G.R. No.

144169 March 28, 200
KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY
STEVEN KHE, petitioners, vs. COURT OF APPEALS, HON. TEOFILO
GUADIZ, RTC 147, MAKATI CITY and PHILAM INSURANCE CO.,
INC.,respondents.
in favor of Sandra Joy two (2) parcels of land located in Butuan City,
covered by TCT No. RT-12838. On the basis of said deeds, TCT No. T-
3816 was cancelled and in lieu thereof, TCT No. T-5072 was issued in
favor of Ray Steven and TCT No. RT-12838 was cancelled and in lieu
thereof, TCT No. RT-21054 was issued in the name of Sandra Joy.
The trial court rendered judgment against petitioner Khe Hong Cheng in
Civil Case No.13357 on December 29, 1993, four years after the
donations were made and the TCTs were registered in the donees'
names. The decretal portion of the aforesaid decision reads:
years after said registration, the action was already barred by
prescription.3
Acting thereon, the trial court denied the motion to dismiss. It held that
respondent Philam's complaint had not yet prescribed. According to the
trial court, the prescriptive period began to run only from December 29,
1993, the date of the decision of the trial court in Civil Case No. 13357. 4
KHE CHENG EXECUTED THE DEEDS OF DONATIONS IN FAVOR
OF HIS CO-PETITIONERS THAT THE ACTION FOR RESCISSION
ACCRUED BECAUSE PRESCRIPTION BEGAN TO RUN WHEN
THESE DONATIONS WERE REGISTERED WITH THE REGISTER
OF DEEDS IN DECEMBER 1989, AND WHEN THE COMPLAINT
WAS FILED ONLY IN FEBRUARY 1997, MORE THAN FOUR
YEARS HAVE ALREADY LAPSED AND THEREFORE, IT HAS
ALREADY PRESCRIBED.6

KAPUNAN, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45,
seeking to set aside the decision of the Court of Appeals dated April 10,
2000 and its resolution dated July 11, 2000 denying the motion for
reconsideration of the aforesaid decision. The original complaint that is the
subject matter of this case is an accion pauliana -- an action filed by
Philam Insurance Company, Inc. (respondent Philam) to rescind or annul
the donations made by petitioner Khe Hong Cheng allegedly in fraud of
creditors. The main issue for resolution is whether or not the action to
rescind the donations has already prescribed. While the first paragraph of
Article 1389 of the Civil Code states: "The action to claim rescission must
be commenced within four years..." the question is, from which point or
event does this prescriptive period commence to run?
The facts are as follows:
Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan
Shipping Lines. It appears that on or about October 4, 1985, the Philippine
Agricultural Trading Corporation shipped on board the vessel M/V
PRINCE ERIC, owned by petitioner Khe Hong Cheng, 3,400 bags of
copra at Masbate, Masbate, for delivery to Dipolog City, Zamboanga del
Norte. The said shipment of copra was covered by a marine insurance
policy issued by American Home Insurance Company (respondent
Philam's assured). M/V PRINCE ERlC, however, sank somewhere
between Negros Island and Northeastern Mindanao, resulting in the total
loss of the shipment. Because of the loss, the insurer, American Home,
paid the amount of P354,000.00 (the value of the copra) to the
consignee.1wphi1.nt
Having been subrogated into the rights of the consignee, American Home
instituted Civil Case No. 13357 in the Regional Trial Court (RTC) of Makati
, Branch 147 to recover the money paid to the consignee, based on
breach of contract of carriage. While the case was still pending, or on
December 20, 1989, petitioner Khe Hong Cheng executed deeds of
donations of parcels of land in favor of his children, herein co-petitioners
Sandra Joy and Ray Steven. The parcel of land with an area of 1,000
square meters covered by Transfer Certificate of Title (TCT) No. T-3816
was donated to Ray Steven. Petitioner Khe Hong Cheng likewise donated
"Wherefore, in view of the foregoing, the Court hereby renders
judgment in favor of the plaintiff and against the defendant, ordering
the latter to pay the former:
1) the sum of P354,000.00 representing the amount paid by the
plaintiff to the Philippine Agricultural Trading Corporation with legal
interest at 12% from the time of the filing of the complaint in this
case;
2) the sum of P50,000.00 as attorney's fees;
3) the costs.1After the said decision became final and executory, a
writ of execution was forthwith' issued on September 14, 1995. Said
writ of execution however, was not served. An alias writ of execution
was, thereafter, applied for and granted in October 1996. Despite
earnest efforts, the sheriff found no property under the name of
Butuan Shipping Lines and/or petitioner Khe Hong Cheng to levy or
garnish for the satisfaction of the trial court's decision. When the
sheriff, accompanied by counsel of respondent Philam, went to
Butuan City on January 17, 1997, to enforce the alias writ of
execution, they discovered that petitioner Khe Hong Cheng no
longer had any property and that he had conveyed the subject
properties to his children.
February 25, 1997, respondent Philam filed a complaint with the Regional
Trial Court of Makati City, Branch 147, for the rescission of the deeds of
donation executed by petitioner Khe Hong Cheng in favor of his children
and for the nullification of their titles (Civil Case No.97-415). Respondent
Philam alleged, inter alia, that petitioner Khe Hong Cheng executed the
aforesaid deeds in fraud of his creditors, including respondent Philam. 2
Petitioners subsequently filed their answer to the complaint a quo. They
moved for its dismissal on the ground that the action had already
prescribed. They posited that the registration of the deeds of donation on
December 27, 1989 constituted constructive notice and since the
complaint a quo was filed only on February 25, 1997, or more than four (4)
On appeal by petitioners, the CA affirmed the trial court's decision in favor Essentially, the issue for resolution posed by petitioners is this: When did
of respondent Philam. The CA declared that the action to rescind the the four (4) year prescriptive period as provided for in Article 1389 of the
donations had not yet prescribed. Citing Articles 1381 and 1383 of the
Civil Code for respondent Philam to file its action for rescission of the
Civil Code, the CA basically ruled that the four year period to institute the subject deeds of donation commence to run?
action for rescission began to run only in January 1997, and not when the
decision in the civil case became final and executory on December 29,
1993. The CA reckoned the accrual of respondent Philam's cause of
action on January 1997, the time when it first learned that the judgment
award could not be satisfied because the judgment creditor, petitioner Khe
Hong Cheng, had no more properties in his name. Prior thereto, The petition is without merit.
respondent Philam had not yet exhausted all legal means for the
satisfaction of the decision in its favor, as prescribed under Article 1383 of
the Civil Code.5
Article 1389 of the Civil Code simply provides that, "The action to claim
rescission must be commenced within four years." Since this provision of
law is silent as to when the prescriptive period would commence, the
The Court of Appeals thus denied the petition for certiorari filed before it, general rule, i.e., from the moment the cause of action accrues, therefore,
and held that the trial court did not commit any error in denying petitioners' applies. Article 1150 of the Civil Code is particularly instructive:
motion to dismiss. Their motion for reconsideration was likewise
dismissed in the appellate court's resolution dated July 11, 2000.
Petitioners now assail the aforesaid decision and resolution of the CA
Art. 1150. The time for prescription for all kinds of actions, when
alleging that: there is no special provision which ordains otherwise, shall be
counted from the day they may be brought.
I
Indeed, this Court enunciated the principle that it is the legal possibility of
bringing the action which determines the starting point for the computation
PUBLIC RESPONDENT GRAVELY ERRED AND ACTED IN GRAVE
ABUSE OF DISCRETION WHEN IT DENIED THE PETITION TO of the prescriptive period for the action. 7 Article 1383 of the Civil Code
provides as follows:
DISMISS THE CASE BASED ON THE GROUND OF
PRESCRIPTION.
Art. 1383. An action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no other legal
II
means to obtain reparation for the same.
PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED
IN HOLDING THAT PRESCRIPTION BEGINS TO RUN WHEN IN
JANUARY 1997 THE SHERIFF WENT TO BUTUAN CITY IN
SEARCH OF PROPERTIES OF PETITIONER FELIX KHE CHENG It is thus apparent that an action to rescind or an accion pauliana must be
TO SATISFY THE JUDGMENT IN CIVIL CASE NO.13357 AND of last resort, availed of only after all other legal remedies have been
FOUND OUT THAT AS EARLY AS DEC. 20, 1989, PETITIONERS
exhausted and have been proven futile. For an accion pauliana to accrue,
the following requisites must concur:
1) That the plaintiff asking for rescission has a credit prior to, the
alienation, although demandable later; 2) That the debtor has made
a subsequent contract conveying a patrimonial benefit to a third
person; 3) That the creditor has no other legal remedy to satisfy his
claim, but would benefit by rescission of the conveyance to the third
person; 4) That the act being impugned is fraudulent; 5) That the
third person who received the property conveyed, if by onerous title,
has been an accomplice in the fraud. 8 (Emphasis ours)
We quote with approval the following disquisition of the CA on the matter:
An accion pauliana accrues only when the creditor discovers that he
has no other legal remedy for the satisfaction of his claim against the
debtor other than an accion pauliana. The accion pauliana is an
action of a last resort. For as long as the creditor still has a remedy
at law for the enforcement of his claim against the debtor, the
creditor will not have any cause of action against the creditor for
rescission of the contracts entered into by and between the debtor
and another person or persons. Indeed, an accion
paulianapresupposes a judgment and the issuance by the trial court
of a writ of execution for the satisfaction of the judgment and the
failure of the Sheriff to enforce and satisfy the judgment of the court.
It presupposes that the creditor has exhausted the property of the
debtor. The date of the decision of the trial court against the debtor
is immaterial. What is important is that the credit of the plaintiff
antedates that of the fraudulent alienation by the debtor of his
property. After all, the decision of the trial court against the debtor
will retroact to the time when the debtor became indebted to the
creditor.9
Petitioners, however, maintain that the cause of action of respondent
Philam against them for the rescission of the deeds of donation accrued
as early as December 27, 1989, when petitioner Khe Hong Cheng
registered the subject conveyances with the Register of Deeds.
Respondent Philam allegedly had constructive knowledge of the execution
of said deeds under Section 52 of Presidential Decree No. 1529,
quoted infra, as follows:
Section 52. Constructive knowledge upon registration. - Every
conveyance, mortgage, lease, lien, attachment, order, judgment,
instrument or entry affecting registered land shall, if registered, 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, filing, or entering.
Petitioners argument that the Civil Code must yield to the Mortgage and
Registration Laws is misplaced, for in no way does this imply that the
specific provisions of the former may be all together ignored. To count the
four year prescriptive period to rescind an allegedly fraudulent contract
from the date of registration of the conveyance with the Register of
Deeds, as alleged by the petitioners, would run counter to Article 1383 of
the Civil Code as well as settled jurisprudence. It would likewise violate
the third requisite to file an action for rescission of an allegedly fraudulent
conveyance of property, i.e., the creditor has no other legal remedy to
satisfy his claim.
An accion pauliana thus presupposes the following: 1) A judgment; 2) the
issuance by the trial court of a writ of execution for the satisfaction of the
judgment, and 3) the failure of the sheriff to enforce and satisfy the
judgment of the court. It requires that the creditor has exhausted the
property of the debtor: The date of the decision of the trial court is
immaterial. What is important is that the credit of the plaintiff antedates
that of the fraudulent alienation by the debtor of his property. After all, the
decision of the trial court against the debtor will retroact to the time when
the debtor became indebted to the creditor.
Tolentino, a noted civilist, explained:
"xxx[T]herefore, credits with suspensive term or condition are
excluded, because the accion paulianapresupposes a judgment and
unsatisfied execution, which cannot exist when the debt is not yet
demandable at the time the rescissory action is brought. Rescission
is a subsidiary action, which presupposes that the creditor has
exhausted the property of the debtor which is impossible in credits
which cannot be enforced because of a suspensive term or
condition.
While it is necessary that the credit of the plaintiff in the accion
pauliana must be prior to the fraudulent alienation, the date of the
judgment enforcing it is immaterial. Even if the judgment be
subsequent to the alienation, it is merely declaratory with retroactive
effect to the date when the credit was constituted." 10
These principles were reiterated by the Court when it explained the
requisites of an accion pauliana in greater detail, to wit:
"The following successive measures must be taken by a creditor
before he may bring an action for rescission of an allegedly
fraudulent sale: (1) exhaust the properties of the debtor through
levying by attachment and execution upon all the property of the
debtor, except such as are exempt from execution; (2) exercise all
the rights and actions of the debtor, save those personal to him
(accion subrogatoria); and (3) seek rescission of the contracts
executed by the debtor in fraud of their rights (accion
pauliana). Without availing of the first and second remedies, i.e..
exhausting the properties of the debtor or subrogating themselves in
Francisco Bareg's transmissible rights and actions. petitioners
simply: undertook the third measure and filed an action for
annulment of sale. This cannot be done."11 (Emphasis ours)
In the same case, the Court also quoted the rationale of the CA when it
upheld the dismissal of the accion pauliana on the basis of lack of cause
of action:
"In this case, plaintiffs appellants had not even commenced an
action against defendants-appellees Bareng for the collection of the
alleged indebtedness, Plaintiffs-appellants had not even tried to
exhaust the property of defendants-appellees Bareng, Plaintiffs-
appellants, in seeking the rescission of the contracts of sale entered
into between defendants-appellees, failed to show and prove that
defendants-appellees Bareng had no other property, either at the
time of the sale or at the time this action was filed, out of which they
could have collected this (sic) debts." (Emphasis ours)
Even if respondent Philam was aware, as of December 27, 1989, that
petitioner Khe Hong Cheng had executed the deeds of donation in favor of
his children, the complaint against Butuan Shipping Lines and/or petitioner
Khe Hong Cheng was still pending before the trial court. Respondent
Philam had no inkling, at the time, that the trial courts judgment would be
in its favor and further, that such judgment would not be satisfied due to
the deeds of donation executed by petitioner Khe Hong Cheng during the
pendency of the case. Had respondent Philam filed his complaint on
December 27, 1989, such complaint would have been dismissed for being
premature. Not only were all other legal remedies for the enforcement of
respondent Philam's claims not yet exhausted at the time the needs of
donation were executed and registered. Respondent Philam would also
not have been able to prove then that petitioner Khe Hong Cheng had no
more property other than those covered by the subject deeds to satisfy a
favorable judgment by the trial court.
It bears stressing that petitioner Khe Hong Cheng even expressly
declared and represented that he had reserved to himself property
sufficient to answer for his debts contracted prior to this date:
"That the DONOR further states, for the same purpose as expressed
in the next preceding paragraph, that this donation is not made with
the object of defrauding his creditors having reserved to himself
property sufficient to answer his debts contracted prior to this
date".12
As mentioned earlier, respondent Philam only learned about the unlawful
conveyances made by petitioner Khe Hong Cheng in January 1997 when
its counsel accompanied the sheriff to Butuan City to attach the properties
of petitioner Khe Hong Cheng. There they found that he no longer had any
properties in his name. It was only then that respondent Philam's action
for rescission of the deeds of donation accrued because then it could be
said that respondent Philam had exhausted all legal means to satisfy the
trial court's judgment in its favor. Since respondent Philam filed its
complaint for accion pauliana against petitioners on February 25, 1997,
barely a month from its discovery that petitioner Khe Hong Cheng had no
other property to satisfy the judgment award against him, its action for
rescission of the subject deeds clearly had not yet prescribed.1wphi1.nt
A final point. Petitioners now belatedly raise on appeal the defense of
improper venue claiming that respondent Philam's complaint is a real
action and should have been filed with the RTC of Butuan City since the
property subject matter or the donations are located therein. Suffice it to
say that petitioners are already deemed to have waived their right to
question the venue of the instant case. Improper venue should be
objected to as follows 1) in a motion to dismiss filed within the time but
before the filing of the answer; 13 or 2) in the answer as an affirmative
defense over which, in the discretion of the court, a preliminary hearing
may be held as if a motion to dismiss had been filed. 14 Having failed to
either file a motion to dismiss on the ground of improper of venue or
include the same as an affirmative defense in their answer, petitioners are
deemed to have their right to object to improper venue.
WHEREFORE, premises considered, the petition is hereby DENIED for
lack of merit.
SO ORDERED.
G.R. No. L-29640 June 10, 1971
GUILLERMO AUSTRIA, petitioner, vs.THE COURT OF APPEALS
(Second Division), PACIFICO ABAD and MARIA G.
ABAD, respondents.

REYES, J.B.L., J.:
Guillermo Austria petitions for the review of the decision rendered by the
Court of Appeal (in CA-G.R. No. 33572-R), on the sole issue of whether in
a contract of agency (consignment of goods for sale) it is necessary that
there be prior conviction for robbery before the loss of the article shall
exempt the consignee from liability for such loss.
In a receipt dated 30 January 1961, Maria G. Abad acknowledged having
received from Guillermo Austria one (1) pendant with diamonds valued at
P4,500.00, to be sold on commission basis or to be returned on demand.
On 1 February 1961, however, while walking home to her residence in
Mandaluyong, Rizal, Abad was said to have been accosted by two men,
one of whom hit her on the face, while the other snatched her purse
containing jewelry and cash, and ran away. Among the pieces of jewelry
allegedly taken by the robbers was the consigned pendant. The incident
became the subject of a criminal case filed in the Court of First Instance of
Rizal against certain persons (Criminal Case No. 10649, People vs. Rene
Garcia, et al.).
As Abad failed to return the jewelry or pay for its value notwithstanding
demands, Austria brought in the Court of First Instance of Manila an action
against her and her husband for recovery of the pendant or of its value,
and damages. Answering the allegations of the complaint, defendants
spouses set up the defense that the alleged robbery had extinguished
their obligation.
After due hearing, the trial court rendered judgment for the plaintiff, and
ordered defendants spouses, jointly and severally, to pay to the former the
sum of P4,500.00, with legal interest thereon, plus the amount of P450.00
as reasonable attorneys' fees, and the costs. It was held that defendants
failed to prove the fact of robbery, or, if indeed it was committed, that
defendant Maria Abad was guilty of negligence when she went home
without any companion, although it was already getting dark and she was
carrying a large amount of cash and valuables on the day in question, and
such negligence did not free her from liability for damages for the loss of
the jewelry.
Not satisfied with his decision, the defendants went to the Court of
Appeals, and there secured a reversal of the judgment. The appellate
court overruling the finding of the trial court on the lack of credibility of the
two defense witnesses who testified on the occurrence of the robbery, and
holding that the facts of robbery and defendant Maria Abad's possesion of
the pendant on that unfortunate day have been duly published, declared
respondents not responsible for the loss of the jewelry on account of a
fortuitous event, and relieved them from liability for damages to the owner.
Plaintiff thereupon instituted the present proceeding.
It is now contended by herein petitioner that the Court of Appeals erred in
finding that there was robbery in the case, although nobody has been
found guilty of the supposed crime. It is petitioner's theory that for robbery
to fall under the category of a fortuitous event and relieve the obligor from
his obligation under a contract, pursuant to Article 1174 of the new Civil
Code, there ought to be prior finding on the guilt of the persons
responsible therefor. In short, that the occurrence of the robbery should be
proved by a final judgment of conviction in the criminal case. To adopt a
different view, petitioner argues, would be to encourage persons
accountable for goods or properties received in trust or consignment to
connive with others, who would be willing to be accused in court for the
robbery, in order to be absolved from civil liability for the loss or
disappearance of the entrusted articles.
We find no merit in the contention of petitioner.
It is recognized in this jurisdiction that to constitute a caso fortuito that
would exempt a person from responsibility, it is necessary that (1) the
event must be independent of the human will (or rather, of the debtor's or
obligor's); (2) the occurrence must render it impossible for the debtor to
fulfill the obligation in a normal manner; and that (3) the obligor must be
free of participation in or aggravation of the injury to the creditor. 1 A
fortuitous event, therefore, can be produced by nature, e.g., earthquakes,
storms, floods, etc., or by the act of man, such as war, attack by bandits,
robbery, 2 etc., provided that the event has all the characteristics
enumerated above.
It is not here disputed that if respondent Maria Abad were indeed the
victim of robbery, and if it were really true that the pendant, which she was
obliged either to sell on commission or to return to petitioner, were taken
during the robbery, then the occurrence of that fortuitous event would
have extinguished her liability. The point at issue in this proceeding is how
the fact of robbery is to be established in order that a person may avail of
the exempting provision of Article 1174 of the new Civil Code, which reads
as follows:
ART. 1174. Except in cases expressly specified by law, or when it is
otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which,
though foreseen, were inevitable.
WHEREFORE, finding no error in the decision of the Court of Appeals
under review, the petition in this case is hereby dismissed with costs
against the petitioner.
It may be noted the reform that the emphasis of the provision is on the
events, not on the agents or factors responsible for them. To avail of the
exemption granted in the law, it is not necessary that the persons
responsible for the occurrence should be found or punished; it would only
be sufficient to established that the enforceable event, the robbery in this
case did take place without any concurrent fault on the debtor's part, and
this can be done by preponderant evidence. To require in the present
action for recovery the prior conviction of the culprits in the criminal case,
G.R. No. 113003 October 17, 1997
in order to establish the robbery as a fact, would be to demand proof
beyond reasonable doubt to prove a fact in a civil case.
ALBERTA YOBIDO and CRESENCIO YOBIDO, petitioners, vs. COURT
OF APPEALS, LENY TUMBOY, ARDEE TUMBOY and JASMIN
TUMBOY, respondents.
It is undeniable that in order to completely exonerate the debtor for reason
of a fortutious event, such debtor must, in addition to the cams itself, be
free of any concurrent or contributory fault or negligence. 3 This is
apparent from Article 1170 of the Civil Code of the Philippines, providing ROMERO, J.:
that:
In this petition for review on certiorari of the decision of the Court of
Appeals, the issue is whether or not the explosion of a newly installed tire
of a passenger vehicle is a fortuitous event that exempts the carrier from
liability for the death of a passenger.
ART. 1170. Those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
On April 26, 1988, spouses Tito and Leny Tumboy and their minor children
named Ardee and Jasmin, bearded at Mangagoy, Surigao del Sur, a
Yobido Liner bus bound for Davao City. Along Picop Road in Km. 17, Sta.
