
hidden defect or inchoate right which could defeat its right thereto, it would not have discovered while the "Kasunduan" was executed only in 1971 and the affidavit of Justa Kausapin affirming
anything since the mortgage was entered into in 1964, while the "Kasunduan" conveying the the conveyance in favor of Enrique D. Hemedes was executed in 1981. Thus, even if R & B
land to Enrique D. Hemedes was only entered into in 1971 and the affidavit repudiating the Insurance investigated the title of Maxima Hemedes, it would not have discovered any adverse
deed of conveyance in favor of Maxima Hemedes was executed by Justa Kausapin in 1981. 35 claim to the land in derogation of its mortgagors title. We reiterate that at no point in time
could private respondents establish any rights or maintain any claim over the land.
We sustain petitioner R & B Insurances claim that it is entitled to the protection of a mortgagee
in good faith. It is a well-settled principle that where innocent third persons rely upon the correctness of a
certificate of title and acquire rights over the property, the court cannot just disregard such
It is a well-established principle that every person dealing with registered land may safely rely rights. Otherwise, public confidence in the certificate of title, and ultimately, the Torrens system,
on the correctness of the certificate of title issued and the law will in no way oblige him to go would be impaired for everyone dealing with registered property would still have to inquire at
behind the certificate to determine the condition of the property. 36 An innocent purchaser for every instance whether the title has been regularly or irregularly issued. 46 Being an innocent
value 37 is one who buys the property of another without notice that some other person has a mortgagee for value, R & B Insurance validly acquired ownership over the property, subject only
right to or interest in such property and pays a full and fair price for the same at the time of to the usufructuary rights of Justa Kausapin thereto, as this encumbrance was properly
such purchase or before he has notice of the claim of another person. 38 annotated upon its certificate of title.

The annotation of usufructuary rights in favor of Justa Kausapin upon Maxima Hemedes OCT
dose not impose upon R & B Insurance the obligation to investigate the validity of its
mortgagors title. Usufruct gives a right to enjoy the property of another with the obligation of
preserving its form and substance. 39 The usufructuary is entitled to all the natural, industrial
and civil fruits of the property 40 and may personally enjoy the thing in usufruct, lease it to
another, or alienate his right of usufruct, even by a gratuitous title, but all the contracts he may
The factual findings of the trial court, particularly when affirmed by the appellate court, carry
great weight and are entitled to respect on appeal, except under certain circumstances. 47 One
such circumstance that would compel the Court to review the factual findings of the lower
courts is where the lower courts manifestly overlooked certain relevant facts not disputed by the
parties and which, if properly considered, would justify a different conclusion. 48 Also, it is
axiomatic that the drawing of the proper legal conclusions from such factual findings are within
the peculiar province of this Court. 49 would be an inefficacious process if the donor would have nothing to convey at the time it is
made.
As regards R & B Insurances prayer that Dominium be ordered to demolish the warehouses or
that it be declared the owner thereof since the same were built in bad faith, we note that such Article 744 of the Civil Code states that the "donation of the same thing to two or more different
warehouses were constructed by Asia Brewery, not by Dominium. However, despite its being a donees shall be governed by the provisions concerning the sale of the same thing to two or
necessary party in the present case, the lower courts never acquired jurisdiction over Asia more persons," i.e., by Article 1544 of the same Code, as if so saying that there can be a case
Brewery, whether as a plaintiff or defendant, and their respective decisions did not pass upon of "double donations" to different donees with opposing interest. Article 744 is a new provision,
the constructions made upon the subject property. Courts acquire jurisdiction over a party having no counter part in the old Civil Code, that must have been added unguardedly. Being a
plaintiff upon the filing of the complaint, while jurisdiction over the person of a party defendant mode of acquiring and transmitting ownership or other real rights, a donation once perfected
is acquired upon the service of summons in the manner required by law or by his voluntary would deny the valid execution of a subsequent inconsistent donation (unless perhaps if the
appearance. As a rule, if a defendant has not been summoned, the court acquires no jurisdiction prior donation has provided a suspensive condition which still pends when the later donation is
over his person, and any personal judgment rendered against such defendant is null and void. made).
50 In the present case, since Asia Brewery is a necessary party that was not joined in the
action, any judgment rendered in this case shall be without prejudice to its rights. 51 In sales, Article 1544, providing for the rules to resolve the conflicting rights of two or more
buyers, is appropriate since the law does not prohibit but, in fact, sanctions the perfection of a
As to its claim for moral damages, we hold that R & B Insurance is not entitled to the same for sale by a non-owner, such as the sale of future things or a short sale, for it is only at the
it has not alleged nor proven the factual basis for the same. Neither is it entitled to exemplary consummation stage of the sale, i.e., delivery of the thing sold, that ownership would be
damages, which may only be awarded if the claimant is entitled to moral, temperate, liquidated deemed transmitted to the buyer. In the meanwhile, a subsequent sale to another of the same
or compensatory damages. 52 R & B Insurances claim for attorneys fees must also fail. The thing by the same seller can still be a legal possibility. This rule on double sales finds no
award of attorneys fees is the exception rather than the rule and counsels fees are not to be relevance in an ordinary donation where the law requires the donor to have ownership of the
awarded every time a party wins a suit. Its award pursuant to article 2208 of the Civil Code thing or the real right he donates at the time of its perfection (see Article 750, Civil Code) since
demands factual, legal and equitable justification and cannot be left to speculation and a donation constitutes a mode, not just a title in an acquisition and transmission of ownership.
conjecture. 53 Under the circumstances prevailing in the instant case, there is no factual or
legal basis for an award of attorneys fees. MELO, dissenting : chanrob1es virtual 1aw library

WHEREFORE, the assailed decision of public respondent and its resolution dated February 22,
1989 are REVERSED. We uphold petitioner R & B Insurances assertion of ownership over the
property in dispute, as evidenced by TCT No. 41985, subject to the usufructuary rights of Justa
Kausapin, which encumbrance has been properly annotated upon the said certificate of title. No
pronouncement as to costs.
SO ORDERED.
Panganiban, and Purisima, JJ., concur.
Separate Opinions
VITUG, concurring : chanrob1es virtual 1aw library
I share the opinion expressed by my esteemed colleague, Mme. Justice Minerva P. Gonzaga-
Reyes, in her ponencia.
I just would like to add that a donation would not be legally feasible if the donor has neither
ownership nor real right that he can transmit to the donee. Unlike an ordinary contract, a
donation, under Article 712, in relation to Article 725 of the Civil Code is also a mode of
acquiring and transmitting ownership and other real rights by an act of liberality whereby a
person disposes gratuitously that ownership or real right in favor of another who accepts it. It
I find myself unable to join the majority. The opinion written by my esteemed colleague,
Madame Justice Minerva Gonzaga-Reyes, will have far-searching ramification on settled
doctrines concerning the finality and conclusiveness of the factual findings of the trial court in
view of its unique advantage of being able to observe at first-hand the demeanor and
deportment of witnesses, and especially when such findings of facts are affirmed by the Court of
Appeals, which is the final arbiter of questions of fact (People v. Edao, 64 SCRA 675 [1975];
People v. Tala, 141 SCRA 240; People v. Canada and Dondoy, 144 SCRA 121 [1986]; People v.
Clore, 184 SCRA 638 [1990]; Binalay v. Manalo, 195 SCRA 374 [1991]; People v. Miscala, 202
SCRA 26 [1991]; People v. Lagrosa, 230 SCRA 298 [1994]). All these conditions are present in
the case at bar, and I have grave reservation about the propriety of setting aside time-tested
principles in favor of a finding that hinges principally on the credibility of a single witness, whom
we are asked to disbelieve on the basis merely of her recorded testimony without the benefit of
the advantage that the trial court had, disregarding in the process another long-established rule
that mere relationship of a witness to a party does not discredit his testimony in court (U.S. v.
Mante, 27 Phil 124; People v. Pagaduan, 37 Phil 90; People v. Reyes, 69 SCRA 474 [1976];
People v. Padiernos, 69 SCRA 484 [1976]; Borromeo v. Court of Appeals, 70 SCRA 329 [1976];
People v. Estocada, 75 SCRA 295 [1977]; People v. Ciria, 106 SCRA 381 [1981]; People v.
Ramo, 132 SCRA 174 [1984]; People v. Atencio, 156 SCRA 242 [1987]; People v. Gutierrez, Jr.,
158 SCRA 614 [1988]; People v. Bandoquillo, 167 SCRA 549 [1988]; People v. Suitos, 220
SCRA 419 [1993]).
The primordial issue is whether or not the "Deed of Conveyance of Unregistered Real Property
by Reversion" dated September 27, 1960 conveying the subject property to Maxima Hemedes is
valid. If the transfer is not valid, no title passed to her successor-in-interest, R & B Insurance
Corporation.
"Q From the time, Aling Justa, that your husband Jose Hemedes donated the property to you up
The Court of Appeals, confirming and summarizing the findings of fact and law made by the trial to the time you in turn donated the same to Enrique Hemedes in 1971, do you recall having
court, declared: chanrob1es virtual 1aw library executed any document donating this particular property to anybody else?

