AMADO PICART vs. FRANK SMITH, JR. here confronted him.
here confronted him. When the defendant exposed the horse and rider
STREET, J.:
In this action the plaintiff, Amado Picart, seeks to recover of the
defendant, Frank Smith, jr., the sum of P31,000, as damages alleged to
have been caused by an automobile driven by the defendant. From a
judgment of the Court of First Instance of the Province of La Union
absolving the defendant from liability the plaintiff has appealed.
The occurrence which gave rise to the institution of this action took place
on December 12, 1912, on the Carlatan Bridge, at San Fernando, La
Union. It appears that upon the occasion in question the plaintiff was
riding on his pony over said bridge. Before he had gotten half way
across, the defendant approached from the opposite direction in an
automobile, going at the rate of about ten or twelve miles per hour. As
the defendant neared the bridge he saw a horseman on it and blew his
horn to give warning of his approach. He continued his course and after
he had taken the bridge he gave two more successive blasts, as it
appeared to him that the man on horseback before him was not
observing the rule of the road.
The plaintiff, it appears, saw the automobile coming and heard the
warning signals. However, being perturbed by the novelty of the
apparition or the rapidity of the approach, he pulled the pony closely up
against the railing on the right side of the bridge instead of going to the
left. He says that the reason he did this was that he thought he did not
have sufficient time to get over to the other side. The bridge is shown to
have a length of about 75 meters and a width of 4.80 meters. As the
automobile approached, the defendant guided it toward his left, that
being the proper side of the road for the machine. In so doing the
defendant assumed that the horseman would move to the other side.
The pony had not as yet exhibited fright, and the rider had made no sign
for the automobile to stop. Seeing that the pony was apparently quiet,
the defendant, instead of veering to the right while yet some distance
away or slowing down, continued to approach directly toward the horse
without diminution of speed. When he had gotten quite near, there being
then no possibility of the horse getting across to the other side, the
defendant quickly turned his car sufficiently to the right to escape hitting
the horse alongside of the railing where it as then standing; but in so
doing the automobile passed in such close proximity to the animal that
it became frightened and turned its body across the bridge with its head
toward the railing. In so doing, it as struck on the hock of the left hind leg
by the flange of the car and the limb was broken. The horse fell and its
rider was thrown off with some violence. From the evidence adduced in
the case we believe that when the accident occurred the free space
where the pony stood between the automobile and the railing of the
bridge was probably less than one and one half meters. As a result of
its injuries the horse died. The plaintiff received contusions which
caused temporary unconsciousness and required medical attention for
several days.
The question presented for decision is whether or not the defendant in
maneuvering his car in the manner above described was guilty of
negligence such as gives rise to a civil obligation to repair the damage
done; and we are of the opinion that he is so liable. As the defendant
started across the bridge, he had the right to assume that the horse and
the rider would pass over to the proper side; but as he moved toward
the center of the bridge it was demonstrated to his eyes that this would
not be done; and he must in a moment have perceived that it was too
late for the horse to cross with safety in front of the moving vehicle. In
the nature of things this change of situation occurred while the
automobile was yet some distance away; and from this moment it was
no longer within the power of the plaintiff to escape being run down by
going to a place of greater safety. The control of the situation had then
passed entirely to the defendant; and it was his duty either to bring his
car to an immediate stop or, seeing that there were no other persons on
the bridge, to take the other side and pass sufficiently far away from the
horse to avoid the danger of collision. Instead of doing this, the
defendant ran straight on until he was almost upon the horse. He was,
we think, deceived into doing this by the fact that the horse had not yet
exhibited fright. But in view of the known nature of horses, there was an
appreciable risk that, if the animal in question was unacquainted with
automobiles, he might get excited and jump under the conditions which
to this danger he was, in our opinion, negligent in the eye of the law.
The test by which to determine the existence of negligence in a particular
case may be stated as follows: Did the defendant in doing the alleged
negligent act use that person would have used in the same situation? If
not, then he is guilty of negligence. The law here in effect adopts the
standard supposed to be supplied by the imaginary conduct of the
discreet paterfamilias of the Roman law. The existence of negligence in
a given case is not determined by reference to the personal judgment of
the actor in the situation before him. The law considers what would be
reckless, blameworthy, or negligent in the man of ordinary intelligence
and prudence and determines liability by that.
The question as to what would constitute the conduct of a prudent man
in a given situation must of course be always determined in the light of
human experience and in view of the facts involved in the particular
case. Abstract speculations cannot here be of much value but this much
can be profitably said: Reasonable men govern their conduct by the
circumstances which are before them or known to them. They are not,
and are not supposed to be, omniscient of the future. Hence they can
be expected to take care only when there is something before them to
suggest or warn of danger. Could a prudent man, in the case under
consideration, foresee harm as a result of the course actually pursued?
If so, it was the duty of the actor to take precautions to guard against
that harm. Reasonable foresight of harm, followed by ignoring of the
suggestion born of this prevision, is always necessary before negligence
can be held to exist. Stated in these terms, the proper criterion for
determining the existence of negligence in a given case is this: Conduct
is said to be negligent when a prudent man in the position of the
tortfeasor would have foreseen that an effect harmful to another was
sufficiently probable to warrant his foregoing conduct or guarding
against its consequences.
Applying this test to the conduct of the defendant in the present case we
think that negligence is clearly established. A prudent man, placed in the
position of the defendant, would in our opinion, have recognized that the
course which he was pursuing was fraught with risk, and would therefore
have foreseen harm to the horse and the rider as reasonable
consequence of that course. Under these circumstances the law
imposed on the defendant the duty to guard against the threatened
harm.
It goes without saying that the plaintiff himself was not free from fault,
for he was guilty of antecedent negligence in planting himself on the
wrong side of the road. But as we have already stated, the defendant
was also negligent; and in such case the problem always is to discover
which agent is immediately and directly responsible. It will be noted that
the negligent acts of the two parties were not contemporaneous, since
the negligence of the defendant succeeded the negligence of the plaintiff
by an appreciable interval. Under these circumstances the law is that
the person who has the last fair chance to avoid the impending harm
and fails to do so is chargeable with the consequences, without
reference to the prior negligence of the other party.
The decision in the case of Rkes vs. Atlantic, Gulf and Pacific Co. (7
Phil. Rep., 359) should perhaps be mentioned in this connection. This
Court there held that while contributory negligence on the part of the
person injured did not constitute a bar to recovery, it could be received
in evidence to reduce the damages which would otherwise have been
assessed wholly against the other party. The defendant company had
there employed the plaintiff, as a laborer, to assist in transporting iron
rails from a barge in Manila harbor to the company's yards located not
far away. The rails were conveyed upon cars which were hauled along
a narrow track. At certain spot near the water's edge the track gave way
by reason of the combined effect of the weight of the car and the
insecurity of the road bed. The car was in consequence upset; the rails
slid off; and the plaintiff's leg was caught and broken. It appeared in
evidence that the accident was due to the effects of the typhoon which
had dislodged one of the supports of the track. The court found that the
defendant company was negligent in having failed to repair the bed of
the track and also that the plaintiff was, at the moment of the accident,
guilty of contributory negligence in walking at the side of the car instead
of being in front or behind. It was held that while the defendant was liable
to the plaintiff by reason of its negligence in having failed to keep the
track in proper repair nevertheless the amount of the damages should
be reduced on account of the contributory negligence in the plaintiff. As
will be seen the defendant's negligence in that case consisted in an
omission only. The liability of the company arose from its responsibility
for the dangerous condition of its track. In a case like the one now before
us, where the defendant was actually present and operating the
automobile which caused the damage, we do not feel constrained to
attempt to weigh the negligence of the respective parties in order to
apportion the damage according to the degree of their relative fault. It is
enough to say that the negligence of the defendant was in this case the
immediate and determining cause of the accident and that the
antecedent negligence of the plaintiff was a more remote factor in the
case.
A point of minor importance in the case is indicated in the special
defense pleaded in the defendant's answer, to the effect that the subject
matter of the action had been previously adjudicated in the court of a
justice of the peace. In this connection it appears that soon after the
accident in question occurred, the plaintiff caused criminal proceedings
to be instituted before a justice of the peace charging the defendant with
the infliction of serious injuries (lesiones graves). At the preliminary
investigation the defendant was discharged by the magistrate and the
proceedings were dismissed. Conceding that the acquittal of the
defendant at the trial upon the merits in a criminal prosecution for the
offense mentioned would be res adjudicata upon the question of his civil
liability arising from negligence -- a point upon which it is unnecessary
to express an opinion -- the action of the justice of the peace in
dismissing the criminal proceeding upon the preliminary hearing can
have no effect. (See U. S. vs. Banzuela and Banzuela, 31 Phil. Rep.,
564.)
From what has been said it results that the judgment of the lower court
must be reversed, and judgment is her rendered that the plaintiff recover
of the defendant the sum of two hundred pesos (P200), with costs of
other instances. The sum here awarded is estimated to include the value
of the horse, medical expenses of the plaintiff, the loss or damage
occasioned to articles of his apparel, and lawful interest on the whole to
the date of this recovery. The other damages claimed by the plaintiff are
remote or otherwise of such character as not to be recoverable. So
ordered.
BPI EXPRESS CARD CORPORATION vs. COURT OF APPEALS and
RICARDO J. MARASIGAN
DECISION
KAPUNAN, J.:
The question before this Court is whether private respondent can
recover moral damages arising from the cancellation of his credit card
by petitioner credit card Corporation.
The facts of the case are as stated in the decision of the
respondent court,[1] to wit:
The case arose from the dishonor of the credit card of the
plaintiff Atty. Ricardo J. Marasigan by Cafe Adriatico, a
business establishment accredited with the defendant-
appellant BPI Express Card Corporation (BECC for brevity)
on December 8, 1989 when the plaintiff entertained some
guests thereat.
The records of this case show that plaintiff, who is a lawyer
by profession was a complimentary member of BECC from
February 1988 to February 1989 and was issued Credit Card
No. 100-012-5534 with a credit limit of P3,000.00 and with a
monthly billing every 27th of the month (Exh. N), subject to
the terms and conditions stipulated in the contract (Exh. 1-
b). His membership was renewed for another year or until
February 1990 and the credit limit was increased
to P5,000.00 (Exh. A). The plaintiff oftentimes exceeded his
credit limits (Exhs. I, I-1 to I-12) but this was never taken
against him by the defendant and even his mode of paying
his monthly bills in check was tolerated. Their contractual
relations went on smoothly until his statement of account for
October, 1989 amounting to P8,987.84 was not paid in due
time. The plaintiff admitted having inadvertently failed to pay
his account for the said month because he was in Quezon
province attending to some professional and personal
commitments. He was informed by his secretary that
defendant was demanding immediate payment of his
outstanding account, was requiring him to issue a check
for P15,000.00 which would include his future bills, and was
threatening to suspend his credit card. Plaintiff issued Far
East Bank and Trust Co. Check No. 494675 in the amount
of P15,000.00, postdated December 15, 1989 which was
received on November 23, 1989 by Tess Lorenzo, an
employee of the defendant (Exhs. J and J-1), who in turn
gave the said check to Jeng Angeles, a co-employee who
handles the account of the plaintiff. The check remained in
the custody of Jeng Angeles. Mr. Roberto Maniquiz, head of
the collection department of defendant was formally
informed of the postdated check about a week later. On
November 28, 1989, defendant served plaintiff a letter by
ordinary mail informing him of the temporary suspension of
the privileges of his credit card and the inclusion of his
account number in their Caution List. He was also told to
refrain from further use of his credit card to avoid any
inconvenience/embarrassment and that unless he settles his
outstanding account with the defendant within 5 days from
receipt of the letter, his membership will be permanently
cancelled (Exh. 3). There is no showing that the plaintiff
received this letter before December 8, 1989. Confident that
he had settled his account with the issuance of the postdated
check, plaintiff invited some guests on December 8, 1989
and entertained them at Caf Adriatico. When he presented
his credit card to Caf Adriatico for the bill amounting
to P735.32, said card was dishonored. One of his guests,
Mary Ellen Ringler, paid the bill by using her own credit card,
a Unibankard (Exhs. M, M-1 and M-2).
In a letter addressed to the defendant dated December 12,
1989, plaintiff requested that he be sent the exact billing due
him as of December 15, 1989, to withhold the deposit of his
postdated check and that said check be returned to him
because he had already instructed his bank to stop the
payment thereof as the defendant violated their agreement
that the plaintiff issue the check to the defendant to cover his
account amounting to only P8,987.84 on the condition that
the defendant will not suspend the effectivity of the card
(Exh. D). A letter dated December 16, 1989 was sent by the
plaintiff to the manager of FEBTC, Ramada Branch, Manila
requesting the bank to stop the payment of the check (Exhs.
E, E-1). No reply was received by plaintiff from the defendant
to his letter dated December 12, 1989. Plaintiff sent
defendant another letter dated March 12, 1990 reminding the
latter that he had long rescinded and cancelled whatever
arrangement he entered into with defendant and requesting
for his correct billing, less the improper charges and
penalties, and for an explanation within five (5) days from
receipt thereof why his card was dishonored on December
8, 1989 despite assurance to the contrary by defendant's
personnel-in-charge, otherwise the necessary court action
shall be filed to hold defendant responsible for the
humiliation and embarrassment suffered by him (Exh.
F). Plaintiff alleged further that after a few days, a certain
Atty. Albano, representing himself to be working with office
of Atty. Lopez, called him inquiring as to how the matter can
be threshed out extrajudicially but the latter said that such is
a serious matter which cannot be discussed over the
phone. The defendant served its final demand to the plaintiff
dated March 21, 1990 requiring him to pay in full his overdue
account, including stipulated fees and charges, within 5 days
from receipt thereof or face court action also to replace the
postdated check with cash within the same period or face
criminal suit for violation of the Bouncing Check Law (Exh.
G/Exh. 13). The plaintiff, in a reply letter dated April 5, 1990
(Exh. H), demanded defendant's compliance with his
request in his first letter dated March 12, 1990 within three
(3) days from receipt, otherwise the plaintiff will file a case
against them, x x x.[2]
 Thus, on May 7, 1990 private respondent filed a complaint for
damages against petitioner before the Regional Trial Court of Makati,
Branch 150, docketed as Civil Case No. 90-1174.
After trial, the trial court ruled for private respondent, finding that
herein petitioner abused its right in contravention of Article 19 of the Civil
Code.[3] The dispositive portion of the decision reads:
Wherefore, judgment is hereby rendered ordering the defendant
to pay plaintiff the following:
1. P100,000.00 as moral damages;
2. P50,000.00 as exemplary damages; and
3. P20,000.00 by way of attorney's fees.
On the other hand, plaintiff is ordered to pay defendant its
outstanding obligation in the amount of P14,439.41, amount
due as of December 15, 1989.[4]
The trial court's ruling was based on its findings and conclusions,
to wit:
There is no question that plaintiff had been in default in the
payment of his billings for more than two months, prompting
defendant to call him and reminded him of his
obligation. Unable to personally talk with him, this Court is
convinced that somehow one or another employee of
defendant called him up more than once.
However, while it is true that, as indicated in the terms and
conditions of the application for BPI credit card, upon failure
of the cardholder to pay his outstanding obligation for more
than thirty (30) days, the defendant can automatically
suspend or cancel the credit card, that reserved right should
not have been abused, as it was in fact abused, in plaintiff's
case. What is more peculiar here is that there have been
admitted communications between plaintiff and defendant
prior to the suspension or cancellation of plaintiff's credit card
and his inclusion in the caution list.However, nowhere in any
of these communications was there ever a hint given to
plaintiff that his card had already been suspended or
cancelled. In fact, the Court observed that while defendant
was trying its best to persuade plaintiff to update its account
and pay its obligation, it had already taken steps to
suspend/cancel plaintiff's card and include him in the caution
list. While the Court admires defendant's diplomacy in
dealing with its clients, it cannot help but frown upon the
backhanded way defendant dealt with plaintiff's case. For
despite Tess Lorenzo's denial, there is reason to believe that
plaintiff was indeed assured by defendant of the continued
honoring of his credit card so long as he pays his obligation
of P15,000.00. Worst, upon receipt of the postdated check,
defendant kept the same until a few days before it became
due and said check was presented to the head of the
collection department, Mr. Maniquiz, to take steps thereon,
resulting to the embarrassing situation plaintiff found himself
in on December 8, 1989. Moreover, Mr. Maniquiz himself
admitted that his request for plaintiff to replace the check with
cash was not because it was a postdated check but merely
to tally the payment with the account due.
Likewise, the Court is not persuaded by the sweeping
denials made by Tess Lorenzo and her claim that her only
participation was to receive the subject check. Her
immediate superior, Mr. Maniquiz testified that he had
instructed Lorenzo to communicate with plaintiff once or
twice to request the latter to replace the questioned check
with cash, thus giving support to the testimony of plaintiff's
witness, Dolores Quizon, that it was one Tess Lorenzo who
she had talked over the phone regarding plaintiff's account
and plaintiff's own statement that it was this woman who
assured him that his card has not yet been and will not be
cancelled/suspended if he would pay defendant the sum
of P15,000.00.
Now, on the issue of whether or not upon receipt of the
subject check, defendant had agreed that the card shall
remain effective, the Court takes note of the following:
1. An employee of defendant corporation unconditionally accepted the
subject check upon its delivery, despite its being a postdated one; and
the amount did not tally with plaintiff's obligation;
2. Defendant did not deny nor controvert plaintiff's claim that all his
payments were made in checks;
3. Defendant's main witness, Mr. Maniquiz, categorically stated that the
request for plaintiff to replace his postdated check with cash was merely
for the purpose of tallying plaintiff's outstanding obligation with his
payment and not to question the postdated check;
4. That the card was suspended almost a week after receipt of the
postdated check;
5. That despite the many instances that defendant could have informed
plaintiff over the phone of the cancellation or suspension of his credit
card, it did not do so, which could have prevented the incident of
December 8, 1989, the notice allegedly sent thru ordinary mail is not
only unreliable but takes a long time. Such action as suspension of credit
card must be immediately relayed to the person affected so as to avoid
embarrassing situations.
6. And that the postdated check was deposited on December 20, 1989.
In view of the foregoing observations, it is needless to say
that there was indeed an arrangement between plaintiff and
the defendant, as can be inferred from the acts of the
defendant's employees, that the subject credit card is still
good and could still be used by the plaintiff as it would be
honored by the duly accredited establishment of
defendant.[5]
Not satisfied with the Regional Trial Court's decision, petitioner
appealed to the Court of Appeals, which, in a decision promulgated on
March 9, 1995 ruled in its dispositive portion:
WHEREFORE, premises considered, the decision appealed
from is hereby AFFIRMED with the MODIFICATION that the
defendant-appellant shall pay the plaintiff-appellee the
following: P50,000.00 as moral damages; P25,000.00 as
exemplary damages; and P10,000.00 by way of attorney's
fees.
SO ORDERED.[6]
Hence, the present petition on the following assignment of errors:
I
THE LOWER COURT ERRED IN DECLARING THAT
THERE WAS INDEED AN AGREEMENT OR
ARRANGEMENT ENTERED INTO BETWEEN THE
PARTIES WHEREIN THE DEFENDANT REQUIRED THE
PLAINTIFF TO ISSUE A POSTDATED CHECK IN ITS
FAVOR IN THE AMOUNT OF P15,000.00 AS PAYMENT
FOR HIS OVERDUE ACCOUNTS, WITH THE CONDITION
THAT THE PLAINTIFF'S CREDIT CARD WILL NOT BE
SUSPENDED OR CANCELLED.
II
THE LOWER COURT ERRED IN HOLDING DEFENDANT
LIABLE FOR DAMAGES AND ATTORNEY'S FEES
ARISING OUT FROM THE DISHONOR OF THE
PLAINTIFF'S CREDIT CARD.[7]
We find the petition meritorious.
The first issue to be resolved is whether petitioner had the right to
suspend the credit card of the private respondent.
Under the terms and conditions of the credit card, signed by the
private respondent, any card with outstanding balances after thirty (30)
days from original billing/statement shall automatically be suspended,
thus:
 PAYMENT OF CHARGES - BECC shall furnish the
Cardholder a monthly statement of account made through
the use of the CARD and the Cardholder agrees that all
charges made through the use of the CARD shall be paid
by the Cardholder on or before the last day for payments,
which is twenty (20) days from the date of the said
statement of account, and such payment due date may be
changed to an earlier date if the Cardholder's account is
considered overdue and/or with balances in excess of the
approved credit limit; or to such other date as may be
deemed proper by the CARD issuer with notice to the
Cardholder on the same monthly statement of account. If
the last day for payment falls on a Saturday, Sunday or
Holiday, the last day for payment automatically becomes
the last working day prior to said payment date. However,
notwithstanding the absence or lack of proof of service of
the statement of charges to the Cardholder, the latter shall
pay any or all charges made through the use of the CARD
within thirty (30) days from the date or dates thereof. Failure
of Cardholder to pay any and all charges made through the
CARD within the payment period as stated in the statement
of charges or within thirty (30) days from actual date or
dates whichever occur earlier, shall render him in default
without the necessity of demand from BECC, which the
Cardholder expressly waives. These charges or balance
thereof remaining unpaid after the payment due date
indicated on the monthly statement of account shall bear
interest at the rate of 3% per month and an additional
penalty fee equivalent to another 3% of the amount due for
every month or a fraction of a month's delay. PROVIDED,
that if there occurs any change on the prevailing market
rates. BECC shall have the option to adjust the rate of
interest and/or penalty fee due on the outstanding obligation
with prior notice to the Cardholder.
xxx xxx xxx
Any CARD with outstanding balances unpaid after thirty
(30) days from original billing/statement date shall
automatically be suspended, and those with accounts
unpaid after sixty (60) days from said original
billing/statement date shall automatically be cancelled,
without prejudice to BECC's right to suspend or cancel any
CARD any time and for whatever reason. In case of default
in his obligation as provided for in the preceding paragraph,
Cardholder shall surrender his CARD to BECC and shall in
addition to the interest and penalty charges
aforementioned, pay the following liquidated damages
and/or fees (a) a collection fee of 25% of the amount due if
the account is referred to a collection agency or attorney;
(b) a service fee of P100 for every dishonored check issued
by the Cardholder in payment of his account, with prejudice,
however, to BECC's right of considering Cardholder's
obligation unpaid, cable cost for demanding payment or
advising cancellation of membership shall also be for
Cardholder's account; and (c) a final fee equivalent to 25%
of the unpaid balance, exclusive of litigation expenses and
judicial costs, if the payment of the account is enforced
through court action.[8]
The aforequoted provision of the credit card cannot be any clearer. By
his own admission, private respondent made no payment within thirty
days for his original billing/statement dated 27 September 1989. Neither
did he make payment for his original billing/statement dated 27 October
1989.Consequently, as early as 28 October 1989, thirty days from the
non-payment of his billing dated 27 September 1989, petitioner
corporation could automatically suspend his credit card.
The next issue is whether prior to the suspension of private
respondent's credit card on 28 November 1989, the parties entered into
an agreement whereby the card could still be used and would be duly
honored by duly accredited establisments.
We agree with the findings of the respondent court, that there was
an arrangement between the parties, wherein the petitioner required the
private respondent to issue a check worth P15,000 as payment for the
latter's billings. However, we find that the private respondent was not
able to comply with his obligation.
As the testimony of private respondent himself bears out, the
agreement was for the immediate payment of the outstanding account:
Q In said statement of account that you are supposed to pay
the P8,974.84 the charge of interest and penalties, did you
note that?
A Yes, sir. I noted the date.
Q When?
A When I returned from the Quezon province, sir.
Q When?
A I think November 22, sir.
Q So that before you used again the credit card you were not able
to pay immediately this P8,987.84 in cash?
A I paid P15,000.00, sir.
Q My question Mr. Witness is, did you pay this P8,987.84 in charge
of interest and penalties immediately in cash?
A In cash no, but in check, sir.
Q You said that you noted the word "immediately" in bold letters in
your statement of account, why did you not pay immediately?
A Because I received that late, sir.
Q Yes, on November 22 when you received from the secretary of
the defendant telling you to pay the principal amount
of P8,987.84, why did you not pay?
A There was a communication between me and the defendant, I
was required to pay P8,000.00 but I paid in check
for P15,000.00, sir.
Q Do you have any evidence to show that the defendant required
you to pay in check for P15,000.00?
A Yes, sir.
Q Where is it?
A It was by telecommunication, sir.
Q So there is no written communication between you and the
defendant?
A There was none, sir.
Q There is no written agreement which says that P8,987.84 should
be paid for P15,000.00 in check, there is none?
A Yes, no written agreement, sir.
Q And you as a lawyer you know that a check is not considered as
cash specially when it is postdated sent to the defendant?
A That is correct, sir.
Clearly, the purpose of the arrangement between the parties on
November 22, 1989, was for the immediate payment of the private
respondent's outstanding account, in order that his credit card would not
be suspended.
As agreed upon by the parties, on the following day, private
respondent did issue a check for P15,000. However, the check was
postdated 15 December 1989. Settled is the doctrine that a check is only
a substitute for money and not money, the delivery of such an instrument
does not, by itself operate as payment.[9] This is especially true in the
case of a postdated check.
Thus, the issuance by the private respondent of the postdated
check was not effective payment. It did not comply with his obligation
under the arrangement with Miss Lorenzo. Petitioner corporation was
therefore justified in suspending his credit card.
Finally, we find no legal and factual basis for private respondent's
assertion that in canceling the credit card of the private respondent,
petitioner abused its right under the terms and conditions of the contract.
 To find the existence of an abuse of right under Article 19 the
following elements must be present: (1) There is a legal right or duty; (2)
which is exercised in bad faith; (3) for the sole intent of prejudicing or
injuring another.[10]
Time and again this Court has held that good faith is presumed
and the burden of proving bad faith is on the party alleging it. [11] This
private respondent failed to do. In fact, the action of the petitioner belies
the existence of bad faith. As early as 28 October 1989, petitioner could
have suspended private respondent's card outright. Instead, petitioner
allowed private respondent to use his card for several weeks. Petitioner
had even notified private respondent of the impending suspension of his
credit card and made special accommodations for him for settling his
outstanding account. As such, petitioner cannot be said to have
capriciously and arbitrarily canceled the private respondent's credit card.
We do not dispute the findings of the lower court that private
respondent suffered damages as a result of the cancellation of his credit
card. However, there is a material distinction between damages and
injury. Injury is the illegal invasion of a legal right; damage is the loss,
hurt, or harm which results from the injury; and damages are the
recompense or compensation awarded for the damage suffered. Thus,
there can be damage without injury in those instances in which the loss
or harm was not the result of a violation of a legal duty. In such cases,
the consequences must be borne by the injured person alone, the law
affords no remedy for damages resulting from an act which does not
amount to a legal injury or wrong. These situations are often
called damnum absque injuria.[12]
In other words, in order that a plaintiff may maintain an action for
the injuries of which he complains, he must establish that such injuries
resulted from a breach of duty which the defendant owed to the plaintiff
- a concurrence of injury to the plaintiff and legal responsibility by the
person causing it. The underlying basis for the award of tort damages is
the premise that an individual was injured in contemplation of law. Thus,
there must first be a breach of some duty and the imposition of liability
for that breach before damages may be awarded; [13] and the breach of
such duty should be the proximate cause of the injury.
We therefore disagree with the ruling of the respondent court that
the dishonor of the credit card of the private respondent by Caf Adriatico
is attributable to petitioner for its willful or gross neglect to inform the
private respondent of the suspension of his credit card, the unfortunate
consequence of which brought social humiliation and embarrassment to
the private respondent.[14]
It was petitioner's failure to settle his obligation which caused the
suspension of his credit card and subsequent dishonor at Caf
Adriatico. He can not now pass the blame to the petitioner for not
notifying him of the suspension of his card. As quoted earlier, the
application contained the stipulation that the petitioner could
automatically suspend a card whose billing has not been paid for more
than thirty days. Nowhere is it stated in the terms and conditions of the
application that there is a need of notice before suspension may be
effected as private respondent claims.[15]
This notwithstanding, on November 28, 1989, the day of the
suspension of private respondent's card, petitioner sent a letter by
ordinary mail notifying private respondent that his card had been
temporarily suspended. Under the Rules on Evidence, there is a
disputable presumption that letters duly directed and mailed were
received on the regular course of mail.[16] Aside from the private
respondent's bare denial, he failed to present evidence to rebut the
presumption that he received said notice. In fact upon cross
examination, private respondent admitted that he did received the letter
notifying him of the cancellation:
Q Now you were saying that there was a first letter sent to you by
the defendant?
A Your letter, sir.
Q Was that the first letter that you received?
A Yes, sir.
Q Is it that there was a communication first between you and the
defendant?
A There was none, sir. I received a cancellation notice but that was
after November 27.[17]
As it was private respondent's own negligence which was the
proximate cause of his embarrassing and humiliating experience, we
find the award of damages by the respondent court clearly
unjustified. We take note of the fact that private respondent has not yet
paid his outstanding account with petitioner.
IN VIEW OF THE FOREGOING, the decision of the Court of
Appeals ordering petitioner to pay private respondent P100,000.00 as
moral damages, P50,000.00 as exemplary damages and P20,000.00 as
attorney's fees, is SET ASIDE. Private respondent is DIRECTED to pay
his outstanding obligation with the petitioner in the amount
of P14,439.41.
SO ORDERED.
FILOMENO URBANO, vs. HON. INTERMEDIATE APPELLATE
COURT AND PEOPLE OF THE PHILIPPINES
GUTIERREZ, JR., J.:
This is a petition to review the decision of the then Intermediate
Appellate Court which affirmed the decision of the then Circuit Criminal
Court of Dagupan City finding petitioner Filomeno Urban guilty beyond
reasonable doubt of the crime of homicide.
The records disclose the following facts of the case.
At about 8:00 o'clock in the morning of October 23, 1980, petitioner
Filomeno Urbano went to his ricefield at Barangay Anonang, San
Fabian, Pangasinan located at about 100 meters from the tobacco
seedbed of Marcelo Javier. He found the place where he stored his
palay flooded with water coming from the irrigation canal nearby which
had overflowed. Urbano went to the elevated portion of the canal to see
what happened and there he saw Marcelo Javier and Emilio Erfe cutting
grass. He asked them who was responsible for the opening of the
irrigation canal and Javier admitted that he was the one. Urbano then
got angry and demanded that Javier pay for his soaked palay. A quarrel
between them ensued. Urbano unsheathed his bolo (about 2 feet long,
including the handle, by 2 inches wide) and hacked Javier hitting him on
the right palm of his hand, which was used in parrying the bolo hack.
Javier who was then unarmed ran away from Urbano but was overtaken
by Urbano who hacked him again hitting Javier on the left leg with the
back portion of said bolo, causing a swelling on said leg. When Urbano
tried to hack and inflict further injury, his daughter embraced and
prevented him from hacking Javier.
Immediately thereafter, Antonio Erfe, Emilio Erfe, and Felipe Erfe
brought Javier to his house about 50 meters away from where the
incident happened. Emilio then went to the house of Barangay Captain
Menardo Soliven but not finding him there, Emilio looked for barrio
councilman Felipe Solis instead. Upon the advice of Solis, the Erfes
together with Javier went to the police station of San Fabian to report
the incident. As suggested by Corporal Torio, Javier was brought to a
physician. The group went to Dr. Guillermo Padilla, rural health
physician of San Fabian, who did not attend to Javier but instead
suggested that they go to Dr. Mario Meneses because Padilla had no
available medicine.
After Javier was treated by Dr. Meneses, he and his companions
returned to Dr. Guillermo Padilla who conducted a medico-legal
examination. Dr. Padilla issued a medico-legal certificate (Exhibit "C"
dated September 28, 1981) which reads:
TO WHOM IT MAY CONCERN:
This is to certify that I have examined the wound of
Marcelo Javier, 20 years of age, married, residing
at Barangay Anonang, San Fabian, Pangasinan on
October 23, 1980 and found the following:
 1 -Incised wound 2 inches in length at the upper
portion of the lesser palmar prominence, right.
As to my observation the incapacitation is from (7-
9) days period. This wound was presented to me
only for medico-legal examination, as it was already
treated by the other doctor. (p. 88, Original
Records)
Upon the intercession of Councilman Solis, Urbano and Javier agreed
to settle their differences. Urbano promised to pay P700.00 for the
medical expenses of Javier. Hence, on October 27, 1980, the two
accompanied by Solis appeared before the San Fabian Police to
formalize their amicable settlement. Patrolman Torio recorded the event
in the police blotter (Exhibit A), to wit:
xxx xxx xxx
Entry Nr 599/27 Oct '80/103OH/ Re entry Nr 592 on
page 257 both parties appeared before this Station
accompanied by brgy. councilman Felipe Solis and
settled their case amicably, for they are neighbors
and close relatives to each other. Marcelo Javier
accepted and granted forgiveness to Filomeno
Urbano who shoulder (sic) all the expenses in his
medical treatment, and promising to him and to this
Office that this will never be repeated anymore and
not to harbour any grudge against each other. (p.
87, Original Records.)
accessories of the law, to indemnify the heirs of the victim, Marcelo
Javier, in the amount of P12,000.00 without subsidiary imprisonment in
case of insolvency, and to pay the costs. He was ordered confined at
the New Bilibid Prison, in Muntinlupa, Rizal upon finality of the decision,
in view of the nature of his penalty.
The then Intermediate Appellate Court affirmed the conviction of Urbano
on appeal but raised the award of indemnity to the heirs of the deceased
to P30,000.00 with costs against the appellant.
The appellant filed a motion for reconsideration and/or new trial. The
motion for new trial was based on an affidavit of Barangay Captain
Menardo Soliven (Annex "A") which states:
That in 1980, I was the barrio captain of Barrio
Anonang, San Fabian, Pangasinan, and up to the
present having been re-elected to such position in
the last barangay elections on May 17, 1982;
That sometime in the first week of November, 1980,
there was a typhoon that swept Pangasinan and
other places of Central Luzon including San Fabian,
a town of said province;
That during the typhoon, the sluice or control gates
of the Bued irrigation dam which irrigates the
ricefields of San Fabian were closed and/or
controlled so much so that water and its flow to the
canals and ditches were regulated and reduced;

Urbano advanced P400.00 to Javier at the police station. On November

That due to the locking of the sluice or control gates
3, 1980, the additional P300.00 was given to Javier at Urbano's house
of the dam leading to the canals and ditches which
in the presence of barangay captain Soliven.
will bring water to the ricefields, the water in said
canals and ditches became shallow which was
At about 1:30 a.m. on November 14, 1980, Javier was rushed to the suitable for catching mudfishes;
Nazareth General Hospital in a very serious condition. When admitted
to the hospital, Javier had lockjaw and was having convulsions. Dr.
That after the storm, I conducted a personal survey
Edmundo Exconde who personally attended to Javier found that the
in the area affected, with my secretary Perfecto
latter's serious condition was caused by tetanus toxin. He noticed the
Jaravata;
presence of a healing wound in Javier's palm which could have been
infected by tetanus.
That on November 5, 1980, while I was conducting
survey, I saw the late Marcelo Javier catching fish
On November 15, 1980 at exactly 4:18 p.m., Javier died in the hospital.
in the shallow irrigation canals with some
The medical findings of Dr. Exconde are as follows:
companions;

Date Diagnosis
That few days there after,or on November l5, l980,
I came to know that said Marcelo Javier died of
11-14-80 ADMITTED due to trismusadm. at DX tetanus. (p. 33, Rollo)
TETANUS
The motion was denied. Hence, this petition.
1:30 AM Still having frequent muscle spasm. With
difficulty opening his mouth. Restless at times.
In a resolution dated July 16, 1986, we gave due course to the petition.
Febrile

The case involves the application of Article 4 of the Revised Penal Code
11-15-80 Referred. Novaldin 1 amp. inj. IM. Sudden
which provides that "Criminal liability shall be incurred: (1) By any person
cessa-tion of respiration and HR after muscular
committing a felony (delito) although the wrongful act done be different
spasm 02 inhalation administered. Ambo bag
from that which he intended ..." Pursuant to this provision "an accused
resuscitation and cardiac massage done but to no
is criminally responsible for acts committed by him in violation of law and
avail. Pronounced dead by Dra. Cabugao at 4:18
for all the natural and logical consequences resulting therefrom."
P.M. PMC done and cadaver brought home by
(People v. Cardenas, 56 SCRA 631).
relatives. (p. 100, Original Records)

