Republic of the Philippines defendant alleged that he suffered damages in the sum of P1,000 on account of the
SUPREME COURT filing of this action against him by the plaintiff with full knowledge that the said
Manila
EN BANC
G.R. No. L-48930 February 23, 1944
ANTONIO VAZQUEZ, petitioner,
vs.
FRANCISCO DE BORJA, respondent.
x---------------------------------------------------------x
G.R. No. L-48931 February 23, 1944
FRANCISCO DE BORJA, petitioner,
vs.
ANTONIO VAZQUEZ, respondent.
OZAETA, J.:
This action was commenced in the Court of First Instance of Manila by Francisco de
Borja against Antonio Vazquez and Fernando Busuego to recover from them jointly
and severally the total sum of P4,702.70 upon three alleged causes of action, to wit:
First, that in or about the month of January, 1932, the defendants jointly and severally
obligated themselves to sell to the plaintiff 4,000 cavans of palay at P2.10 per cavan,
to be delivered during the month of February, 1932, the said defendants having
subsequently received from the plaintiff in virtue of said agreement the sum of
P8,400; that the defendants delivered to the plaintiff during the months of February,
March, and April, 1932, only 2,488 cavans of palay of the value of P5,224.80 and
refused to deliver the balance of 1,512 cavans of the value of P3,175.20
notwithstanding repeated demands. Second, that because of defendants' refusal to
deliver to the plaintiff the said 1,512 cavans of palay within the period above
mentioned, the plaintiff suffered damages in the sum of P1,000. And, third, that on
account of the agreement above mentioned the plaintiff delivered to the defendants
4,000 empty sacks, of which they returned to the plaintiff only 2,490 and refused to
deliver to the plaintiff the balance of 1,510 sacks or to pay their value amounting to
P377.50; and that on account of such refusal the plaintiff suffered damages in the
sum of P150.
The defendant Antonio Vazquez answered the complaint, denying having entered into
the contract mentioned in the first cause of action in his own individual and personal
capacity, either solely or together with his codefendant Fernando Busuego, and
alleging that the agreement for the purchase of 4,000 cavans of palay and the
payment of the price of P8,400 were made by the plaintiff with and to the Natividad-
Vasquez Sabani Development Co., Inc., a corporation organized and existing under
the laws of the Philippines, of which the defendant Antonio Vazquez was the acting
manager at the time the transaction took place. By way of counterclaim, the said
defendant had nothing to do whatever with any and all of the transactions mentioned
in the complaint in his own individual and personal capacity.
The trial court rendered judgment ordering the defendant Antonio Vazquez to pay to
the plaintiff the sum of P3,175.20 plus the sum of P377.50, with legal interest on both
sums, and absolving the defendant Fernando Busuego (treasurer of the corporation)
from the complaint and the plaintiff from the defendant Antonio Vazquez'
counterclaim. Upon appeal to the Court of Appeals, the latter modified that judgment
by reducing it to the total sum of P3,314.78, with legal interest thereon and the costs.
But by a subsequent resolution upon the defendant's motion for reconsideration, the
Court of Appeals set aside its judgment and ordered that the case be remanded to the
court of origin for further proceedings. The defendant Vazquez, not being agreeable
to that result, filed the present petition for certiorari (G.R. No. 48930) to review and
reverse the judgment of the Court of Appeals; and the plaintiff Francisco de Borja,
excepting to the resolution of the Court of Appeals whereby its original judgment was
set aside and the case was ordered remanded to the court of origin for further
proceedings, filed a cross-petition for certiorari (G.R. No. 48931) to maintain the
original judgment of the Court of Appeals.
The original decision of the Court of Appeals and its subsequent resolutions on
reconsideration read as follows:
Es hecho no controvertido que el 25 de Febrero de 1932, el demandado-
apelante vendio al demandante 4,000 cavanes de palay al precio de P2.10
el cavan, de los cuales, dicho demandante solamente recibio 2,583
cavanes; y que asimismo recibio para su envase 4,000 sacos vacios. Esta
provbado que de dichos 4,000 sacos vacios solamente se entregaron, 2,583
quedando en poder del demandado el resto, y cuyo valor es el de P0.24
cada uno. Presentada la demanda contra los demandados Antonio Vazquez
y Fernando Busuego para el pago de la cantidad de P4,702.70, con sus
intereses legales desde el 1.o de marzo de 1932 hasta su completo pago y
las costas, el Juzgado de Primera Instancia de Manila el asunto condenando
a Antonio Vazquez a pagar al demandante la cantidad de P3,175.20, mas la
cantidad de P377.50, con sus intereses legales, absolviendo al demandado
Fernando Busuego de la demanda y al demandante de la reconvencion de
los demandados, sin especial pronunciamiento en cuanto a las costas. De
dicha decision apelo el demandado Antonio Vazquez, apuntado como
principal error el de que el habia sido condenado personalmente, y no la
corporacion por el representada.
Segun la preponderancia de las pruebas, la venta hecha por Antonio
Vazquez a favor de Francisco de Borja de los 4,000 cavanes de palay fue
en su capacidad de Presidente interino y Manager de la corporacion
Natividad-Vazquez Sabani Development Co., Inc. Asi resulta del Exh. 1, que
es la copia al carbon del recibo otorgado por el demandado Vazquez, y cuyo
original lo habia perdido el demandante, segun el. Asi tambien consta en los
libros de la corporacion arriba mencionada, puesto que en los mismos se ha
asentado tanto la entrada de los P8,400, precio del palay, como su envio al
gobierno en pago de los alquileres de la Hacienda Sabani. Asi mismo lo
admitio Francisco de Borja al abogado Sr. Jacinto Tomacruz, posterior
presidente de la corporacion sucesora en el arrendamiento de la Sabani
Estate, cuando el solicito sus buenos oficios para el cobro del precio del
palay no entregado. Asi igualmente lo declaro el que hizo entrega de parte
del palay a Borja, Felipe Veneracion, cuyo testimonio no ha sido refutado. Y
asi se deduce de la misma demanda, cuando se incluyo en ella a Fernando
Busuego, tesorero de la Natividad-Vazquez Sabani Development Co., Inc.
Siendo esto asi, la principal responsable debe ser la Natividad-Vazquez
Sabani Development Co., Inc., que quedo insolvente y dejo de existir. El
Juez sentenciador declaro, sin embargo, al demandado Vazquez
responsable del pago de la cantidad reclamada por su negligencia al vender
los referidos 4,000 cavanes de palay sin averiguar antes si o no dicha
cantidad existia en las bodegas de la corporacion.
Resulta del Exh. 8 que despues de la venta de los 4,000 cavanes de palay a
Francisco de Borja, el mismo demandado vendio a Kwong Ah Phoy 1,500
cavanes al precio de P2.00 el cavan, y decimos 'despues' porque esta
ultima venta aparece asentada despues de la primera. Segun esto, el
apelante no solamente obro con negligencia, sino interviniendo culpa de su
parte, por lo que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo
Civil, el debe ser responsable subsidiariamente del pago de la cantidad
objecto de la demanda.
En meritos de todo lo expuesto, se confirma la decision apelada con la
modificacion de que el apelante debe pagar al apelado la suma de
P2,295.70 como valor de los 1,417 cavanes de palay que dejo de entregar
al demandante, mas la suma de P339.08 como importe de los 1,417 sacos
vacios, que dejo de devolver, a razon de P0.24 el saco, total P3,314.78, con
sus intereses legales desde la interposicion de la demanda y las costas de
ambas instancias.
Vista la mocion de reconsideracion de nuestra decision de fecha 13 de
Octubre de 1942, y alegandose en la misma que cuando el apelante vendio
los 1,500 cavanes de palay a Ah Phoy, la corporacion todavia tenia bastante
existencia de dicho grano, y no estando dicho extremo suficientemente
discutido y probado, y pudiendo variar el resultado del asunto, dejamos sin
efecto nuestra citada decision, y ordenamos la devolucion de la causa al
Juzgado de origen para que reciba pruebas al efecto y dicte despues la
decision correspondiente.
Upon consideration of the motion of the attorney for the plaintiff-appellee in
case CA-G.R. No. 8676, Francisco de Borja vs. Antonio Vasquez et al.,
praying, for the reasons therein given, that the resolution of December 22,
1942, be reconsidered: Considering that said resolution remanding the case
to the lower court is for the benefit of the plaintiff-appellee to afford him
opportunity to refute the contention of the defendant-appellant Antonio
Vazquez, motion denied.
The action is on a contract, and the only issue pleaded and tried is whether the
plaintiff entered into the contract with the defendant Antonio Vazquez in his personal
capacity or as manager of the Natividad-Vazquez Sabani Development Co., Inc. The
Court of Appeals found that according to the preponderance of the evidence "the sale
made by Antonio Vazquez in favor of Francisco de Borja of 4,000 cavans of palay
was in his capacity as acting president and manager of the corporation Natividad-
Vazquez Sabani Development Co., Inc." That finding of fact is final and, it resolving
the only issue involved, should be determinative of the result.
The Court of Appeals doubly erred in ordering that the cause be remanded to the
court of origin for further trial to determine whether the corporation had sufficient stock
of palay at the time appellant sold, 1500 cavans of palay to Kwong Ah Phoy. First, if
that point was material to the issue, it should have been proven during the trial; and
the statement of the court that it had not been sufficiently discussed and proven was
no justification for ordering a new trial, which, by the way, neither party had solicited
but against which, on the contrary, both parties now vehemently protest. Second, the
point is, in any event, beside the issue, and this we shall now discuss in connection
with the original judgment of the Court of Appeals which the plaintiff cross-petitioner
seeks to maintain.
The action being on a contract, and it appearing from the preponderance of the
evidence that the party liable on the contract is the Natividad-Vazquez Sabani
Development Co., Inc. which is not a party herein, the complaint should have been
dismissed. Counsel for the plaintiff, in his brief as respondent, argues that altho by the
preponderance of the evidence the trial court and the Court of Appeals found that
Vazquez celebrated the contract in his capacity as acting president of the corporation
and altho it was the latter, thru Vazquez, with which the plaintiff had contracted and
which, thru Vazquez, had received the sum of P8,400 from Borja, and altho that was
true from the point of view of a legal fiction, "ello no impede que tambien sea verdad
lo alegado en la demanda de que la misma persona de Vasquez fue la que contrato
con Borja y que la misma persona de Vasquez fue quien recibio la suma de P8,400."
But such argument is invalid and insufficient to show that the president of the
corporation is personally liable on the contract duly and lawfully entered into by him in
its behalf.
It is well known that a corporation is an artificial being invested by law with a
personality of its own, separate and distinct from that of its stockholders and from that
of its officers who manage and run its affairs. The mere fact that its personality is
owing to a legal fiction and that it necessarily has to act thru its agents, does not
make the latter personally liable on a contract duly entered into, or for an act lawfully
performed, by them for an in its behalf. The legal fiction by which the personality of a
corporation is created is a practical reality and necessity. Without it no corporate
entities may exists and no corporate business may be transacted. Such legal fiction
may be disregarded only when an attempt is made to use it as a cloak to hide an
unlawful or fraudulent purpose. No such thing has been alleged or proven in this
case. It has not been alleged nor even intimated that Vazquez personally benefited by
the contract of sale in question and that he is merely invoking the legal fiction to avoid
personal liability. Neither is it contended that he entered into said contract for the
corporation in bad faith and with intent to defraud the plaintiff. We find no legal and
factual basis upon which to hold him liable on the contract either principally or
subsidiarily.
The trial court found him guilty of negligence in the performance of the contract and
held him personally liable on that account. On the other hand, the Court of Appeals
found that he "no solamente obro con negligencia, sino interveniendo culpa de su
parte, por lo que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe
ser responsable subsidiariamente del pago de la cantidad objeto de la demanda." We
think both the trial court and the Court of Appeals erred in law in so holding. They
have manifestly failed to distinguish a contractual from an extracontractual obligation,
or an obligation arising from contract from an obligation arising from culpa aquiliana.
The fault and negligence referred to in articles 1101-1104 of the Civil Code are those
incidental to the fulfillment or nonfullfillment of a contractual obligation; while the fault
or negligence referred to in article 1902 is the culpa aquiliana of the civil law,
homologous but not identical to tort of the common law, which gives rise to an
obligation independently of any contract. (Cf. Manila R.R. Co. vs. Cia. Trasatlantica,
38 Phil., 875, 887-890; Cangco vs. Manila R.R. Co., 38 Phil. 768.) The fact that the
corporation, acting thru Vazquez as its manager, was guilty of negligence in the
fulfillment of the contract, did not make Vazquez principally or even subsidiarily liable
for such negligence. Since it was the corporation's contract, its nonfulfillment, whether
due to negligence or fault or to any other cause, made the corporation and not its
agent liable.
On the other hand if independently of the contract Vazquez by his fault or negligence
cause damaged to the plaintiff, he would be liable to the latter under article 1902 of
the Civil Code. But then the plaintiff's cause of action should be based on culpa
aquiliana and not on the contract alleged in his complaint herein; and Vazquez'
liability would be principal and not merely subsidiary, as the Court of Appeals has
erroneously held. No such cause of action was alleged in the complaint or tried by
express or implied consent of the parties by virtue of section 4 of Rule 17. Hence the
trial court had no jurisdiction over the issue and could not adjudicate upon it
(Reyes vs. Diaz, G.R. No. 48754.) Consequently it was error for the Court of Appeals
to remand the case to the trial court to try and decide such issue.
It only remains for us to consider petitioner's second assignment of error referring to
the lower courts' refusal to entertain his counterclaim for damages against the
respondent Borja arising from the bringing of this action. The lower courts having
sustained plaintiff's action. The finding of the Court of Appeals that according to the
preponderance of the evidence the defendant Vazquez celebrated the contract not in
his personal capacity but as acting president and manager of the corporation, does
not warrant his contention that the suit against him is malicious and tortious; and
since we have to decide defendant's counterclaim upon the facts found by the Court
of Appeals, we find no sufficient basis upon which to sustain said counterclaim.
Indeed, we feel that a a matter of moral justice we ought to state here that the
indignant attitude adopted by the defendant towards the plaintiff for having brought
this action against him is in our estimation not wholly right. Altho from the legal point
of view he was not personally liable for the fulfillment of the contract entered into by
him on behalf of the corporation of which he was the acting president and manager,
we think it was his moral duty towards the party with whom he contracted in said
capacity to see to it that the corporation represented by him fulfilled the contract by
delivering the palay it had sold, the price of which it had already received. Recreant to
such duty as a moral person, he has no legitimate cause for indignation. We feel that
under the circumstances he not only has no cause of action against the plaintiff for
damages but is not even entitled to costs.
The judgment of the Court of Appeals is reversed, and the complaint is hereby
dismissed, without any finding as to costs.
Yulo, C.J., Moran, Horrilleno and Bocobo, JJ., concur.
Separate Opinions
PARAS, J., dissenting:
Upon the facts of this case as expressly or impliedly admitted in the majority opinion,
the plaintiff is entitled to a judgment against the defendant. The latter, as acting
president and manager of Natividad-Vazquez Sabani Development Co., Inc., and with
full knowledge of the then insolvent status of his company, agreed to sell to the
plaintiff 4,000 cavans of palay. Notwithstanding the receipt from the plaintiff of the full
purchase price, the defendant delivered only 2,488 cavans and failed and refused to
deliver the remaining 1,512 cavans and failed and refused to deliver the remaining
1,512 cavans and a quantity of empty sacks, or their value. Such failure resulted,
according to the Court of First Instance of Manila and the Court of Appeals, from his
fault or negligence.
It is true that the cause of action made out by the complaint is technically based on a
contract between the plaintiff and Natividad-Vazquez Sabani Development Co., Inc.
which is not a party to this case. Nevertheless, inasmuch as it was proven at the trial
that the defendant was guilty of fault in that he prevented the performance of the
plaintiff's contract and also of negligence bordering on fraud which cause damage to
the plaintiff, the error of procedure should not be a hindrance to the rendition of a
decision in accordance with the evidence actually introduced by the parties, especially
when in such a situation we may order the necessary amendment of the pleadings, or
even consider them correspondingly amended.
As already stated, the corporation of which the defendant was acting president and
manager was, at the time he made the sale of the plaintiff, known to him to be
insolvent. As a matter of fact, said corporation was soon thereafter dissolved. There is
admitted damage on the part of the plaintiff, proven to have been inflicted by reason
of the fault or negligence of the defendant. In the interest of simple justice and to
avoid multiplicity of suits I am therefore impelled to consider the present action as one
based on fault or negligence and to sentence the defendant accordingly. Otherwise,
he would be allowed to profit by his own wrong under the protective cover of the
corporate existence of the company he represented. It cannot be pretended that any
advantage under the sale inured to the benefit of Natividad-Vazquez Sabani
Development Co., Inc. and not of the defendant personally, since the latter
undoubtedly owned a considerable part of its capital.