We sustain the findings of the trial court. "A None, Sir. (TSN, 17 November 1981, p. 21)"

To begin with, the "deed of Conveyance of Unregistered Real Property by Reversion" was (pp. 63-64, Rollo.)
nullified by the trial court on two (2) grounds: chanrob1es virtual 1aw library

There is no dispute that Justa Kausapin twice repudiated the conveyance in favor of Maxima
First, MAXIMA failed to comply with the requirements laid down by Article 1332 of the Civil Hemedes. As found by the trial court:chanrob1es virtual 1aw library

Code. Said provision reads: jgc:chanroble s.com.ph

"Art. 1332. When one of the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the contract must
show that the terms thereof have been fully explained to the former."
In her testimony, MAXIMA admitted the entire document was written in English, a language not
known to Justa Kausapin (TSN, 17 November 1981, pp. 7-8; Deposition of Justa Kausapin). Yet,
MAXIMA failed to introduce sufficient evidence that would purportedly show that the deed of
conveyance was explained to Justa Kausapin before the latter allegedly affixed her thumbmark.
On the contrary, she admitted having failed to translate the deed of conveyance to Justa
Kausapin because according to her, the latter has "no voice" anyway insofar as the property is
concerned. Her testimony reads:
"Q In connection with this deed of conveyance which has been marked as Exh. "2-Maxima," we
In an Affidavit dated April 10, 1981 executed by Justa Kausapin before three witnesses (Exh. D-
Dominium), said affiant disowned the alleged Deed of Conveyance of Unregistered Real
Property by Reversion" invoked by defendant Maxima Hemedes, and expressly stated that she
cralaw virtua1aw library never granted any right over the property to Maxima Hemedes, whether as owner or mortgagor,
that she never allowed her to use the land as security or collateral for loan. In the same
affidavit, Justa Kausapin affirmed the authenticity of the Kasunduan whereby she transferred
ownership of the disputed land to Enrique Hemedes, her stepson and reliable source of
assistance throughout the years that she was in need of help. The testimony of Justa Kausapin
was also taken by deposition on November 17, December 7 and 14, 1981 and on January 14,
1982, wherein all the contending parties were represented and had the opportunity to cross-
examine her. In her testimony (the entire transcript of which has been submitted as Exh. K-
jgc:chanroble s.com.ph Enrique), Justa Kausapin reiterated her repudiation of the Deed of Conveyance in favor of
Maxima Hemedes and re-affirmed the validity of the Kasunduan in favor of Enrique Hemedes,
as well as the subsequent sale of the land by Enrique Hemedes to Dominium." cralaw virtua1aw library

note that this is written in English, do you know, Mrs. Hernandez (MAXIMA), whether this
document was ever translated to Justa Kausapin? (pp. 83-84, Rollo.)

"A Justa Kausapin has no voice because thats the order of my father so anyway The majority would hold that twin repudiation cannot be given credence because the witness is
biased in favor of Enrique Hemedes, who, by providing support and financial assistance to the
"Court:chanrob1es virtual 1aw library witness before, during and after the execution of the "Kasunduan," is said to have influenced
her into signing the same. This issue refers to the credibility of witnesses which, as stated
Answer the question, you were only asked whether that was translated. earlier, is best left for determination by the trial court (People v. Oliano, 287 SCRA 158 [1998],
citing People v. Pontillar, Jr., 275 SCRA 338 [1997]; People v. Rubio, 257 SCRA 528 [1996];
"A No." (TSN 26 November, 1984, pp. 36-37, Maxima Hemedes). People v. Del Prado, 253 SCRA 731 [1996]). I am not prepared to substitute my judgment for
that of the trial court on the credibility of Justa Kausapin on the basis alone of the relationship
Second, MAXIMA failed to repudiate the allegation of Justa Kausapin disclaiming knowledge of between her and Enrique Hemedes. To reiterate, the rule is "mere relationship of a witness to a
her having executed such a deed. As a matter of fact, Justa Kausapin claimed that it was only party does not discredit his testimony in court." (U.S. v. Mante, supra; Aznar v. Court of
during the hearing conducted on 07 December 1981 that she first caught glimpse of the deed of Appeals, 70 SCRA 329 [1976]; People v. Letigio, 268 SCRA 227 [1997]).
conveyance (TSN, 07 December 1981, pp. 22-23, ibid.) She therefore could not have possibly
affixed her thumbmark therein. In the light of such a denial, the burden of proving that the I cannot infer from the mere circumstance that Justa Kausapin was receiving support and
deed of conveyance was indeed genuine laid on MAXIMA. After all, any party who asserts the sustenance from Enrique Hemedes that she had any improper motives to testify in favor of
affirmative of the issue has the burden of presenting evidence required to obtain a favorable Enrique and against Maxima. It must be remembered that Justa Kausapin had a legal right to
judgment (Republic v. Court of Appeals, 182 SCRA 290). such financial assistance, not only from respondent Enrique Hemedes, but also from Maxima
Hemedes, who are both her stepchildren. If one must impute improper motives in favor of
Instead, what was clearly established from the deposition of Justa Kausapin is the fact that she Enrique, one could just as easily ascribe these to Maxima. Furthermore, it must be noted that
never executed any document donating the property to anybody else except ENRIQUE. This can Justa kausapins entitlement to support flowed from her usufructuary rights contained in the
be readily gleaned from her testimony, reading: "Donation Inter Vivos with Resolutory Conditions" executed by her late husband, Jose Hemedes,
jgc:chanroble s.com.ph
the common father of petitioner Maxima and respondent Enrique. In supporting his stepmother, Questioned about the execution of the Deed of Conveyance of Unregistered Real Property by
Enrique was, therefore, merely performing a legal or contractual duty in favor of Justa Reversion which is the basis of her claim, defendant Maxima Hemedes admitted that the
Kausapin. There was nothing improper in Justa Kausapins repudiation of the conveyance in document which is in English was not translated or explained to Justa Kausapin before the latter
favor of Maxima, especially so if one considers the fact that the latter did not adduce any other supposedly affixed her thumbmark to the document (TSN, November 26, 1984, p. 34; TSN,
evidence to defeat the presumption that Justa Kausapin was stating the truth when she said December 10, 1984, p. 9). The Court has noted from the records that the Notary Public before
that she never conveyed the property to Justa Maxima. As the trial court found: whom the said document was notarized was not presented as a witness by defendant Maxima
chanrob1es virtual 1aw library

Hemedes, if only to attest to the execution of said document by Justa Kausapin, considering
. . . The actuation of Enrique Hemedes towards Justa Kausapin is legally and morally justified. It that the latter is an illiterate when it comes to documents written in English. Maxima explained
must be remembered that Justa Kausapin is the stepmother of Enrique Hemedes; she was also the non-translation of the Deed of Conveyance into a language understood by Justa Kausapin
the usufructuary of property in dispute. It is only natural and in keeping with law and custom, with the statement that the latter (Justa Kausapin) has no voice anyway in so far as the
or Filipino tradition, for a son to support his mother (even if she happens to be a stepmother); property is concerned (TSN, November 26, 1984, p. 36) the Notary Public before whom the
and form a legal standpoint, the naked owner Enrique Hemedes was bound to support Justa said document was supposed to have been acknowledged was also not presented as a witness,
Kausapin by way of giving her what she was entitled to as usufructuary. and there was no explanation as to why he was not also presented. In the face of such an
admission and failure on the part of defendant Maxima Hemedes, coupled with the
(p. 104, Rollo.) Straightforward repudiation by Justa Kausapin herself of the document relied upon by said
defendant the Court finds and so concludes that the Deed of Conveyance of Unregistered Real
The trial courts ruling on the invalidity of the title of Maxima is not based solely on Justa Property by Reversion is not a credible and convincing evidence and is of no evidentiary value
Kausapins reputation of the deed of conveyance, but likewise on the very acts of Maxima and under the law upon which claimant Maxima Hemedes may anchor a valid claim of ownership
her transferee R & B Surety and Insurance. The factual findings of the trial court are to the over the property subject of this action.
effect that despite the alleged transfer of ownership from Justa Kausapin to Maxima Hemedes
on September 27, 1960 and the subsequent transfer to R & B Insurance on May 3, 1968 by way (pp. 91-93, Rollo.)
of foreclosure and public auction sale, neither do these petitioners exercised their rights of
ownership over the disputed property, never even asserting their supposed ownership rights It is argued that private respondents failed to have the thumbmarks of Justa Kausapin
until it was too late. The following findings of the trial court stand unassailed: appearing on the deeds executed in favor of Maxima and Enrique compared and this failure may
chanrob1es virtual 1aw library

be taken as willful suppression of evidence that is presumed to be adverse if produced (Rules of

There are other indication which led this Court to believe that neither defendant Maxima Court, rule 131, Sec. 3(e). The applicability of this rule presupposes that the suppressed
Hemedes not defendant R & B INSURANCE consider themselves the owner of the property in evidence is not available to the other party for production in court (People v. Padiernos, 69
question. Both of these claimants never declared themselves as owners of the property for tax SCRA 484 [1976]; People v. Silvestre, 279 SCRA 474, 495 [1997]). This is not the case here for
purposes; much less did they pay a single centavo in real estate taxes. The argument that since the same documents were available to petitioners. In fact, the records show that counsel for
Justa Kausapin was in possession of the property as usufructuary she should pay the taxes Maxima Hemedes pledged to submit the document which will be compared with the specimen
contravenes the clear provision of the Civil Code that the taxes which may be imposed directly thumbmark to be obtained from Justa Kausapin (TSN, December 7, 1981, p. 28). The records,
on the capital during the usufruct, in this case the realty taxes, shall be at the expense of the however, do not show that said counsel persisted in his request for comparison of Kausapins
owner (Article 597, Civil Code). If Maxima Hemedes and R & B INSURANCE were convinced that thumbmarks. If petitioners were convinced that the specimen thumbprint of Justa Kausapin was
they were the owners of the property, why did they not pay taxes for the same? This attitude is of crucial importance to their cause, they should have insisted on presenting her as a witness
not consistent with that of an owner in good faith. The Court has noted that the very owner of R and, thereupon, obtaining her thumbprint. Their own failure to pursue the production of the
& B INSURANCE has admitted in her testimony that they declared the property as one of the specimen thumbprint of Justa Kausapin negated any belated claim that the said specimen was
assets of R & B INSURANCE only in 1976, which is eight years after they supposedly bought it suppressed (People v. Tulop, citing People v. Pagal, 272 SCRA 443 [1998]; Commissioner of
at public auction in 1968 (TSN, July 6, 1987, pp. 22-23) Decision, pp. 32-33) . Internal Revenue v. Tokyo Shipping Company, Ltd., 244 SCRA 332 [1995]; citing Nicolas v.
Nicolas, 52 Phil 265 [1928] and Ang Seng Quiem v. Te Chico, 7 Phil 541 [1907]).
(pp. 101-102, Rollo.)
The two courts below were, to my mind, most perceptive when they held that proof of
Faced with the categorical and straightforward repudiations of the conveyance supposedly made authenticity of the thumbprint of Justa Kausapin would not render valid an otherwise void
in her favor, Maxima Hemedes could only gratuitously assert otherwise, as no other testimonial document in light of the admission of Maxima Hemedes that she did not explain the English
or documentary evidence was adduced in support thereof. Maximas self-serving assertions, contents thereof to Justa Kausapin in language understood by her. chanroble svirtuallawlibrary:red