It is clear that under the circumstances prevailing at present in the City of
Maria, Agusan del Sur, the left front tire of the bus exploded. The bus fell
Manila and its suburbs, with their high incidence of crimes against persons
into a ravine around three (3) feet from the road and struck a tree. The
and property that renders travel after nightfall a matter to be sedulously
incident resulted in the death of 28-year-old Tito Tumboy and physical
avoided without suitable precaution and protection, the conduct of
injuries to other passengers.
respondent Maria G. Abad, in returning alone to her house in the evening,
carrying jewelry of considerable value would be negligent per se and
would not exempt her from responsibility in the case of a robbery. We are
not persuaded, however, that the same rule should obtain ten years
previously, in 1961, when the robbery in question did take place, for at that
time criminality had not by far reached the levels attained in the present On November 21, 1988, a complaint for breach of contract of carriage,
day. damages and attorney's fees was filed by Leny and her children against
Alberta Yobido, the owner of the bus, and Cresencio Yobido, its driver,
before the Regional Trial Court of Davao City. When the defendants
therein filed their answer to the complaint, they raised the affirmative
defense of caso fortuito. They also filed a third-party complaint against
Philippine Phoenix Surety and Insurance, Inc. This third-party defendant
There is likewise no merit in petitioner's argument that to allow the fact of
filed an answer with compulsory counterclaim. At the pre-trial conference,
robbery to be recognized in the civil case before conviction is secured in
the parties agreed to a stipulation of facts. 1
the criminal action, would prejudice the latter case, or would result in
inconsistency should the accused obtain an acquittal or should the
criminal case be dismissed. It must be realized that a court finding that a
robbery has happened would not necessarily mean that those accused in
the criminal action should be found guilty of the crime; nor would a ruling
that those actually accused did not commit the robbery be inconsistent Upon a finding that the third party defendant was not liable under the
with a finding that a robbery did take place. The evidence to establish insurance contract, the lower court dismissed the third party complaint. No
these facts would not necessarily be the same. amicable settlement having been arrived at by the parties, trial on the
merits ensued.
The plaintiffs asserted that violation of the contract of carriage between
them and the defendants was brought about by the driver's failure to
exercise the diligence required of the carrier in transporting passengers
safely to their place of destination. According to Leny Tumboy, the bus left
Mangagoy at 3:00 o'clock in the afternoon. The winding road it traversed
was not cemented and was wet due to the rain; it was rough with crushed
rocks. The bus which was full of passengers had cargoes on top. Since it
was "running fast," she cautioned the driver to slow down but he merely
stared at her through the mirror. At around 3:30 p.m., in Trento, she heard
something explode and immediately, the bus fell into a ravine.
For their part, the defendants tried to establish that the accident was due
to a fortuitous event. Abundio Salce, who was the bus conductor when the
incident happened, testified that the 42-seater bus was not full as there
were only 32 passengers, such that he himself managed to get a seat. He
added that the bus was running at a speed of "60 to 50" and that it was
going slow because of the zigzag road. He affirmed that the left front tire
that exploded was a "brand new tire" that he mounted on the bus on April
21, 1988 or only five (5) days before the incident. The Yobido Liner
secretary, Minerva Fernando, bought the new Goodyear tire from Davao
Toyo Parts on April 20, 1988 and she was present when it was mounted
on the bus by Salce. She stated that all driver applicants in Yobido Liner
underwent actual driving tests before they were employed. Defendant
Cresencio Yobido underwent such test and submitted his professional
driver's license and clearances from the barangay, the fiscal and the
police.
On August 29, 1991, the lower court rendered a decision 2 dismissing the
action for lack of merit. On the issue of whether or not the tire blowout was
a caso fortuito, it found that "the falling of the bus to the cliff was a result
of no other outside factor than the tire blow-out." It held that the ruling in
the La Mallorca and Pampanga Bus Co. v. De Jesus 3 that a tire blowout is
"a mechanical defect of the conveyance or a fault in its equipment which
was easily discoverable if the bus had been subjected to a more thorough
or rigid check-up before it took to the road that morning" is inapplicable to
this case. It reasoned out that in said case, it was found that the blowout
was caused by the established fact that the inner tube of the left front tire
"was pressed between the inner circle of the left wheel and the rim which
had slipped out of the wheel." In this case, however, "the cause of the
explosion remains a mystery until at present." As such, the court added,
the tire blowout was "a caso fortuito which is completely an extraordinary
circumstance independent of the will" of the defendants who should be
relieved of "whatever liability the plaintiffs may have suffered by reason of
the explosion pursuant to Article 1174 4of the Civil Code."
Dissatisfied, the plaintiffs appealed to the Court of Appeals. They ascribed
to the lower court the following errors: (a) finding that the tire blowout was
a caso fortuito; (b) failing to hold that the defendants did not exercise
utmost and/or extraordinary diligence required of carriers under Article
1755 of the Civil Code, and (c) deciding the case contrary to the ruling
in Juntilla v. Fontanar, 5 and Necesito v. Paras. 6
On August 23, 1993, the Court of Appeals rendered the
Decision 7 reversing that of the lower court. It held that:
To Our mind, the explosion of the tire is not in itself a fortuitous
event. The cause of the blow-out, if due to a factory defect, improper
mounting, excessive tire pressure, is not an unavoidable event. On
the other hand, there may have been adverse conditions on the road
that were unforeseeable and/or inevitable, which could make the
blow-out a caso fortuito. The fact that the cause of the blow-out was
not known does not relieve the carrier of liability. Owing to the
statutory presumption of negligence against the carrier and its
obligation to exercise the utmost diligence of very cautious persons
to carry the passenger safely as far as human care and foresight
can provide, it is the burden of the defendants to prove that the
cause of the blow-out was a fortuitous event. It is not incumbent
upon the plaintiff to prove that the cause of the blow-out is not caso-
fortuito.
Proving that the tire that exploded is a new Goodyear tire is not
sufficient to discharge defendants' burden. As enunciated
in Necesito vs. Paras, the passenger has neither choice nor control
over the carrier in the selection and use of its equipment, and the
good repute of the manufacturer will not necessarily relieve the
carrier from liability.
Moreover, there is evidence that the bus was moving fast, and the
road was wet and rough. The driver could have explained that the
blow-out that precipitated the accident that caused the death of Toto
Tumboy could not have been prevented even if he had exercised
due care to avoid the same, but he was not presented as witness.
The Court of Appeals thus disposed of the appeal as follows:
WHEREFORE, the judgment of the court a quo is set aside and
another one entered ordering defendants to pay plaintiffs the sum of
P50,000.00 for the death of Tito Tumboy, P30,000.00 in moral
damages, and P7,000.00 for funeral and burial expenses.
SO ORDERED.
The defendants filed a motion for reconsideration of said decision which
was denied on November 4, 1993 by the Court of Appeals. Hence, the
instant petition asserting the position that the tire blowout that caused the
death of Tito Tumboy was a caso fortuito. Petitioners claim further that the
Court of Appeals, in ruling contrary to that of the lower court,
misapprehended facts and, therefore, its findings of fact cannot be
considered final which shall bind this Court. Hence, they pray that this
Court review the facts of the case.
The Court did re-examine the facts and evidence in this case because of
the inapplicability of the established principle that the factual findings of
the Court of Appeals are final and may not be reviewed on appeal by this
Court. This general principle is subject to exceptions such as the one
present in this case, namely, that the lower court and the Court of Appeals
arrived at diverse factual findings. 8 However, upon such re-examination,
we found no reason to overturn the findings and conclusions of the Court
of Appeals.
As a rule, when a passenger boards a common carrier, he takes the risks
incidental to the mode of travel he has taken. After all, a carrier is not an
insurer of the safety of its passengers and is not bound absolutely and at
all events to carry them safely and without injury. 9 However, when a
passenger is injured or dies while travelling, the law presumes that the
common carrier is negligent. Thus, the Civil Code provides:
Art. 1756. In case of death or injuries to passengers, common
carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary
diligence as prescribed in articles 1733 and 1755.
Article 1755 provides that "(a) common carrier is bound to carry the
passengers safely as far as human care and foresight can provide, using
the utmost diligence of very cautious persons, with a due regard for all the
circumstances." Accordingly, in culpa contractual, once a passenger dies
or is injured, the carrier is presumed to have been at fault or to have acted
negligently. This disputable presumption may only be overcome by
evidence that the carrier had observed extraordinary diligence as
prescribed by Articles 1733, 10 1755 and 1756 of the Civil Code or that the
death or injury of the passenger was due to a fortuitous
event. 11 Consequently, the court need not make an express finding of fault
or negligence on the part of the carrier to hold it responsible for damages
sought by the passenger. 12
In view of the foregoing, petitioners' contention that they should be exempt
from liability because the tire blowout was no more than a fortuitous event
that could not have been foreseen, must fail. A fortuitous event is
possessed of the following characteristics: (a) the cause of the unforeseen
and unexpected occurrence, or the failure of the debtor to comply with his
obligations, must be independent of human will; (b) it must be impossible
to foresee the event which constitutes the caso fortuito, or if it can be
foreseen, it must be impossible to avoid; (c) the occurrence must be such
as to render it impossible for the debtor to fulfill his obligation in a normal
manner; and (d) the obliger must be free from any participation in the
aggravation of the injury resulting to the creditor. 13 As Article 1174
provides, no person shall be responsible for a fortuitous event which could
not be foreseen, or which, though foreseen, was inevitable. In other
words, there must be an entire exclusion of human agency from the cause
of injury or loss. 14
Under the circumstances of this case, the explosion of the new tire may
not be considered a fortuitous event. There are human factors involved in
the situation. The fact that the tire was new did not imply that it was
entirely free from manufacturing defects or that it was properly mounted
on the vehicle. Neither may the fact that the tire bought and used in the
vehicle is of a brand name noted for quality, resulting in the conclusion
that it could not explode within five days' use. Be that as it may, it is
settled that an accident caused either by defects in the automobile or
through the negligence of its driver is not a caso fortuito that would
exempt the carrier from liability for damages. 15
Moreover, a common carrier may not be absolved from liability in case
of force majeure or fortuitous event alone. The common carrier must still
prove that it was not negligent in causing the death or injury resulting from
an accident. 16 This Court has had occasion to state:
While it may be true that the tire that blew-up was still good because
the grooves of the tire were still visible, this fact alone does not
make the explosion of the tire a fortuitous event. No evidence was
presented to show that the accident was due to adverse road
conditions or that precautions were taken by the jeepney driver to
compensate for any conditions liable to cause accidents. The
sudden blowing-up, therefore, could have been caused by too much
air pressure injected into the tire coupled by the fact that the jeepney
was overloaded and speeding at the time of the accident. 17
It is interesting to note that petitioners proved through the bus conductor,
Salce, that the bus was running at "60-50" kilometers per hour only or
within the prescribed lawful speed limit. However, they failed to rebut the
testimony of Leny Tumboy that the bus was running so fast that she
cautioned the driver to slow down. These contradictory facts must,
therefore, be resolved in favor of liability in view of the presumption of
negligence of the carrier in the law. Coupled with this is the established
condition of the road rough, winding and wet due to the rain. It was
incumbent upon the defense to establish that it took precautionary
measures considering partially dangerous condition of the road. As stated
above, proof that the tire was new and of good quality is not sufficient
proof that it was not negligent. Petitioners should have shown that it
undertook extraordinary diligence in the care of its carrier, such as
conducting daily routinary check-ups of the vehicle's parts. As the late
Justice J.B.L. Reyes said:
It may be impracticable, as appellee argues, to require of
carriers to test the strength of each and every part of its vehicles
before each trip; but we are of the opinion that a due regard for the
carrier's obligations toward the traveling public demands adequate
periodical tests to determine the condition and strength of those
vehicle portions the failure of which may endanger the safety of the
passengers. 18
Having failed to discharge its duty to overthrow the presumption of
negligence with clear and convincing evidence, petitioners are hereby
held liable for damages. Article 1764 19 in relation to Article 2206 20 of the
Civil Code prescribes the amount of at least three thousand pesos as
damages for the death of a passenger. Under prevailing jurisprudence, the
award of damages under Article 2206 has been increased to fifty thousand
pesos (P50,000.00). 21
Moral damages are generally not recoverable in culpa contractual except
when bad faith had been proven. However, the same damages may be
recovered when breach of contract of carriage results in the death of a
passenger, 22 as in this case. Exemplary damages, awarded by way of
example or correction for the public good when moral damages are
awarded, 23 may likewise be recovered in contractual obligations if the
defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent
manner. 24 Because petitioners failed to exercise the extraordinary
diligence required of a common carrier, which resulted in the death of Tito
Tumboy, it is deemed to have acted recklessly. 25 As such, private
respondents shall be entitled to exemplary damages.
WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED
subject to the modification that petitioners shall, in addition to the
monetary awards therein, be liable for the award of exemplary damages in
the amount of P20,000.00. Costs against petitioners.
SO ORDERED.
G.R. No. 147324 May 25, 2004
PHILIPPINE COMMUNICATIONS SATELLITE
CORPORATION, petitioner, vs. GLOBE TELECOM, INC. (formerly
Globe Mckay Cable and Radio Corporation), respondents.
DECISION
TINGA, J.:
Before the Court are two Petitions for Review assailing the Decision of the
Court of Appeals, dated 27 February 2001, in CA-G.R. CV No. 63619. 1
The facts of the case are undisputed.
For several years prior to 1991, Globe Mckay Cable and Radio
Corporation, now Globe Telecom, Inc. (Globe), had been engaged in the
coordination of the provision of various communication facilities for the
military bases of the United States of America (US) in Clark Air Base,
Angeles, Pampanga and Subic Naval Base in Cubi Point, Zambales. The
said communication facilities were installed and configured for the
exclusive use of the US Defense Communications Agency (USDCA), and
for security reasons, were operated only by its personnel or those of
American companies contracted by it to operate said facilities. The
USDCA contracted with said American companies, and the latter, in turn,
contracted with Globe for the use of the communication facilities. Globe,
on the other hand, contracted with local service providers such as the
Philippine Communications Satellite Corporation (Philcomsat) for the
provision of the communication facilities.
On 07 May 1991, Philcomsat and Globe entered into an Agreement
whereby Philcomsat obligated itself to establish, operate and provide an
IBS Standard B earth station (earth station) within Cubi Point for the
exclusive use of the USDCA. 2 The term of the contract was for 60 months,
or five (5) years.3 In turn, Globe promised to pay Philcomsat monthly
rentals for each leased circuit involved. 4
At the time of the execution of the Agreement, both parties knew that the
Military Bases Agreement between the Republic of the Philippines and the
US (RP-US Military Bases Agreement), which was the basis for the
occupancy of the Clark Air Base and Subic Naval Base in Cubi Point, was
to expire in 1991. Under Section 25, Article XVIII of the 1987 Constitution,
foreign military bases, troops or facilities, which include those located at
the US Naval Facility in Cubi Point, shall not be allowed in the Philippines
unless a new treaty is duly concurred in by the Senate and ratified by a
majority of the votes cast by the people in a national referendum when the
Congress so requires, and such new treaty is recognized as such by the
US Government.
Subsequently, Philcomsat installed and established the earth station at
Cubi Point and the USDCA made use of the same.
On 16 September 1991, the Senate passed and adopted Senate
Resolution No. 141, expressing its decision not to concur in the ratification
of the Treaty of Friendship, Cooperation and Security and its
Supplementary Agreements that was supposed to extend the term of the
use by the US of Subic Naval Base, among others. 5 The last two
paragraphs of the Resolution state:
FINDING that the Treaty constitutes a defective framework for the
continuing relationship between the two countries in the spirit of
friendship, cooperation and sovereign equality: Now, therefore, be it
Resolved by the Senate, as it is hereby resolved, To express its
decision not to concur in the ratification of the Treaty of Friendship,
Cooperation and Security and its Supplementary Agreements, at the
same time reaffirming its desire to continue friendly relations with the
government and people of the United States of America. 6
On 31 December 1991, the Philippine Government sent a Note Verbale to
the US Government through the US Embassy, notifying it of the
Philippines termination of the RP-US Military Bases Agreement. The Note
Verbalestated that since the RP-US Military Bases Agreement, as
amended, shall terminate on 31 December 1992, the withdrawal of all US
military forces from Subic Naval Base should be completed by said date.
In a letter dated 06 August 1992, Globe notified Philcomsat of its intention
to discontinue the use of the earth station effective 08 November 1992 in
view of the withdrawal of US military personnel from Subic Naval Base
after the termination of the RP-US Military Bases Agreement. Globe
invoked as basis for the letter of termination Section 8 (Default) of the
Agreement, which provides:
Neither party shall be held liable or deemed to be in default
for any failure to perform its obligation under this Agreement
if such failure results directly or indirectly from force majeure
or fortuitous event. Either party is thus precluded from
performing its obligation until such force majeure or
fortuitous event shall terminate. For the purpose of this
paragraph, force majeure shall mean circumstances beyond
the control of the party involved including, but not limited to,
any law, order, regulation, direction or request of the
Government of the Philippines, strikes or other labor
difficulties, insurrection riots, national emergencies, war,
acts of public enemies, fire, floods, typhoons or other
catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that
"we expect [Globe] to know its commitment to pay the stipulated rentals
for the remaining terms of the Agreement even after [Globe] shall have
discontinue[d] the use of the earth station after November 08,
1992."7 Philcomsat referred to Section 7 of the Agreement, stating as
follows:
7. DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of the earth
station after it has been put into operation, a written notice shall be
served to PHILCOMSAT at least sixty (60) days prior to the expected
date of termination. Notwithstanding the non-use of the earth station,
[Globe] shall continue to pay PHILCOMSAT for the rental of the
actual number of T1 circuits in use, but in no case shall be less than
the first two (2) T1 circuits, for the remaining life of the agreement.
However, should PHILCOMSAT make use or sell the earth station
subject to this agreement, the obligation of [Globe] to pay the rental
for the remaining life of the agreement shall be at such monthly rate
as may be agreed upon by the parties. 8
After the US military forces left Subic Naval Base, Philcomsat sent Globe
a letter dated 24 November 1993 demanding payment of its outstanding
obligations under the Agreement amounting to US$4,910,136.00 plus
interest and attorneys fees. However, Globe refused to heed Philcomsats
demand.
On 27 January 1995, Philcomsat filed with the Regional Trial Court of
Makati a Complaint against Globe, praying that the latter be ordered to
pay liquidated damages under the Agreement, with legal interest,
exemplary damages, attorneys fees and costs of suit. The case was
raffled to Branch 59 of said court.
Globe filed an Answer to the Complaint, insisting that it was constrained to
end the Agreement due to the termination of the RP-US Military Bases
Agreement and the non-ratification by the Senate of the Treaty of
Friendship and Cooperation, which events constituted force
majeure under the Agreement. Globe explained that the occurrence of
said events exempted it from paying rentals for the remaining period of the
Agreement.

On 05 January 1999, the trial court rendered its Decision, the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered
as follows:
1. Ordering the defendant to pay the plaintiff the amount of Ninety
Two Thousand Two Hundred Thirty Eight US Dollars
(US$92,238.00) or its equivalent in Philippine Currency (computed
at the exchange rate prevailing at the time of compliance or
payment) representing rentals for the month of December 1992 with
interest thereon at the legal rate of twelve percent (12%) per annum
starting December 1992 until the amount is fully paid;
2. Ordering the defendant to pay the plaintiff the amount of Three
Hundred Thousand (P300,000.00) Pesos as and for attorneys fees;
3. Ordering the DISMISSAL of defendants counterclaim for lack of
merit; and
4. With costs against the defendant.
SO ORDERED.9
Both parties appealed the trial courts Decision to the Court of Appeals.
Philcomsat claimed that the trial court erred in ruling that: (1) the non-
ratification by the Senate of the Treaty of Friendship, Cooperation and
Security and its Supplementary Agreements constitutes force
majeure which exempts Globe from complying with its obligations under
the Agreement; (2) Globe is not liable to pay the rentals for the remainder
of the term of the Agreement; and (3) Globe is not liable to Philcomsat for
exemplary damages.
Globe, on the other hand, contended that the RTC erred in holding it liable
for payment of rent of the earth station for December 1992 and of
attorneys fees. It explained that it terminated Philcomsats services on 08
November 1992; hence, it had no reason to pay for rentals beyond that
date.
On 27 February 2001, the Court of Appeals promulgated
its Decision dismissing Philcomsats appeal for lack of merit and affirming
the trial courts finding that certain events constituting force majeure under
Section 8 the Agreement occurred and justified the non-payment by Globe
of rentals for the remainder of the term of the Agreement.
The appellate court ruled that the non-ratification by the Senate of the
Treaty of Friendship, Cooperation and Security, and its Supplementary
Agreements, and the termination by the Philippine Government of the RP-
US Military Bases Agreement effective 31 December 1991 as stated in the
Philippine Governments Note Verbale to the US Government, are acts,
directions, or requests of the Government of the Philippines which
constitute force majeure. In addition, there were circumstances beyond
the control of the parties, such as the issuance of a formal order by Cdr.
Walter Corliss of the US Navy, the issuance of the letter notification from
ATT and the complete withdrawal of all US military forces and personnel
from Cubi Point, which prevented further use of the earth station under the
Agreement.
However, the Court of Appeals ruled that although Globe sought to
terminate Philcomsats services by 08 November 1992, it is still liable to
pay rentals for the December 1992, amounting to US$92,238.00 plus
interest, considering that the US military forces and personnel completely
withdrew from Cubi Point only on 31 December 1992. 10
Both parties filed their respective Petitions for Review assailing
the Decision of the Court of Appeals.
In G.R. No. 147324,11 petitioner Philcomsat raises the following
assignments of error:
A. THE HONORABLE COURT OF APPEALS ERRED IN
ADOPTING A DEFINITION OF FORCE MAJEUREDIFFERENT
FROM WHAT ITS LEGAL DEFINITION FOUND IN ARTICLE 1174
OF THE CIVIL CODE, PROVIDES, SO AS TO EXEMPT GLOBE
TELECOM FROM COMPLYING WITH ITS OBLIGATIONS UNDER
THE SUBJECT AGREEMENT.
propriety of awarding attorneys fees and exemplary damages to
B. THE HONORABLE COURT OF APPEALS ERRED IN RULING
THAT GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR
RENTALS FOR THE REMAINING TERM OF THE AGREEMENT,
DESPITE THE CLEAR TENOR OF SECTION 7 OF THE
AGREEMENT.
C. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING
THE TRIAL COURTS AWARD OF ATTORNEYS FEES IN FAVOR
OF PHILCOMSAT.
In G.R. No. 147334,19 Globe, the petitioner therein, contends that the
Court of Appeals erred in finding it liable for the amount of US$92,238.00,
D. THE HONORABLE COURT OF APPEALS ERRED IN RULING representing rentals for December 1992, since Philcomsats services were
THAT GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR actually terminated on 08 November 1992. 20
EXEMPLARY DAMAGES.12
Philcomsat argues that the termination of the RP-US Military Bases
Agreement cannot be considered a fortuitous event because the
happening thereof was foreseeable. Although the Agreement was freely In its Comment, Philcomsat claims that Globes petition should be
entered into by both parties, Section 8 should be deemed ineffective dismissed as it raises a factual issue which is not cognizable by the Court
because it is contrary to Article 1174 of the Civil Code. Philcomsat posits in a petition for review on certiorari.21
the view that the validity of the parties definition of force majeure in
Section 8 of the Agreement as "circumstances beyond the control of the
party involved including, but not limited to, any law, order, regulation,
direction or request of the Government of the Philippines, strikes or other
labor difficulties, insurrection riots, national emergencies, war, acts of On 15 August 2001, the Court issued a Resolution giving due course to
public enemies, fire, floods, typhoons or other catastrophies or acts of Philcomsats Petition in G.R. No.
God," should be deemed subject to Article 1174 which defines fortuitous
events as events which could not be foreseen, or which, though foreseen,
were inevitable.13
147324 and required the parties to submit their respective memoranda. 22
Similarly, on 20 August 2001, the Court issued a Resolution giving due
Philcomsat further claims that the Court of Appeals erred in holding that
course to the Petition filed by Globe in G.R. No. 147334 and required both
Globe is not liable to pay for the rental of the earth station for the entire
parties to submit their memoranda.23
term of the Agreement because it runs counter to what was plainly
stipulated by the parties in Section 7 thereof. Moreover, said ruling is
inconsistent with the appellate courts pronouncement that Globe is liable
to pay rentals for December 1992 even though it terminated Philcomsats
services effective 08 November 1992, because the US military and
personnel completely withdrew from Cubi Point only in December 1992. Philcomsat and Globe thereafter filed their respective Consolidated
Philcomsat points out that it was Globe which proposed the five-year term Memoranda in the two cases, reiterating their arguments in their
of the Agreement, and that the other provisions of the Agreement, such as respective petitions.
Section 4.114 thereof, evince the intent of Globe to be bound to pay rentals
for the entire five-year term.15
The Court is tasked to resolve the following issues: (1) whether the
termination of the RP-US Military Bases Agreement, the non-ratification of
Philcomsat also maintains that contrary to the appellate courts findings, it the Treaty of Friendship, Cooperation and Security, and the consequent
withdrawal of US military forces and personnel from Cubi Point
is entitled to attorneys fees and exemplary damages. 16
constitute force majeure which would exempt Globe from complying with
its obligation to pay rentals under its Agreement with Philcomsat; (2)
whether Globe is liable to pay rentals under the Agreement for the month
of December 1992; and (3) whether Philcomsat is entitled to attorneys
fees and exemplary damages.
In its Comment to Philcomsats Petition, Globe asserts that Section 8 of
the Agreement is not contrary to Article 1174 of the Civil Code because
said provision does not prohibit parties to a contract from providing for
other instances when they would be exempt from fulfilling their contractual
obligations. Globe also claims that the termination of the RP-US Military
Bases Agreement constitutes force majeure and exempts it from No reversible error was committed by the Court of Appeals in issuing the
assailed Decision; hence the petitions are denied.
complying with its obligations under the Agreement. 17 On the issue of the
Philcomsat, Globe maintains that Philcomsat is not entitled thereto
because in refusing to pay rentals for the remainder of the term of the
Agreement, Globe only acted in accordance with its rights. 18
There is no merit is Philcomsats argument that Section 8 of the
Agreement cannot be given effect because the enumeration of events
constituting force majeure therein unduly expands the concept of a
fortuitous event under Article 1174 of the Civil Code and is therefore
invalid.
In support of its position, Philcomsat contends that under Article 1174 of
the Civil Code, an event must be unforeseen in order to exempt a party to
a contract from complying with its obligations therein. It insists that since
the expiration of the RP-US Military Bases Agreement, the non-ratification
of the Treaty of Friendship, Cooperation and Security and the withdrawal
of US military forces and personnel from Cubi Point were not
unforeseeable, but were possibilities known to it and Globe at the time
they entered into the Agreement, such events cannot exempt Globe from
performing its obligation of paying rentals for the entire five-year term
thereof.
However, Article 1174, which exempts an obligor from liability on account
of fortuitous events or force majeure, refers not only to events that are
unforeseeable, but also to those which are foreseeable, but
inevitable:
Art. 1174. Except in cases specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which, could not be foreseen, or which,
though foreseen were inevitable.
A fortuitous event under Article 1174 may either be an "act of God," or
natural occurrences such as floods or typhoons, 24 or an "act of man," such
as riots, strikes or wars. 25
Philcomsat and Globe agreed in Section 8 of the Agreement that the
following events shall be deemed events constituting force majeure:
1. Any law, order, regulation, direction or request of the Philippine
Government;
2. Strikes or other labor difficulties;
3. Insurrection;
4. Riots;
5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or other catastrophies or acts of God;
9. Other circumstances beyond the control of the parties.
Clearly, the foregoing are either unforeseeable, or foreseeable but beyond
the control of the parties. There is nothing in the enumeration that runs
contrary to, or expands, the concept of a fortuitous event under Article
1174.
Furthermore, under Article 1306 26 of the Civil Code, parties to a contract
may establish such stipulations, clauses, terms and conditions as they
may deem fit, as long as the same do not run counter to the law, morals,
good customs, public order or public policy. 27
Article 1159 of the Civil Code also provides that "[o]bligations arising from
contracts have the force of law between the contracting parties and
should be complied with in good faith." 28 Courts cannot stipulate for the
parties nor amend their agreement where the same does not contravene
law, morals, good customs, public order or public policy, for to do so would
be to alter the real intent of the parties, and would run contrary to the
function of the courts to give force and effect thereto. 29
Not being contrary to law, morals, good customs, public order, or public
policy, Section 8 of the Agreement which Philcomsat and Globe freely
agreed upon has the force of law between them. 30
In order that Globe may be exempt from non-compliance with its
obligation to pay rentals under Section 8, the concurrence of the following
elements must be established: (1) the event must be independent of the
human will; (2) the occurrence must render it impossible for the debtor to
fulfill the obligation in a normal manner; and (3) the obligor must be free of
participation in, or aggravation of, the injury to the creditor. 31
The Court agrees with the Court of Appeals and the trial court that the
abovementioned requisites are present in the instant case. Philcomsat
and Globe had no control over the non-renewal of the term of the RP-US
Military Bases Agreement when the same expired in 1991, because the
prerogative to ratify the treaty extending the life thereof belonged to the
Senate. Neither did the parties have control over the subsequent
withdrawal of the US military forces and personnel from Cubi Point in
December 1992:
Obviously the non-ratification by the Senate of the RP-US Military
Bases Agreement (and its Supplemental Agreements) under its
Resolution No. 141. (Exhibit "2") on September 16, 1991 is beyond
the control of the parties. This resolution was followed by the
sending on December 31, 1991 o[f] a "Note Verbale" (Exhibit "3")
by the Philippine Government to the US Government notifying the
latter of the formers termination of the RP-US Military Bases
Agreement (as amended) on 31 December 1992 and that
accordingly, the withdrawal of all U.S. military forces from Subic
Naval Base should be completed by said date. Subsequently,
defendant [Globe] received a formal order from Cdr. Walter F. Corliss
II Commander USN dated July 31, 1992 and a notification from ATT
dated July 29, 1992 to terminate the provision of T1s services (via
an IBS Standard B Earth Station) effective November 08, 1992.
Plaintiff [Philcomsat] was furnished with copies of the said order and
letter by the defendant on August 06, 1992.
Resolution No. 141 of the Philippine Senate and the Note Verbale of
the Philippine Government to the US Government are acts, direction
or request of the Government of the Philippines and circumstances
beyond the control of the defendant. The formal order from Cdr.
Walter Corliss of the USN, the letter notification from ATT and the
complete withdrawal of all the military forces and personnel from
Cubi Point in the year-end 1992 are also acts and circumstances
beyond the control of the defendant.
Considering the foregoing, the Court finds and so holds that the
afore-narrated circumstances constitute "force majeure or fortuitous
event(s) as defined under paragraph 8 of the Agreement.
Although Globe alleged that it terminated the Agreement with Philcomsat
From the foregoing, the Court finds that the defendant is exempted
from paying the rentals for the facility for the remaining term of the
contract.
As a consequence of the termination of the RP-US Military Bases
Agreement (as amended) the continued stay of all US Military forces
and personnel from Subic Naval Base would no longer be allowed,
hence, plaintiff would no longer be in any position to render the
service it was obligated under the Agreement. To put it blantly (sic),
since the US military forces and personnel left or withdrew from Cubi
Point in the year end December 1992, there was no longer any
necessity for the plaintiff to continue maintaining the IBS
facility. 32 (Emphasis in the original.)
The aforementioned events made impossible the continuation of the
Agreement until the end of its five-year term without fault on the part of
either party. The Court of Appeals was thus correct in ruling that the
happening of such fortuitous events rendered Globe exempt from
payment of rentals for the remainder of the term of the Agreement.
Moreover, it would be unjust to require Globe to continue paying rentals
even though Philcomsat cannot be compelled to perform its corresponding
obligation under the Agreement. As noted by the appellate court:
We also point out the sheer inequity of PHILCOMSATs position.
PHILCOMSAT would like to charge GLOBE rentals for the balance
of the lease term without there being any corresponding
telecommunications service subject of the lease. It will be grossly
unfair and iniquitous to hold GLOBE liable for lease charges for a
service that was not and could not have been rendered due to an act
of the government which was clearly beyond GLOBEs control. The
binding effect of a contract on both parties is based on the principle
that the obligations arising from contracts have the force of law
between the contracting parties, and there must be mutuality
between them based essentially on their equality under which it is
repugnant to have one party bound by the contract while leaving the
other party free therefrom (Allied Banking Corporation v. Court of
Appeals, 284 SCRA 357).33
With respect to the issue of whether Globe is liable for payment of rentals
for the month of December 1992, the Court likewise affirms the appellate
courts ruling that Globe should pay the same.
effective 08 November 1992 pursuant to the formal order issued by Cdr.
Corliss of the US Navy, the date when they actually ceased using the
earth station subject of the Agreement was not established during the
trial.34 However, the trial court found that the US military forces and
personnel completely withdrew from Cubi Point only on 31 December
1992.35 Thus, until that date, the USDCA had control over the earth station
and had the option of using the same. Furthermore, Philcomsat could not
have removed or rendered ineffective said communication facility until
after 31 December 1992 because Cubi Point was accessible only to US
naval personnel up to that time. Hence, the Court of Appeals did not err
when it affirmed the trial courts ruling that Globe is liable for payment of
rentals until December 1992.
Neither did the appellate court commit any error in holding that Philcomsat
is not entitled to attorneys fees and exemplary damages.
The award of attorneys fees is the exception rather than the rule, and
must be supported by factual, legal and equitable justifications. 36 In
previously decided cases, the Court awarded attorneys fees where a
party acted in gross and evident bad faith in refusing to satisfy the other
partys claims and compelled the former to litigate to protect his
rights;37 when the action filed is clearly unfounded, 38 or where moral or
exemplary damages are awarded. 39 However, in cases where both parties
have legitimate claims against each other and no party actually prevailed,
such as in the present case where the claims of both parties were
sustained in part, an award of attorneys fees would not be warranted. 40
Exemplary damages may be awarded in cases involving contracts or
quasi-contracts, if the erring party acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.41 In the present case, it was not shown
that Globe acted wantonly or oppressively in not heeding Philcomsats
demands for payment of rentals. It was established during the trial of the
case before the trial court that Globe had valid grounds for refusing to
comply with its contractual obligations after 1992.
WHEREFORE, the Petitions are DENIED for lack of merit. The
assailed Decision of the Court of Appeals in CA-G.R. CV No. 63619 is
AFFIRMED.
SO ORDERED.
G.R. No. L-16109 October 2, 1922
M. D. TAYLOR, plaintiff-appellant, vs. UY TIENG PIAO and TAN LIUAN,
doing business under the firm name and style of Tan Liuan &
Company,defendants.
Uy TIENG PIAO, defendant-appellant.
STREET, J.:
This case comes by appeal from the Court of First Instance of the city of
Manila, in a case where the court awarded to the plaintiff the sum of P300,
as damages for breach of contract. The plaintiff appeals on the ground
that the amount of damages awarded is inadequate; while the defendant
Uy Tieng Piao appeals on the ground that he is not liable at all. The
judgment having been heretofore affirmed by us in a brief opinion, we now
avail ourselves of the occasion of the filing of a motion to rehear by the
attorneys for the plaintiff to modify the judgment in a slight measure and to
state more fully the reasons underlying our decision.
It appears that on December 12, 1918, the plaintiff contracted his services
to Tan Liuan and Co., as superintendent of an oil factory which the latter
contemplated establishing in this city. The period of the contract extended
over two years from the date mentioned; and the salary was to be at the
rate of P600 per month during the first year and P700 per month during
the second, with electric light and water for domestic consumption, and a
residence to live in, or in lieu thereof P60 per month.
At the time this agreement was made the machinery for the contemplated
factory had not been acquired, though ten expellers had been ordered
from the United States; and among the stipulations inserted in the contract
with the plaintiff was a provision to the following effect:
It is understood and agreed that should the machinery to be installed
in the said factory fail, for any reason, to arrive in the city of Manila
within a period of six months from date hereof, this contract may be
cancelled by the party of the second part at its option, such
cancellation, however, not to occur before the expiration of such six
months.
The machinery above referred to did not arrive in the city of Manila within
the six months succeeding the making of the contract; nor was other
equipment necessary for the establishment of the factory at any time
provided by the defendants. The reason for this does not appear with
certainty, but a preponderance of the evidence is to the effect that the
defendants, in the first months of 1919, seeing that the oil business no
longer promised large returns, either cancelled the order for the machinery
from choice or were unable to supply the capital necessary to finance the
project. At any rate on June 28, 1919, availing themselves in part of the
option given in the clause above quoted, the defendants communicated in
writing to the plaintiff the fact that they had decided to rescind the contract,
effective June 30th then current, upon which date he was discharged. The
plaintiff thereupon instituted this action to recover damages in the amount
of P13,000, covering salary and perquisites due and to become due under
the contract.
The case for the plaintiff proceeds on the idea that the stipulation above
quoted, giving to the defendants the right to cancel the contract upon the
contingency of the nonarrival of the machinery in Manila within six months,
must be understood as applicable only in those cases where such
nonarrival is due to causes not having their origin in the will or act of the
defendants, as delays caused by strikes or unfavorable conditions of
transporting by land or sea; and it is urged that the right to cancel cannot
be admitted unless the defendants affirmatively show that the failure of the
machinery to arrive was due to causes of that character, and that it did not
have its origin in their own act or volition. In this connection the plaintiff
relies on article 1256 of the Civil Code, which is to the effect that the
validity and fulfillment of contracts cannot be left to the will of one of the
contracting parties, and to article 1119, which says that a condition shall
be deemed fulfilled if the obligor intentially impedes its fulfillment.
It will be noted that the language conferring the right of cancellation upon
the defendants is broad enough to cover any case of the nonarrival of the
machinery, due to whatever cause; and the stress in the expression "for
any reason" should evidently fall upon the word "any." It must follow of
necessity that the defendants had the right to cancel the contract in the
contingency that occurred, unless some clear and sufficient reason can be
adduced for limiting the operation of the words conferring the right of
cancellation. Upon this point it is our opinion that the language used in the
stipulation should be given effect in its ordinary sense, without technicality
or circumvention; and in this sense it is believed that the parties to the
contract must have understood it.
Article 1256 of the Civil Code in our opinion creates no impediment to the
insertion in a contract for personal service of a resolutory condition
permitting the cancellation of the contract by one of the parties. Such a
stipulation, as can be readily seen, does not make either the validity or the
fulfillment of the contract dependent upon the will of the party to whom is
conceded the privilege of cancellation; for where the contracting parties
have agreed that such option shall exist, the exercise of the option is as
much in the fulfillment of the contract as any other act which may have
been the subject of agreement. Indeed, the cancellation of a contract in
accordance with conditions agreed upon beforehands is fulfillment.
In this connection, we note that the commentator Manresa has the
following observation with respect to article 1256 of the Civil Code. Says
he: "It is entirely licit to leave fulfillment to the will of either of the parties in
the negative form of rescission, a case frequent in certain contracts (the
letting of service for hire, the supplying of electrical energy, etc.), for in
such supposed case neither is the article infringed, nor is there any lack of
equality between the persons contracting, since they remain with the
same faculties in respect to fulfillment." (Manresa, 2d ed., vol. 8, p.
610.) 1awph!l.net
Undoubtedly one of the consequences of this stipulation was that the
employers were left in a position where they could dominate the
contingency, and the result was about the same as if they had been given
an unqualified option to dispense with the services of the plaintiff at the
end of six months. But this circumstance does not make the stipulation
illegal.
The case of Hall vs. Hardaker (61 Fla., 267) cited by the appellant Taylor,
though superficially somewhat analogous, is not precisely in point. In that
case one Hardaker had contracted to render competent and efficient
service as manager of a corporation, to which position it was understood
he was to be appointed. In the same contract it was stipulated that if "for
any reason" Hardaker should not be given that position, or if he should not
be permitted to act in that capacity for a stated period, certain things
would be done by Hall. Upon being installed in the position aforesaid,
Hardaker failed to render efficient service and was discharged. It was held
that Hall was released from the obligation to do the things that he had
agreed to perform. Some of the judges appear to have thought that the
case turned on the meaning of the phrase "for any reason," and the
familiar maxim was cited that no man shall take advantage of his own
wrong. The result of the case must have been the same from whatever
point of view, as there was an admitted failure on the part of Hardaker to
render competent service. In the present case there was no breach of
contract by the defendants; and the argument to the contrary apparently
suffers from the logical defect of assuming the very point at issue.
But it will be said that the question is not so much one concerning the
legality of the clause referred to as one concerning the interpretation of
the resolutory clause as written, the idea being that the court should
adjust its interpretation of said clause to the supposed precepts of article
1256, by restricting its operation exclusively to cases where the nonarrival
of the machinery may be due to extraneous causes not referable to the
will or act of the defendants. But even when the question is viewed in this
aspect their result is the same, because the argument for the restrictive
interpretation evidently proceeds on the assumption that the clause in
question is illegal in so far as it purports to concede to the defendants the
broad right to cancel the contract upon nonarrival of the machinery due
to any cause; and the debate returns again to the point whether in a
contract for the prestation of service it is lawful for the parties to insert a
provision giving to the employer the power to cancel the contract in a
contingency which may be dominated by himself. Upon this point what
has already been said must suffice.
As we view the case, there is nothing in article 1256 which makes it
necessary for us to warp the language used by the parties from its natural
meaning and thereby in legal effect to restrict the words "for any reason,"
as used in the contract, to mean "for any reason not having its origin in
the will or acts of the defendants." To impose this interpretation upon
those words would in our opinion constitute an unjustifiable invasion of the
power of the parties to establish the terms which they deem advisable, a
right which is expressed in article 1255 of the Civil Code and constitutes
one of the most fundamental conceptions of contract right enshrined in the
Code.
The view already expressed with regard to the legality and interpretation
of the clause under consideration disposes in a great measure of the
argument of the appellant in so far as the same is based on article 1119 of
the Civil Code. This provision supposes a case where the obligor
intentionally impedes the fulfillment of a condition which would entitle the
obligee to exact performance from the obligor; and an assumption
underlying the provision is that the obligor prevents the obligee from
performing some act which the obligee is entitled to perform as a condition
precedent to the exaction of what is due to him. Such an act must be
considered unwarranted and unlawful, involving per se a breach of the
implied terms of the contract. The article can have no application to an
external contingency which, like that involved in this case, is lawfully
within the control of the obligor.
In Spanish jurisprudence a condition like that here under discussion is
designated by Manresa a facultative condition (vol. 8, p. 611), and we
gather from his comment on articles 1115 and 1119 of the Civil Code that
a condition, facultative as to the debtor, is obnoxious to the first sentence
contained in article 1115 and renders the whole obligation void (vol. 8, p.
131). That statement is no doubt correct in the sense intended by the
learned author, but it must be remembered that he evidently has in mind
the suspensive condition, such as is contemplated in article 1115. Said
article can have no application to the resolutory condition, the validity of
which is recognized in article 1113 of the Civil Code. In other words, a
condition at once facultative and resolutory may be valid even though the
condition is made to depend upon the will of the obligor.
If it were apparent, or could be demonstrated, that the defendants were
under a positive obligation to cause the machinery to arrive in Manila, they
would of course be liable, in the absence of affirmative proof showing that
the nonarrival of the machinery was due to some cause not having its
origin in their own act or will. The contract, however, expresses no such
positive obligation, and its existence cannot be implied in the fact of
stipulation, defining the conditions under which the defendants can cancel
the contract.
Our conclusion is that the Court of First Instance committed no error in
rejecting the plaintiff's claim in so far as damages are sought for the
period subsequent to the expiration of the first six months, but in
assessing the damages due for the six-month period, the trial judge
evidently overlooked the item of P60, specified in the plaintiff's fourth
assignment of error, which represents commutation of house rent for the
month of June, 1919. This amount the plaintiff is clearly entitled to recover,
in addition to the P300 awarded in the court below.
We note that Uy Tieng Piao, who is sued as a partner with Tan Liuan,
appealed from the judgment holding him liable as a member of the firm of
Tan Liuan and Co.; and it is insisted in his behalf that he was not bound by
the act of Tan Liuan as manager of Tan Liuan and Co. in employing the
plaintiff. Upon this we will merely say that the conclusion stated by the trial
court in the next to the last paragraph of the decision with respect to the
liability of this appellant in our opinion in conformity with the law and facts.