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 194507 September 8, 2014
FEDERAL BUILDERS, INC., Petitioner,
vs.
FOUNDATION SPECIALISTS, INC., Respondent,
x-----------------------x
G.R. No. 194621
FOUNDATION SPECIALISTS, INC., Petitioner,
vs.
FEDERAL BUILDERS, INC., Respondent.
DECISION
PERALTA, J.:
Before the Court are two consolidated cases, namely: (1) Petition for review on
certiorari under Rule 45 of the Rules of Court, docketed as G.R. No. 194507, filed by
Federal Builders, Inc., assailing the Decision1 and Resolution,2dated July 15, 2010
and November 23, 2010, respectively, of the Court of Appeals (CA) in CA-G.R. CV
No. 70849, which affirmed with modification the Decision 3 dated May 3, 2001 of the
Regional Trial Court (RTC) in Civil Case No. 92-075; and (2) Petition for review on
certiorari under Rule 45 of the Rules of Court,docketed as G.R. No. 194621, filed by
Foundation Specialists, Inc., assailing the same Decision 4 and Resolution,5 dated July
15, 2010 and November 23, 2010,respectively, of the CA in CA- G.R. CV No. 70849,
which affirmed with modification the Decision6 dated May 3, 2001 of the RTC in Civil
Case No. 92-075.
The antecedent facts are as follows:
On August 20, 1990, Federal Builders, Inc. (FBI) entered into an agreement with
Foundation Specialists, Inc. (FSI) whereby the latter, as subcontractor, undertook the
construction of the diaphragm wall, capping beam, and guide walls of the Trafalgar
Plaza located at Salcedo Village, Makati City (the Project), for a total contract price of
Seven Million Four Hundred Thousand Pesos (7,400,000.00). 7 Under the
agreement,8 FBI was to pay a downpayment equivalent to twenty percent (20%) of
the contract price and the balance, through a progress billing every fifteen (15) days,
payable not later than one (1) week from presentation of the billing.
On January 9, 1992, FSI filed a complaint for Sum of Money against FBI before the
RTC of Makati City seeking to collect the amount of One Million Six Hundred Thirty-
Five Thousand Two Hundred Seventy-Eight Pesos and Ninety-One Centavos
(1,635,278.91), representing Billings No. 3 and 4, with accrued interest from August
1, 1991 plus moral and exemplary damages with attorneys fees. 9 In its complaint,FSI
alleged that FBI refused to pay said amount despite demand and itscompletion of
ninety-seven percent (97%) of the contracted works.
In its Answer with Counterclaim, FBI claimed that FSI completed only eighty-five
percent (85%) of the contracted works, failing to finish the diaphragm wall and
component works in accordance with the plans and specifications and abandoning
the jobsite. FBI maintains that because of FSIs inadequacy, its schedule in finishing
the Project has been delayed resulting in the Project owners deferment of its own
progress billings.10 It further interposed counterclaims for amounts it spent for the
remedial works on the alleged defects in FSIs work.
On May 3, 2001, after evaluating the evidence of both parties, the RTC ruled in favor
of FSI, the dispositive portion of its Decision reads:
WHEREFORE, on the basis of the foregoing, judgment is rendered ordering
defendant to pay plaintiff the following:
1. The sum of 1,024,600.00 representing billings 3 and 4, less the amount
of 33,354.40 plus 12% legal interest from August 30, 1991;
2. The sum of 279,585.00 representing the cost of undelivered cement;
3. The sum of 200,000.00 as attorneys fees; and
4. The cost of suit.
Defendants counterclaim is deniedfor lack of factual and legal basis.
SO ORDERED.11
On appeal, the CA affirmed the Decision of the lower court, but deleted the sum of
279,585.00 representing the cost of undelivered cement and reduced the award of
attorneys fees to 50,000.00. In its Decision12 dated July 15, 2010, the CA explained
that FSI failed to substantiate how and in what manner it incurred the cost of cement
by stressing that its claim was not supported by actual receipts. Also, it found that
while the trial court did not err in awarding attorneys fees, the same should be
reduced for being unconscionable and excessive. On FBIs rejection of the 12%
annual interest rate on the amount of Billings 3 and 4, the CA ruled that the lower
court did not err in imposing the same in the following wise:
x x x The rule is well-settled that when an obligation is breached, and it consists in the
payment of a sum of money, the interest due shall itself earn legal interest from the
time it is judicially demanded (BPI Family Savings Bank, Inc. vs. First Metro
Investment Corporation, 429 SCRA 30). When there is no rate of interest stipulated,
such as in the present case, the legal rate of interest shall be imposed, pursuant to
Article 2209 of the New Civil Code. In the absence of a stipulated interest rate on a
loan due, the legal rate of interest shall be 12% per annum.13
Both parties filed separate Motions for Reconsideration assailing different portions of
the CADecision, but to no avail.14 Undaunted, they subsequently elevated their claims
withthis Court via petitions for review on certiorari.
On the one hand, FSI asserted that the CA should not have deleted the sum of
279,585.00 representing the cost of undelivered cement and reduced the award of
attorneys fees to 50,000.00, since it was an undisputed fact that FBI failed to deliver
the agreed quantity of cement. On the other hand, FBI faulted the CA for affirming the
decision of the lower court insofar as the award of the sum representing Billings 3 and
4, the interest imposed thereon, and the rejection of his counterclaim were concerned.
In a Resolution15 dated February 21, 2011, however, this Court denied, with finality,
the petition filed by FSI in G.R. No. 194621 for having been filed late.
Hence, the present petition filed byFBI in G.R. No. 194507 invoking the following
arguments:
I.
THE COURT OF APPEALS COMMITTED A CLEAR, REVERSABLE
ERROR WHEN IT AFFIRMED THE TRIAL COURTS JUDGMENT THAT
FEDERAL BUILDERS, INC. WAS LIABLE TO PAY THE BALANCE OF
1,024,600.00 LESS THE AMOUNT OF 33,354.40 NOTWITHSTANDING
THAT THE DIAPHRAGM WALL CONSTRUCTED BY FOUNDATION
SPECIALIST, INC. WAS CONCEDEDLY DEFECTIVE AND OUT-OF-
SPECIFICATIONS AND THAT PETITIONER HAD TO REDO IT AT ITS
OWN EXPENSE.
II.
THE COURT OF APPEALS COMMITTED SERIOUS, REVERSABLE
ERROR WHEN IT IMPOSED THE 12% LEGAL INTEREST FROM AUGUST
30, 1991 ON THE DISPUTED CLAIM OF 1,024,600.00 LESS THE
AMOUNT OF 33,354.40 DESPITE THE FACT THAT THERE WAS NO
STIPULATION IN THE AGREEMENT OF THE PARTIES WITH REGARD
TO INTEREST AND DESPITE THE FACT THAT THEIR AGREEMENT
WAS NOT A "LOAN OR FORBEARANCE OF MONEY."
III.
THE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS
REVERSABLE ERROR WHEN IT DISMISSED THE COUNTERCLAIM OF
PETITIONER NOTWITHSTANDING OVERWHELMING EVIDENCE
SUPPORTING ITS CLAIM OF 8,582,756.29 AS ACTUAL DAMAGES.
The petition is partly meritorious.
We agree with the courts below and reject FBIs first and third arguments. Well-
entrenched in jurisprudence is the rule that factual findings of the trial court, especially
when affirmed by the appellate court, are accorded the highest degree of respectand
considered conclusive between the parties, save for the following exceptional and
meritorious circumstances: (1) when the factual findings of the appellate court and the
trial court are contradictory; (2) whenthe findings of the trial court are grounded
entirely on speculation, surmises or conjectures; (3) when the lower courts inference
from its factual findings is manifestly mistaken, absurd or impossible; (4) when there
is grave abuse of discretion in the appreciation of facts; (5) when the findings of the
appellate court go beyond the issues of the case, or fail to notice certain relevant facts
which, if properly considered, will justify a different conclusion; (6) when there is a
misappreciation of facts; (7) when the findings of fact are themselves conflicting; and
(8) when the findings of fact are conclusions without mention of the specific evidence
on which they are based, are premised on the absence of evidence, or are
contradicted by evidence on record.16
None of the aforementioned exceptions are present herein. In the assailed Decision,
the RTC meticulouslydiscussed the obligations of each party, the degree of their
compliance therewith, as well as their respective shortcomings, all of which were
properly substantiated with the corresponding documentary and testimonial evidence.
Under the construction agreement, FSIs scope of workconsisted in (1) the
construction of the guide walls, diaphragm walls, and capping beam; and (2) the
installation of steel props.17 As the lower courts aptly observed from the records at
hand, FSI had, indeed, completed ninety-seven percent (97%) of its contracted works
and the non-completion of the remaining three percent (3%), as well as the alleged
defects in the said works, are actually attributable to FBIs own fault such as, but not
limited to, the failure to deliver the needed cement as agreed upon in the contract, to
wit:
On March 8, 1991, plaintiff had finished the construction of the guide wall and
diaphragm wall (Exh. "R") but had not yet constructed the capping beam as of April
22, 1991 for defendants failure to deliver the needed cement in accordance with their
agreement(Exhibit "I"). The diaphragm wall had likewise been concrete tested and
was found to have conformed with the required design strength (Exh. "R").
Subsequently, plaintiff was paid the aggregate amount of 5,814,000.00. But as of
May 30, 1991, plaintiffs billings numbers 3 and 4 had remained unpaid (Exhs. "L",
"M", and "M-1").
xxxx
On the misaligned diaphragm wall from top to bottom and inbetween panels, plaintiff
explained thatin the excavation of the soil where the rebar cages are lowered and
later poured with concrete cement, the characteristics of the soil is not the same or
homogenous all throughout. Because of this property of the soil,in the process of
excavation, it may erode in some places that may cause spaces that the cement may
fill or occupy which would naturally cause bulges, protrusions and misalignment in the
concrete cast into the excavated ground(tsn., June 1, 2000, pp 14-18). This, in fact
was anticipated when the agreement was executed and included as provision 6.4
thereof.
The construction of the diaphragm wall panel by panel caused misalignment and the
chipping off of the portions misaligned is considered a matter of course. Defendant,
as the main contractor of the project, has the responsibility of chopping or chipping off
of bulges(tsn., ibid, pp 20-21). Wrong location of rebar dowels was anticipated by both
contractor and subcontractor as the latter submitted a plan called "Detail of Sheer
Connectors" (Exh "T") which was approved.The plan provided two alternatives by
which the wrong location of rebar dowels may be remedied. Hence, defendant, aware
of the possibility of inaccurate location of these bars, cannot therefore ascribe the
same to the plaintiff as defective work.
Construction of the capping beam required the use of cement. Records, however,
show that from September 14, 1990 up to May 30, 1991 (Exhs. "B" to "L"), plaintiff
had repeatedly requested defendant to deliver cement. Finally, on April 22, 1991,
plaintiff notified defendant of its inability to construct the capping beam for the latters
failure to deliver the cement as provided in their agreement(Exh. "I"). Although
records show that there was mention of revision of design, there was no evidence
presented to show such revision required less amount of cement than what was
agreed on by plaintiff and defendant.
The seventh phase of the construction of the diaphragm wall is the construction of the
steel props which could be installed only after the soil has been excavated by the
main contractor. When defendant directed plaintiff to install the props, the latter
requested for a site inspection to determine if the excavation of the soil was finished
up to the 4th level basement. Plaintiff, however, did not receive any response.It later
learned that defendant had contracted out that portion of work to another sub-
contractor (Exhs. "O" and "P"). Nevertheless, plaintiff informed defendant of its
willingness to execute that portion of its work.18
It is clear from the foregoing that contrary to the allegations of FBI, FSI had indeed
completed its assigned obligations, with the exception of certain assigned tasks,
which was due to the failure of FBI to fulfil its end of the bargain.
It can similarly be deduced that the defects FBI complained of, such as the misaligned
diaphragm wall and the erroneous location of the rebar dowels, were not only
anticipated by the parties, having stipulated alternative plans to remedy the same, but
more importantly, are also attributable to the very actions of FBI. Accordingly,
considering that the alleged defects in FSIs contracted works were not so much due
to the fault or negligence of the FSI, but were satisfactorily proven to be caused by
FBIs own acts, FBIs claim of 8,582,756.29 representing the cost of the measures it
undertook to rectify the alleged defects must necessarily fail. In fact, as the lower
court noted, at the time when FBI had evaluated FSIs works, it did not categorically
pose any objection thereto, viz:
Defendant admitted that it had paid 6 million based on its evaluation of plaintiffs
accomplishments (tsn., Sept. 28, 2000, p. 17) and its payment was made without
objection on plaintiffs works, the majority of which were for the accomplishments in
the construction of the diaphragm wall (tsn., ibid, p. 70).
xxxx
While there is no evidence to show the scope of work for these billings, it is safe to
assume that these were also works in the construction of the diaphragm wall
considering that as of May 16, 1991, plaintiff had only the installation of the steel
props and welding works to complete (Exh. "H"). If defendant was able to evaluate the
work finished by plaintiff the majority of which was the construction of the diaphragm
wall and paid it about 6 million as accomplishment, there was no reason why it could
not evaluate plaintiffs works covered by billings 3 and 4.In other words, defendants
did nothave to excavate in order to determine and evaluate plaintiffs works. Hence,
defendants refusal to pay was not justified and the alleged defects of the diaphragm
wall (tsn, Sept. 28, 2000, p. 17) which it claims to have discovered only after January
1992 were mere afterthoughts.19
Thus, in the absence of any record to otherwise prove FSIs neglect in the fulfilment of
its obligations under the contract, this Court shall refrain from reversing the findings of
the courts below, which are fully supported by and deducible from, the evidence on
record. Indeed, FBI failed to present any evidence to justify its refusal to pay FSI for
the works it was contracted to perform. As such, We do not see any reason to deviate
from the assailed rulings.
Anent FBIs second assignment of error, however, We find merit in the argument that
the 12% interest rateis inapplicable, since this case does not involve a loan or
forbearance ofmoney. In the landmark case of Eastern Shipping Lines, Inc. v. Court of
Appeals,20 We laid down the following guidelines in computing legal interest:
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed
at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages except when
or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
 reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in
any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.21
In line, however, with the recent circular of the Monetary Board of the Bangko Sentral
ng Pilipinas (BSP-MB) No. 799, we have modified the guidelines in Nacar v. Gallery
Frames,22 as follows:
I. When an obligation, regardless of itssource, i.e., law, contracts,
quasicontracts, delicts or quasi-delicts is breached, the contravenor can be
held liable for damages. The provisions under Title XVIII on "Damages" of
the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 6% per annumto be computed from
default, i.e., from judicial or extrajudicial demand under and subject
to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of
6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand
can be established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or
extrajudicially(Art. 1169, Civil Code), but when such certainty
cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged. 3. When the judgment of
the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1
or paragraph 2, above, shall be 6% per annumfrom such finality
until its satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and executory prior
to July 1, 2013, shall not be disturbed and shall continue to be implemented applying
the rate of interest fixed therein.23
It should be noted, however, that the new rate could only be applied prospectively and
not retroactively. Consequently, the twelve percent (12%) per annum legal interest
shall apply only until June 30, 2013. Come July 1, 2013, the new rate of six percent
(6%) per annum shall be the prevailing rate of interest when applicable. Thus, the
need to determine whether the obligation involved herein is a loanand forbearance of
money nonetheless exists.
In S.C. Megaworld Construction and Development Corporation v. Engr. Parada,24 We
clarified the meaning of obligations constituting loans or forbearance of money in the
following wise:
As further clarified in the case of Sunga-Chan v. CA, a loan or forbearance of money,
goods or credit describes a contractual obligation whereby a lender or creditor has
refrained during a given period from requiring the borrower or debtor to repay the loan
or debt then due and payable. Thus:
In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum
under Central Bank (CB) Circular No. 416 shall be adjudged only in cases involving
the loan or forbearance of money. And for transactions involving payment of
indemnities in the concept of damages arising from default in the performance of
obligations in general and/or for money judgment not involving a loan or forbearance
of money, goods, or credit, the governing provision is Art. 2209 of the Civil Code
prescribing a yearly 6% interest. Art. 2209 pertinently provides:
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary,
shall be the payment of the interest agreed upon, and in the absence of stipulation,
the legal interest, which is six per cent per annum.
The term "forbearance," within the context of usury law, has been described as a
contractual obligation ofa lender or creditor to refrain, during a given period of time,
from requiring the borrower or debtor to repay the loan or debt then due and
payable.25
Forbearance of money, goods or credits, therefore, refers to arrangements other than
loan agreements, where a person acquiesces to the temporary use of his money,
goods orcredits pending the happening of certain events or fulfilment of certain
conditions.26 Consequently, if those conditions are breached, said person is entitled
not only to the return of the principal amount paid, but also to compensation for the
use of his money which would be the same rateof legal interest applicable to a loan
since the use or deprivation of funds therein is similar to a loan.27