however, are legally infirm in view of her admission that the deed of conveyance in her favor
was written in a language unknown to the person who supposedly executed the same and the On the other hand, the validity of the conveyance to Enrique Hemedes is amply proven by the
terms thereof were not fully explained to the person executed the same. These are the facts as evidence on record. Thus, largely uncontested are the following findings of the fact of the trial
found by the trial court:
chanrob1es virtual 1aw library court: chanrob1es virtual 1aw library
Enough has already been said hereinabove concerning the claim of ownership of plaintiff
Enrique. From an overall evaluation of the facts found by the Court to be substantiated by the
evidence on record, the Court is convinced and so holds that the three conflicting claimants, it is
party plaintiffs, Enrique Hemedes and now DOMINIUM, who have both law and equity on their
side. Plaintiff Enrique Hemedes title to the property in question by virtue of the "Kasunduan"
dated May 27, 1971 was confirmed twice by his grantor, Justa Kausapin; he complied with his
obligations as naked owner by giving Justa Kausapin her usufructuary rights in the form of
financial and other assistance; he declared his ownership of the property openly and adversely
to other claimants by recording the same in the appropriate government agencies, namely, the
Municipal and Provincial Assessors Office, the Ministry of Agrarian Reform and the Bureau of
Lands; he was openly known in the community where the property is located as the owner
thereof; he paid the taxes on the property conscientiously from the time he acquired the same
to the time he sold the same to co-plaintiff DOMINIUM; he was in continuous possession of the
property during the said period; he paid the tenant, Nemesio Marquez, the disturbance fee
required under the Land Reform Law.

(pp. 102-103, Rollo)

The Court of Appeals, therefore, did not err in holding that since the deed of conveyance to
Maxima was found to be spurious, it necessarily follows that OCT No. (0-941) 0-198 issued in
her name is null and void. This is because the registration will not invalidate a forged or invalid
document.

I, therefore, vote to dismiss the petition and to affirm the decision appealed from.
 THIRD DIVISION of the intent of the parties in entering into the contract respecting the subject matter and the
consideration thereof. If the words of the contract appear to be contrary to the evident intention
[G.R. No. 111924. January 27, 1997.] of the parties, the latter shall prevail over the former. In the case at bench, the evidence is
sufficient to warrant a finding that petitioner and Parangan merely intended to consolidate the
ADORACION LUSTAN, Petitioner, v. COURT OF APPEALS, NICOLAS PARANGAN and formers indebtedness to the latter in a single instrument and to secure the same with the
SOLEDAD PARANGAN, PHILIPPINE NATIONAL BANK, Respondents. subject property. Even when a document appears on its face to be a sale, the owner of the
property may prove that the contract is really a loan with mortgage by raising as an issue the
fact that the document does not express the true intent of the parties.

SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; SALES; EQUITABLE MORTGAGE; REQUISITES of Parangan. Petitioner argues that the last three mortgages were void for lack of authority. She
FOR PRESUMPTION. For a presumption of an equitable mortgage to arise, we must first
satisfy two requisites, namely: that the parties entered into a contract denominated as a
contract of sale and that their intention was to secure an existing debt by way of mortgage.
5. ID.; ID.; AGENCY; SPECIAL POWERS OF ATTORNEY ARE CONTINUING ABSENT A VALID
REVOCATION DULY FURNISHED TO MORTGAGEE; THE SAME CONTINUES TO HAVE FORCE AND
EFFECT, AS AGAINST THIRD PERSONS WHO HAD NO KNOWLEDGE OF SUCH AUTHORITY; CASE
AT BENCH. It is admitted that petitioner is the owner of the parcel of land mortgaged to PNB
on five (5) occasions by virtue of the Special Powers of Attorney executed by petitioner in favor
totally failed to consider that said Special Powers of Attorney are a continuing one and absent a
valid revocation duly furnished to the mortgagee, the same continues to have force and effect
as against third persons who had no knowledge of such lack of authority . . . The Special Power
of Attorney executed by petitioner in favor of Parangan duly authorized the latter to represent
chanroble svirtuallawlibrary

2. ID.; ID.; ID.; ID.; EXISTENCE OF ANY OF THE CIRCUMSTANCES ENUMERATED UNDER ART. and act on behalf of the former. Having done so, petitioner clothed Parangan with authority to
1602, SUFFICES TO GIVE RISE TO THE PRESUMPTION. Under Art. 1604 of the Civil Code, a deal with PNB on her behalf and in the absence of any proof that the bank had knowledge that
contract purporting to be an absolute sale shall be presumed to be an equitable mortgage the last three loans were without the express authority of petitioner, it cannot be prejudiced
should any of the conditions in Art. 1602 be present. The existence of any of the circumstances thereby. As far as third persons are concerned, an act is deemed to have been performed within
therein, not a concurrence nor an overwhelming number of such circumstances, suffices to give the scope of the agents authority if such is within the terms of the power of attorney as written
rise to the presumption that the contract is an equitable mortgage. even if the agent has in fact exceeded the limits of his authority according the understanding
between the principal and the agent. chanroble svirtualawlibrary

3. ID.; ID.; CONTRACTS; WHERE A PARTY TO A CONTRACT IS ILLITERATE OR CANNOT READ,

OR CANNOT UNDERSTAND THE LANGUAGE IN WHICH THE CONTRACT IS WRITTEN, THE 6. REMEDIAL LAW; EVIDENCE; CREDIBILITY OF WITNESSES; ASSESSMENT BY TRIAL COURT
BURDEN IS ON THE PARTY INTERESTED IN ENFORCING THE CONTRACT TO PROVE THAT THE OF CREDIBILITY OF WITNESSES, ENTITLED TO GREAT RESPECT AND WEIGHT; CASE AT BENCH.
TERMS THEREOF ARE FULLY EXPLAINED TO THE FORMER; CASE AT BENCH. Petitioner had no We do not find the testimony of Parangan and Delia Cabial that the contract was duly read
knowledge that the contract she signed is a deed of sale. The contents of the same were not and explained to petitioner worthy of credit. The assessment by the trial court of the credibility
read nor explained to her so that she may intelligibly formulate in her mind the consequences of of witnesses is entitled to great respect and weight for having had the opportunity of observing
her conduct and the nature of the rights she was ceding in favor of Parangan. Petitioner is the conduct and demeanor of the witnesses while testifying. The lower court may not have
illiterate and her condition constrained her to merely rely on Parangans assurance that the categorically declared Cabials testimony as doubtful but this fact is readily apparent when it
contract only evidences her indebtedness to the latter. When one of the contracting parties is ruled on the basis of petitioners evidence in total disregard of the positive testimony on
unable to read, or if the contract is in a language not understood by him, and mistake or fraud Parangans side. We have subjected the records to a thorough examination, and a reading of the
is alleged, the person enforcing the contract must show that the terms thereof have been fully transcript of stenographic notes would bear out that the court a quo is correct in its
explained to the former. Settled is the rule that where a party to a contract is illiterate or cannot assessment. chanroblesvirtuallawlibrary:re d

read or cannot understand the language in which the contract is written, the burden is on the
party interested in enforcing the contract to prove that the terms thereof are fully explained to
the former in a language understood by him. To our mind, this burden has not been
satisfactorily discharged.
DECISION
4. ID.; ID.; INTERPRETATION OF CONTRACTS; IF THE WORDS OF THE CONTRACT APPEAR TO
BE CONTRARY TO THE EVIDENT INTENTION OF THE PARTIES, THE LATTER SHALL PREVAIL
OVER THE FORMER; CASE AT BENCH. A contract is perfected by mere consent. More
particularly, a 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. This meeting of the minds speaks FRANCISCO, J.:
 4. Ordering defendant Nicolas Parangan to return possession of the land in question, Lot 8069
of the Calinog Cadastre described in TCT No. T-561 of the Register of Deeds of Iloilo, to plaintiff
upon payment of the sum of P75,000.00 by plaintiff to defendant Parangan which payment by
Petitioner Adoracion Lustan is the registered owner of a parcel of land otherwise known as Lot plaintiff must be made within ninety (90) days from receipt of this decision; otherwise, sale of
8069 of the Cadastral Survey of Calinog, Iloilo containing an area of 10,057 hectares and the land will be ordered by the court to satisfy payment of the amount;
covered by TCT No. T-561. On February 25, 1969, petitioner leased the above described
property to private respondent Nicolas Parangan for a term of ten (10) years and an annual rent 5. Ordering defendant Nicolas Parangan to pay plaintiff attorneys fees in the sum of P15,000.00
of One Thousand (P1,000.00) Pesos. During the period of lease, Parangan was regularly and to pay the costs of the suit.
extending loans in small amounts to petitioner to defray her daily expenses and to finance her
daughters education. On July 29, 1970, petitioner executed a Special Power of Attorney in favor SO ORDERED." 4
of Parangan to secure an agricultural loan from private respondent Philippine National Bank
(PNB) with the aforesaid lot as collateral. On February 18, 1972, a second Special Power of Upon appeal to the Court of Appeals (CA), respondent court reversed the trial courts decision.
Attorney was executed by petitioner, by virtue of which, Parangan was able to secure four (4) Hence this petition contending that the CA committed the following errors: jgc:chanrobles.com .ph