The record is clear that Marcelo Javier was hacked by the petitioner who
In an information dated April 10, 1981, Filomeno Urbano was charged
used a bolo as a result of which Javier suffered a 2-inch incised wound
with the crime of homicide before the then Circuit Criminal Court of
on his right palm; that on November 14, 1981 which was the 22nd day
Dagupan City, Third Judicial District.
after the incident, Javier was rushed to the hospital in a very serious
condition and that on the following day, November 15, 1981, he died
Upon arraignment, Urbano pleaded "not guilty." After trial, the trial court from tetanus.
found Urbano guilty as charged. He was sentenced to suffer an
indeterminate prison term of from TWELVE (12) YEARS of prision
Under these circumstances, the lower courts ruled that Javier's death
mayor, as minimum to SEVENTEEN (17) years, FOUR (4) MONTHS
was the natural and logical consequence of Urbano's unlawful act.
and ONE (1) DAY of reclusion temporal, as maximum, together with the
Hence, he was declared responsible for Javier's death. Thus, the
appellate court said:
The claim of appellant that there was an efficient
cause which supervened from the time the
deceased was wounded to the time of his death,
which covers a period of 23 days does not deserve
serious consideration. True, that the deceased did
not die right away from his wound, but the cause of
his death was due to said wound which was inflicted
by the appellant. Said wound which was in the
process of healing got infected with tetanus which
ultimately caused his death.
Dr. Edmundo Exconde of the Nazareth General
Hospital testified that the victim suffered lockjaw
because of the infection of the wound with tetanus.
And there is no other way by which he could be
infected with tetanus except through the wound in
his palm (tsn., p. 78, Oct. 5, 1981). Consequently,
the proximate cause of the victim's death was the
wound which got infected with tetanus. And the
settled rule in this jurisdiction is that an accused is
liable for all the consequences of his unlawful act.
(Article 4, par. 1, R.P.C. People v. Red, CA 43 O.G.
5072; People v. Cornel 78 Phil. 418).
Appellant's allegation that the proximate cause of
the victim's death was due to his own negligence in
going back to work without his wound being
properly healed, and lately, that he went to catch
fish in dirty irrigation canals in the first week of
November, 1980, is an afterthought, and a
desperate attempt by appellant to wiggle out of the
predicament he found himself in. If the wound had
not yet healed, it is impossible to conceive that the
deceased would be reckless enough to work with a
disabled hand. (pp. 20-21, Rollo)
The petitioner reiterates his position that the proximate cause of the
death of Marcelo Javier was due to his own negligence, that Dr. Mario
Meneses found no tetanus in the injury, and that Javier got infected with
tetanus when after two weeks he returned to his farm and tended his
tobacco plants with his bare hands exposing the wound to harmful
elements like tetanus germs.
The evidence on record does not clearly show that the wound inflicted
by Urbano was infected with tetanus at the time of the infliction of the
wound. The evidence merely confirms that the wound, which was
already healing at the time Javier suffered the symptoms of the fatal
ailment, somehow got infected with tetanus However, as to when the
wound was infected is not clear from the record.
In Vda. de Bataclan, et al. v. Medina (102 Phil. 1181), we adopted the
following definition of proximate cause:
xxx xxx xxx
... A satisfactory definition of proximate cause is
found in Volume 38, pages 695-696 of American
Jurisprudence, cited by plaintiffs-appellants in their
brief. It is as follows:
... "that cause, which, in natural and continuous
sequence, unbroken by any efficient intervening
cause, produces the injury, and without which the
result would not have occurred."And more
comprehensively, "the proximate legal cause is that
acting first and producing the injury, either
immediately or by setting other events in motion, all
constituting a natural and continuous chain of
events, each having a close causal connection with
its immediate predecessor, the final event in the
chain immediately effecting the injury as a natural
and probable result of the cause which first acted,
under such circumstances that the person
responsible for the first event should, as an
ordinarily prudent and intelligent person, have
reasonable ground to expect at the moment of his
act or default that an injury to some person might
probably result therefrom." (at pp. 185-186)
The issue, therefore, hinges on whether or not there was an efficient
intervening cause from the time Javier was wounded until his death
which would exculpate Urbano from any liability for Javier's death.
We look into the nature of tetanus-
The incubation period of tetanus, i.e., the time
between injury and the appearance of unmistakable
symptoms, ranges from 2 to 56 days. However,
over 80 percent of patients become symptomatic
within 14 days. A short incubation period indicates
severe disease, and when symptoms occur within
2 or 3 days of injury the mortality rate approaches
100 percent.
Non-specific premonitory symptoms such as
restlessness, irritability, and headache are
encountered occasionally, but the commonest
presenting complaints are pain and stiffness in the
jaw, abdomen, or back and difficulty swallowing. As
the progresses, stiffness gives way to rigidity, and
patients often complain of difficulty opening their
mouths. In fact, trismus in the commonest
manifestation of tetanus and is responsible for the
familiar descriptive name of lockjaw. As more
muscles are involved, rigidity becomes generalized,
and sustained contractions called risus sardonicus.
The intensity and sequence of muscle involvement
is quite variable. In a small proportion of patients,
only local signs and symptoms develop in the
region of the injury. In the vast majority, however,
most muscles are involved to some degree, and the
signs and symptoms encountered depend upon the
major muscle groups affected.
Reflex spasm usually occur within 24 to 72 hours of
the first symptom, an interval referred to as the
onset time. As in the case of the incubation period,
a short onset time is associated with a poor
prognosis. Spasms are caused by sudden
intensification of afferent stimuli arising in the
periphery, which increases rigidity and causes
simultaneous and excessive contraction of muscles
and their antagonists. Spasms may be both painful
and dangerous. As the disease progresses,
minimal or inapparent stimuli produce more intense
and longer lasting spasms with increasing
frequency. Respiration may be impaired by
laryngospasm or tonic contraction of respiratory
muscles which prevent adequate ventilation.
Hypoxia may then lead to irreversible central
nervous system damage and death.
Mild tetanus is characterized by an incubation
period of at least 14 days and an onset time of more
than 6 days. Trismus is usually present, but
dysphagia is absent and generalized spasms are
brief and mild. Moderately severe tetanus has a
somewhat shorter incubation period and onset
time; trismus is marked, dysphagia and generalized
rigidity are present, but ventilation remains
adequate even during spasms. The criteria for
severe tetanus include a short incubation time, and
an onset time of 72 hrs., or less, severe trismus,
dysphagia and rigidity and frequent prolonged,
generalized convulsive spasms. (Harrison's
 Principle of Internal Medicine, 1983 Edition, pp. case. It does not necessarily follow that the petitioner is also free of civil
1004-1005; Emphasis supplied) liability. The well-settled doctrine is that a person, while not criminally
liable, may still be civilly liable. Thus, in the recent case of People v.
Rogelio Ligon y Tria, et al. (G.R. No. 74041, July 29, 1987), we said:
Therefore, medically speaking, the reaction to tetanus found inside a
man's body depends on the incubation period of the disease.
xxx xxx xxx
In the case at bar, Javier suffered a 2-inch incised wound on his right
palm when he parried the bolo which Urbano used in hacking him. This ... While the guilt of the accused in a criminal
incident took place on October 23, 1980. After 22 days, or on November prosecution must be established beyond
14, 1980, he suffered the symptoms of tetanus, like lockjaw and muscle reasonable doubt, only a preponderance of
spasms. The following day, November 15, 1980, he died. evidence is required in a civil action for damages.
(Article 29, Civil Code). The judgment of acquittal
extinguishes the civil liability of the accused only
If, therefore, the wound of Javier inflicted by the appellant was already
when it includes a declaration that the facts from
infected by tetanus germs at the time, it is more medically probable that
which the civil liability might arise did not exist.
Javier should have been infected with only a mild cause of tetanus
(Padilla v. Court of Appeals, 129 SCRA 559).
because the symptoms of tetanus appeared on the 22nd day after the
hacking incident or more than 14 days after the infliction of the wound.
Therefore, the onset time should have been more than six days. Javier, The reason for the provisions of article 29 of the
however, died on the second day from the onset time. The more credible Civil Code, which provides that the acquittal of the
conclusion is that at the time Javier's wound was inflicted by the accused on the ground that his guilt has not been
appellant, the severe form of tetanus that killed him was not yet present. proved beyond reasonable doubt does not
Consequently, Javier's wound could have been infected with tetanus necessarily exempt him from civil liability for the
after the hacking incident. Considering the circumstance surrounding same act or omission, has been explained by the
Javier's death, his wound could have been infected by tetanus 2 or 3 or Code Commission as follows:
a few but not 20 to 22 days before he died.
The old rule that the acquittal
The rule is that the death of the victim must be the direct, natural, and of the accused in a criminal
logical consequence of the wounds inflicted upon him by the accused. case also releases him from
(People v. Cardenas, supra) And since we are dealing with a criminal civil liability is one of the most
conviction, the proof that the accused caused the victim's death must serious flaws in the Philippine
convince a rational mind beyond reasonable doubt. The medical legal system. It has given use
findings, however, lead us to a distinct possibility that the infection of the to numberless instances of
wound by tetanus was an efficient intervening cause later or between miscarriage of justice, where
the time Javier was wounded to the time of his death. The infection was, the acquittal was due to a
therefore, distinct and foreign to the crime. (People v. Rellin, 77 Phil. reasonable doubt in the mind
1038). of the court as to the guilt of the
accused. The reasoning
followed is that inasmuch as
Doubts are present. There is a likelihood that the wound was but
the civil responsibility is
the remote cause and its subsequent infection, for failure to take
derived from the criminal
necessary precautions, with tetanus may have been
offense, when the latter is not
the proximate cause of Javier's death with which the petitioner had
proved, civil liability cannot be
nothing to do. As we ruled in Manila Electric Co. v. Remoquillo, et al. (99
demanded.
Phil. 118).

This is one of those causes

"A prior and remote cause cannot be made the be
where confused thinking leads
of an action if such remote cause did nothing more
to unfortunate and deplorable
than furnish the condition or give rise to the
consequences. Such
occasion by which the injury was made possible, if
reasoning fails to draw a clear
there intervened between such prior or remote
line of demarcation between
cause and the injury a distinct, successive,
criminal liability and civil
unrelated, and efficient cause of the injury, even
responsibility, and to
though such injury would not have happened but for
determine the logical result of
such condition or occasion. If no danger existed in
the distinction. The two
the condition except because of the independent
liabilities are separate and
cause, such condition was not the proximate cause.
distinct from each other. One
And if an independent negligent act or defective
affects the social order and the
condition sets into operation the instances which
other, private rights. One is for
result in injury because of the prior defective
the punishment or correction
condition, such subsequent act or condition is the
of the offender while the other
proximate cause." (45 C.J. pp. 931-932). (at p. 125)
is for reparation of damages
suffered by the aggrieved
It strains the judicial mind to allow a clear aggressor to go scot free of party. The two responsibilities
criminal liability. At the very least, the records show he is guilty of are so different from each
inflicting slight physical injuries. However, the petitioner's criminal other that article 1813 of the
liability in this respect was wiped out by the victim's own act. After the present (Spanish) Civil Code
hacking incident, Urbano and Javier used the facilities of barangay reads thus: "There may be a
mediators to effect a compromise agreement where Javier forgave compromise upon the civil
Urbano while Urbano defrayed the medical expenses of Javier. This action arising from a crime; but
settlement of minor offenses is allowed under the express provisions of the public action for the
Presidential Decree G.R. No. 1508, Section 2(3). (See also People v. imposition of the legal penalty
Caruncho, 127 SCRA 16). shall not thereby be
extinguished." It is just and
proper that, for the purposes of
We must stress, however, that our discussion of proximate cause and the imprisonment of or fine
remote cause is limited to the criminal aspects of this rather unusual
 upon the accused, the offense
should be proved beyond
reasonable doubt. But for the
purpose of indemnity the
complaining party, why should
the offense also be proved
beyond reasonable doubt? Is
not the invasion or violation of
every private right to be proved
only by a preponderance of
evidence? Is the right of the
aggrieved person any less
private because the wrongful
act is also punishable by the
criminal law?
"For these reasons, the
Commission recommends the
adoption of the reform under
discussion. It will correct a
serious defect in our law. It will
close up an inexhaustible
source of injustice-a cause for
disillusionment on the part of
the innumerable persons
injured or wronged."
The respondent court increased the P12,000.00 indemnification
imposed by the trial court to P30,000.00. However, since the
indemnification was based solely on the finding of guilt beyond
reasonable doubt in the homicide case, the civil liability of the petitioner
was not thoroughly examined. This aspect of the case calls for fuller
development if the heirs of the victim are so minded.
WHEREFORE, the instant petition is hereby GRANTED. The
questioned decision of the then Intermediate Appellate Court, now Court
of Appeals, is REVERSED and SET ASIDE. The petitioner is
ACQUITTED of the crime of homicide. Costs de oficio.
SO ORDERED.
REMIGIO RODRIGUEZ, ET AL., vs.THE MANILA RAILROAD
COMPANY
STREET, J.:
This action was instituted jointly by Remigio Rodrigueza and three
others in the Court of First Instance of the Province of Albay to recover
a sum of money of the Manila Railroad Company as damages resulting
from a fire kindled by sparks from a locomotive engine under the
circumstances set out below. Upon hearing the cause upon the
complaint, answer and an agreed statement of facts, the trial judge
rendered judgment against the defendant company in favor of the
plaintiffs and awarded to them the following sums respectively as
damages, to wit, (1) to Remigio Rodrigueza, P3,000; (2) to Domingo
Gonzaga, P400; (3) to Cristina Luna, P300; and (4) to Perfecta
Losantas, P150; all with lawful interest from March 21, 1919. From this
judgment the defendant appealed.
The facts as appearing from the agreed statement, in relation with the
complaint, are to the effect that the defendant Railroad Company
operates a line through the district of Daraga in the municipality of Albay;
that on January 29, 1918, as one of its trains passed over said line, a
great quantity of sparks were emitted from the smokestack of the
locomotive, and fire was thereby communicated to four houses nearby
belonging to the four plaintiffs respectively, and the same were entirely
consumed. All of these houses were of light construction with the
exception of the house of Remigio Rodrigueza, which was of strong
materials, though the roof was covered with nipa and cogon. The fire
occurred immediately after the passage of the train, and a strong wind
was blowing at the time. It does not appear either in the complaint or in
the agreed statement whose house caught fire first, though it is stated
in the appellant's brief that the fire was first communicated to the house
of Remigio Rodrigueza, from whence it spread to the others.
In the fourth paragraph of the complaint which is admitted to be true
it is alleged that the defendant Railroad Company was conspicuously
negligent in relation to the origin of said fire, in the following respects,
namely, first, in failing to exercise proper supervision over the
employees in charge of the locomotive; secondly, in allowing the
locomotive which emitted these sparks to be operated without having
the smokestack protected by some device for arresting sparks; thirdly,
in using in its locomotive upon this occasion Bataan coal, a fuel of known
inferior quality which, upon combustion, produces sparks in great
quantity.
The sole ground upon which the defense is rested is that the house of
Remigio Rodrigueza stood partly within the limits of the land owned by
the defendant company, though exactly how far away from the
company's track does not appear. It further appears that, after the
railroad track was laid, the company notified Rodrigueza to get his house
off the land of the company and to remove it from its exposed position.
Rodrigueza did not comply with this suggestion, though he promised to
put an iron roof on his house, which he never did. Instead, he changed
the materials of the main roof to nipa, leaving the kitchen and media-
aguas covered with cogon. Upon this fact it is contended for the defense
that there was contributory negligence on the part of Remigio
Rodrigueza in having his house partly on the premises of the Railroad
Company, and that for this reason the company is not liable. This
position is in our opinion untenable for the reasons which we shall
proceed to state.
In the first place, it will be noted that the fact suggested as constituting
a defense to this action could not in any view of the case operate as a
bar to recovery by the three plaintiffs other than Remigio Rodrigueza,
even assuming that the fire was first communicated to his house; for said
three plaintiffs are in nowise implicated in the act which supposedly
constitutes the defense. In this connection it will be observed that the
right of action of each of these plaintiffs is totally distinct from that of his
co-plaintiff, so much so that each might have sued separately, and the
defendant if it had seen fit to do so, might in this case have demurred
successfully to the complaint for misjoinder of parties plaintiff. The fact
that the several rights of action of the different plaintiffs arose
simultaneously out of one act of the defendant is not sufficient of itself
to require, or even permit, the joinder of such parties as coplaintiffs in a
single action (30 Cyc., 114) if objection had been made thereto.
Domingo Gonzaga, Cristina Luna, and Perfecta Losantas are therefore
entitled to recover upon the admitted fact that this fire originated in the
negligent acts of the defendant; and the circumstance that the fire may
have been communicated to their houses through the house of Remegio
Rodrigueza, instead of having been directly communicated from the
locomotive, is immaterial. (See 38 Am. Dec., 64, 77; 1 11 R. C. L., 968-
971; Kansas City, etc. Railroad Co. vs. Blaker, 64 L. R. A., 81
Pennsylvania Railroad Co. vs. Hope, 80 Pa. St., 373; 21 Am. Rep. 100.)
With respect to the case of Remegio Rodrigueza it is to be inferred that
his house stood upon this ground before the Railroad Company laid its
line over this course; and at any rate there is no proof that this plaintiff
had unlawfully intruded upon the railroad's property in the act of building
his house. What really occurred undoubtedly is that the company, upon
making this extension, had acquired the land only, leaving the owner of
the house free to remove it. Hence he cannot be considered to have
been a trespasser in the beginning. Rather, he was there at the
sufferance of the defendant company, and so long as his house
remained in this exposed position, he undoubtedly assumed the risk of
any loss that might have resulted from fires occasioned by the
defendant's locomotives if operated and managed with ordinary care.
But he cannot be held to have assumed the risk of any damage that
might result from the unlawful negligence acts of the defendant. Nobody
is bound to anticipate and defend himself against the possible
negligence of another. Rather he has a right to assume that the other
will use the care of the ordinary prudent man. (Philadelphia and Reading
Railroad Co. vs. Hendrickson, 80 Pa. St., 182; 21 Am. Rep., 97.)
In the situation now under consideration the proximate and only cause
of the damage that occurred was the negligent act of the defendant in
causing this fire. The circumstance that Remigio Rodrigueza's house
was partly on the property of the defendant company and therefore in
dangerous proximity to passing locomotives was an antecedent
condition that may in fact have made the disaster possible, but that
circumstance cannot be imputed to him as contributory negligence
destructive of his right of action, because, first, that condition was not
created by himself; secondly, because his house remained on this
ground by the toleration, and therefore with the consent of the Railroad
Company; and thirdly, because even supposing the house to be
improperly there, this fact would not justify the defendant in negligently
destroying it. (Grand Trunk Railway of Canada vs. Richardson, 91 U. S.,
454; 23 L. ed., 356; Norfolk etc. Ry. Co. vs. Perrow, 101 Va., 345,
350.)lawphil.net
The circumstance that the defendant company, upon planting its line
near Remigio Rodrigueza's house, had requested or directed him to
remove it, did not convert his occupancy into a trespass, or impose upon
him any additional responsibility over and above what the law itself
imposes in such situation. In this connection it must be remembered that
the company could at any time have removed said house in the exercise
of the power of eminent domain, but it elected not to do so.
Questions similar to that now before us have been under the
consideration of American courts many times, and their decisions are
found to be uniformly favorable to recovery where the property
destroyed has been placed in whole or in part on the right of way of the
railroad company with its express or implied consent. (L. R. Martin
Timber Co. vs.Great Northern Railway Co., 123 Minn., 423; Ann. Cas.,
1915A, p. 496, note; Burroughs vs. Housatonic R.R. Co., 15 Conn., 124;
38 Am. Dec., 64; 74; Southern Ry. Co. vs. Patterson, 105 Va. 6; 8 Ann.
Cas., 44.) And the case for the plaintiff is apparently stronger where the
company constructs its line in proximity to a house already built and fails
to condemn it and remove it from its right of way.
From what has been said it is apparent that the judgment appealed from
is in all respect in conformity with the law, and the same is accordingly
affirmed, with costs. So ordered.
ANTONIO RAMON ONGSIAKO vs. INTERMEDIATE APPELLATE
COURT and THE PEOPLE OF THE PHILIPPINES
CRUZ, J.:
Prosecuted for reckless imprudence resulting in multiple physical
injuries and damage to property, the petitioner was convicted by the trial
court* of only simple negligence resulting in serious physical injuries and
damage to property. He was sentenced to two months of arresto mayor
and to pay a total indemnity of P143,131.04 for medical expenses,
unearned salaries and as moral damages.1 On appeal, the conviction
was affirmed but the respondent court** reduced the moral damages by
P84,000.00, thus lowering the total indemnity to P61,131,04. 2 Still not
satisfied, the petitioner has come to this Court for a complete reversal of
the judgment below.
This case arose from a collision between the car being driven by the
petitioner and the jeep of Robert Ha on December 30, 1981, at about 4
o'clock in the afternoon. at MacArthur Highway, in Moncada, Tarlac. The
petitioner had a companion, Leon Miguel Heras, who was seated beside
him. Robert Ha was at the wheel of his vehicle, which had seven other
passengers. It appears that the petitioner was south-bound, toward
Manila, and the jeep was coming from the opposite direction; that a
Philippine Rabbit bus ahead of the jeep swerved into the petitioner's lane
to overtake and bypass a tricycle; and that as a result of this sudden
move, the petitioner, to avoid a head-on collision, immediately veered
his car to the shoulder of the highway. The car went out of control when
it hit the soft shoulder, moved back diagonally across the cemented
highway, then collided with Ha's jeep, damaging it and causing multiple
injuries to its passengers. The Philippine Rabbit bus sped away.3
After considering the arguments of the parties in the petition itself, the
comment thereon of the public respondent and the reply thereto, we
gave due course to this petition and required the parties to file
simultaneous memoranda. The petitioner complied in due time but the
Solicitor General, to avoid repetitiousness, as he put it, merely adopted
his sketchy comment as the memorandum for the respondent. 4
While this Court is ordinarily not a trier of facts, it has the authority to
review and reverse the factual findings of the lower courts if it finds that
they do not conform to the evidence of record. We so find in this case,
for reasons to be discussed presently.
The trial court held, and the respondent court affirmed, that "the jeep
was still about 150 meters away from the Philippine Rabbit bus when
the accused drove his car toward the road shulder to avoid the collision
with the oncoming bus. In other words, there was sufficient time for
Antonio Ramon Ongsiako to avail of a feasible time to avert hitting the
jeep."5 The judge should have been more careful in reaching this
conclusion for it is not founded on the facts as established. The evidence
of record is that the distance was not 150 meters but 150 feet, which
makes quite a difference, indeed. The correct distance, incidentally, was
established by no less than the trial court itself which, in its examination
of Robert Ha, the principal prosecution witness, elicited from him the
said information in the following exchange:
COURT:
Q: How far was the Philippine Rabbit bus ahead of you before
the car swerved to your lane?
WITNESS
6
A: Approximately about 150 feet ahead of me, Your Honor.
The Court considers this discrepancy important because the finding of
negligence by the trial court is based on whether or not the accused had
enough opportunity to avoid the collision. And that opportunity depended
on the distance between the two vehicles. If the trial judge had carefully
considered the evidence and discovered that the distance was
150 feet and not meters, it is doubtful that he would have concluded as
he did that the accused was negligent. The distance of 150 feet is less
than one-third of 150 meters, which means that the sufficient time
imagined by the trial judge would have been correspondingly and
significantly reduced by two-thirds of the actual period. The time as
shortened could not have, if we apply the trial judge's own calculations,
prevented the petitioner from avoiding the collision.
Another indication of carelessness, this time on the part of the
respondent court, is its observation, in rejecting the petitioner's version
of the collision, that "the police sketch of the collision scene fails to reveal
any skidmarks of the appellant's car"7 on the highway. What is rather
odd about this finding is that the trial court, and the respondent court
later, never considered the fact that the sketch was made five days after
the collision, as clearly emphasized by the petitioner in his brief.
Apparently, it did not occur to the courts below and this is also
somewhat puzzling that all skidmarks would have disappeared by that
time on the busy highway.
There was also apparent disregard of the record when the respondent
court observed that the petitioner had not presented his companion to
testify on his behalf, concluding that "such failure to present Heras raises
the presumption that his testimony, had it been presented, would have
been adverse to the appellant's cause (Orfanel v. People, 30 SCRA
825)."8 This is another careless conclusion. The premise is incorrect,
and so the conclusion must also be rejected. In fact, the petitioner did
present Heras, and Heras did testify in support of the petitioner,
substantially corroborating the petitioner's account of the collision. A
reading of the transcript of the stenographic notes in the hearing of the
case on July 27, 1983, will readily disclose this.9
The Court is also perplexed by the following portion of the appealed
decision:
If it was true that appellant lost control of his vehicle as early
as when his car hit the shoulder of the road, it was extremely
stupid of him to move his car back to the highway while his
car was still out of control. This is especially true in the face of
his own admission that he saw the Rabbit bus for the first time
when it was stin about 200 meters away overtaking a vehicle
(jeep of Robert Ha) which was immediately behind a tricycle
(p. 2, Ibid.). Assuming that appellant indeed lost control of his
car as he hit the shoulder, he should have applied full not a
 little pressure upon his brakes. He should have stopped his
vehicle instead of driving it back to the highway and risking
collision with oncoming vehicles. 10
As the car was "still out of control," why is it assumed that the petitioner
would nonetheless be able, although this would be "extremely stupid,"
to move it back to the highway? It is really mystifying that the respondent
court would still expect the petitioner to control the car which, as it says
so itself, was then "out of control." "Assuming the appellant indeed lost
control of his car as he hit the shoulder," the decision adds, "he should
have stopped his vehicle instead of driving it back to the highway and
risking collision with oncoming vehicles." This is hardly logical. The court
cannot assume that the petitioner lost control of his vehicle and on that
assumption fault him for not correctly controlling it. That would be
impossible, to say the least. When one loses control of his car, he cannot
direct it the way he wants, or move it in the direction he chooses, or
accelerate or stop it, for the simple reason that it is precisely out of
control. A car out of control is simply out of control, period. As for the
"little pressure" the petitioner says he applied on the brakes, the
purpose, according to him, was to prevent his car from turning turtle as
a result of a sudden stop that would have been caused by his jamming
on the brakes.
The real culprit in this unfortunate incident, as the Court sees it, could
be the driver of the Philippine Rabbit bus whose recklessness was the
cause of the collision between the petitioner's car and Robert Ha's jeep.
We notice that the trial court made the meaningful observation that "the
Philippine Rabbit bus may be faulted," but added rather helplessly, that
"it is not here charged."11 We hope it did not mean by this that someone
else had to be made liable, to vindicate the victims' rights.
It seems to us that a simple investigation would have uncovered the
Identity and whereabouts of the Rabbit bus driver, with a view to his
prosecution for his involvement in the collision. Why this was not done
reflects on the sense of duty of the law-enforcement officers who
investigated this matter and on the resourcefulness of the petitioner and
his counsel whose cause could have improved with the indictment of the
said driver.
At any rate, it is the finding of the Court, in view of the misappreciation
of the evidence of record by the respondent court and the trial court, that
the guilt of the petitioner has not been proved beyond reasonable doubt.
Consequently, he should not have been held guilty of even simple
negligence and instead is entitled to be completely absolved of criminal
responsibility.
The civil liability is, however, a different question.
While the quantum of proof necessary for conviction has not been
established, there is, in our view, a preponderance of evidence to hold
the petitioner liable in damages for the injuries sustained by the victims
of this accident. Although it is really doubtful that he was criminally
negligent, we find there is enough evidence to sustain the conclusion
that a little more caution and discretion on his part in reacting to the
threat of a head-on collision with the oncoming bus, could have avoided
the unfortunate accident. For this shortcoming, we hold him liable for the
hospitalization expenses and unearned salaries of the victims as
itemized by the trial court and affirmed by the respondent court. We
absolve him, however, from the payment of moral damages and so
reduce his total civil liability to P46,131.04.
We apply here the doctrine announced in the recent case of People v.
Ligon,12 where the accused was acquitted of the crime of homicide for
lack of clear and convincing proof that he had criminally caused a
cigarette vendor to fall to his death from the jeep where he was hanging
onto. Nevertheless, from the totality of the facts presented, we declared
there was a preponderance of evidence to hold the accused liable in
damages for the tragic mishap that befell the victim. We make a similar
finding in this case and hold the petitioner civilly answerable for his
quasi-delict.
WHEREFORE, the petitioner is ACQUITTED and his conviction is
REVERSED, but he is held liable in the total sum of P46,131.04 for
damages as above specified. No costs.
SO ORDERED.
THE ROMAN CATHOLIC BISHOP OF JARO vs. GREGORIO DE LA
PEA, administrator of the estate of Father Agustin de la Pea
MORELAND, J.:
This is an appeal by the defendant from a judgment of the Court of First
Instance of Iloilo, awarding to the plaintiff the sum of P6,641, with
interest at the legal rate from the beginning of the action.
It is established in this case that the plaintiff is the trustee of a charitable
bequest made for the construction of a leper hospital and that father
Agustin de la Pea was the duly authorized representative of the plaintiff
to receive the legacy. The defendant is the administrator of the estate of
Father De la Pea.
In the year 1898 the books Father De la Pea, as trustee, showed that
he had on hand as such trustee the sum of P6,641, collected by him for
the charitable purposes aforesaid. In the same year he deposited in his
personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo.
Shortly thereafter and during the war of the revolution, Father De la Pea
was arrested by the military authorities as a political prisoner, and while
thus detained made an order on said bank in favor of the United States
Army officer under whose charge he then was for the sum thus
deposited in said bank. The arrest of Father De la Pea and the
confiscation of the funds in the bank were the result of the claim of the
military authorities that he was an insurgent and that the funds thus
deposited had been collected by him for revolutionary purposes. The
money was taken from the bank by the military authorities by virtue of
such order, was confiscated and turned over to the Government.
While there is considerable dispute in the case over the question
whether the P6,641 of trust funds was included in the P19,000 deposited
as aforesaid, nevertheless, a careful examination of the case leads us
to the conclusion that said trust funds were a part of the funds deposited
and which were removed and confiscated by the military authorities of
the United States.
That branch of the law known in England and America as the law of
trusts had no exact counterpart in the Roman law and has none under
the Spanish law. In this jurisdiction, therefore, Father De la Pea's
liability is determined by those portions of the Civil Code which relate to
obligations. (Book 4, Title 1.)
Although the Civil Code states that "a person obliged to give something
is also bound to preserve it with the diligence pertaining to a good father
of a family" (art. 1094), it also provides, following the principle of the
Roman law, major casus est, cui humana infirmitas resistere non potest,
that "no one shall be liable for events which could not be foreseen, or
which having been foreseen were inevitable, with the exception of the
cases expressly mentioned in the law or those in which the obligation so
declares." (Art. 1105.)
By placing the money in the bank and mixing it with his personal funds
De la Pea did not thereby assume an obligation different from that
under which he would have lain if such deposit had not been made, nor
did he thereby make himself liable to repay the money at all hazards. If
the had been forcibly taken from his pocket or from his house by the
military forces of one of the combatants during a state of war, it is clear
that under the provisions of the Civil Code he would have been exempt
from responsibility. The fact that he placed the trust fund in the bank in
his personal account does not add to his responsibility. Such deposit did
not make him a debtor who must respond at all hazards.
We do not enter into a discussion for the purpose of determining whether
he acted more or less negligently by depositing the money in the bank
than he would if he had left it in his home; or whether he was more or
less negligent by depositing the money in his personal account than he
would have been if he had deposited it in a separate account as trustee.
We regard such discussion as substantially fruitless, inasmuch as the
precise question is not one of negligence. There was no law prohibiting
him from depositing it as he did and there was no law which changed
his responsibility be reason of the deposit. While it may be true that one
who is under obligation to do or give a thing is in duty bound, when he
sees events approaching the results of which will be dangerous to his
trust, to take all reasonable means and measures to escape or, if
unavoidable, to temper the effects of those events, we do not feel
constrained to hold that, in choosing between two means equally legal,
he is culpably negligent in selecting one whereas he would not have
been if he had selected the other.
The court, therefore, finds and declares that the money which is the
subject matter of this action was deposited by Father De la Pea in the
Hongkong and Shanghai Banking Corporation of Iloilo; that said money
was forcibly taken from the bank by the armed forces of the United
States during the war of the insurrection; and that said Father De la Pea
was not responsible for its loss.
The judgment is therefore reversed, and it is decreed that the plaintiff
shall take nothing by his complaint.
NORKIS DISTRIBUTORS, INC., petitioner,
vs.
THE COURT OF APPEALS & ALBERTO NEPALES, respondents.
Jose D. Palma for petitioner.
Public Attorney's Office for private respondent.
GRIO-AQUINO, J.:
Subject of this petition for review is the decision of the Court of Appeals
(Seventeenth Division) in CA-G.R. No. 09149, affirming with
modification the judgment of the Regional Trial Court, Sixth (6th) Judicial
Region, Branch LVI. Himamaylan, Negros Occidental, in Civil Case No.
1272, which was private respondent Alberto Nepales' action for specific
performance of a contract of sale with damages against petitioner Norkis
Distributors, Inc.
The facts borne out by the record are as follows:
Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the distributor
of Yamaha motorcycles in Negros Occidental with office in Bacolod City
with Avelino Labajo as its Branch Manager. On September 20, 1979,
private respondent Alberto Nepales bought from the Norkis-Bacolod
branch a brand new Yamaha Wonderbike motorcycle Model YL2DX with
Engine No. L2-329401K Frame No. NL2-0329401, Color Maroon, then
displayed in the Norkis showroom. The price of P7,500.00 was payable
by means of a Letter of Guaranty from the Development Bank of the
Philippines (DBP), Kabankalan Branch, which Norkis' Branch Manager
Labajo agreed to accept. Hence, credit was extended to Nepales for the
price of the motorcycle payable by DBP upon release of his motorcycle
loan. As security for the loan, Nepales would execute a chattel mortgage
on the motorcycle in favor of DBP. Branch Manager Labajo issued
Norkis Sales Invoice No. 0120 (Exh.1) showing that the contract of sale
of the motorcycle had been perfected. Nepales signed the sales invoice
to signify his conformity with the terms of the sale. In the meantime,
however, the motorcycle remained in Norkis' possession.
On November 6, 1979, the motorcycle was registered in the Land
Transportation Commission in the name of Alberto Nepales. A
registration certificate (Exh. 2) in his name was issued by the Land
Transportation Commission on November 6, 1979 (Exh. 2-b). The
registration fees were paid by him, evidenced by an official receipt,
Exhibit 3.
On January 22, 1980, the motorcycle was delivered to a certain Julian
Nepales who was allegedly the agent of Alberto Nepales but the latter
denies it (p. 15, t.s.n., August 2, 1984). The record shows that Alberto
and Julian Nepales presented the unit to DBP's Appraiser-Investigator
Ernesto Arriesta at the DBP offices in Kabankalan, Negros Occidental
Branch (p. 12, Rollo). The motorcycle met an accident on February 3,
1980 at Binalbagan, Negros Occidental. An investigation conducted by
the DBP revealed that the unit was being driven by a certain Zacarias
Payba at the time of the accident (p. 33, Rollo). The unit was a total
wreck (p. 36, t.s.n., August 2,1984; p. 13, Rollo), was returned, and
stored inside Norkis' warehouse.
On March 20, 1980, DBP released the proceeds of private respondent's
motorcycle loan to Norkis in the total sum of P7,500. As the price of the
motorcycle later increased to P7,828 in March, 1980, Nepales paid the
difference of P328 (p. 13, Rollo) and demanded the delivery of the
motorcycle. When Norkis could not deliver, he filed an action for specific
performance with damages against Norkis in the Regional Trial Court of
Himamaylan, Negros Occidental, Sixth (6th) Judicial Region, Branch
LVI, where it was docketed as Civil Case No. 1272. He alleged that
Norkis failed to deliver the motorcycle which he purchased, thereby
causing him damages.
Norkis answered that the motorcycle had already been delivered to
private respondent before the accident, hence, the risk of loss or
damage had to be borne by him as owner of the unit.
After trial on the merits, the lower court rendered a decision dated
August 27, 1985 ruling in favor of private respondent (p. 28, Rollo.) thus:
WHEREFORE, judgment is rendered in favor of the plaintiff
and against the defendants. The defendants are ordered to
pay solidarity to the plaintiff the present value of the
motorcycle which was totally destroyed, plus interest
equivalent to what the Kabankalan Sub-Branch of the
Development Bank of the Philippines will have to charge the
plaintiff on fits account, plus P50.00 per day from February 3,
1980 until full payment of the said present value of the
motorcycle, plus P1,000.00 as exemplary damages, and
costs of the litigation. In lieu of paying the present value of the
motorcycle, the defendants can deliver to the plaintiff a brand-
new motorcycle of the same brand, kind, and quality as the
one which was totally destroyed in their possession last
February 3, 1980. (pp. 28-29, Rollo.)
On appeal, the Court of appeals affirmed the appealed judgment on
August 21, 1989, but deleted the award of damages "in the amount of
Fifty (P50.00) Pesos a day from February 3, 1980 until payment of the
present value of the damaged vehicle" (p35, Rollo). The Court of
Appeals denied Norkis' motion for reconsideration. Hence, this Petition
for Review.
The principal issue in this case is who should bear the loss of the
motorcycle. The answer to this question would depend on whether there
had already been a transfer of ownership of the motorcycle to private
respondent at the time it was destroyed.
Norkis' theory is that:
. . . After the contract of sale has been perfected (Art. 1475)
and even before delivery, that is, even before the ownership
is transferred to the vendee, the risk of loss is shifted from the
vendor to the vendee. Under Art. 1262, the obligation of the
vendor to deliver a determinate thing becomes extinguished if
the thing is lost by fortuitous event (Art. 1174), that is, without
the fault or fraud of the vendor and before he has incurred in
delay (Art. 11 65, par. 3). If the thing sold is generic, the loss
or destruction does not extinguish the obligation (Art. 1263).
A thing is determinate when it is particularly designated or
physically segregated from all others of the same class (Art.
1460). Thus, the vendor becomes released from his obligation
to deliver the determinate thing sold while the vendee's
obligation to pay the price subsists. If the vendee had paid the
price in advance the vendor may retain the same. The legal
effect, therefore, is that the vendee assumes the risk of loss
by fortuitous event (Art. 1262) after the perfection of the
contract to the time of delivery. (Civil Code of the Philippines,
Ambrosio Padilla, Vol. 5,1987 Ed., p. 87.)
Norkis concedes that there was no "actual" delivery of the vehicle.
However, it insists that there was constructive delivery of the unit upon:
(1) the issuance of the Sales Invoice No. 0120 (Exh. 1) in the name of
the private respondent and the affixing of his signature thereon; (2) the
registration of the vehicle on November 6, 1979 with the Land
Transportation Commission in private respondent's name (Exh. 2); and
(3) the issuance of official receipt (Exh. 3) for payment of registration
fees (p. 33, Rollo).
That argument is not well taken. As pointed out by the private
respondent, the issuance of a sales invoice does not prove transfer of
ownership of the thing sold to the buyer. An invoice is nothing more than
a detailed statement of the nature, quantity and cost of the thing sold
and has been considered not a bill of sale (Am. Jur. 2nd Ed., Vol. 67, p.
378).
In all forms of delivery, it is necessary that the act of delivery whether
constructive or actual, be coupled with the intention of delivering the
thing. The act, without the intention, is insufficient (De Leon, Comments
and Cases on Sales, 1978 Ed., citing Manresa, p. 94).
When the motorcycle was registered by Norkis in the name of private
respondent, Norkis did not intend yet to transfer the title or ownership to
Nepales, but only to facilitate the execution of a chattel mortgage in favor
of the DBP for the release of the buyer's motorcycle loan. The Letter of
Guarantee (Exh. 5) issued by the DBP, reveals that the execution in its
favor of a chattel mortgage over the purchased vehicle is a pre-requisite
for the approval of the buyer's loan. If Norkis would not accede to that
arrangement, DBP would not approve private respondent's loan
application and, consequently, there would be no sale.
In other words, the critical factor in the different modes of effecting
delivery, which gives legal effect to the act, is the actual intention of the
vendor to deliver, and its acceptance by the vendee. Without that
intention, there is no tradition (Abuan vs. Garcia, 14 SCRA 759).
In the case of Addison vs. Felix and Tioco (38 Phil. 404, 408), this Court
held:
The Code imposes upon the vendor the obligation
to deliver the thing sold. The thing is considered to be
delivered when it is "placed in the hands and possession of
the vendee." (Civil Code, Art. 1462). It is true that the same
article declares that the execution of a public instrument is
equivalent to the delivery of the thing which is the object of the
contract, but, in order that this symbolic delivery may produce
the effect of tradition, it is necessary that the vendor shall have
had such control over the thing sold that, at the moment of the
sale, its material delivery could have been made. It is not
enough to confer upon the purchaser the ownership and
the right of possession. The thing sold must be placed in his
control. When there is no impediment whatever to prevent the
thing sold passing into the tenancy of the purchaser by the
sole will of the vendor, symbolic delivery through the
execution of a public instrument is sufficient. But if
notwithstanding the execution of the instrument, the
purchaser cannot have the enjoyment and material tenancy
of the thing and make use of it himself or through another in
his name, because such tenancy and enjoyment are opposed
by the interposition of another will, then fiction yields to reality-
the delivery has riot been effects .(Emphasis supplied.)
The Court of Appeals correctly ruled that the purpose of the execution
of the sales invoice dated September 20, 1979 (Exh. B) and the
registration of the vehicle in the name of plaintiff-appellee (private
respondent) with the Land Registration Commission (Exhibit C) was not
to transfer to Nepales the ownership and dominion over the motorcycle,
but only to comply with the requirements of the Development Bank of
the Philippines for processing private respondent's motorcycle loan. On
March 20, 1980, before private respondent's loan was released and
before he even paid Norkis, the motorcycle had already figured in an
accident while driven by one Zacarias Payba. Payba was not shown by
Norkis to be a representative or relative of private respondent. The
latter's supposed relative, who allegedly took possession of the vehicle
from Norkis did not explain how Payba got hold of the vehicle on
February 3, 1980. Norkis' claim that Julian Nepales was acting as
Alberto's agent when he allegedly took delivery of the motorcycle (p. 20,
Appellants' Brief), is controverted by the latter. Alberto denied having
authorized Julian Nepales to get the motorcycle from Norkis Distributors
or to enter into any transaction with Norkis relative to said motorcycle.
(p. 5, t.s.n., February 6, 1985). This circumstances more than amply
rebut the disputable presumption of delivery upon which Norkis anchors
its defense to Nepales' action (pp. 33-34, Rollo).
Article 1496 of the Civil Code which provides that "in the absence of an
express assumption of risk by the buyer, the things sold remain at
seller's risk until the ownership thereof is transferred to the buyer," is
applicable to this case, for there was neither an actual nor constructive
delivery of the thing sold, hence, the risk of loss should be borne by the
seller, Norkis, which was still the owner and possessor of the motorcycle
when it was wrecked. This is in accordance with the well-known doctrine
of res perit domino.
WHEREFORE, finding no reversible error in the decision of the Court of
Appeals in CA-G.R. No. 09149, we deny the petition for review and
hereby affirm the appealed decision, with costs against the petitioner.
SO ORDERED.
ANTIAGO CRUZADO, vs. ESTEFANIA BUSTOS and MANUEL
ESCALER
TORRES, J.:
This appeal, by bill of exceptions, was taken from the judgment of June
17, 1914, in which the trial judge absolved defendants from the
complaint and plaintiff from the cross-complaint, without express finding
as to costs. Counsel for plaintiff appealed from this judgment and moved
for a new trial. This motion was denied, exception was taken by
appellant, and, on the filing of the proper bill of exceptions, the same
was approved, certified, and transmitted to the clerk of this court,
together with a transcript of the evidence introduced at the trial.
Counsel for the plaintiff Santiago Cruzado filed a written complaint on
October 8, 1910, amended on September 25, 1913, in which he alleged
that plaintiff was the owner of certain rural property situated in the barrio
of Dolores, formerly San Isidro, of the municipality of Bacolor,
Pampanga, containing an area of 65 balitas and bounded as set forth in
the complaint; that Estafania Bustos, during her lifetime, and now the
administrator of her estate, together with the other defendant, Manuel
Escaler, had, since the year 1906 up to the present, been detaining the
said parcel of land, and had refused to deliver the possession thereof to
plaintiff and to recognize his ownership of the same, notwithstanding the
repeated demands made upon them; that by such detention, the plaintiff
had suffered losses and damages to the amount of P3,500. He therefore
asked for judgment declaring plaintiff to be the owner of the said parcel
of land and ordering defendants to return it to plaintiff and to pay the
latter P3,500 for losses and damages, and the costs.
The demurrer filed by the defendant Bustos having been overruled, in
her answer she made a general denial of each and all of the allegations
of the complaint, and of each and all of the paragraphs thereof, and, as
a special defense, alleged that the title to the said land, produced by the
plaintiff, was not a lawful one, for the reason that only a simulated sale
of the land was made by the between herself and the deceased Agapito
Geronimo Cruzado, plaintiff's father, and that for more than thirty years
preceding the present time she had been the sole, exclusive, and lawful
owner of the said parcel of land in question; that she had been holding
it quietly, peaceably, publicly and in good faith; that it formed an integral
part of another larger parcel of land, both parcels aggregating a total
area of 100 balitas, 9 loanes, and 41 square brazas; that in September,
1891, with plaintiff's knowledge, the defendant Bustos sold and
conveyed all the said property to the other defendant Manuel Escaler
who then acquired the possession and ownership of the said parcel of
land, and had retained such ownership and possession up to the present
time; that at no time and on no account whatever had plaintiff or any
other person except defendants acquired possession of the said parcel
of land or any part thereof, nor any right or title therein. She therefore
prayed to be absolved from the complaint, with the costs against plaintiff.
The other defendant, Manuel Escaler, in an amended answer to the
aforementioned complaint, denied each and all of the allegations therein
contained and each and all of its clauses, and, as a special defense,
alleged that plaintiff's title to the said land was illegal as only a simulated
sale was made by and between Agapito Geronimo Cruzado, plaintiff's
predecessor in interest, and Bernardino Dizon; that defendants had
been in possession of the said parcel of land for more than thirty years;
that the defendant Escaler in good faith purchased the land in question
from Estefania Bustos, widow of Dizon, without ever having had any
notice of any defect in the vendor's title; that plaintiff had knowledge of
the contract of sale of the land in question yet did nothing to oppose its
purchase by the defendant Escaler, wherefore the latter, in acquiring the
property, did so under the belief that the plaintiff Santiago Cruzado had
no right or interest therein. He therefore prayed that the complaint be
dismissed, with the costs against plaintiff, and that an injunction issue to
restrain the latter from interfering with the defendant Escaler in the
enjoyment of his property and rights and from performing any act
prejudicial to his interests.
On the case coming to trial, both parties adduced evidence, among
which was included the deposition of Inocencio Rosete.
Counsel for defendants, in a cross-complaint set forth: that as shown by
the evidence, the defendant Escaler acquired in good faith from
Estefania Bustos the land in question at a time when there was no record
whatever in the property registry to show that this land belonged to a
third person or any other than the vendor; that, on entering into
possession of the property, Escaler spent P4,000 in-improvements and
in the repair of a long dike to prevent the erosion of the land by the
frequent overflows of the adjoining estuary; that of this sum P2,000 was
paid by Escaler and the remaining P2,000 by Estafania Bustos, in her
capacity as lessee of the land; and that in case the judgment of the court
should be adverse to defendants, these latter, as owners in good faith,
were entitled to be indemnified by plaintiff for the said expenses. He
therefore asked that plaintiff be ordered to reimburse half of the said
P4,000 to each of the defendants in case judgment should be rendered
favorable to plaintiff.
The latter's counsel, in answer to the said cross-complaint, specifically
denied each and all of the allegations thereof and, in special defense,
reproduced plaintiff's amended complaint in all its parts and alleged that
the facts set forth in the cross-complaint did not constitute a cause of
action. He therefore prayed that plaintiff be absolved from the cross-
complaint and that judgment be rendered against defendants, in
conformity with the prayer of his complaint.
After the evidence was all in, counsel for the defendant Escaler moved
that the deposition of the witness Inocencio Espanol Rosete be admitted
into the record, and in support of his motion stated that with the
authorization of the court the said deposition had been taken on
November 21, 1913, in the municipality of Arayat in the presence of
plaintiff's attorney; that the said declaration of the deponent was duly
forwarded to the clerk of the court, and there attached to the record, but
through an unintentional oversight of defendant's attorney, it was not
presented in evidence at the trial; that this deposition was very important
for the defendants' defense; and that the deponent was and continued
to be unable to appear before the court on account of a threatened
attack of brain fever which might develop during the journey from Arayat
to San Fernando.
Plaintiff's counsel asked that the foregoing motion be overruled and that
the deposition of the witness Rosete be stricken from the record,
because defendants' motion was made out of time and was contrary to
the rules of procedure, and there was no reason for altering the order of
procedure, as requested by defendants, for, when the period for the
reception of the evidence of both parties is closed, an alteration in the
order of procedure such as asked by defendants would be improper and
illegal, counsel citing the decision of this court in the case of Garcia vs.
Reyes.1 He alleged, moreover, that the said deposition necessarily
affected the main issue in controversy and that to allow the motion would
be in contravention of the provisions of section 364 of the Code of Civil
Procedure. He therefore asked that the said motion be overruled. The
court, however, ordered that the deposition of the witness Inocencio
Rosete be admitted in evidence, and that plaintiff's exception be noted.
In view of the foregoing, the judgment aforementioned was rendered.
The questions herein submitted for the decision of this court are:
1. Is it or is it not true that the deed of sale, Exhibit A, (p. 40 of the record)
of 65 balitas of land situated in the municipality of Bacolor, Pampanga,
executed by Estefania Bustos, with the assistance of her husband
Bernardino Dizon, in favor of Agapito Geronimo Cruzado, for the sum of
P2,200, was simulated, not with intent to defraud any third person, but
for the sole purpose of making it appear that the vendee, Cruzado, then
a candidate for the position of procurador on the date of the said deed,
September 7,1875, possessed real estate to the value of P2,200 with
which to guarantee the faithful discharge of the duties of the office
of procurador?
2. It is or is it not true that, notwithstanding such apparent alienation of
the 65 balitas of land, the supposed vendee continued in possession
thereof, without the supposed purchaser having taken possession of the
property until September 10, 1891, when its owner Bustos sold to
Escaler, not only the said 65 balitas of land, but also all the remainder
of a large tract of agricultural land of which the portion appearing as sold
to Agapito G. Cruzado formed and forms a part, and that Escaler was
then and, until the date of plaintiff's claim, continued to be in peaceable,
uninterrupted possession of the said whole tract of land, including the
aforementioned portion of 65 balitas?
3. Has the right of ownership prescribed which Manuel Escaler is and
has been enjoying in the land which Estefania Bustos had sold to him
and which includes the parcel of 65 balitas claimed by plaintiff, Santiago
Cruzado, or has the right of any real or personal action he might exercise
by reason of the sale to Cruzado prescribed on account of the lapse of
the respective periods fixed by law, between the 7th of September,
1875, the date of said sale, and the 8th of October, 1910, that of the
filing of the complaint?
To judge from the evidence adduced in this case, there is ample ground
for holding that the said deed of sale of a parcel of 65 balitas of land was
simulated, not to defraud any creditor or other person interested in the
land nor for the purpose of eluding any lawful obligation on the part of
its owner, Estafania Bustos, but for the sole purpose of doing a favor, of
rendering a special service to Agapito Geronimo Cruzado, father of the
plaintiff Santiago Cruzado.
During his lifetime Agapito G. Cruzado aspired to hold the office
of procurador in the Court of First Instance of Pampanga, but
notwithstanding that he possessed the required ability for the discharge
of the duties of that position, he was unable to give the required bond,
an indispensable condition for his appointment, as he was possessed of
no means or real property wherewith to guarantee the proper discharge
of his duties in the manner prescribed by the laws then in force.
In the certified copy of the record of the case tried in the Secretaria de
Gobierno of the abolished Real Audiencia de Manila, issued by the
Assistant Executive Secretary and chief of the division of archives, there
appears on page 178 a decree by the presidencia of this latter tribunal,
issued by virtue of the resolution passed by the sala de gobiernoon
November 24, 1875, whereby it was ordered that Agapito Geronimo
Cruzado should be noticed that within the period of 30 days he must
show proof of having furnished a bond of P700 in cash or of P2,100 in
real property as security for the position of procurador to which he had
been appointed, with the understanding that should be fail to furnish
such bond he would not be issued the certificate entitling him to practice
the profession of procurador.
After complying with the requirements of the said court and executing
the mortgage deed of the land purchased by the procurador elect
Cruzado from Estefania Bustos, on March 18, 1876, the mortgage was
recorded in the old mortgage registry then kept in the office of
the Ayuntamiento of Manila during the former sovereignty, and
thereafter Agapito G. Cruzado received his appointment and
commenced to discharge the duties of his position.
The above-related facts conclusively prove that Estefania Bustos vendee afterwards did was to pledge the land on March 14, 1876,
executed the deed of sale Exhibit A in favor of the deceased Cruzado in that is, six months and some days after the 7th of September, 1875, the
order to enable the latter, by showing that he was a property owner, to date when he purchased it as security for the faithful discharge of the
hold the office of procurador. This position he held for many years, duties of his office of procurador of the Court of First Instance of
thanks to the liberality of the pretended vendor, who, notwithstanding Pampanga.
the statements contained in the deed of sale, does not appear to have
been paid anything as a result of the sham sale, a sale which was
The plaintiff, Santiago Cruzado, a son of the vendee, claiming that the
affected, not in prejudice or fraud of any person, nor those who were
said land was being detained by the vendor, or by the administrator of
entitled to hold Cruzado liable for the proper discharge of the duties of
the latter's estate or her death after the commencement of these
his office, because, had the need arisen, any liability of his could have
proceedings, and by the other defendant Manuel Escaler, prayed the
been covered by the value of the land, the sale of which was fictitiously
court to declare him to be the owner thereof, to order the defendants to
set forth in that deed as lawfully belonging to Cruzado, and then
return it to him and to pay him for losses and damages, and the costs.
Estefania Bustos would have had no right either to object to or escape
the consequences of that alienation, although simulated.
The action brought by the plaintiff is evidently one for recovery of
possession, founded on the right transmitted to him by his father at his
The simulation of the said sale was effected by making a pretended
death, a right arising from the said simulated deed of sale of the land
contract which bore the appearance of truth, when really and truly there
in question. This action is of course improper, not only because the sale
was no contract, because the contracting parties did not in fact intend to
was simulated, but also because it was not consummated. The price of
execute one, but only to formulate a sale in such a manner that, for the
the land was not paid nor did the vendee take possession of the property
particular purposes sought by Bustos and Cruzado, it would appear to
from the 7th of September, 1875, when the said sale was feigned, until
have been celebrated solely that Cruzado might hold his office of
the time of his death; nor did any of his successors, nor the plaintiff
procurador on the strength of the security afforded by the value of the
himself until the date of his claim, enter into possession of the land.
land feignedly sold.