This case, however, does not involve an acquiescence to the temporary use of a
partys money but a performance of a particular service, specifically the construction
of the diaphragm wall, capping beam, and guide walls of the Trafalgar Plaza.

A review of similar jurisprudence would tell us that this Court had repeatedly
recognized this distinction and awarded interest at a rate of 6% on actual or
compensatory damages arising from a breach not only of construction
contracts,28 such as the one subject ofthis case, but also of contracts wherein one of
the parties reneged on its obligation to perform messengerial services, 29 deliver
certain quantities of molasses,30 undertake the reforestation of a denuded forest
land,31 as well as breaches of contracts of carriage,32 and trucking agreements.33 We
have explained therein that the reason behind such is that said contracts do not
partake of loans or forbearance of money but are more in the nature of contracts of
service.

Thus, in the absence of any stipulation as to interest in the agreement between the
parties herein, the matter of interest award arising from the dispute in this case would
actually fall under the second paragraph of the above-quoted guidelines inthe
landmark case of Eastern Shipping Lines, which necessitates the imposition of
interestat the rate of 6%, instead of the 12% imposed by the courts below.

The 6% interest rate shall further be imposed from the finality of the judgment herein
until satisfaction thereof, in light of our recent ruling in Nacar v. Gallery Frames. 34

Note, however, that contrary to FBIsassertion, We find no error in the RTCs ruling
that the interest shall begin to run from August 30, 1991 as this is the date when FSI
extrajudicially made its claim against FBI through a letter demanding payment for its
services.35

In view of the foregoing, therefore, We find no compelling reason to disturb the factual
findings of the RTC and the CA, which are fully supported by and deducible from, the
evidence on record, insofar as the sum representing Billings 3 and 4 is concerned. As
to the rate of interest due thereon, however, We note that the same should be
reduced to 6% per annum considering the fact that the obligation involved herein
does not partake of a loan or forbearance of money.

WHEREFORE, premises considered, the instant petition is DENIED. The Decision

and Resolution, dated July 15, 2010 and November 23, 2010, respectively, of the
Court of Appeals in CA-G.R. CV No. 70849 are hereby AFFIRMED with
MODIFICATION. Federal Builders, Inc. is ORDERED to pay Foundation Specialists,
Inc. the sum of Pl ,024,600.00 representing billings 3 and 4, less the amount of
33,354.40, plus interest at six percent (6%) per annum reckoned from August 30,
1991 until full payment thereof.

SO ORDERED.

THIRD DIVISION
[G.R. No. 131622. November 27, 1998]
LETICIA Y. MEDEL DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners,
vs. COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and
DANILO G. GONZALES, JR., doing lending business under the trade
name and style "GONZALES CREDIT ENTERPRISES", respondents.
DECISION
PARDO, J.:
The case before the Court is a petition for review on certiorari, under Rule 45 of
the Revised Rules of Court, seeking to set aside the decision of the Court of
Appeals,[1] and its resolution denying reconsideration,[2] the dispositive portion of which
decision reads as follows:
"WHEREFORE, the appealed judgment is hereby
MODIFIED such that defendants are hereby ordered to pay the
plaintiff: the sum of P500,000.00, plus 5.5% per month interest
and 2% service charge per annum effective July 23, 1986, plus
1% per month of the total amount due and demandable as penalty
charges effective August 23, 1986, until the entire amount is fully
paid.
"The award to the plaintiff of P50,000.00 as attorney's
fees is affirmed. And so is the imposition of costs against the
defendants.
SO ORDERED."[3]
The Court required the respondents to comment on the petition, [4] which was filed
on April 3, 1998,[5] and the petitioners to reply thereto, which was filed on May 29,
1998.[6] We now resolve to give due course to the petition and decide the case.
The facts of the case, as found by the Court of Appeals in its decision, which are
considered binding and conclusive on the parties herein, as the appeal is limited to
questions of law, are as follows:
On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando
and Leticia) obtained a loan from Veronica R. Gonzales (hereafter Veronica), who was
engaged in the money lending business under the name "Gonzales Credit Enterprises",
in the amount of P50,000.00, payable in two months. Veronica gave only the amount
of P47,000.00, to the borrowers, as she retained P3,000.00, as advance interest for
one month at 6% per month. Servado and Leticia executed a promissory note
for P50,000.00, to evidence the loan, payable on January 7, 1986.
On November 19, 1985, Servando and Leticia obtained from Veronica another
loan in the amount of P90,000.00, payable in two months, at 6% interest per
month.They executed a promissory note to evidence the loan, maturing on January 19,
1986. They received only P84,000.00, out of the proceeds of the loan.
On maturity of the two promissory notes, the borrowers failed to pay the
indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still another loan
in the amount of P300,000.00, maturing in one month, secured by a real estate
mortgage over a property belonging to Leticia Makalintal Yaptinchay, who issued a
special power of attorney in favor of Leticia Medel, authorizing her to execute the
mortgage. Servando and Leticia executed a promissory note in favor of Veronica to pay
the sum of P300,000.00, after a month, or on July 11, 1986. However, only the sum
of P275,000.00, was given to them out of the proceeds of the loan.
Like the previous loans, Servando and Medel failed to pay the third loan on
maturity.
On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael
Medel, consolidated all their previous unpaid loans totaling P440,000.00, and sought
from Veronica another loan in the amount of P60,000.00, bringing their indebtedness
to a total of P500,000.00, payable on August 23, 1986. The executed a promissory
note, reading as follows:
"Baliwag, Bulacan July 23, 1986
"Maturity Date August 23, 1986
"P500,000.00
"FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the
order of VERONICA R. GONZALES doing business in the business style
of GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to
Danilo G. Gonzales, Jr., of Baliwag Bulacan, the sum of PESOS ........
FIVE HUNDRED THOUSAND ..... (P500,000.00) Philippine
Currency with interest thereon at the rate of 5.5 PER CENT per month plus
2% service charge per annum from datehereof until fully paid according to
the amortization schedule contained herein. (Underscoring supplied)
"Payment will be made in full at the maturity date.
"Should I/WE fail to pay any amortization or portion hereof when due, all
the other installments together with all interest accrued shall immediately
be due and payable and I/WE hereby agree to pay
an additional amount equivalent to one per cent (1%) per month of the amo
unt due and demandable as penalty charges inthe form of liquidated dama
ges until fully paid; and the
further sum of TWENTY FIVE PER CENT (25%) thereon in full, without
deductions as Attorney's Feewhether actually incurred or not, of the total
 amount due and demandable, exclusive of costs and judicial or extra
judicial expenses. (Underscoring supplied)
"I, WE further agree that in the event the present rate of interest on loan is
increased by law or the Central Bank of the Philippines, the holder shall
have the option to apply and collect the increased interest charges without
notice although the original interest have already been collected wholly or
partially unless the contrary is required by law.
"It is also a special condition of this contract that the parties herein agree
that the amount of peso-obligation under this agreement is based on the
present value of peso, and if there be any change in the value thereof, due
to extraordinary inflation or deflation, or any other cause or reason, then
the peso-obligation herein contracted shall be adjusted in accordance with
the value of the peso then prevailing at the time of the complete fulfillment
of obligation.
"Demand and notice of dishonor waived. Holder may accept partial
payments and grant renewals of this note or extension of payments,
reserving rights against each and all indorsers and all parties to this note.
"IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the
debtors waive all his/their rights under the provisions of Section 12, Rule
39, of the Revised Rules of Court."
On maturity of the loan, the borrowers failed to pay the indebtedness
of P500,000.00, plus interests and penalties, evidenced by the above-quoted
promissory note.
On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G.
Gonzales, filed with the Regional Trial Court of Bulacan, Branch 16, at Malolos,
Bulacan, a complaint for collection of the full amount of the loan including interests and
other charges.
In his answer to the complaint filed with the trial court on April 5, 1990, defendant
Servando alleged that he did not obtain any loan from the plaintiffs; that it was
defendants Leticia and Dr. Rafael Medel who borrowed from the plaintiffs the sum
of P500,000.00, and actually received the amount and benefited therefrom; that the
loan was secured by a real estate mortgage executed in favor of the plaintiffs, and that
he (Servando Franco) signed the promissory note only as a witness.
In their separate answer filed on April 10,1990, defendants Leticia and Rafael
Medel alleged that the loan was the transaction of Leticia Yaptinchay, who executed a
mortgage in favor of the plaintiffs over a parcel of real estate situated in San Juan,
Batangas; that the interest rate is excessive at 5.5% per month with additional service
charge of 2% per annum, and penalty charge of 1% per month; that the stipulation for
attorney's fees of 25% ofthe amount due is unconscionable, illegal and excessive, and
that substantial payments made were applied to interest, penalties and other charges.
After due trial, the lower court declared that the due execution and genuineness
of the four promissory notes had been duly proved, and ruled that although the Usury
Law had been repealed, the interest charged by the plaintiffs on the loans was
unconscionable and "revolting to the conscience". Hence, the trial court applied "the
provision of the New [Civil] Code" that the "legal rate of interest for loan or forbearance
of money, goods or credit is 12% per annum." [7]
Accordingly, on December 9, 1991, the trial court rendered judgment, the
dispositive portion of which reads as follows:
"WHEREFORE, premises considered, judgment is hereby rendered, as follows:
"1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally,
to pay plaintiffs the amount of P47,000.00 plus 12% interest per annum from
November 7, 1985 and 1% per month as penalty, until the entire amount is paid in full.
"2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly
and severally the amount of P84,000.00 with 12% interest per annum and 1% per
cent per month as penalty from November 19,1985 until the whole amount is fully
paid;
"3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount
of P285,000.00 plus 12% interest per annum and 1% per month as penalty from July
11, 1986, until the whole amount is fully paid;
"4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount
of P50,000.00 as attorney's fees;
"5. All counterclaims are hereby dismissed.
"With costs against the defendants."[8]
In due time, both plaintiffs and defendants appealed to the Court of Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note, which
consolidated all the unpaid loans of the defendants, is the law that governs the
parties. They further argued that Circular No. 416 of the Central Bank prescribing the
rate of interest for loans or forbearance of money, goods or credit at 12% per annum,
applies only in the absence of a stipulation on interest rate, but not when the parties
agreed thereon.
The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that
"the Usury Law having become 'legally inexistent' with the promulgation by the Central
Bank in 1982 of Circular No. 905, the lender and borrower could agree on any interest
that may be charged on the loan".[9] The Court of Appeals further held that "the
imposition of 'an additional amount equivalent to 1% per month of the amount due and
demandable as penalty charges in the form of liquidated damages until fully paid' was
allowed by law".[10]
Accordingly, on March 21, 1997, the Court of Appeals promulgated it decision
reversing that of the Regional Trial Court, disposing as follows:
"WHEREFORE, the appealed judgment is hereby
MODIFIED such that defendants are hereby ordered to pay the
 plaintiffs the sum of P500,000.00, plus 5.5% per month interest
and 2% service charge per annum effective July 23, 1986, plus
1% per month of the total amount due and demandable as
penalty charges effective August 24, 1986, until the entire
amount is fully paid.
"The award to the plaintiffs of P50,000.00 as attorney's
fees is affirmed. And so is the imposition of costs against the
defendants.
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of
the Court of Appeals promulgated on March 21, 1997, and its resolution dated
November 25, 1997. Instead, we render judgment REVIVING and AFFIRMING the
decision dated December 9, 1991, of the Regional Trial Court of Bulacan, Branch 16,
Malolos, Bulacan, in Civil Case No. 134-M-90, involving the same parties.
No pronouncement as to costs in this instance
SO ORDERED.