additional loans, to wit: the sums of P24,000.00, P38,000.00, P38,600.00 and P25,000.00 on
December 15, 1975, September 6, 1976, July 2, 1979 and June 2, 1980, respectively. The last "IN ARRIVING AT THE CONCLUSION THAT NONE OF THE CONDITIONS STATED IN ART. 1602 OF
three loans were without the knowledge of herein petitioner and all the proceeds therefrom THE NEW CIVIL CODE HAS BEEN PROVEN TO EXIST BY PREPONDERANCE OF EVIDENCE;
were used by Parangan for his own benefit. 1 These encumbrances were duly annotated on the
certificate of title. On April 16, 1973, petitioner signed a Deed of Pacto de Retro Sale 2 in favor IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF SALE WITH KNOWLEDGE AS TO THE
of Parangan which was superseded by the Deed of Definite Sale 3 dated May 4, 1979 which CONTENTS THEREOF;
petitioner signed upon Parangans representation that the same merely evidences the loans
extended by him unto the former. IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF WITNESS DELIA CABIAL
DESERVES FULL FAITH AND CREDIT;
For fear that her property might be prejudiced by the continued borrowing of Parangan,
petitioner demanded the return of her certificate of title. Instead of complying with the request, IN FINDING THAT THE SPECIAL POWER OF ATTORNEY AUTHORIZING MORTGAGE FOR
Parangan asserted his rights over the property which allegedly had become his by virtue of the "UNLIMITED" LOANS AS RELEVANT." cralaw virtua1aw library

aforementioned Deed of Definite Sale. Under said document, petitioner conveyed the subject
property and all the improvements thereon unto Parangan absolutely for and in consideration of Two main issues confront us in this case, to wit: whether or not the Deed of Definite Sale is in
the sum of Seventy Five Thousand (P75,000.00) Pesos. reality an equitable mortgage and whether or not petitioners property is liable to PNB for the
loans contracted by Parangan by virtue of the special power of attorney. The lower court and the
Aggrieved, petitioner filed an action for cancellation of liens, quieting of title, recovery of CA arrived at different factual findings thus necessitating a review of the evidence on record. 5
possession and damages against Parangan and PNB in the Regional Trial Court of Iloilo City. After a thorough examination, we note some errors, both in fact and in law, committed by
After trial, the lower court rendered judgment, disposing as follows:jgc:chanrobles.com .ph
public respondent CA.

"WHEREFORE and in view of the foregoing a decision is rendered as follows: chanrob1es virtual 1aw library
The court a quo ruled that the Deed of Definite Sale is in reality an equitable mortgage as it was
shown beyond doubt that the intention of the parties was one of a loan secured by petitioners
1. Ordering cancellation by the Register of Deeds of the Province of Iloilo, of the unauthorized land. 6 We agree. chanroblesvirtuallawlibrary

loans, the liens and encumbrances appearing in the Transfer Certificate of Title No. T-561,
especially entries nos. 286231; 338638; and 352794;
2. Declaring the Deed of Pacto de Retro Sale dated April 25, 1978 and the Deed of Definite Sale
dated May 6, 1979, both documents executed by Adoracion Lustan in favor of Nicolas Parangan
over Lot 8069 in TCT No. T-561 of the Register of Deeds of Iloilo, as null and void, declaring the
same to be Deeds of Equitable Mortgage;
3. Ordering defendant Nicolas Parangan to pay all the loans he secured from defendant PNB
using thereto as security TCT No. T-561 of plaintiff and defendant PNB to return TCT No. T-561
to plaintiff;
A contract is perfected by mere consent. 7 More particularly, a 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. 8 This meeting of the minds speaks of the intent of the parties in entering into
the contract respecting the subject matter and the consideration thereof. If the words of the
contract appear to be contrary to the evident intention of the parties, the latter shall prevail
over the former. 9 In the case at bench, the evidence is sufficient to warrant a finding that
petitioner and Parangan merely intended to consolidate the formers indebtedness to the latter
in a single instrument and to secure the same with the subject property. Even when a document
appears on its face to be a sale, the owner of the property may prove that the contract is really
a loan with mortgage by raising as an issue the fact that the document does not express the
true intent of the parties. In this case, parol evidence then becomes competent and admissible
to prove that the instrument was in truth and in fact given merely as a security for the
repayment of a loan. And upon proof of the truth of such allegations, the court will enforce the written, the burden is on the party interested in enforcing the contract to prove that the terms
agreement or understanding in consonance with the true intent of the parties at the time of the thereof are fully explained to the former in a language understood by him. 14 To our mind, this
execution of the contract. 10 burden has not been satisfactorily discharged.

Articles 1602 and 1604 of the Civil Code respectively provide: jgc:chanroble s.com.ph
"The contract shall be presumed to be an equitable mortgage in any of the following cases:
1) When the price of a sale with right to repurchase is unusually inadequate;
2) When the vendor remains in possession as lessor or otherwise;
3) When upon or after the expiration of the right to repurchase, another instrument extending
the period of redemption or granting a new period is executed;
4) When the vendor binds himself to pay the taxes on the thing sold;
5) When the purchaser retains for himself a part of the purchase price;
6) In any other case where it may be fairly inferred that the real intention of the parties is that
the transaction shall secure the payment of a debt or the performance of any other obligation." On the other hand, petitioners witness Celso Pamplona, testified that the contract was not read
virtua1aw library
We do not find the testimony of Parangan and Delia Cabial that the contract was duly read and
explained to petitioner worthy of credit. The assessment by the trial court of the credibility of
chanrob1es virtual 1aw library witnesses is entitled to great respect and weight for having had the opportunity of observing the
conduct and demeanor of the witnesses while testifying. 15 The lower court may not have
categorically declared Cabials testimony as doubtful but this fact is readily apparent when it
ruled on the basis of petitioners evidence in total disregard of the positive testimony on
Parangans side. We have subjected the records to a thorough examination, and a reading of the
transcript of stenographic notes would bear out that the court a quo is correct in its assessment.
The CA committed a reversible error when it relied on the testimony of Cabial in upholding the
validity of the Deed of Definite Sale. For one, there are noted major contradictions between the
testimonies of Cabial and Judge Lebaquin, who notarized the purported Deed of Definite Sale.
While the former testified that receipts were presented before Judge Lebaquin, who in turn
made an accounting to determine the price of the land 16 , the latter categorically denied the
allegation. 17 This contradiction casts doubt on the credibility of Cabial as it is ostensible that
her version of the story is concocted.
cralaw

nor explained to petitioner. We believe that this witness gave a more accurate account of the
"Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an circumstances surrounding the transaction. He has no motive to prevaricate or concoct a story
absolute sale." cralaw virtua1aw library
as he witnessed the execution of the document at the behest of Parangan himself who, at the
outset, informed him that he will witness a document consolidating petitioners debts. He thus
From a reading of the above-quoted provisions, for a presumption of an equitable mortgage to testified: jgc:chanrobles.com .ph

arise, we must first satisfy two requisites namely: that the parties entered into a contract
denominated as a contract of sale and that their intention was to secure an existing debt by way "Q: In (sic) May 4, 1979, you remember having went (sic) to the Municipality of Calinog?
of mortgage. Under Art. 1604 of the Civil Code, a contract purporting to be an absolute sale
shall be presumed to be an equitable mortgage should any of the conditions in Art. 1602 be A: Yes, sir.
present. The existence of any of the circumstances therein, not a concurrence nor an
overwhelming number of such circumstances, suffices to give rise to the presumption that the Q: Who invited you to go there?
contract is an equitable mortgage. 11
A: Parangan.
Art. 1602 (6), in relation to Art. 1604 provides that a contract of sale is presumed to be an
equitable mortgage in any other case where it may be fairly inferred that the real intention of Q: You mean Nicolas Parangan?
the parties is that the transaction shall secure the payment of a debt or the performance of any
other obligation. That the case clearly falls under this category can be inferred from the A: Yes, sir.
circumstances surrounding the transaction as herein set forth: chanrob1es virtual 1aw library

Q: What did Nicolas tell you why he invited you to go there?

Petitioner had no knowledge that the contract 12 she signed is a deed of sale. The contents of
the same were not read nor explained to her so that she may intelligibly formulate in her mind A: He told me that I will witness on the indebtedness of Adoracion to Parangan.
the consequences of her conduct and the nature of the rights she was ceding in favor of
Parangan. Petitioner is illiterate and her condition constrained her to merely rely on Parangans x x x
assurance that the contract only evidences her indebtedness to the latter. When one of the
contracting parties is unable to read, or if the contract is in a language not understood by him,
and mistake or fraud is alleged, the person enforcing the contract must show that the terms
thereof have been fully explained to the former. 13 Settled is the rule that where a party to a Q: Before Adoracion Lustan signed her name in this Exh. "4", was this document read to her?
contract is illiterate or cannot read or cannot understand the language in which the contract is
A: No, sir. be prejudiced thereby. As far as third persons are concerned, an act is deemed to have been
performed within the scope of the agents authority if such is within the terms of the power of
Q: Did Nicolas Parangan right in that very room tell Adoracion what she was signing? attorney as written even if the agent has in fact exceeded the limits of his authority according to
the understanding between the principal and the agent. 22 The Special Power of Attorney
A: No, sir. particularly provides that the same is good not only for the principal loan but also for
subsequent commercial, industrial, agricultural loan or credit accommodation that the attorney-
x x x in-fact may obtain and until the power of attorney is revoked in a public instrument and a copy
of which is furnished to PNB. 23 Even when the agent has exceeded his authority, the principal
is solidarily liable with the agent if the former allowed the latter to act as though he had full
powers (Article 1911, Civil Code). 24 The mortgage directly and immediately subjects the
Q: What did you have in mind when you were signing this document, Exh. "4"? property upon which it is imposed. 25 The property of third persons which has been expressly
mortgaged to guarantee an obligation to which the said persons are foreign, is directly and
A: To show that Adoracion Lustan has debts with Nicolas Parangan." 18 jointly liable for the fulfillment thereof; it is therefore subject to execution and sale for the
purpose of paying the amount of the debt for which it is liable. 26 However, petitioner has an
Furthermore, we note the absence of any question propounded to Judge Lebaquin to establish unquestionable right to demand proportional indemnification from Parangan with respect to the
that the deed of sale was read and explained by him to petitioner. When asked if witness has sum paid to PNB from the proceeds of the sale of her property 27 in case the same is sold to
any knowledge whether petitioner knows how to read or write, he answered in the negative. 19 satisfy the unpaid debts.
This latter admission impresses upon us that the contract was not at all read or explained to
petitioner for had he known that petitioner is illiterate, his assistance would not have been WHEREFORE, premises considered, the judgment of the lower court is hereby REINSTATED with
necessary. the following MODIFICATIONS: chanrob1es virtual 1aw library