It is indeed true that it is not necessary that the thing sold or its price
The record does not show when the procurador Cruzado died, but it is
should have been delivered in order that the contract of purchase and
unquestionable that he was still living during the last months of 1882,
sale be deemed perfect on account of its being consensual, and from it
judging from the certificate which he himself issued to Norberto Decena
reciprocal obligations arise mutually to compel the parties to effect its
(Exhibit 3). He must have died sometime between the years 1882 and
fulfillment; but there is no transmission of ownership until the thing, as in
1890, to judge from the contents of the letters plaintiff addressed to
the case at bar, the land, has been delivered, and the moment such
Natalio Dizon, one of the children of Estefania Bustos, on July 7, 1891,
delivery is made the contract of purchase and sale is regarded as
and July 4, 1896, and from the fact that in the said year 1890 Agapito G.
consummated. Article 1450 of the Civil Code, relied upon in this
Cruzado was no longer a practicing procurador in the Court of First
connection by the appellant, refers solely to the perfection of the contract
Instance of Pampanga..
and not to its consummation.

It is true that even after the death of the aforesaid procurador, any
liability he might have incurred in connection with the exercise of his
office could have been, upon presentation of the proper claim, collected
out of the value of the land apparently sold by Estafania Bustos and
pledged as security for the proper discharge of the duties of his office.
On October 8, 1910, when his son Santiago Cruzado filed his complaint,
already more than twenty years had elapsed since 1889, if plaintiff's
father died in 1889 and not between 1883 and 1889; therefore, any right
of action to foreclose the mortgage, or any personal action with regard
to the value of the encumbered land, as the result of any liability incurred
in the performance of his duties as procurador, has more than
prescribed. (Art. 1964, Civil Code, and secs. 38, 39 and 43, Act. No.
190.).
On the termination of the sovereignty of Spain over this Archipelago, the
Spanish courts here established went out of existence on January 31,
1899, the Pampanga court indeed being abolished about the middle of
1897 as a result of the revolution against the former sovereignty. The
personnel of those courts also ceased to render service as such. It may
therefore be affirmed that, if the said lien on the land in question has not
terminated by its no longer having any object, it is at least undeniable
that prescription has already run with respect to any action that might
have been brought against the pledged land to recover for any liability
which might have been incurred by the procurador Cruzado during his
lifetime in connection with his office, so that this real estate may now be
considered as free from that hypothecary encumbrance.
At the present time we have only to explain what rights Agapito G.
Cruzado transmitted at his death to his son, the herein plaintiff, by virtue
of the deed of sale of the land in litigation, executed by its owner
Estefania Bustos.
It is unquestionable that the contract of sale of the 65 balitas of land was
perfect and binding upon both contracting parties, since they both
appear in that instrument to have agreed upon the thing sold, to wit, the
65 balitas of land, and upon the price, P2,200; but it is also undeniable
that the said contract was not consummated, inasmuch as,
notwithstanding that the deed of sale Exhibit A was accomplished and
this document was kept by the pretended purchaser, it is positively
certain that the latter did not pay the purchase price of P2,200, and never
took possession of the land apparently sold in the said deed. All that this
The purchaser is also a creditor with respect to the products of the thing
sold, and article 1095 of the Civil Code prescribes as follows:
A creditor has a right to the fruits of a thing from the time the
obligation to deliver it arises. However, he shall not acquire a
property right thereto until it has been delivered to him.
The provisions of this article are in agreement with that of the second
paragraph of article 609 of the same Code, which is of the following
tenor:
Ownership is acquired by retention.
Ownership and other property rights are required and
transmitted by law, by gift, by testate or intestate succession,
and, in consequence of certain contracts, by tradition.
They can also be acquired by prescription.
The provisions of the said article 1095 are also in accord with those of
article 1462 which reads:
A thing sold shall be considered as delivered, when it is placed
in the hands and possession of the vendee.
When the sale should be made by means of a public
instrument, the execution thereof shall be equivalent to the
delivery of the thing which is the object of the contract, if in
said instrument the contrary does not appear or may be
clearly inferred.
It is true that the deed of sale Exhibit A remained in possession of the
vendee Cruzado, but the sale is not to be considered as consummated
by this because the said vendee never entered into possession of the
land and neither did his son the plaintiff. The latter, moreover, was
unable to prove that at any time as owner of the land he collected the
fruits harvested thereon, or that any other person cultivated the said land
in the name and representation of his deceased father or of the plaintiff
himself. The fiction created by means of the execution and delivery of a
public instrument produces no effect if the person acquiring it never
takes possession of the thing sold or acquired, as happened in the case
at bar.
If, as prescribed by the preinserted article 1095, the creditor, and in the
present case the vendee, does not acquire a property right in the land
purchased until the property has been delivered to him or he has taken
possession of it, it is unquestionable that, as neither the plaintiff nor his
predecessor in interest took possession of the land in litigation, neither
of them acquired any property right therein and, consequently, could not
and cannot now bring an action for recovery of possession which arises
out of a property right in a thing which belongs to them and not a mere
right productive of a personal obligation. The plaintiff Santiago Cruzado
could only, in a proper case, exercise the personal right of action flowing
from the right possessed by his father to compel the vendor to fulfill the
contract made in a public instrument to deliver the land sold or to give
him possession of it, in consequence of the said contract, though
simulated and executed for the sole purpose that the deceased Cruzado
in default of P700 in cash might appear to own real estate with which to
insure the proper performance of his duties as procurador, an office he
then desired to hold.
The supreme court of Spain in a decision of cassation of June 1, 1990,
established the following doctrine:
That articles 1258 and 1450 of the Civil Code and the
decisions of cassation of June 30, 1854, April 13 and
December 13, 1861, June 30, 1864, and April 19 and
December 15, 1865, do not warrant the conclusion that
whoever purchases personal or real property may exercise
with respect thereto all rights of action inherent in its
ownership, without it having, in some way or another, been
placed at his disposal. On the contrary, the distinction
between the perfecting and the consummation of a contract
marks the diversity of relations of the contracting parties
among themselves and of the owner with respect to what
constitutes this property.
This principle is in harmony with those set up by the same high tribunal
in its decision of January 19, 1898, and March 8, 1901.
In this last decision, also rendered on an appeal in cassation, the
doctrine enunciated in the excerpt copied here below was established:
That the contract of purchase and sale, as consensual, is
perfected by consent as to the price and the thing and is
consummated by the reciprocal delivery of the one and the
other, the full ownership of the thing sold being conveyed to
the vendee, from which moment the rights of action derived
from this right may be exercised.
It is, then, of the utmost importance to examine whether in the said sale
the purchase price was paid and whether the vendee took possession
of the land supposed to have been sold.
The record discloses that Cruzado during his lifetime was, before he
became a procurador, an official escribiente or clerk charged with the
duty of coursing records and proceedings in the Court of Pampanga;
that his salary was hardly sufficient to maintain him and his family; that
on account of the insufficiency of his monthly stipend, he was frequently
obliged to borrow money from his friends, notwithstanding that he with
his family lodged in the house of Bernardino Dizon, the husband of the
vendor Bustos, situated in the municipality of Bacolor, with whom
Cruzado maintained intimate relations of friendship, and on this account
the said couple were content to live in a country house they owned on
one of their rice fields. Such was the testimony of several witnesses who
lived in that municipality, and who knew and had considerable dealings
with the plaintiff's father for many years. It was the opinion of these
witnesses that the deceased Agapito G. Cruzado was a poor man, for
the reason that his monthly salary scarcely provided for the needs of
himself and his family, and they therefore believed that he could not
have furnished the sum of P2,200 to purchase the land in question, and,
furthermore, if the plaintiff's father had possessed this sum, he would
have made the deposit of the sum of P700, the amount of security
required by the Presidencia of the former Real Audiencia de Manila for
his appointment as procurador, since, having the means, he would have
preferred to deposit this smaller sum rather than to have used P2,200 in
acquiring a piece of land from which he would derive no benefit
whatever, as in fact he never did, as he must have known that in spite
of the simulated sale of the property its owner would continue in its
possession and would cultivate it, as she did do until her death. It is,
therefore, unquestionable that the price of the sale was not paid, an
omission which would indicate that it was in effect simulated.
Aside from the fact that the spouses Estafania Bustos and Bernardino
Dizon had no need to sell the said 65 balitasof land, or of fencing or
separating this parcel from the large tract of land that belonged to them
and of which it formed a part, for the reason that they were rich and at
that time were not in need of money to cultivate their extensive
landholdings, it is also to be noted that the portion of land sold was worth
very much more than the P2,200 which, in the said instrument, purported
to be its price.
In addition to the foregoing, the proceedings in the case at bar furnish
ample proof that Agapito Geronimo Cruzado during his lifetime stated to
various persons that he succeeded in giving bond for his appointment
as procurador by means of the said instrument of simulated sale,
executed in his favor by the spouses Dizon and Bustos, as he did not
have the money to make the deposit required for his appointment. So
close were the relations that then existed between the Cruzado family
and that of Dizon and Bustos, that later on the plaintiff married a
daughter of these latter; hence, plaintiff, in the beginning of his letters
Exhibits 8 and 9 addressed to Natalio Dizon, a son of the vendor
Estefania Bustos, calls his correspondent his "dear and esteemed
brother-in-law." It is therefore not stranger that these spouses should
have wished to help plaintiff's predecessor in interest by assisting him to
obtain the office of procurador, even to the extent of making a feigned
sale.
However, years afterwards, prompted by an intuition of possible future
difficulties, Dizon and his wife Bustos went to the office of Agapito G.
Cruzado and required him to cancel the said deed of sale, in order to
avoid any lawsuit after their death. Cruzado promised to look for money
wherewith to substitute the mortgage bond. This demand had to be
repeated several times, because Cruzado did not cancel the deed as he
promised.
Furthermore, it is shown that the instrument Exhibit A is merely a second
copy obtained by the plaintiff from the chief of division of archives,
without prior summons or notification of the vendor Estefania Bustos,
who was still living, in conformity with the provisions contained in article
18 of the Notarial Law of February 15, 1889, and without the plaintiff's
having explained what became of the first copy. Besides, the clerk and
notary who certified that instrument did not attest therein that in his
presence the vendee Cruzado paid over the sum of P2,200, the price of
the land sold, and as the vendor denied having received this sum, the
obligation devolved upon plaintiff to prove that his deceased father had
paid the price stated in that instrument. By this not having done so, his
omission constitutes additional proof that the sale of the land, the
recovery of possession of which plaintiff now seeks, was really
simulated.
The supreme court of Spain, in a decision dated February 20, 1899,
rendered on an appeal in cassation, laid down the doctrine that, in
accordance with the provisions of article 40 of the Mortgage Law, in the
alienation of real property it is understood that no price has been paid if
the notary does not attest its delivery or the contracting parties do not
prove that it was previously paid.
The courts are allowed full latitude to accept the presumption that the
purchase price has not been paid when the notary before whom the
instrument was executed does not attest the delivery of the money, and
when, such delivery being denied by one of the contracting parties, the
other does not adduce proof of its payment, especially when such
presumption is corroborated by other circumstantial evidence which, all
together, undoubtedly prove that the sale was feigned and simulated for
certain purposes sought to be attained by the parties, though, as in the
case at bar, the simulation was not effected in fraud of creditors.
Besides the failure to pay the purchase price, the record discloses
another very important fact, to wit, that neither the vendee nor his heirs,
among these latter, the plaintiff, had at any time taken possession of the
land which in the said instrument Exhibit A appeared to have been sold,
for, by the testimony of seven competent witnesses examined at the trial
it is decisively and conclusively proven that the alleged vendor,
Estefania Bustos, and her husband while he was living, notwithstanding
the said alienation, continued to possess the said land supposedly sold
to plaintiff's father, and cultivated it, as she had done long before the
sale of September, 1875, and continued to do so up to the date of the
complaint filed by Santiago Cruzado; in the first period, until September
10, 1891, as the owner of the land, and from this date, when the whole
of the large tract of land of which the said portion apparently sold forms
a part was sold to the other defendant Manuel Escaler, the original
owner Estefania Bustos continued in the material possession of the land,
but now as the lessee of the new owner, until 1908, when she was
substituted by Marcelo Rodriguez as the new lessee of the property. The
plaintiff at no time after his father's death occupied the land in litigation,
notwithstanding his allegation that he has been collecting rentals from
Estefania Bustos, his mother-in-law, by reason of his having leased the
land to her.
The plaintiff endeavored to prove that during the years 1882 and 1883
he personally took charge of and tilled the disputed land on shares
through his tenants named Florentino de los Reyes, Lino Cortes,
Macario de los Reyes and Regino de los Reyes, all of whom
corroborated plaintiff's testimony in this regard. However, six of the
defendants' witnesses positively stated that they never were aware that
the said tenants had worked on the land in question during either the
said two years or in any other, for these latter were working on the
adjacent lands belonging to other owners. Pablo Angeles, one of the
defendants' witnesses, testified that Regino and Florentino de los Reyes
were his tenants on shares and were employed on his land adjoining
that in question. He was positively certain that they never worked on the
disputed land during or about the years aforementioned, because the
carabaos used by his said two tenants belonged to him and he never
would have permitted them to use these animals in working land that did
not belong to him. He added that Regino's children, Macario and Basilio,
were at that time so young, being about eight years of age, that they
were not yet able to work in the fields.
The plaintiff must have been well convinced that he had no right
whatever in the land supposedly purchased by his father. The latter
never demanded its possession from its owner Estefania Bustos and
never thought of declaring the property as belonging to him, for the
purposes of the land tax, from the time this tax was established in this
country, notwithstanding that the plaintiff, knowing his obligation, filed a
sworn declaration relative to a lot he owned in the municipality of
Bacolor. This procedure of plaintiff's proves that he did not believe
himself to be the owner of the land he claims and which its present owner
Manuel Escaler has constantly declared for the purpose of assessment.
Moreover, about the middle of the year 1891, the plaintiff Santiago
Cruzado begged his brother-in-law Natalio Dizon to tell the latter's
mother, plaintiff's mother-in-law, that Cruzado desired the lease
four balitas of the land in question, and some days afterwards, possibly
because he received no reply from his said brother-in-law, he addressed
a letter to Dizon (Exhibit 9, page 152 of the record, translated on page
154) in which he repeated his request and asked for a reply; but
notwithstanding that his brother-in-law Dizon told him that he could not
dispose of any part of the said land for the reason that his mother
Estefania Bustos was negotiating for the sale of all the land she
possessed in the sitio of Sicat to Manuel Escaler, plaintiff went to
Dizon's house on an occasion when Paulino de la Cruz was there. Cruz
was a representative of Escaler and had been charged to inform himself
of the situation, condition and quality of the land which Bustos was about
to sell to his principal and was at the said house for the purpose of being
shown the land offered for sale. On this occasion plaintiff learned that
negotiations were being made for the sale of all the land owned by
Estefania Bustos of which the 65 balitas in litigation formed a part.
Plaintiff did not then or afterwards make any statement or objection
whatever in defense of his rights and interest, if he really believed that
he was entitled to the land shown in the instrument Exhibit A to have
been purchased by his father.
Plaintiff made no protest whatsoever, because he well knew that the said
sale was simulated and that his father had acquired no right whatever in
the property; he was therefore anxious to lease four balitas of the same
land, a purpose in which he was unsuccessful because a deal was then
already going forward for the sale of the said land to its present owner,
Manuel Escaler, who in fact did but it on September 10, 1891. If plaintiff
were convinced that he was the owner of the land, as he rashly asserted
that he was in his complaint for recovery of possession, it is not
understood why about the middle of the year 1891 he wished to lease,
not all the 65 balitas, but only four of them, as stated in his said letter,
Exhibit 9.
From that time the new owner Manuel Escaler took possession of all the
land sold by Estefania Bustos, including the 65 balitas in litigation, and
continued in its possession as the owner thereof until October 8, 1910,
when plaintiff filed his claim. Thus, more than the ten years required by
law for ordinary prescription had already elapsed, as Escaler purchased
the land and was holding it in good faith under a lawful title and was not
disturbed in his continuous and peaceable possession, one that was
adverse to the whole world. It is therefore unquestionable that he has
absolutely acquired by prescription the ownership of the disputed land,
and the action brought by plaintiff, founded solely on a simulated sale
executed by the original owner of the land, not to the prejudice, but to
the benefit, of the pretended vendee, cannot prevail against Escaler's
rights.
The registration obtained by the plaintiff in the property registry of the
second copy of the said instrument Exhibit A, about two months before
filing his action for recovery, to wit, on August 23, 1910, has not
improved the deed of sale nor made it more effective, nor could it affect
the rights held by the original owner and the present proprietor of the
land in question, inasmuch as their predecessor in interest, by default of
payment of the price of the sale and on account of his never having
taken possession of the land sold, was not the owner thereof, nor did he
acquire any property right whatever therein. Consequently at his death
he could not have transmitted to the plaintiff as his successor any
greater right than a personal right to exact the fulfillment of a contract,
and as plaintiff was not the owner of the land, he could not validly register
it.
Article 1473 of the Civil Code prescribes:
If the same thing should have been sold to different vendees,
the ownership shall be transferred to the person who may
have first taken possession thereof in good faith, if it should
be personal property.
Should it be real property, it shall belong to the person
acquiring it who first recorded it in the registry.
Should there be no entry, the property shall belong to the
person who first took possession of it in good faith, and, in the
absence thereof, to the person who presents the oldest title,
provided there is good faith.
On the sale of the land to the defendant Escaler, neither he nor the
plaintiff had had it entered in the property registry, but the said new
owner, Escaler, took possession of the land on the date of its acquisition,
September 10,1891, and has retained possession thereof up to the
present time. So that when plaintiff registered the land he was not in
possession thereof and no longer had any right whatever therein,
because it already belonged to the defendant Escaler, its lawful owner.
However, even though it were proper for plaintiff to bring the real action
for recovery derived, though we do not admit that it could be, from the
simulated sale before mentioned, both this action as well as the personal
action the only one available in a proper case, as before
demonstrated, pursuant to the provisions of article 1095 of the Civil
Code have both certainly prescribed, for the reason that the periods
fixed by law for filing such actions have much more than elapsed.
Article 1939 of the Civil Code says:
Prescription, which began to run before the publication of this
code, shall be governed by the prior laws; but if, after this code
became operative, all the time required in the same for
prescription has elapsed, it shall be effectual, even if
according to said prior laws a longer period of time may be
required.
Personal actions prescribe after ten years; and the same with the writ of
execution therein issued, after twenty years; while real actions prescribe
after thirty years: according to Law 5, Title 8, Book 1 of the Novisima
Recopilacion, and Law 21, Title 29, Partida 3, which were those in force
on the date of the execution of the deed of sale, Exhibit A.
From September 7, 1875, to October 8, 1910, when the complaint was
filed, thirty-five years have elapsed. Therefore, not only in accordance
with the laws aforecited, but also pursuant to the provisions of articles
1963 and 1964 of the Civil Code, the periods fixed for the prescription of
the personal action which could, in a proper case, have been exercised,
as well as for the real action for recovery of possession brought by the
plaintiff without right so to do, have more than prescribed.
For all the foregoing reasons, whereby the errors assigned to the
judgment appealed from have been duly refuted, the said judgment
should be, as it is hereby, affirmed, with the costs against the appellant.
So ordered.
NIELSON & COMPANY, INC., vs. LEPANTO CONSOLIDATED
MINING COMPANY
ZALDIVAR, J.:
On February 6, 1958, plaintiff brought this action against defendant
before the Court of First Instance of Manila to recover certain sums of
money representing damages allegedly suffered by the former in view
of the refusal of the latter to comply with the terms of a management
contract entered into between them on January 30, 1937, including
attorney's fees and costs.
Defendant in its answer denied the material allegations of the complaint
and set up certain special defenses, among them, prescription and
laches, as bars against the institution of the present action.
After trial, during which the parties presented testimonial and numerous
documentary evidence, the court a quo rendered a decision dismissing
the complaint with costs. The court stated that it did not find sufficient
evidence to establish defendant's counterclaim and so it likewise
dismissed the same.
The present appeal was taken to this Court directly by the plaintiff in view
of the amount involved in the case.
The facts of this case, as stated in the decision appealed from, are
hereunder quoted for purposes of this decision:
It appears that the suit involves an operating agreement
executed before World War II between the plaintiff and the
defendant whereby the former operated and managed the
mining properties owned by the latter for a management fee
of P2,500.00 a month and a 10% participation in the net profits
resulting from the operation of the mining properties. For
brevity and convenience, hereafter the plaintiff shall be
referred to as NIELSON and the defendant, LEPANTO.
The antecedents of the case are: The contract in question
(Exhibit `C') was made by the parties on January 30, 1937 for
a period of five (5) years. In the latter part of 1941, the parties
agreed to renew the contract for another period of five (5)
years, but in the meantime, the Pacific War broke out in
December, 1941.
In January, 1942 operation of the mining properties was
disrupted on account of the war. In February of 1942, the mill,
power plant, supplies on hand, equipment, concentrates on
hand and mines, were destroyed upon orders of the United
States Army, to prevent their utilization by the invading
Japanese Army. The Japanese forces thereafter occupied the
mining properties, operated the mines during the continuance
of the war, and who were ousted from the mining properties
only in August of 1945.
After the mining properties were liberated from the Japanese
forces, LEPANTO took possession thereof and embarked in
rebuilding and reconstructing the mines and mill; setting up
new organization; clearing the mill site; repairing the mines;
erecting staff quarters and bodegas and repairing existing
structures; installing new machinery and equipment; repairing
roads and maintaining the same; salvaging equipment and
storing the same within the bodegas; doing police work
necessary to take care of the materials and equipment
recovered; repairing and renewing the water system; and
remembering (Exhibits "D" and "E"). The rehabilitation and
reconstruction of the mine and mill was not completed until
1948 (Exhibit "F"). On June 26, 1948 the mines resumed
operation under the exclusive management of LEPANTO
(Exhibit "F-l").
Shortly after the mines were liberated from the Japanese
invaders in 1945, a disagreement arose between NIELSON
and LEPANTO over the status of the operating contract in
question which as renewed expired in 1947. Under the terms
thereof, the management contract shall remain in suspense in
case fortuitous event orforce majeure, such as war or civil
commotion, adversely affects the work of mining and milling.
"In the event of inundations, floodings of mine,
typhoon, earthquake or any other force majeure,
war, insurrection, civil commotion, organized strike,
riot, injury to the machinery or other event or cause
reasonably beyond the control of NIELSON and
which adversely affects the work of mining and
milling; NIELSON shall report such fact to
LEPANTO and without liability or breach of the
terms of this Agreement, the same shall remain in
suspense, wholly or partially during the terms of
such inability." (Clause II of Exhibit "C").
NIELSON held the view that, on account of the war, the
contract was suspended during the war; hence the life of the
contract should be considered extended for such time of the
period of suspension. On the other hand, LEPANTO
contended that the contract should expire in 1947 as originally
agreed upon because the period of suspension accorded by
virtue of the war did not operate to extend further the life of
the contract.
No understanding appeared from the record to have been bad
by the parties to resolve the disagreement. In the meantime,
LEPANTO rebuilt and reconstructed the mines and was able
to bring the property into operation only in June of 1948, . . . .
Appellant in its brief makes an alternative assignment of errors
depending on whether or not the management contract basis of the
action has been extended for a period equivalent to the period of
suspension. If the agreement is suspended our attention should be
focused on the first set of errors claimed to have been committed by the
court a quo; but if the contrary is true, the discussion will then be
switched to the alternative set that is claimed to have been committed.
We will first take up the question whether the management agreement
has been extended as a result of the supervening war, and after this
question shall have been determined in the sense sustained by
appellant, then the discussion of the defense of laches and prescription
will follow as a consequence.
The pertinent portion of the management contract (Exh. C) which refers
to suspension should any event constitutingforce majeure happen
appears in Clause II thereof which we quote hereunder:
In the event of inundations, floodings of the mine, typhoon,
earthquake or any other force majeure, war, insurrection, civil
commotion, organized strike, riot, injury to the machinery or
other event or cause reasonably beyond the control of
NIELSON and which adversely affects the work of mining and
milling; NIELSON shall report such fact to LEPANTO and
without liability or breach of the terms of this Agreement, the
same shall remain in suspense, wholly or partially during the
terms of such inability.
A careful scrutiny of the clause above-quoted will at once reveal that in
order that the management contract may be deemed suspended two
events must take place which must be brought in a satisfactory manner
to the attention of defendant within a reasonable time, to wit: (1) the
event constituting the force majeure must be reasonably beyond the
control of Nielson, and (2) it must adversely affect the work of mining
and milling the company is called upon to undertake. As long as these
two condition exist the agreement is deem suspended.
Does the evidence on record show that these two conditions had existed
which may justify the conclusion that the management agreement had
been suspended in the sense entertained by appellant? Let us go to the
evidence.
It is a matter that this Court can take judicial notice of that war
supervened in our country and that the mines in the Philippines were
either destroyed or taken over by the occupation forces with a view to
their operation. The Lepanto mines were no exception for not was the
mine itself destroyed but the mill, power plant, supplies on hand,
equipment and the like that were being used there were destroyed as
well. Thus, the following is what appears in the Lepanto Company
Mining Report dated March 13, 1946 submitted by its President C. A.
DeWitt to the defendant:1 "In February of 1942, our mill, power plant,
supplies on hand, equipment, concentrates on hand, and mine, were
destroyed upon orders of the U.S. Army to prevent their utilization by the
enemy." The report also mentions the report submitted by Mr. Blessing,
an official of Nielson, that "the original mill was destroyed in 1942" and
"the original power plant and all the installed equipment were destroyed
in 1942." It is then undeniable that beginning February, 1942 the
operation of the Lepanto mines stopped or became suspended as a
result of the destruction of the mill, power plant and other important
equipment necessary for such operation in view of a cause which was
clearly beyond the control of Nielson and that as a consequence such
destruction adversely affected the work of mining and milling which the
latter was called upon to undertake under the management contract.
Consequently, by virtue of the very terms of said contract the same may
be deemed suspended from February, 1942 and as of that month the
contract still had 60 months to go.
On the other hand, the record shows that the defendant admitted that
the occupation forces operated its mining properties subject of the
management contract,2 and from the very report submitted by President
DeWitt it appears that the date of the liberation of the mine was August
1, 1945 although at the time there were still many booby
traps.3 Similarly, in a report submitted by the defendant to its
stockholders dated August 25, 1948, the following appears: "Your
Directors take pleasure in reporting that June 26, 1948 marked the
official return to operations of this Company of its properties in
Mankayan, Mountain Province, Philippines."4
It is, therefore, clear from the foregoing that the Lepanto mines were
liberated on August 1, 1945, but because of the period of rehabilitation
and reconstruction that had to be made as a result of the destruction of
the mill, power plant and other necessary equipment for its operation it
cannot be said that the suspension of the contract ended on that date.
Hence, the contract must still be deemed suspended during the
succeeding years of reconstruction and rehabilitation, and this period
can only be said to have ended on June 26, 1948 when, as reported by
the defendant, the company officially resumed the mining operations of
the Lepanto. It should here be stated that this period of suspension from
February, 1942 to June 26, 1948 is the one urged by plaintiff.5
It having been shown that the operation of the Lepanto mines on the part
of Nielson had been suspended during the period set out above within
the purview of the management contract, the next question that needs
to be determined is the effect of such suspension. Stated in another way,
the question now to be determined is whether such suspension had the
effect of extending the period of the management contract for the period
of said suspension. To elucidate this matter, we again need to resort to
the evidence.
For appellant Nielson two witnesses testified, declaring that the
suspension had the effect of extending the period of the contract,
namely, George T. Scholey and Mark Nestle. Scholey was a mining
engineer since 1929, an incorporator, general manager and director of
Nielson and Company; and for some time he was also the vice-president
and director of the Lepanto Company during the pre-war days and, as
such, he was an officer of both appellant and appellee companies. As
vice-president of Lepanto and general manager of Nielson, Scholey
participated in the negotiation of the management contract to the extent
that he initialed the same both as witness and as an officer of both
corporations. This witness testified in this case to the effect that the
standard force majeure clause embodied in the management contract
was taken from similar mining contracts regarding mining operations
and the understanding regarding the nature and effect of said clause
was that when there is suspension of the operation that suspension
meant the extension of the contract. Thus, to the question, "Before the
war, what was the understanding of the people in the particular trend of
business with respect to the force majeure clause?", Scholey answered:
"That was our understanding that the suspension meant the extension
of time lost."6
Mark Nestle, the other witness, testified along similar line. He had been
connected with Nielson since 1937 until the time he took the witness
stand and had been a director, manager, and president of the same
company. When he was propounded the question: "Do you know what
was the custom or usage at that time in connection with force
majeure clause?", Nestle answered, "In the mining world the force
majeure clause is generally considered. When a calamity comes up and
stops the work like in war, flood, inundation or fire, etc., the work is
suspended for the duration of the calamity, and the period of the contract
is extended after the calamity is over to enable the person to do the big
work or recover his money which he has invested, or accomplish what
his obligation is to a third person ."7
And the above testimonial evidence finds support in the very minutes of
the special meeting of the Board of Directors of the Lepanto Company
issued on March 10, 1945 which was then chairmaned by Atty. C. A.
DeWitt. We read the following from said report:
The Chairman also stated that the contract with Nielson and
Company would soon expire if the obligations were not
suspended, in which case we should have to pay them the
retaining fee of P2,500.00 a month. He believes however, that
there is a provision in the contract suspending the effects
thereof in cases like the present, and that even if it were not
there, the law itself would suspend the operations of the
contract on account of the war. Anyhow, he stated, we shall
have no difficulty in solving satisfactorily any problem we may
have with Nielson and Company.8
Thus, we can see from the above that even in the opinion of Mr. DeWitt
himself, who at the time was the chairman of the Board of Directors of
the Lepanto Company, the management contract would then expire
unless the period therein rated is suspended but that, however, he
expressed the belief that the period was extended because of the
provision contained therein suspending the effects thereof should any of
the case of force majeure happen like in the present case, and that even
if such provision did not exist the law would have the effect of
suspending it on account of the war. In substance, Atty. DeWitt
expressed the opinion that as a result of the suspension of the mining
operation because of the effects of the war the period of the contract
had been extended.
Contrary to what appellant's evidence reflects insofar as the
interpretation of the force majeure clause is concerned, however,
appellee gives Us an opposite interpretation invoking in support thereof
not only a letter Atty. DeWitt sent to Nielson on October 20,
1945,9 wherein he expressed for the first time an opinion contrary to
what he reported to the Board of Directors of Lepanto Company as
stated in the portion of the minutes of its Board of Directors as quoted
above, but also the ruling laid down by our Supreme Court in some
cases decided sometime ago, to the effect that the war does not have
the effect of extending the term of a contract that the parties may enter
into regarding a particular transaction, citing in this connection the cases
of Victorias Planters Association v. Victorias Milling Company, 51 O.G.
4010; Rosario S. Vda. de Lacson, et al. v. Abelardo G. Diaz, 87 Phil.
150; and Lo Ching y So Young Chong Co. v. Court of Appeals, et al., 81
Phil. 601.
To bolster up its theory, appellee also contends that the evidence
regarding the alleged custom or usage in mining contract that appellant's
witnesses tried to introduce was incompetent because (a) said custom
was not specifically pleaded; (b) Lepanto made timely and repeated
objections to the introduction of said evidence; (c) Nielson failed to show
the essential elements of usage which must be shown to exist before
any proof thereof can be given to affect the contract; and (d) the
testimony of its witnesses cannot prevail over the very terms of the
management contract which, as a rule, is supposed to contain all the
terms and conditions by which the parties intended to be bound.
It is here necessary to analyze the contradictory evidence which the
parties have presented regarding the interpretation of the force
majeure clause in the management contract.
At the outset, it should be stated that, as a rule, in the construction and
interpretation of a document the intention of the parties must be sought
(Rule 130, Section 10, Rules of Court). This is the basic rule in the
interpretation of contracts because all other rules are but ancilliary to the
ascertainment of the meaning intended by the parties. And once this
intention has been ascertained it becomes an integral part of the
contract as though it had been originally expressed therein in
unequivocal terms (Shoreline Oil Corp. v. Guy, App. 189, So., 348, cited
in 17A C.J.S., p. 47). How is this intention determined?
One pattern is to ascertain the contemporaneous and subsequent acts
of the contracting parties in relation to the transaction under
consideration (Article 1371, Civil Code). In this particular case, it is
worthy of note what Atty. C. A. DeWitt has stated in the special meeting
of the Board of Directors of Lepanto in the portion of the minutes already
quoted above wherein, as already stated, he expressed the opinion that
the life of the contract, if not extended, would last only until January,
1947 and yet he said that there is a provision in the contract that the war
had the effect of suspending the agreement and that the effect of that
suspension was that the agreement would have to continue with the
result that Lepanto would have to pay the monthly retaining fee of
P2,500.00. And this belief that the war suspended the agreement and
that the suspension meant its extension was so firm that he went to the
extent that even if there was no provision for suspension in the
agreement the law itself would suspend it.
It is true that Mr. DeWitt later sent a letter to Nielson dated October 20,
1945 wherein apparently he changed his mind because there he stated
that the contract was merely suspended, but not extended, by reason of
the war, contrary to the opinion he expressed in the meeting of the Board
of Directors already adverted to, but between the two opinions of Atty.
DeWitt We are inclined to give more weight and validity to the former not
only because such was given by him against his own interest but also
because it was given before the Board of Directors of Lepanto and in the
presence, of some Nielson officials 10 who, on that occasion were
naturally led to believe that that was the true meaning of the suspension
clause, while the second opinion was merely self-serving and was given
as a mere afterthought.
Appellee also claims that the issue of true intent of the parties was not
brought out in the complaint, but anent this matter suffice it to state that
in paragraph No. 19 of the complaint appellant pleaded that the contract
was extended. 11 This is a sufficient allegation considering that the rules
on pleadings must as a rule be liberally construed.
It is likewise noteworthy that in this issue of the intention of the parties
regarding the meaning and usage concerning the force majeure clause,
the testimony adduced by appellant is uncontradicted. If such were not
true, appellee should have at least attempted to offer contradictory
evidence. This it did not do. Not even Lepanto's President, Mr. V. E.
Lednicky who took the witness stand, contradicted said evidence.
In holding that the suspension of the agreement meant the extension of
the same for a period equivalent to the suspension, We do not have the
least intention of overruling the cases cited by appellee. We simply want
to say that the ruling laid down in said cases does not apply here
because the material facts involved therein are not the same as those
obtaining in the present. The rule of stare decisis cannot be invoked
where there is no analogy between the material facts of the decision
relied upon and those of the instant case.
Thus, in Victorias Planters Association vs. Victorias Milling Company,
51 O.G. 4010, there was no evidence at all regarding the intention of the
parties to extend the contract equivalent to the period of suspension
caused by the war. Neither was there evidence that the parties
understood the suspension to mean extension; nor was there evidence
of usage and custom in the industry that the suspension meant the
extension of the agreement. All these matters, however, obtain in the
instant case.
Again, in the case of Rosario S. Vda. de Lacson vs. Abelardo G. Diaz,
87 Phil. 150, the issue referred to the interpretation of a pre-war contract
of lease of sugar cane lands and the liability of the lessee to pay rent
during and immediately following the Japanese occupation and where
the defendant claimed the right of an extension of the lease to make up
for the time when no cane was planted. This Court, in holding that the
years which the lessee could not use the land because of the war could
not be discounted from the period agreed upon, held that "Nowhere is
there any insinuation that the defendant-lessee was to have possession
of lands for seven years excluding years on which he could not harvest
sugar." Clearly, this ratio decidendi is not applicable to the case at bar
wherein there is evidence that the parties understood the "suspension
clause by force majeure" to mean the extension of the period of
agreement.
Lastly, in the case of Lo Ching y So Young Chong Co. vs. Court of
Appeals, et al., 81 Phil. 601, appellant leased a building from appellee
beginning September 13, 1940 for three years, renewable for two years.
The lessee's possession was interrupted in February, 1942 when he
was ousted by the Japanese who turned the same over to German Otto
Schulze, the latter occupying the same until January, 1945 upon the
arrival of the liberation forces. Appellant contended that the period
during which he did not enjoy the leased premises because of his
dispossession by the Japanese had to be deducted from the period of
the lease, but this was overruled by this Court, reasoning that such
dispossession was merely a simple "perturbacion de merohecho y de la
cual no responde el arrendador" under Article 1560 of the old Civil Code
Art. 1664). This ruling is also not applicable in the instant case because
in that case there was no evidence of the intention of the parties that any
suspension of the lease by force majeure would be understood to
extend the period of the agreement.
In resume, there is sufficient justification for Us to conclude that the
cases cited by appellee are inapplicable because the facts therein
involved do not run parallel to those obtaining in the present case.
We shall now consider appellee's defense of laches. Appellee is correct
in its contention that the defense of laches applies independently of
prescription. Laches is different from the statute of limitations.
Prescription is concerned with the fact of delay, whereas laches is
concerned with the effect of delay. Prescription is a matter of time;
laches is principally a question of inequity of permitting a claim to be
enforced, this inequity being founded on some change in the condition
of the property or the relation of the parties. Prescription is statutory;
laches is not. Laches applies in equity, whereas prescription applies at
law. Prescription is based on fixed time, laches is not. (30 C.J.S., p.
522; See also Pomeroy's Equity Jurisprudence, Vol. 2, 5th ed., p. 177).
The question to determine is whether appellant Nielson is guilty of
laches within the meaning contemplated by the authorities on the matter.
In the leading case of Go Chi Gun, et al. vs. Go Cho, et al., 96 Phil. 622,
this Court enumerated the essential elements of laches as follows:
(1) conduct on the part of the defendant, or of one under
whom he claims, giving rise to the situation of which complaint
is made and for which the complaint seeks a remedy; (2) delay
in asserting the complainant's rights, the complainant having
had knowledge or notice of the defendant's conduct and
having been afforded an opportunity to institute a suit; (3) lack
of knowledge or notice on the part of the defendant that the
complainant would assert the right on which he bases his suit;
and (4) injury or prejudice to the defendant in the event relief
is accorded to the complainant, or the suit is not held barred.
Are these requisites present in the case at bar?
The first element is conceded by appellant Nielson when it claimed that
defendant refused to pay its management fees, its percentage of profits
and refused to allow it to resume the management operation.
Anent the second element, while it is true that appellant Nielson knew
since 1945 that appellee Lepanto has refused to permit it to resume
management and that since 1948 appellee has resumed operation of
the mines and it filed its complaint only on February 6, 1958, there being
apparent delay in filing the present action, We find the delay justified and
as such cannot constitute laches. It appears that appellant had not
abandoned its right to operate the mines for even before the termination
of the suspension of the agreement as early as January 20, 194612 and
even before March 10, 1945, it already claimed its right to the extension
of the contract,13 and it pressed its claim for the balance of its share in
the profits from the 1941 operation14 by reason of which negotiations
had taken place for the settlement of the claim15 and it was only on June
25, 1957 that appellee finally denied the claim. There is, therefore, only
a period of less than one year that had elapsed from the date of the final
denial of the claim to the date of the filing of the complaint, which
certainly cannot be considered as unreasonable delay.
The third element of laches is absent in this case. It cannot be said that
appellee Lepanto did not know that appellant would assert its rights on
which it based suit. The evidence shows that Nielson had been claiming
for some time its rights under the contract, as already shown above.
Neither is the fourth element present, for if there has been some delay
in bringing the case to court it was mainly due to the attempts at
arbitration and negotiation made by both parties. If Lepanto's documents
were lost, it was not caused by the delay of the filing of the suit but
because of the war.
Another reason why appellant Nielson cannot be held guilty of laches is
that the delay in the filing of the complaint in the present case was the
inevitable of the protracted negotiations between the parties concerning
the settlement of their differences. It appears that Nielson asked for
arbitration16 which was granted. A committee consisting of Messrs.
DeWitt, Farnell and Blessing was appointed to act on said differences
but Mr. DeWitt always tried to evade the issue17 until he was taken ill
and died. Mr. Farnell offered to Nielson the sum of P13,000.58 by way
of compromise of all its claim arising from the management
contract18 but apparently the offer was refused. Negotiations continued
with the exchange of letters between the parties but with no satisfactory
result.19 It can be said that the delay due to protracted negotiations was
caused by both parties. Lepanto, therefore, cannot be permitted to take
advantage of such delay or to question the propriety of the action taken
by Nielson. The defense of laches is an equitable one and equity should
be applied with an even hand. A person will not be permitted to take
advantage of, or to question the validity, or propriety of, any act or
omission of another which was committed or omitted upon his own
request or was caused by his conduct (R. H. Stearns Co. vs. United
States, 291 U.S. 54, 78 L. Ed. 647, 54 S. Ct., 325; United States vs.
Henry Prentiss & Co., 288 U.S. 73, 77 L. Ed., 626, 53 S. Ct., 283).
Had the action of Nielson prescribed? The court a quo held that the
action of Nielson is already barred by the statute of limitations, and that
ruling is now assailed by the appellant in this appeal. In urging that the
court a quo erred in reaching that conclusion the appellant has
discussed the issue with reference to particular claims.
The first claim is with regard to the 10% share in profits of 1941
operations. Inasmuch as appellee Lepanto alleges that the correct basis
of the computation of the sharing in the net profits shall be as provided
for in Clause V of the Management Contract, while appellant Nielson
maintains that the basis should be what is contained in the minutes of
the special meeting of the Board of Directors of Lepanto on August 21,
1940, this question must first be elucidated before the main issue is
discussed.
The facts relative to the matter of profit sharing follow: In the
management contract entered into between the parties on January 30,
1937, which was renewed for another five years, it was stipulated that
Nielson would receive a compensation of P2,500.00 a month plus 10%
of the net profits from the operation of the properties for the preceding
month. In 1940, a dispute arose regarding the computation of the 10%
share of Nielson in the profits. The Board of Directors of Lepanto,
realizing that the mechanics of the contract was unfair to Nielson,
authorized its President to enter into an agreement with Nielson
modifying the pertinent provision of the contract effective January 1,
1940 in such a way that Nielson shall receive (1) 10% of the dividends
declared and paid, when and as paid, during the period of the contract
and at the end of each year, (2) 10% of any depletion reserve that may
be set up, and (3) 10% of any amount expended during the year out of
surplus earnings for capital account. 20 Counsel for the appellee
admitted during the trial that the extract of the minutes as found in Exhibit
B is a faithful copy from the original. 21 Mr. George Scholey testified that
the foregoing modification was agreed upon. 22
Lepanto claims that this new basis of computation should be rejected (1)
because the contract was clear on the point of the 10% share and it was
so alleged by Nielson in its complaint, and (2) the minutes of the special
meeting held on August 21, 1940 was not signed.
It appearing that the issue concerning the sharing of the profits had been
raised in appellant's complaint and evidence on the matter was
introduced 23 the same can be taken into account even if no amendment
of the pleading to make it conform to the evidence has been made, for
the same is authorized by Section 4, Rule 17, of the old Rules of Court
(now Section 5, Rule 10, of the new Rules of Court).
Coming now to the question of prescription raised by defendant Lepanto,
it is contended by the latter that the period to be considered for the
prescription of the claim regarding participation in the profits is only four
years, because the modification of the sharing embodied in the
management contract is merely verbal, no written document to that
effect having been presented. This contention is untenable. The
modification appears in the minutes of the special meeting of the Board
of Directors of Lepanto held on August 21, 1940, it having been made
upon the authority of its President, and in said minutes the terms of the
modification had been specified. This is sufficient to have the agreement
considered, for the purpose of applying the statute of limitations, as a
written contract even if the minutes were not signed by the parties (3
A.L.R., 2d, p. 831). It has been held that a writing containing the terms
of a contract if adopted by two persons may constitute a contract in
writing even if the same is not signed by either of the parties (3 A.L.R.,
2d, pp. 812-813). Another authority says that an unsigned agreement
the terms of which are embodied in a document unconditionally
accepted by both parties is a written contract (Corbin on Contracts, Vol.
1, p. 85)
The modification, therefore, made in the management contract relative
to the participation in the profits by appellant, as contained in the minutes
of the special meeting of the Board of Directors of Lepanto held on
August 21, 1940, should be considered as a written contract insofar as
the application of the statutes of limitations is concerned. Hence, the
action thereon prescribes within ten (10) years pursuant to Section 43
of Act 190.
Coming now to the facts, We find that the right of Nielson to its 10%
participation in the 1941 operations accrued on December 21, 1941 and
the right to commence an action thereon began on January 1, 1942 so
that the action must be brought within ten (10) years from the latter date.
It is true that the complaint was filed only on February 6, 1958, that is
sixteen (16) years, one (1) month and five (5) days after the right of
action accrued, but the action has not yet prescribed for various reasons
which We will hereafter discuss.
The first reason is the operation of the Moratorium Law, for appellant's
claim is undeniably a claim for money. Said claim accrued on December
31, 1941, and Lepanto is a war sufferer. Hence the claim was covered
by Executive Order No. 32 of March 10, 1945. It is well settled that the
operation of the Moratorium Law suspends the running of the statue of
limitations (Pacific Commercial Co. vs. Aquino, G.R. No. L-10274,
February 27, 1957).
This Court has held that the Moratorium Law had been enforced for eight
(8) years, two (2) months and eight (8) days (Tioseco vs. Day, et al., L-
9944, April 30, 1957; Levy Hermanos, Inc. vs. Perez, L-14487, April 29,
1960), and deducting this period from the time that had elapsed since
the accrual of the right of action to the date of the filing of the complaint,
the extent of which is sixteen (16) years, one (1) month and five (5) days,
we would have less than eight (8) years to be counted for purposes of
prescription. Hence appellant's action on its claim of 10% on the 1941
profits had not yet prescribed.
Another reason that may be taken into account in support of the no-bar
theory of appellant is the arbitration clause embodied in the
management contract which requires that any disagreement as to any
amount of profits before an action may be taken to court shall be subject
to arbitration. 24 This agreement to arbitrate is valid and binding. 25 It
cannot be ignored by Lepanto. Hence Nielson could not bring an action
on its participation in the 1941 operations-profits until the condition
relative to arbitration had been first complied with. 26 The evidence
shows that an arbitration committee was constituted but it failed to
accomplish its purpose on June 25, 1957. 27 From this date to the filing
of the complaint the required period for prescription has not yet elapsed.
Nielson claims the following: (1) 10% share in the dividends declared in
1941, exclusive of interest, amounting to P17,500.00; (2) 10% in the
depletion reserves for 1941; and (3) 10% in the profits for years prior to
1948 amounting to P19,764.70.
With regard to the first claim, the Lepanto's report for the calendar year
of 1954 28 shows that it declared a 10% cash dividend in December,
1941, the amount of which is P175,000.00. The evidence in this
connection (Exhibits L and O) was admitted without objection by counsel
for Lepanto. 29 Nielson claims 10% share in said amount with interest
thereon at 6% per annum. The document (Exhibit L) was even
recognized by Lepanto's President V. L. Lednicky, 30 and this claim is
predicated on the provision of paragraph V of the management contract
as modified pursuant to the proposal of Lepanto at the special meeting
of the Board of Directors on August 21, 1940 (Exh. B), whereby it was
provided that Nielson would be entitled to 10% of any dividends to be
declared and paid during the period of the contract.
With regard to the second claim, Nielson admits that there is no
evidence regarding the amount set aside by Lepanto for depletion
reserve for 1941 31 and so the 10% participation claimed thereon cannot
be assessed.
Anent the third claim relative to the 10% participation of Nielson on the
sum of P197,647.08, which appears in Lepanto's annual report for
1948 32 and entered as profit for prior years in the statement of income
and surplus, which amount consisted "almost in its entirety of proceeds
of copper concentrates shipped to the United States during 1947," this
claim should to denied because the amount is not "dividend declared
and paid" within the purview of the management contract.
The fifth assignment of error of appellant refers to the failure of the lower
court to order Lepanto to pay its management fees for January, 1942,
and for the full period of extension amounting to P150,000.00, or
P2,500.00 a month for sixty (60) months, a total of P152,500.00
with interest thereon from the date of judicial demand.
It is true that the claim of management fee for January, 1942 was not
among the causes of action in the complaint, but inasmuch as the
contract was suspended in February, 1942 and the management fees
asked for included that of January, 1942, the fact that such claim was
not included in a specific manner in the complaint is of no moment
because an appellate court may treat the pleading as amended to
conform to the evidence where the facts show that the plaintiff is entitled
to relief other than what is asked for in the complaint (Alonzo vs.
Villamor, 16 Phil. 315). The evidence shows that the last payment made
by Lepanto for management fee was for November and December,
1941. 33 If, as We have declared, the management contract was
suspended beginning February 1942, it follows that Nielson is entitled to
the management fee for January, 1942.
Let us now come to the management fees claimed by Nielson for
the period of extension. In this respect, it has been shown that the
management contract was extended from June 27, 1948 to June 26,
1953, or for a period of sixty (60) months. During this period Nielson had
a right to continue in the management of the mining properties of
Lepanto and Lepanto was under obligation to let Nielson do it and to pay
the corresponding management fees. Appellant Nielson insisted in
performing its part of the contract but Lepanto prevented it from doing
so. Hence, by virtue of Article 1186 of the Civil Code, there was a
constructive fulfillment an the part of Nielson of its obligation to manage
said mining properties in accordance with the contract and Lepanto had
the reciprocal obligation to pay the corresponding management fees and
other benefits that would have accrued to Nielson if Lepanto allowed it
(Nielson) to continue in the management of the mines during the
extended period of five (5) years.
We find that the preponderance of evidence is to the effect that Nielson
had insisted in managing the mining properties soon after liberation. In
the report 34 of Lepanto, submitted to its stockholders for the period from
1941 to March 13, 1946, are stated the activities of Nielson's officials in
relation to Nielson's insistence in continuing the management. This
report was admitted in evidence without objection. We find the following
in the report:
Mr. Blessing, in May, 1945, accompanied Clark and Stanford to San
Fernando (La Union) to await the liberation of the mines. (Mr. Blessing
was the Treasurer and Metallurgist of Nielson). Blessing with Clark and
Stanford went to the property on July 16 and found that while the mill
site had been cleared of the enemy the latter was still holding the area
around the staff houses and putting up a strong defense. As a result,
they returned to San Fernando and later went back to the mines on July
26. Mr. Blessing made the report, dated August 6, recommending a
program of operation. Mr. Nielson himself spent a day in the mine early
in December, 1945 and reiterated the program which Mr. Blessing had
outlined. Two or three weeks before the date of the report, Mr. Coldren
of the Nielson organization also visited the mine and told President C.
A. DeWitt of Lepanto that he thought that the mine could be put in
condition for the delivery of the ore within ten (10) days. And according
to Mark Nestle, a witness of appellant, Nielson had several men
including engineers to do the job in the mines and to resume the work.
These engineers were in fact sent to the mine site and submitted reports
of what they had done. 35
On the other hand, appellee claims that Nielson was not ready and able
to resume the work in the mines, relying mainly on the testimony of Dr.
Juan Nabong, former secretary of both Nielson and Lepanto, given in
the separate case of Nancy Irving Romero vs. Lepanto Consolidated
Mining Company (Civil Case No. 652, CFI, Baguio), to the effect that as
far as he knew "Nielson and Company had not attempted to operate the
Lepanto Consolidated Mining Company because Mr. Nielson was not
here in the Philippines after the last war. He came back later," and that
Nielson and Company had no money nor stocks with which to start the
operation. He was asked by counsel for the appellee if he had testified
that way in Civil Case No. 652 of the Court of First Instance of Baguio,
and he answered that he did not confirm it fully. When this witness was
asked by the same counsel whether he confirmed that testimony, he
said that when he testified in that case he was not fully aware of what
happened and that after he learned more about the officials of the
corporation it was only then that he became aware that Nielson had
really sent his men to the mines along with Mr. Blessing and that he was
aware of this fact personally. He further said that Mr. Nielson was here
in 1945 and "he was going out and contacting his people." 36
Lepanto admits, in its own brief, that Nielson had really insisted in taking
over the management and operation of the mines but that it (Lepanto) 21 20% March 1953 1,000,000.00
unequivocally refuse to allow it. The following is what appears in the brief
of the appellee: 22 20% June 1953 1,000,000.0

It was while defendant was in the midst of the rehabilitation
work which was fully described earlier, still reeling under the
terrible devastation and destruction wrought by war on its
mine that Nielson insisted in taking over the management and
operation of the mine. Nielson thus put Lepanto in a position
where defendant, under the circumstances, had to refuse, as
in fact it did, Nielson's insistence in taking over the
management and operation because, as was obvious, it was
impossible, as a result of the destruction of the mine, for the
plaintiff to manage and operate the same and because, as
provided in the agreement, the contract was suspended by
reason of the war. The stand of Lepanto in disallowing Nielson
to assume again the management of the mine in 1945 was
unequivocal and cannot be misinterpreted, infra.37
Based on the foregoing facts and circumstances, and Our conclusion
that the management contract was extended, We believe that Nielson is
entitled to the management fees for the period of extension. Nielson
should be awarded on this claim sixty times its monthly pay of
P2,500.00, or a total of P150,000.00.
In its sixth assignment of error Nielson contends that the lower court
erred in not ordering Lepanto to pay it (Nielson) the 10% share in the
profits of operation realized during the period of five (5) years from the
resumption of its post-war operations of the Mankayan mines, in the total
sum of P2,403,053.20 with interest thereon at the rate of 6% per annum
from February 6, 1958 until full payment. 38
The above claim of Nielson refers to four categories, namely: (1) cash
dividends; (2) stock dividends; (3) depletion reserves; and (4) amount
expended on capital investment.
Anent the first category, Lepanto's report for the calendar year
1954 39 contains a record of the cash dividends it paid up to the date of
said report, and the post-war dividends paid by it corresponding to the
years included in the period of extension of the management contract
are as follows:
TOTAL P14,000,000.0
According to the terms of the management contract as modified,
appellant is entitled to 10% of the P14,000,000.00 cash dividends that
had been distributed, as stated in the above-mentioned report, or the
sum of P1,400,000.00.
With regard to the second category, the stock dividends declared by
Lepanto during the period of extension of the contract are: On November
28, 1949, the stock dividend declared was 50% of the outstanding
authorized capital of P2,000,000.00 of the company, or stock dividends
worth P1,000,000.00; and on August 22, 1950, the stock dividends
declared was 66-2/3% of the standing authorized capital of
P3,000,000.00 of the company, or stock dividends worth
P2,000,000.00. 40
Appellant's claim that it should be given 10% of the cash value of said
stock dividends with interest thereon at 6% from February 6, 1958
cannot be granted for that would not be in accordance with the
management contract which entitles Nielson to 10% of any dividends
declared paid, when and as paid. Nielson, therefore, is entitled to 10%
of the stock dividends and to the fruits that may have accrued to said
stock dividends pursuant to Article 1164 of the Civil Code. Hence to
Nielson is due shares of stock worth P100,000.00, as per stock
dividends declared on November 28, 1949 and all the fruits accruing to
said shares after said date; and also shares of stock worth P200,000.00
as per stock dividends declared on August 20, 1950 and all fruits
accruing thereto after said date.
Anent the third category, the depletion reserve appearing in the
statement of income and surplus submitted by Lepanto corresponding
to the years covered by the period of extension of the contract, may be
itemized as follows:
In 1948, as per Exh. F, p. 36 and Exh. Q, p. 5, the depletion
reserve set up was P11,602.80.

In 1949, as per Exh. G, p. 49 and Exh. Q, p. 5, the depletion

POST-WAR reserve set up was P33,556.07.

8 10% November 1949 P 200,000.00 In 1950, as per Exh. H, p. 37, Exh. Q, p. 6 and Exh. I, p. 37,
the depletion reserve set up was P84,963.30.
9 10% July 1950 300,000.00
In 1951, as per Exh. I, p. 45, Exh. Q, p. 6, and Exh. J, p. 45,
10 10% October 1950 500,000.00 the depletion reserve set up was P129,089.88.

11 20% December 1950 1,000,000.00

In 1952, as per Exh. J, p. 45, Exh. Q, p. 6 and Exh. K p. 41,
the depletion reserve was P147,141.54.
12 20% March 1951 1,000,000.00