"SO OREDERED."[11]
On April 15, 1997, defendants-appellants filed a motion for reconsideration of the
said decision. By resolution dated November 25, 1997, the Court of Appeals denied the
motion.[12]
Hence, defendants interposed the present recourse via petition for review
on certiorari.[13]
We find the petition meritorious.
Basically, the issue revolves on the validity of the interest rate stipulated
upon. Thus, the question presented is whether or not the stipulated rate of interest at
5.5% per month on the loan in the sum of P500,000.00, that plaintiffs extended to the
defendants is usurious. In other words, is the Usury Law still effective, or has it been
repealed by Central Bank Circular No. 905, adopted on December 22, 1982, pursuant
to its powers under P.D. No. 116, as amended by P.D. No. 1684?
We agree with petitioners that the stipulated rate of interest at 5.5% per month on
the P500,000.00 loan is excessive, iniquitous, unconscionable and
exorbitant.13However, we can not consider the rate "usurious" because this Court has
consistently held that Circulr No. 905 of the Central Bank, adopted on December 22,
1982, has expressly removed the interest ceilings prescribed by the Usury Law[14] and
that the Usury Law is now "legally inexistent".[15]
In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch
61[16] the Court held that CB Circular No. 905 "did not repeal nor in anyway amend the
Usury Law but simply suspended the latter's effectivity." Indeed, we have held that "a
Central Bank Circular can not repeal a law. Only a law can repeal another law."[17] In
the recent case of Florendo vs. Court of Appeals[18], the Court reiterated the ruling that
"by virtue of CB Circular 905, the Usury Law has been rendered ineffective"."Usury has
been legally non-existent in our jurisdiction. Interest can now be charged as lender and
borrower may agree upon."[19]
Nevertheless, we find the interest at 5.5% per month, or 66% per annum,
stipulated upon by the parties in the promissory note iniquitous or unconscionable, and,
hence, contrary to morals ("contra bonos mores"), if not against the law.[20] The
stipulation is void.[21] The courts shall reduce equitably liquidated damages, whether
intended as an indemnity or a penalty if they are iniquitous or unconscionable. [22]
Consequently, the Court of Appeals erred in upholding the stipulation of the
parties. Rather, we agree with the trial court that, under the circumstances, interest at
12% per annum, and an additional 1% a month penalty charge as liquidated damages
may be more reasonable.

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 185798 January 13, 2014
FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK INC., Petitioners,
vs.
SPOUSES CONRADO AND MARIA VICTORIA RONQUILLO, Respondents.
DECISION
PEREZ, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules
.of Civil Procedure assailing the Decision1 of the Court of Appeals in CA-G.R. SP No.
100450 which affirmed the Decision of the Office of the President in O.P. Case No.
06-F-216.
As culled from the records, the facts are as follow:
Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park
Place Tower while co-petitioner Fil-Estate Network, Inc. is its authorized marketing
agent. Respondent Spouses Conrado and Maria Victoria Ronquillo purchased from
petitioners an 82-square meter condominium unit at Central Park Place Tower in
Mandaluyong City for a pre-selling contract price of FIVE MILLION ONE HUNDRED
SEVENTY-FOUR THOUSAND ONLY (5,174,000.00). On 29 August 1997,
respondents executed and signed a Reservation Application Agreement wherein they
deposited 200,000.00 as reservation fee. As agreed upon, respondents paid the full
downpayment of 1,552,200.00 and had been paying the 63,363.33 monthly
amortizations until September 1998.
Upon learning that construction works had stopped, respondents likewise stopped
paying their monthly amortization. Claiming to have paid a total of 2,198,949.96 to
petitioners, respondents through two (2) successive letters, demanded a full refund of
their payment with interest. When their demands went unheeded, respondents were
constrained to file a Complaint for Refund and Damages before the Housing and
Land Use Regulatory Board (HLURB). Respondents prayed for reimbursement/refund
of 2,198,949.96 representing the total amortization payments, 200,000.00 as and
by way of moral damages, attorneys fees and other litigation expenses.
On 21 October 2000, the HLURB issued an Order of Default against petitioners for
failing to file their Answer within the reglementary period despite service of
summons.2
Petitioners filed a motion to lift order of default and attached their position paper
attributing the delay in construction to the 1997 Asian financial crisis. Petitioners
denied committing fraud or misrepresentation which could entitle respondents to an
award of moral damages.
On 13 June 2002, the HLURB, through Arbiter Atty. Joselito F. Melchor, rendered
judgment ordering petitioners to jointly and severally pay respondents the following
amount:
a) The amount of TWO MILLION ONE HUNDRED NINETY-EIGHT
THOUSAND NINE HUNDRED FORTY NINE PESOS & 96/100
(2,198,949.96) with interest thereon at twelve percent (12%) per annum to
be computed from the time of the complainants demand for refund on
October 08, 1998 until fully paid,
b) ONE HUNDRED THOUSAND PESOS (100,000.00) as moral damages,
c) FIFTY THOUSAND PESOS (50,000.00) as attorneys fees,
d) The costs of suit, and
e) An administrative fine of TEN THOUSAND PESOS (10,000.00) payable
to this Office fifteen (15) days upon receipt of this decision, for violation of
Section 20 in relation to Section 38 of PD 957.3
The Arbiter considered petitioners failure to develop the condominium project as a
substantial breach of their obligation which entitles respondents to seek for rescission
with payment of damages. The Arbiter also stated that mere economic hardship is not
an excuse for contractual and legal delay.
Petitioners appealed the Arbiters Decision through a petition for review pursuant to
Rule XII of the 1996 Rules of Procedure of HLURB. On 17 February 2005, the Board
of Commissioners of the HLURB denied4 the petition and affirmed the Arbiters
Decision. The HLURB reiterated that the depreciation of the peso as a result of the
Asian financial crisis is not a fortuitous event which will exempt petitioners from the
performance of their contractual obligation.
Petitioners filed a motion for reconsideration but it was denied 5 on 8 May 2006.
Thereafter, petitioners filed a Notice of Appeal with the Office of the President. On 18
April 2007, petitioners appeal was dismissed6 by the Office of the President for lack
of merit. Petitioners moved for a reconsideration but their motion was denied7 on 26
July 2007.
Petitioners sought relief from the Court of Appeals through a petition for review under
Rule 43 containing the same arguments they raised before the HLURB and the Office
of the President:
I.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE
DECISION OF THE HONORABLE HOUSING AND LAND USE REGULATORY
BOARD AND ORDERING PETITIONERS-APPELLANTS TO REFUND
RESPONDENTS-APPELLEES THE SUM OF 2,198,949.96 WITH 12% INTEREST
FROM 8 OCTOBER 1998 UNTIL FULLY PAID, CONSIDERING THAT THE
COMPLAINT STATES NO CAUSE OF ACTION AGAINST PETITIONERS-
APPELLANTS.
II.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE
DECISION OF THE OFFICE BELOW ORDERING PETITIONERS-APPELLANTS TO
PAY RESPONDENTS-APPELLEES THE SUM OF 100,000.00 AS MORAL
DAMAGES AND 50,000.00 AS ATTORNEYS FEES CONSIDERING THE
ABSENCE OF ANY FACTUAL OR LEGAL BASIS THEREFOR.
III.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE
DECISION OF THE HOUSING AND LAND USE REGULATORY BOARD
ORDERING PETITIONERS-APPELLANTS TO PAY 10,000.00 AS
ADMINISTRATIVE FINE IN THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS
TO SUPPORT SUCH FINDING.8
On 30 July 2008, the Court of Appeals denied the petition for review for lack of merit.
The appellate court echoed the HLURB Arbiters ruling that "a buyer for a
condominium/subdivision unit/lot unit which has not been developed in accordance
with the approved condominium/subdivision plan within the time limit for complying
with said developmental requirement may opt for reimbursement under Section 20 in
relation to Section 23 of Presidential Decree (P.D.) 957 x x x."9 The appellate court
supported the HLURB Arbiters conclusion, which was affirmed by the HLURB Board
of Commission and the Office of the President, that petitioners failure to develop the
condominium project is tantamount to a substantial breach which warrants a refund of
the total amount paid, including interest. The appellate court pointed out that
petitioners failed to prove that the Asian financial crisis constitutes a fortuitous event
which could excuse them from the performance of their contractual and statutory
obligations. The appellate court also affirmed the award of moral damages in light of
petitioners unjustified refusal to satisfy respondents claim and the legality of the
administrative fine, as provided in Section 20 of Presidential Decree No. 957.
Petitioners sought reconsideration but it was denied in a Resolution 10 dated 11
December 2008 by the Court of Appeals.
Aggrieved, petitioners filed the instant petition advancing substantially the same
grounds for review:
A.
THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED IN TOTO
THE DECISION OF THE OFFICE OF THE PRESIDENT WHICH SUSTAINED
RESCISSION AND REFUND IN FAVOR OF THE RESPONDENTS DESPITE LACK
OF CAUSE OF ACTION.
B.
GRANTING FOR THE SAKE OF ARGUMENT THAT THE PETITIONERS ARE
LIABLE UNDER THE PREMISES, THE HONORABLE COURT OF APPEALS
ERRED WHEN IT AFFIRMED THE HUGE AMOUNT OF INTEREST OF TWELVE
PERCENT (12%).
C.
THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN IT AFFIRMED
IN TOTO THE DECISION OF THE OFFICE OF THE PRESIDENT INCLUDING THE
PAYMENT OF 100,000.00 AS MORAL DAMAGES, 50,000.00 AS ATTORNEYS
FEES AND 10,000.00 AS ADMINISTRATIVE FINE IN THE ABSENCE OF ANY
FACTUAL OR LEGAL BASIS TO SUPPORT SUCH CONCLUSIONS.11
Petitioners insist that the complaint states no cause of action because they allegedly
have not committed any act of misrepresentation amounting to bad faith which could
entitle respondents to a refund. Petitioners claim that there was a mere delay in the
completion of the project and that they only resorted to "suspension and reformatting
as a testament to their commitment to their buyers." Petitioners attribute the delay to
the 1997 Asian financial crisis that befell the real estate industry. Invoking Article 1174
of the New Civil Code, petitioners maintain that they cannot be held liable for a
fortuitous event.
Petitioners contest the payment of a huge amount of interest on account of
suspension of development on a project. They liken their situation to a bank which
this Court, in Overseas Bank v. Court of Appeals,12 adjudged as not liable to pay
interest on deposits during the period that its operations are ordered suspended by
the Monetary Board of the Central Bank.
Lastly, petitioners aver that they should not be ordered to pay moral damages
because they never intended to cause delay, and again blamed the Asian economic
crisis as the direct, proximate and only cause of their failure to complete the project.
Petitioners submit that moral damages should not be awarded unless so stipulated
except under the instances enumerated in Article 2208 of the New Civil Code. Lastly,
petitioners refuse to pay the administrative fine because the delay in the project was
caused not by their own deceptive intent to defraud their buyers, but due to
unforeseen circumstances beyond their control.
Three issues are presented for our resolution: 1) whether or not the Asian financial
crisis constitute a fortuitous event which would justify delay by petitioners in the
performance of their contractual obligation; 2) assuming that petitioners are liable,
whether or not 12% interest was correctly imposed on the judgment award, and 3)
whether the award of moral damages, attorneys fees and administrative fine was
proper.
It is apparent that these issues were repeatedly raised by petitioners in all the legal
fora. The rulings were consistent that first, the Asian financial crisis is not a fortuitous
event that would excuse petitioners from performing their contractual obligation;
second, as a result of the breach committed by petitioners, respondents are entitled to
rescind the contract and to be refunded the amount of amortizations paid including
interest and damages; and third, petitioners are likewise obligated to pay attorneys
fees and the administrative fine.
This petition did not present any justification for us to deviate from the rulings of the
HLURB, the Office of the President and the Court of Appeals.
Indeed, the non-performance of petitioners obligation entitles respondents to
rescission under Article 1191 of the New Civil Code which states:
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
More in point is Section 23 of Presidential Decree No. 957, the rule governing the sale
of condominiums, which provides:
Section 23. Non-Forfeiture of Payments.1wphi1 No installment payment made by a
buyer in a subdivision or condominium project for the lot or unit he contracted to buy
shall be forfeited in favor of the owner or developer when the buyer, after due notice
to the owner or developer, desists from further payment due to the failure of the
owner or developer to develop the subdivision or condominium project according to
the approved plans and within the time limit for complying with the same. Such buyer
may, at his option, be reimbursed the total amount paid including amortization
interests but excluding delinquency interests, with interest thereon at the legal rate.
(Emphasis supplied).
Conformably with these provisions of law, respondents are entitled to rescind the
contract and demand reimbursement for the payments they had made to petitioners.
Notably, the issues had already been settled by the Court in the case of Fil-Estate
Properties, Inc. v. Spouses Go13promulgated on 17 August 2007, where the Court
stated that the Asian financial crisis is not an instance of caso fortuito. Bearing the
same factual milieu as the instant case, G.R. No. 165164 involves the same
company, Fil-Estate, albeit about a different condominium property. The company
likewise reneged on its obligation to respondents therein by failing to develop the
condominium project despite substantial payment of the contract price. Fil-Estate
advanced the same argument that the 1997 Asian financial crisis is a fortuitous event
which justifies the delay of the construction project. First off, the Court classified the
issue as a question of fact which may not be raised in a petition for review considering
that there was no variance in the factual findings of the HLURB, the Office of the
President and the Court of Appeals. Second, the Court cited the previous rulings of
Asian Construction and Development Corporation v. Philippine Commercial
International Bank14 and Mondragon Leisure and Resorts Corporation v. Court of
Appeals15 holding that the 1997 Asian financial crisis did not constitute a valid
justification to renege on obligations. The Court expounded:
Also, we cannot generalize that the Asian financial crisis in 1997 was unforeseeable
and beyond the control of a business corporation. It is unfortunate that petitioner
apparently met with considerable difficulty e.g. increase cost of materials and labor,
even before the scheduled commencement of its real estate project as early as 1995.
However, a real estate enterprise engaged in the pre-selling of condominium units is
concededly a master in projections on commodities and currency movements and
business risks. The fluctuating movement of the Philippine peso in the foreign
exchange market is an everyday occurrence, and fluctuations in currency exchange
rates happen everyday, thus, not an instance of caso fortuito.16
The aforementioned decision becomes a precedent to future cases in which the facts
are substantially the same, as in this case. The principle of stare decisis, which
means adherence to judicial precedents, applies.
In said case, the Court ordered the refund of the total amortizations paid by
respondents plus 6% legal interest computed from the date of demand. The Court
also awarded attorneys fees. We follow that ruling in the case before us.
The resulting modification of the award of legal interest is, also, in line with our recent
ruling in Nacar v. Gallery Frames,17 embodying the amendment introduced by the
Bangko Sentral ng Pilipinas Monetary Board in BSP-MB Circular No. 799 which
pegged the interest rate at 6% regardless of the source of obligation.
We likewise affirm the award of attorneys fees because respondents were forced to
litigate for 14 years and incur expenses to protect their rights and interest by reason
of the unjustified act on the part of petitioners.18 The imposition of 10,000.00
administrative fine is correct pursuant to Section 38 of Presidential Decree No. 957
which reads:
Section 38. Administrative Fines. The Authority may prescribe and impose fines not
exceeding ten thousand pesos for violations of the provisions of this Decree or of any
rule or regulation thereunder. Fines shall be payable to the Authority and enforceable
through writs of execution in accordance with the provisions of the Rules of Court.
Finally, we sustain the award of moral damages. In order that moral damages may be
awarded in breach of contract cases, the defendant must have acted in bad faith,
must be found guilty of gross negligence amounting to bad faith, or must have acted
in wanton disregard of contractual obligations.19 The Arbiter found petitioners to have
acted in bad faith when they breached their contract, when they failed to address
respondents grievances and when they adamantly refused to refund respondents'
payment.
In fine, we find no reversible error on the merits in the impugned Court of Appeals'
Decision and Resolution.