The judgment appealed from will be modified by declaring that the
defendants shall pay to the plaintiff the sum of P360, instead of P300, as
allowed by the lower court, and as thus modified the judgment will be
affirmed with interest from November 4, 1919, as provided in section 510
of the Code of Civil Procedure, and with costs. So ordered.
G.R. No. 156273 October 15, 2003
HEIRS OF TIMOTEO MORENO and MARIA ROTEA, namely:
ESPERANZA R. EDJEC, BERNARDA R. SUELA, RUBY C. ROTEA,
BERNARDA R. ROTEA, ELIA R. VDA. DE LIMBAGA, VIRGINIA R.
ARBON, ROSALINDA R. ARQUISOLA, CORAZON ROTEA, FE R.
EBORA, CARIDAD ROTEA, ANGELES VDA. DE RENACIA, JORGE
ROTEA, MARIA LUISA ROTEA-VILLEGAS, ALFREDO R. ROTEA,
represented by his heirs LIZBETH ROTEA and ELEPETH ROTEA;
LUIS ROTEA, represented by his heir JENNIFER ROTEA; and
ROLANDO R. ROTEA, represented by his heir ROLANDO R. ROTEA
JR., petitioners, vs. MACTAN - CEBU INTERNATIONAL AIRPORT
AUTHORITY, respondent.
DECISION
BELLOSILLO, J.:
THE HEIRS OF TIMOTEO MORENO AND MARIA ROTEA, petitioners
herein, are the successors-in-interest of the former registered owners of
two (2) parcels of land situated in Lahug, Cebu City, designated as Lot No.
916 with an area of 2,355 square meters under TCT No. RT-7543 (106) T-
13694, and Lot No. 920 consisting of 3,097 square meters under TCT No.
RT-7544 (107) T-13695.1
In 1949 the National Airport Corporation as the predecessor agency of
respondent Mactan-Cebu International Airport Authority (MCIAA) wanted
to acquire Lots Nos. 916 and 920 above described among other parcels of
land for the proposed expansion of Lahug Airport. 2 To entice the
landowners to cede their properties, the government assured them that
they could repurchase their lands once Lahug Airport was closed or its
operations transferred to Mactan Airport. 3 Some of the landowners
executed deeds of sale with right of repurchase in favor of the government
but many others, including the owners of Lots Nos. 916 and 920 herein
mentioned, refused the offer because the payment was perceived to be
way below the market price.4
On 16 April 1952, as the negotiations for the purchase of the lots
necessary for the expansion and improvement of Lahug Airport
irredeemably broke down, the Civil Aeronautics Administration as the
successor agency of the National Airport Corporation filed a complaint
with the Court of First Instance of Cebu, for the expropriation of Lots Nos.
916 and 920 and other subject realties, docketed as Civil Case No. R-
1881.
On 29 December 1961 the trial court promulgated its Decision in Civil
Case No. R-1881 condemning Lots Nos. 916 and 920 and other lots for
public use upon payment of just compensation. 5 Petitioners predecessors
were paid P7,065.00 for Lot No. 916 and P9,291.00 for Lot No. 920 with
consequential damages by way of legal interest from 16 November 1947.
No appeal was taken from the Decision on Lots Nos. 916 and 920, and
the judgment of condemnation became final and executory. 6 Thereafter,
the certificates of title for these parcels of land were issued in the name of
the Republic of the Philippines under TCT No. 58691 for Lot No. 916 and
TCT No. 58692 for Lot No. 920, which under RA 6958 (1990) were
subsequently transferred in favor of respondent MCIAA. 7
At the end of 1991, or soon after the transfer of Lots Nos. 916 and 920 to
MCIAA, Lahug Airport ceased operations as the Mactan Airport was
opened for incoming and outgoing flights. 8 Lots Nos. 916 and 920 which
had been expropriated for the extension of Lahug Airport were not
utilized.9 In fact, no expansion of Lahug Airport was undertaken by MCIAA
and its predecessors-in-interest.10 Hence, petitioners wrote then President
Fidel V. Ramos and the airport manager begging them for the exercise of
their alleged right to repurchase Lots Nos. 916 and 920. 11 Their pleas
were not heeded.12
On 11 March 1997 petitioners filed a complaint for reconveyance and
damages with RTC of Cebu City against respondent MCIAA to compel the
repurchase of Lots Nos. 916 and 920, docketed as Civil Case No. CEB-
20015. In the main, petitioners averred that they had been convinced by
the officers of the predecessor agency of respondent MCIAA not to
oppose the expropriation proceedings since in the future they could
repurchase the properties if the airport expansion would not push through.
MCIAA did not object to petitioners evidence establishing these
allegations.
When the civil case was pending, one Richard E. Enchuan filed a Motion
for Transfer of Interest alleging that he acquired through deeds of
assignment the rights of some of herein petitioners over Lots Nos. 916
and 920.13 The Department of Public Works and Highways (DPWH) also
sought to intervene in the civil case claiming that it leased in good faith Lot
No. 920 from the predecessor agencies of respondent MCIAA and that it
built thereon its Regional Equipment Services and its Region 7 Office. 14
On 12 April 1999 the trial court found merit in the claims of petitioners and
granted them the right to repurchase the properties at the amount pegged
as just compensation in Civil Case No. R-1881 but subject to the alleged
property rights of Richard E. Enchuan and the leasehold of DPWH. 15 The
trial court opined that the expropriation became illegal or functus officio
when the purpose for which it was intended was no longer there. 16
Respondent MCIAA appealed the Decision of the trial court to the Court of
Appeals, docketed as CA-G.R. CV No. 64456.1vvphi1.nt
On 20 December 2001 the Court of Appeals reversed the assailed
Decision on the ground that the judgment of condemnation in Civil Case
No. R-1881 was unconditional so that the rights gained therefrom by
respondent MCIAA were indicative of ownership in fee simple. 17 The
appellate court cited Fery v. Municpality of Cabanatuan 18 which held that
mere deviation from the public purpose for which the power of eminent
domain was exercised does not justify the reversion of the property to its
former owners, and Mactan-Cebu International Airport Authority v. Court of
Appeals19 which is allegedly stare decisis to the instant case to prevent
the exercise of the right of repurchase as the former dealt with a parcel of
land similarly expropriated under Civil Case No. R-1881. 20
On 28 November 2002 reconsideration of the Decision was
denied. 21 Hence, this petition for review.
Petitioners argue that Fery v. Municpality of Cabanatuan does not apply to
the case at bar since what was involved therein was the "right of
reversion" and not the "right of repurchase" which they are invoking. They
also differentiate Mactan-Cebu International Airport Authority v. Court of
Appeals22 from the instant case in that the landowners in the MCIAA case
offered inadmissible evidence to show their entitlement to a right of
repurchase, while petitioners herein offered evidence based on personal
knowledge for which reason MCIAA did not object and thus waived
whatever objection it might have had to the admissibility thereof. Finally,
petitioners allege that their right to equal protection of the laws would be
infringed if some landowners are given the right to repurchase their former
properties even as they are denied the exercise of such prerogative.
On the other hand, respondent MCIAA clings to our decisions in Fery v.
Municpality of Cabanatuan and Mactan-Cebu International Airport
Authority v. Court of Appeals. According to respondent MCIAA "there is
only one instance when expropriated land may be repurchased by its
previous owners, and that is, if the decision of expropriation itself provides
[the] condition for such repurchase." Respondent asserts that the Decision
in Civil Case No. R-1881 is absolute and without conditions, thus, no
repurchase could be validly exercised.
This is a difficult case calling for a difficult but just solution. To begin with,
there exists an undeniable historical narrative that the predecessors of
respondent MCIAA had suggested to the landowners of the properties
covered by the Lahug Airport expansion scheme that they could
repurchase their properties at the termination of the airports
venture.23 Some acted on this assurance and sold their properties; 24 other
landowners held out and waited for the exercise of eminent domain to
take its course until finally coming to terms with respondents
predecessors that they would not appeal nor block further the judgment of
condemnation if the same right of repurchase was extended to them. 25 A
handful failed to prove that they acted on such assurance when they
parted with the ownership of their lands. 26
In resolving this dispute, we must reckon with the rulings of this Court in
Fery v. Municpality of Cabanatuan and Mactan-Cebu International Airport
Authority v. Court of Appeals, which define the rights and obligations of
landowners whose properties were expropriated when the public purpose
for which eminent domain was exercised no longer subsists. In Fery,
which was cited in the recent case of Reyes v. Court of Appeals, 27 we
declared that the government acquires only such rights in expropriated
parcels of land as may be allowed by the character of its title over the
properties
If x x x land is expropriated for a particular purpose, with the condition that
when that purpose is ended or abandoned the property shall return to its
former owner, then, of course, when the purpose is terminated or
abandoned the former owner reacquires the property so expropriated. If x
x x land is expropriated for a public street and the expropriation is granted
upon condition that the city can only use it for a public street, then, of
course, when the city abandons its use as a public street, it returns to the
former owner, unless there is some statutory provision to the contrary x x
x x If, upon the contrary, however, the decree of expropriation gives to the
entity a fee simple title, then, of course, the land becomes the absolute
property of the expropriator, whether it be the State, a province, or
municipality, and in that case the non-user does not have the effect of
defeating the title acquired by the expropriation proceedings x x x x When
land has been acquired for public use in fee simple, unconditionally, either
by the exercise of eminent domain or by purchase, the former owner
retains no rights in the land, and the public use may be abandoned, or the
land may be devoted to a different use, without any impairment of the
estate or title acquired, or any reversion to the former owner x x x x 28
In Mactan-Cebu International Airport Authority, respondent Chiongbian
sought to enforce an alleged right of repurchase over her properties that
had been expropriated in Civil Case No. R-1881. This Court did not allow
her to adduce evidence of her claim, for to do so would unsettle as to her
properties the judgment of condemnation in the eminent domain
proceedings. We also held therein that Chiongbians evidence was both
inadmissible and lacking in probative value
The terms of the judgment are clear and unequivocal and grant title to Lot
No. 941 in fee simple to the Republic of the Philippines. There was no
condition imposed to the effect that the lot would return to CHIONGBIAN
or that CHIONGBIAN had a right to repurchase the same if the purpose
for which it was expropriated is ended or abandoned or if the property was
to be used other than as the Lahug Airport. CHIONGBIAN cannot rely on
the ruling in Mactan-Cebu International Airport vs. Court of Appeals
wherein the presentation of parol evidence was allowed to prove the
existence of a written agreement containing the right to repurchase. Said
case did not involve expropriation proceedings but a contract of sale x x x
x To permit CHIONGBIAN to prove the existence of a compromise
settlement which she claims to have entered into with the Republic of the
Philippines prior to the rendition of judgment in the expropriation case
would result in a modification of the judgment of a court which has long
become final and executory x x x x And even assuming for the sake of
argument that CHIONGBIAN could prove the existence of the alleged
written agreement acknowledging her right to repurchase Lot No. 941
through parol evidence, the Court of Appeals erred in holding that the
evidence presented by CHIONGBIAN was admissible x x x x Aside from
being inadmissible under the provisions of the Statute of Frauds, [the]
testimonies are also inadmissible for being hearsay in nature x x x x 29
We adhere to the principles enunciated in Fery and in Mactan-Cebu
International Airport Authority, and do not overrule them. Nonetheless the
weight of their import, particularly our ruling as regards the properties of
respondent Chiongbian in Mactan-Cebu International Airport Authority,
must be commensurate to the facts that were established therein as
distinguished from those extant in the case at bar. Chiongbian put forth
inadmissible and inconclusive evidence, while in the instant case we have
preponderant proof as found by the trial court of the existence of the right
of repurchase in favor of petitioners.
Moreover, respondent MCIAA has brought to our attention a significant
and telling portion in the Decision in Civil Case No. R-1881 validating our
discernment that the expropriation by the predecessors of respondent was
ordered under the running impression that Lahug Airport would continue in
operation
As for the public purpose of the expropriation proceeding, it cannot now
be doubted. Although Mactan Airport is being constructed, it does not take
away the actual usefulness and importance of the Lahug Airport: it is
handling the air traffic both civilian and military. From it aircrafts fly to
Mindanao and Visayas and pass thru it on their flights to the North and
Manila. Then, no evidence was adduced to show how soon is the Mactan
Airport to be placed in operation and whether the Lahug Airport will be
closed immediately thereafter. It is up to the other departments of the
Government to determine said matters. The Court cannot substitute its
judgment for those of the said departments or agencies. In the absence of
such showing, the Court will presume that the Lahug Airport will continue
to be in operation (emphasis supplied). 301awphi1.nt
While the trial court in Civil Case No. R-1881 could have simply
acknowledged the presence of public purpose for the exercise of eminent
domain regardless of the survival of Lahug Airport, the trial court in its
Decision chose not to do so but instead prefixed its finding of public
purpose upon its understanding that "Lahug Airport will continue to be in
operation." Verily, these meaningful statements in the body of the Decision
warrant the conclusion that the expropriated properties would remain to be
so until it was confirmed that Lahug Airport was no longer "in operation."
This inference further implies two (2) things: (a) after the Lahug Airport
ceased its undertaking as such and the expropriated lots were not being
used for any airport expansion project, the rights vis--vis the expropriated
Lots Nos. 916 and 920 as between the State and their former owners,
petitioners herein, must be equitably adjusted; and, (b) the foregoing
unmistakable declarations in the body of the Decision should merge with
and become an intrinsic part of the fallo thereof which under the premises
is clearly inadequate since the dispositive portion is not in accord with the
findings as contained in the body thereof. 31
Significantly, in light of the discussion above, the admission of petitioners
during the pre-trial of Civil Case No. CEB-20015 for reconveyance and
damages that respondent MCIAA was the absolute owner of Lots Nos.
916 and 920 does not prejudice petitioners interests. This is as it should
be not only because the admission concerns a legal conclusion fiercely
debated by the parties 32 but more so since respondent was truly the
absolute owner of the realties until it was apparent that Lahug Airport had
stopped doing business.
To sum up what we have said so far, the attendance in the case at bar of
standing admissible evidence validating the claim of petitioners as well as
the portions above-quoted of the Decision in the expropriation case
volunteered no less than by respondent itself, takes this case away from
the ambit of Mactan-Cebu International Airport Authority v. Court of
Appeals33 but within the principles enunciated in Fery as mentioned
earlier. In addition, there should be no doubt that our present reading of
the fallo of the Decision in Civil Case No. R-1881 so as to include the
statements in the body thereof afore-quoted is sanctioned by the rule that
a final and executory judgment may nonetheless be "clarified" by
reference to other portions of the decision of which it forms a part. In
Republic v. De Los Angeles34 we ruled
This Court has promulgated many cases x x x wherein it was held that a
judgment must not be read separately but in connection with the other
portions of the decision of which it forms a part. Hence x x x the decision
of the court below should be taken as a whole and considered in its
entirety to get the true meaning and intent of any particular portion thereof
x x x x Neither is this Court inclined to confine itself to a reading of the
said fallo literally. On the contrary, the judgment portion of a decision
should be interpreted and construed in harmony with the ratio decidendi
thereof x x x x As stated in the case of Policarpio vs. Philippine Veterans
Board, et al., supra, to get the true intent and meaning of a decision, no
specific portion thereof should be resorted to but the same must be
considered in its entirety. Hence, a resolution or ruling may and does
appear in other parts of the decision and not merely in the fallo thereof x x
x x The foregoing pronouncements find support in the case of Locsin, et
al. vs. Paredes, et al., 63 Phil., 87, 91-92, wherein this Court allowed a
judgment that had become final and executory to be "clarified" by
supplying a word which had been inadvertently omitted and which, when
supplied, in effect changed the literal import of the original phraseology x x
x x This is so because, in the first place, if an already final judgment can
still be amended to supply an omission committed through oversight, this
simply means that in the construction or interpretation of an already final
decision, the fallo or dispositive portion thereof must be correlated with the
body of such final decision x x x x [I]f an amendment may be allowed after
a decision has already become final x x x such amendment may consist x
x x either in the x x x interpretation of an ambiguous phrase therein in
relation to the body of the decision which gives it life. 35
We now resolve to harmonize the respective rights of the State and
petitioners to the expropriated Lots Nos. 916 and 920.
Mactan-Cebu International Airport Authority 36 is correct in stating that one
would not find an express statement in the Decision in Civil Case No. R-
1881 to the effect that "the [condemned] lot would return to [the
landowner] or that [the landowner] had a right to repurchase the same if
the purpose for which it was expropriated is ended or abandoned or if the
property was to be used other than as the Lahug Airport. " This omission
notwithstanding, and while the inclusion of this pronouncement in the
judgment of condemnation would have been ideal, such precision is not
absolutely necessary nor is it fatal to the cause of petitioners herein. No
doubt, the return or repurchase of the condemned properties of petitioners
could be readily justified as the manifest legal effect or consequence of
the trial courts underlying presumption that "Lahug Airport will continue to
be in operation" when it granted the complaint for eminent domain and the
airport discontinued its activities.
The predicament of petitioners involves a constructive trust, one that is
akin37 to the implied trust referred to in Art. 1454 of the Civil Code, "If an
absolute conveyance of property is made in order to secure the
performance of an obligation of the grantor toward the grantee, a trust by
virtue of law is established. If the fulfillment of the obligation is offered by
the grantor when it becomes due, he may demand the reconveyance of
the property to him." In the case at bar, petitioners conveyed Lots Nos.
916 and 920 to the government with the latter obliging itself to use the
realties for the expansion of Lahug Airport; failing to keep its bargain, the
government can be compelled by petitioners to reconvey the parcels of
land to them, otherwise, petitioners would be denied the use of their
properties upon a state of affairs that was not conceived nor contemplated
when the expropriation was authorized.
Although the symmetry between the instant case and the situation
contemplated by Art. 1454 is not perfect, the provision is undoubtedly
applicable. For, as explained by an expert on the law of trusts: "The only
problem of great importance in the field of constructive trusts is to decide
whether in the numerous and varying fact situations presented to the
courts there is a wrongful holding of property and hence a threatened
unjust enrichment of the defendant." 38 Constructive trusts are fictions of
equity which are bound by no unyielding formula when they are used by
courts as devices to remedy any situation in which the holder of the legal
title may not in good conscience retain the beneficial interest. 39
In constructive trusts, the arrangement is temporary and passive in which
the trustees sole duty is to transfer the title and possession over the
property to the plaintiff-beneficiary. 40 Of course, the "wronged party
seeking the aid of a court of equity in establishing a constructive trust
must himself do equity."41 Accordingly, the court will exercise its discretion
in deciding what acts are required of the plaintiff-beneficiary as conditions
precedent to obtaining such decree and has the obligation to reimburse
the trustee the consideration received from the latter just as the plaintiff-
beneficiary would if he proceeded on the theory of rescission. 42 In the
good judgment of the court, the trustee may also be paid the necessary
expenses he may have incurred in sustaining the property, his fixed costs
for improvements thereon, and the monetary value of his services in
managing the property to the extent that plaintiff-beneficiary will secure a
benefit from his acts.43
The rights and obligations between the constructive trustee and the
beneficiary, in this case, respondent MCIAA and petitioners over Lots Nos.
916 and 920, are echoed in Art. 1190 of the Civil Code, "When the
conditions have for their purpose the extinguishment of an obligation to
give, the parties, upon the fulfillment of said conditions, shall return to
each other what they have received x x x x In case of the loss,
deterioration or improvement of the thing, the provisions which, with
respect to the debtor, are laid down in the preceding article shall be
applied to the party who is bound to return x x x x"
Hence, respondent MCIAA as representative of the State is obliged to
reconvey Lots Nos. 916 and 920 to petitioners who shall hold the same
subject to existing liens thereon, i.e., leasehold right of DPWH. In return,
petitioners as if they were plaintiff-beneficiaries of a constructive trust
must restore to respondent MCIAA what they received as just
compensation for the expropriation of Lots Nos. 916 and 920 in Civil Case
No. R-1881, i.e., P7,065.00 for Lot No. 916 and P9,291.00 for Lot No. 920
with consequential damages by way of legal interest from 16 November
1947. Petitioners must likewise pay respondent MCIAA the necessary
expenses it may have incurred in sustaining the properties and the
monetary value of its services in managing them to the extent that
petitioners will be benefited thereby. The government however may keep
whatever income or fruits it may have obtained from the parcels of land, in
the same way that petitioners need not account for the interests that the
amounts they received as just compensation may have earned in the
meantime. As a matter of justice and convenience, the law considers the
fruits and interests as the equivalent of each other. 44
Under Art. 1189 of the Civil Code, "If the thing is improved by its nature, or
by time, the improvement shall inure to the benefit of the creditor x x x,"
the creditor being the person who stands to receive something as a result
of the process of restitution. Consequently, petitioners as creditors do not
have to settle as part of the process of restitution the appreciation in value
of Lots Nos. 916 and 920 which is the natural consequence of nature and
time.
Petitioners need not also pay for improvements introduced by third
parties, i.e., DPWH, as the disposition of these properties is governed by
existing contracts and relevant provisions of law. As for the improvements
that respondent MCIAA may have made on Lots Nos. 916 and 920, if any,
petitioners must pay respondent their prevailing free market price in case
petitioners opt to buy them and respondent decides to sell. In other words,
if petitioners do not want to appropriate such improvements or respondent
does not choose to sell them, the improvements would have to be
removed without any obligation on the part of petitioners to pay any
compensation to respondent MCIAA for whatever it may have tangibly
introduced therein.45
The medium of compensation for the restitution shall be ready money or
cash payable within a period of three hundred sixty five (365) days from
the date that the amount to be returned by petitioners is determined with
finality, unless the parties herein stipulate and agree upon a different
scheme, medium or schedule of payment. If after the period of three
hundred sixty five (365) days or the lapse of the compromise scheme or
schedule of payment such amount owed is not settled, the right of
repurchase of petitioners and the obligation of respondent MCIAA to
reconvey Lots Nos. 916 and 920 and/or the latters improvements as set
forth herein shall be deemed forfeited and the ownership of those parcels
of land shall vest absolutely upon respondent MCIAA.