13 20% June 1951 1,000,000.00 In 1953, as per Exh. K, p. 41, and Exh. Q, p. 6, the depletion
reserve set up as P277,493.25.
14 20% September 1951 1,000,000.00
Regarding the depletion reserve set up in 1948 it should be noted that
15 40% December 1951 2,000,000.00 the amount given was for the whole year. Inasmuch as the contract was
extended only for the last half of the year 1948, said amount of
16 20% March 1952 1,000,000.00 P11,602.80 should be divided by two, and so Nielson is only entitled to
10% of the half amounting to P5,801.40.
17 20% May 1952 1,000,000.00
Likewise, the amount of depletion reserve for the year 1953 was for the
18 20% July 1952 1,000,000.00 whole year and since the contract was extended only until the first half
of the year, said amount of P277,493.25 should be divided by two, and
19 20% September 1952 1,000,000.00 so Nielson is only entitled to 10% of the half amounting to P138,746.62.
Summing up the entire depletion reserves, from the middle of 1948 to
20 20% December 1952 1,000,000.00 the middle of 1953, we would have a total of P539,298.81, of which
Nielson is entitled to 10%, or to the sum of P53,928.88.
Finally, with regard to the fourth category, there is no figure in the record
representing the value of the fixed assets as of the beginning of the
period of extension on June 27, 1948. It is possible, however, to arrive
at the amount needed by adding to the value of the fixed assets as of
December 31, 1947 one-half of the amount spent for capital account in
the year 1948. As of December 31, 1947, the value of the fixed assets
was P1,061,878.88 41 and as of December 31, 1948, the value of the
fixed assets was P3,270,408.07. 42 Hence, the increase in the value of
the fixed assets for the year 1948 was P2,208,529.19, one-half of which
is P1,104,264.59, which amount represents the expenses for capital
account for the first half of the year 1948. If to this amount we add the
fixed assets as of December 31, 1947 amounting to P1,061,878.88, we
would have a total of P2,166,143.47 which represents the fixed assets
at the beginning of the second half of the year 1948.
There is also no figure representing the value of the fixed assets when
the contract, as extended, ended on June 26, 1953; but this may be
computed by getting one-half of the expenses for capital account made
in 1953 and adding the same to the value of the fixed assets as of
December 31, 1953 is P9,755,840.41 43 which the value of the fixed
assets as of December 31, 1952 is P8,463,741.82, the difference being
P1,292,098.69. One-half of this amount is P646,049.34 which would
represent the expenses for capital account up to June, 1953. This
amount added to the value of the fixed assets as of December 31, 1952
would give a total of P9,109,791.16 which would be the value of fixed
assets at the end of June, 1953.
The increase, therefore, of the value of the fixed assets of Lepanto from
June, 1948 to June, 1953 is P6,943,647.69, which amount represents
the difference between the value of the fixed assets of Lepanto in the
year 1948 and in the year 1953, as stated above. On this amount
Nielson is entitled to a share of 10% or to the amount of P694,364.76.
Considering that most of the claims of appellant have been entertained,
as pointed out in this decision, We believe that appellant is entitled to be
awarded attorney's fees, especially when, according to the undisputed
testimony of Mr. Mark Nestle, Nielson obliged himself to pay attorney's
fees in connection with the institution of the present case. In this respect,
We believe, considering the intricate nature of the case, an award of fifty
thousand (P50,000.00) pesos for attorney's fees would be reasonable.
IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby
reverse the decision of the court a quo and enter in lieu thereof another,
ordering the appellee Lepanto to pay appellant Nielson the different
amounts as specified hereinbelow:
(1) 10% share of cash dividends of December, 1941 in the amount of
P17,500.00, with legal interest thereon from the date of the filing of the
complaint;
(2) management fee for January, 1942 in the amount of P2,500.00, with
legal interest thereon from the date of the filing of the complaint;
(3) management fees for the sixty-month period of extension of the
management contract, amounting to P150,000.00, with legal interest
from the date of the filing of the complaint;
(4) 10% share in the cash dividends during the period of extension of
the management contract, amounting to P1,400,000.00, with legal
interest thereon from the date of the filing of the complaint;
(5) 10% of the depletion reserve set up during the period of extension,
amounting to P53,928.88, with legal interest thereon from the date of the
filing of the complaint;
(6) 10% of the expenses for capital account during the period of
extension, amounting to P694,364.76, with legal interest thereon from
the date of the filing of the complaint;
(7) to issue and deliver to Nielson and Co., Inc. shares of stock of
Lepanto Consolidated Mining Co. at par value equivalent to the total of
Nielson's l0% share in the stock dividends declared on November 28,
1949 and August 22, 1950, together with all cash and stock dividends,
if any, as may have been declared and issued subsequent to November
28, 1949 and August 22, 1950, as fruits that accrued to said shares;
If sufficient shares of stock of Lepanto's are not available to satisfy this
judgment, defendant-appellee shall pay plaintiff-appellant an amount in
cash equivalent to the market value of said shares at the time of default
(12 C.J.S., p. 130), that is, all shares of the stock that should have been
delivered to Nielson before the filing of the complaint must be paid at
their market value as of the date of the filing of the complaint; and all
shares, if any, that should have been delivered after the filing of the
complaint at the market value of the shares at the time Lepanto disposed
of all its available shares, for it is only then that Lepanto placed itself in
condition of not being able to perform its obligation (Article 1160, Civil
Code);
(8) the sum of P50,000.00 as attorney's fees; and
(9) the costs. It is so ordered.
G.R. No. 133879 November 21, 2001
EQUATORIAL REALTY DEVELOPMENT, INC., petitioner,
vs.
MAYFAIR THEATER, INC., respondent.
PANGANIBAN, J.:
General propositions do not decide specific cases. Rather, laws are
interpreted in the context of the peculiar factual situation of each
proceeding. Each case has its own flesh and blood and cannot be ruled
upon on the basis of isolated clinical classroom principles.
While we agree with the general proposition that a contract of sale is
valid until rescinded, it is equally true that ownership of the thing sold is
not acquired by mere agreement, but by tradition or delivery. The
peculiar facts of the present controversy as found by this Court in an
earlier relevant Decision show that delivery was not actually effected; in
fact, it was prevented by a legally effective impediment. Not having been
the owner, petitioner cannot be entitled to the civil fruits of ownership
like rentals of the thing sold. Furthermore, petitioner's bad faith, as again
demonstrated by the specific factual milieu of said Decision, bars the
grant of such benefits. Otherwise, bad faith would be rewarded instead
of punished.
The Case
Filed before this Court is a Petition for Review1 under Rule 45 of the
Rules of Court, challenging the March 11, 1998 Order2 of the Regional
Trial Court of Manila (RTC), Branch 8, in Civil Case No. 97-85141. The
dispositive portion of the assailed Order reads as follows:
"WHEREFORE, the motion to dismiss filed by defendant
Mayfair is hereby GRANTED, and the complaint filed by
plaintiff Equatorial is hereby DISMISSED."3
Also questioned is the May 29, 1998 RTC Order4 denying petitioner's
Motion for Reconsideration.
The Facts
The main factual antecedents of the present Petition are matters of
record, because it arose out of an earlier case decided by this Court on
November 21, 1996, entitled Equatorial Realty Development, Inc. v.
Mayfair Theater, Inc.5(henceforth referred to as the "mother case"),
docketed as G.R No. 106063.
Carmelo & Bauermann, Inc. ("Camelo" ) used to own a parcel of land,
together with two 2-storey buildings constructed thereon, located at
Claro M. Recto Avenue, Manila, and covered by TCT No. 18529 issued
in its name by the Register of Deeds of Manila.
On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair
Theater Inc. ("Mayfair") for a period of 20 years. The lease covered a
portion of the second floor and mezzanine of a two-storey building with
about 1,610 square meters of floor area, which respondent used as a
movie house known as Maxim Theater.
Two years later, on March 31, 1969, Mayfair entered into a second
Contract of Lease with Carmelo for the lease of another portion of the
latter's property namely, a part of the second floor of the two-storey
building, with a floor area of about 1,064 square meters; and two store
spaces on the ground floor and the mezzanine, with a combined floor
area of about 300 square meters. In that space, Mayfair put up another
movie house known as Miramar Theater. The Contract of Lease was
likewise for a period of 20 years.
Both leases contained a provision granting Mayfair a right of first refusal
to purchase the subject properties. However, on July 30, 1978 within
the 20-year-lease term the subject properties were sold by Carmelo
to Equatorial Realty Development, Inc. ("Equatorial") for the total sum of
P11,300,000, without their first being offered to Mayfair.
As a result of the sale of the subject properties to Equatorial, Mayfair
filed a Complaint before the Regional Trial Court of Manila (Branch 7)
for (a) the annulment of the Deed of Absolute Sale between Carmelo
and Equatorial, (b) specific performance, and (c) damages. After trial on
the merits, the lower court rendered a Decision in favor of Carmelo and
Equatorial. This case, entitled "Mayfair" Theater, Inc. v. Carmelo and
Bauermann, Inc., et al.," was docketed as Civil Case No. 118019.
On appeal (docketed as CA-GR CV No. 32918), the Court of Appeals
(CA) completely reversed and set aside the judgment of the lower court.
The controversy reached this Court via G.R No. 106063. In this mother
case, it denied the Petition for Review in this wise:
"WHEREFORE, the petition for review of the decision of the
Court of Appeals, dated June 23, 1992, in CA-G.R. CV No.
32918, is HEREBY DENIED. The Deed of Absolute Sale
between petitioners Equatorial Realty Development, Inc. and
Carmelo & Bauermann, Inc. is hereby deemed rescinded;
Carmelo & Bauermann is ordered to return to petitioner
Equatorial Realty Development the purchase price. The latter
is directed to execute the deeds and documents necessary to
return ownership to Carmelo & Bauermann of the disputed
lots. Carmelo & Bauermann is ordered to allow Mayfair
Theater, Inc. to buy the aforesaid lots for P11,300,000.00."6
The foregoing Decision of this Court became final and executory on
March 17, 1997. On April 25, 1997, Mayfair filed a Motion for Execution,
which the trial court granted.
However, Carmelo could no longer be located. Thus, following the order
of execution of the trial court, Mayfair deposited with the clerk of court a
quo its payment to Carmelo in the sum of P11,300,000 less; P847,000
as withholding tax. The lower court issued a Deed of Reconveyance in
favor of Carmelo and a Deed of Sale in favor of Mayfair. On the basis of
these documents, the Registry of Deeds of Manila canceled Equatorial's
titles and issued new Certificates of Title7 in the name of Mayfair.
Ruling on Equatorial's Petition for Certiorari and Petition contesting the
foregoing manner of execution, the CA in its Resolution of November
20, 1998, explained that Mayfair had no right to deduct the P847,000 as
withholding tax. Since Carmelo could no longer be located, the appellate
court ordered Mayfair to deposit the said sum with the Office of the Clerk
of Court, Manila, to complete the full amount of P11,300,000 to be turned
over to Equatorial.
Equatorial questioned the legality of the above CA ruling before this
Court in G.R No. 136221 entitled "Equatorial Realty Development, Inc.
v. Mayfair Theater, Inc." In a Decision promulgated on May 12,
2000,8 this Court directed the trial court to follow strictly the Decision in
GR. No. 106063, the mother case. It explained its ruling in these words:
"We agree that Carmelo and Bauermann is obliged to return
the entire amount of eleven million three hundred thousand
pesos (P11,300,000.00) to Equatorial. On the other hand,
Mayfair may not deduct from the purchase price the amount
of eight hundred forty-seven thousand pesos (P847,000.00)
as withholding tax. The duty to withhold taxes due, if any, is
imposed on the seller Carmelo and Bauermann, Inc."9
Meanwhile, on September 18, 1997 barely five months after Mayfair
had submitted its Motion for Execution before the RTC of Manila, Branch
7 Equatorial filed with the Regional Trial Court of Manila, Branch 8,
an action for the collection of a sum of money against Mayfair, claiming
payment of rentals or reasonable compensation for the defendant's use
of the subject premises after its lease contracts had expired. This action
was the progenitor of the present case.
In its Complaint, Equatorial alleged among other things that the Lease
Contract covering the premises occupied by Maxim Theater expired on
May 31, 1987, while the Lease Contract covering the premises occupied
by Miramar Theater lapsed on March 31, 1989.10 Representing itself as
the owner of the subject premises by reason of the Contract of Sale on
July 30, 1978, it claimed rentals arising from Mayfair's occupation
thereof.
Ruling of the RTC Manila, Branch 8
As earlier stated, the trial court dismissed the Complaint via the herein
assailed Order and denied the Motion for Reconsideration filed by
Equatorial.11
The lower court debunked the claim of petitioner for unpaid back rentals,
holding that the rescission of the Deed of Absolute Sale in the mother
case did not confer on Equatorial any vested or residual proprietary
rights, even in expectancy.
In granting the Motion to Dismiss, the court a quo held that the critical
issue was whether Equatorial was the owner of the subject property and
could thus enjoy the fruits or rentals therefrom. It declared the rescinded
Deed of Absolute Sale as avoid at its inception as though it did not
happen."
The trial court ratiocinated as follows:
"The meaning of rescind in the aforequoted decision is to set
aside. In the case of Ocampo v. Court of Appeals, G.R. No.
97442, June 30, 1994, the Supreme Court held that, 'to
rescind is to declare a contract void in its inception and to put
an end as though it never were. It is not merely to terminate it
and release parties from further obligations to each other but
to abrogate it from the beginning and restore parties to relative
positions which they would have occupied had no contract
ever been made.'
"Relative to the foregoing definition, the Deed of Absolute
Sale between Equatorial and Carmelo dated July 31, 1978
is void at its inception as though it did not happen.
"The argument of Equatorial that this complaint for back
rentals as 'reasonable compensation for use of the subject
property after expiration of the lease contracts presumes that
the Deed of Absolute Sale dated July 30, 1978 from whence
the fountain of Equatorial's all rights flows is still valid and
existing.
xxx xxx xxx
 "The subject Deed of Absolute Sale having been rescinded by
the Supreme Court, Equatorial is not the owner and does not
have any right to demand backrentals from the subject
property. . .12
The trial court added: "The Supreme Court in the Equatorial case, G.R
No. 106063, has categorically stated that the Deed of Absolute Sale
dated July 31, 1978 has been rescinded subjecting the present
complaint to res judicata."13
Hence, the present recourse.14
Issues
Petitioner submits, for the consideration of this Court, the following
issues:15
"A
The basis of the dismissal of the Complaint by the Regional
Trial Court not only disregards basic concepts and principles
in the law on contracts and in civil law, especially those on
rescission and its corresponding legal effects, but also ignores
the dispositive portion of the Decision of the Supreme Court
in G.R. No. 106063 entitled 'Equatorial Realty Development,
Inc. & Carmelo & Bauermann, Inc. vs. Mayfair Theater, Inc.'
"B.
The Regional Trial Court erred in holding that the Deed of
Absolute Sale in favor of petitioner by Carmelo & Bauermann,
Inc., dated July 31, 1978, over the premises used and
occupied by respondent, having been 'deemed rescinded' by
the Supreme Court in G.R. No. 106063, is 'void at its inception
as though it did not happen.'
"C.
The Regional Trial Court likewise erred in holding that the
aforesaid Deed of Absolute Sale, dated July 31, 1978, having
been 'deemed rescinded' by the Supreme Court in G.R. No.
106063, petitioner 'is not the owner and does not have any
right to demand backrentals from the subject property,' and
that the rescission of the Deed of Absolute Sale by the
Supreme Court does not confer to petitioner 'any vested right
nor any residual proprietary rights even in expectancy.'
"D.
The issue upon which the Regional Trial Court dismissed the
civil case, as stated in its Order of March 11, 1998, was not
raised by respondent in its Motion to Dismiss.
"E.
The sole ground upon which the Regional Trial Court
dismissed Civil Case No. 97-85141 is not one of the grounds
of a Motion to Dismiss under Sec. 1 of Rule 16 of the 1997
Rules of Civil Procedure."
Basically, the issues can be summarized into two: (1) the substantive
issue of whether Equatorial is entitled to back rentals; and (2) the
procedural issue of whether the court a quo's dismissal of Civil Case No.
97-85141 was based on one of the grounds raised by respondent in its
Motion to Dismiss and covered by Rule 16 of the Rules of Court.
This Court's Ruling
The Petition is not meritorious.
First Issue:
Ownership of Subject Properties
We hold that under the peculiar facts and circumstances of the case at
bar, as found by this Court en banc in its Decision promulgated in 1996
in the mother case, no right of ownership was transferred from Carmelo
to Equatorial in view of a patent failure to deliver the property to the
buyer.
Rental a Civil
Fruit of Ownership
To better understand the peculiarity of the instant case, let us begin with
some basic parameters. Rent is a civil fruit 16 that belongs to the owner
of the property producing it17 by right of accession.18 Consequently and
ordinarily, the rentals that fell due from the time of the perfection of the
sale to petitioner until its rescission by final judgment should belong to
the owner of the property during that period.
By a contract of sale, "one of the contracting parties obligates himself to
transfer ownership of and to deliver a determinate thing and the other to
pay therefor a price certain in money or its equivalent."19
Ownership of the thing sold is a real right,20 which the buyer acquires
only upon delivery of the thing to him "in any of the ways specified in
articles 1497 to 1501, or in any other manner signifying an agreement
that the possession is transferred from the vendor to the vendee."21 This
right is transferred, not merely by contract, but also by tradition or
delivery.22 Non nudis pactis sed traditione dominia rerum transferantur.
And there is said to be delivery if and when the thing sold "is placed in
the control and possession of the vendee."23 Thus, it has been held that
while the execution of a public instrument of sale is recognized by law
as equivalent to the delivery of the thing sold,24 such constructive or
symbolic delivery, being merely presumptive, is deemed negated by the
failure of the vendee to take actual possession of the land sold.25
Delivery has been described as a composite act, a thing in which both
parties must join and the minds of both parties concur. It is an act by
which one party parts with the title to and the possession of the property,
and the other acquires the right to and the possession of the same. In
its natural sense, delivery means something in addition to the delivery
of property or title; it means transfer of possession.26 In the Law on
Sales, delivery may be either actual or constructive, but both forms of
delivery contemplate "the absolute giving up of the control and custody
of the property on the part of the vendor, and the assumption of the same
by the vendee."27
Possession Never
Acquired by Petitioner
Let us now apply the foregoing discussion to the present issue. From
the peculiar facts of this case, it is clear that petitioner never took actual
control and possession of the property sold, in view of respondent's
timely objection to the sale and the continued actual possession of the
property. The objection took the form of a court action impugning the
sale which, as we know, was rescinded by a judgment rendered by this
Court in the mother case. It has been held that the execution of a
contract of sale as a form of constructive delivery is a legal fiction. It
holds true only when there is no impediment that may prevent the
passing of the property from the hands of the vendor into those of the
vendee.28 When there is such impediment, "fiction yields to reality the
delivery has not been effected."29
Hence, respondent's opposition to the transfer of the property by way of
sale to Equatorial was a legally sufficient impediment that effectively
prevented the passing of the property into the latter's hands.
This was the same impediment contemplated in Vda. de Sarmiento v.
Lesaca,30 in which the Court held as follows:
"The question that now arises is: Is there any stipulation in the
sale in question from which we can infer that the vendor did
 not intend to deliver outright the possession of the lands to the
vendee? We find none. On the contrary, it can be clearly seen
therein that the vendor intended to place the vendee in actual
possession of the lands immediately as can be inferred from
the stipulation that the vendee 'takes actual possession
thereof . . . with full rights to dispose, enjoy and make use
thereof in such manner and form as would be most
advantageous to herself.' The possession referred to in the
contract evidently refers to actual possession and not merely
symbolical inferable from the mere execution of the
document.
"Has the vendor complied with this express commitment? she
did not. As provided in Article 1462, the thing sold shall be
deemed delivered when the vendee is placed in
the control and possession thereof, which situation does not
here obtain because from the execution of the sale up to the
present the vendee was never able to take possession of the
lands due to the insistent refusal of Martin Deloso to surrender
them claiming ownership thereof. And although it is postulated
in the same article that the execution of a public document is
equivalent to delivery, this legal fiction only holds true when
there is no impediment that may prevent the passing of the
property from the hands of the vendor into those of the
vendee. x x x."31
The execution of a public instrument gives rise, therefore, only to a prima
facie presumption of delivery. Such presumption is destroyed when the
instrument itself expresses or implies that delivery was not intended; or
when by other means it is shown that such delivery was not effected,
because a third person was actually in possession of the thing. In the
latter case, the sale cannot be considered consummated.
However, the point may be raised that under Article 1164 of the Civil
Code, Equatorial as buyer acquired a right to the fruits of the thing sold
from the time the obligation to deliver the property to petitioner
arose.32 That time arose upon the perfection of the Contract of Sale on
July 30, 1978, from which moment the laws provide that the parties to a
sale may reciprocally demand performance.33 Does this mean that
despite the judgment rescinding the sale, the right to the
fruits34 belonged to, and remained enforceable by, Equatorial?
Article 1385 of the Civil Code answers this question in the negative,
because "[r]escission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price
with its interest; x x x" Not only the land and building sold, but also the
rental payments paid, if any, had to be returned by the buyer.
Another point. The Decision in the mother case stated that "Equatorial x
x x has received rents" from Mayfair "during all the years that this
controversy has been litigated." The Separate Opinion of Justice
Teodoro Padilla in the mother case also said that Equatorial was
"deriving rental income" from the disputed property. Even
herein ponente'sSeparate Concurring Opinion in the mother case
recognized these rentals. The question now is: Do all these statements
concede actual delivery?
The answer is "No." The fact that Mayfair paid rentals to Equatorial
during the litigation should not be interpreted to mean either actual
delivery or ipso facto recognition of Equatorial's title.
The CA Records of the mother case 35 show that Equatorial as
alleged buyer of the disputed properties and as alleged successor-in-
interest of Carmelo's rights as lessor submitted two ejectment suits
against Mayfair. Filed in the Metropolitan Trial Court of Manila,
the first was docketed as Civil Case No. 121570 on July 9, 1987; and
the second, as Civil Case No. 131944 on May 28, 1990. Mayfair
eventually won them both. However, to be able to maintain physical
possession of the premises while awaiting the outcome of the mother
case, it had no choice but to pay the rentals.
The rental payments made by Mayfair should not be construed as a
recognition of Equatorial as the new owner. They were made merely to
avoid imminent eviction. It is in this context that one should understand
the aforequoted factual statements in the ponencia in the mother case,
as well as the Separate Opinion of Mr. Justice Padilla and the Separate
Concurring Opinion of the herein ponente.
At bottom, it may be conceded that, theoretically, a rescissible contract
is valid until rescinded. However, this generalprinciple is not decisive to
the issue of whether Equatorial ever acquired the right to collect rentals.
What is decisive is the civil law rule that ownership is acquired, not by
mere agreement, but by tradition or delivery. Under the factual
environment of this controversy as found by this Court in the mother
case, Equatorial was never put in actual and effective control or
possession of the property because of Mayfair's timely objection.
As pointed out by Justice Holmes, general propositions do not decide
specific cases. Rather, "laws are interpreted in the context of the peculiar
factual situation of each case. Each case has its own flesh and blood
and cannot be decided on the basis of isolated clinical classroom
principles."36
In short, the sale to Equatorial may have been valid from inception, but
it was judicially rescinded before it could be consummated. Petitioner
never acquired ownership, not because the sale was void, as
erroneously claimed by the trial court, but because the sale was not
consummated by a legally effective delivery of the property sold.
Benefits Precluded by
Petitioner's Bad Faith
Furthermore, assuming for the sake of argument that there was valid
delivery, petitioner is not entitled to any benefits from the "rescinded"
Deed of Absolute Sale because of its bad faith. This being the law of the
mother case decided in 1996, it may no longer be changed because it
has long become final and executory. Petitioner's bad faith is set forth in
the following pertinent portions of the mother case:
"First and foremost is that the petitioners acted in bad faith to
render Paragraph 8 'inutile.'
xxx xxx xxx
"Since Equatorial is a buyer in bad faith, this finding renders
the sale to it of the property in question rescissible. We agree
with respondent Appellate Court that the records bear out the
fact that Equatorial was aware of the lease contracts because
its lawyers had, prior to the sale, studied the said contracts.
As such, Equatorial cannot tenably claim to be a purchaser in
good faith, and, therefore, rescission lies.
xxx xxx xxx
"As also earlier emphasized, the contract of sale between
Equatorial and Carmelo is characterized by bad faith, since it
was knowingly entered into in violation of the rights of and to
the prejudice of Mayfair. In fact, as correctly observed by the
Court of Appeals, Equatorial admitted that its lawyers had
studied the contract of lease prior to the sale. Equatorial's
knowledge of the stipulations therein should have cautioned it
to look further into the agreement to determine if it involved
stipulations that would prejudice its own interests.
xxx xxx xxx
"On the part of Equatorial, it cannot be a buyer in good
faith because it bought the property with notice and full
knowledge that Mayfair had a right to or interest in the
property superior to its own. Carmelo and Equatorial took
unconscientious advantage of Mayfair."37 (Italics supplied)
Thus, petitioner was and still is entitled solely to he return of the
purchase price it paid to Carmelo; no more, no less. This Court has firmly
ruled in the mother case that neither of them is entitled to any
consideration of equity, as both "took unconscientious advantage of
Mayfair."38
In the mother case, this Court categorically denied the payment of
interest, a fruit of ownership. By the same token, rentals, another fruit of
ownership, cannot be granted without mocking this Court's en banc
Decision, which has long become final.
Petitioner's claim of reasonable compensation for respondent's use and
occupation of the subject property from the time the lease expired
cannot be countenanced. If it suffered any loss, petitioner must bear it
in silence, since it had wrought that loss upon itself. Otherwise, bad faith
would be rewarded instead of punished.@lawphil.net
We uphold the trial court's disposition, not for the reason it gave, but for
(a) the patent failure to deliver the property and (b) petitioner's bad faith,
as above discussed.
Second Issue:itc-alf
Ground in Motion to Dismiss
Procedurally, petitioner claims that the trial court deviated from the
accepted and usual course of judicial proceedings when it dismissed
Civil Case No. 97-85141 on a ground not raised in respondent's Motion
to Dismiss. Worse, it allegedly based its dismissal on a ground not
provided for in a motion to dismiss as enunciated in the Rules of
Court.@lawphil.net
We are not convinced A review of respondent's Motion to Dismiss Civil
Case No. 97-85141 shows that there were two grounds invoked, as
follows:
"(A)
Plaintiff is guilty of forum-shopping.itc-alf
"(B)
Plaintiff's cause of action, if any, is barred by prior
judgment."39
The court a quo ruled, inter alia, that the cause of action of petitioner
plaintiff in the case below) had been barred by a prior judgment of this
Court in G.R No. 106063, the mother case.
Although it erred in its interpretation of the said Decision when it argued
that the rescinded Deed of Absolute Sale was avoid," we hold,
nonetheless, that petitioner's cause of action is indeed barred by a prior
judgment of this Court. As already discussed, our Decision in G.R No.
106063 shows that petitioner is not entitled to back rentals, because it
never became the owner of the disputed properties due to a failure of
delivery. And even assuming arguendo that there was a valid delivery,
petitioner's bad faith negates its entitlement to the civil fruits of
ownership, like interest and rentals.
Under the doctrine of res judicata or bar by prior judgment, a matter that
has been adjudicated by a court of competent jurisdiction must be
deemed to have been finally and conclusively settled if it arises in any
subsequent litigation between the same parties and for the same
cause.40 Thus, "[a] final judgment on the merits rendered by a court of
competent jurisdiction is conclusive as to the rights of the parties and
their privies and constitutes an absolute bar to subsequent actions
involving the same claim, demand, or cause of action."41 Res judicata is
based on the ground that the "party to be affected, or some other with
whom he is in privity, has litigated the same matter in a former action in
a court of competent jurisdiction, and should not be permitted to litigate
it again.42
It frees the parties from undergoing all over again the rigors of
unnecessary suits and repetitive trials. At the same time, it prevents the
clogging of court dockets. Equally important, it stabilizes rights and
promotes the rule of law.@lawphil.net
We find no need to repeat the foregoing disquisitions on the first issue
to show satisfaction of the elements of res judicata. Suffice it to say that,
clearly, our ruling in the mother case bars petitioner from claiming back
rentals from respondent. Although the court a quo erred when it
declared "void from inception" the Deed of Absolute Sale between
Carmelo and petitioner, our foregoing discussion supports the grant of
the Motion to Dismiss on the ground that our prior judgment in G.R No.
106063 has already resolved the issue of back rentals.
On the basis of the evidence presented during the hearing of Mayfair's
Motion to Dismiss, the trial court found that the issue of ownership of the
subject property has been decided by this Court in favor of Mayfair. We
quote the RTC:
"The Supreme Court in the Equatorial case, G.R. No. 106063
has categorically stated that the Deed of Absolute Sale dated
July 31, 1978 has been rescinded subjecting the present
complaint to res judicata."43(Emphasis in the original)
Hence, the trial court decided the Motion to Dismiss on the basis of res
judicata, even if it erred in interpreting the meaning of "rescinded" as
equivalent to "void" In short, it ruled on the ground raised; namely, bar
by prior judgment. By granting the Motion, it disposed correctly, even if
its legal reason for nullifying the sale was wrong. The correct reasons
are given in this Decision.
WHEREFORE, the Petition is hereby DENIED. Costs against
petitioner.itc-alf
SO ORDERED.
Davide Jr., C.J., Quisumbing, Pardo, Buena, Ynares-Santiago and
Carpio, JJ., concur.
Bellosillo, J., I join the dissent of J. Gutierrez.
Melo, J., concurring opinion.
Puno, J., concur and also join the concurring opinion of J. Melo.
Vitug, J., see dissenting opinion.
Kapunan, J., join the dissenting opinions of Justices Vitug and
Sandoval-Gutierrez.
Mendoza, J., concur in this and Melo, J.'s concurring opinion.
De Leon, Jr., J., join the dissenting opinion of Justice J.C. Vitug.
Concurring Opinion
MELO, J., concurring:
While I express my conformity to the ponencia of our distinguished
colleague, Mr. Justice Artemio V. Panganiban, I would just like to make
the following observations:
1. The issue in this case was squarely resolved in our 1996 En
Banc decision in the main case. What petitioner is asking us
to do now is to reverse or modify a judgment which is accurate
in every respect, conformable to law and jurisprudence, and
faithful to principles of fairness and justice.
2. Petitioner's submissions are deceiving. It is trying to collect
unjustified and unbelievably increased rentals by provoking a
purely academic discussion, as far as respondent is
concerned, of a non-applicable provision of the Civil Code on
contracts.
3. To grant the petition is to reward bad faith, for petitioner has
deprived respondent of the latter's property rights for twenty-
 three (23) years and has forced it to defend its interests in
case after case during that lengthy period. Petitioner now tries
to inflict further injury in the fantastic and groundless amount
of P115,947,867.00. To remand this case to the lower court in
order to determine the back rentals allegedly due to petitioner
Equatorial Realty Development Corporation, Inc. is to
encourage continuation of crafty tactics and to allow the
further dissipation of scarce judicial time and resources.
The instant petition arose from a complaint for back rentals, increased
rentals and interests filed by petitioner Equatorial Realty Development,
Inc. (Equatorial) against respondent Mayfair Theater, Inc. (Mayfair). It
has to be adjudicated in the context of three earlier petitions decided by
this Court.
A dispute between the two parties over the ownership of a commercial
lot and building along Claro M. Recto Avenue in Manila has led to 23
years of protracted litigation, including the filing of 4 petitions with the
Court, namely, G.R. No. L-106063, decided on November 21, 1996 (264
SCRA 483); G.R. No. 103311 decided on March 4, 1992; G.R. No.
136221, decided on May 12, 2000; and the present petition, G.R. No.
133879.
The case at bar is a classic illustration of how a dubious interpretation
of the dispositive portion of the 1996 decision for petitioner could lead to
5 more years of bitter litigation after the initial 18 years of legal
proceedings over the first case.
Lease contracts over the subject property were executed on June 1,
1967 and March 31, 1969 by original owner Carmelo and Bauermann,
Inc. (Carmelo) in favor of herein respondent Mayfair. The leases expired
on May 31, 1987 and March 31, 1989, respectively. The lease contracts
embodied provisions giving Mayfair a right-of-first-refusal should
Carmelo sell the property.
In an act characterized as bad faith by this Court, the property, in
violation of the right of first refusal, was sold by Carmelo to herein
petitioner Equatorial, on July 31, 1978 for P11,300,000.00. On
September 13, 1978, Mayfair filed the first case for annulment of the
contract of sale, specific performance of the right-of-first-refusal
provision, and damages. The Regional Trial Court (RTC) of Manila
decided the case in favor of Equatorial on February 7, 1991.
Counterclaims for compensation arising from the use of the premises
were awarded to Equatorial by the 1991 RTC decision.
On June 23, 1992, the Court of Appeals reversed the RTC decision, thus
leading to the first petition, G.R. No. 106063, filed against Mayfair by
both Equatorial and Carmelo.
On November 21, 1996, this Court En Banc rendered its decision (264
SCRA 483 [1996]), disposing:
WHEREFORE, the petition for review of the decision of the
Court of Appeals dated June 23, 1992, in CA-G.R. CV No.
32918, is HEREBY DENIED. The Deed of Absolute Sale
between petitioners Equatorial Realty Development, Inc. and
Carmelo & Bauermann, Inc. is hereby rescinded; petitioner
Carmelo & Bauermann is ordered to return to petitioner
Equatorial Realty Development the purchase price. The latter
is directed to execute the deeds and documents necessary to
return ownership to Carmelo & Bauermann of the disputed
lots. Carmelo and Bauermann is ordered to allow Mayfair
Theater, Inc. to buy the aforesaid lots for P11,300,000.00.
In the Court of Appeals decision (CA-G.R. CV No. 32918, June 23,
1992) in the main case, raised to this Court, Mayfair was ordered to
directly pay P11,300,000.00 to Equatorial whereupon Equatorial would
execute the deeds and documents necessary for the transfer of
ownership to Mayfair and the registration of the property in its name. The
execution of documents and the transfer of the property were directly
between Equatorial and Mayfair. Our decision in 1996 (G.R. No.
106063) affirmed the appellate decision. However, while the 1978 deed
of sale questioned by Mayfair was rescinded, we ordered Carmelo to
first return to Equatorial the purchase price of the property, whereupon
Equatorial would return ownership to Carmelo, after which Mayfair
would buy the lot for P11,300,000.00 from Carmelo.
When the case was remanded to the RTC for execution of the decision,
it was ascertained that Carmelo and Bauermann, Inc. was no longer in
existence. The Sheriff could not enforce the portions of the judgment
calling for acts to be performed by Carmelo. Mayfair, therefore,
deposited the amount of P11,300,000.00 with the RTC for payment to
Equatorial, hoping that the latter would faithfully comply with this Court's
decision. In this regard, it may be mentioned that buyer Mayfair also paid
P847,000.00 in taxes which the vendors should have paid. The RTC
ordered the execution of deeds of transfer, the cancellation of
Equatorial's titles to the property, and the issuance of new titles in favor
of Mayfair. Accordingly, the property was registered in the name of
Mayfair and titles issued in its favor.
Equatorial, however, saw an opening for further litigation. It questioned
the method employed by the RTC to execute the Court's judgment,
arguing that the directives involving Carmelo's participation were
ignored by the trial court. The litigation over the alleged incorrectness of
the execution eventually led to the second petition earlier mentioned
G.R. No. 136221.
It may be mentioned at this point that on July 9, 1987, while the right-of-
first-refusal and cancellation case was pending, Equatorial filed an
action for ejectment against Mayfair. Because the issue of ownership
was still pending in the case for rescission of deed of sale including the
enforcement of the right-of-first-refusal provision, the ejectment case
was dismissed. Appeals to the RTC and the Court of Appeals were
denied.
On March 26, 1990, still another ejectment case was filed by Equatorial.
In decisions which reached all the way to this Court in G.R. No. 103311,
the cases for ejectment did not prosper. Mayfair won the cases on March
4, 1992.
The three cases decided by the Court in these litigations between
Equatorial and Mayfair, all of them in favor of Mayfair, are antecedents
of the present and fourth petition. Equatorial has been adjudged as
having unlawfully and in bad faith acquired property that should have
belonged to Mayfair since 1978. Ownership and title have been
unquestionably transferred to Mayfair.
Seemingly, Equatorial now seeks to profit from its bad faith. While the
case involving the allegedly incorrect execution of the 1996 decision on
cancellation of the deed of sale in G.R. No. 106063 was being litigated,
Equatorial filed on September 18, 1997 with the RTC of Manila two
complaints for payment of back and increased rentals arising from the
use by Mayfair of the lot, building, and other fixed improvements. From
the time the property was sold by Carmelo to Equatorial, lessee Mayfair
had been paying to Equatorial the rentals fixed in the 1967 and 1969
lease contracts with the original owner. This was during the pendency
of the complaint for annulment of the contract of sale, specific
performance of the right-of-first-refusal provision, and damages.
As found in our 1998 decision in G.R. No. 106063, the disputed property
should have actually belonged to Mayfair at the time. However, to avoid
the ejectment cases, which Equatorial nonetheless later filed, Mayfair
was forced to pay rentals to Equatorial. It paid the rentals based on the
rates fixed by Carmelo in the lease contracts.
Equatorial, claiming the 1967 and 1969 rentals to be inadequate,
claimed increased amounts as reasonable compensation. Because the
amounts fixed by the lease contract with Carmelo but paid to Equatorial
were only at the rate of P17,966.21 monthly while Equatorial wanted
P210,000.00 every month plus legal interests, the suit was for the
payment of P115,947,867.68 as of June 19, 1997.
Citing the 1996 decision in G.R. No. 106063, Mayfair contended that it
owned the property under the decision. It stated that the sale by Carmelo
to Equatorial had been cancelled, and, as owner, Mayfair owed no
increased rentals to Equatorial based on said decision.
The present case on back rentals could not be conclusively decided
because the execution and finality of the issue of ownership were being
contested for 5 years in the petition on the proper execution filed in G.R.
No. 136221. This petition had to wait for the resolution of G.R. No.
136221.
In its decision dated May 12, 2000, in G.R. No. 136221 (First Division,
per Mr. Justice Pardo; Davide, Jr., C.J., Kapunan, and Ynares-
Santiago, JJ., concurring), this Court reiterated the judgment in G.R. No.
106063. It emphasized that the 1996 decision awarding the property to
Mayfair was clear. It stated that the decision having attained finality,
there was nothing left for the parties to do but to adhere to the mandates
of the decision.
In the dispositive portion, however, the Court ordered the trial court "to
carry out the execution following strictly the terms" of the 1996 decision.
However, as earlier stated, this could not be done because Carmelo had
ceased to exist. There was no longer any Carmelo which could return
the P11,300,000.00 consideration of the 1978 sale to Equatorial as
ordered in the dispositive portion of the 1996 decision. Equatorial could
not and would not also execute the deeds returning the property to
Carmelo, as directed in the decision. Neither could the defunct Carmelo
sell the property to Mayfair at the sale price in 1978 when the right of
first refusal was violated.
Mayfair had to file a motion for partial reconsideration, emphasizing that
it was impossible for a corporation which has gone out of existence to
obey the specific orders of this Court. A resolution was, therefore,
rendered on June 25, 2001 putting an end to the controversy over the
proper implementation of the 1996 judgment.
This June 25, 2001 Resolution in G.R. No. 136221 validated the
issuance of new titles in the name of the adjudicated owner, Mayfair.
The Court ordered the direct release to Equatorial of the P11,300,000.00
deposited in court for the account of the defunct Carmelo.
In the follow-up Resolution of the First Division in G.R. No. 136221 dated
June 25, 2001, the Court, after describing the case as a Promethean
one involving the execution of a decision which has been long final, and
after calling the efforts to stave off execution as a travesty of justice,
instructed the trial court:
1. To execute the Court's Decision strictly in accordance with
the ruling in G.R. No. 106063 by validating the acts of the
sheriff of Manila and the titles in the name of Mayfair Theater,
Inc. issued by the Register of Deeds of Manila consistent
therewith;
2. In case of failure of Carmelo and Bauermann to accept the
amount of P11,300,000.00 deposited by Mayfair Theater, Inc.
with the Clerk of Court, Regional Trial Court, Manila, to
authorize the Clerk of Court to RELEASE the amount of
P11,300,000.00 deposited with the court for the account of
Carmelo and Bauermann, Inc. to petitioner;
3. To devolve upon the trial court the determination of other
issues that may remain unresolved among the parties,
relating to the execution of this Court's final decision in G.R.
No. 106063.
In light of the Court's judgments in G.R. No. 106063 and G.R. No.
136221, the present petition in G.R. No. 133879 for back rentals should
now be finally resolved, applying the rulings in those earlier decisions.
Indubitably, the 1978 deed of sale executed by Carmelo in favor of
Equatorial over the disputed property has been set aside by this Court.
Equatorial was declared a buyer in bad faith. The contract was
characterized as a fraudulent sale and the entirety of the indivisible
property sold to Equatorial was the property we ordered to be conveyed
to Mayfair for the same price paid by Equatorial to Carmelo.
It is also beyond question that the method of execution of the 1996
decision by the RTC, the direct payment by Mayfair to Equatorial,
bypassing and detouring the defunct Carmelo corporation, has been
validated by this Court. There are no longer any procedural obstacles to
the full implementation of the decision.
And finally, the property sold to Equatorial in violation of Mayfair's right
of first refusal is now indisputably possessed by, and owned and titled
in the name of, respondent Mayfair.
Parenthetically, the issue on the payment of back and increased rentals,
plus interests, was actually settled in the 1996 decision in G.R. No.
106063. It could not be enforced at the time only because of the
controversy unfortunately raised by Equatorial over the proper execution
of the 1996 decision.
It is now time to reiterate the 1996 decision on interests and settle the
dispute between Mayfair and Equatorial once and for all.
Thus, we reiterate that:
On the question of interest payments on the principal amount
of P11,300.000.00, it must be borne in mind that both Carmelo
and Equatorial acted in bad faith. Carmelo knowingly and
deliberately broke a contract entered into with Mayfair. It sold
the property to Equatorial with purpose and intent to withhold
any notice or knowledge of the sale coming to the attention of
Mayfair. All the circumstances point to a calculated and
contrived plan of non-compliance with the agreement of first
refusal.
On the part of Equatorial, it cannot be a buyer in good faith
because it bought the property with notice and full knowledge
the Mayfair had a right to or interest in the property superior
to its own. Carmelo and Equatorial took unconscientious
advantage of Mayfair.
Neither may Carmelo and Equatorial avail of consideration
based on equity which might warrant the grant of
interests. The vendor received as payment from the vendee
what, at the time, was a full and fair price for the property. It
has used the P11,300,000.00 all these years earning income
or interest from the amount. Equatorial, on the other hand, has
received rents and otherwise profited from the use of the
property turned over to it by Carmelo. In fact, during all the
years that this controversy was being litigated. Mayfair paid
rentals regularly to the buyer who had an inferior right to
purchase the property. Mayfair is under no obligation to pay
any interests arising from this judgment to either Carmelo or
Equatorial (264 SCRA 483, pp. 511-512).
Worthy quoting too is the concurring opinion in our 1996 decision of Mr.
Justice Teodoro R. Padilla as follows:
The equities of the case support the foregoing legal
disposition. During the intervening years between 1 August
1978 and this date, Equatorial (after acquiring the C.M. Recto
property for the price of P11,300,000.00) had been leasing the
property and deriving rental income therefrom. In fact, one of
the lessees in the property was Mayfair. Carmelo had, in turn,
been using the proceeds of the sale, investment-wise and/or
operation wise in its own business.
It may appear, at first blush, that Mayfair is unduly favored by the
solution submitted by this opinion, because the price of P11,300,000.00
which it has to pay Carmelo in the exercise of its right of first refusal, has
been subjected to the inroads of inflation so that its purchasing power
today is less than when the same amount was paid by Equatorial to
Carmelo. But then it cannot be overlooked that it was Carmelo's breach
of Mayfair's right of first refusal that prevented Mayfair from paying the
price of P11,300,000.00 to Carmelo at about the same time the amount
was paid by Equatorial to Carmelo. Moreover, it cannot be ignored
that Mayfair had also incurred consequential or "opportunity" losses by
reason of its failure to acquire and use the property under its right of first
refusal. In fine, any loss in purchasing power of the price of
P11,300,000.00 is for Carmelo to incur or absorb on account of its bad
faith in breaching Mayfair's contractual right of first refusal to the subject
property. (ibid., pp. 511-512).
It can be seen from the above ruling that the issue of rentals and
interests was fully discussed and passed upon in 1996. Equatorial
profited from the use of the building for all the years when it had no right
or, as stated in our decision, had an inferior right over the property.
Mayfair, which had the superior right, continued to pay rent but it was
the rate fixed in the lease contract with Carmelo. We see no reason for
us to now deviate from the reasoning given in our main decision. The
decision has been final and executory for five (5) years and petitioner
has failed to present any valid and reasonable ground to reconsider,
modify or reverse it. Let that which has been fairly adjudicated remain
final.
My second observation relates to the clever but, to my mind, deceptive
argument foisted by Equatorial on the Court.
Equatorial relies on the Civil Code provision on rescissible contracts to
bolster its claim. Its argument is that a rescissible contract remains valid
and binding upon the parties thereto until the same is rescinded in an
appropriate judicial proceeding.
Equatorial conveniently fails to state that the July 31, 1978 Deed of
Absolute Sale was between Equatorial and Carmelo only. Respondent
Mayfair was not a party to the contract. The deed of sale was
surreptitiously entered into between Carmelo and Equatorial behind the
back and in violation of the rights of Mayfair. Why should the innocent
and wronged party now be made to bear the consequences of an
unlawful contract to which it was not privy? Insofar as Equatorial and
Carmelo are concerned, their 1978 contract may have validly transferred
ownership from one to the other. But not as far as Mayfair is concerned.