The foregoing squares with the sixth instance when a presumption of equitable mortgage 1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE MORTGAGE;
prevails. The contract of definite sale, where petitioner purportedly ceded all her rights to the
subject lot in favor of Parangan, did not embody the true intention of the parties. The evidence 2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO RETURN THE POSSESSION OF
speaks clearly of the nature of the agreement it was one executed to secure some loans. THE SUBJECT LAND UNTO PETITIONER UPON THE LATTERS PAYMENT OF THE SUM OF
P75,000.00 WITHIN NINETY (90) DAYS FROM RECEIPT OF THIS DECISION;
Anent the issue of whether the outstanding mortgages on the subject property can be enforced
against petitioner, we rule in the affirmative. 3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID AND SUBSISTING AND MAY
THEREFORE BE SUBJECTED TO EXECUTION SALE;
Third persons who are not parties to a loan may secure the latter by pledging or mortgaging
their own property. 20 So long as valid consent was given, the fact that the loans were solely 4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY PETITIONER THE AMOUNT OF
for the benefit of Parangan would not invalidate the mortgage with respect to petitioners P15,000.00 BY WAY OF ATTORNEYS FEES AND TO PAY THE COSTS OF THE SUIT.
property. In consenting thereto, even granting that petitioner may not be assuming personal
liability for the debt, her property shall nevertheless secure and respond for the performance of SO ORDERED.
the principal obligation. 21 It is admitted that petitioner is the owner of the parcel of land
mortgaged to PNB on five (5) occasions by virtue of the Special Powers of Attorney executed by
petitioner in favor of Parangan. Petitioner argues that the last three mortgages were void for
lack of authority. She totally failed to consider that said Special Powers of Attorney are a
continuing one and absent a valid revocation duly furnished to the mortgagee, the same
continues to have force and effect as against third persons who had no knowledge of such lack
of authority. Article 1921 of the Civil Code provides:jgc:chanrobles.com .ph

"Art. 1921. If the agency has been entrusted for the purpose of contracting with specified
THIRD DIVISION
persons, its revocation shall not prejudice the latter if they were not given notice thereof." cralaw virtua1aw library

[G.R. No. 132415. January 30, 2002.]

The Special Power of Attorney executed by petitioner in favor of Parangan duly authorized the
latter to represent and act on behalf of the former. Having done so, petitioner clothed Parangan
MIGUEL KATIPUNAN, INOCENCIO VALDEZ, EDGARDO BALGUMA and LEOPOLDO
with authority to deal with PNB on her behalf and in the absence of any proof that the bank had
BALGUMA, JR.,Petitioners, v. BRAULIO KATIPUNAN, JR., Respondent.
knowledge that the last three loans were without the express authority of petitioner, it cannot
 aware of the contents of the Deed of Absolute Sale and that he received the consideration
DECISION involved; that he also knew that the Balguma brothers have been collecting the rentals since
December, 1985 but that he has not objected or confronted them; and that he filed the
complaint because his sister, Agueda Savellano, urged him to do so. 8

Twice respondent moved to dismiss his complaint (which were granted) on the grounds that he
SANDOVAL-GUTIERREZ, J.:was actually instigated by his sister to file the same; and that the parties have reached an
amicable settlement after Atty. Balguma, Sr. paid him P2,500.00 as full satisfaction of his claim.
In granting his motions for reconsideration, the trial court was convinced that respondent did
not sign the motions to dismiss voluntarily because of his poor comprehension, as shown by the
medical report of Dr. Annette Revilla, a Resident Psychiatrist at the Philippine General Hospital.
Before us is a petition for review on certiorari 1 assailing the Decision 2 of the Court of Appeals Besides, the trial court noted that respondent was not assisted by counsel in signing the said
dated July 31, 1997 in CA-G.R. CV No. 45928, "Braulio Katipunan, Jr. v. Miguel Katipunan, motions, thus it is possible that he did not understand the consequences of his action. 9
Inocencio Valdez, Atty. Leopoldo Balguma, Sr., Edgardo Balguma and Leopoldo Balguma, Jr."
which set aside the Decision of the Regional Trial Court (RTC) of Manila, Branch 28, in Civil Case Eventually the trial court set the case for pre-trial. The court likewise granted respondents
No. 87-39891 for annulment of a Deed of Absolute Sale. motion to appoint Agueda Savellano as his guardian ad litem. 10

The antecedents are: chanrob1es virtual 1aw library

Respondent Braulio Katipunan, Jr. is the owner of a 203 square meter lot and a five-door
apartment constructed thereon located at 385-F Matienza St., San Miguel, Manila. The lot is
registered in his name under TCT No. 109193 3 of the Registry of Deeds of Manila. The
apartment units are occupied by lessees. chanrob1es virtua1 1aw 1ibrary
After hearing, the trial court dismissed the complaint, holding that respondent failed to prove
his causes of action since he admitted that: (1) he obtained loans from the Balgumas; (2) he
signed the Deed of Absolute Sale; and (3) he acknowledged selling the property and that he
stopped collecting the rentals.
Upon appeal by respondent, the Court of Appeals, on July 31, 1997, rendered the assailed
Decision, the dispositive portion of which reads:jgc:chanrobles.com .ph

On December 29, 1985, respondent, assisted by his brother, petitioner Miguel Katipunan,
entered into a Deed of Absolute Sale 4 with brothers Edgardo Balguma and Leopoldo Balguma,
Jr. (co-petitioners), represented by their father Atty. Leopoldo Balguma, Sr., involving the
subject property for a consideration of P187,000.00. Consequently, respondents title to the
property was cancelled and in lieu thereof, TCT No. 168394 5 was registered and issued in the
names of the Balguma brothers. In January, 1986, Atty. Balguma, then still alive, started
collecting rentals from the lessees of the apartments.
"WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE, and a new
one entered annulling the Deed of Sale. Consequently, TCT No. 168394 is hereby declared null
and void and of no force and effect. The Register of Deeds of Manila is directed to cancel the
same and restore TCT No. 109193 in the name of Braulio Katipunan.
"SO ORDERED." cralaw virtua1aw library

On March 10, 1987, respondent filed with the RTC of Manila, Branch 21, 6 a complaint for In reversing the RTC Decision, the Court of Appeals ruled: jgc:chanrobles.com .ph

annulment of the Deed of Absolute Sale, docketed as Civil Case No. 87-39891. 7 He averred
that his brother Miguel, Atty. Balguma and Inocencio Valdez (defendants therein, now "Upon close scrutiny of all the evidence on record, plaintiff-appellants contention finds support
petitioners) convinced him to work abroad. They even brought him to the NBI and other in the certification dated August 4, 1987 issued by Dr. Ana Marie Revilla, a psychiatrist at the
government offices for the purpose of securing clearances and other documents which later UP-PGH, who was presented as an expert witness. Her findings explained the reason why
turned out to be falsified. Through insidious words and machinations, they made him sign a plaintiff-appellant showed a lot of inconsistencies when he was put on the stand. It supports the
document purportedly a contract of employment, which document turned out to be a Deed of fact that plaintiff-appellant is slow in comprehension and has a very low IQ. Based on such
Absolute Sale. By virtue of the said sale, brothers Edgardo and Leopoldo, Jr. (co-defendants), findings, the trial court was faulted for its wrong assessment of appellants mental condition. It
were able to register the title to the property in their names. Respondent further alleged that he arbitrarily disregarded the testimony of a skilled witness and made an unsupported finding
did not receive the consideration stated in the contract. He was shocked when his sister Agueda contrary to her expert opinion.
Katipunan Savellano told him that the Balguma brothers sent a letter to the lessees of the
apartment informing them that they are the new owners. Finally, he claimed that the Admittedly, expert witnesses when presented to the court must be construed to have been
defendants, now petitioners, with evident bad faith, conspired with one another in taking presented not to sway the court in favor of any of the parties, but to assist the court in the
advantage of his ignorance, he being only a third grader. determination of the issue before it (Espiritu v. Court of Appeals, 242 SCRA 362). Expert
opinions are not ordinarily conclusive. They are generally regarded as purely advisory in
In their answer, petitioners denied the allegations in the complaint, alleging that respondent was character; the court may place whatever weight they choose upon such testimony and may
reject it if they find it inconsistent with the facts in the case or otherwise unreasonable (Basic
Evidence by Ricardo J. Francisco, pp. 202).
In view of the foregoing, it is apparent that the contract entered into by Braulio and Atty.
The trial court whose decision is now under review refused to admit the experts testimony and Balguma is voidable, pursuant to the provisions of Article 1390 of the Civil Code, to wit: chanrob1es virtual 1aw library

prefer to base its decision on its findings that contrary to the allegation of the appellant, he is
nonetheless capable of responding to the questions expounded to him while on the stand. In Art. 1390. The following contracts are voidable or annullable, even though there may have been
short, the court was swayed by its own observation of appellants demeanor on the stand. Of no damage to the contracting parties: chanrob1es virtual 1aw library

course, the rule is to accord much weight to the impressions of the trial judge, who had the
opportunity to observe the witnesses directly and to test their credibility by their demeanor on (1) Those where one of the parties is incapable of giving consent to a contract;
the stand (People v. Errojo, 229 SCRA 49). Such impression however, is not per se the basis of
a conclusion, for it needs conformity with the findings of facts relevant to the case. (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or
fraud.
We find it indispensable to give credit to the findings of Dr. Ana Marie Revilla, whose testimony
remains unshaken and unimpeached. The tests she made are revealing and unrebutted and has These contracts are binding, unless they are annulled by a proper action in court, they are
a bearing on facts of the case. susceptible of ratification." 11

It is a proven fact that Braulio reached only Grade III due to his very low IQ; that he is Petitioners filed a motion for reconsideration but was denied. Hence, this petition.
illiterate; and that he can not read and is slow in comprehension. His mental age is only that of
a six-year old child. On the other hand, the documents presented by the appellees in their favor, Petitioners, in seeking the reversal of the Court of Appeals Decision, rely heavily on the rule
i.e., the deeds of mortgage and of sale, are all in English. There is no showing that the contracts that findings of fact by the trial courts are entitled to full faith and credence by the Appellate
were read and/or explained to Braulio nor translated in a language he understood. Court. Petitioners contend that the Court of Appeals erred when it overturned the factual
findings of the trial court which are amply supported by the evidence on record.
Article 1332 of the Civil Code provides: chanrob1es virtual 1aw library

The petition is devoid of merit.