WHEREFORE, the petition is PARTLY GRANTED. The appealed Decision is

AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX
PERCENT (6%) on the amount due computed from the time of respondents' demand
for refund on 8 October 1998.

SO ORDERED.

THIRD DIVISION
G.R. NO. 191178 : March 13, 2013
ANCHOR SAVINGS BANK (FORMERLY ANCHOR FINANCE AND INVESTMENT
CORPORATION), Petitioner, v. HENRY H. FURIGAY, GELINDA C. FURIGAY,
HERRIETTE C. FURIGAY and HEGEM C. FURIGAY, Respondents.
DECISION
MENDOZA, J.:
This concerns a petition for review_ on certiorari filed by petitioner Anchor Savings
Bank (ASB) under Rule 45 of the 1997 Rules of Civil Procedure, assailing the May 28,
2009 Decision1 and the January 22, 2010 Resolution2 of the Court of Appeals (CA), in
CA-G.R. CV No. 90123, dismissing the appeal.3chanroblesvirtualawlibrary
The assailed resolution denied the separate motions for reconsideration of both
parties.
The Facts
On April 21, 1999, ASB filed a verified complaint for sum of money and damages with
application for replevin against Ciudad Transport Services, Inc. (CTS), its president,
respondent Henry H. Furigay; his wife, respondent Gelinda C. Furigay; and a "John
Doe." The case was docketed as Civil Case No. 99-865 and raffled to Branch 143 of
the Regional Trial Court of Makati City (RTC).4chanroblesvirtualawlibrary
On November 7, 2003, the RTC rendered its Decision5 in favor of ASB, the dispositive
portion of which reads:chanroblesvirtualawlibrary
WHEREFORE, judgment is hereby rendered in favor of plaintiff Anchor Savings Bank
ordering defendants Ciudad Transport Services, Inc., Henry H. Furigay and Genilda
C. Furigay to pay the following:chanroblesvirtualawlibrary
1) The amount of Eight Million Six Hundred Ninety Five Thousand Two Hundred Two
pesos and Fifty Nine centavos (Php8,695,202.59) as PRINCIPAL OBLIGATION as of
12 April 1999;cralawlibrary
2) An INTEREST of Twelve per cent (12%) per annum until fully paid;cralawlibrary
3) PENALTY CHARGE of Twelve per cent (12%) per annum until fully
paid;cralawlibrary
4) LIQUIDATED DAMAGES of Ten (10%) per cent of the total amount
due;cralawlibrary
5) One Hundred Thousand pesos as reasonable ATTORNEY'S FEES;cralawlibrary
6) Costs of suit.
SO ORDERED.6chanroblesvirtualawlibrary
While Civil Case No. 99-865 was pending, respondent spouses donated their
registered properties in Alaminos, Pangasinan, to their minor children, respondents
Hegem G. Furigay and Herriette C. Furigay. As a result, Transfer Certificate of Title
(TCT) Nos. 21743,7 21742,8 21741,9 and 2174010 were issued in the names of
Hegem and Herriette Furigay.
Claiming that the donation of these properties was made in fraud of creditors, ASB
filed a Complaint for Rescission of Deed of Donation, Title and Damages11 against
the respondent spouses and their children. The case was docketed as Civil Case No.
A-3040 and raffled to Branch 55 of the RTC of Alaminos, Pangasinan. In its
Complaint, ASB made the following allegations:chanroblesvirtualawlibrary
xxx
4. That Ciudad Transport Services, Inc., Henry H. Furigay and Gelinda C. Furigay
obtained a loan from Anchor Savings Bank and subsequently the former defaulted
from their loan obligation which prompted Anchor Savings Bank to file the case
entitled "Anchor Savings Bank vs. Ciudad Transport Services, Inc., Henry H. Furigay
and Gelinda C. Furigay" lodged before Makati City Regional Trial Court Branch 143
and docketed as Civil Case No. 99-865. On 7 November 2003 the Honorable Court in
the aforesaid case issued a Decision the dispositive portion of which reads as
follows:chanroblesvirtualawlibrary
xxx
5. That defendants Sps. Henry H. Furigay and Gelinda C. Furigay are the registered
owners of various real properties located at the Province of Pangasinan covered by
Transfer Certificate of Title Nos. 19721, 21678, 21679, and 21682. x x x
6. That on 8 March 2001 defendants Sps. Henry H. Furigay and Gelinda C. Furigay
executed a Deed of Donation in favor of their children herein defendants Hegem C.
Furigay and Herriette C. Furigay donating to them all of the above-mentioned
properties. Hence, the following titles were issued under their names to wit: Transfer
Certificate of Title Nos. 21743, 21742, 21741, and 21740. x x x
7. That the donation made by defendants Sps. Henry H. Furigay and Gelinda C.
Furigay were done with the intention to defraud its creditors particularly Anchor
Savings Bank. Said transfer or conveyance is the one contemplated by Article 1387 of
the New Civil Code, which reads:chanroblesvirtualawlibrary
 xxx
8. x x x In the instant case, Sps. Furigay donated the properties at the time there was
a pending case against them. x x x. In the instant case, the Sps. Furigay donated the
properties to their son and daughter. Moreover, the transfer or donation was executed
in 2001 when both donees Hegem C. Furigay and Herriette C. Furigay are minors.
9. Clearly, the Donation made by defendants Sps. Furigay was intended to deprive
plaintiff Anchor Savings Bank from going after the subject properties to answer for
their due and demandable obligation with the Bank. The donation being undertaken in
fraud of creditors then the same may be rescinded pursuant to Article 1381 of the
New Civil Code. The said provision provides that: x x x
Consequently, Transfer Certificate of Title Nos. 21743, 21742, 21741, and 21740
issued under the names of defendants Herriette C. Furigay and Hegem C. Furigay
should likewise be cancelled and reverted to the names of co-defendants Henry and
Gelinda Furigay.
10. That because of the fraud perpetrated by defendants, plaintiff suffered the
following damages.
11. Plaintiff suffered actual and compensatory damages as a result of the filing of the
case the bank has spent a lot of man-hours of its employees and officers re-
evaluating the account of defendant Sps. Furigay. Such man-hour when converted
into monetary consideration represents the salaries and per diems of its employees
particularly the CI/Appraiser, Head Office Lawyer and Bank Auditor;cralawlibrary
12. Said claim likewise represents administrative expenses such as transportation
expenses, reproduction of documents, and courier expenses among
others;cralawlibrary
13. Defendants should be made to pay plaintiff Anchor Savings Bank the amount of
PESOS: ONE MILLION (P1,000,000.00) as moral damages for the damage it caused
to the latter's business goodwill and reputation;cralawlibrary
14. By way of example for the public and to deter others from the malicious filing of
baseless (sic) suit, defendants should be ordered to pay [plaintiff] the amount of
PESOS: TWO HUNDRED THOUSAND (P200,000.00) as exemplary damages.
15. Attorneys fees equivalent to twenty-five percent (25%) of the total amount that can
be collected from defendant;cralawlibrary
16. Defendants should also be held liable to pay for the cost of
suit.12chanroblesvirtualawlibrary
Instead of filing an answer, respondents sought the dismissal of the complaint,
principally arguing that the RTC failed to acquire jurisdiction over their persons as well
as over the subject matter in view of the failure of the ASB to serve the summons
properly and to pay the necessary legal fees.
RTC Resolutions
On September 29, 2006, the RTC issued an Order13 denying the motion to dismiss.
Respondents sought reconsideration of the Order adding that the ASB's action for
rescission had already prescribed.
Upon filing of ASB's opposition to the motion for reconsideration, on February 27,
2007, the RTC reconsidered its earlier pronouncement and dismissed the complaint
for failure of ASB to pay the correct docket fees and for
prescription.14chanroblesvirtualawlibrary
RTC explained that the service of summons by publication made by ASB was valid
because respondents' whereabouts could not have been ascertained with exactitude
and because Section 14, Rule 14 of the Rules of Court did not distinguish what kind
of action it would apply.
On the issue of lack of jurisdiction over the subject matter of the case, the RTC ruled
that the complaint was actually a real action as it affected title to or possession of real
property. Accordingly, the basis for determining the correct docket fees was the fair
market value of the real property under litigation as stated in its current tax declaration
or its current zonal valuation, whichever was higher. Considering that ASB did not
state the current tax declaration or current zonal valuation of the real properties
involved, as well as the amount of actual damages and attorney's fees it prayed for,
the trial court was of the view that ASB purposely evaded the payment of the correct
filing fees.
On the issue of prescription, the RTC ruled that the action for rescission had already
prescribed. It stated that an action for rescission grounded on fraud should be filed
within four (4) years from the discovery of fraud. ASB filed the action for rescission
only on October 14, 2005 or after four (4) years from the time the Deed of Donation
was registered in the Register of Deeds of Alaminos, Pangasinan, on April 4, 2001.
The four-year prescriptive period should be reckoned from the date of registration of
the deed of donation and not from the date of the actual discovery of the registration
of the deeds of donation because registration is considered notice to the whole world.
Thus, the RTC disposed:chanroblesvirtualawlibrary
WHEREFORE, premises considered, the Order dated September 29, 2006 is hereby
reconsidered and set aside, in lieu thereof, the instant complaint is hereby ordered
dismissed on the account of lack of jurisdiction over the subject matter of the case for
failure of the plaintiff to pay the correct docket fees upon its institution attended by
bad faith and on the ground of prescription.
SO ORDERED.15chanroblesvirtualawlibrary
ASB sought reconsideration, but to no avail.16chanroblesvirtualawlibrary
 Ruling of the CA
On appeal, the CA agreed with ASB that its complaint should not have been
dismissed on the ground that it failed to pay the correct docket fees. It stated that the
lack of specific amount of actual damages and attorney's fees in ASB's complaint did
not, by itself, amount to evident bad faith. The CA noted that ASB had previously
manifested before the trial court that it was willing to pay additional docket fees should
the same be found insufficient.
On the issue of prescription, however, the CA saw things differently. Considering the
subsidiary nature of an action for rescission, the CA found that the action of ASB had
not yet prescribed, but was premature. The CA noted that ASB failed to allege in its
complaint that it had resorted to all legal remedies to obtain satisfaction of its claim.
The CA wrote:chanroblesvirtualawlibrary
After a thorough examination of the foregoing precepts and the facts engirding this
case, this court opines that plaintiff-appellant's action for rescission has not yet
prescribed for it must be emphasized that it has not even accrued in the first place. To
stress, an action for rescission or accion pauliana accrues only if all five requisites are
present, to wit:chanroblesvirtualawlibrary
1) That the plaintiff asking for rescission, has a credit prior to the alienation, although
demandable later;cralawlibrary
2) That the debtor has made a subsequent contract conveying a patrimonial benefit to
a third person;cralawlibrary
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;cralawlibrary
4) That the act being impugned is fraudulent; and
5) That the third person who received the property conveyed, if by onerous title, has
been an accomplice in the fraud.
In the instant case, the plaintiff-appellant failed to satisfy the third requirement
considering that it did not allege in its complaint that it has resorted to all legal
remedies to obtain satisfaction of his claim. It did not even point out in its complaint if
the decision in Civil Case No. 99-865 has already become final and executory and
whether the execution thereof yielded negative result in satisfying its claims. Even the
skip tracing allegedly done by the plaintiff-appellant to locate the properties of the
defendant-appellees was not mentioned. And although the skip tracing reports were