Mayfair starts its arguments with a discussion of Article 1381 of the Civil
Code that contracts entered into in fraud of creditors are rescissible.
There is merit in Mayfair's contention that the legal effects are not
restricted to the contracting parties only. On the contrary, the rescission
is for the benefit of a third party, a stranger to the contract. Mayfair
correctly states that as far as the injured third party is concerned, the
fraudulent contract, once rescinded, is non-existent or void from its
inception. Hence, from Mayfair's standpoint, the deed of absolute sale
which should not have been executed in the first place by reason of
Mayfair's superior right to purchase the property and which deed was
cancelled for that reason by this Court, is legally non-existent. There
must be a restoration of things to the condition prior to the celebration of
the contract (Respondent relies on Almeda vs. J. M. & Company, 43072-
R, December 16, 1975, as cited in the Philippine Law Dictionary; IV
Arturo M. Tolentino, Civil Code of the Philippines, 570, 1990 Ed., citing
Manresa; IV Edgardo L. Paras, Civil Code of the Philippines, 717-718,
1994 Ed.).
It is hard not to agree with the explanations of Mayfair, to wit:
4.22. As a consequence of the rescission of the Deed of
Absolute Sale, it was as if Equatorial never bought and
became the lessor of the subject properties. Thus, the court a
quo did not err in ruling that Equatorial is not the owner and
does not have any right to demand back rentals from [the]
subject property.
4.23. Tolentino, supra, at 577-578 further explains that the
effects of rescission in an accion pauliana retroact to the date
when the credit or right being enforced was acquired.
"While it is necessary that the credit of the plaintiff
in the accion pauliana must be prior to the
fraudulent alienation, the date of the judgment
enforcing it is immaterial. Even if the judgment be
subsequent to the alienation, it is merely
declaratory, with retroactive effect to the date when
the credit was constituted. . ." (emphasis supplied)
4.24. The clear rationale behind this is to prevent conniving
parties, such as Equatorial and Carmelo, from benefiting in
any manner from their unlawful act of entering into a contract
in fraud of innocent parties with superior rights like Mayfair.
Thus, to allow Equatorial to further collect rentals from Mayfair
is to allow the former to profit from its own act of bad faith. Ex
dolo malo non oritur actio. (Respondent's Comment, pp. 338-
339, Rollo).
This brings me to my third and final observation in this case. This Court
emphasized in the main case that the contract of sale between
Equatorial and Carmelo was characterized by bad faith. The Court
described the sale as "fraudulent" in its 1996 decision. It stated that the
damages which Mayfair suffered are in terms of actual injury and lost
opportunities, emphasizing that Mayfair should not be given an empty or
vacuous victory. Moreover, altogether too many suits have been filed in
this case. Four separate petitions have come before us, necessitating
full length decisions in at least 3 of them. The 1996 decision stressed
that the Court has always been against multiplicity of suits.
There was bad faith from the execution of the deed of sale because
Equatorial and Carmelo affirmatively operated with furtive design or with
some motive of self-interest or ill-will or for ulterior purposes (Air France
vs. Carrascoso, 18 SCRA 166 [1966]). There was breach of a known
duty by the two parties to the unlawful contract arising from motives of
interests or ill-will calculated to cause damage to another (Lopez vs. Pan
American World Airways, 123 Phil. 264 [1966]).
The presence of bad faith is clear from the records. Our resolution of this
issue in 1996 (G.R. 106063) is res judicata.
We stated:
First and foremost is that the petitioners (referring to
Equatorial and Carmelo) acted in bad faith to render
Paragraph 8 "inutile".
xxx xxx xxx
Since Equatorial is a buyer in bad faith, this finding renders
the sale to it of the property in question rescissible. We agree
with respondent Appellate Court that the records bear out the
fact that Equatorial was aware of the lease contracts because
its lawyers had, prior to the sale, studied the said contracts.
As such Equatorial cannot tenably claim to be a purchaser in
good faith and, therefore, rescission lies.
xxx xxx xxx
As also earlier emphasized, the contract of sale between
Equatorial and Carmelo is characterized by bad faith, since it
was knowingly entered into in violation of the rights of and to
the prejudice of Mayfair. In fact, as correctly observed by the
Court of Appeals, Equatorial admitted that its lawyers had
studied the contract of lease prior to the sale. Equatorial's
knowledge of the stipulations therein should have cautioned it
to look further into the agreement to determine if it involved
stipulations that would prejudice its own interests.
xxx xxx xxx
On the part of Equatorial, it cannot be a buyer in good faith
because it bought the property with notice and full knowledge
that Mayfair had a right to or interest in the property superior
to its own. Carmelo and Equatorial took unconscientious
advantage of Mayfair (264 SCRA 506, 507-511).
We ruled that because of bad faith, neither may Carmelo and Equatorial
avail themselves of considerations based on equity which might warrant
the grant of interests and, in this case, unconscionably increased
rentals.
Verily, if Mayfair were a natural person it could very well have asked for
moral damages instead of facing a lengthy and expensive suit to pay
rentals many times higher than those stipulated in the contract of lease.
Under the Civil Code, Mayfair is the victim in a breach of contract where
Carmelo and Equatorial acted fraudulently and in bad faith.
Considering the judgments in our 3 earlier decisions, Mayfair is under
no obligation to pay any interests, whether based on law or equity, to
Carmelo or Equatorial. Mayfair is the wronged entity, the one which has
suffered injury since 1978 or for the 23 years it was deprived of the
property.
Equatorial has received rentals and other benefits from the use of the
property during these 23 years, rents and benefits which would have
accrued to Mayfair if its rights had not been violated.
There is no obligation on the part of respondent Mayfair to pay any
increased, additional, back or future rentals or interests of any kind to
petitioner Equatorial under the circumstances of this case.
I, therefore, concur with the majority opinion in denying due course and
dismissing the petition.
Puno and Mendoza, JJ., concur.
Dissenting Opinion
VITUG, J., dissenting:
Civil Law, in its usual sophistication, classifies defective contracts (unlike
the seemingly generic treatment in Common Law), into, first, the
rescissible contracts,1 which are the least infirm; followed by, second,
the voidable contracts;2 then, third, the unenforceable contracts;3 and,
finally, fourth, the worst of all or the void contracts.4 In terms of their
efficaciousness, rescissible contracts are regarded, among the four, as
being the closest to perfectly executed contracts. A rescissible contract
contains all the requisites of a valid contract and are considered legally
binding, but by reason of injury or damage to either of the contracting
parties or to third persons, such as creditors, it is susceptible to
rescission at the instance of the party who may be prejudiced thereby.
A rescissible contract is valid, binding and effective until it is rescinded.
The proper way by which it can be assailed is by an action for rescission
based on any of the causes expressly specified by law.5
The remedy of rescission in the case of rescissible contracts under
Article 1381 is not to be confused with the remedy of rescission, or more
properly termed "resolution," of reciprocal obligations under Article 1191
of the Civil Code. While both remedies presuppose the existence of a
juridical relation that, once rescinded, would require mutual restitution, it
is basically, however, in this aspect alone when the two concepts
coincide.
Resolution under Article 1191 would totally release each of the obligors
from compliance with their respective covenants. It might be worthwhile
to note that in some cases, notably Ocampo vs. Court of
Appeals,6 and Velarde vs. Court of Appeals,7 where the Court referred
to rescission as being likened to contracts which are deemed "void at
inception," the focal issue is the breach of the obligation involved that
would allow resolution pursuant to Article 1191 of the Civil Code. The
obvious reason is that when parties are reciprocally bound, the refusal
or failure of one of them to comply with his part of the bargain should
allow the other party to resolve their juridical relationship rather than to
leave the matter in a state of continuing uncertainty. The result of the
resolution, when decreed, renders the reciprocal obligations inoperative
"at inception."
Upon the other hand, the rescission of a rescissible contract under
Article 1381, taken in conjunction with Article 1385, is a relief which the
law grants for the protection of a contracting party or a third person from
injury and damage that the contract may cause, or to protect some
incompatible and preferent right created by the contract.8Rescissible
contracts are not void ab initio, and the principle, "quod nullum est
nullum producit effectum," in void and inexistent contracts is
inapplicable. Until set aside in an appropriate action rescissible
contracts are respected as being legally valid, binding and in force. It
would be wrong to say that rescissible contracts produce no legal effects
whatsoever and that no acquisition or loss of rights could meanwhile
occur and be attributed to the terminated contract. The effects of the
rescission, prospective in nature, can come about only upon its proper
declaration as such.
Thus when the Court9 held the contract to be "deemed rescinded" in
G.R. No. 106063, the Court did not mean a "declaration of nullity" of the
questioned contract. The agreement between petitioner and Carmelo
being efficacious until rescinded, validly transferred ownership over the
property to petitioner from the time the deed of sale was executed in a
public instrument on 30 July 1978 up to the time that the decision in G.R.
No. 106063 became final on 17 March 1997. It was only from the latter
date that the contract had ceased to be efficacious. The fact that the
subject property was in the hands of a lessee, or for that matter of any
possessor with a juridical title derived from an owner, would not preclude
a conferment of ownership upon the purchaser nor be an impediment
from the transfer of ownership from the seller to the buyer. Petitioner,
being the owner of the property (and none other) until the judicial
rescission of the sale in its favor, was entitled to all incidents of
ownership inclusive of, among its other elements, the right to the fruits
of the property. Rentals or rental value over that disputed property from
30 July 1978 up to 17 March 1997 should then properly pertain to
petitioner. In this respect, the much abused terms of "good faith" or "bad
faith " play no role; ownership, unlike other concepts, is never described
as being either in good faith or in bad faith.
With all due respect, I am thus unable to join in this instance my
colleagues in the majority.
Kapunan and De Leon, Jr., JJ., concur.
Dissenting Opinion
SANDOVAL-GUTIERREZ, J., dissenting:
"Stare decisis et non quieta movere follow past precedents and do
not disturb what has been settled. Adherence to this principle is
imperative if this Court is to maintain stability in jurisprudence.
I regret that I am unable to agree with the majority opinion.
The principal issue in this case is whether a rescissible contract is void
and ineffective from its inception. This issue is not a novel one. Neither
is it difficult to resolve as it involves the application of elementary
principles in the law on contracts, specifically on rescissible contracts,
as distinguished from void or inexistent contracts.
The facts are simple.
On June 1, 1967, respondent Mayfair Theater, Inc. (Mayfair) leased
portions of the ground, mezzanine and second floors of a two storey
commercial building located along C.M. Recto Avenue Manila. The
building together with the land on which it was constructed was then
owned by Carmelo & Bauermann, Inc. (Carmelo). Respondent used
these premises as "Maxim Theater." The lease was for a period of
twenty (20) years.
On March 31, 1969, Mayfair leased from Carmelo another portion of the
second floor, as well as two (2) store spaces on the ground and
mezzanine floors of the same building. Respondent Mayfair used the
premises as a movie theater known as "Miramar Theater."
Both leases contained the following identical provisions:
"That if the LESSOR should desire to sell the leased
premises, the LESSEE shall be given 30-days exclusive
option to purchase the same.
In the event, however, that the leased premises is sold to
someone other than the LESSEE, the LESSOR is bound and
obligated, as it hereby binds and obligates itself, to stipulate
in the Deed of Sale thereof that the purchaser shall recognize
this lease and be bound by all the terms and conditions
thereof.
On July 31, 1978, Carmelo entered into a Deed of Absolute Sale
whereby it sold the subject land and two-storey building to petitioner
Equatorial Realty Development, Inc. (Equatorial) for P11,300,000.00.
Having acquired from Carmelo ownership of the subject property,
Equatorial received rents from Mayfair for sometime.
Subsequently, Mayfair, claiming it had been denied its right to purchase
the leased property in accordance with the provisions of its lease
contracts with Carmelo, filed with the Regional Trial Court, Branch 7,
Manila, a suit for specific performance and annulment of sale with prayer
to enforce its "exclusive option to purchase" the property. The dispute
between Mayfair, on the one hand, and Carmelo and Equatorial on the
other, reached this Court in G.R. No. 106063, "Equatorial Realty
Development, Inc. & Carmelo & Bauermann, Inc. vs. Mayfair Theater,
Inc."1 On November 21, 1996, this Court rendered a Decision, the
dispositive portion of which reads:
"WHEREFORE, the petition for review of the decision of the
Court of Appeals, dated June 23, 1992, in CA-G.R. CV No.
32918, is HEREBY DENIED. The Deed of Absolute Sale
between petitioners Equatorial Realty-Development, Inc. and
Carmelo & Bauermann, Inc. is hereby deemed rescinded;
Carmelo & Bauermann is ordered to return to petitioner
Equatorial Realty Development the purchase price. The latter
is directed to execute the deeds and documents necessary to
return ownership to Carmelo & Bauermann of the disputed
lots. Carmelo & Bauermann is ordered to allow Mayfair
Theater, Inc. to buy the aforesaid lots for P11,300,000.00.
SO ORDERED."
The Decision of this Court in G.R. No. 106063 became final and
executory on March 17, 1997.
On April 25, 1997, Mayfair filed with the trial court a motion for execution
which was granted.
However, Carmelo could no longer be located. Thus, Mayfair deposited
with the trial court its payment to Carmelo in the sum of P11,300,000.00
less P847,000.00 as withholding tax.
The Clerk of Court of the Manila Regional Trial Court, as sheriff,
executed a deed of re-conveyance in favor of Carmelo and a deed of
sale in favor of Mayfair. On the basis of these documents, the Registry
of Deeds of Manila cancelled Equatorial's titles and issued new
Certificates of Title2 in the name of Mayfair.
In G.R. No. 136221,3 "Equatorial Realty Development, Inc. vs. Mayfair
Theater, Inc.," this Court instructed the trial court to execute strictly this
Court's Decision in G.R. No. 106063.
On September 18, 1997, or after the execution of this Court's Decision
in G.R. No. 106063, Equatorial filed with the Regional Trial Court of
Manila, Branch 8, an action for collection of a sum of money against
Mayfair, docketed as Civil Case No. 97-85141. Equatorial prayed that
the trial court render judgment ordering Mayfair to pay:
(1) the sum of P11,548,941.76 plus legal interest,
representing the total amount of unpaid monthly
rentals/reasonable compensation from June 1, 1987 (Maxim
Theater) and March 31,1989 (Miramar Theater) to July 31,
1997;
(2) the sums of P849,567.12 and P458,853.44 a month, plus
legal interest, as rental/reasonable compensation for the use
and occupation of the subject property from August 1, 1997 to
May 31, 1998 (Maxim Theater) and March 31, 1998 (Miramar
Theater);
(3) the sum of P500,000.00 as and for attorney's fees, plus
other expenses of litigation; and
(4) the costs of the suit.4
On October 14, 1997, before filing its answer, Mayfair filed a "Motion to
Dismiss" Civil Case No. 97-85141 on the following grounds:
"(A)
PLAINTIFF IS GUILTY OF FORUM SHOPPING.
(B)
PLAINTIFF'S CAUSE OF ACTION, IF ANY, IS BARRED BY PRIOR
JUDGMENT."5
On March 11, 1998, the court a quo issued an order dismissing Civil
Case No. 97-85141 on the ground that since this Court, in G.R. No.
106063, rescinded the Deed of Absolute Sale between Carmelo and
Equatorial, the contract is void at its inception. 6 Correspondingly,
Equatorial is not the owner of the subject property and, therefore, does
not have any right to demand from Mayfair payment of rentals or
reasonable compensation for its use and occupation of the premises.
Equatorial filed a motion for reconsideration but was denied.
Hence, the present petition.
At this stage, I beg to disagree with the ruling of the majority that (1)
Equatorial did not acquire ownership of the disputed property from
Carmelo because of lack of delivery; and that (2) Equatorial is not
entitled to the payment of rentals because of its bad faith.
Firmly incorporated in our Law on Sales is the principle that ownership
is transferred to the vendee by means of delivery, actual or
constructive.7 There is actual delivery when the thing sold is placed in
the control and possession of the vendee.8 Upon the other hand, there
is constructive delivery when the delivery of the thing sold is represented
by other signs or acts indicative thereof. Article 1498 of the Civil Code is
in point. It provides that "When the sale is made through a public
instrument, the execution thereof shall be equivalent to the delivery of
the thing which is the object of the contract, if from the deed the contrary
does not appear or cannot clearly be inferred."9
Contrary to the majority opinion, the facts and circumstances of the
instant case clearly indicate that there was indeed actual and
constructive delivery of the disputed property from Carmelo to
Equatorial.
Let me substantiate my claim.
First, I must take exception to the majority's statement that this Court
found in G.R. No. 10606310 that, "no right of ownership was transferred
from Carmelo to Equatorial in view of a patent failure to deliver the
property to the buyer."11
A perusal of the Decision dated November 21, 1996 would reveal
otherwise.
To say that this Court found no transfer of ownership between Equatorial
and Carmelo is very inaccurate. For one, this Court, in disposing of G.R.
No. 106063, explicitly ordered Equatorial to "execute the deeds and
documents necessary to return ownership to Carmelo & Bauermann of
the disputed lots."12 I suppose this Court would not have made such an
order if it did not recognize the transfer of ownership from Carmelo to
Equatorial under the contract of sale. For why would the Court order
Equatorial to execute the deeds and documents necessary to return
ownershipto Carmelo if, all along, it believed that ownership remained
with Carmelo?
Furthermore, is Court explicitly stated in the Decision that Equatorial
received rentals from Mayfair during the pendency of the case. Let me
quote the pertinent portion of the Decision, thus:
". . . Equatorial, on the other hand, has received rents and
otherwise profited from the use of the property turned over to
it by Carmelo. In fact, during all the years that this controversy
was being litigated, Mayfair paid rentals regularly to the buyer
(Equatorial) who had an inferior right to purchase the property.
Mayfair is under no obligation to pay any interests arising from
this judgment to either Carmelo or Equatorial."13
Justice Teodoro R. Padilla, in his Separate Opinion, made the following
similar observations:
"The equities of the case support the foregoing legal
disposition. During the intervening years between 1 August
1978 and this date, Equatorial (after acquiring the C.M. Recto
property for the price of P11,300,000.00) had been leasing the
property and deriving rental income therefrom. In fact, one of
the lessees in the property was Mayfair. Carmelo had, in turn,
been using the proceeds of the sale, investment-wise and/or
operation-wise in its own business."14
Obviously, this Court acknowledged the delivery of the property from
Carmelo to Equatorial. As aptly described by Justice Panganiban
himself, the sale between Carmelo and Equatorial had not only been
"perfected" but also "consummated".15
That actual possession of the property was turned over by Carmelo to
Equatorial is clear from the fact that the latter received rents from
Mayfair. Significantly, receiving rentals is an exercise of actual
possession. Possession, as defined in the Civil Code, is the holding of
a thing or the enjoyment of a right.16 It may either be by material
occupation or by merely subjecting the thing or right to the action of our
will.17 Possession may therefore be exercised through one's self or
through another.18 It is not necessary that the person in possession
should himself be the occupant of the property, the occupancy can be
held by another in the name of the one who claims possession. In the
case at bench, Equatorial exercised possession over the disputed
property through Mayfair. When Mayfair paid its monthly rentals to
Equatorial, the said lessee recognized the superior right of Equatorial to
the possession of the property. And even if Mayfair did not recognize
Equatorial's superior right over the disputed property, the fact remains
that Equatorial was then enjoying the fruits of its possession.
At this juncture, it will be of aid to lay down the degrees of possession.
The first degree is the mere holding, or possession without title
whatsoever, and in violation of the right of the owner. Here, both the
possessor and the public know that the possession is wrongful. An
example of this is the possession of a thief or a usurper of land.
The second is possession with juridical title, but not that of ownership.
This is possession peaceably acquired, such that of a tenant, depositary,
or pledge. The third is possession with a just title, or a title sufficient to
transfer ownership, but not from the true owner. An example is the
possession of a vendee of a piece of land from one who pretends to be
the owner but is in fact not the owner thereof. And the fourth is
possession with a just title from the true owner. This is possession that
springs from ownership.19 Undoubtedly, Mayfair's possession is by
virtue of juridical title under the contract of lease, while that of Equatorial
is by virtue of its right of ownership under the contract of sale.
Second, granting arguendo that there was indeed no actual delivery,
would Mayfair's alleged "timely objection to the sale and continued
actual possession of the property" constitute an "impediment" that may
prevent the passing of the property from Carmelo to Equatorial?20
I believe the answer is no.
The fact that Mayfair has remained in "actual possession of the
property," after the perfection of the contract of sale between Carmelo
and Equatorial up to the finality of this Court's Decision in G.R. No.
106063 (and even up to the present), could not prevent the
consummation of such contract. As I have previously intimated,
Mayfair's possession is not under a claim of ownership. It cannot in any
way clash with the ownership accruing to Equatorial by virtue of the sale.
The principle has always been that the one who possesses as a mere
holder acknowledges in another a superior right or right of ownership. A
tenant possesses the thing leased as a mere holder, so does the
usufructuary of the thing in usufruct; and the borrower of the thing loaned
in commodatum. None of these holders asserts a claim of ownership in
himself over the thing. Similarly, Mayfair does not claim ownership, but
only possession as a lessee with the prior right to purchase the property.
In G.R. No. 106063, Mayfair's main concern in its action for specific
performance was the recognition of its right of first refusal. Hence, the
most that Mayfair could secure from the institution of its suit was to be
allowed to exercise its right to buy the property upon rescission of the
contract of sale. Not until Mayfair actually exercised what it was allowed
to do by this Court in G.R. No. 106063, specifically to buy the disputed
property for P11,300,000.00, would it have any right of ownership. How
then, at that early stage, could Mayfair's action be an impediment in the
consummation of the contract between Carmelo and Equatorial?
Pertinently, it does not always follow that, because a transaction is
prohibited or illegal, title, as between the parties to the transaction, does
not pass from the seller, donor, or transferor to the vendee, donee or
transferee.21
And third, conformably to the foregoing disquisition, I maintain that
Equatorial has the right to be paid whatever monthly rentals during the
period that the contract of sale was in existence minus the rents already
paid. In Guzman v. Court of Appeals,22 this Court decreed that upon the
purchase of the leased property and proper notice by the vendee, the
lessee must pay the agreed monthly rentals to the new owner since, by
virtue of the sale the vendee steps into the shoes of the original lessor
to whom the lessee bound himself to pay. His belief that the subject
property should have been sold to him does not justify the unilateral
withholding of rental payments due to the new owner of the property.23 It
must be stressed that under Article 1658 of the Civil Code, there are only
two instances wherein the lessee may suspend payment of rent, namely:
in case the lessor fails to make the necessary repairs or to maintain the
lessee in peaceful and adequate enjoyment of the property leased. 24 In
this case, the fact remains that Mayfair occupied the leased property. It
derived benefit from such occupation, thus, it should pay the
corresponding rentals due. Nemo cum alterius detrimento locupletari
potest. No one shall enrich himself at the expense of another. 25
Neither should the presence of bad faith prevent the award of rent to
Equatorial. While Equatorial committed bad faith in entering into the
contract with Camelo, it has been equitably punished when this Court
rendered the contract rescissible. That such bad faith was the very
reason why the contract was declared rescissible is evident from the
Decision itself.26 To utilize it again, this time, to deprive Equatorial of its
entitlement to the rent corresponding to the period during which the
contract was supposed to validly exist, would not only be unjust, it would
also disturb the very nature of a rescissible contract.
Let me elucidate on the matter.
Articles 1380 through 1389 of the Civil Code deal with rescissible
contracts. A rescissible contract is one that is validly entered into, but is
subsequently terminated or rescinded for causes provided for by law.
This is the clear implication of Article 1380 of the same Code which
provides:
"Art. 1380. Contracts validly agreed upon may be rescinded
in the cases established by law."
Rescission has been defined as follows:
"Rescission is a remedy granted by law to the contracting
parties and even to third persons, to secure the reparation of
damages caused to them by a contract, even if this should be
valid, by means of the restoration of things to their condition
at the moment prior to the celebration of said contract. It is a
relief for the protection of one of the contracting parties and
third persons from all injury and damage the contract may
cause, or to protect some incompatible and preferential right
created by the contract. It implies a contract which, even if
initially valid, produces a lesion or pecuniary damage to
someone. It sets aside the act or contract for justifiable
reasons of equity."27
Necessarily, therefore, a rescissible contract remains valid and binding
upon the parties thereto until the same is rescinded in an appropriate
judicial proceeding.
On the other hand, a void contract, which is treated in Articles 1409
through 1422 of the Civil Code, is inexistent and produces no legal effect
whatsoever. The contracting parties are not bound thereby and such
contract is not subject to ratification.
In dismissing petitioner Equatorial's complaint in Civil Case No. 97-
85141, the trial court was apparently of the impression that a rescissible
contract has the same effect as a void contract, thus:
"However, the words in the dispositive portion of the Supreme
Court "is hereby deemed rescinded" does not allow any other
meaning. The said Deed of Absolute Sale is void at its
inception.
xxx xxx xxx
The subject Deed of Absolute Sale having been rescinded by
the Supreme Court, Equatorial is not the owner and does not
have any right to demand back rentals from subject property.
The law states that only an owner can enjoy the fruits of a
certain property or jus utendi which includes the right to
receive from subject property what it produces, . . ."
The trial court erred. In G.R. No. 106063 (involving Mayfair's suit for
specific performance), this Court clearly characterized the Deed of
Absolute Sale between Carmelo and petitioner Equatorial as a
rescissible contract. We stated therein that:
"Since Equatorial is a buys in bad faith. this finding renders
the sale to it of the property in question rescissible. We agree
with respondent Appellate Court that the records bear out the
fact that Equatorial was aware of the lease contracts because
its lawyers had, prior to the sale, studied the said contracts.
As such, Equatorial cannot tenably claim to be a purchaser in
good faith, and therefore, rescission lies."
This Court did not declare the Deed of Absolute Sale between Carmelo
and Equatorial void but merely rescissible. Consequently, the contract
was, at inception, valid and naturally, it validly transferred ownership of
the subject property to Equatorial. It bears emphasis that Equatorial was
not automatically divested of its ownership. Rather, as clearly directed
in the dispositive portion of our Decision, Carmelo should return the
purchase price to Equatorial which, in turn, must execute such deeds
and documents necessary to enable Carmelo to reacquire its ownership
of the property.
As mentioned earlier, Mayfair deposited with the Regional Trial Court,
Branch 7, Manila, the purchase price of P10,452,000.00
(P11,300,000.00 less P847,000.00 as withholding tax). In turn, the Clerk
of Court executed the deed of sale of the subject property in favor of
Mayfair.
In the meantime, Mayfair has continued to occupy and use the premises,
the reason why Equatorial filed against it Civil Case No. 97-85141 for
sum of money representing rentals and reasonable compensation.
At this point, I must reiterate that Equatorial purchased the subject
property from Carmelo and became its owner on July 31, 1978. While
the contract of sale was "deemed rescinded" by this Court in G.R. No.
106063, nevertheless the sale had remained valid and binding between
the contracting parties until March 17, 1997 when the Decision in G.R.
No. 106063 became final. Consequently, being the owner, Equatorial
has the right to demand from Mayfair payment of rentals corresponding
to the period from July 31, 1978 up to March 17, 1997.
Records show that the rentals and reasonable compensation which
Equatorial demands from Mayfair are those which accrued from the year
1987 to 1998. As earlier stated, prior thereto, Mayfair had been paying
the rents to Equatorial.
In line with this Court's finding that Equatorial was the owner of the
disputed property from July 31, 1978 to March 17, 1997, it is, therefore,
entitled to the payment of rentals accruing to such period.
Consequently, whether or not Mayfair paid Equatorial the rentals
specified in the lease contracts from June 1, 1987 to March 17, 1997 is
for the trial court to resolve.
One last word. In effect, the majority have enunciated that:
1. A lessor, in a contract of sale, cannot transfer ownership of
his property, occupied by the lessee, to the buyer because
there can be no delivery of such property to the latter; and
2. Not only a possessor, but also an owner, can be in bad
faith.
I cannot subscribe to such doctrines.
WHEREFORE, I vote to GRANT the petition.
GUADALUPE GONZALEZ and LUIS GOMEZ vs. E.J. HABERER.
OSTRAND, J.:
This action is brought to recover the sum of P34,260 alleged to be due
the plaintiffs from the defendant upon a written agreement for the sale
of a tract of land situated in the Province of Nueva Ecija. The plaintiffs
also ask for damages in the sum of P10,000 for the alleged failure of the
defendant to comply with his part of the agreement.
The defendant in his answer admits that of the purchase price stated in
the agreement a balance of P31,000 remains unpaid, but by way of
special defense, cross-complaint and counter-claim alleges that at the
time of entering into the contract the plaintiffs through false
representations lead him to believe that they were in possession of the
land and that the title to the greater portion thereof was not in dispute;
that on seeking to obtain possession he found that practically the entire
area of the land was occupied by adverse claimants and the title thereto
disputed; that he consequently has been unable to obtain possession of
the land; and that the plaintiffs have made no efforts to prosecute the
proceedings for the registration of the land. He therefore asks that the
contract be rescinded; that the plaintiffs be ordered to return to him the
P30,000 already paid by him to them and to pay P25,000 as damages
for breach of the contract.
The court below dismissed the plaintiffs' complaint, declared the contract
rescinded and void and gave the defendant judgment upon his
counterclaim for the sum of P30,000, with interest from the date upon
which the judgment becomes final. The case is now before this court
upon appeal by the plaintiffs from that judgment.
The contract in question reads as follows:
Know all men by these presents:
That I, Guadalupe Gonzalez y Morales de Gomez, married
with Luis Gomez, of age, and resident of the municipality of
Bautista, Province of Pangasinan, Philippine Islands, do
hereby state:
1. That I am the absolute and exclusive owner of a parcel of
land situated in the barrio of Partida, municipality of Guimba,
Nueva Ecija, described as follows:
Bounded on the north by the land of Don Marcelino Santos;
on the east, by the land of Doa Cristina Gonzalez; on the
south by the Binituan River; and on the west, by the land of
Doa Ramona Gonzalez; containing an area of 488 hectares
approximately.
2. That an application was filed for the registration of the
above described land in the registry of property of Nueva
Ecija, which application is still pending in the Court of First
Instance of Nueva Ecija.
3. That in consideration of the sum of P125 per hectare I do
hereby agree and bind myself to sell and transfer by way of
real and absolute sale the land above described to Mr. E.J.
Habere, binding myself to execute the deed of sale
immediately after the decree of the court adjudicating said
land in my favor is registered in the registry of property of the
Province of Nueva Ecija. The condition of this obligation to sell
are as follows:
"1. That Mr. E.J. Haberer has at this moment paid
me the sum of P30,000 on account of the price of
the aforesaid land.
"2. That said Mr. E.J. Haberer agrees and binds
himself to pay within six months from the date of the
execution of this document the unpaid balance of
the purchase price.
"3. That said Mr. E.J. Haberer shall have the right
to take possession of the aforesaid land
immediately after the execution of this document
together with all the improvements now existing on
the same land, such as palay plantation and others.
"4. That said Mr. E.J. agrees and binds himself to
pay the expenses to be incurred from this date in
the registration of the aforesaid land up to the filing
of the proper decree in the office of the register of
deeds of the Province of Nueva Ecija.
"5. That in the event that the court should hold that
I am not the owner of all or any part of the aforesaid
land, I agree and bind myself to return without
interest all such amounts of money as I have
received or may receive from Mr. E.J. Haberer as
the purchase price of said land, but, in the event
that the court should adjudicate a part of the
aforesaid land to me, then I agree and bind myself
to sell said portion adjudicated to me, returning all
the amounts received from Mr. E.J. Haberer in
excess of the price of said portion at the rate of
P125 per hectare.
"6. The Mr. E.J. Haberer does hereby waive any
interest or indemnity upon the amount that I am to
return to him and which I have receive from Mr. E.J.
Haberer as the purchase price of the aforesaid
land."
I, E.J. Haberer, married, of age, and resident of the
municipality of Talavera, Nueva Ecija, do hereby state that,
having known the contents of this document, I accept the
same with all the stipulations and conditions thereof.
I, Luis Gomez, married, of age, and resident of the
municipality of Bautista, Province of Pangasinan, do hereby
grant my wife, Da. Guadalupe Gonzalez y Morales de
Gomez, the due marital license to execute this document and
make effective the definite sale of the land as above
stipulated, she being empowered to execute the deed of sale
and other necessary documents in order that the full
ownership over the aforesaid land may be transferred to Mr.
E.J. Haberer, as stipulated in this document.
In testimony whereof, we hereunto set our hands at Manila,
this 7th day of July, 1920.
(Sgd.) GUADALUPE G. DE GOMEZ
E.J. HABERER
LUIS GOMEZ
Signed in the presence of the witnesses:
(Sgd.) EMIGDIO DOMINGO
L.G. ALVAREZ
(Acknowledged before notary.)
It is conceded by the plaintiffs that the defendant never obtained actual
or physical possession of the land, but it is argued that under the
contract quoted the plaintiffs were under no obligation to place him in
possession. This contention cannot be sustained. Cause 3 of paragraph
3 of the contract gave the defendant the right to take possession of the
land immediately upon the execution of the contract and necessarily
created the obligation on the part of the plaintiffs to make good the right
thus granted; it was one of the essential conditions of the agreement
and the failure of the plaintiffs to comply with this condition, without fault
on the part of the defendant, is in itself sufficient ground for the
rescission, even in the absence of any misrepresentation on their part.
(Civil Code, art. 1124 ; Pabalan vs. Velez, 22 Phil., 29.)
It is therefore unnecessary to discuss the question whether the
defendant was induced to enter into the agreement through
misrepresentation made by the plaintiff Gomez. We may say, however,
that the evidence leaves no doubt that some misrepresentations were
made and that but for such misrepresentations the defendant would not
have been likely to enter into the agreement in the form it appeared. As
to the contention that the plaintiff Gonzalez cannot be charged with the
misrepresentations of Gomez, it is sufficient to say that the latter in
negotiating for the sale of the land acted as the agent and representative
of the other plaintiff, his wife; having accepted the benefit of the
representations of her agent she cannot, of course, escape liability for
them. (Haskell vs. Starbird, 152 Mass., 117; 23 A.S.R., 809.)
The contention of the appellants that the symbolic delivery effected by
the execution and delivery of the agreement was a sufficient delivery of
the possession of the land, is also without merit. The possession
referred to in the contract is evidently physical; if it were otherwise it
would not have been necessary to mention it in the contract.
(See Cruzado vs. Bustos and Escaler, 34 Phil., 17.)
The judgment appealed from is in accordance with the law, is fully
sustained by the evidence, and is therefore affirmed, with the costs
against the appellants. So ordered.
FRANCISCO GUTIERREZ REPIDE vs. IVAR O. AFZELIUS and his
wife, PATROCINIO R. AFZELIUS
MALCOLM, J.:
The subject of Specific Performance, with reference to its common law
and civil law status, it to be considered on this appeal. The particular
action is for the specific performance of a contract for the sale and
purchase of real estate.
The plaintiff is the owner of a certain parcel of realty consisting of
2,695.24 square meters, situated in the city of Manila, and fully
described in the complaint. About the month of December, 1916, the
defendants made a proposition to the plaintiff for the purchase of this
property. After negotiating for some time, it was agreed that the
defendants would pay plaintiff the sum of P10,000 for the land, P2,000
of which was to be handed over upon the signing of the deed, and the
balance of P8,000, paid in monthly installments of P150. The property
was to be mortgaged to the plaintiff to secure the payment of this
balance of P8,000. The plaintiff proceeded to have survey made of the
land and to prepare the deed and mortgage. Expenses to the amount of
P83.93 were incurred for these purposes. The deed was ready about
December 28, 1916, when the defendants were notified to appear and
sign the same. They failed to do this, and instead, the defendant,
Patrocinio R. Afzelius, wrote a letter to plaintiff, as follows:
MANILA, January 3, 1917.
MR. FRANCISCO GUTIERREZ,
Manila.
MY DEAR SIR: It is with regret that I inform you that it is now absolutely
impossible for us to effect the purchase of the property at Juan Luna
Street, as it was our desire to do. The reason for this is that the business
has failed, in which we had invested all the money we had and from
which he hope to obtain sure gains and to get the P2,000 which we were
to give you in advance for the purchase of said property, and
consequently, we have lost our savings and our hope of being able to
purchase the property for the time being.
Before closing, I request you to pardon us for the troubles we have
caused you, for, in truth, we acted in good faith, but, as you will readily
realize, without having the P2,000 in our hands, it will be impossible for
us to effect the purchase.
Reiterating my request that you pardon us for all the trouble, I am
Very truly yours.
(Sgd.) PATROCINIO R. AFZELIUS.
In addition to the letter above quoted, Afzelius testified on the trial that
although he and his wife had available the sum of P2,000 to pay the first
installment on the purchase price of the land, yet it belonged in part to
his wife's sister, and that, as she subsequently needed the money for
something else, they had to return it to her, and in order to give excuses
to the plaintiff, his wife wrote this letter to the plaintiff.
Plaintiff was, and still is, willing to execute the deed in accordance with
the terms agreed upon with the defendants. Accordingly, plaintiff, in his
action in the Court of First Instance of the city of Manila, asked judgment
against the defendants condemning them to sign the deed and mortgage
to the land in question, and to pay the purchase price stipulated, with
costs. The defendants filed a general denial, alleging that the plaintiff
has not sustained damages of any kind or character, and praying that
the case be dismissed at the cost of the plaintiff. The trial court, after
finding the facts as herein stated, made application thereto of the law of
Specific Performance. After stating the general principles of this branch
of the law, the court deduced therefrom that the remedy by specific
performance is one the granting or denying of which rests in the exercise
of sound judicial discretion. The court said:
Whether or not the defendants are able to perform the contract is a
matter of defense, and there is no special defense on that subject in the
answer; but it appears from the evidence that the defendants have not
the funds available for the cash payment on the contract, and apparently
the performance of the contract in the terms agreed between the plaintiff
and defendants would be impracticable; the court would not be able to
enforce a decree for specific performance, and such a decree might
operate as a great hardship upon the defendants; therefore, the court is
of the opinion that it would be useless, unjust and inequitable to render
judgment herein for specific performance.
The judgment then was in favor of the defendants, dismissing the
plaintiff's complaint, without prejudice to any other remedy which the
plaintiff might have, and without any finding as to the costs.
The plaintiff and appellant bases his argument on articles 1254, 1258,
1278, 1450, and 1279 of the Civil Code. The provisions of the five
articles first cited and others that could be mentioned merely tend to
corroborate what is self-evident, namely, the existence of a valid
contract between the parties. Indisputably, there has been an offer and
an acceptance, and all that remained to effectuate the contract was the
execution of the deed and the mortgage.
The article of the Civil code chiefly relied upon by appellant, No. 1279,
would seem to settle favorably the first branch of the prayer of the
complaint, asking that the defendants be required to sign the deed and
mortgage to the land in question. This article of the Civil Code appears
to have been prepared to meet exactly such a situation, to the end that
the contracting parties can reciprocally compel the observance of the
necessary formalities.
Other portions of the Civil Code not called to our attention by the
appellant, notably articles 1096, 1098, 1124 and 1451, recognize what
is denominated in the common law as Specific Performance. Article
1451 provides that, "A promise to sell or buy, when there is an
agreement as to the thing and the price, entitles the contracting parties
reciprocally to demand the fulfillment of the contract." But the article in
recognition of a negative result also provides, "whenever the promise to
purchase and sell cannot be fulfilled, the provisions relative to
obligations and contracts, contained in this book, shall be applicable in
the respective cases to the vendor and the vendee." Turning to these
provisions relating to obligations and contracts, we find article 1096
making a distinction between a specific thing to be delivered and an
indeterminate or generic thing; article 1098 providing that a person is
obligated to do a certain thing according to the tenor of the obligation;
and finally, article 1124 in absolute approval of contractual mutually
decreeing that "the person prejudiced may choose between exacting the
fulfillment of the obligation or its resolution with indemnity for damages
and payment of interest in either cases."
As to whether the vendor can compel the vendee to perform, which is
the point before the court, the jurisprudence of the supreme court of
Spain and the commentaries of Manresa do not in the least attempt to
distinguish between one or the other party, the vendor or the vendee,
but constantly and without exception use the word "reciprocamente." the
following decisions of the supreme court of Spain interpretative of these
articles can be noted: April 17, 1897; October 10, 1904; February 4,
1905.
The vendee is entitled to specific performance essentially as a matter of
course. Philippine cases have so held. (Irureta Goyena vs. Tambunting
[1902], 1 Phil., 490; Thunga Chui vs. Que Bentec [1903], 2 Phil., 561;
Couto Soriano vs. Cortes [1907, 8 Phil., 459; Dievas vs. Co Chongco
[1910], 16 Phil., 447.) If the doctrine of mutuality of remedy is to apply,
the vendor should likewise be entitled to similar relief. Philippine
jurisprudence, however, has never as yet been afforded an opportunity
to so hold. The nearest approach to the idea has been, with reference
to merchandise, in a decision to the effect that if the purchaser refuses
without lawful reason to accept delivery when tendered by the seller in
conformity with the contract of sale, the seller may elect to enforce
compliance or to rescind. (Matutevs. Cheong Boo [1918], 37 Phil., 372.)
Thus far, in this opinion we have discussed the question of whether the
vendor as well as the vendee is entitled to the specific performance of
the contract for the sale of land, from the standpoint of the civil law. Now,
of course, specific performance of contracts is, under this name, an
equitable remedy. As such, since there exist no courts of equity and no
equity jurisprudence in this jurisdiction, the authority arising from the
common law is not of binding force in the Philippines. Nevertheless, as
the civil law and the common law seem to arrive at the same goal on this
subject, we should at least notice as persuasive authority the
jurisprudence of the United States and Great Britain.
The American and English cases that relate to specific performance by
the vendor are with a few exceptions all one way. In the language of
Chief Justice Marshall, "The right of a vendor to come into a court of
equity to enforce a specific performance is unquestionable."
(Cathcart vs. Robinson [1831], 5 Pet., 264.) The rule in nearly all
jurisdictions is that specific performance may be had at the suit of the
vendor of land, the vendee being decreed to accept the deed and pay
the purchase price. (Freeman vs. Paulson [1909], 107 Minn., 64;
Migatz vs. Stieglitz [1905], 166 Ind., 362; Robinson vs. Appleton [1888],
124 Ill., 276; Hodges vs.Kowing [1889], 58 Conn., 12; Curtis Land &
Loan Co. vs. Interior Land Co. [1908], 137 Wis., 341; The Maryland Clay
Co. vs. Simpers [1903], 96 Md., 1; Old Colony R. Corp. vs. Evans
[1856], 6 Gray, 25; Raymond vs. San Gabriel rec. Co. [1893], 53 Fed.,
883; 36 Cyc., 565.) The reasoning supporting the authorities is that the
performance of contracts must and should be mutual. The contract is
ordinarily bilateral. So should the respective rights of the parties be. Nor
does an action to recover damages for breach of contract ordinarily
afford a complete and adequate remedy. The equitable doctrine is not
applied where it will be productive of great hardship.
Here we have presented a good and valid contract, bilateral in character,
and free from all taint of fraud. The stability of commercial transactions
requires that the rights of the seller be protected just as effectively as
the rights of the buyer. If this plaintiff had refused to comply with the
contract, specific performance of the obligation could have been asked
by the defendants. Just as surely should the plaintiff who has lived up to
his bargain and who has been put to expense to do so, be permitted to
coerce the defendant into going through with the contract
The excuse of the defendants is that they do not now have the money
to pay the first installment. In other words, they plead impossibility of
performance. The rule of equity jurisprudence in such a case is that
mere pecuniary inability to fulfill an engagement does not discharge the
obligation of the contract, not does it constitute any defense to a decree
for specific performance. (Hopper vs. Hopper [1863], 16 N. J. Eq., 147.)
Now, the courts will not make an order obviously nugatory. But the
courts should lend their assistance to the plaintiff to compel the
defendants to fulfill their obligation. Besides requiring the defendants to
sign the contract and the mortgage, the judgment of the court can be
aided by execution on the property of the defendants. If, then, it is found
that it is impossible for the defendants to live up to their agreement,
naturally the plaintiff will rest content if for no other reason than for the
protection of his financial interests.
Judgment shall be reversed, and an order shall issue, condemning the
defendants to sign the deed and mortgage to the land in question and
to pay the first installment of the purchase price as stipulated. The
appellant shall recover costs of both instances. The Code of Civil
Procedure in its Chapter XXI entitled "Costs in the Several Courts"
states in section 487 that "Costs shall ordinarily be allowed to the
prevailing party as a matter of course . . . . " Philippine law is, in this
respect, identical with the general rule, which is that "On reversal, . . .
the costs will generally go to the prevailing party, that is, to the
appellant." (7 R. C. L., 801, citing cases.) No special reasons exist in
this case for modifying the general rule. So ordered
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR
ANTONIO T. CASTRO, JR. OF THE DEPARTMENT OF