Art. 1332. When one of the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the contract must While it may be true that findings of a trial court, given its peculiar vantage point to assess the
show that the terms thereof have been fully explained to the former. credibility of witnesses, are entitled to full faith and credit and may not be disturbed on appeal,
this rule is not infallible, for it admits of certain exceptions. One of these exceptions is when
Furthermore, if Braulio has a mental state of a six year old child, he can not be considered as there is a showing that the trial court had overlooked, misunderstood or misapplied some fact
fully capacitated. He falls under the category of incompetent as defined in Section 2, Rule 92 of or circumstance of weight and substance, which, if considered, could materially affect the result
the Rules of Court, which reads: chanrob1es virtual 1aw library of the case. 12 Also, when the factual findings of the trial court contradict those of the appellate
court, this Court is constrained to make a factual review of the records and make its own
Sec. 2. Meaning of Word Incompetent Under this rule, the word incompetent includes assessment of the case. 13 The instant case falls within the said exception.
persons suffering the penalty of civil interdiction or who are hospitalized lepers, prodigals, deaf
and dumb who are unable to read and write, those who are of unsound mind, even though they A contract of sale is born from the moment there is a meeting of minds upon the thing which is
have lucid intervals, and persons not being of unsound mind, but by reason of age, disease, the object of the contract and upon the price. 14 This meeting of the minds speaks of the intent
weak mind, and other similar causes, can not, without outside aid, take care of themselves and of the parties in entering into the contract respecting the subject matter and the consideration
manage their property, becoming thereby an easy prey for deceit and exploitation. thereof. 15 Thus, the elements of a contract of sale are consent, object, and price in money or
its equivalent. 16 Under Article 1330 of the Civil Code, consent may be vitiated by any of the
We also note the admission of defendant-appellee Miguel Katipunan, that he and Braulio following: (a) mistake, (2) violence, (3) intimidation, (4) undue influence, and (5) fraud. 17 The
received the considerations of the sale, although he did not explain what portion went to each presence of any of these vices renders the contract voidable.
other of them. Anyway, there is no reason why Miguel should receive part of the consideration,
since he is not a co-owner of the property. Everything should have gone to Braulio. Yet, Miguel Here, as borne by the facts on hand, respondent signed the deed without the remotest idea of
did not refute that he was giving him only small amounts (coins). what it was, thus: jgc:chanrobles.com .ph

As to the allegation of the scheme utilized in defrauding Braulio, neither Miguel nor Atty. "ATTY. SARMIENTO: chanrob1es virtual 1aw library

Balguma refuted the statement of Braulio that he was being enticed to go abroad which was
the alleged reason for the purported sale. Nothing was explained about the alleged trip to NBI, Q After Miguel received that money which amount you do not remember how much, do you
the fake passport, etc., nor of Miguels own plans to go abroad. It is then most probable that it remember having signed a document purported to be sale of property that which you owned?
was Miguel who wanted to go abroad and needed the money for it.
A Yes, I signed something because they forced me to sign.
COURT (To the witness)
Q Do you know how to affix your signature?
A Yes, Your Honor.
Q You sign your name here. (witness is given a piece of paper by the court wherein he was
made to sign his name)
ATTY. SARMIENTO: chanrob1es virtual 1aw library
Q You said that you remember you have signed a document. Did you come to know what kind
of document was that which you signed at that time?
A I do not know.
Q Where did you sign that document?
A I signed that document in the house of Sencio.
Q Where is this house of Sencio?
A It is just behind our house at San Miguel.
Q Nobody informed you what document you were signing?
A Nobody informed me what document I was signing.
Q Who asked you to sign that document?
A My brother Miguel and Sencio asked me to sign that document.
Q You never bothered to ask your brother Miguel why you were signing that document?
A According to them, if I will not sign, something will happen.
Q Who particularly told you that if you will not sign that document something will happen?
A Atty. Balguma. (witness pointing to Atty. Balguma)
Q You want to tell the court that Atty. Balguma at that time you signed that document was
present?
A Yes, sir, he was there.
Q What if any did Atty. Balguma do when you were asked to sign that document?
A He was asking me also to sign.
COURT (To the witness)
Q Were you threatened with a gun or any instrument?
A No, Your Honor.
Q How were you threatened?
A I was shoved aside by Sencio and Miguel and I was surprised why they made me sign.
Q Did you fall down when you were shoved?
A I was made to move to the side.
Q And because of that you signed that document that you were being forced to sign?
A Yes, sir.
Q What kind of paper did you sign?
A A coupon bond paper.
Q Was there something written?
A There was something written on it, but I do not know.
Q Was it typewritten?
A There was something typewritten when it was shown to me but I do not know what it was."
18
(Emphasis supplied)
The circumstances surrounding the execution of the contract manifest a vitiated consent on the
part ofRespondent. Undue influence was exerted upon him by his brother Miguel and Inocencio
Valdez (petitioners) and Atty. Balguma. It was his brother Miguel who negotiated with Atty.
Balguma. However, they did not explain to him the nature and contents of the document.
Worse, they deprived him of a reasonable freedom of choice. It bears stressing that he reached
only grade three. Thus, it was impossible for him to understand the contents of the contract
written in English and embellished in legal jargon. Even the trial court, in reinstating the case
which it earlier dismissed, took cognizance of the medical finding of Dr. Revilla (presented by
respondents counsel as expert witness) who testified during the hearing of respondents motion
for reconsideration of the first order dismissing the complaint. According to her, based on the
tests she conducted, she found that respondent has a very low IQ and a mind of a six-year old
child. 19 In fact, the trial court had to clarify certain matters because Braulio was either
confused, forgetful or could not comprehend. 20 Thus, his lack of education, coupled with his
mental affliction, placed him not only at a hopelessly disadvantageous position vis-a-vis
petitioners to enter into a contract, but virtually rendered him incapable of giving rational
consent. To be sure, his ignorance and weakness made him most vulnerable to the deceitful
cajoling and intimidation of petitioners. The trial court obviously erred when it disregarded Dr.
Revillas testimony without any reason at all. It must be emphasized that petitioners did not
rebut her testimony.
Even the consideration, if any, was not shown to be actually paid to Respondent. Extant from
the records is the fact that Miguel profited from the entire transaction and gave only small
amounts of money to respondent, thus: jgc:chanroble s.com.ph
"Q Do you know how much money was given to Miguel and from whom did that money come
from?
A I do not know how much, but the money came from Atty. Balguma.
Q You do not know how much amount was given by Atty. Balguma and for what consideration
was the money given you are not aware of that?
A I am not aware because I was not there, I do not know anything.
Q You want to tell the court that despite that it is you being the owner of this property it was
Miguel who negotiated the asking of money from Atty. Balguma?
A Yes, it is like that.
Q Were you consulted by your brother Miguel when he asked money from Atty. Balguma?
A No, sir, in the beginning he kept it a secret then later on he told us.
Q You want to tell this court that it was only when your brother Miguel gave (you) money that
he told you that "we have now the money from Atty. Balguma" ?
A No, sir, I did not even know where that money came from. He was about to leave for abroad
when he told me that he received money from Atty. Balguma.
Q Did you receive any amount from Miguel every time he was given by Atty. Balguma? You
received also money from Miguel every time he was given by Atty. Balguma?
A Yes, he would give me small denominations, "barya" .
Q When you said "barya", would you be able to tell the court how much this barya you are
referring to is?
A May be twenty pesos, may be ten pesos, but they are all loose change.
Q Tell us how many times did Miguel receive money from Atty. Balguma as much as you can
recall?
A I do not know because every time my brother Miguel and Atty. Balguma would transact
business, I was not present.
x x x
Q Before or after the signing of this piece of paper were you given any big amount of money by
your brother Miguel or Atty. Balguma or Sencio?
A After signing that document, Atty. Balguma gave me several loose change "barya", no paper
bills. A just handful of coins." 21 (Emphasis supplied)
We are convinced that respondent was telling the truth that he did not receive the purchase
price. His testimony on this point was not controverted by Miguel. Moreover, Atty. Balguma
admitted that it was Miguel who received the money from him. 22 What Miguel gave respondent
was merely loose change or "barya-barya," grossly disproportionate to the value of his property.
We agree with the conclusion of the Court of Appeals that "it is then most probable that it was
Miguel who wanted to go abroad and needed the money for it." cralaw virtua1aw library
In the case of Archipelago Management and Marketing Corp. v. Court of Appeals, 23 penned by
Justice Artemio V. Panganiban, this Court sustained the decision of the Court of Appeals
annulling the deed of sale subject thereof. In that case, Rosalina (the owner) was convinced by
her second husband to sign several documents, purportedly an application for the reconstitution
of her burned certificate of title. However, said documents turned out to be a Deed of Absolute
Sale where it was stipulated that she sold her property for P1,200,000.00, a consideration which
she did not receive. The Court ruled that Rosalina, who was quite old at that time she signed
the deed, was tricked by her own husband, who employed fraud and deceit, into believing that
what she was signing was her application for reconstitution of title.
A contract where one of the parties is incapable of giving consent or where consent is vitiated
by mistake, fraud, or intimidation is not void ab initio but only voidable and is binding upon the
parties unless annulled by proper court action. The effect of annulment is to restore the parties
to the status quo ante insofar as legally and equitably possible this much is dictated by
Article 1398 of the Civil Code. As an exception however to the principle of mutual restitution,
Article 1399 provides that when the defect of the contract consists in the incapacity of one of
the parties, the incapacitated person is not obliged to make any restitution, except when he has
been benefited by the things or price received by him. Thus, since the Deed of Absolute Sale
between respondent and the Balguma brothers is voidable and hereby annulled, then the
restitution of the property and its fruits to respondent is just and proper. Petitioners should turn
over to respondent all the amounts they received starting January, 1986 up to the time the
property shall have been returned to the latter. During the pre-trial and as shown by the Pre-
Trial Order, the contending parties stipulated that the Balguma brothers received from the
lessees monthly rentals in the following amounts: chanrob1es virtual 1aw library
PERIOD AMOUNT OF RENTALS
January, 1986 to
December, 1987 P481.00 per month

January, 1988 to

December, 1988 P2,100.00 per month

January, 1989 to

present P3,025.00 per month

Article 24 of the Civil Code enjoins courts to be vigilant for the protection of a party to a
contract who is placed at a disadvantage on account of his ignorance, mental weakness or other
handicap, like respondent herein. We give substance to this mandate.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated July 3,
1997 in CA-G.R. CV No. 45928 is AFFIRMED with MODIFICATION in the sense that petitioners
Edgardo Balguma and Leopoldo Balguma, Jr., are ordered to turn over to respondent Braulio
Katipunan, Jr. the rentals they received for the five-door apartment corresponding to the period
from January, 1986 up to the time the property shall have been returned to him, with interest
at the legal rate. Costs against petitioners.
chanrob1es virtua1 1aw 1ibrary

SO ORDERED.