Finally, we delete the award of P60,000.00 for attorneys fees
and P15,000.00 for litigation expenses in favor of petitioners as decreed in
the assailed Decision of 12 April 1999 of the trial court. It is not sound
public policy to set a premium upon the right to litigate where such right is
exercised in good faith, as in the present case, albeit the decision to resist
the claim is erroneous.46
The rule on awards of attorneys fees and litigation expenses is found in
Art. 2208 of the Civil Code
In the absence of stipulation, attorney's fees and expenses of litigation,
other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff
to litigate with third persons or to incur expenses to protect his
interests;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against
the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in
refusing to satisfy the plaintiff's valid and demandable
claim;1awphi1.nt
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers,
laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation and
employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a
crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable
that attorney's fees and expenses of litigation should be recovered.
In all cases, the attorney's fees and expenses of litigation must be
reasonable.
As noted in Mirasol v. De la Cruz, 47 Art. 2208 intends to retain the award
of attorneys fees as the exception in our law and the general rule remains
that attorneys fees are not recoverable in the absence of a stipulation
thereto.
In the case at bar, considering the established absence of any stipulation
regarding attorneys fees, the trial court cannot base its award on any of
the exceptions enumerated in Art. 2208. The records of the instant case
do not disclose any proof presented by petitioners to substantiate that the
actuations of respondent MCIAA were clearly unfounded or purely for the
purpose of harassment; neither does the trial court make any finding to
that effect in its appealed Decision.
While Art. 2208, par. (4), allows attorneys fees in cases of clearly
unfounded civil actions, this exception must be understood to mean those
where the defenses are so untenable as to amount to gross and evident
bad faith. Evidence must be presented to the court as to the facts and
circumstances constituting the alleged bad faith, otherwise, the award of
attorneys fees is not justified where there is no proof other than the bare
statement of harassment that a party to be so adjudged had acted in bad
faith. The exercise of judicial discretion in the award of attorneys fees
under Art. 2208, par. (11), demands a factual, legal or equitable
justification that would bring the case within the exception and justify the
grant of such award.
WHEREFORE, the instant Petition for Review is GRANTED. The Decision
of the Court of Appeals in CA-G.R. CV No. 64456 dated 20 December
2001 and its Resolution of 28 November 2002 denying reconsideration of
the Decision are REVERSED and SET ASIDE.
The Decision of RTC-Br. 19 of Cebu City dated 12 April 1999 in Civil Case
No. CEB-20015 is MODIFIED IN PART by
(a) ORDERING respondent Mactan-Cebu International Airport
Authority (MCIAA) TO RECONVEY to petitioner Heirs of Timoteo
Moreno and Maria Rotea, namely: Esperanza R. Edjec, Bernarda R.
Suela, Ruby C. Rotea, Bernarda R. Rotea, Elia R. Vda De Limbaga,
Virginia R. Arbon, Rosalinda R. Arquisola, Corazon Rotea, Fe R.
Ebora, Caridad Rotea, Angeles Vda. De Renacia, Jorge Rotea,
Maria Luisa Rotea-Villegas, Alfredo R. Rotea, represented by his
heirs, namely: Lizbeth Rotea and Elepeth Rotea; Luis Rotea,
represented by his heir Jennifer Rotea; and Rolando R. Rotea,
represented by his heir Rolando R. Rotea Jr., Lot No. 916 with an
area of 2,355 square meters and Lot No. 920 consisting of 3,097
square meters in Lahug, Cebu City, with all the improvements
thereon evolving through nature or time, but excluding those that
were introduced by third parties, i.e., DPWH, which shall be
governed by existing contracts and relevant provisions of law;
(b) ORDERING petitioner Heirs of Timoteo Moreno and Maria Rotea
TO PAY respondent MCIAA what the former received as just
compensation for the expropriation of Lots Nos. 916 and 920 in Civil
Case No. R-1881, i.e., P7,065.00 for Lot No. 916 and P9,291.00 for
Lot No. 920 with consequential damages by way of legal interest
from 16 November 1947. Petitioners must likewise PAY respondent
MCIAA the necessary expenses that the latter may have incurred in
sustaining the properties and the monetary value of its services in
managing the properties to the extent that petitioners will secure a
benefit from such acts. Respondent MCIAA however may keep
whatever income or fruits it may have obtained from the parcels of
land, in the same way that petitioners need not account for the
interests that the amounts they received as just compensation may
have earned in the meantime;
(c) ORDERING respondent MCIAA TO CONVEY to petitioners the
improvements it may have built on Lots Nos. 916 and 920, if any, in
which case petitioners SHALL PAY for these improvements at the
prevailing free market price, otherwise, if petitioners do not want to
appropriate such improvements, or if respondent does not choose to
sell them, respondent MCIAA SHALL REMOVE these improvements
WITHOUT ANY OBLIGATION on the part of petitioners to pay any
compensation to respondent MCIAA for them
(d) ORDERING petitioners TO PAY the amount so determined under
letter (b) of this dispositive portion as consideration for the
reconveyance of Lots Nos. 916 and 920, as well as the prevailing
free market price of the improvements built thereon by respondent
MCIAA, if any and desired to be bought and sold by the parties, in
ready money or cash PAYABLE within a period of three hundred
sixty five (365) days from the date that the amount under letter (b)
above is determined with finality, unless the parties herein stipulate a
different scheme or schedule of payment, otherwise, after the period
of three hundred sixty five (365) days or the lapse of the
compromise scheme or schedule of payment and the amount so
payable is not settled, the right of repurchase of petitioners and the
obligation of respondent MCIAA to so reconvey Lots Nos. 916 and
920 and/or the improvements shall be DEEMED FORFEITED and
the ownership of those parcels of land shall VEST ABSOLUTELY
upon respondent MCIAA;
(e) REMANDING the instant case to RTC-Br. 19 of Cebu City for
purposes of determining the amount of compensation for Lots Nos.
916 and 920 to be paid by petitioners as mandated in letter (b)
hereof, and the value of the prevailing free market price of the
improvements built thereon by respondent MCIAA, if any and
desired to be bought and sold by the parties, and in general,
securing the immediate execution of this Decision under the
premises;
(f) ORDERING petitioners to respect the right of the Department of
Public Works and Highways to its lease contract until the expiration
of the lease period; and
(g) DELETING the award of P60,000.00 for attorneys fees
and P15,000.00 for litigation expenses against respondent MCIAA
and in favor of petitioners.
This Decision is without prejudice to the claim of intervenor one Richard E.
Enchuan on his allegation that he acquired through deeds of assignment
the rights of some of herein petitioners over Lots Nos. 916 and 920.
No costs.
SO ORDERED.
DEIPARINE VS CA 221 SCRA 503
G.R. No. 112127 July 17, 1995
CENTRAL PHILIPPINE UNIVERSITY, petitioner, vs. COURT OF
APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ, CECILIA P.
VDA. DE LOPEZ, REDAN LOPEZ AND REMARENE
LOPEZ, respondents.
BELLOSILLO, J.:
CENTRAL PHILIPPINE UNIVERSITY filed this petition for review
on certiorari of the decision of the Court of Appeals which reversed that of
the Regional Trial Court of Iloilo City directing petitioner to reconvey to
private respondents the property donated to it by their predecessor-in-
interest.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a
member of the Board of Trustees of the Central Philippine College (now
Central Philippine University [CPU]), executed a deed of donation in favor
of the latter of a parcel of land identified as Lot No. 3174-B-1 of the
subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for which
Transfer Certificate of Title No. T-3910-A was issued in the name of the
donee CPU with the following annotations copied from the deed of
donation
1. The land described shall be utilized by the CPU exclusively for the
establishment and use of a medical college with all its buildings as
part of the curriculum;
2. The said college shall not sell, transfer or convey to any third
party nor in any way encumber said land;
3. The said land shall be called "RAMON LOPEZ CAMPUS", and the
said college shall be under obligation to erect a cornerstone bearing
that name. Any net income from the land or any of its parks shall be
put in a fund to be known as the "RAMON LOPEZ CAMPUS FUND"
to be used for improvements of said campus and erection of a
building thereon. 1
On 31 May 1989, private respondents, who are the heirs of Don Ramon
Lopez, Sr., filed an action for annulment of donation, reconveyance and
damages against CPU alleging that since 1939 up to the time the action
was filed the latter had not complied with the conditions of the donation.
Private respondents also argued that petitioner had in fact negotiated with
the National Housing Authority (NHA) to exchange the donated property
with another land owned by the latter.
In its answer petitioner alleged that the right of private respondents to file
the action had prescribed; that it did not violate any of the conditions in the
deed of donation because it never used the donated property for any
other purpose than that for which it was intended; and, that it did not sell,
transfer or convey it to any third party.
On 31 May 1991, the trial court held that petitioner failed to comply with
the conditions of the donation and declared it null and void. The court a
quo further directed petitioner to execute a deed of the reconveyance of
the property in favor of the heirs of the donor, namely, private respondents
herein.
Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled
that the annotations at the back of petitioner's certificate of title were
resolutory conditions breach of which should terminate the rights of the
donee thus making the donation revocable.
The appellate court also found that while the first condition mandated
petitioner to utilize the donated property for the establishment of a medical
school, the donor did not fix a period within which the condition must be
fulfilled, hence, until a period was fixed for the fulfillment of the condition,
petitioner could not be considered as having failed to comply with its part
of the bargain. Thus, the appellate court rendered its decision reversing
the appealed decision and remanding the case to the court of origin for
the determination of the time within which petitioner should comply with
the first condition annotated in the certificate of title.
Petitioner now alleges that the Court of Appeals erred: (a) in holding that
the quoted annotations in the certificate of title of petitioner are onerous
obligations and resolutory conditions of the donation which must be
fulfilled non-compliance of which would render the donation revocable; (b)
in holding that the issue of prescription does not deserve "disquisition;"
and, (c) in remanding the case to the trial court for the fixing of the period
within which petitioner would establish a medical college. 2
We find it difficult to sustain the petition. A clear perusal of the conditions
set forth in the deed of donation executed by Don Ramon Lopez, Sr.,
gives us no alternative but to conclude that his donation was onerous, one
executed for a valuable consideration which is considered the equivalent
of the donation itself, e.g., when a donation imposes a burden equivalent
to the value of the donation. A gift of land to the City of Manila requiring
the latter to erect schools, construct a children's playground and open
streets on the land was considered an onerous donation. 3 Similarly, where
Don Ramon Lopez donated the subject parcel of land to petitioner but
imposed an obligation upon the latter to establish a medical college
thereon, the donation must be for an onerous consideration.
Under Art. 1181 of the Civil Code, on conditional obligations, the
acquisition of rights, as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event which constitutes
the condition. Thus, when a person donates land to another on the
condition that the latter would build upon the land a school, the condition
imposed was not a condition precedent or a suspensive condition but a
resolutory one. 4 It is not correct to say that the schoolhouse had to be
constructed before the donation became effective, that is, before the
donee could become the owner of the land, otherwise, it would be
invading the property rights of the donor. The donation had to be valid
before the fulfillment of the condition. 5 If there was no fulfillment or
compliance with the condition, such as what obtains in the instant case,
the donation may now be revoked and all rights which the donee may
have acquired under it shall be deemed lost and extinguished.
The claim of petitioner that prescription bars the instant action of private
respondents is unavailing.
The condition imposed by the donor, i.e., the building of a medical
school upon the land donated, depended upon the exclusive will of
the donee as to when this condition shall be fulfilled. When petitioner
accepted the donation, it bound itself to comply with the condition
 thereof. Since the time within which the condition should be fulfilled
depended upon the exclusive will of the petitioner, it has been held
that its absolute acceptance and the acknowledgment of its
obligation provided in the deed of donation were sufficient to prevent
the statute of limitations from barring the action of private
respondents upon the original contract which was the deed of
donation. 6
Moreover, the time from which the cause of action accrued for the
revocation of the donation and recovery of the property donated cannot be
specifically determined in the instant case. A cause of action arises when
that which should have been done is not done, or that which should not
have been done is done. 7 In cases where there is no special provision for
such computation, recourse must be had to the rule that the period must
be counted from the day on which the corresponding action could have
been instituted. It is the legal possibility of bringing the action which
determines the starting point for the computation of the period. In this
case, the starting point begins with the expiration of a reasonable period
and opportunity for petitioner to fulfill what has been charged upon it by
the donor.
The period of time for the establishment of a medical college and the
necessary buildings and improvements on the property cannot be
quantified in a specific number of years because of the presence of
several factors and circumstances involved in the erection of an
educational institution, such as government laws and regulations
pertaining to education, building requirements and property restrictions
which are beyond the control of the donee.
Thus, when the obligation does not fix a period but from its nature and
circumstances it can be inferred that a period was intended, the general
rule provided in Art. 1197 of the Civil Code applies, which provides that the
courts may fix the duration thereof because the fulfillment of the obligation
itself cannot be demanded until after the court has fixed the period for
compliance therewith and such period has arrived. 8
This general rule however cannot be applied considering the different set
of circumstances existing in the instant case. More than a reasonable
period of fifty (50) years has already been allowed petitioner to avail of the
opportunity to comply with the condition even if it be burdensome, to make
the donation in its favor forever valid. But, unfortunately, it failed to do so.
Hence, there is no more need to fix the duration of a term of the obligation
when such procedure would be a mere technicality and formality and
would serve no purpose than to delay or lead to an unnecessary and
expensive multiplication of suits. 9 Moreover, under Art. 1191 of the Civil
Code, when one of the obligors cannot comply with what is incumbent
upon him, the obligee may seek rescission and the court shall decree the
same unless there is just cause authorizing the fixing of a period. In the
absence of any just cause for the court to determine the period of the
compliance, there is no more obstacle for the court to decree the
rescission claimed.
Finally, since the questioned deed of donation herein is basically a
gratuitous one, doubts referring to incidental circumstances of a gratuitous
contract should be resolved in favor of the least transmission of rights and
interests. 10 Records are clear and facts are undisputed that since the
execution of the deed of donation up to the time of filing of the instant
action, petitioner has failed to comply with its obligation as donee.
Petitioner has slept on its obligation for an unreasonable length of time.
Hence, it is only just and equitable now to declare the subject donation
already ineffective and, for all purposes, revoked so that petitioner as
donee should now return the donated property to the heirs of the donor,
private respondents herein, by means of reconveyance.
WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of
31 May 1991 is REINSTATED and AFFIRMED, and the decision of the
Court of Appeals of 18 June 1993 is accordingly MODIFIED.
Consequently, petitioner is directed to reconvey to private respondents Lot
No. 3174-B-1 of the subdivision plan Psd-1144 covered by Transfer
Certificate of Title No. T-3910-A within thirty (30) days from the finality of
this judgment.
Costs against petitioner.
SO ORDERED.
G.R. No. 96405 June 26, 1996
BALDOMERO INCIONG, JR., petitioner, vs. COURT OF APPEALS and
PHILIPPINE BANK OF COMMUNICATIONS, respondents.
ROMERO, J.:p
This is a petition for review on certiorari of the decision of the Court of
Appeals affirming that of the Regional Trial Court of Misamis Oriental,
Branch 18, 1 which disposed of Civil Case No. 10507 for collection of a
sum of money and damages, as follows:
WHEREFORE, defendant BALDOMERO L. INCIONG, JR. is
adjudged solidarily liable and ordered to pay to the plaintiff Philippine
Bank of Communications, Cagayan de Oro City, the amount of
FIFTY THOUSAND PESOS (P50,000.00), with interest thereon from
May 5, 1983 at 16% per annum until fully paid; and 6% per
annum on the total amount due, as liquidated damages or penalty
from May 5, 1983 until fully paid; plus 10% of the total amount due
for expenses of litigation and attorney's fees; and to pay the costs.
The counterclaim, as well as the cross claim, are dismissed for lack
of merit.
SO ORDERED.
Petitioner's liability resulted from the promissory note in the amount of
P50,000.00 which he signed with Rene C. Naybe and Gregorio D.
Pantanosas on February 3, 1983, holding themselves jointly and severally
liable to private respondent Philippine Bank of Communications, Cagayan
de Oro City branch. The promissory note was due on May 5, 1983.
Said due date expired without the promissors having paid their obligation.
Consequently, on November 14, 1983 and on June 8, 1984, private
respondent sent petitioner telegrams demanding payment thereof. 2 On
December 11, 1984 private respondent also sent by registered mail a final
letter of demand to Rene C. Naybe. Since both obligors did not respond to
the demands made, private respondent filed on January 24, 1986 a
complaint for collection of the sum of P50,000.00 against the three
obligors.
On November 25, 1986, the complaint was dismissed for failure of the
plaintiff to prosecute the case. However, on January 9, 1987, the lower
court reconsidered the dismissal order and required the sheriff to serve
the summonses. On January 27, 1987, the lower court dismissed the case
against defendant Pantanosas as prayed for by the private respondent
herein. Meanwhile, only the summons addressed to petitioner was served
as the sheriff learned that defendant Naybe had gone to Saudi Arabia.
In his answer, petitioner alleged that sometime in January 1983, he was
approached by his friend, Rudy Campos, who told him that he was a
partner of Pio Tio, the branch manager of private respondent in Cagayan
de Oro City, in the falcata logs operation business. Campos also intimated
to him that Rene C. Naybe was interested in the business and would
contribute a chainsaw to the venture. He added that, although Naybe had
no money to buy the equipment, Pio Tio had assured Naybe of the
approval of a loan he would make with private respondent. Campos then
persuaded petitioner to act as a "co-maker" in the said loan. Petitioner
allegedly acceded but with the understanding that he would only be a co-
maker for the loan of P50,000.00.
Petitioner alleged further that five (5) copies of a blank promissory note
were brought to him by Campos at his office. He affixed his signature
thereto but in one copy, he indicated that he bound himself only for the
amount of P5,000.00. Thus, it was by trickery, fraud and
misrepresentation that he was made liable for the amount of P50,000.00.
In the aforementioned decision of the lower court, it noted that the
typewritten figure "-- 50,000 --" clearly appears directly below the admitted
signature of the petitioner in the promissory note. 3 Hence, the latter's
uncorroborated testimony on his limited liability cannot prevail over the
presumed regularity and fairness of the transaction, under Sec. 5 (q) of
Rule 131. The lower court added that it was "rather odd" for petitioner to
have indicated in a copy and not in the original, of the promissory note, his
supposed obligation in the amount of P5,000.00 only. Finally, the lower
court held that, even granting that said limited amount had actually been
agreed upon, the same would have been merely collateral between him
and Naybe and, therefore, not binding upon the private respondent as
creditor-bank.
The lower court also noted that petitioner was a holder of a Bachelor of
Laws degree and a labor consultant who was supposed to take due care
of his concerns, and that, on the witness stand, Pio Tio denied having
participated in the alleged business venture although he knew for a fact
that the falcata logs operation was encouraged by the bank for its export
potential.
Petitioner appealed the said decision to the Court of Appeals which, in its
decision of August 31, 1990, affirmed that of the lower court. His motion
for reconsideration of the said decision having been denied, he filed the
instant petition for review on certiorari.
On February 6, 1991, the Court denied the petition for failure of petitioner
to comply with the Rules of Court and paragraph 2 of Circular
No. 1-88, and to sufficiently show that respondent court had committed
any reversible error in its questioned decision. 4 His motion for the
reconsideration of the denial of his petition was likewise denied with
finality in the Resolution of April 24, 1991. 5 Thereafter, petitioner filed a
motion for leave to file a second motion for reconsideration which, in the
Resolution of May 27, 1991, the Court denied. In the same Resolution, the
Court ordered the entry of judgment in this case. 6
Unfazed, petitioner filed a notion for leave to file a motion for clarification.
In the latter motion, he asserted that he had attached Registry Receipt
No. 3268 to page 14 of the petition in compliance with Circular No. 1-88.
Thus, on August 7, 1991, the Court granted his prayer that his petition be
given due course and reinstated the same. 7
Nonetheless, we find the petition unmeritorious.
Annexed to the petition is a copy of an affidavit executed on May 3, 1988,
or after the rendition of the decision of the lower court, by Gregorio
Pantanosas, Jr., an MTCC judge and petitioner's co-maker in the
promissory note. It supports petitioner's allegation that they were induced
to sign the promissory note on the belief that it was only for P5,000.00,
adding that it was Campos who caused the amount of the loan to be
increased to P50,000.00.
The affidavit is clearly intended to buttress petitioner's contention in the
instant petition that the Court of Appeals should have declared the
promissory note null and void on the following grounds: (a) the promissory
note was signed in the office of Judge Pantanosas, outside the premises
of the bank; (b) the loan was incurred for the purpose of buying a second-
hand chainsaw which cost only P5,000.00; (c) even a new chainsaw
would cost only P27,500.00; (d) the loan was not approved by the board
or credit committee which was the practice, as it exceeded P5,000.00; (e)
the loan had no collateral; (f) petitioner and Judge Pantanosas were not
present at the time the loan was released in contravention of the bank
practice, and (g) notices of default are sent simultaneously and separately
but no notice was validly sent to him. 8 Finally, petitioner contends that in
signing the promissory note, his consent was vitiated by fraud as, contrary
to their agreement that the loan was only for the amount of P5,000.00, the
promissory note stated the amount of P50,000.00.
The above-stated points are clearly factual. Petitioner is to be reminded of
the basic rule that this Court is not a trier of facts. Having lost the chance
to fully ventilate his factual claims below, petitioner may no longer be
accorded the same opportunity in the absence of grave abuse of
discretion on the part of the court below. Had he presented Judge
Pantanosas affidavit before the lower court, it would have strengthened
his claim that the promissory note did not reflect the correct amount of the
loan.
Nor is there merit in petitioner's assertion that since the promissory note
"is not a public deed with the formalities prescribed by law but . . . a mere
commercial paper which does not bear the signature of . . . attesting
witnesses," parol evidence may "overcome" the contents of the
promissory note. 9 The first paragraph of the parol evidence rule 10 states:
When the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon and there can
be, between the parties and their successors in interest, no evidence
of such terms other than the contents of the written agreement.
Clearly, the rule does not specify that the written agreement be a
public document.
What is required is that the agreement be in writing as the rule is in fact
founded on "long experience that written evidence is so much more
certain and accurate than that which rests in fleeting memory only, that it
would be unsafe, when parties have expressed the terms of their contract
in writing, to admit weaker evidence to control and vary the stronger and
to show that the parties intended a different contract from that expressed
in the writing signed by them." 11 Thus, for the parol evidence rule to apply,
a written contract need not be in any particular form, or be signed by both
parties. 12 As a general rule, bills, notes and other instruments of a similar
nature are not subject to be varied or contradicted by parol or extrinsic
evidence. 13
By alleging fraud in his answer, 14 petitioner was actually in the right
direction towards proving that he and his co-makers agreed to a loan of
P5,000.00 only considering that, where a parol contemporaneous
agreement was the inducing and moving cause of the written contract, it
may be shown by parol evidence. 15 However, fraud must be established
by clear and convincing evidence, mere preponderance of evidence, not
even being adequate. 16 Petitioner's attempt to prove fraud must,
therefore, fail as it was evidenced only by his own uncorroborated and,
expectedly, self-serving testimony.