COMMERCIAL AND SAVINGS BANK, in his capacity as statutory
receiver of Island Savings Bank, vs.THE HONORABLE COURT OF
APPEALS and SULPICIO M. TOLENTINO
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null and void the
decision of the Court of Appeals, in C.A.-G.R. No. 52253-R dated
February 11, 1977, modifying the decision dated February 15, 1972 of
the Court of First Instance of Agusan, which dismissed the petition of
respondent Sulpicio M. Tolentino for injunction, specific performance or
rescission, and damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable
recommendation of its legal department, approved the loan application
for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan,
executed on the same day a real estate mortgage over his 100-hectare
land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-
305, and which mortgage was annotated on the said title the next day.
The approved loan application called for a lump sum P80,000.00 loan,
repayable in semi-annual installments for a period of 3 years, with 12%
annual interest. It was required that Sulpicio M. Tolentino shall use the
loan proceeds solely as an additional capital to develop his other
property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00
loan was made by the Bank; and Sulpicio M. Tolentino and his wife Edita
Tolentino signed a promissory note for P17,000.00 at 12% annual
interest, payable within 3 years from the date of execution of the contract
at semi-annual installments of P3,459.00 (p. 64, rec.). An advance
interest for the P80,000.00 loan covering a 6-month period amounting
to P4,800.00 was deducted from the partial release of P17,000.00. But
this pre-deducted interest was refunded to Sulpicio M. Tolentino on July
23, 1965, after being informed by the Bank that there was no fund yet
available for the release of the P63,000.00 balance (p. 47, rec.). The
Bank, thru its vice-president and treasurer, promised repeatedly the
release of the P63,000.00 balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after
finding Island Savings Bank was suffering liquidity problems, issued
Resolution No. 1049, which provides:
In view of the chronic reserve deficiencies of the
Island Savings Bank against its deposit liabilities,
the Board, by unanimous vote, decided as follows:
1) To prohibit the bank from making new loans and
investments [except investments in government
securities] excluding extensions or renewals of
already approved loans, provided that such
extensions or renewals shall be subject to review
by the Superintendent of Banks, who may impose
such limitations as may be necessary to insure
correction of the bank's deficiency as soon as
possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding thatIsland Savings
Bank failed to put up the required capital to restore its solvency, issued
Resolution No. 967 which prohibited Island Savings Bank from doing
business in the Philippines and instructed the Acting Superintendent of
Banks to take charge of the assets of Island Savings Bank (pp. 48-49,
rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of the
P17,000.00 covered by the promissory note, filed an application for the
extra-judicial foreclosure of the real estate mortgage covering the 100-
hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the
auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court
of First Instance of Agusan for injunction, specific performance or
rescission and damages with preliminary injunction, alleging that since
Island Savings Bank failed to deliver the P63,000.00 balance of the
P80,000.00 loan, he is entitled to specific performance by ordering
Island Savings Bank to deliver the P63,000.00 with interest of 12% per
annum from April 28, 1965, and if said balance cannot be delivered, to
rescind the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety
bond, issued a temporary restraining order enjoining the Island Savings
Bank from continuing with the foreclosure of the mortgage (pp. 86-87,
rec.).
On January 29, 1969, the trial court admitted the answer in intervention
praying for the dismissal of the petition of Sulpicio M. Tolentino and the
setting aside of the restraining order, filed by the Central Bank and by
the Acting Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits rendered
its decision, finding unmeritorious the petition of Sulpicio M. Tolentino,
ordering him to pay Island Savings Bank the amount of PI 7 000.00 plus
legal interest and legal charges due thereon, and lifting the restraining
order so that the sheriff may proceed with the foreclosure (pp. 135-136.
rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M.
Tolentino, modified the Court of First Instance decision by affirming the
dismissal of Sulpicio M. Tolentino's petition for specific performance, but
it ruled that Island Savings Bank can neither foreclose the real estate
mortgage nor collect the P17,000.00 loan pp. 30-:31. rec.).
Hence, this instant petition by the central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for
specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the
P17,000.00 debt covered by the promissory note?
3. If Sulpicio M. Tolentino's liability to pay the
P17,000.00 subsists, can his real estate mortgage
be foreclosed to satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an
P80,000.00 loan agreement on April 28, 1965, they undertook reciprocal
obligations. In reciprocal obligations, the obligation or promise of each
party is the consideration for that of the other (Penaco vs. Ruaya, 110
SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1 [1969]); and
when one party has performed or is ready and willing to perform his part
of the contract, the other party who has not performed or is not ready
and willing to perform incurs in delay (Art. 1169 of the Civil Code). The
promise of Sulpicio M. Tolentino to pay was the consideration for the
obligation of Island Savings Bank to furnish the P80,000.00 loan. When
Sulpicio M. Tolentino executed a real estate mortgage on April 28, 1965,
he signified his willingness to pay the P80,000.00 loan. From such date,
the obligation of Island Savings Bank to furnish the P80,000.00 loan
accrued. Thus, the Bank's delay in furnishing the entire loan started on
April 28, 1965, and lasted for a period of 3 years or when the Monetary
Board of the Central Bank issued Resolution No. 967 on June 14, 1968,
which prohibited Island Savings Bank from doing further business. Such
prohibition made it legally impossible for Island Savings Bank to furnish
the P63,000.00 balance of the P80,000.00 loan. The power of the
Monetary Board to take over insolvent banks for the protection of the
public is recognized by Section 29 of R.A. No. 265, which took effect on
June 15, 1948, the validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot
interrupt the default of Island Savings Bank in complying with its
obligation of releasing the P63,000.00 balance because said resolution
merely prohibited the Bank from making new loans and investments,
and nowhere did it prohibit island Savings Bank from releasing the
balance of loan agreements previously contracted. Besides, the mere
pecuniary inability to fulfill an engagement does not discharge the
obligation of the contract, nor does it constitute any defense to a decree
of specific performance (Gutierrez Repide vs. Afzelius and Afzelius, 39
Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is never
an excuse for the non-fulfillment of an obligation but 'instead it is taken
as a breach of the contract by him (vol. 17A, 1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the refund
of the pre-deducted interest amounting to P4,800.00 for the supposed
P80,000.00 loan covering a 6-month period cannot be taken as a waiver
of his right to collect the P63,000.00 balance. The act of Island Savings
Bank, in asking the advance interest for 6 months on the supposed
P80,000.00 loan, was improper considering that only P17,000.00 out of
the P80,000.00 loan was released. A person cannot be legally charged
interest for a non-existing debt. Thus, the receipt by Sulpicio M.
'Tolentino of the pre-deducted interest was an exercise of his right to it,
which right exist independently of his right to demand the completion of
the P80,000.00 loan. The exercise of one right does not affect, much
less neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of
the loan collateral cannot exempt it from complying with its reciprocal
obligation to furnish the entire P80,000.00 loan. 'This Court previously
ruled that bank officials and employees are expected to exercise caution
and prudence in the discharge of their functions (Rural Bank of
Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the
bank's officials and employees that before they approve the loan
application of their customers, they must investigate the existence and
evaluation of the properties being offered as a loan security. The recent
rush of events where collaterals for bank loans turn out to be non-
existent or grossly over-valued underscore the importance of this
responsibility. The mere reliance by bank officials and employees on
their customer's representation regarding the loan collateral being
offered as loan security is a patent non-performance of this
responsibility. If ever bank officials and employees totally reIy on the
representation of their customers as to the valuation of the loan
collateral, the bank shall bear the risk in case the collateral turn out to
be over-valued. The representation made by the customer is immaterial
to the bank's responsibility to conduct its own investigation.
Furthermore, the lower court, on objections of' Sulpicio M. Tolentino, had
enjoined petitioners from presenting proof on the alleged over-valuation
because of their failure to raise the same in their pleadings (pp. 198-199,
t.s.n. Sept. 15. 1971). The lower court's action is sanctioned by the Rules
of Court, Section 2, Rule 9, which states that "defenses and objections
not pleaded either in a motion to dismiss or in the answer are deemed
waived." Petitioners, thus, cannot raise the same issue before the
Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal
obligation under their loan agreement, Sulpicio M. Tolentino, under
Article 1191 of the Civil Code, may choose between specific
performance or rescission with damages in either case. But since Island
Savings Bank is now prohibited from doing further business by Monetary
Board Resolution No. 967, WE cannot grant specific performance in
favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that
rescission is only for the P63,000.00 balance of the P80,000.00 loan,
because the bank is in default only insofar as such amount is concerned,
as there is no doubt that the bank failed to give the P63,000.00. As far
as the partial release of P17,000.00, which Sulpicio M. Tolentino
accepted and executed a promissory note to cover it, the bank was
deemed to have complied with its reciprocal obligation to furnish a
P17,000.00 loan. The promissory note gave rise to Sulpicio M.
Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls
due. His failure to pay the overdue amortizations under the promissory
note made him a party in default, hence not entitled to rescission (Article
1191 of the Civil Code). If there is a right to rescind the promissory note,
it shall belong to the aggrieved party, that is, Island Savings Bank. If
Tolentino had not signed a promissory note setting the date for payment
of P17,000.00 within 3 years, he would be entitled to ask for rescission
of the entire loan because he cannot possibly be in default as there was
no date for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective
reciprocal obligations, that is, Island Savings Bank failed to comply with
its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to
comply with his obligation to pay his P17,000.00 debt within 3 years as
stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have
committed a breach of their reciprocal obligations, the liability of the first
infractor shall be equitably tempered by the courts. WE rule that the
liability of Island Savings Bank for damages in not furnishing the entire
loan is offset by the liability of Sulpicio M. Tolentino for damages, in the
form of penalties and surcharges, for not paying his overdue P17,000.00
debt. The liability of Sulpicio M. Tolentino for interest on his PI 7,000.00
debt shall not be included in offsetting the liabilities of both parties. Since
Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00,
it is just that he should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino
cannot be entirely foreclosed to satisfy his P 17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is
the same as that of the principal contract (Banco de Oro vs. Bayuga, 93
SCRA 443 [1979]). For the debtor, the consideration of his obligation to
pay is the existence of a debt. Thus, in the accessory contract of real
estate mortgage, the consideration of the debtor in furnishing the
mortgage is the existence of a valid, voidable, or unenforceable debt
(Art. 2086, in relation to Art, 2052, of the Civil Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate
mortgage, no consideration was then in existence, as there was no debt
yet because Island Savings Bank had not made any release on the loan,
does not make the real estate mortgage void for lack of consideration. It
is not necessary that any consideration should pass at the time of the
execution of the contract of real mortgage (Bonnevie vs. C.A., 125
SCRA 122 [1983]). lt may either be a prior or subsequent matter. But
when the consideration is subsequent to the mortgage, the mortgage
can take effect only when the debt secured by it is created as a binding
contract to pay (Parks vs, Sherman, Vol. 176 N.W. p. 583, cited in the
8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And, when there is partial
failure of consideration, the mortgage becomes unenforceable to the
extent of such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in
Vol. 59, 1974 ed. CJS, p. 138). Where the indebtedness actually owing
to the holder of the mortgage is less than the sum named in the
mortgage, the mortgage cannot be enforced for more than the actual
sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88,
cited in 5th ed., Wiltsie on Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance of
the P8O,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino
became unenforceable to such extent. P63,000.00 is 78.75% of
P80,000.00, hence the real estate mortgage covering 100 hectares is
unenforceable to the extent of 78.75 hectares. The mortgage covering
the remainder of 21.25 hectares subsists as a security for the
P17,000.00 debt. 21.25 hectares is more than sufficient to secure a
P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article
2089 of the Civil Code is inapplicable to the facts of this case.
Article 2089 provides:
A pledge or mortgage is indivisible even though the
debt may be divided among the successors in
interest of the debtor or creditor.
Therefore, the debtor's heirs who has paid a part of
the debt can not ask for the proportionate
extinguishment of the pledge or mortgage as long
as the debt is not completely satisfied.
Neither can the creditor's heir who have received
his share of the debt return the pledge or cancel the
mortgage, to the prejudice of other heirs who have
not been paid.
The rule of indivisibility of the mortgage as outlined by Article 2089
above-quoted presupposes several heirs of the debtor or creditor which
does not obtain in this case. Hence, the rule of indivisibility of a mortgage
cannot apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS
DATED FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN
FAVOR OF HEREIN PETITIONERS THE SUM OF P17.000.00, PLUS
P41,210.00 REPRESENTING 12% INTEREST PER ANNUM
COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22, 1985,
AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM
AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL
ESTATE MORTGAGE COVERING 21.25 HECTARES SHALL BE
FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS
HEREBY DECLARED UNEN FORCEABLE AND IS HEREBY
ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.
NO COSTS. SO ORDERED.
ROSARIO S. VDA. DE LACSON, ET AL., plaintiffs-appellees,
vs.
ABELARDO G. DIAZ, defendant-appellant.
Jose R. Querubin for appellant.
Ramon Diokno and Jose W. Diokno for appellees.
TUASON, J.:
This case, here on appeal from the Court of First Instance of Negros
Occidental, involves an interpretation of a pre-war contract of lease of
sugar-cane lands and the liability of the lessee, defendant and appellant,
to pay rent for the period during and immediately following the Japanese
occupation. The defendant resisted payment of that rent of the theory
of force majeure, and claims, besides, right to an extension of the lease
to make-up for the time when no cane was planted.
The material facts are set forth in the appealed decision as follows:
It appears that on June 2, 1939, the plaintiff, Rosario S. Vda.
de Lacson, as atty.-in-fact of the other plaintiffs leased to the
defendant, Abelardo G. Diaz, lots Nos. 429 and 1179 of the
Talisay Cadastre, together with its sugar quota of about
5,728.50 piculs. The term of the lease was for five crop years
beginning with the crop year 1940-41; with an option in favor
of the defendant for another two years, after the expiration of
the original period. The contract provided that the defendant
was to pay to the plaintiffs an annual rental of 1,000 piculs of
export sugar , of which 500 piculs were to be paid in the month
of January of every year and the rest at the end of every
milling season. The defendant also obligated himself to pay to
the plaintiff 20% of whatever alcohol he receive from the
Talisay-Silay Milling Co. Inc. corresponding to
the haciendas above-mentioned.
To guarantee the payment of the said annual rentals, the
defendant Abelardo Diaz, loaned to the plaintiffs the sum of
P10,000 without interest, which was to be paid by plaintiffs
with the proceeds of the annual rentals in sugar provided
however, that the sum of P7,000 was to be maintained as the
permanent balance until the termination of the lease period,
as security for the payment by the defendant of said rentals.
On October 23, 1940, a supplementary agreement (was)
entered into between the parties so as to include in the lease
contract the rights and interests also of the plaintiff, Rosario
S. Vda. de Lacson in the haciendas in question. It was further
agreed that out of the annual rental of 1,000 piculs to be sold
by the defendant, Abelardo Diaz in such price as may be
agreeable to the plaintiff, Rosario S. Vda. de Lacson, from the
proceeds of which the sum of P2,000.00 was to be applied to
the loan of P10,000 extended by the defendant to the
plaintiffs. The balance of 100 piculs of said yearly rental was
to be placed at the complete disposition of the plaintiff,
Rosario S. Vda. de Lacson.
The defendant took possession of the haciendas in question
beginning with the crop year 1940-41. In that year he paid to
the plaintiffs the corresponding rental of 1,000 piculs of sugar
and their share in alcohol. As provided for in the
supplementary agreement the defendant Abelardo G. Diaz,
with the approval of the plaintiff, Rosario S. Vda. de Lacson,
sold 400 piculs of said rentals for the sum of P1,984.76, and
this amount was applied on the loan of the plaintiffs thereby
leaving a balance of P8,015.24 against them and in favor of
the defendant at the beginning of the crop year 1941-42.
On December 8, 1941, the war broke out. The defendant
claims that due to the unsettled conditions which follows, he
was unable to mill all his sugar canes so that during the crop
year 1941-42 he produced only the total amount of 966.42
piculs of sugar from the two haciendas, of which 579.86 piculs
went to him as his planter's share. It appears that the
defendant failed to pay the plaintiffs the rentals of 1,000 piculs
of export sugar and alcohol for said crop year. The defendant
tried to prove, however, that he assigned 225.65 piculs in
1941-42 to the Agricultural and Industrial Bank for the account
of the plaintiffs, but it was not duly established to the
satisfaction of this court that the said Bank actually received
the assignment.
The defendant also failed to pay the plaintiffs the stipulated
rentals for the remaining crop years up to the present time,
although the plaintiffs had made several demands for their
payment, so that on September 17, 1946, this action was
commenced by the plaintiffs for the rescission of the lease
contract.
From the evidence adduced during the trial it was established
that during the years 1943 and 1944 the haciendas in
question were worked and cultivated by the tenants of the
defendant who planted cereal crops thereon like corn and rice
but there was no evidence as to how much was really
produced on the land. The defendant himself admitted that he
planted rice on the haciendas during the years 1945 and
1946, which brought him a net participation of 200 cavanes
for each of these years. The defendant also admitted that he
did not give the plaintiffs any participation in the rice or other
crops he had produced in the said haciendas, because
according to him, his obligation was to pay rentals in sugar
only, and not in any other kind of products. It also appears that
the defendant has been unable to plant sugar canes on
the haciendas in question except in preparation for the 19947-
48 crop year which he estimated to be around ten hectares.
The court below absolved the defendant, on the principle of fortuitous
circumstance, from any liability for rent for the crop years 1942-43, 1943-
44 and 1944-45, although it allowed the plaintiffs "proportionate share of
the War Damage Compensation which the defendant may recover from
the War Damage Commission for the products of the afore-
mentioned haciendas for the crop year 1941-42, on the basis of P5,000,
the total value of 1,000 piculs of sugar which is the corresponding rental
of said haciendas for the crop year 1941-42." (The defendant had filed
a damage claim for the destruction early in 1942 of standing crops.) But
the court gave judgment for the plaintiffs for rent with interest
corresponding to the crop years 1945-46 and 1946-47, amounting to
P60,000, the value of 2,000 piculs of sugar, from which amount was to
be deducted the sum of P8,015.24 due the defendant by the plaintiffs
for advances. The court likewise declared the lease terminated after the
crop year 1946-47.
On the last point, it is the defendant's contention that he and the plaintiffs
stipulated seven sugar "crops" and not seven "crop years as the duration
of the lease and that this period should be computed by the number of
times sugar crops were raised and not by number of years that
transpired from the inception of the contract.
We are unable to see any essential difference between crops and crop
years sufficient to alter the result. Under one or the other theory, it seems
to us that the contract contemplated seven consecutive agricultural
years. To the lessors time was of the essence of the lease and they
could not conceivably have agreed to have discounted from the period,
years which the lessees, who had the exclusive disposition of the lands,
might not care to plant sugar cane or not use the lands at all.
Any how the contract speaks of "cosechas agricolas", and nowhere is
there any insinuation that the defendant-lessee was to have possession
of the lands for seven years excluding years on which he could not
harvest sugar. On the contrary, the parties not only used the generic
expression "cinco cosechas agricolas" but followed it with the phrase
"periodo de cinco aos."
The more important issue, though by no means difficult to decide,
concerns the obligation of the lessee to pay the stipulated rent for the
crop years 1945-46 and 1946-47. Admitting that those post-liberation
years, the lessee claims exemption from the obligation stipulated for
delivery of 1,000 piculs of centrifugal sugar as rent for each milling
season, and the Talisay-Silay Milling Co. Inc., he adds, had been
destroyed and he could not mill any sugar.
The law regulating the facts of force majeure on contracts is to be found
in the following articles of the Civil Code:
ART. 1096. Should the thing to be delivered be a determinate
one the creditor, independently of the right granted him by
article 1004, may compel the debtor to make the delivery.
Should the thing be determinate or generic, he may demand
that the obligation be performed at the expense of the debtor.
Should the person obligated be in default, or should be have
engaged himself to deliver the same thing or two or more
different persons, it shall be at his risk, even in case of
inevitable accident, until the delivery is made.
ART. 1105. No one shall be liable for events which could not
be foreseen or which, even if foreseen, were inevitable, with
the exception of the cases in which the law expressly provides
otherwise and these in which the obligation itself imposes
such liability.
ART. 1182. Any obligation which consists in the delivery of a
determinate thing shall be extinguished if such thing should
be lost or destroyed without fault on the part of the debtor and
before he is in default (mora).
In binding himself to deliver centrifugal sugar, the defendant promised a
generic thing. It could be any centrifugal sugar without regard to origin
or how he secured it. Hence, his inability to produce sugar, irrespective
of the cause, did not relieve him from his commitment. War, like floods
and other catastrophes, was a contingency, a collateral incident, which
he could have provided for by proper stipulation. (Reyes vs. Caltex
(Philippines) Inc., 47 Off. Gaz., 1193.
In reality there was no fortuitous event which interfered with the
exploitation of the leased property in the form and manner the defendant
had intended. We refer to the agricultural years 1945-46 and 1946-47.
It should be observed that the defendant was not bound to keep the
lands during those years; it was entirely optional on his part to put an
end to the lease after the 1944-45 crop year. When he decided to
exercise the option he was fully aware that there were no sugar mills in
operation and he did not except to produce sugar, He must have had an
object other than to plant sugar cane when he chose to retain the lands
for two more years. His purpose was, beyond doubt, to plant other crops,
which he did. If those crops did not bring good return he can not, under
any principle of law or equity, shift the loss to the lessor. Performance is
not excused by the fact that the contract turns out to be hard and
improvident, unprofitable or impracticable, ill-advised, or even foolish.
(Reyes vs. Caltex, supra.)
In the fourth assignment of error the appellant objects that "the trial court
. . . awarded the plaintiffs more than what is prayed for in the complaint."
He says that the plaintiffs pray "either the rescission of the contract of
lease and the immediate delivery . . . of lots 429 and 1179 of Talisay, or
in the alternative, to condemn the defendant to pay 5,000 piculs of export
sugar; and to pay P500 as liquidated damages and costs.".
We do not think the trial court erred in granting both remedies although
the prayer was in the alternative. The situation or status of the contract
had changed in the interval between the commencement of the suit and
the rendition of the judgment. At the time the complaint was filed
(September 12, 1946), the lease had not yet expired. Its expiration took
place during the pendency of the action, a fact of which court was
justified in taking cognizance.
For the rest, the prayer is not a material factor of the complaint. It is not
the prayer but the proven facts which determine the power of the court
to act.
SEC. 9. Extent of relief to be awarded. A judgment entered
by default shall not exceed the amount or be different in kind
from that prayed for the demand for judgment. In other cases
the judgment shall grant the relief to which the party has not
demanded such relief in his pleadings. (Rule 35, Rules of
Court.)
But when the defendant is not in default, plaintiff. after trial,
may be granted any relief that is supported by the evidence,
although not specified in his pleadings. As held by the
Supreme Court, plaintiff's failure, in such cases, to specify the
relief to which he is entitled, is immaterial, and even if the
complaint contains no prayer for relief, he is still entitled to
such a relief as the facts proven may warrant. It is a rule of
pleadings that the prayer for relief, though part of the
complaint, is no part of the cause of action, and plaintiff is
entitled to as much relief as the facts may warrant. (I Moran,
Comments on the Rules of Court, 574.)
It is unquestionable that, under the proven facts, the court had the power
to grant the remedies it did.
The defendant's counterclaim was, in our opinion, rightly overruled by
the court below. Said the court:
As to the counterclaims filed by the defendant the court cannot
reasonably entertain it for the simple reason that there was no
sufficient evidence supporting it and the fact that the seven-
year period, stipulated in the contract, including the option of
two years in favor of the defendant, had already expired at the
end of the crop year 1946-47, which is of judicial notice to be
at the end of May, 1947. After the period, the defendant is no
longer entitled to the possession of the haciendas in question,
nor their corresponding sugar quota for the crop year 1947-
48. If the defendant had already planted sugar canes to the
extent he had testified to during the trial in preparation for the
1947-48 milling season, he did so at his own risk and
responsibility for which he could not hold the plaintiffs herein
liable for any loss he may suffer thereby.
The judgment is affirmed with costs.
BUNGE CORPORATION and UNIVERSAL COMMERCIAL
AGENCIES vs .ELENA CAMENFORTE and COMPANY, doing
business or trading under the name and style of Visayan Products
Company, ET AL
BAUTISTA ANGELO, J.:
Plaintiffs brought action against the defendants to recover certain
damages they have allegedly sustained in view of the failure of the latter
to deliver to the former the amount of Philippine copra which they had
agreed to deliver within the time and under the conditions specified in
the contract celebrated between them on October 22, 1947.
Plaintiffs claim that on October 22, 1947, in the City of Cebu a contract
was entered into between the Visayan Products Company and Bunge
Corporation (represented by the Universal Commercial Agencies)
whereby the former sold to the latter 500 long tons of merchantable
Philippine copra in bulk at the prices of $188.80, U.S. currency, per ton,
less 1 per cent brokerage per short ton of 2,000 pounds, C & F Pacific
Coast, U.S.A.; that, according to the terms and conditions of the
contract, the vendor should ship the stipulated copra during the month
of November or December 1947, to San Francisco, California, U.S.A. for
delivery to the vendee; that, notwithstanding repeated demands made
by the vendee, the vendor failed to ship and deliver the copra during the
period agreed upon; that believing in good faith that the vendor would
ship and deliver the copra on time, the vendee sold to El Dorado Oil
Works the quantity of copra it had purchased at the same price agreed
upon; and that because of the failure of the vendor to fulfill its contract
to ship and deliver the quantity of copra agreed upon within the period
stipulated, the vendee has suffered damages in the amount of P180,00.
Defendants answered separately the allegations set forth in the
complaint and, with the exception of Vicente Kho, denied that the
Visayan Products Company has ever entered into a contract of sale of
copra with the plaintiffs, as mentioned in the complaint. They aver that if
a contract of that tenor has ever been entered into between said
company and the plaintiffs, the truth is that Vicente Kho who signed for
and in behalf of the company never had any authority to act for that
company either expressly or impliedly, inasmuch as the only ones who
had the authority to do so are Elena Camenforte, the general manager,
Tan Se Chong, the manager, and Tiu Kee, the assistant manager.
Vicente Kho, on his part, after admitting that the commercial transaction
mentioned in the complaint had actually taken place, avers that the
contract was concluded with the Visayan Products Company which had
its office in Tacloban, Leyte, and not with the Visayan Products
Company established in Cebu, which is not a party to the transaction;
that the Visayan Products Company organized in organized in Tacloban
is the one that was presented by him in the transaction, of which he is
the manager and controlling stockholder, which fact was clearly known
to the plaintiffs when the contract was entered into believing that the
company he was representing was the one recently organized in Cebu;
that he, Vicente Kho, did his best to comply with the contract, but he
failed because offorce majeure as follows: he informed the plaintiffs
sometime in December, 1947, that he would have all the copra covered
by the contract ready for shipment somewhere in the port of San Ramon,
Samar, in order that they may make an arrangement for the booking of
a ship, but before the arrival of the ship, a strong storm visited the place
causing the bodega where the copra was stored to be destroyed and the
copra washed away into the sea; and that, because of this force
majeure, he cannot now be held liable for damages.
After trial, art which both parties presented their respective evidence, the
court rendered decision ordering defendant Elena Camenforte &
Company to pay to the plaintiffs the sum of P79,744, with legal interest
thereon from the filing of the complaint, and the costs of action. The court
ordered that, in case said company be unable to pay the judgment
because of total or partial insolvency, the same be paid by its co-
defendants, jointly and severally, either in full or such part thereof as
may be left unpaid. Defendants interposed the present appeal.
At the outset, it should be stated that while in the lower court there was
a dispute between plaintiffs and defendants as regards the real contract
that was entered into between the parties and which he was given rise
to this litigation, that defense apparently has been abandoned in this
appeal, for the only issue now raised by appellants is one of law. Thus,
appellants now admit, contrary to their stand in the lower court, that a
contract of purchase and sale of copra was in effect entered into
between the plaintiffs and the defendants under the terms and
conditions embodied in the contract quoted in the complaint, and the
only defense on which they now rely is that the copra they had gathered
and stored for delivery to the appellees in Samar was destroyed by force
majeure which under the law has the effect of exempting them from
liability for damages. Consequently, appellants now contend that the
lower court erred in condemning them for damages despite the fact that
their failure to fulfill the contract is due to force majeure.
A perusal of the contract is necessary to see the feasibility of this
contention. The contract is embodied in Exhibit C. A perusal of this
contract shows that the subject matter is Philippine copra. The sale is to
be made by weight, 500 long tons. It does not refer to any particular
or specific lot of copra, nor does it mention the place where the copra is
to be acquired. No portion of the copra has been earmarked or
segregated. The vendor was at liberty to acquire the copra from any part
of the Philippines. The sale simply refers to 500 long tons of the
Philippine copra. The subject-matter is, therefore, generic, not specific.
Having this view in mind, it is apparent that the copra which appellants
claim to have gathered and stored in a bodega at San Ramon, Samar,
sometime in December, 1947, in fulfillment of their contract, and which
they claim was later destroyed by storm, in the supposition that the claim
is true, cannot be deemed to be the one contemplated in the contract. It
may be the one chosen by appellants in the exercise of the discretion
given to them under the contract, which they could exercise in a manner
suitable to their interest and convenience, but it cannot certainly be
considered as the copra contemplated by the parties in the contract. And
this must be so because the copra contemplated in the contract is
generic and not specific.
It appearing that the obligation of appellant is to deliver copra in a
generic sense, the obligation cannot be deemed extinguised by the
destruction or disappearance of the copra stored in San Ramon, Samar.
Their obligation subsists as long as that commodity is available. A
generic obligation is not extinguished by the loss of a thing belonging to
a particular genus. Genus nunquan perit.
Manresa explains the distinction between determinate and
generic thing in his comment on article 1096 of the Civil Code
of Spain, saying that the first is a concrete, particularized
object, indicated by its own individuality, while a generic thing
is one whose determination is confined to that of its nature, to
the genus (genero) to which it pertains, such as a horse, a
chair. These definition are in accord with the popular meaning
of the terms defined.
Except as to qualify and quantity, the first of which is itself
generic, the contract sets no bounds or limits to the palay to
be paid, nor was there even any stipulation that the cereal was
to be the produce of any particular land. Any palay of the
quality stipulated regardless of origin or however acquired
(lawfully) would be obligatory on the part of the obligee to
receive and would discharged the obligation. It seems
therefore plain that the alleged failure of crops through alleged
fortuitos cause did not excuse performance." (De Leon vs.
Soriano, 87 Phil., 193; 47 Off Gaz., Supplement No. 12, pp.
377, 379-380.)
In binding himself to deliver centrifugal sugar, the defendant
promised a generic thing. It could be any centrifugal sugar
without regard to origin or how he secured it. Hence, his
inability to produce sugar, irrespective of the cause, did not
relieve him from his commitment. War, like floods and other
catastrophies, was a contingency, a collateral incident, which
he could have provided for by proper stipulation. (Reyes vs.
Caltex, 84 Phil., 654; 47 Off, Gaz., 1193; Vda.-Lacson vs.
Diaz, 87 Phil., 150; 47 Off. Gaz., Supp. to No. 12, p. 337.)
If appellants are not relieved of civil liability under the contract, what are
then the damages for which they stand liable to the appellees?
Appellees claim that, immediately after they had concluded their
agreement to buy copra with the appellants, they agreed to sell to El
Dorado Oil Works the 500 long tons of copra subject matter of the
agreement, together with another lot of 500 tons, confident in their belief
that the Visayan Products Company would comply with its agreement.
The copra was to delivered by Bunge Corporation to El Dorado Oil
Works not later than December 31, 1947. Because of the failure of the
appellants to fulfill their aforementioned agreement, appellees failed to
deliver the copra it sold with the result that they had to pay damages in
the sum of $84,630.86 (or P169,461.72).
The lower court, however, did not sustain this claim in view of the
discrepancy of one day it note in the dates of execution of the contracts
of sale of the copra in question. The court found that the contract signed
by El Dorado Oil Works is dated October 21, 1947, (Exhibit O), whereas
the contract signed by the Visayan Products Company is dated contract
had been executed one day latter than the former, which gives rise to
the belief that the copra that was sold to the El Dorado Oil Works could
not have been the one purchased from the appellants. Nevertheless, the
court awarded damages to the appellees taking into account the highest
price of copra in the market during the month of December, 1947, as per
statement Exhibit P, even though the appellees had made no allegation
in their complaint of any offer or transaction they might have had with
other copra dealers during the period contemplated in the contract in
question.
We are of the opinion that the lower court erred in disregarding the
transaction with the El Dorado Oil Works simply because it found an
apparent discrepancy in the dates appearing in the contracts Exhibits O
and C. Exhibit C appears dated on October 22, 1947, and was executed
in Cebu, Philippines, whereas Exhibit O appears dated on October 21,
1947, and was executed in New York City. the difference of one day in
the execution of these documents is merely nominal because New York
time is several hours behind Cebu time. In fact both transactions have
been practically executed on the same day. Even supposing that the
contract with the El Dorado Oil Works calls for future and not present
deliveries. There is nothing improbable for the appellees to sell copra
which they expect to acquire sometime in the future for purposes of
speculation. But this error cannot now materially change the result of
this case considering that plaintiffs-appellees did not appeal from the
decision. "It has been held that appellee, who is not appellant, may also
assign errors in his brief where his purpose is to maintain the judgment
on other grounds, but he may not do so if his purpose is to have the
judgment modified or reversed, for, in such case, he must appeal."
(Saenz vs. Mitchell, 60 Phil., 69, 80; see Mendoza vs. Mendiola, 53 Phil.,
267; Villavert vs. Lim, 62 Phil., 178; Bajaladia vs. Eusala, G. R. No.
42579). Wherefore, the decision appealed from is affirmed, with costs
against appellants.
JIMMY CO, doing business under the name & style
DRAGON METAL MANUFACTURING vs. COURT OF APPEALS and
BROADWAY MOTOR SALES CORPORATION
DECISION
MARTINEZ, J.:
On July 18, 1990, petitioner entrusted his Nissan pick-up car 1988
model[1] to private respondent - which is engaged in the sale, distribution
and repair of motor vehicles - for the following job repair services and
supply of parts:
- Bleed injection pump and all nozzles;
- Adjust valve tappet;
- Change oil and filter;
- Open up and service four wheel brakes, clean and adjust;
- Lubricate accelerator linkages;
- Replace aircon belt; and
- Replace battery[2]
Private respondent undertook to return the vehicle on July 21,
1990 fully serviced and supplied in accordance with the job contract.
After petitioner paid in full the repair bill in the amount
of P1,397.00,[3] private respondent issued to him a gate pass for the
release of the vehicle on said date. But came July 21, 1990, the latter
could not release the vehicle as its battery was weak and was not yet
replaced. Left with no option, petitioner himself bought a new battery
nearby and delivered it to private respondent for installation on the same
day. However, the battery was not installed and the delivery of the car
was rescheduled to July 24, 1990 or three (3) days later. When petitioner
sought to reclaim his car in the afternoon of July 24, 1990, he was told
that it was carnapped earlier that morning while being road-tested by
private respondents employee along Pedro Gil and Perez Streets in
Paco, Manila. Private respondent said that the incident was reported to
the police.
Having failed to recover his car and its accessories or the value
thereof, petitioner filed a suit for damages against private respondent
anchoring his claim on the latters alleged negligence. For its part, private
respondent contended that it has no liability because the car was lost as
a result of a fortuitous event - the carnapping. During pre-trial, the parties
agreed that:
(T)he cost of the Nissan Pick-up four (4) door when the plaintiff
purchased it from the defendant is P332,500.00 excluding accessories
which were installed in the vehicle by the plaintiff consisting of four (4)
brand new tires, magwheels, stereo speaker, amplifier which amount all
in all to P20,000.00. It is agreed that the vehicle was lost on July 24,
1990 `approximately two (2) years and five (5) months from the date of
the purchase. It was agreed that the plaintiff paid the defendant the cost
of service and repairs as early as July 21, 1990 in the amount
of P1,397.00 which amount was received and duly receipted by the
defendant company. It was also agreed that the present value of a brand
new vehicle of the same type at this time is P425,000.00 without
accessories.[4]
They likewise agreed that the sole issue for trial was who between
the parties shall bear the loss of the vehicle which necessitates the
resolution of whether private respondent was indeed negligent. [5] After
trial, the court a quo found private respondent guilty of delay in the
performance of its obligation and held it liable to petitioner for the value
of the lost vehicle and its accessories plus interest and attorneys
fees.[6] On appeal, the Court of Appeals (CA) reversed the ruling of the
lower court and ordered the dismissal of petitioners damage suit.[7] The
CA ruled that: (1) the trial court was limited to resolving the issue of
negligence as agreed during pre-trial; hence it cannot pass on the issue
of delay; and (2) the vehicle was lost due to a fortuitous event.
In a petition for review to this Court, the principal query raised is
whether a repair shop can be held liable for the loss of a customers
vehicle while the same is in its custody for repair or other job services?
The Court resolves the query in favor of the customer. First, on
the technical aspect involved. Contrary to the CAs pronouncement, the
rule that the determination of issues at a pre-trial conference bars the
consideration of other issues on appeal, except those that may involve
privilege or impeaching matter,[8] is inapplicable to this case. The
question of delay, though not specifically mentioned as an issue at the
pre-trial may be tackled by the court considering that it is necessarily
intertwined and intimately connected with the principal issue agreed
upon by the parties, i.e. who will bear the loss and whether there was
negligence. Petitioners imputation of negligence to private respondent
is premised on delay which is the very basis of the formers complaint.
Thus, it was unavoidable for the court to resolve the case, particularly
the question of negligence without considering whether private
respondent was guilty of delay in the performance of its obligation.
On the merits. It is a not a defense for a repair shop of motor
vehicles to escape liability simply because the damage or loss of a thing
lawfully placed in its possession was due to carnapping. Carnapping per
se cannot be considered as a fortuitous event. The fact that a thing was
unlawfully and forcefully taken from anothers rightful possession, as in
cases of carnapping, does not automatically give rise to a fortuitous
event. To be considered as such, carnapping entails more than the mere
forceful taking of anothers property. It must be proved and established
that the event was an act of God or was done solely by third parties and
that neither the claimant nor the person alleged to be negligent has any
participation.[9] In accordance with the Rules of evidence, the burden of
proving that the loss was due to a fortuitous event rests on him who
invokes it[10]- which in this case is the private respondent. However, other
than the police report of the alleged carnapping incident, no other
evidence was presented by private respondent to the effect that the
incident was not due to its fault. A police report of an alleged crime, to
which only private respondent is privy, does not suffice to established
the carnapping. Neither does it prove that there was no fault on the part
of private respondent notwithstanding the parties agreement at the pre-
trial that the car was carnapped. Carnapping does not foreclose the
possibility of fault or negligence on the part of private respondent.
Even assuming arguendo that carnapping was duly established
as a fortuitous event, still private respondent cannot escape liability.
Article 1165[11] of the New Civil Code makes an obligor who is guilty of
delay responsible even for a fortuitous event until he has effected the
delivery. In this case, private respondent was already in delay as it was
supposed to deliver petitioners car three (3) days before it was lost.
Petitioners agreement to the rescheduled delivery does not defeat his
claim as private respondent had already breached its obligation.
Moreover, such accession cannot be construed as waiver of petitioners
right to hold private respondent liable because the car was unusable and
thus, petitioner had no option but to leave it.
Assuming further that there was no delay, still working against
private respondent is the legal presumption under Article 1265 that its
possession of the thing at the time it was lost was due to its fault.[12] This
presumption is reasonable since he who has the custody and care of the
thing can easily explain the circumstances of the loss. The vehicle owner
has no duty to show that the repair shop was at fault. All that petitioner
needs to prove, as claimant, is the simple fact that private respondent
was in possession of the vehicle at the time it was lost. In this case,
private respondents possession at the time of the loss is undisputed.
Consequently, the burden shifts to the possessor who needs to present
controverting evidence sufficient enough to overcome that presumption.
Moreover, the exempting circumstances - earthquake, flood, storm or
other natural calamity - when the presumption of fault is not
applicable[13] do not concur in this case. Accordingly, having failed to
rebut the presumption and since the case does not fall under the
exceptions, private respondent is answerable for the loss.
It must likewise be emphasized that pursuant to Articles 1174 and
1262 of the New Civil Code, liability attaches even if the loss was due to
a fortuitous event if the nature of the obligation requires the assumption
of risk.[14] Carnapping is a normal business risk for those engaged in the
repair of motor vehicles. For just as the owner is exposed to that risk so
is the repair shop since the car was entrusted to it. That is why, repair
shops are required to first register with the Department of Trade and
Industry (DTI)[15] and to secure an insurance policy for the shop covering
the property entrusted by its customer
for repair, service or maintenance as a pre-requisite for such
registration/accreditation.[16] Violation of this statutory duty constitutes
negligence per se.[17] Having taken custody of the vehicle, private
respondent is obliged not only to repair the vehicle but must also provide
the customer with some form of security for his property over which he
loses immediate control. An owner who cannot exercise the seven
(7) juses or attributes of ownership the right to possess, to use and
enjoy, to abuse or consume, to accessories, to dispose or alienate, to
recover or vindicate and to the fruits -[18] is a crippled owner. Failure of
the repair shop to provide security to a motor vehicle owner would leave
the latter at the mercy of the former. Moreover, on the assumption that
private respondents repair business is duly registered, it presupposes
that its shop is covered by insurance from which it may recover the loss. constructed on the leased property a movie house
If private respondent can recover from its insurer, then it would be known as "Maxim Theatre."
unjustly enriched if it will not compensate petitioner to whom no fault can
be attributed. Otherwise, if the shop is not registered, then the
Two years later, on March 31, 1969, Mayfair
presumption of negligence applies.
entered into a second contract of lease with
One last thing. With respect to the value of the lost vehicle and its Carmelo for the lease of another portion of
accessories for which the repair shop is liable, it should be based on the Carmelo's property, to wit:
fair market value that the property would command at the time it was
entrusted to it or such other value as agreed upon by the parties A PORTION OF THE
subsequent to the loss. Such recoverable value is fair and reasonable SECOND FLOOR of the two-
considering that the value of the vehicle depreciates. This value may be storey building, situated at
recovered without prejudice to such other damages that a claimant is C.M. Recto Avenue, Manila,
entitled under applicable laws. with a floor area of 1,064
square meters.
WHEREFORE, premises considered, the decision of the Court
Appeals is REVERSED and SET ASIDE and the decision of the court a
quo is REINSTATED. THE TWO (2) STORE
SPACES AT THE GROUND
SO ORDERED. FLOOR and MEZZANINE of
the two-storey building
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & situated at C.M. Recto
BAUERMANN, INC vs. MAYFAIR THEATER, INC Avenue, Manila, with a floor
area of 300 square meters and
bearing street numbers 1871
HERMOSISIMA, JR., J.: and 1875,