THIRD DIVISION

[G.R. NO. 125485 : September 13, 2004]

RESTITUTA LEONARDO, assisted by JOSE T. RAMOS, Petitioners, v. COURT OF APPEALS,

and TEODORO SEBASTIAN, VICENTE SEBASTIAN, CORAZON SEBASTIAN, assisted by
ANDRES MARCELO; PEDAD SEBASTIAN, HEIRS OF EDUVIGIS SEBASTIAN, namely:
EDUARDO S. TENORLAS, ABELARDO J. TENORLAS, ADELA S. and SOLEDAD S.
TENORLAS, represented by EDUARDO S. TENORLAS, and HEIRS OF DOMINADOR,
namely: NAPOLEON SEBASTIAN, RUPERTO SEBASTIAN, ADORACION SEBASTIAN,
PRISCILLA SEBASTIAN, LITA SEBASTIAN, TITA SEBASTIAN and GLORIA SEBASTIAN,
 represented by NAPOLEON SEBASTIAN; EVELYN SEBASTIAN; AURORA SEBASTIAN; They were never married to each other. The extrajudicial partition was therefore unlawful and
and JULIETA SEBASTIAN, Respondents. illegal.

DECISION Petitioner also claimed that her consent was vitiated because she was deceived into signing the
extrajudicial settlement. She further denied having appeared before Judge Juan Austria of the
Municipal Trial Court (MTC) of Urbiztondo, Pangasinan on July 27, 1988 to acknowledge the
execution of the extrajudicial partition.
CORONA, J.:

Private respondents, in their answer with counterclaim, 4 raised the defense of lack of cause of
This is a Petition for Review under Rule 45 of the Rules of Court seeking to reverse and set aside action. They insisted that the document in question was valid and binding between the parties.
the decision1 of the Court of Appeals which in turn affirmed the judgment 2 of Branch 57, According to them, on July 27, 1988, they personally appeared before Judge Austria of the MTC
Regional Trial Court (RTC) of San Carlos City, dismissing for lack of cause of action the of Urbiztondo, who read and explained the contents of the document which all of them,
complaint filed by petitioner against private respondents for declaration of nullity of the including petitioner, voluntarily signed.
extrajudicial settlement of the estate of Jose Sebastian and Tomasina Paul.

Petitioner Restituta Leonardo is the only legitimate child of the late spouses Tomasina Paul and
Balbino Leonardo. Private respondents Teodoro, Victor, Corazon, Piedad, as well as the late
Eduvigis and Dominador, all surnamed Sebastian, are the illegitimate children of Tomasina with
Jose Sebastian after she separated from Balbino Leonardo.
Private respondents contended that their declaration that they were legitimate children of Jose
Sebastian and Tomasina Paul did not affect the validity of the extrajudicial partition. Petitioner's
act of signing the document estopped her to deny or question its validity. They moreover
averred that the action filed by petitioner was incompatible with her complaint. Considering that
petitioner claimed vitiation of consent, the proper action was annulment and not declaration of
nullity of the instrument.

In an action to declare the nullity of the extrajudicial settlement of the estate of Tomasina Paul
and Jose Sebastian before Branch 57, RTC of San Carlos City, Pangasinan, petitioner alleged On July 27, 1989, petitioner filed an amended complaint 5 to include parties to the extrajudicial
that, on June 24, 1988, at around 5:00 p.m., private respondent Corazon Sebastian and her partition who were not named as defendants in the original complaint.
niece Julieta Sebastian, and a certain Bitang, came to petitioner's house to persuade her to sign
a deed of extrajudicial partition of the estate of Tomasina Paul and Jose Sebastian. Before
signing the document, petitioner allegedly insisted that they wait for her husband Jose Ramos
so he could translate the document which was written in English. Petitioner, however, proceeded During the August 23, 1990 pre-trial conference, 6 no amicable settlement was reached and the
to sign the document even without her husband and without reading the document, on the parties agreed that the only issue to be resolved was whether petitioner's consent to the
assurance of private respondent Corazon Sebastian that petitioner's share as a legitimate extrajudicial partition was voluntarily given.
daughter of Tomasina Paul was provided for in the extrajudicial partition. Petitioner then asked
private respondent Corazon and her companions to wait for her husband so he could read the
document. When petitioner's husband arrived, however, private respondent Corazon and her
companions had left without leaving a copy of the document. It was only when petitioner hired In a decision dated February 22, 1993, the RTC of San Carlos City, Pangasinan rendered a
a lawyer that they were able to secure a copy and read the contents thereof. decision7dismissing the complaint as well as the counterclaim. The court a quo ruled that the
element of duress or fraud that vitiates consent was not established and that the proper action
was the reformation of the instrument, not the declaration of nullity of the extrajudicial
settlement of estate. By way of obiter dictum, the trial court stated that, being a legitimate
Petitioner refuted3 private respondents' claim that they were the legitimate children and sole child, petitioner was entitled to one-half (or 19,282.5 sq.m.) of Tomasina Paul's estate as her
heirs of Jose Sebastian and Tomasina Paul. Despite the (de facto) separation of petitioner's legitime. The 7,671.75 square meters allotted to her in the assailed extrajudicial partition was
father Balbino Leonardo and Tomasina Paul, the latter remained the lawful wife of Balbino. therefore less than her correct share as provided by law.
Petitioner maintained that no joint settlement of the estate of Jose Sebastian and Tomasina Paul
could be effected since what existed between them was co-ownership, not conjugal partnership.
On appeal, the Court of Appeals affirmed the judgment of the trial court in its May 23, 1996
decision.8Hence, this Petition for Review on Certiorari under Rule 45.
The sole issue in this case is whether the consent given by petitioner to the extrajudicial
settlement of estate was given voluntarily.
Article 1332 was a provision taken from american law, necessitated by the fact that there
continues to be a fair number of people in this country without the benefit of a good education
or documents have been written in English or Spanish. 14 The provision was intended to protect a
party to a contract disadvantaged by illiteracy, ignorance, mental weakness or some other
handicap. It contemplates a situation wherein a contract is entered into but the consent of one
of the contracting parties is vitiated by mistake or fraud committed by the other.15

We hold that it was not.
The essence of consent is the agreement of the parties on the terms of the contract, the
acceptance by one of the offer made by the other. It is the concurrence of the minds of the
parties on the object and the cause which constitutes the contract. 9 The area of agreement
must extend to all points that the parties deem material or there is no consent at all. 10
Thus, in case one of the parties to a contract is unable to read and fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained to the
former.16 Where a party is unable to read, and he expressly pleads in his reply that he signed
the voucher in question "without knowing (its) contents which have not been explained to him,"
this plea is tantamount to one of mistake or fraud in the execution of the voucher or receipt in
question and the burden is shifted to the other party to show that the former fully understood
the contents of the document; and if he fails to prove this, the presumption of mistake (if not
fraud) stands unrebutted and controlling.17

Contracts where consent is given by mistake or because of violence, intimidation, undue

To be valid, consent must meet the following requisites: (a) it should be intelligent, or with an
exact notion of the matter to which it refers; (b) it should be free and (c) it should be
spontaneous. Intelligence in consent is vitiated by error; freedom by violence, intimidation or
undue influence; and spontaneity by fraud.11
In determining the effect of an alleged error, the courts must consider both the objective and
subjective aspects of the case which is the intellectual capacity of the person who committed
the mistake.12
influence or fraud are voidable.18 These circumstances are defects of the will, the existence of
which impairs the freedom, intelligence, spontaneity and voluntariness of the party in giving
consent to the agreement. In determining whether consent is vitiated by any of the
circumstances mentioned in Art. 1330 of the Civil Code, courts are given a wide latitude in
weighing the facts or circumstances in a given case and in deciding in favor of what they believe
actually occurred, considering the age, physical infirmity, intelligence, relationship and the
conduct of the parties at the time of making the contract and subsequent thereto, irrespective
of whether the contract is in a public or private writing. 19

Although under Art. 1332 there exists a presumption of mistake or error accorded by the law to
those who have not had the benefit of a good education, one who alleges any defect or the lack
Mistake, on the other hand, in order to invalidate consent "should refer to the substance of the
of a valid consent to a contract must establish the same by full, clear and convincing evidence,
thing which is the object of the contract, or to those conditions which have principally moved
not merely by preponderance of evidence.20 Hence, even as the burden of proof shifts to the
one or both parties to enter into the contract." 13
defendants to rebut thepresumption of mistake, the plaintiff who alleges such mistake (or fraud)
must show that his personal circumstances warrant the application of Art. 1332.