subsequently presented by the plaintiff-appellant, such reports are not sufficient to
satisfy the third requirement. First, they are not prepared and executed by the sheriff,
and second, they do not demonstrate that the sheriff failed to enforce and satisfy the
judgment of the court and that the plaintiff-appellant has exhausted the property of the
defendant-appellees. Perforce, the action for rescission filed by the plaintiff-appellant
is dismissible.17chanroblesvirtualawlibrary
As stated at the outset, both parties sought reconsideration but were rebuffed.
Issue
Hence, this recourse of ASB to the Court, presenting the lone issue
of:chanroblesvirtualawlibrary
WHETHER OR NOT THE COURT OF APPEALS, IN CA G.R. CV NO 90123, HAS
DECIDED A QUESTION OF SUBSTANCE, NOT HERETOFORE DETERMINED BY
THE SUPREME COURT, OR HAS DECIDED IT IN A WAY PROBABLY NOT IN
ACCORDANCE WITH LAW OR THE APPLICABLE DECISIONS OF THE SUPREME
COURT, WHEN IT RENDERED THE DECISION DATED 28 MAY 2009, AND
RESOLUTION DATED 22 JANUARY 2010, IN FINDING THAT PETITIONER FAILED
TO PROVE THAT IT HAS RESORTED TO ALL LEGAL REMEDIES TO OBTAIN
SATISFACTION OF ITS CLAIM, WITHOUT GIVING PETITIONER THE
OPPORTUNITY TO BE HEARD OR THE CHANCE TO PRESENT EVIDENCE TO
SUPPORT ITS ACTION, THEREBY DEPRIVING THE LATTER OF THE RIGHT TO
DUE PROCESS.18chanroblesvirtualawlibrary
ASB argues that, considering that its action was still in its preliminary stages, the CA
erred in dismissing its action on the ground that it failed to allege in its complaint the
fact that it had resorted to all other legal remedies to satisfy its claim, because it is a
matter that need not be alleged in its complaint, but, rather, to be proved during trial. It
asserts that its action is not yet barred by prescription, insisting that the reckoning
point of the four
(4)-year prescriptive period should be counted from September 2005, when it
discovered the fraudulent donation made by respondent spouses.
The basic issue in this case is whether the CA was correct in dismissing ASB's
complaint on the ground that the action against respondents was premature.
Ruling of the Court
The Court finds the petition bereft of merit.
Section 1 of Rule 2 of the Revised Rules of Court requires that every ordinary civil
action must be based on a cause of action. Section 2 of the same rule defines a
cause of action as an act or omission by which a party violates the right of another. In
order that one may claim to have a cause of action, the following elements must
concur: (1) a right in favor of the plaintiff by whatever means and under whatever law
it arises or is created; (2) an obligation on the part of the named defendant to respect
or not to violate such right; and (3) an act or omission on the part of such defendant in
violation of the right of the plaintiff or constituting a breach of the obligation of the
defendant to the plaintiff for which the latter may maintain an action for recovery of
damages or other appropriate relief.19 In other words, "a cause of action arises when
that should have been done is not done, or that which should not have been done is
done."20chanroblesvirtualawlibrary
In Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc.,21 it was held
that "before an action can properly be commenced, all the essential elements of the
cause of action must be in existence, that is, the cause of action must be complete.
All valid conditions precedent to the institution of the particular action, whether
prescribed by statute, fixed by agreement of the parties or implied by law must be
performed or complied with before commencing the action, unless the conduct of the
adverse party has been such as to prevent or waive performance or excuse non-
performance of the condition."
Moreover, it is not enough that a party has, in effect, a cause of action.
The rules of procedure require that the complaint must contain a concise statement of
the ultimate or essential facts constituting the plaintiff's cause of action. "The test of
the sufficiency of the facts alleged in the complaint is whether or not, admitting the
facts alleged, the court can render a valid judgment upon the same in accordance
with the prayer of plaintiff."22 The focus is on the sufficiency, not the veracity, of the
material allegations. Failure to make a sufficient allegation of a cause of action in the
complaint warrants its dismissal.23chanroblesvirtualawlibrary
In relation to an action for rescission, it should be noted that the remedy of rescission
is subsidiary in nature; it cannot be instituted except when the party suffering damage
has no other legal means to obtain reparation for the same. 24 Article 1177 of the New
Civil Code provides:chanroblesvirtualawlibrary
The creditors, after having pursued the property in possession of the debtor to satisfy
their claims, may exercise all the rights and bring all the actions of the latter for the
same purpose, save those which are inherent in his person; they may also impugn
the actions which the debtor may have done to defraud them. (Emphasis added)
Consequently, following the subsidiary nature of the remedy of rescission, a creditor
would have a cause of action to bring an action for rescission, if it is alleged that the
following successive measures have already been taken: (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 by law 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).25chanroblesvirtualawlibrary
With respect to an accion pauliana, it is required that the ultimate facts constituting
the following requisites must all be alleged in the complaint,
viz.:chanroblesvirtualawlibrary
1) That the plaintiff asking for rescission, has credit prior to the alienation, although
demandable later;cralawlibrary
2) That the debtor has made a subsequent contract conveying a patrimonial benefit to
a third person;cralawlibrary
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;cralawlibrary
4) That act being impugned is fraudulent; and
5) That the third person who received the property conveyed, if by onerous title, has
been an accomplice in the fraud.26chanroblesvirtualawlibrary
A cursory reading of the allegations of ASB's complaint would show that it failed to
allege the ultimate facts constituting its cause of action and the prerequisites that
must be complied before the same may be instituted. ASB, without availing of the first
and second remedies, that is, exhausting the properties of CTS, Henry H. Furigay and
Genilda C. Furigay or their transmissible rights and actions, simply undertook the third
measure and filed an action for annulment of the donation. This cannot be done. The
Court hereby quotes with approval the thorough discourse of the CA on this
score:27chanroblesvirtualawlibrary
To answer the issue of prescription, the case of Khe Hong Cheng vs. Court of
Appeals (G.R. NO. 144169, March 28, 2001) is pertinent. In said case, Philam filed an
action for collection against Khe Hong Cheng. While the case was still pending, or on
December 20, 1989, Khe Hong Cheng, executed deeds of donations over parcels of
land in favor of his children, and on December 27, 1989, said deeds were registered.
Thereafter, new titles were issued in the names of Khe Hong Cheng's children. Then,
the decision became final and executory. But upon enforcement of writ of execution,
Philam found out that Khe Hong Cheng no longer had any property in his name.
Thus, on February 25, 1997, Philam filed an action for rescission of the deeds of
donation against Khe Hong Cheng alleging that such was made in fraud of creditors.
However, Khe Hong Cheng moved for the dismissal of the action averring that it has
already prescribed since the four-year prescriptive period for filing an action for
rescission pursuant to Article 1389 of the Civil Code commenced to run from the time
the deeds of donation were registered on December 27, 1989. Khe Hong Cheng
averred that registration amounts to constructive notice and since the complaint was
filed only on February 25, 1997, or more than four (4) years after said registration, the
action was already barred by prescription. The trial court ruled that the complaint had
not yet prescribed since the prescriptive period began to run only from December 29,
1993, the date of the decision of the trial court. Such decision was affirmed by this
court but reckoned the accrual of Philam's cause of action in January 1997, the time
when it first learned that the judgment award could not be satisfied because the
judgment creditor, Khe Hong Cheng, had no more properties in his name. Hence, the
case reached the Supreme Court which ruled that the action for rescission has not yet
prescribed, ratiocinating as follows:chanroblesvirtualawlibrary
"Essentially, the issue for resolution posed by petitioners is this: When did the four (4)
year prescriptive period as provided for in Article 1389 of the Civil Code for
respondent Philam to file its action for rescission of the subject deeds of donation
commence to run?
The petition is without merit.
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 general rule, i.e, from the moment the
cause of action accrues, therefore, applies. Article 1150 of the Civil Code is
particularly instructive:chanroblesvirtualawlibrary
ARTICLE 1150. The time for prescription for all kinds of actions, when there is no
special provision which ordains otherwise, shall be counted from the day they may be
brought.
Indeed, this Court enunciated the principle that it is the legal possibility of bringing the
action which determines the starting point for the computation of the prescriptive
period for the action. Article 1383 of the Civil Code provides as
follows:chanroblesvirtualawlibrary
ARTICLE 1383. An action for rescission is subsidiary; it cannot be instituted except
when the party suffering damage has no other legal means to obtain reparation for
the same.
It is thus apparent that an action to rescind or an accion pauliana must be of last
resort, availed of only after all other legal remedies have been exhausted and have
been proven futile. For an accion pauliana to accrue, the following requisites must
concur:chanroblesvirtualawlibrary
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.
We quote with approval the following disquisition of the CA on the
matter:chanroblesvirtualawlibrary
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 pauliana presupposes 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.
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:chanroblesvirtualawlibrary
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.
xxx
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 court's 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 deeds 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.
xxx
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."

From the foregoing, it is clear that the four-year prescriptive period commences to run
neither from the date of the registration of the deed sought to be rescinded nor from
the date the trial court rendered its decision but from the day it has become clear that
there are no other legal remedies by which the creditor can satisfy his claims.
[Emphases in the original]

In all, it is incorrect for ASB to argue that a complaint need not allege all the elements
constituting its cause of action since it would simply adduce proof of the same during
trial. "Nothing is more settled than the rule that in a motion to dismiss for failure to
state a cause of action, the inquiry is "into the sufficiency, not the veracity, of the
material allegations."28 The inquiry is confined to the four comers of the complaint,
and no other.29 Unfortunately for ASB, the Court finds the allegations of its complaint
insufficient in establishing its cause of action and in apprising the respondents of the
same so that they could defend themselves intelligently and effectively pursuant to
their right to due process. It is a rule of universal application that courts of justice are
constituted to adjudicate substantive rights. While courts should consider public policy
and necessity in putting an end to litigations speedily they must nevertheless
harmonize such necessity with the fundamental right of litigants to due process.