Before us is a petition for review of the decision1 of the Court
of
Appeals2 involving questions in the resolution of which the
respondent appellate court analyzed and interpreted
particular provisions of our laws on contracts and sales. In its
assailed decision, the respondent court reversed the trial
court3 which, in dismissing the complaint for specific
performance with damages and annulment of contract,4 found
the option clause in the lease contracts entered into by private
respondent Mayfair Theater, Inc. (hereafter, Mayfair) and
petitioner Carmelo & Bauermann, Inc. (hereafter, Carmelo) to
be impossible of performance and unsupported by a
consideration and the subsequent sale of the subject property
to petitioner Equatorial Realty Development, Inc. (hereafter,
Equatorial) to have been made without any breach of or
prejudice to, the said lease contracts.5
We reproduce below the facts as narrated by the respondent
court, which narration, we note, is almost verbatim the basis
of the statement of facts as rendered by the petitioners in their
pleadings:
Carmelo owned a parcel of land, together with two
2-storey buildings constructed thereon located at
Claro M Recto Avenue, Manila, and covered by
TCT No. 18529 issued in its name by the Register
of Deeds of Manila.
On June 1, 1967 Carmelo entered into a contract of
lease with Mayfair for the latter's lease of a portion
of Carmelo's property particularly described, to wit:
A PORTION OF THE
SECOND FLOOR of the two-
storey building, situated at
C.M. Recto Avenue, Manila,
with a floor area of 1,610
square meters.
THE SECOND FLOOR AND
MEZZANINE of the two-storey
building, situated at C.M.
Recto Avenue, Manila, with a
floor area of 150 square
meters.
for use by Mayfair as a motion picture theater and
for a term of twenty (20) years. Mayfair thereafter
for similar use as a movie theater and for a similar
term of twenty (20) years. Mayfair put up another
movie house known as "Miramar Theatre" on this
leased property.
Both contracts of lease provides (sic) identically
worded paragraph 8, which reads:
That if the LESSOR should
desire to sell the leased
premises, the LESSEE shall
be given 30-days exclusive
option to purchase the same.
In the event, however, that the
leased premises is sold to
someone other than the
LESSEE, the LESSOR is
bound and obligated, as it
hereby binds and obligates
itself, to stipulate in the Deed
of Sale hereof that the
purchaser shall recognize this
lease and be bound by all the
terms and conditions thereof.
Sometime in August 1974, Mr. Henry Pascal of
Carmelo informed Mr. Henry Yang, President of
Mayfair, through a telephone conversation that
Carmelo was desirous of selling the entire Claro M.
Recto property. Mr. Pascal told Mr. Yang that a
certain Jose Araneta was offering to buy the whole
property for US Dollars 1,200,000, and Mr. Pascal
asked Mr. Yang if the latter was willing to buy the
property for Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know
of his decision. On August 23, 1974, Mayfair replied
through a letter stating as follows:
It appears that on August 19,
1974 your Mr. Henry Pascal
informed our client's Mr. Henry
Yang through the telephone
that your company desires to
sell your above-mentioned
C.M. Recto Avenue property.
 Under your company's two stipulation granting the plaintiff
lease contracts with our client, exclusive option to purchase
it is uniformly provided: the leased premises should
the lessor desire to sell the
same (admitted subject to the
8. That if the LESSOR should
contention that the stipulation
desire to sell the leased
is null and void);
premises the LESSEE shall be
given 30-days exclusive option
to purchase the same. In the 3. That the two buildings
event, however, that the erected on this land are not of
leased premises is sold to the condominium plan;
someone other than the
LESSEE, the LESSOR is
4. That the amounts stipulated
bound and obligated, as it is
and mentioned in paragraphs
(sic) herebinds (sic) and
3 (a) and (b) of the contracts of
obligates itself, to stipulate in
lease constitute the
the Deed of Sale thereof that
consideration for the plaintiff's
the purchaser shall recognize
occupancy of the leased
this lease and be bound by all
premises, subject of the same
the terms and conditions
contracts of lease, Exhibits A
hereof (sic).
and B;