According to the late civil law authority, Arturo M. Tolentino, the (old) rule that a party is
presumed to know the import of a document to which he affixes his signature and is bound
In this case, the presumption of mistake or error on the part of petitioner was not sufficiently
thereby, has been altered by Art. 1332 of the Civil Code. The provision states that "[w]hen one
rebutted by private respondents. Private respondents failed to offer any evidence to prove that
of the parties is unable to read, or if the contract is in a language not understood by him, and
the extrajudicial settlement of estate was explained in a language known to the
mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof
petitioner, i.e. the Pangasinan dialect. Clearly, petitioner, who only finished Grade 3, was not in
have been fully explained to the former."
a position to give her free, voluntary and spontaneous consent without having the document,
which was in English, explained to her in the Pangasinan dialect. She stated in open court that
she did not understand English. Her testimony, translated into English, was as follows:
Q : While you were there is your house at barangay Angatel, Urbiztondo, Pangasinan, what Q: Did you see that document? chanroble svirtualawlibrary

happened? chanroblesvirtualawlibrary

A: Yes, sir.
A: On June 24, 1988, I was in our house because I got sick, sir.

ATTY. L. TULAGAN
Q: What happened? chanroble svirtualawlibrary

Q: Did you read the document? chanroble svirtualawlibrary

A: When the time was about 5:00 o'clock, I was awaken by my daughter-in-law, Rita Ramos,
and told me that my half sister Corazon would like to tell us something, sir. A: No, sir because I was waiting for my husband to have that document read or translated to
me because I could not understand, sir.

Q: What did you do? chanroblesvirtualawlibrary

Q: What could you not understand? chanroble svirtualawlibrary

A: I let them come in, sir.

A: I can not understand English, sir.

Q: Did they come in? chanroble svirtualawlibrary

Q: But anyway, can you read? chanroble svirtualawlibrary

A: Yes, sir.
A: Yes, sir in Pangasinan.

Q: Who was the companion of your half sister Corazon Sebastian when she arrived in your
house? chanroble svirtualawlibrary
Q: Now, that document which according to you was brought by your half sister Corazon
Sebastian, what happened to that document? chanroble svirtualawlibrary

A: Julita Sebastian and her daughter Bitang, sir.

A: Corazon Sebastian request(ed) me to sign, sir.

Q: And who is this Julita Sebastian to you? chanroble svirtualawlibrary

Q: Did you sign immediately? chanroblesvirtualawlibrary

A: She is my niece, sir.

A: Yes, sir, because according to her, all my shares were embodied in that document as a legal
daughter.21

Q: And then when they got inside the house, what happened? chanroble svirtualawlibrary

A: I asked them their purpose, sir. Petitioner's wish to wait for her husband, Jose T. Ramos, to explain to her the contents of the
document in the Pangasinan dialect was a reasonable and prudent act that showed her
uncertainty over what was written. Due to her limited educational attainment, she could not
understand the document in English. She wanted to seek assistance from her husband who was
Q: Did they tell you their purpose? then out of the house. However, due to the misrepresentation, deception and undue pressure of
chanroble svirtualawlibrary

her half-sister Corazon Sebastian, petitioner signed the document. Corazon assured petitioner
A: I asked their purpose in coming to our house and they told me, "I came here because I have that she would receive her legitimate share in the estate of their late mother.
a partition executed so that the share of each one of us will be given", she said sir.
 What is the question, you repeat the question.

Later on, when petitioner's husband examined the extrajudicial partition agreement, he found
out that petitioner was deprived of her full legitime. Under the law, petitioner's share should
have been one-half of her mother's estate, comprising a total area of 19,282.50 square meters.
Under the defective extrajudicial settlement of estate, however, petitioner was to receive only
7,671.75 square meters. This was a substantial mistake clearly prejudicial to the substantive
interests of petitioner in her mother's estate. There is no doubt that, given her lack of
education, petitioner is protected by Art. 1332 of the Civil Code. There is reason to believe that,
had the provisions of the extrajudicial agreement been explained to her in the Pangasinan
dialect, she would not have consented to the significant and unreasonable diminution of her
rights.
INTERPRETER:
"Reflected upon all the pages of this Exhibit "1" are numerous signatures, two of whom belongs
(sic) to Piedad Paul Sebastian and Eduardo Sebastian Tenorlas, in your just concluded
testimony, you said that everyone of them appeared with you, we have here a documented
evidence coming from the Department of Justice, Bureau of Immigration and Deportation,
Manila, certifying that Piedad Paul Sebastian and Eduardo Sebastian Tenorlas did not arrive in
the Philippines or departed from the Philippines on July, 1998, will you please educate us now
Judge Austria on this document? chanroble svirtualawlibrary

MTC Judge Austria, the officer who notarized the extrajudicial settlement, stated that he
explained the contents to all the parties concerned. Granting arguendo, however, that Judge ATTY. O. DE GUZMAN:
Austria did indeed explain the provisions of the agreement to them, the records do not reflect
that he explained it to petitioner in a language or dialect known to her. Judge Austria never Your Honor please, before the witness answer, may we examine the certification first and may
stated in his testimony before the court a quowhat language or dialect he used in explaining the we state for the record that the month of July, 1998 does not specify any date.
contents of the document to the parties.22Significantly, he was not even certain if the parties to
the agreement were present during the notarization of the document:
ATTY.. L. TULAGAN:

July.

ATTY. TULAGAN

Q. Reflected upon all the pages of this Exhibit "1" are numerous signatures, two of whom ATTY. O. DE GUZMAN:
belongs (sic) to Piedad Paul Sebastian and Eduardo Sebastian Tenorlas.
But not a particular date, for the record.

ATTY. D. TULAGAN
ATTY. L. TUL.AGAN:
(continuing)
For the whole month of July, no departure and no arrival. This is a certificate from the Bureau of
The Philippines on July, 1989, will you please educate us now Judge Austria on this document? Immigration, Manila. I do not know about this, as a matter of fact, I do not even know this
chanroble svirtualawlibrary

person personally

ATTY.O. DE GUZMAN
WITNESS:
That will be improper, your Honor.
Somebody that kind of name appeared before me.

COURT
ATTY. L. TULAGAN:
Q: Since you do not know everybody from Urbiztondo, Pangasinan it is possible that another
person appeared and signed for that name? chanroblesvirtualawlibrary
A: Yes, possible.23
Therefore, the presumption of mistake under Article 1332 is controlling, having remained
unrebutted by private respondents. The evidence proving that the document was not fully
explained to petitioner in a language known to her, given her low educational attainment,
remained uncontradicted by private respondents. We find that, in the light of the circumstances
presented by the testimonies of the witnesses for both parties, the consent of petitioner was
invalidated by a substantial mistake or error, rendering the agreement voidable. The
extrajudicial partition between private respondents and petitioner should therefore be annulled
and set aside on the ground of mistake.
In Rural Bank of Caloocan, Inc. v. Court of Appeals,24 we ruled that a contract may be annulled
on the ground of vitiated consent, even if the act complained of is committed by a third party
without the connivance or complicity of one of the contracting parties. We found that a
substantial mistake arose from the employment of fraud or misrepresentation. The plaintiff in
that case was a 70-year-old unschooled and unlettered woman who signed an unauthorized
loan obtained by a third party on her behalf. The Court annulled the contract due to a
substantial mistake which invalidated her consent.
By the same reasoning, if it is one of the contracting parties who commits the fraud or
misrepresentation, such contract may all the more be annulled due to substantial mistake.
In Remalante v. Tibe,25 this Court ruled that misrepresentation to an illiterate woman who did
not know how to read and write, nor understand English, is fraudulent. Thus, the deed of sale
was considered vitiated with substantial error and fraud. This Court further held: 26
Since it has been established by uncontradicted evidence that the plaintiff is practically
unschooled and illiterate, not knowing how to read, write and understand the English language
in which Exhibit 22 was drafted, it would have been incumbent upon the defendant to show that
the terms there of have been fully explained to the plaintiff. The evidence is entirely lacking at
this point, and the lack of it is fatal to the cause of the defendant for his failure to discharge the Granting that the action filed by petitioner was incompatible with her allegations, it is not the
burden of proof.
Generally, the remedy of appeal by certiorari under Rule 45 of the Rules of Court contemplates
only questions of law and not issues of fact. 27 This rule, however, is inapplicable in cases such as
the one at bar where the factual findings complained of are absolutely devoid of support in the
records or the assailed judgment of the appellate court is based on a misapprehension of
facts.28 Thus, this case is an exception to the general rule on the conclusiveness of facts, the
evidence pointing to no other conclusion but the existence of vitiated consent, given the
diminished intellectual capacity of the petitioner and the misrepresentation of private
respondent Corazon Sebastian on the contents of the extrajudicial partition.
Private respondents also maintain that petitioner has no cause of action since the remedy that
should be pursued is an action for annulment and not for declaration of nullity. Private
respondents therefore pray for the dismissal of this petition on the ground of lack of cause of
action.
Before ruling on this procedural matter, a distinction between an action for annulment and one
for declaration of nullity of an agreement is called for.
chanroble svirtua1awlibrary
An action for annulment of contract is one filed where consent is vitiated by lack of legal
capacity of one of the contracting parties, or by mistake, violence, intimidation, undue influence
or fraud.29 By its very nature, annulment contemplates a contract which is voidable, that is,
valid until annulled. Such contract is binding on all the contracting parties until annulled and set
aside by a court of law. It may be ratified. An action for annulment of contract has a four-year
prescriptive period.30
On the other hand, an action for declaration of nullity of contract presupposes a void contract or
one where all of the requisites prescribed by law for contracts are present but the cause, object
or purpose is contrary to law, morals, good customs, public order or public policy, prohibited by
law or declared by law to be void.31 Such contract as a rule produces no legal and binding effect
even if it is not set aside by direct legal action. Neither may it be ratified. An action for the
declaration of nullity of contract is imprescriptible. 32
The petitioner's pleading was for the declaration of nullity of the extrajudicial settlement of
estate. However, this did not necessarily mean the automatic dismissal of the case on the
ground of lack of cause of action.
caption of the pleading but the allegations that determine the nature of the action. 33 The court
should grant the relief warranted by the allegations and the proof even if no such relief is
prayed for.34 In this case, the allegations in the pleading and the evidence adduced point to no
other remedy but to annul the extrajudicial settlement of estate because of vitiated consent.
WHEREFORE, the decision of the Court of Appeals dated 23 May 1996 is hereby REVERSED.
The extrajudicial settlement of the estate of Tomasina Paul and Jose Sebastian is
hereby ANNULLED andSET ASIDE. No cost.

SO ORDERED.