WHEREFORE, the petition is DENIED.

SO ORDERED.

FIRST DIVISION
[G. R. No. 141851. January 16, 2002]
DIRECT FUNDERS HOLDINGS CORPORATION, petitioner, vs. JUDGE CELSO D.
LAVIA, PRESIDING JUDGE OF RTC- PasigCity, Branch 71 and KAMBIAK
Y. CHAN, JR., respondents.
DECISION
PARDO, J.:
The Case
The petition at bar[1] seeks to review the decision[2] of the Court of
Appeals[3] dismissing the petition assailing the ruling of the trial court issuing a writ of
preliminary injunction that restrained a writ of possession issued by a coordinate
court.[4]
The Facts
The facts, as found by the Court of Appeals, are as follows:
It is alleged by the petitioner that the respondent Judge issued the writ of preliminary
injunction, despite clear and express prayer in the Amended Complaint (Rollo, p. 23)
that private respondent Kambiak Y. Chan, Jr. sought the issuance of a writ of
preliminary mandatory injunction. This is again despite the fact this error was brought
to respondent Judges attention denied the Motion for Reconsideration on May 29,
1998 justifying the issuance thereof due to petitioners alleged misappreciation of facts
and reliefs sought for.
Culled from the records of the case, the action a quo is for annulment of
documents, reconveyance, recovery of possession, damages with application for the
issuance of a writ of preliminary mandatory injunction and temporary restraining
order.
During the hearing for the issuance of temporary restraining order, it was made clear
to the respondent Judge that the property in question was occupied by the petitioner
by virtue of a writ of possession issued by the Regional Trial Court of Pasig, Branch
157 in LRC Case No. R-5475 in a petition for the issuance of writ of possession
thereof way back on October 23, 1997 (Rollo, p. 22). Despite the lawful order of a
coordinate and co-equal court, the respondent Judge, presiding Regional Trial Court
of Pasig, Branch 71, issued the questioned orders to restore possession to private
respondent Chan, alleging an obviously grave abuse of discretion, tantamount to lack
of jurisdiction (Rollo, p. 38).
On the same date on December 8, 1997, the temporary restraining order (TRO) was
issued, the Court Sheriff IV Cresencio Rabello, Jr. implemented the TRO and
submitted the Return on December 9, 1997 (Rollo, p. 39).
Then, on January 21, 1998, the respondent Judge issued the questioned order
granting the issuance of a writ of preliminary injunction (Rollo, p. 14) who
subsequently denied the petitioners motion to dismiss and supplemental motion to
dismiss and the very urgent motion for reconsideration on February 16, 1998.
On May 29, 1998, the motion for inhibition and the motion to dissolve the writ of
preliminary injunction were also denied (Rollo, p. 18).[5]
On August 5, 1998, petitioner filed with the Court of Appeals a petition for certiorari
and prohibition assailing the trial courts issuance of a writ of preliminary injunction. [6]
On September 28, 1999, the Court of Appeals promulgated a decision dismissing
the petition ruling that the trial court had jurisdiction to issue the injunction that did not
interfere with the writ of possession of a coordinate court.[7]
On October 19, 1999, petitioner filed with the Court of Appeals a motion for
reconsideration of the decision.[8]
On February 2, 2000, the Court of Appeals denied petitioners motion stating that
the arguments advanced were mere reiteration and restatements of those contained in
their pleadings x x x.[9]
Hence, this appeal.[10]
The Issue
The issue raised is whether the Court of Appeals erred in affirming the trial courts
ruling issuing a writ of injunction restraining a writ of possession in another case to
place respondent back in possession of the subject property.
In other words, the issue is who between petitioner and respondent Kambiak Y.
Chan, Jr. has a better right to the possession of the subject property?
The Courts Ruling
 We resolve the issue in favor of petitioner.
The conditional sale agreement was the only document that the respondent
presented during the summary hearing of the application for a temporary restraining
order before the Regional Trial Court, Branch 71, Pasig City.[11]
We find that the conditional sale agreement is officious and ineffectual. First, it
was not consummated. Second, it was not registered and duly annotated on the
Transfer Certificate of Title (No. 12357) covering the subject property. Third, it was
executed about eight (8) years after the execution of the real estate mortgage over the
subject property.
To emphasize, the mortgagee (United Savings Bank) did not give its consent to
the change of debtor. It is a fundamental axiom in the law on contracts that a person
not a party to an agreement cannot be affected thereby. Worse, not only was the
conditional sale agreement executed without the consent of the mortgagee-creditor,
United Savings Bank, the same was also a material breach of the stipulations of the
real estate mortgage over the subject property.The real estate mortgage, in part,
provides:
(j) The MORTGAGOR shall neither lease the mortgaged property/ies, nor sell or
dispose of the same in any manner, without the written consent of the
MORTGAGEE.However, if notwithstanding this stipulation and during the existence of
this mortgage, the property/ies herein mortgaged, or any portion thereof, is/are leased
or sold, x x x.It shall also be incumbent upon the MORTGAGOR to make it a condition
of the sale or alienation that the vendee, or any other party in whose favor the
alienation is made, shall recognize as first lien the existing mortgage or encumbrance
in favor of the MORTGAGEE, as well as any new modified mortgage covering the
same properties to be executed by said MORTGAGOR in favor of the MORTGAGEE,
and shall thereafter agree, promise and bind himself to recognize and respect any
extension of the terms of the original mortgage granted by the MORTGAGEE in favor
of the MORTGAGOR and such extended mortgage shall be considered as prior to
such encumbrance as the original mortgage. It is also further understood that should
the MORTGAGOR sell, transfer or in any manner alienate or encumber the
mortgaged property/ies in violation of this agreement, he/she shall be liable for
damages to the MORTGAGEE.[12]
The conditions of the conditional sale agreement were not fulfilled, hence,
respondents claim to the subject property was as heretofore stated ineffectual. Article
1181 of the Civil Code reads:
Art. 1181. In conditional obligations, the acquisition of rights, as well as the
extinguishments or loss of those already acquired, shall depend upon the happening
of the event which constitutes the condition.
On the other hand, petitioners right to the subject property is based on the
following:
1. The real estate mortgage constituted by the Sps. Espino duly registered
and annotated on TCT No. 12357 covering the subject property.
2. The Deed of Assignment dated 15 January 1997 executed by UCPB
Savings Bank (formerly United Savings Bank) whereby it conveyed its
rights as mortgagee in favor of the petitioner.
3. The Deed of Assignment of Right of Redemption dated 15 January 1997,
executed by the Sps. Espino wherein they assigned their right of
redemption over the subject property to UCPB Savings Bank and the
latters successors-in-interest.
4. The Certificate of Sale dated 29 May 1997 executed by the sheriff, the
affidavit of consolidation of ownership dated July 1997 (denominated as
Doc. No. 490; Page No. 99. Book No. CLVII, Series of 1997 in
the Notarial Books of Erlinda B. Espejo, Notary Public for Quezon City)
and TCT No. 8559-R subsequently issued to Petitioner.
5. The Order dated 23 October 1997 of Branch 157, RTC, Pasig City (LRC
No. R-5475) and the Turn-over/Delivery of Possession of the sheriff in
the said LRC case.
In Soriano v. Bautista,[13] the Deed of Real Estate Mortgage dated May 30,
1956 executed by the mortgagors contained a stipulation giving the mortgagee the
option to purchase the land subject of the mortgage on any date within the 2-year period
of the mortgage. The mortgagee subsequently decided to buy the land pursuant to this
stipulation. We ruled:
Appellants contend that, being mortgagors, they cannot be deprived of the right to
redeem the mortgaged property, because such right is inherent in and inseparable
from this kind of contract. The premise of the contention is not entirely accurate. While
the transaction is undoubtedly a mortgage and contains the customary stipulation
concerning redemption, it carries the added special provision aforequoted, which
renders the mortgagors right to redeem defeasible at the election of the
mortgages. There is nothing illegal or immoral in this. It is simply an option to buy,
sanctioned by Article 1479 of the Civil Code, which states: A promise to buy and sell a
determinate thing for a price certain is binding upon the promisor if the promise is
supported by a consideration distinct from the price. [14]
In view of all of the foregoing, it is inexorable to conclude that petitioner, not the
respondent, has a better right to the possession of subject property.
The Judgment
WHEREFORE, the Court hereby REVERSES the decision of the Court of
Appeals[15] and the order denying reconsideration.
In lieu thereof, the Court renders judgment dismissing the case below, Civil Case
No. 66554 of the Regional Trial Court, Branch 71, Pasig City, including the
counterclaims.
No costs. SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. Nos. 103442-45 May 21, 1993
NATIONAL POWER CORPORATION, ET AL., petitioners,
vs.
THE COURT OF APPEALS, GAUDENCIO C. RAYO, ET AL., respondents.
The Solicitor General for plaintiff-appellee.
Ponciano G. Hernandez for private respondents.
DAVIDE, JR., J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court
urging this Court to set aside the 19 August 1991 consolidated Decision of the Court
of Appeals in CA.-G.R. CV Nos. 27290-931 which reversed the Decision of Branch 5
of the then Court of First Instance (now Regional Trial Court) of Bulacan, and held
petitioners National Power Corporation (NPC) and Benjamin Chavez jointly and
severally liable to the private respondents for actual and moral damages, litigation
expenses and attorney's fees.
This present controversy traces its beginnings to four (4) separate complaints 2 for
damages filed against the NPC and Benjamin Chavez before the trial court. The
plaintiffs therein, now private respondents, sought to recover actual and other
damages for the loss of lives and the destruction to property caused by the inundation
of the town of Norzagaray, Bulacan on 26-27 October 1978. The flooding was
purportedly caused by the negligent release by the defendants of water through the
spillways of the Angat Dam (Hydroelectric Plant). In said complaints, the plaintiffs
alleged, inter alia, that: 1) defendant NPC operated and maintained a multi-purpose
hydroelectric plant in the Angat River at Hilltop, Norzagaray, Bulacan; 2) defendant
Benjamin Chavez was the plant supervisor at the time of the incident in question; 3)
despite the defendants' knowledge, as early as 24 October 1978, of the impending
entry of typhoon "Kading," they failed to exercise due diligence in monitoring the
water level at the dam; 4) when the said water level went beyond the maximum
allowable limit at the height of the typhoon, the defendants suddenly, negligently and
recklessly opened three (3) of the dam's spillways, thereby releasing a large amount
of water which inundated the banks of the Angat River; and 5) as a consequence,
members of the household of the plaintiffs, together with their animals, drowned, and
their properties were washed away in the evening of 26 October and the early hours
of 27 October 1978.3
In their Answers, the defendants, now petitioners, alleged that: 1) the NPC exercised
due care, diligence and prudence in the operation and maintenance of the
hydroelectric plant; 2) the NPC exercised the diligence of a good father in the
selection of its employees; 3) written notices were sent to the different municipalities
of Bulacan warning the residents therein about the impending release of a large
volume of water with the onset of typhoon "Kading" and advise them to take the
necessary precautions; 4) the water released during the typhoon was needed to
prevent the collapse of the dam and avoid greater damage to people and property; 5)
in spite of the precautions undertaken and the diligence exercised, they could still not
contain or control the flood that resulted and; 6) the damages incurred by the private
respondents were caused by a fortuitous event or force majeure and are in the nature
and character of damnum absque injuria. By way of special affirmative defense, the
defendants averred that the NPC cannot be sued because it performs a purely
governmental function.4
Upon motion of the defendants, a preliminary hearing on the special defense was
conducted. As a result thereof, the trial court dismissed the complaints as against the
NPC on the ground that the provision of its charter allowing it to sue and be sued
does not contemplate actions based on tort. The parties do not, however, dispute the
fact that this Court overruled the trial court and ordered the reinstatement of the
complaints as against the NPC.5
Being closely interrelated, the cases were consolidated and trial thereafter ensued.
The lower court rendered its decision on 30 April 1990 dismissing the complaints "for
lack of sufficient and credible evidence."6 Consequently, the private respondents
seasonably appealed therefrom to the respondent Court which then docketed the
cases as CA-G.R. CV Nos. 27290-93.
In its joint decision promulgated on 19 August 1991, the Court of Appeals reversed
the appealed decision and awarded damages in favor of the private respondents. The
dispositive portion of the decision reads:
CONFORMABLY TO THE FOREGOING, the joint decision
appealed from is hereby REVERSED and SET ASIDE, and a new
one is hereby rendered:
1. In Civil Case No. SM-950, ordering defendants-appellees to pay,
jointly and severally, plaintiffs-appellants, with legal interest from
the date when this decision shall become final and executory, the
following:
A. Actual damages, to wit:
 1) Gaudencio C. Rayo, Two Hundred Thirty One
Thousand Two Hundred Sixty Pesos
(P231,260.00);
2) Bienvenido P. Pascual, Two Hundred Four
Thousand Five Hundred Pesos (P204.500.00);
3) Tomas Manuel, One Hundred Fifty Five
Thousand Pesos (P155,000.00);
4) Pedro C. Bartolome, One Hundred Forty
Seven Thousand Pesos (P147,000.00);.
5) Bernardino Cruz, One Hundred Forty Three
Thousand Five Hundred Fifty Two Pesos and
Fifty Centavos (P143,552.50);
6) Jose Palad, Fifty Seven Thousand Five
Hundred Pesos (P57,500.00);
7) Mariano S. Cruz, Forty Thousand Pesos
(P40,000.00);
8) Lucio Fajardo, Twenty nine Thousand Eighty
Pesos (P29,080.00); and
B. Litigation expenses of Ten Thousand Pesos (P10,000.00);
2. In Civil case No. SM-951, ordering defendants-appellees to pay
jointly and severally, plaintiff-appellant, with legal interest from the
date when this decision shall have become final and executory, the
following :
A. Actual damages of Five Hundred Twenty
Thousand Pesos (P520,000.00);.
B. Moral damages of five hundred Thousand
Pesos (P500,000.00); and.
C. Litigation expenses of Ten Thousand Pesos
(P10,000.00);.
3. In Civil Case No. SM-953, ordering defendants-appellees to pay,
jointly and severally, with legal interest from the date when this
decision shall have become final and executory;
A. Plaintiff-appellant Angel C. Torres:
1) Actual damages of One Hundred Ninety Nine Thousand One
Hundred Twenty Pesos (P199,120.00);
2) Moral Damages of One Hundred Fifty Thousand Pesos
(P150,000.00);
B. Plaintiff-appellant Norberto Torres:
1) Actual damages of Fifty Thousand Pesos (P50,000.00);
2) Moral damages of Fifty Thousand Pesos (P50,000.00);
C. Plaintiff-appellant Rodelio Joaquin:
1) Actual damages of One Hundred Thousand
Pesos (P100,000.00);
2) Moral damages of One Hundred Thousand
Pesos (P100,000.00); and
D. Plaintifsf-appellants litigation expenses of Ten Thousand Pesos
(P10,000.00);
4. In Civil case No. SM-1247, ordering defendants-appellees to pay,
jointly and severally, with legal interest from the date when this
decision shall have become final and executory :
A. Plaintiffs-appellants Presentacion Lorenzo and Clodualdo
Lorenzo:
1) Actual damages of Two Hundred Fifty Six
Thousand Six Hundred Pesos (P256,600.00);
2) Moral damages of Fifty Thousand Pesos
(P50,000.00);
B. Plaintiff-appellant Consolacion Guzman :
1) Actual damages of One Hundred forty
Thousand Pesos (P140,000.00);
2) Moral damages of Fifty Thousand Pesos
(P50,000.00);
C. Plaintiff-appellant Virginia Guzman :
 1) Actual damages of Two Hundred Five Hundred
Twenty Pesos (205,520.00); and
D. Plaintiffs-appellants litigation expenses of Ten Thousand Pesos
(10,000.00).
In addition, in all the four (4) instant cases, ordering defendants-
appellees to pay, jointly and severally, plaintiffs-appellants attorney
fees in an amount equivalent to 15% of the total amount awarded.
No pronouncement as to costs.7
The foregoing judgment is based on the public respondent's conclusion that the
petitioners were guilty of:
. . . a patent gross and evident lack of foresight, imprudence and
negligence . . . in the management and operation of Angat Dam.
The unholiness of the hour, the extent of the opening of the
spillways, And the magnitude of the water released, are all but
products of defendants-appellees' headlessness, slovenliness, and
carelessness. The resulting flash flood and inundation of even
areas (sic) one (1) kilometer away from the Angat River bank would
have been avoided had defendants-appellees prepared the Angat
Dam by maintaining in the first place, a water elevation which would
allow room for the expected torrential rains.8
This conclusion, in turn, is anchored on its findings of fact, to wit:
As early as October 21, 1978, defendants-appellees knew of the
impending onslaught of and imminent danger posed by typhoon
"Kading". For as alleged by defendants-appellees themselves, the
coming of said super typhoon was bannered by Bulletin Today, a
newspaper of national circulation, on October 25, 1978, as "Super
Howler to hit R.P." The next day, October 26, 1978, said typhoon
once again merited a headline in said newspaper as "Kading's Big
Blow expected this afternoon" (Appellee's Brief, p. 6). Apart from
the newspapers, defendants-appellees learned of typhoon "Kading'
through radio announcements (Civil Case No. SM-950, TSN,
Benjamin Chavez, December 4, 1984, pp. 7-9).
Defendants-appellees doubly knew that the Angat Dam can safely
hold a normal maximum headwater elevation of 217 meters
(Appellee's brief, p. 12; Civil Case No. SM-951, Exhibit "I-6"; Civil
Case No. SM-953, Exhibit "J-6"; Civil Case No. SM-1247, Exhibit
"G-6").
Yet, despite such knowledge, defendants-appellees maintained a
reservoir water elevation even beyond its maximum and safe level,
thereby giving no sufficient allowance for the reservoir to contain
the rain water that will inevitably be brought by the coming typhoon.
On October 24, 1978, before typhoon "Kading" entered the
Philippine area of responsibility, water elevation ranged from
217.61 to 217.53, with very little opening of the spillways, ranging
from 1/2 to 1 meter. On October 25, 1978, when typhoon "Kading"
entered the Philippine area of responsibility, and public storm signal
number one was hoisted over Bulacan at 10:45 a.m., later raised to
number two at 4:45 p.m., and then to number three at 10:45 p.m.,
water elevation ranged from 217.47 to 217.57, with very little
opening of the spillways, ranging from 1/2 to 1 meter. On October
26, 1978, when public storm signal number three remained hoisted
over Bulacan, the water elevation still remained at its maximum
level of 217.00 to 218.00 with very little opening of the spillways
ranging from 1/2 to 2 meters, until at or about midnight, the
spillways were suddenly opened at 5 meters, then increasing swiftly
to 8, 10, 12, 12.5, 13, 13.5, 14, 14.5 in the early morning hours of
October 27, 1978, releasing water at the rate of 4,500 cubic meters
per second, more or less. On October 27, 1978, water elevation
remained at a range of 218.30 to 217.05 (Civil Case No. SM-950,
Exhibits "D" and series, "L", "M", "N", and "O" and Exhibits "3" and
"4"; Civil Case No. SM-951, Exhibits "H" and "H-1"; Civil Case No.
SM-953, Exhibits "I" and "I-1"; Civil Case No. SM 1247, Exhibits "F"
and "F-1").
xxx xxx xxx
From the mass of evidence extant in the record, We are convinced,
and so hold that the flash flood on October 27, 1978, was caused
not by rain waters (sic), but by stored waters (sic) suddenly and
simultaneously released from the Angat Dam by defendants-
appellees, particularly from midnight of October 26, 1978 up to the
morning hours of October 27,
1978.9
The appellate court rejected the petitioners' defense that they had sent "early warning
written notices" to the towns of Norzagaray, Angat, Bustos, Plaridel, Baliwag and
Calumpit dated 24 October 1978 which read:
TO ALL CONCERN (sic):
Please be informed that at present our reservoir (dam) is full and
that we have been releasing water intermittently for the past several
days.
With the coming of typhoon "Rita" (Kading) we expect to release
greater (sic) volume of water, if it pass (sic) over our place.
 In view of this kindly advise people residing along Angat River to Case No. SM-950, TSN, Benjamin Chavez, December 4, 1984, pp.
keep alert and stay in safe places. 7-11 and TSN, Leonardo Nepomuceno, March 7, 1985, pp. 10-12).