Petitioner also argues that the dismissal of the complaint against Naybe,
the principal debtor, and against Pantanosas, his co-maker, constituted a
release of his obligation, especially because the dismissal of the case
against Pantanosas was upon the motion of private respondent itself. He
cites as basis for his argument, Article 2080 of the Civil Code which
provides that:
The guarantors, even though they be solidary, are released from
their obligation whenever by some act of the creditor, they cannot be
subrogated to the rights, mortgages, and preferences of the latter.
It is to be noted, however, that petitioner signed the promissory note as a
solidary co-maker and not as a guarantor. This is patent even from the
first sentence of the promissory note which states as follows:
Ninety one (91) days after date, for value received, I/we, JOINTLY
and SEVERALLY promise to pay to the PHILIPPINE BANK OF
COMMUNICATIONS at its office in the City of Cagayan de Oro,
Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00)
Pesos, Philippine Currency, together with interest . . . at the rate of
SIXTEEN (16) per cent per annum until fully paid.
A solidary or joint and several obligation is one in which each debtor is
liable for the entire obligation, and each creditor is entitled to demand the
whole obligation. 17 on the other hand, Article 2047 of the Civil Code
states:
By guaranty a person, called the guarantor, binds himself to the
creditor to fulfill the obligation of the principal debtor in case the
latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the
provisions of Section 4, Chapter 3, Title I of this Book shall be
observed. In such a case the contract is called a suretyship.
(Emphasis supplied.)
While a guarantor may bind himself solidarily with the
principal debtor, the liability of a guarantor is different from
that of a solidary debtor. Thus, Tolentino explains:
A guarantor who binds himself in solidum with the principal debtor
under the provisions of the second paragraph does not become a
solidary co-debtor to all intents and purposes. There is a difference
between a solidary co-debtor and a fiador in solidum (surety). The
latter, outside of the liability he assumes to pay the debt before the
property of the principal debtor has been exhausted, retains all the
other rights, actions and benefits which pertain to him by reason of
the fiansa; while a solidary co-debtor has no other rights than those
bestowed upon him in Section 4, Chapter 3, Title I, Book IV of the
Civil Code. 18
Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on
joint and several obligations. Under Art. 1207 thereof, when there are two
or more debtors in one and the same obligation, the presumption is that
the obligation is joint so that each of the debtors is liable only for a
proportionate part of the debt. There is a solidary liability only when the
obligation expressly so states, when the law so provides or when the
nature of the obligation so requires. 19
Because the promissory note involved in this case expressly states that
the three signatories therein are jointly and severally liable, any one, some
or all of them may be proceeded against for the entire obligation. 20 The
choice is left to the solidary creditor to determine against whom he will
enforce collection. 21 Consequently, the dismissal of the case against
Judge Pontanosas may not be deemed as having discharged petitioner
from liability as well. As regards Naybe, suffice it to say that the court
never acquired jurisdiction over him. Petitioner, therefore, may only have
recourse against his co-makers, as provided by law.
WHEREFORE, the instant petition for review on certiorari is hereby
DENIED and the questioned decision of the Court of Appeals is
AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. L-11307 October 5, 1918
ROMAN JAUCIAN, plaintiff-appellant, vs. FRANCISCO QUEROL,
administrator of the intestate estate of the deceased Hermenegildo
Rogero,defendant-appellee.
STREET, J.:
This appeal by bill of exceptions was brought to reverse a judgment of the
Court of First Instance of the Province of Albay whereby said court has
refused to allow a claim in favor of the plaintiff, Roman Jaucian, against
the state of Hermenegilda Rogero upon the facts hereinbelow stated.
In October, 1908, Lino Dayandante and Hermenegilda Rogero executed a
private writing in which they acknowledged themselves to be indebted to
Roman Jaucian in the sum of P13,332.33. The terms of this obligation are
fully set out at page 38 of the bill of exceptions. Its first clause is in the
following words:
We jointly and severally acknowledge our indebtedness in the sum
of P13,332.23 Philippine currency (a balance made October 23,
1908) bearing interest at the rate of 10 per cent per annum to
Roman Jaucian, of age, a resident of the municipality of Ligao,
Province of Albay, Philippine Islands and married to Pilar Tell.
Hermenegilda Rogero signed this document in the capacity of surety for
Lino Dayandante; but as clearly appears from the instrument itself both
debtors bound themselves jointly and severally to the creditor, and there is
nothing in the terms of the obligation itself to show that the relation
between the two debtors was that of principal and surety.
In November, 1909, Hermenegilda Rogero brought an action in the Court
of First Instance of Albay against Jaucian, asking that the document in
question be canceled as to her upon the ground that her signature was
obtained by means of fraud. In his answer to the complaint, Jaucian, by
was of cross-complaint, asked for judgment against the plaintiff for the
amount due upon the obligation, which appears to have matured at that
time. Judgment was rendered in the Court of First Instance in favor of the
plaintiff, from which judgment the defendant appealed to the Supreme
Court.
In his appeal to this court, Jaucian did not assign as error the failure of the
lower court to give him judgment on his cross-demand, and therefore the
decision upon the appeal was limited to the issues concerning the validity
of the document.
While the case was pending in the Supreme Court, Hermenegilda Rogero
died and the administrator of her estate was substituted as the party
plaintiff and appellee. On November 25, 1913, the Supreme Court
rendered in its decision reversing the judgment of the trial court and
holding that the disputed claim was valid. 1
During the pendency of the appeal, proceedings were had in the Court of
First Instance of Albay for the administration of the estate of Hermenegilda
Rogero; Francisco Querol was named administrator; and a committee was
appointed to pass upon claims against the estate. This committee made
its report on September 3, 1912. On March 24, 1914, or about a year and
half after the filing of the report of the committee on claims against the
Rogero estate, Jaucian entered an appearance in the estate proceedings,
and filed with the court a petition in which he averred the execution of the
document of October, 1908, by the deceased, the failure of her co-obligor
Dayandante, to pay any part of the debt, except P100 received from him
in March, 1914, and the complete insolvency of Dayandante. Upon these
facts Jaucian prayed the court for an order directing the administrator of
the Rogero estate to pay him the principal sum of P13,332.33, plus
P7,221.66, as interest thereon from October 24, 1908, to March 24, 1914,
with interest on the principal sum of P13,332.33, plus P7,221.66, as
interest thereon from October 24, 1908, to March 24, 1914, with interest
on the principal sum from March 24, 1914, at 10 per cent per annum, until
paid.
A copy of this petition was served upon the administrator of the estate,
who, on March 30, 1914, appeared by his attorney and opposed the
granting of the petition upon the grounds that the claim had never been
presented to the committee on claims for allowance; that more than
eighteen months had passed since the filing of the report of the
committee, and that the court was therefore without jurisdiction to
entertain the demand of the claimant. A hearing was had upon the petition
before the Honorable P.M. Moir, then sitting in the Court of First Instance
of Albay. On April 13, 1914, he rendered his decision, in which, after
reciting the facts substantially as above set forth, he said:
During the pendency of that action (the cancellation suit) in the
Supreme Court Hermenegilda Rogero died, and Francisco Querol
was named administrator of the estate, and he was made a party
defendant to the action then pending in the Supreme Court. As such
he had full knowledge of the claim presented and was given an
opportunity to make his defense. It is presumed that defense was
made in the Supreme Court.
No contingent claim was filed before the commissioners by Roman
Jaucian, who seems to have rested content with the action pending.
Section 746 et seq. of the Code of Civil Procedure provides for the
presentation of contingent claims, against the estate. This claim is a
contingent claim, because, according to the decision of the Supreme
Court, Hermenegilda Rogero was a surety of Lino Dayandante. The
object of presenting the claim to the commissioners is simply to
allow them to pass on the claim and to give the administrator an
opportunity to defend the estate against the claim. This having been
given by the administrator defending the suit in the Supreme Court,
the court considers this a substantial compliance with the law, and
the said defense having been made by the administrator, he cannot
now come into court and hide behind a technicality and say that the
claim had not been presented to the commissioners and that, the
commissioners having long since made report, the claim cannot be
referred to the commissioners and therefore the claim of Roman
Jaucian is barred. The court considers that paragraph (e) of the
opposition is well-taken and that there must be legal action taken
against Lino Dayandante to determine whether or not he is
insolvent, and that declaration under oath to the effect that he has
no property except P100 worth of property, which he has ceded to
Roman Jaucian, is not sufficient.
Hermenegilda Rogero having been simply surety for Lino
Dayandante, the administrator has a right to require that Roman
Jaucian produce a judgment for his claim against Lino Dayandante,
in order that the said administrator may be subrogated to the rights
of Jaucian against Dayandante. The simple affidavit of the principal
debtor that he had no property except P100 worth of property which
he has ceded to the creditor is not sufficient for the court to order the
surety to pay the debt of the principal. When this action shall have
been taken against Lino Dayandante and an execution returned "no
effects," then the claim of Jaucian against the estate will be ordered
paid or any balance that may be due to him.
Acting upon the suggestions contained in this order Jaucian brought an
action against Dayandante and recovered a judgment against him for the
full amount of the obligation evidenced by the document of October 24,
1908. Execution was issued upon this judgment, but was returned by the
sheriff wholly unsatisfied, no property of the judgment debtor having been
found.
On October 28, 1914, counsel for Jaucian filed another petition in the
proceedings upon the estate of Hermenegilda Rogero, in which they
averred, upon the grounds last stated, that Dayandante was insolvent,
and renewed the prayer of the original petition. It was contended that the
court, by its order of April 13, 1914, had "admitted the claim."
The petition was again opposed by the administrator of the estate upon
the grounds (a) that the claim was not admitted by the order of April 13,
1914, and that "the statement of the court with regard to the admissibility
of the claim was mere dictum," and (b) "that the said claim during the life
and after the death of Hermenegilda Rogero, which occurred on August 2,
1911, was a mere contingent claim against the property of the said
Hermenegilda Rogero, was not reduced to judgment during the lifetime of
said Hermenegilda Rogero, and was not presented to the commissioners
on claims during the period of six months from which they were appointed
in this estate, said commissioner having given due and lawful notice of
their sessions and more than one year having expired since the report of
the said commissioners; and this credit is outlawed or prescribed, and that
this court has no jurisdiction to consider this claim."
On November 24, 1914, the Honorable J. C. Jenkins, then sitting in the
Court of First Instance of Albay, after hearing argument, entered an order
refusing to grant Jaucian's petition. To this ruling the appellant excepted
and moved for a rehearing. On December 11, 1914, the judge a
quo entered an order denying the rehearing and setting forth at length, the
reasons upon which he based his denial of the petition. These grounds
were briefly, that as the claim had never been presented to the committee
on claims, it was barred; that the court had no jurisdiction to entertain it;
that the decision of the Supreme Court in the action brought by the
deceased against Jaucian did not decide anything except that the
document therein disputed was a valid instrument.
In this court the appellant contends that the trial judge erred (a) in refusing
to give effect to the order made by the Honorable P.M. Moir, dated April
13, 1914; and (b) in refusing to order the administrator of the estate of
Hermenegilda Rogero to pay the appellant the amount demanded by him.
The contention with regard to the order of April 13, 1914, is that no appeal
from it having been taken, it became final.
An examination of the order in question, however, leads us to conclude
that it was not a final order, and therefore it was not appealable. In effect,
it held that whatever rights Jaucian might have against the estate of
Rogero were subject to the performance of a condition precedent, namely,
that he should first exhaust this remedy against Dayandante. The court
regarded Dayandante. The court regarded Dayandante as the principal
debtor, and the deceased as a surety only liable for such deficiency as
might result after the exhaustion of the assets of the principal co-obligor.
The pivotal fact upon which the order was based was the failure of
appellant to show that he had exhausted his remedy against Dayandante,
and this failure the court regarded as a complete bar to the granting of the
petition at that time. The court made no order requiring the appellee to
make any payment whatever, and that part of the opinion, upon which the
order was based, which contained statements of what the court intended
to do when the petition should be renewed, was not binding upon him or
any other judge by whom he might be succeeded. Regardless of what
may be our views with respect to the jurisdiction of the court to have
granted the relief demanded by appellant in any event, it is quite clear
from what we have stated that the order of April 13, 1914, required no
action by the administrator at that time, was not final, and therefore was
not appealable. We therefore conclude that no rights were conferred by
the said order of April 13, 1914, and that it did not preclude the
administrator from making opposition to the petition of the appellant when
it was renewed.
Appellant contends that his claim against the deceased was contingent.
His theory is that the deceased was merely a surety of Dayandante. His
argument is that as section 746 of the Code of Civil Procedure provides
that contingent claims "may be presented with the proof to the committee,"
it follows that such presentation is optional. Appellant, furthermore,
contends that if a creditor holding a contingent claim does not see fit to
avail himself of the privilege thus provided, there is nothing in the law
which says that his claim is barred or prescribed, and that such creditor,
under section 748 of the Code of Civil Procedure, at any time within two
years from the time allowed other creditors to present their claims, may, if
his claim becomes absolute within that period present it to the court for
allowance. On the other hand counsel for appellee contends (1) that
contingent claims like absolute claims are barred for non-presentation to
the committee but (2) that the claim in question was in reality an absolute
claim and therefore indisputably barred.
The second contention takes logical precedence over the first and our
view of its conclusiveness renders any consideration of the first point
entirely unnecessary to a determination of the case. Bearing in mind that
the deceased Hermenegilda Rogero, though surety for Lino Dayandante,
was nevertheless bound jointly and severally with him in the obligation,
the following provisions of law are here pertinent.
Article 1822 of the Civil Code provides:
By security a person binds himself to pay or perform for a third
person in case the latter should fail to do so.
 "If the surety binds himself jointly with the principal debtor, the
provisions of section fourth, chapter third, title first, of this book shall
be observed.
Article 1144 of the same code provides:
A creditor may sue any of the joint and several (solidarios) debtors
or all of them simultaneously. The claims instituted against one shall
not be an obstacle for those that may be later presented against the
others, as long as it does not appear that the debt has been
collected in full.
Article 1830 of the same code provides:
The surety can not be compelled to pay a creditor until application
has been previously made of all the property of the debtor.
Article 1831 provides:
This application can not take place
(1) . . . (2) If he has jointly bound himself with the debtor . . . .
The foregoing articles of the Civil Code make it clear that Hermenegilda
Rogero was liable absolutely and unconditionally for the full amount of the
obligation without any right to demand the exhaustion of the property of
the principal debtor previous to its payment. Her position so far as the
creditor was concerned was exactly the same as if she had been the
principal debtor.
The absolute character of the claim and the duty of the committee to have
allowed it is full as such against the estate of Hermenegilda Rogero had it
been opportunely presented and found to be a valid claim is further
established by section 698 of the Code of Civil Procedure, which provides:
When two or more persons are indebted on a joint contract, or upon
a judgment founded on a joint contract, and either of them dies, his
estate shall be liable therefor, and it shall be allowed by the
committee as if the contract had been with him alone or the
judgment against him alone. But the estate shall have the right to
recover contribution from the other joint debtor.
In the official Spanish translation of the Code of Civil Procedure, the sense
of the English word "joint," as used in two places in the section above
quoted, is rendered by the Spanish word "mancomunadamente." This is
incorrect. The sense of the word "joint," as here used, would be more
properly translated in Spanish by the word "solidaria," though even this
word does not express the meaning of the English with entire fidelity.
The section quoted, it should be explained, was originally taken by the
author, or compiler, of our Code of Civil Procedure from the statutes of the
State of Vermont; and the word "joint" is, therefore, here used in the sense
which attaches to it in the common law. Now, in the common law system
there is no conception of obligation corresponding to the divisible joint
obligation contemplated in article 1138 of the Civil Code. This article
declares in effect that, if not otherwise expressly determined, every
obligation in which there is no conception of obligation corresponding to
the divisible joint obligation contemplated in article 1138 of the Civil Code.
This article declares in effect that, if not otherwise expressly determined,
every obligation in which there are numerous debtors we here ignore
plurality of creditors shall be considered divided into as many parts as
there are debtors, and each part shall be deemed to be the distinct
obligation of one of the respective debtors. In other words, the obligation
is apportionable among the debtors; and in case of the simple joint
contract neither debtor can be required to satisfy more than his aliquot
part.
solidum appears to be the normal characteristic of the multiple obligation,
In the common law system every debtor in a joint obligation is liable in
solidum for the whole; and the only legal peculiarity worthy of remark
concerning the "joint" contract at common law is that the creditor is
required to sue all the debtors at once. To avoid the inconvenience of this
procedural requirement and to permit the creditor in a joint contract to do
what the creditor in a solidary obligation can do under article 1144 of the
Civil Code, it is not unusual for the parties to a common law contract to
stipulate that the debtors shall be "jointly and severally" liable. The force of
this expression is to enable the creditor to sue any one of the debtors or
all together at pleasure.
It will thus be seen that the purpose of section 698 of the Code of Civil
Procedure, considered as a product of common law ideas, is not to
convert an apportionable joint obligation into a solidary joint obligation
for the idea of the benefit of division is totally foreign to the common law
system but to permit the creditor to proceed at once separately against
the estate of the deceased debtor, without attempting to draw the other
debtors into intestate or testamentary proceedings. The joint contract of
the common law is and always has been a solidary obligation so far as the
extent of the debtor's liability is concerned.
In Spanish law the comprehensive and generic term by which to indicate
multiplicity of obligation, arising from plurality of debtors or creditors,
is mancomunidad, which term includes (1) mancomunidad simple,
or mancomunidad properly such, and (2) mancomunidad solidaria. In
other words the Spanish system recognizes two species of multiple
obligation, namely, the apportionable joint obligation and the solidary joint
obligation. The solidary obligation is, therefore, merely a form of joint
obligation.
The idea of the benefit of division as a feature of the simple joint obligation
appears to be a peculiar creation of Spanish jurisprudence. No such idea
prevailed in the Roman law, and it is not recognized either in the French or
in the Italian system.
This conception is a badge of honor to Spanish legislation,
honorably shared with the Spanish American, since French and
Italian codes do not recognize the distinction of difference, just
expounded, between the two sorts of multiple obligation. . . . (Giorgi,
Theory of Obligations, Span. ed., vol. I, p. 77, note.)
Considered with reference to comparative jurisprudence, liability in
while the benefit of division in the Spanish system is an illustration of the
abnormal, evidently resulting from the operation of a positive rule created
by the lawgiver. This exceptional feature of the simple joint obligation in
Spanish law dates from an early period; and the rule in question is
expressed with simplicity and precision in a passage transcribed into
the Novisima Recopilacion as follows:
If two persons bind themselves by contract, simply and not
otherwise, to do or accomplish something, it is thereby to be
understood that each is bound for one-half, unless it is specified in
the contract that each is bound in solidum, or it is agreed among
themselves that they shall be bound in some other manner, and this
notwithstanding any customary law to the contrary; . . . (Law X, tit. I,
book X, Novisima Recopilacion, copied from law promulgated at
Madrid in 1488 by Henry IV.)
The foregoing exposition of the conflict between the juridical conceptions
of liability incident to the multiple obligation, as embodied respectively in
the common law system and the Spanish Civil Code, prepares us for a
few words of comment upon the problem of translating the terms which we
have been considering from English into Spanish or from Spanish into
English.
The Spanish expression to be chosen as the equivalent of the English
word "joint" must, of course, depend upon the idea to be conveyed; and it
must be remembered that the matter to be translated may be an
enunciation either of a common law conception or of a civil law idea. In
Sharruf vs. Tayabas Land Co. and Ginainati (37 Phil. Rep., 655), a judge
of one of the Courts of First Instance in these Islands rendered judgment
in English declaring the defendants to be "jointly" liable. It was held that he
meant "jointly" in the sense of "mancomunadamente," because the
obligation upon which the judgment was based was apportionable under
article 1138 of the Civil Code. This mode of translation does not, however,
hold good where the word to be translated has reference to a multiple
common law obligation, as in article 698 of the Code of Civil Procedure.
Here it is necessary to render the word "joint" by the Spanish word
"solidaria."
In translating the Spanish word "mancomunada" into English a similar
difficulty is presented. In the Philippine Islands at least we must probably
continue to tolerate the use of the English word "joint" as an approximate
English equivalent, ambiguous as it may be to a reader indoctrinated with
the ideas of the common law. The Latin phrase pro rata is a make shift,
the use of which is not to be commended. The Spanish word "solidary,"
though it is not inaccurate here to use the compound expression "joint
obligation," as conveying the full juridical sense of "obligacion
mancomunada" and "obligacion solidaria," respectively.
From what has been said it is clear that Hermenegilda Rogero, and her
estate after her death, was liable absolutely for the whole obligation, under
section 698 of the Code of Civil Procedure; and if the claim had been duly
presented to the committee for allowance it should have been allowed,
just as if the contact had been with her alone.
It is thus apparent that by the express and incontrovertible provisions both
of the Civil Code and the Code of Civil Procedure, this claim was an
absolute claim. Applying section 695 of the Code of Civil Procedure, this
court has frequently decided that such claims are barred if not presented
to the committee in time (In re estate of Garcia Pascual, 11 Phil. Rep., 34;
Ortiga Bros. & Co. vs. Enage and Yap Tico, 18 Phil. Rep., 345, 351;
Santos vs.Manarang, 27 Phil. Rep., 209, 213); and we are of the opinion
that, for this reason, the claim was properly rejected by Judge Jenkins.
There is no force, in our judgment, in the contention that the pendency of
the suit instituted by the deceased for the cancellation of the document in
which the obligation in question was recorded was a bar to the
presentation of the claim against the estate. The fact that the lower court
had declared the document void was not conclusive, as its judgment was
not final, and even assuming that if the claim had been presented to the
committee for allowance, it would have been rejected and that the
decision of the committee would have been sustained by the Court of First
Instance, the rights of the creditor could have been protected by an
appeal from that decision.