Said notice is Bineffectual, insufficient and inadequate for purposes

of the openingEof the spillway gates at midnight of October 26, 1978
and on October N 27, 1978. It did not prepare or warn the persons so
served, for theJ volume of water to be released, which turned out to
be of such magnitude,
A that residents near or along the Angat River,
even those one M (1) kilometer away, should have been advised to
evacuate. Said I notice, addressed "TO ALL CONCERN (sic)," was
delivered to a Npoliceman (Civil Case No. SM-950, pp. 10-12 and
Exhibit "2-A") Lfor the municipality of Norzagaray. Said notice was
not thus addressed
. and delivered to the proper and responsible
officials who could
C have disseminated the warning to the residents
directly affected.
H As for the municipality of Sta. Maria, where
plaintiffs-appellants
A in Civil Case No. SM-1246 reside, said notice
does not appearV to have been served.11
E
Relying on Juan F. Nakpil & Sons Z vs. Court of Appeals,12 public respondent rejected
P
the petitioners' plea that the incident in question was caused by force majeure and
o to the private respondents for any kind of damage
that they are, therefore, not liable
such damage being in the nature w of damnum absque injuria.
e
r
The motion for reconsideration filed
P by the13petitioners, as well as the motion to modify
judgment filed by the public respondents,
l were denied by the public respondent in
14
its Resolution of 27 December 1991.a
n
Petitioners thus filed the instant tpetition on 21 February 1992.
S
After the Comment to the petition u was filed by the private respondents and the Reply
p We gave due course to the petition on 17 June
thereto was filed by the petitioners,
1992 and directed the parties toesubmit their respective Memoranda, 15 which they
subsequently complied with. r
i
n
The petitioners raised the following
t errors allegedly committed by the respondent
Court : e
n
I. THE COURT d OF APPEALS ERRED IN APPLYING THE RULING
OF NAKPIL &eSONS V. COURT OF APPEALS AND HOLDING
n
THAT PETITIONERS WERE GUILTY OF NEGLIGENCE.
t
1
II. THE COURT
0 OF APPEALS ERRED IN HOLDING THAT THE
WRITTEN NOTICES OF WARNING ISSUED BY PETITIONERS
WERE INSUFFICIENT.
because:
III. THE COURT OF APPEALS ERRED IN HOLDING THAT THE
Said notice was delivered to the "towns of Bulacan" on October 26, DAMAGE SUFFERED BY PRIVATE RESPONDENTS WAS
1978 by defendants-appellees driver, Leonardo Nepomuceno (Civil NOT DAMNUM ABSQUE INJURIA.
 IV. THE COURT OF APPEALS ERRED IN NOT AWARDING THE
COUNTERCLAIM OF PETITIONERS FOR ATTORNEY'S FEES
AND EXPENSES OF LITIGATION.16
These same errors were raised by herein petitioners in G.R. No. 96410,
entitled National Power Corporation, et al., vs. Court of Appeals, et al.,17 which this
Court decided on 3 July 1992. The said case involved the very same incident subject
of the instant petition. In no uncertain terms, We declared therein that the proximate
cause of the loss and damage sustained by the plaintiffs therein who were similarly
situated as the private respondents herein was the negligence of the petitioners,
and that the 24 October 1978 "early warning notice" supposedly sent to the affected
municipalities, the same notice involved in the case at bar, was insufficient. We thus
cannot now rule otherwise not only because such a decision binds this Court with
respect to the cause of the inundation of the town of Norzagaray, Bulacan on 26-27
October 1978 which resulted in the loss of lives and the destruction to property in both
cases, but also because of the fact that on the basis of its meticulous analysis and
evaluation of the evidence adduced by the parties in the cases subject of CA-G.R. CV
Nos. 27290-93, public respondent found as conclusively established that indeed, the
petitioners were guilty of "patent gross and evident lack of foresight, imprudence and
negligence in the management and operation of Angat Dam," and that "the extent of
the opening of the spillways, and the magnitude of the water released, are all but
products of defendants-appellees' headlessness, slovenliness, and
carelessness."18 Its findings and conclusions are biding upon Us, there being no
showing of the existence of any of the exceptions to the general rule that findings of
fact of the Court of Appeals are conclusive upon this Court. 19 Elsewise stated, the
challenged decision can stand on its own merits independently of Our decision in
G.R. No. 96410. In any event, We reiterate here in Our pronouncement in the latter
case that Juan F. Nakpil & Sons vs. Court of Appeals20 is still good law as far as the
concurrent liability of an obligor in the case of force majeure is concerned. In
the Nakpil case, We held:
To exempt the obligor from liability under Article 1174 of the Civil
Code, for a breach of an obligation due to an "act of God," the
following must concur: (a) the cause of the breach of the obligation
must be independent of the will of the debtor; (b) the event must be
either unforseeable or unavoidable; (c) the event must be such as
to render it impossible for the debtor to fulfill his obligation in a
moral manner; and (d) the debtor must be free from any
participation in, or aggravation of the injury to the creditor. (Vasquez
v. Court of Appeals, 138 SCRA 553; Estrada v. Consolacion, 71
SCRA 423; Austria v. Court of Appeals, 39 SCRA 527; Republic of
the Phil. v. Luzon Stevedoring Corp., 21 SCRA 279; Lasam v.
Smith, 45 Phil. 657).
Thus, if upon the happening of a fortuitous event or an act of God,
there concurs a corresponding fraud, negligence, delay or violation
or contravention in any manner of the tenor of the obligation as
provided for in Article 1170 of the Civil Code, which results in loss
or damage, the obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly requires
that the act must be one occasioned exclusively by the violence of
nature and all human agencies are to be excluded from creating or
entering into the cause of the mischief. When the effect, the cause
of which is to be considered, is found to be in part the result of the
participation of man, whether it be from active intervention or
neglect, or failure to act, the whole occurrence is thereby
humanized, as it were, and removed from the rules applicable to
the acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus it has been held that when the negligence of a person concurs
with an act of God in producing a loss, such person is not exempt
from liability by showing that the immediate cause of the damage
was the act of God. To be exempt from liability for loss because of
an act of God, he must be free from any previous negligence or
misconduct by which that loss or damage may have been
occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129;
Tucker v. Milan, 49 O.G. 4379; Limpangco & Sons v. Yangco
Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657). 21
Accordingly, petitioners cannot be heard to invoke the act of God or force majeure to
escape liability for the loss or damage sustained by private respondents since they,
the petitioners, were guilty of negligence. The event then was not occasioned
exclusively by an act of God or force majeure; a human factor negligence or
imprudence had intervened. The effect then of the force majeure in question may
be deemed to have, even if only partly, resulted from the participation of man. Thus,
the whole occurrence was thereby humanized, as it were, and removed from the laws
applicable to acts of God.
WHEREFORE, for want of merit, the instant petition is hereby DISMISSED and the
Consolidated Decision of the Court of Appeals in CA-G.R. CV Nos. 27290-93 is
AFFIRMED, with costs against the petitioners.
SO ORDERED.