Appellant apparently takes the position that had his claim been filed during
the pendency of the cancellation suit, it would have been met with the
plea of another suit pending and that this plea would have been
successful. This view of the law is contrary to the doctrine of the decision
in the case of Hongkong & Shanghai Banking Corporation vs. Aldecoa &
Co. ([1915], 30 Phil. Rep., 255.)
Furthermore, even had Jaucian, in his appeal from the decision in the
cancellation suit, endeavored to obtain judgment on his cross-complaint,
the death of the debtor would probably have required the discontinuance
of the action presented by the cross-complaint or counterclaim, under
section 703.
As already observed the case is such as not to require the court to apply
sections 746-749, inclusive, of the Code of Civil Procedure, nor to
determine the conditions under which contingent claims are barred. But a
few words of comment may be added to show further that the solidary
obligation upon which this proceeding is based is not a contingent claim,
such as is contemplated in those sections. The only concrete illustration
of a contingent claim given is section 746 is the case where a person is
liable as surety for the deceased, that is, where the principal debtor is
dead. This is a very different situation from that presented in the concrete
case now before us, where the surety is the person who is dead. In the
illustration put in section 746 where the principal debtor is dead and the
surety is the party preferring the claim against the estate of the deceased
it is obvious that the surety has no claim against the estate of the
principal debtor, unless he himself satisfies the obligation in whole or in
part upon which both are bound. It is at this moment, and not before, that
the obligation of the principal to indemnify the surety arises (art. 1838,
Civil Code); and by virtue of such payment the surety is subrogated in all
the rights which the creditor had against the debtor (art. 1839, same
code).
Another simple illustration of a contingent liability is found in the case of
the indorser of a contingent liability is found in the case of the indorser of
a negotiable instrument, who is not liable until his liability is fixed by
dishonor and notice, or protest an notice, in conformity with the
requirements of law. Until this event happens there is a mere possibility of
a liability is fixed by dishonor and notice, or protest and notice, in
conformity with the requirements of law. Until this event happens there is a
mere possibility of a liability, which is fact may never become fixed at all.
The claims of all persons who assume the responsibility of a liability,
which in fact may never become fixed at all. The claims of all persons who
assume the responsibility of mere guarantors in as against their
principles of the same contingent character.
It is possible that "contingency," in the cases contemplated in section 746,
may depend upon other facts than those which relate to the creation or
inception of liability. It may be, for instance, that the circumstance that a
liability is subsidiary, and the execution has to be postponed after
judgment is obtained until the exhaustion of the assets of the person or
entity primarily liable, makes a claim contingent within the meaning of said
section; but upon this point it is unnecessary to express an opinion. It is
enough to say that where, as in the case now before us, liability extends
unconditionally to the entire amount stated in the obligation, or, in other
words, where the debtor is liable in solidum and without postponement of
execution, the liability is not contingent but absolute.
For the reasons stated, the decision of the trial court denying appellant's
petition and his motion for a new trial was correct and must be affirmed.
No costs will be allowed on this appeal. So ordered.
G.R. No. L-7721 March 25, 1914
INCHAUSTI & CO., plaintiff-appellant, vs. GREGORIO YULO, defendant-
appellee.
ARELLANO, C.J.:
This suit is brought for the recovery of a certain sum of money, the
balance of a current account opened by the firm of Inchausti & Company
with Teodoro Yulo and after his death continued with his widow and
children, whose principal representative is Gregorio Yulo. Teodoro Yulo, a
property owner of Iloilo, for the exploitation and cultivation of his
numerous haciendas in the province of Occidental Negros, had been
borrowing money from the firm of Inchausti & Company under specific
conditions. On April 9, 1903; Teodoro Yulo died testate and for the
execution of the provisions of his will he had appointed as administrators
his widow and five of his sons, Gregorio Yulo being one of the latter. He
thus left a widow, Gregoria Regalado, who died on October 22d of the
following year, 1904, there remaining of the marriage the following
legitimate children: Pedro, Francisco, Teodoro, Manuel, Gregorio,
Mariano, Carmen, Concepcion, and Jose Yulo y Regalado. Of these
children Concepcion and Jose were minors, while Teodoro was mentally
incompetent. At the death of their predecessor in interest, Teodoro Yulo,
his widow and children held the conjugal property in common and at the
death of this said widow, Gregoria Regalado, these children preserved the
same relations under the name of Hijos de T. Yulo continuing their current
account with Inchausti & Company in the best and most harmonious
reciprocity until said balance amounted to two hundred thousand pesos. In
for the payment of the disbursements of money which until that time it had
been making in favor of its debtors, the Yulos.
First. Gregorio Yulo, for himself and in representation of his brothers
Pedro Francisco, Manuel, Mariano, and Carmen, executed on June 26,
1908, a notarial document (Exhibit S) whereby all admitted their
indebtedness to Inchausti & Company in the sum of P203,221.27 and, in Fifteenth. All the obligations which by this, as well as by the
order to secure the same with interest thereon at 10 per cent per annum, document of June 26, 1908, concern us, will be understood as
they especially mortgaged an undivided six-ninth of their thirty-eight rural having been contradicted in solidum by all of us, the Yulos, brothers
properties, their remaining urban properties, lorchas, and family credits and sisters.
which were listed, obligating themselves to make a forma inventory and to
describe in due form all the said properties, as well as to cure all the
defects which might prevent the inscription of the said instrument in the
registry of property and finally to extend by the necessary formalities the
aforesaid mortgage over the remaining three-ninths part of all the property Sixteenth. It is also agreed that this instrument shall be confirmed
and rights belonging to their other brothers, the incompetent Teodoro, and and ratified in all its parts, within the present week, by our brother
the minors Concepcion and Jose. Don Mariano Yulo y Regalado who resides in Bacolod, otherwise it
will not be binding on Messrs. Inchausti & Company who can make
use of their rights to demand and obtain immediate payment of their
credit without any further extension or delay, in accordance with
what we have agreed.
Second. On January 11, 1909, Gregorio Yulo in representation of Hijos de
T. Yulo answered a letter of the firm of Inchausti & Company in these
terms: "With your favor of the 2d inst. we have received an abstract of our
current account with your important firm, closed on the 31st of last
December, with which we desire to express our entire conformity as also Fourth. This instrument was neither ratified nor confirmed by Mariano
with the balance in your favor of P271,863.12." On July 17, 1909, Yulo.
Inchausti & Company informed Hijos de T. Yulo of the reduction of the said
balance to P253,445.42, with which balance Hijos de T. Yulo expressed its
conformity by means of a letter of the 19th of the same month and year.
Regarding this conformity a new document evidencing the mortgage credit
was formalized. Fifth. The Yulos, brothers and sisters, who executed the preceding
instrument, did not pay the first installment of the obligation.
Sixth. Therefore, on March 27, 1911, Inchausti & Company brought an
ordinary action in the Court of First Instance of Iloilo, against Gregorio
Third. On August 12, 1909, Gregorio Yulo, for himself and in
Yulo for the payment of the said balance due of two hundred fifty-three
representation of his brother Manuel Yulo, and in their own behalf Pedro
thousand, four hundred forty-five pesos and forty-two centavos
Yulo, Francisco Yulo, Carmen Yulo, and Concepcion Yulo, the latter being
P253,445.42) with interest at ten per cent per annum, on that date
of age at the time, executed the notarial instrument (Exhibit X). Through
aggregating forty-two thousand, nine hundred forty-four pesos and
this, the said persons, including Concepcion Yulo ratified all the contents
seventy-six centavos (P42,944.76)
of the prior document of June 26, 1908, severally and jointly
acknowledged and admitted their indebtedness to Inchausti & Company
for the net amount of two hundred fifty-three thousand four hundred forty-
five pesos and forty-two centavos (P253,445.42) which they obligated
themselves to pay, with interest at ten per cent per annum, in five
installments at the rate of fifty thousand pesos (P50,000), except the last, Seventh. But, on May 12, 1911, Francisco, Manuel, and Carmen Yulo y
this being fifty-three thousand four hundred forty-five pesos and forty-two Regalado executed in favor Inchausti & Company another notarial
instrument in recognition of the debt and obligation of payment in the
centavos (P53,445.42), beginning June 30, 1910, continuing successively
on the 30th of each June until the last payment on June 30, 1914. Among following terms: "First, the debt is reduce for them to two hundred twenty-
five thousand pesos (P225,000); second, the interest is likewise reduced
other clauses, they expressly stipulated the following:
for them to 6 percent per annum, from March 15, 1911; third, the
installments are increase to eight, the first of P20,000, beginning on June
30, 1911, and the rest of P30,000 each on the same date of each
successive year until the total obligation shall be finally and satisfactorily
paid on June 30, 1919," it being expressly agreed "that if any of the partial
Fifth. The default in payment of any of the installments established in
payments specified in the foregoing clause be not paid at its maturity, the
clause 3, or the noncompliance of any of the other obligations which
amount of the said partial payment together with its interest shall bear
by the present document and that of June 26, 1908, we, the Yulos,
interest at the rate of 15 per cent per annum from the date of said
brothers and sisters, have assumed, will result in the maturity of all
maturity, without the necessity of demand until its complete payment;" that
the said installments, and as a consequence thereof, if they so deem
"if during two consecutive years the partial payments agreed upon be not
expedient Messrs. Inchausti & Company may exercise at once all
made, they shall lose the right to make use of the period granted to them
the rights and actions which to them appertain in order to obtain the
for the payment of the debt or the part thereof which remains unpaid, and
immediate and total payment of our debt, in the same manner that
that Messrs. Inchausti & Company may consider the total obligation due
they would have so done at the maturity of the said installments.
and demandable, and proceed to collect the same together with the
interest for the delay above stipulated through all legal means." (4th
clause.)
Thus was it stipulated between Inchausti & Company and the said three
Yulos, brothers and sisters by way of compromise so that Inchausti &
Company might, as it did, withdraw the claims pending in the special
proceedings for the probate of the will of Don Teodoro Yulo and of the
intestacy of Doa Gregoria Regalado stipulating expressly however in
the sixth clause that "Inchausti & Company should include in their suit
brought in the Court of First Instance of Iloilo against Don Gregorio Yulo,
his brother and joint co-obligee, Don Pedro Yulo, and they will procure by
all legal means and in the least time possible a judgment in their favor
against the said Don Gregorio and Don Pedro, sentencing the later to pay
the total amount of the obligation acknowledged by them in the
aforementioned instrument of August 12, 1909; with the understanding
that if they should deem it convenient for their interests, Don Francisco,
Don Manuel, and Doa Carmen Yulo may appoint an attorney to
cooperate with the lawyers of Inchausti & Company in the proceedings of
the said case."
Eighth. Matters being thus on July 10, 1911, Gregorio Yulo answered the
complaint and alleged as defenses; first, that an accumulation of interest
had taken place and that compound interest was asked for the Philippine
currency at par with Mexican; second, that in the instrument of August 21,
1909, two conditions were agreed one of which ought to be approved by
the Court of First Instance, and the other ratified and confirmed by the
other brother Mariano Yulo, neither of which was complied with; third , that
with regard to the same debt claims were presented before the
commissioners in the special proceedings over the inheritances of
Teodoro Yulo and Gregoria Regalado, though later they were dismissed,
pending the present suit; fourth and finally, that the instrument of August
12, 1909, was novated by that of May 12, 1911, executed by Manuel,
Francisco and Carmen Yulo.
Ninth. The Court of First Instance of Iloilo decided the case "in favor of the
defendant without prejudice to the plaintiff's bringing within the proper time
another suit for his proportional part of the joint debt, and that the plaintiff
pay the costs." (B. of E., 21.)
The plaintiff appealed from this judgment by bill of exceptions and before
this court made the following assignment of errors:
I. That the court erred in considering the contract of May 12, 1911, as
constituting a novation of that of August 12, 1909.
II. That the court erred in rendering judgment in favor of the defendant.
III. And that the court erred n denying the motion for a new trial.
"No one denies in this case," says the trial judge, "that the estate of
Teodoro Yulo or his heirs owe Inchausti & Company an amount of money,
the object of this action, namely, P253,445.42" (B. of E. 18). "The fact is
admitted," says the defendant, "that the plaintiff has not collected the debt,
and that the same is owing" (Brief, 33). "In the arguments of the
attorneys," the judge goes on, "it was really admitted that the plaintiff had
a right to bring an action against Gregorio Yulo, as one of the conjoint and
solidary obligors in the contract of August 12, 1909; but the defendant
says that the plaintiff has no right to sue him alone, since after the present
suit was brought, the plaintiff entered into a compromise with the other
conjoint and solidary debtors, the result being the new contract of May 12,
1911, by virtue of which the payments were extended, the same
constituting a novation of the contract which gave him the same privileges
that were given his conjoint and solidary codebtors. This (the judge
concludes) is the only question brought up by the parties." (B. of E., 19.)
And this is the only one which the Supreme Court has to solve by virtue of
the assignments of errors alleged. Consequently, there is no need of
saying anything regarding the first three defenses of the answer, nor
regarding the lack of the signature of Mariano Yulo ratifying and
confirming the instrument of August 12, 1909, upon which the appellee still
insists in his brief for this appeal; although it will not be superfluous to
state the doctrine that a condition, such as is contained in the sixteenth
clause of the said contract (third point in the statement of facts), is by no
means of suspensive but a resolutory condition; the effect of the failure of
compliance with the said clause, that is to say, the lack of the ratification
and confirmance by Mariano Yulo being not to suspend but to resolve the
contract, leaving Inchausti & Company at liberty, as stipulated, "to make
use of its rights to demand and obtain the immediate payment of its
credit."
The only question indicated in the decision of the inferior court involves,
however, these others: First, whether the plaintiff can sue Gregorio Yulo
alone, there being other obligors; second, if so, whether it lost this right by
the fact of its having agreed with the other obligors in the reduction of the
debt, the proroguing of the obligation and the extension of the time for
payment, in accordance with the instrument of May 12, 1911; third,
whether this contract with the said three obligors constitutes a novation of
that of August 12, 1909, entered into with the six debtors who assumed
the payment of two hundred fifty-three thousand and some odd pesos, the
subject matter of the suit; and fourth, if not so, whether it does have any
effect at all in the action brought, and in this present suit.
With respect to the first it cannot be doubted that, the debtors having
obligated themselves in solidum, the creditor can bring its action in
toto against any one of them, inasmuch as this was surely its purpose in
demanding that the obligation contracted in its favor should be solidary
having in mind the principle of law that, "when the obligation is constituted
as a conjoint and solidary obligation each one of the debtors is bound to
perform in full the undertaking which is the subject matter of such
obligation." (Civil Code, articles 1137 and 1144.)
And even though the creditor may have stipulated with some of the
solidary debtors diverse installments and conditions, as in this case,
Inchausti & Company did with its debtors Manuel, Francisco, and Carmen
Yulo through the instrument of May 12, 1911, this does not lead to the
conclusion that the solidarity stipulated in the instrument of August 12,
1909 is broken, as we already know the law provides that "solidarity may
exist even though the debtors are not bound in the same manner and for
the same periods and under the same conditions." (Ibid, article 1140.)
Whereby the second point is resolved.
With respect to the third, there can also be no doubt that the contract of
May 12, 1911, does not constitute a novation of the former one of August
12, 1909, with respect to the other debtors who executed this contract, or
more concretely, with respect to the defendant Gregorio Yulo: First,
because "in order that an obligation may be extinguished by another
which substitutes it, it is necessary that it should be so expressly declared
or that the old and the new be incompatible in all points" (Civil Code,
article 1204); and the instrument of May 12, 1911, far from expressly
declaring that the obligation of the three who executed it substitutes the
former signed by Gregorio Yulo and the other debtors, expressly and
clearly stated that the said obligation of Gregorio Yulo to pay the two
hundred and fifty-three thousand and odd pesos sued for exists,
stipulating that the suit must continue its course and, if necessary, these
three parties who executed the contract of May 12, 1911, would cooperate
in order that the action against Gregorio Yulo might prosper (7th point in
the statement of facts), with other undertakings concerning the execution
of the judgment which might be rendered against Gregorio Yulo in this
same suit. "It is always necessary to state that it is the intention of the
contracting parties to extinguish the former obligation by the new one"
(Judgment in cassation, July 8, 1909). There exist no incompatibility
between the old and the new obligation as will be demonstrated in the
resolution of the last point, and for the present we will merely reiterate the
legal doctrine that an obligation to pay a sum of money is not novated in a
new instrument wherein the old is ratified, by changing only the term of
payment and adding other obligations not incompatible with the old one.
(Judgments in cassation of June 28, 1904 and of July 8, 1909.)
With respect to the last point, the following must be borne in mind:
Facts. First. Of the nine children of T. Yulo, six executed the mortgage
of August 12, 1909, namely, Gregorio, Pedro, Francisco, Manuel, Carmen,
and Concepcion, admitting a debt of P253,445.42 at 10 per cent per
annum and mortgaging six-ninths of their hereditary properties. Second.
Of those six children, Francisco, Manuel and Carmen executed the
instrument of May 12, 1911, wherein was obtained a reduction of the
capital to 225,000 pesos and of the interest to 6 per cent from the 15th of
March of the same year of 1911. Third. The other children of T. Yulo
named Mariano, Teodoro, and Jose have not taken part in these
instruments and have not mortgaged their hereditary portions. Fourth. By
the first instrument the maturity of the first installment was June 30, 1910,
whereas by the second instrument, Francisco, Manuel, and Carmen had
in their favor as the maturity of the first installment of their debt, June 30,
1912, and Fifth, on March 27, 1911, the action against Gregorio Yulo was
already filed and judgment was pronounced on December 22, 1911, when
the whole debt was not yet due nor even the first installment of the same
respective the three aforesaid debtors, Francisco, Manuel, and Carmen.
In jure it would follow that by sentencing Gregorio Yulo to pay 253,445
pesos and 42 centavos of August 12, 1909, this debtor, if he should pay
all this sum, could not recover from his joint debtors Francisco, Manuel,
and Carmen their proportional parts of the P253,445.42 which he had
paid, inasmuch as the three were not obligated by virtue of the instrument
of May 12, 1911, to pay only 225,000 pesos, thus constituting a violation
of Gregorio Yulo's right under such hypothesis, of being reimbursed for
the sum paid by him, with the interest of the amounts advanced at the rate
of one-sixth part from each of his five codebtors. (Civ. Code, article 1145,
par. 2). This result would have been a ponderous obstacle against the
prospering of the suit as it had been brought. It would have been very just
then to have absolved the solidary debtor who having to pay the debt in its
entirety would not be able to demand contribution from his codebtors in
order that they might reimburse him pro rata for the amount advanced for
them by him. But such hypothesis must be put out of consideration by
reason of the fact that occurred during the pendency of the action, which
fact the judge states in his decision. "In this contract of May last," he says,
"the amount of the debt was reduced to P225,000 and the attorney of the
plaintiff admits in his plea that Gregorio Yulo has a right to the benefit of
this reduction." (B. of E., 19.) This is a fact which this Supreme Court must
hold as firmly established, considering that the plaintiff in its brief, on page
27, corroborates the same in these words: "What effect," it says, "could
this contract have over the rights and obligations of the defendant
Gregorio Yulo with respect to the plaintiff company? In the first place, we
are the first to realize that it benefits him with respect to the reduction of
the amount of the debt. The obligation being solidary, the remission of any
part of the debt made by a creditor in favor of one or more of the solidary
debtors necessarily benefits the others, and therefore there can be no
doubt that, in accordance with the provision of article 1143 of the Civil
Code, the defendant has the right to enjoy the benefits of the partial
remission of the debt granted by the creditor."
Wherefore we hold that although the contract of May 12, 1911, has not
novated that of August 12, 1909, it has affected that contract and the
outcome of the suit brought against Gregorio Yulo alone for the sum of
P253,445.42; and in consequence thereof, the amount stated in the
contract of August 12, 1909, cannot be recovered but only that stated in
the contract of May 12, 1911, by virtue of the remission granted to the
three of the solidary debtors in this instrument, in conformity with what is
provided in article 1143 of the Civil Code, cited by the creditor itself.
If the efficacy of the later instrument over the former touching the amount
of the debt had been recognized, should such efficacy not likewise be
recognized concerning the maturity of the same? If Francisco, Manuel,
and Carmen had been included in the suit, they could have alleged the
defense of the nonmaturity of the installments since the first installment
did not mature until June 30, 1912, and without the least doubt the
defense would have prospered, and the three would have been absolved
from the suit. Cannot this defense of the prematurity of the action, which is
implied in the last special defense set up in the answer of the defendant
Gregorio Yulo be made available to him in this proceeding?
The following commentary on article 1140 of the Civil Code sufficiently
answers this question: ". . . . Before the performance of the condition, or
before the execution of a term which affects one debtor alone proceedings
may be had against him or against any of the others for the remainder
which may be already demandable but the conditional obligation or that
which has not yet matured cannot be demanded from any one of them.
Article 1148 confirms the rule which we now enunciate inasmuch as in
case the total claim is made by one creditor, which we believe improper if
directed against the debtor affected by the condition or the term, the latter
can make use of such exceptions as are peculiarly personal to his own
obligation; and if against the other debtors, they mightmake use of those
exceptions, even though they are personal to the other, inasmuch as they
alleged they are personal to the other, inasmuch as they alleged them in
connection with that part of the responsibility attaching in a special
manner to the other." (8 Manresa, Sp. Civil Code, 196.)
Article 1148 of the Civil Code. "The solidary debtor may utilize against
the claims of the creditor of the defenses arising from the nature of the
obligation and those which are personal to him. Those personally
pertaining to the others may be employed by him only with regard to the
share of the debt for which the latter may be liable."
Gregorio Yulo cannot allege as a defense to the action that it is premature.
When the suit was brought on March 27, 1911, the first installment of the
obligation had already matured of June 30, 1910, and with the maturity of
this installment, the first not having been paid, the whole debt had become
mature, according to the express agreement of the parties, independently
of the resolutory condition which gave the creditor the right to demand the
immediate payment of the whole debt upon the expiration of the stipulated
term of one week allowed to secure from Mariano Yulo the ratification and
confirmation of the contract of August 12, 1909.
Neither could he invoke a like exception for the shares of his solidary
codebtors Pedro and Concepcion Yulo, they being in identical condition as
he.
But as regards Francisco, Manuel, and Carmen Yulo, none of the
installments payable under their obligation, contracted later, had as yet
matured. The first payment, as already stated, was to mature on June 30,
1912. This exception or personal defense of Francisco, Manuel, and
Carmen Yulo "as to the part of the debt for which they were responsible"
can be sent up by Gregorio Yulo as a partial defense to the action. The
part of the debt for which these three are responsible is three-sixths of
P225,000 or P112,500, so that Gregorio Yulo may claim that, even
acknowledging that the debt for which he is liable is P225,000,
nevertheless not all of it can now be demanded of him, for that part of it
which pertained to his codebtors is not yet due, a state of affairs which not
only prevents any action against the persons who were granted the term
which has not yet matured, but also against the other solidary debtors who
being ordered to pay could not now sue for a contribution, and for this
reason the action will be only as to the P112,500.
Against the propriety and legality of a judgment against Gregorio Yulo for
this sum, to wit, the three-sixths part of the debt which forms the subject
matter of the suit, we do not think that there was any reason or argument
offered which sustains an opinion that for the present it is not proper to
order him to pay all or part of the debt, the object of the action.
It has been said in the brief of the appellee that the prematurity of the
action is one of the defenses derived from the nature of the obligation,
according to the opinion of the commentator of the Civil Code, Mucius
Scaevola, and consequently the defendant Gregorio Yulo may make use
of it in accordance with article 1148 of the said Code. It may be so and
yet, taken in that light, the effect would not be different from that already
stated in this decision; Gregorio Yulo could not be freed from making any
payment whatever but only from the payment of that part of the debt
which corresponds to his codebtors Francisco, Manuel, and Carmen. The
same author, considering the case of the opposing contention of two
solidary debtors as to one of whom the obligation is pure and
unconditional and as to the other it is conditional and is not yet
demandable, and comparing the disadvantages which must flow from
holding that the obligation is demandable with these which must follow if
the contrary view is adopted, favors this solution of the problem:
There is a middle ground, (he says), from which we can safely set
out, to wit, that the creditor may of course, demand the payment of
his credit against the debtor not favored by any condition or
extension of time." And further on, he decides the question as to
whether the whole debt may be recovered or only that part
unconditionally owing or which has already matured, saying,
"Without failing to proceed with juridical rigor, but without falling into
extravagances or monstrosities, we believe that the solution of the
difficulty is perfectly possible. How? By limiting the right of the
creditor to the recovery of the amount owed by the debtors bound
unconditionally or as to whom the obligation has matured, and
leaving in suspense the right to demand the payment of the
remainder until the expiration of the term of the fulfillment of the
condition. But what then is the effect of solidarity? How can this
restriction of right be reconciled with the duty imposed upon each
one of the debtors to answer for the whole obligation? Simply this,
by recognizing in the creditor the power, upon the performance of
the condition or the expiration of the term of claiming from any one
or all of the debtors that part of the obligation affected by those
conditions. (Scaevola, Civil Code, 19, 800 and 801.)
The defendant Gregorio Yulo cannot be ordered to pay the P253,445.42
claimed from him in the suit here, because he has been benefited by the
remission made by the plaintiff to three of his codebtors, many times
named above.
It has been said also by the trial judge in his decision that if a judgment be
entered against Gregorio Yulo for the whole debt of P253,445.42, he
cannot recover from Francisco, Manuel, and Carmen Yulo that part of the
amount which is owed by them because they are obliged to pay only
225,000 pesos and this is eight installments none of which was due. For Consequently, the debt is reduced to 225,000 pesos.
this reason he was of the opinion that he (Gregorio Yulo) cannot be
obliged to pay his part of the debt before the contract of May 12, 1911,
may be enforced, and "consequently he decided the case in favor of the
defendant, without prejudice to the plaintiff proceeding in due time against
him for his proportional part of the joint debt." (B. of E., 21 and 22.) But, as it cannot be enforced against the defendant except as to the three-
sixths part which is what he can recover from his joint codebtors
Francisco, Manuel, and Carmen, at present, judgment can be rendered
But in the first place, taking into consideration the conformity of the plaintiff only as to the P112,500.
and the provision of article 1143 of the Civil Code, it is no longer possible
to sentence the defendant to pay the P253,445.42 of the instrument of
August 12, 1909, but, if anything, the 225,000 of the instrument of May 12,
1911.
We therefore sentence the defendant Gregorio Yulo to pay the plaintiff
Inchausti & Company P112,500, with the interest stipulated in the
instrument of May 12, 1911, from March 15, 1911, and the legal interest
on this interest due, from the time that it was claimed judicially in
In the second place, neither is it possible to curtail the defendant's right of accordance with article 1109 of the Civil Code, without any special finding
recovery from the signers of the instrument of May 12, 1911, for he was as to costs. The judgment appealed from is reversed. So ordered.
justly exonerated from the payment of that part of the debt corresponding
to them by reason of there having been upheld in his favor the exception
of an unmatured installment which pertains to them.
G.R. No. 85161 September 9, 1991
In the third place, it does not seem just, Mucius Scaevola considers it COUNTRY BANKERS INSURANCE CORPORATION and ENRIQUE
"absurd," that, there being a debtor who is unconditionally obligated as to SY, petitioners, vs. COURT OF APPEALS and OSCAR VENTANILLA
when the debt has matured, the creditor should be forced to await the ENTERPRISES CORPORATION, respondents.
realization of the condition (or the expiration of the term.) Not only is there
no reason for this, as stated by the author, but the court would even fail to
consider the special law of the contract, neither repealed nor novated,
which cannot be omitted without violating article 1091 of the Civil Code
according to which "the obligations arising from contracts have the force MEDIALDEA, J.:p
of law between the contracting parties and must be complied with in
accordance with the tenor of the same." Certain it is that the trial court, in
holding that this action was premature but might be brought in the time, Petitioners seek a review on certiorari of the decision of the Court of
regarded the contract of August 12, 1909, as having been expressly Appeals in CA-G.R. CV No. 09504 "Enrique Sy and Country Bankers
novated; but it is absolutely impossible in law to sustain such supposed Insurance Corporation v. Oscar Ventanilla Enterprises Corporation"
novation, in accordance with the legal principles already stated, and affirming in toto the decision of the Regional Trial Court, Cabanatuan City,
nevertheless the obligation of the contract of May 12, 1911, must likewise Branch XXV, to wit:
be complied with in accordance with its tenor, which is contrary in all
respects to the supposed novation, by obliging the parties who signed the
contract to carry on the suit brought against Gregorio Yulo. The contract of
May 12, 1911, has affected the action and the suit, to the extent that
Gregorio Yulo has been able to make in his favor the defense of remission WHEREFORE, the complaint of the plaintiff Enrique F. Sy is
of part of the debt, thanks to the provision of article 1148, because it is a dismissed, and on the counterclaim of the defendant O. Ventanilla
defense derived from the nature of the obligation, so that although the Enterprises Corporation, judgment is hereby rendered:
said defendant was not party to the contract in question, yet because of
the principle of solidarity he was benefited by it.
 1. Declaring as lawful, the cancellation and termination of the Lease
Agreement (Exh. A) and the defendant's re-entry and repossession
of the Avenue, Broadway and Capitol theaters under lease on
February 11, 1980;
2. Declaring as lawful, the forfeiture clause under paragraph 12 of
the Id Lease Agreement, and confirming the forfeiture of the plaintiffs
remaining cash deposit of P290,000.00 in favor of the defendant
thereunder, as of February 11, 1980;
3. Ordering the plaintiff to pay the defendant the sum of
P289,534.78, representing arrears in rentals, unremitted amounts for
amusement tax delinquency and accrued interest thereon, with
further interest on said amounts at the rate of 12% per annum (per
lease agreement) from December 1, 1980 until the same is fully
paid;
4. Ordering the plaintiff to pay the defendant the amount of
P100,000.00, representing the P10,000.00 portion of the monthly
lease rental which were not deducted from the cash deposit of the
plaintiff from February to November, 1980, after the forfeiture of the
said cash deposit on February 11, 1980, with interest thereon at the
rate of 12% per annum on each of the said monthly amounts of
P10,000.00 from the time the same became due until it is paid;
5. Ordering the plaintiff to pay the defendant through the injunction
bond, the sum of P100,000.00, representing the P10,000.00 monthly
increase in rentals which the defendant failed to realize from
February to November 1980 result from the injunction, with legal
interest thereon from the finality of this decision until fully paid;
6. Ordering the plaintiff to pay to the defendant the sum equivalent to
ten per centum (10%) of the above-mentioned amounts of
P289,534.78, P100,000.00 and P100,000.00, as and for attorney's
fees; and
7. Ordering the plaintiff to pay the costs. (pp. 94-95, Rollo)
The antecedent facts of the case are as follows:
Respondent Oscar Ventanilla Enterprises Corporation (OVEC), as lessor,
and the petitioner Enrique F. Sy, as lessee, entered into a lease
agreement over the Avenue, Broadway and Capitol Theaters and the land
on which they are situated in Cabanatuan City, including their air-
conditioning systems, projectors and accessories needed for showing the
films or motion pictures. The term of the lease was for six (6) years
commencing from June 13, 1977 and ending June 12,1983. After more
than two (2) years of operation of the Avenue, Broadway and Capitol
Theaters, the lessor OVEC made demands for the repossession of the
said leased properties in view of the Sy's arrears in monthly rentals and
non-payment of amusement taxes. On August 8,1979, OVEC and Sy had
a conference and by reason of Sy's request for reconsideration of OVECs
demand for repossession of the three (3) theaters, the former was allowed
to continue operating the leased premises upon his conformity to certain
conditions imposed by the latter in a supplemental agreement dated
August 13, 1979.
In pursuance of their latter agreement, Sy's arrears in rental in the amount
of P125,455.76 (as of July 31, 1979) was reduced to P71,028.91 as of
December 31, 1979. However, the accrued amusement tax liability of the
three (3) theaters to the City Government of Cabanatuan City had
accumulated to P84,000.00 despite the fact that Sy had been deducting
the amount of P4,000.00 from his monthly rental with the obligation to
remit the said deductions to the city government. Hence, letters of
demand dated January 7, 1980 and February 3, 1980 were sent to Sy
demanding payment of the arrears in rentals and amusement tax
delinquency. The latter demand was with warning that OVEC will re-enter
and repossess the Avenue, Broadway and Capital Theaters on February
11, 1980 in pursuance of the pertinent provisions of their lease contract of
June 11, 1977 and their supplemental letter-agreement of August 13,
1979. But notwithstanding the said demands and warnings SY failed to
pay the above-mentioned amounts in full Consequently, OVEC padlocked
the gates of the three theaters under lease and took possession thereof in
the morning of February 11, 1980 by posting its men around the premises
of the Id movie houses and preventing the lessee's employees from
entering the same.
Sy, through his counsel, filed the present action for reformation of the
lease agreement, damages and injunction late in the afternoon of the
same day. And by virtue of a restraining order dated February 12, 1980
followed by an order directing the issuance of a writ of preliminary
injunction issued in said case, Sy regained possession and operation of
the Avenue, Broadway and Capital theaters.
As first cause of action, Sy alleged that the amount of deposit
P600,000.00 as agreed upon, P300,000.00 of which was to be paid on
June 13, 1977 and the balance on December 13, 1977 was too big;
and that OVEC had assured him that said forfeiture will not come to pass.
By way of second cause of action, Sy sought to recover from OVEC the
sums of P100,000.00 which Sy allegedly spent in making "major repairs"
on Broadway Theater and the application of which to Sy's due rentals; (2)
P48,000.00 covering the cost of electrical current allegedly used by OVEC
in its alleged "illegal connection" to Capitol Theater and (3) P31,000.00
also for the cost of electrical current allegedly used by OVEC for its
alleged "illegal connection" to Broadway Theater and for damages
suffered by Sy as a result of such connection. Under the third cause of
action, it is alleged in the complaint that on February 11, 1980, OVEC had
the three theaters padlocked with the use of force, and that as a result, Sy
suffered damages at the rate of P5,000.00 a day, in view of his failure to
go thru the contracts he had entered into with movie and booking
companies for the showing of movies at ABC. As fourth cause of action,
Sy prayed for the issuance of a restraining order/preliminary injunction to
enjoin OVEC and all persons employed by it from entering and taking
possession of the three theaters, conditioned upon Sy's filing of a
P500,000.00 bond supplied by Country Bankers Insurance Corporation
(CBISCO).
OVEC on the other hand, alleged in its answer by way of counterclaims,
that by reason of Sy's violation of the terms of the subject lease
agreement, OVEC became authorized to enter and possess the three
theaters in question and to terminate said agreement and the balance of
the deposits given by Sy to OVEC had thus become forfeited; that OVEC
would be losing P50,000.00 for every month that the possession and
operation of said three theaters remain with Sy and that OVEC incurred
P500,000.00 for attorney's service.
The trial court arrived at the conclusions that Sy is not entitled to the
reformation of the lease agreement; that the repossession of the leased
premises by OVEC after the cancellation and termination of the lease was
in accordance with the stipulation of the parties in the said agreement and
the law applicable thereto and that the consequent forfeiture of Sy's cash
deposit in favor of OVEC was clearly agreed upon by them in the lease
agreement. The trial court further concluded that Sy was not entitled to the
writ of preliminary injunction issued in his favor after the commencement
of the action and that the injunction bond filed by Sy is liable for whatever
damages OVEC may have suffered by reason of the injunction.
On the counterclaim of OVEC the trial court found that the said lessor was
deprived of the possession and enjoyment of the leased premises and
also suffered damages as a result of the filing of the case by Sy and his
violation of the terms and conditions of the lease agreement. Hence, it
held that OVEC is entitled to recover the said damages in addition to the
arrears in rentals and amusement tax delinquency of Sy and the accrued
interest thereon. From the evidence presented, it found that as of the end
of November, 1980, when OVEC finally regained the possession of the
three (3) theaters under lease, Sy's unpaid rentals and amusement tax
liability amounted to P289,534.78. In addition, it held that Sy was under
obligation to pay P10,000.00 every month from February to November,
1980 or the total amount of P100,000.00 with interest on each amount of
P10,000.00 from the time the same became due. This P10,000.00 portion
of the monthly lease rental was supposed to come from the remaining
cash deposit of Sy but with the consequent forfeiture of the remaining
cash deposit of P290,000.00, there was no more cash deposit from which
said amount could be deducted. Further, it adjudged Sy to pay attorney's
fees equivalent to 10% of the amounts above-mentioned.
Finally, the trial court held Sy through the injunction bond liable to pay the
sum of P10,000.00 every month from February to November, 1980. The
amount represents the supposed increase in rental from P50,000.00 to
P60,000.00 in view of the offer of one RTG Productions, Inc. to lease the
three theaters involved for P60,000.00 a month.
From this decision of the trial court, Sy and (CBISCO) appealed the
decision in toto while OVEC appealed insofar as the decision failed to hold
the injunction bond liable for an damages awarded by the trial court.
The respondent Court of Appeals found no ambiguity in the provisions of
the lease agreement. It held that the provisions are fair and reasonable
and therefore, should be respected and enforced as the law between the
parties. It held that the cancellation or termination of the agreement prior
to its expiration period is justified as it was brought about by Sy's own
default in his compliance with the terms of the agreement and not
"motivated by fraud or greed." It also affirmed the award to OVEC of the
amount of P100,000.00 chargeable against the injunction bond posted by
CBISCO which was soundly and amply justified by the trial court.
The respondent Court likewise found no merit in OVECS appeal and held
that the trial court did not err in not charging and holding the injunction
bond posted by Sy liable for all the awards as the undertaking of CBISCO
under the bond referred only to damages which OVEC may suffer as a
result of the injunction.
From this decision, CBISCO and Sy filed this instant petition on the
following grounds:
A
PRIVATE RESPONDENT SHOULD NOT BE ALLOWED TO
UNJUSTLY ENRICH OR BE BENEFITTED AT THE EXPENSE OF
THE PETITIONERS.
B
RESPONDENT COURT OF APPEALS CO D SERIOUS ERROR OF
LAW AND GRAVE ABUSE OF DISCRETION IN NOT SETTING OFF
THE P100,000.00 SUPPOSED DAMAGE RESULTING FROM THE
INJUNCTION AGAINST THE P290,000.00 REMAINING CASH
DEPOSIT OF PETITIONER ENRIQUE SY.
C
RESPONDENT COURT OF APPEALS FURTHER COMMITTED
SERIOUS ERROR OF LAW AND GRAVE ABUSE OF DISCRETION
IN NOT DISMISSING PRIVATE RESPONDENTS COUNTER-CLAIM
FOR FAILURE TO PAY THE NECESSARY DOCKET FEE. (p.
10, Rollo)

We find no merit in petitioners' argument that the forfeiture clause
stipulated in the lease agreement would unjustly enrich the respondent
OVEC at the expense of Sy and CBISCO contrary to law, morals, good
customs, public order or public policy. A provision which calls for the
forfeiture of the remaining deposit still in the possession of the lessor,
without prejudice to any other obligation still owing, in the event of the
termination or cancellation of the agreement by reason of the lessee's
violation of any of the terms and conditions of the agreement is a penal
clause that may be validly entered into. A penal clause is an accessory
obligation which the parties attach to a principal obligation for the purpose
of insuring the performance thereof by imposing on the debtor a special
presentation (generally consisting in the payment of a sum of money) in
case the obligation is not fulfilled or is irregularly or inadequately fulfilled.
(Eduardo P. Caguioa, Comments and Cases on Civil Law, Vol. IV, First
Edition, pp. 199-200) As a general rule, in obligations with a penal clause,
the penalty shall substitute the indemnity for damages and the payment of
interests in case of non-compliance. This is specifically provided for in
Article 1226, par. 1, New Civil Code. In such case, proof of actual
damages suffered by the creditor is not necessary in order that the penalty
may be demanded (Article 1228, New Civil Code). However, there are
exceptions to the rule that the penalty shall substitute the indemnity for
damages and the payment of interests in case of non-compliance with the
principal obligation. They are first, when there is a stipulation to the
contrary; second, when the obligor is sued for refusal to pay the agreed
penalty; and third, when the obligor is guilty of fraud (Article 1226, par. 1,
New Civil Code). It is evident that in all said cases, the purpose of the
penalty is to punish the obligor. Therefore, the obligee can recover from
the obligor not only the penalty but also the damages resulting from the
non-fulfillment or defective performance of the principal obligation.
In the case at bar, inasmuch as the forfeiture clause provides that the
deposit shall be deemed forfeited, without prejudice to any other obligation
still owing by the lessee to the lessor, the penalty cannot substitute for the
P100,000.00 supposed damage resulting from the issuance of the
injunction against the P290,000.00 remaining cash deposit. This
supposed damage suffered by OVEC was the alleged P10,000.00 a
month increase in rental from P50,000.00 to P60,000,00), which OVEC
failed to realize for ten months from February to November, 1980 in the
total sum of P100,000.00. This opportunity cost which was duly proven
before the trial court, was correctly made chargeable by the said court
against the injunction bond posted by CBISCO. The undertaking assumed
by CBISCO under subject injunction refers to "all such damages as such
party may sustain by reason of the injunction if the Court should finally
decide that the Plaintiff was/were not entitled thereto." (Rollo, p. 101)
Thus, the respondent Court correctly sustained the trial court in holding
that the bond shall and may answer only for damages which OVEC may
suffer as a result of the injunction. The arrears in rental, the unmeritted
amounts of the amusement tax delinquency, the amount of P100,000.00
(P10,000.00 portions of each monthly rental which were not deducted
from plaintiffs cash deposit from February to November, 1980 after the
forfeiture of said cash deposit on February 11, 1980) and attorney's fees
which were all charged against Sy were correctly considered by the
respondent Court as damages which OVEC sustained not as a result of
the injunction.
There is likewise no merit to the claim of petitioners that respondent Court acquire jurisdiction; and (c) the court has jurisdiction to entertain the claim
committed serious error of law and grave abuse of discretion in not (see Javier v. Intermediate Appellate Court, G.R. 75379, March 31, 1989,
dismissing private respondent's counterclaim for failure to pay the 171 SCRA 605). Whether the respective claims asserted by the parties
necessary docket fee, which is an issue raised for the first time in this arise out of the same contract or transaction within the limitation on
petition. Petitioners rely on the rule in Manchester Development counterclaims imposed by the statutes depends on a consideration of all
Corporation v. Court of Appeals, G.R. No. 75919, May 7, 1987, 149 SCRA the facts brought forth by the parties and on a determination of whether
562 to the effect that all the proceedings held in connection with a case there is some legal or equitable relationship between the ground of
where the correct docket fees are not paid should be peremptorily be recovery alleged in the counterclaim and the matters alleged as the cause
considered null and void because, for all legal purposes, the trial court of action by the plaintiff (80 C.J.S. 48). As the counterclaims of OVEC
never acquired jurisdiction over the case. It should be remembered arise from or are necessarily connected with the facts alleged in the
however, that in Davao Light and Power Co., Inc. v. Dinopol, G.R. 75195, complaint for reformation of instrument of Sy, it is clear that said
August 19, 1988, 164 SCRA 748, this Court took note of the fact that the counterclaims are compulsory.
assailed order of the trial court was issued prior to the resolution in the
Manchester case and held that its strict application to the case at bar
would therefore be unduly harsh. Thus, We allowed the amendment of the
complaint by specifying the amount of damages within a non-extendible
period of five (5) days from notice and the re-assessment of the filing fees.
ACCORDINGLY, finding no merit in the grounds relied upon by petitioners
Then, in Sun Insurance Office, Ltd. v. Asuncion, G.R. 79937-38, February in their petition, the same is hereby DENIED and the decision dated June
3, 1989, 170 SCRA 274, We held that where the filing of the initiatory
15, 1988 and the resolution dated September 21, 1988, both of the
pleading is not accompanied by payment of the docket fee, the court may respondent Court of Appeals are AFFIRMED.
allow payment of the fee within a reasonable time but in no case beyond
the applicable prescriptive or reglemen tary period.
SO ORDERED.
Nevertheless, OVEC's counterclaims are compulsory so no docket fees
are required as the following circumstances are present: (a) they arise out
of or are necessarily connected with the transaction or occurrence that is
subject matter of the opposing party's claim; (b) they do not require for
their adjudication the presence of third parties of whom the court cannot