Carmelo did not reply to this letter.

xxx xxx xxx

On September 18, 1974, Mayfair sent another letter

6. That there was no
to Carmelo purporting to express interest in
consideration specified in the
acquiring not only the leased premises but "the
option to buy embodied in the
entire building and other improvements if the price
contract;
is reasonable. However, both Carmelo and
Equatorial questioned the authenticity of the
second letter. 7. That Carmelo & Bauermann
owned the land and the two
buildings erected thereon;
Four years later, on July 30, 1978, Carmelo sold its
entire C.M. Recto Avenue land and building, which
included the leased premises housing the "Maxim" 8. That the leased premises
and "Miramar" theatres, to Equatorial by virtue of a constitute only the portions
Deed of Absolute Sale, for the total sum of actually occupied by the
P11,300,000.00. theaters; and

In September 1978, Mayfair instituted the action a 9. That what was sold by
quo for specific performance and annulment of the Carmelo & Bauermann to
sale of the leased premises to Equatorial. In its defendant Equatorial Realty is
Answer, Carmelo alleged as special and affirmative the land and the two buildings
defense (a) that it had informed Mayfair of its desire erected thereon.
to sell the entire C.M. Recto Avenue property and
offered the same to Mayfair, but the latter answered
that it was interested only in buying the areas under xxx xxx xxx
lease, which was impossible since the property was
not a condominium; and (b) that the option to After assessing the evidence, the court a
purchase invoked by Mayfair is null and void for lack quo rendered the appealed decision, the decretal
of consideration. Equatorial, in its Answer, pleaded portion of which reads as follows:
as special and affirmative defense that the option is
void for lack of consideration (sic) and is
unenforceable by reason of its impossibility of WHEREFORE, judgment is
performance because the leased premises could hereby rendered:
not be sold separately from the other portions of the
land and building. It counterclaimed for cancellation (1) Dismissing the complaint
of the contracts of lease, and for increase of rentals with costs against the plaintiff;
in view of alleged supervening extraordinary
devaluation of the currency. Equatorial likewise
cross-claimed against co-defendant Carmelo for (2) Ordering plaintiff to pay
indemnification in respect of Mayfair's claims. defendant Carmelo &
Bauermann P40,000.00 by
way of attorney's fees on its
During the pre-trial conference held on January 23, counterclaim;
1979, the parties stipulated on the following:
(3) Ordering plaintiff to pay
1. That there was a deed of defendant Equatorial Realty
sale of the contested premises P35,000.00 per month as
by the defendant Carmelo . . . reasonable compensation for
in favor of defendant the use of areas not covered
Equatorial . . .; by the contract (sic) of lease
from July 31, 1979 until plaintiff
2. That in both contracts of vacates said area (sic) plus
lease there appear (sic) the legal interest from July 31,
 1978; P70,000 00 per month
as reasonable compensation
for the use of the premises
covered by the contracts (sic)
of lease dated (June 1, 1967
from June 1, 1987 until plaintiff
vacates the premises plus
legal interest from June 1,
1987; P55,000.00 per month
as reasonable compensation
for the use of the premises
covered by the contract of
lease dated March 31, 1969
from March 30, 1989 until
plaintiff vacates the premises
plus legal interest from March
30, 1989; and P40,000.00 as
attorney's fees;
(4) Dismissing defendant
Equatorial's crossclaim
against defendant Carmelo &
Bauermann.
The contracts of lease dated
June 1, 1967 and March 31,
1969 are declared expired and
all persons claiming rights
under these contracts are
directed to vacate the
premises.6
The trial court adjudged the identically worded paragraph 8
found in both aforecited lease contracts to be an option clause
which however cannot be deemed to be binding on Carmelo
because of lack of distinct consideration therefor.
The court a quo ratiocinated:
Significantly, during the pre-trial, it was admitted by
the parties that the option in the contract of lease is
not supported by a separate consideration. Without
a consideration, the option is therefore not binding
on defendant Carmelo & Bauermann to sell the
C.M. Recto property to the former. The option
invoked by the plaintiff appears in the contracts of
lease . . . in effect there is no option, on the ground
that there is no consideration. Article 1352 of the
Civil Code, provides:
Contracts without cause or
with unlawful cause, produce
no effect whatever. The cause
is unlawful if it is contrary to
law, morals, good custom,
public order or public policy.
Contracts therefore without consideration produce
no effect whatsoever. Article 1324 provides:
When the offeror has allowed
the offeree a certain period to
accept, the offer may be
withdrawn at any time before
acceptance by communicating
such withdrawal, except when
the option is founded upon
consideration, as something
paid or promised.
in relation with Article 1479 of the same Code:
A promise to buy and sell a
determine thing for a price
certain is reciprocally
demandable.
An accepted unilateral
promise to buy or to sell a
determine thing for a price
certain is binding upon the
promissor if the promise is
supported by a consideration
distinct from the price.
The plaintiff cannot compel defendant Carmelo to
comply with the promise unless the former
establishes the existence of a distinct
consideration. In other words, the promisee has the
burden of proving the consideration. The
consideration cannot be presumed as in Article
1354:
Although the cause is not
stated in the contract, it is
presumed that it exists and is
lawful unless the debtor
proves the contrary.
where consideration is legally presumed to exists.
Article 1354 applies to contracts in general,
whereas when it comes to an option it is governed
particularly and more specifically by Article 1479
whereby the promisee has the burden of proving
the existence of consideration distinct from the
price. Thus, in the case of Sanchez vs. Rigor, 45
SCRA 368, 372-373, the Court said:
(1) Article 1354 applies to
contracts in general, whereas
the second paragraph of
Article 1479 refers to sales in
particular, and, more
specifically, to an accepted
unilateral promise to buy or to
sell. In other words, Article
1479 is controlling in the case
at bar.
(2) In order that said unilateral
promise may be binding upon
the promissor, Article 1479
requires the concurrence of a
condition, namely, that the
promise be supported by a
consideration distinct from the
price.
Accordingly, the promisee
cannot compel the promissor
to comply with the promise,
unless the former establishes
the existence of said distinct
consideration. In other words,
the promisee has the burden of
proving such consideration.
Plaintiff herein has not even
alleged the existence thereof
in his complaint. 7
It follows that plaintiff cannot compel defendant
Carmelo & Bauermann to sell the C.M. Recto
property to the former.
Mayfair taking exception to the decision of the trial court, the
battleground shifted to the respondent Court of Appeals.
Respondent appellate court reversed the court a quo and
rendered judgment:
1. Reversing and setting aside the appealed
Decision;
2. Directing the plaintiff-appellant Mayfair Theater
Inc. to pay and return to Equatorial the amount of
P11,300,000.00 within fifteen (15) days from notice
of this Decision, and ordering Equatorial Realty
Development, Inc. to accept such payment;
3. Upon payment of the sum of P11,300,000,
directing Equatorial Realty Development, Inc. to
execute the deeds and documents necessary for
the issuance and transfer of ownership to Mayfair
of the lot registered under TCT Nos. 17350,
118612, 60936, and 52571; and
4. Should plaintiff-appellant Mayfair Theater, Inc. be
unable to pay the amount as adjudged, declaring
the Deed of Absolute Sale between the defendants-
appellants Carmelo & Bauermann, Inc. and
Equatorial Realty Development, Inc. as valid and
binding upon all the parties.8
Rereading the law on the matter of sales and option contracts,
respondent Court of Appeals differentiated between Article
1324 and Article 1479 of the Civil Code, analyzed their
application to the facts of this case, and concluded that since
paragraph 8 of the two lease contracts does not state a fixed
price for the purchase of the leased premises, which is an
essential element for a contract of sale to be perfected, what
paragraph 8 is, must be a right of first refusal and not an option
contract. It explicated:
Firstly, the court a quo misapplied the provisions of
Articles 1324 and 1479, second paragraph, of the
Civil Code.
Article 1324 speaks of an "offer" made by an offeror
which the offeree may or may not accept within a
certain period. Under this article, the offer may be
withdrawn by the offeror before the expiration of the
period and while the offeree has not yet accepted
the offer. However, the offer cannot be withdrawn
by the offeror within the period if a consideration
has been promised or given by the offeree in
exchange for the privilege of being given that period
within which to accept the offer. The consideration
is distinct from the price which is part of the offer.
The contract that arises is known as option. In the
case of Beaumont vs. Prieto, 41 Phil. 670, the
Supreme court, citing Bouvier, defined an option as
follows: "A contract by virtue of which A, in
consideration of the payment of a certain sum to B,
acquires the privilege of buying from or selling to B,
certain securities or properties within a limited time
at a specified price," (pp. 686-7).
Article 1479, second paragraph, on the other hand,
contemplates of an "accepted unilateral promise to
buy or to sell a determinate thing for a price within
(which) is binding upon the promisee if the promise
is supported by a consideration distinct from the
price." That "unilateral promise to buy or to sell a
determinate thing for a price certain" is called an
offer. An "offer", in laws, is a proposal to enter into
a contract (Rosenstock vs. Burke, 46 Phil. 217). To
constitute a legal offer, the proposal must be certain
as to the object, the price and other essential terms
of the contract (Art. 1319, Civil Code).
Based on the foregoing discussion, it is evident that
the provision granting Mayfair "30-days exclusive
option to purchase" the leased premises is NOT AN
OPTION in the context of Arts. 1324 and 1479,
second paragraph, of the Civil Code. Although the
provision is certain as to the object (the sale of the
leased premises) the price for which the object is to
be sold is not stated in the provision Otherwise
stated, the questioned stipulation is not by itself, an
"option" or the "offer to sell" because the clause
does not specify the price for the subject property.
Although the provision giving Mayfair "30-days
exclusive option to purchase" cannot be legally
categorized as an option, it is, nevertheless, a valid
and binding stipulation. What the trial court failed to
appreciate was the intention of the parties behind
the questioned proviso.
xxx xxx xxx
The provision in question is not of the pro-forma
type customarily found in a contract of lease. Even
appellees have recognized that the stipulation was
incorporated in the two Contracts of Lease at the
initiative and behest of Mayfair. Evidently, the
stipulation was intended to benefit and protect
Mayfair in its rights as lessee in case Carmelo
should decide, during the term of the lease, to sell
the leased property. This intention of the parties is
achieved in two ways in accordance with the
stipulation. The first is by giving Mayfair "30-days
exclusive option to purchase" the leased property.
The second is, in case Mayfair would opt not to
purchase the leased property, "that the purchaser
(the new owner of the leased property) shall
recognize the lease and be bound by all the terms
and conditions thereof."
In other words, paragraph 8 of the two Contracts of
lease, particularly the stipulation giving Mayfair "30-
days exclusive option to purchase the (leased
premises)," was meant to provide Mayfair the
opportunity to purchase and acquire the leased
property in the event that Carmelo should decide to
dispose of the property. In order to realize this
intention, the implicit obligation of Carmelo once it
had decided to sell the leased property, was not
only to notify Mayfair of such decision to sell the
property, but, more importantly, to make an offer to
sell the leased premises to Mayfair, giving the latter
a fair and reasonable opportunity to accept or reject
the offer, before offering to sell or selling the leased
property to third parties. The right vested in Mayfair
is analogous to the right of first refusal, which
means that Carmelo should have offered the sale
of the leased premises to Mayfair before offering it
to other parties, or, if Carmelo should receive any
offer from third parties to purchase the leased
premises, then Carmelo must first give Mayfair the
opportunity to match that offer.
In fact, Mr. Pascal understood the provision as
giving Mayfair a right of first refusal when he made
the telephone call to Mr. Yang in 1974. Mr. Pascal
thus testified:
Q Can
you tell
this
Honorabl
e Court
how you
made the
offer to
 Mr. Henry consideration indispensable in an option contract, has no
Yang by application, respondent appellate court also addressed the
telephone claim of Carmelo and Equatorial that assuming arguendo that
? the option is valid and effective, it is impossible of
performance because it covered only the leased premises
and not the entire Claro M. Recto property, while Carmelo's
A I have
offer to sell pertained to the entire property in question. The
an offer
Court of Appeals ruled as to this issue in this wise:
from
another
party to We are not persuaded by the contentions of the
buy the defendants-appellees. It is to be noted that the
property Deed of Absolute Sale between Carmelo and
and Equatorial covering the whole Claro M. Recto
having property, made reference to four titles: TCT Nos.
the offer 17350, 118612, 60936 and 52571. Based on the
we information submitted by Mayfair in its appellant's
decided Brief (pp. 5 and 46) which has not been
to make controverted by the appellees, and which We,
an offer to therefore, take judicial notice of the two theaters
Henry stand on the parcels of land covered by TCT No.
Yang on a 17350 with an area of 622.10 sq. m and TCT No.
first- 118612 with an area of 2,100.10 sq. m. The
refusal existence of four separate parcels of land covering
basis. the whole Recto property demonstrates the legal
(TSN and physical possibility that each parcel of land,
Novembe together with the buildings and improvements
r 8, 1983, thereof, could have been sold independently of the
p. 12.). other parcels.

and on cross-examination: At the time both parties executed the contracts,

they were aware of the physical and structural
conditions of the buildings on which the theaters
Q When
were to be constructed in relation to the remainder
you called
of the whole Recto property. The peculiar language
Mr. Yang
of the stipulation would tend to limit Mayfair's right
on August
under paragraph 8 of the Contract of Lease to the
1974 can
acquisition of the leased areas only. Indeed, what
you
is being contemplated by the questioned stipulation
remembe
is a departure from the customary situation wherein
r exactly
the buildings and improvements are included in and
what you
form part of the sale of the subjacent land. Although
have told
this situation is not common, especially considering
him in
the non-condominium nature of the buildings, the
connectio
sale would be valid and capable of being
n with that
performed. A sale limited to the leased premises
matter,
only, if hypothetically assumed, would have brought
Mr.
into operation the provisions of co-ownership under
Pascal?
which Mayfair would have become the exclusive
owner of the leased premises and at the same time
A More or a co-owner with Carmelo of the subjacent land in
less, I told proportion to Mayfair's interest over the premises
him that I sold to it.10
received
an offer
Carmelo and Equatorial now comes before us questioning the
from
correctness and legal basis for the decision of respondent
another
Court of Appeals on the basis of the following assigned errors:
party to
buy the
property I
and I was
offering
THE COURT OF APPEALS GRAVELY ERRED IN
him first
CONCLUDING THAT THE OPTION CLAUSE IN
choice of
THE CONTRACTS OF LEASE IS ACTUALLY A
the enter
RIGHT OF FIRST REFUSAL PROVISO. IN DOING
property.
SO THE COURT OF APPEALS DISREGARDED
(TSN,
THE CONTRACTS OF LEASE WHICH CLEARLY
Novembe
AND UNEQUIVOCALLY PROVIDE FOR AN
r 29,
OPTION, AND THE ADMISSION OF THE
1983, p.
PARTIES OF SUCH OPTION IN THEIR
18).
STIPULATION OF FACTS.

We rule, therefore, that the foregoing interpretation

II
best renders effectual the intention of the parties.9

WHETHER AN OPTION OR RIGHT OF FIRST

Besides the ruling that paragraph 8 vests in Mayfair the right
REFUSAL, THE COURT OF APPEALS ERRED IN
of first refusal as to which the requirement of distinct
 DIRECTING EQUATORIAL TO EXECUTE A
DEED OF SALE EIGHTEEN (18) YEARS AFTER
MAYFAIR FAILED TO EXERCISE ITS OPTION
(OR, EVEN ITS RIGHT OF FIRST REFUSAL
ASSUMING IT WAS ONE) WHEN THE
CONTRACTS LIMITED THE EXERCISE OF SUCH
OPTION TO 30 DAYS FROM NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY
ERRED WHEN IT DIRECTED IMPLEMENTATION
OF ITS DECISION EVEN BEFORE ITS FINALITY,
AND WHEN IT GRANTED MAYFAIR A RELIEF
THAT WAS NOT EVEN PRAYED FOR IN THE
COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN
INTERNAL RULES IN THE ASSIGNMENT OF
APPEALED CASES WHEN IT ALLOWED THE
SAME DIVISION XII, PARTICULARLY JUSTICE
MANUEL HERRERA, TO RESOLVE ALL THE
MOTIONS IN THE "COMPLETION PROCESS"
AND TO STILL RESOLVE THE MERITS OF THE
CASE IN THE "DECISION STAGE".11
We shall first dispose of the fourth assigned error respecting
alleged irregularities in the raffle of this case in the Court of
Appeals. Suffice it to say that in our Resolution,12 dated
December 9, 1992, we already took note of this matter and
set out the proper applicable procedure to be the following:
On September 20, 1992, counsel for petitioner
Equatorial Realty Development, Inc. wrote a letter-
complaint to this Court alleging certain irregularities
and infractions committed by certain lawyers, and
Justices of the Court of Appeals and of this Court in
connection with case CA-G.R. CV No. 32918 (now
G.R. No. 106063). This partakes of the nature of an
administrative complaint for misconduct against
members of the judiciary. While the letter-complaint
arose as an incident in case CA-G.R. CV No. 32918
(now G.R. No. 106063), the disposition thereof
should be separate and independent from Case
G.R. No. 106063. However, for purposes of
receiving the requisite pleadings necessary in
disposing of the administrative complaint, this
Division shall continue to have control of the case.
Upon completion thereof, the same shall be
referred to the Court En Banc for proper
disposition.13
This court having ruled the procedural irregularities raised in
the fourth assigned error of Carmelo and Equatorial, to be an
independent and separate subject for an administrative
complaint based on misconduct by the lawyers and justices
implicated therein, it is the correct, prudent and consistent
course of action not to pre-empt the administrative
proceedings to be undertaken respecting the said
irregularities. Certainly, a discussion thereupon by us in this
case would entail a finding on the merits as to the real nature
of the questioned procedures and the true intentions and
motives of the players therein.
In essence, our task is two-fold: (1) to define the true nature,
scope and efficacy of paragraph 8 stipulated in the two
contracts of lease between Carmelo and Mayfair in the face
of conflicting findings by the trial court and the Court of
Appeals; and (2) to determine the rights and obligations of
Carmelo and Mayfair, as well as Equatorial, in the aftermath
of the sale by Carmelo of the entire Claro M. Recto property
to Equatorial.
Both contracts of lease in question provide the identically
worded paragraph 8, which reads:
That if the LESSOR should desire to sell the leased
premises, the LESSEE shall be given 30-days
exclusive option to purchase the same.
In the event, however, that the leased premises is
sold to someone other than the LESSEE, the
LESSOR is bound and obligated, as it hereby binds
and obligates itself, to stipulate in the Deed of Sale
thereof that the purchaser shall recognize this lease
and be bound by all the terms and conditions
thereof.14
We agree with the respondent Court of Appeals that the
aforecited contractual stipulation provides for a right of first
refusal in favor of Mayfair. It is not an option clause or an
option contract. It is a contract of a right of first refusal.
As early as 1916, in the case of Beaumont
vs. Prieto,15 unequivocal was our characterization of an option
contract as one necessarily involving the choice granted to
another for a distinct and separate consideration as to
whether or not to purchase a determinate thing at a
predetermined fixed price.
It is unquestionable that, by means of the document
Exhibit E, to wit, the letter of December 4, 1911,
quoted at the beginning of this decision, the
defendant Valdes granted to the plaintiff Borck the
right to purchase the Nagtajan Hacienda belonging
to Benito Legarda, during the period of three
months and for its assessed valuation, a grant
which necessarily implied the offer or obligation on
the part of the defendant Valdes to sell to Borck the
said hacienda during the period and for the price
mentioned . . . There was, therefore, a meeting of
minds on the part of the one and the other, with
regard to the stipulations made in the said
document. But it is not shown that there was any
cause or consideration for that agreement, and this
omission is a bar which precludes our holding that
the stipulations contained in Exhibit E is a contract
of option, for, . . . there can be no contract without
the requisite, among others, of the cause for the
obligation to be established.
In his Law Dictionary, edition of 1897, Bouvier
defines an option as a contract, in the following
language:
A contract by virtue of which A,
in consideration of
the payment of a certain
sum to B, acquires the
privilege of buying from, or
selling to B, certain securities
or properties within a limited
time at a specified price. (Story
vs. Salamon, 71 N.Y., 420.)
From vol. 6, page 5001, of the work "Words and
Phrases," citing the case of Ide vs. Leiser (24 Pac.,
695; 10 Mont., 5; 24 Am. St. Rep., 17) the following
quotation has been taken:
An agreement in writing to give
a person the option to
 purchase lands within a given
time at a named price is
neither a sale nor an
agreement to sell. It is simply a
contract by which the owner of
property agrees with another
person that he shall have the
right to buy his property at a
fixed price within a certain
time. He does not sell his land;
he does not then agree to sell
it; but he does sell something;
that is, the right or privilege to
buy at the election or option of
the other party. The second
party gets in praesenti, not
lands, nor an agreement that
he shall have lands, but he
does get something of value;
that is, the right to call for and
receive lands if he elects. The
owner parts with his right to
sell his lands, except to the
second party, for a limited
period. The second party
receives this right, or, rather,
from his point of view, he
receives the right to elect to
buy.
But the two definitions above cited refer to the
contract of option, or, what amounts to the same
thing, to the case where there was cause or
consideration for the obligation, the subject of the
agreement made by the parties; while in the case
at bar there was no such cause or
consideration. 16 (Emphasis ours.)
The rule so early established in this jurisdiction is that the
deed of option or the option clause in a contract, in order to
be valid and enforceable, must, among other things, indicate
the definite price at which the person granting the option, is
willing to sell.
Notably, in one case we held that the lessee loses his right to buy the
leased property for a named price per square meter upon failure to make
the purchase within the time specified;17 in one other case we freed the
landowner from her promise to sell her land if the prospective buyer
could raise P4,500.00 in three weeks because such option was not
supported by a distinct consideration;18 in the same vein in yet one other
case, we also invalidated an instrument entitled, "Option to Purchase" a
parcel of land for the sum of P1,510.00 because of lack of
consideration;19 and as an exception to the doctrine enumerated in the
two preceding cases, in another case, we ruled that the option to buy
the leased premises for P12,000.00 as stipulated in the lease contract,
is not without consideration for in reciprocal contracts, like lease, the
obligation or promise of each party is the consideration for that of the
other. 20 In all these cases, the selling price of the object thereof is
always predetermined and specified in the option clause in the contract
or in the separate deed of option. We elucidated, thus, in the very recent
case of Ang Yu Asuncion vs. Court of Appeals21 that:
. . . In sales, particularly, to which the topic for
discussion about the case at bench belongs, the
contract is perfected when a person, called the
seller, obligates himself, for a price certain, to
deliver and to transfer ownership of a thing or right
to another, called the buyer, over which the latter
agrees. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of
sale one of the contracting
parties obligates himself to
transfer the ownership of and
to deliver a determinate thing,
and the other to pay therefor a
price certain in money or its
equivalent.
A contract of sale may be
absolute or conditional.
When the sale is not absolute but conditional, such
as in a "Contract to Sell" where invariably the
ownership of the thing sold in retained until the
fulfillment of a positive suspensive condition
(normally, the full payment of the purchase price),
the breach of the condition will prevent the
obligation to convey title from acquiring an
obligatory force. . . .
An unconditional mutual promise to buy and sell, as
long as the object is made determinate and the
price is fixed, can be obligatory on the parties, and
compliance therewith may accordingly be exacted.
An accepted unilateral promise which specifies the
thing to be sold and the price to be paid, when
coupled with a valuable consideration distinct and
separate from the price, is what may properly be
termed a perfected contract of option. This contract
is legally binding, and in sales, it conforms with the
second paragraph of Article 1479 of the Civil
Code, viz:
Art. 1479. . . .
An accepted unilateral
promise to buy or to 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.
(1451a).
Observe, however, that the option is not the
contract of sale itself. The optionee has the right,
but not the obligation, to buy. Once the option is
exercised timely, i.e., the offer is accepted before a
breach of the option, a bilateral promise to sell and
to buy ensues and both parties are then reciprocally
bound to comply with their respective undertakings.
Let us elucidate a little. A negotiation is formally
initiated by an offer. An imperfect promise
(policitacion) is merely an offer. Public
advertisements or solicitations and the like are
ordinarily construed as mere invitations to make
offers or only as proposals. These relations, until a
contract is perfected, are not considered binding
commitments. Thus, at any time prior to the
perfection of the contract, either negotiating party
may stop the negotiation. The offer, at this stage,
may be withdrawn; the withdrawal is effective
immediately after its manifestation, such as by its
mailing and not necessarily when the offeree learns
of the withdrawal (Laudico vs. Arias, 43 Phil. 270).
Where a period is given to the offeree within which
to accept the offer, the following rules generally
govern:
(1) If the period is not itself founded upon or
supported by a consideration, the offeror is still free
and has the right to withdraw the offer before its
acceptance, or if an acceptance has been made,
before the offeror's coming to know of such fact, by
communicating that withdrawal to the offeree (see
 Art. 1324, Civil Code; see also Atkins, Kroll & Co.
vs. Cua, 102 Phil. 948, holding that this rule is
applicable to a unilateral promise to sell under Art.
1479, modifying the previous decision in South
Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see
also Art. 1319, Civil Code; Rural Bank of
Paraaque, Inc. vs. Remolado, 135 SCRA 409;
Sanchez vs. Rigos, 45 SCRA 368). The right to
withdraw, however, must not be exercised
whimsically or arbitrarily; otherwise, it could give
rise to a damage claim under Article 19 of the Civil
Code which ordains that "every person must, in the
exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and
observe honesty and good faith."
(2) If the period has a separate consideration, a
contract of "option" deemed perfected, and it would
be a breach of that contract to withdraw the offer
during the agreed period. The option, however, is
an independent contract by itself; and it is to be
distinguished from the projected main agreement
(subject matter of the option) which is obviously yet
to be concluded. If, in fact, the optioner-offeror
withdraws the offer before its acceptance (exercise
of the option) by the optionee-offeree, the latter may
not sue for specific performance on the proposed
contract ("object" of the option) since it has failed to
reach its own stage of perfection. The optioner-
offeror, however, renders himself liable for
damages for breach of the opinion. . .
In the light of the foregoing disquisition and in view of the
wording of the questioned provision in the two lease contracts
involved in the instant case, we so hold that no option to
purchase in contemplation of the second paragraph of Article
1479 of the Civil Code, has been granted to Mayfair under the
said lease contracts.
Respondent Court of Appeals correctly ruled that the said
paragraph 8 grants the right of first refusal to Mayfair and is
not an option contract. It also correctly reasoned that as such,
the requirement of a separate consideration for the option,
has no applicability in the instant case.
There is nothing in the identical Paragraphs "8" of the June 1,
1967 and March 31, 1969 contracts which would bring them
into the ambit of the usual offer or option requiring an
independent consideration.
An option is a contract granting a privilege to buy or sell within
an agreed time and at a determined price. It is a separate and
distinct contract from that which the parties may enter into
upon the consummation of the option. It must be supported by
consideration.22 In the instant case, the right of first refusal is
an integral part of the contracts of lease. The consideration is
built into the reciprocal obligations of the parties.
To rule that a contractual stipulation such as that found in
paragraph 8 of the contracts is governed by Article 1324 on
withdrawal of the offer or Article 1479 on promise to buy and
sell would render in effectual or "inutile" the provisions on right
of first refusal so commonly inserted in leases of real estate
nowadays. The Court of Appeals is correct in stating that
Paragraph 8 was incorporated into the contracts of lease for
the benefit of Mayfair which wanted to be assured that it shall
be given the first crack or the first option to buy the property
at the price which Carmelo is willing to accept. It is not also
correct to say that there is no consideration in an agreement
of right of first refusal. The stipulation is part and parcel of the
entire contract of lease. The consideration for the lease
includes the consideration for the right of first refusal. Thus,
Mayfair is in effect stating that it consents to lease the
premises and to pay the price agreed upon provided the
lessor also consents that, should it sell the leased property,
then, Mayfair shall be given the right to match the offered
purchase price and to buy the property at that price. As stated
in Vda. De Quirino vs. Palarca,23 in reciprocal contract, the
obligation or promise of each party is the consideration for that
of the other.
The respondent Court of Appeals was correct in ascertaining
the true nature of the aforecited paragraph 8 to be that of a
contractual grant of the right of first refusal to Mayfair.
We shall now determine the consequential rights, obligations
and liabilities of Carmelo, Mayfair and Equatorial.
The different facts and circumstances in this case call for an
amplification of the precedent in Ang Yu Asuncion vs. Court
of Appeals.24
First and foremost is that the petitioners acted in bad faith to
render Paragraph 8 "inutile".
What Carmelo and Mayfair agreed to, by executing the two
lease contracts, was that Mayfair will have the right of first
refusal in the event Carmelo sells the leased premises. It is
undisputed that Carmelo did recognize this right of Mayfair,
for it informed the latter of its intention to sell the said property
in 1974. There was an exchange of letters evidencing the offer
and counter-offers made by both parties. Carmelo, however,
did not pursue the exercise to its logical end. While it initially
recognized Mayfair's right of first refusal, Carmelo violated
such right when without affording its negotiations with Mayfair
the full process to ripen to at least an interface of a definite
offer and a possible corresponding acceptance within the "30-
day exclusive option" time granted Mayfair, Carmelo
abandoned negotiations, kept a low profile for some time, and
then sold, without prior notice to Mayfair, the entire Claro M
Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders
the sale to it of the property in question rescissible. We agree
with respondent Appellate Court that the records bear out the
fact that Equatorial was aware of the lease contracts because
its lawyers had, prior to the sale, studied the said contracts.
As such, Equatorial cannot tenably claim to be a purchaser in
good faith, and, therefore, rescission lies.
. . . Contract of Sale was not voidable but
rescissible. Under Article 1380 to 1381(3) of the
Civil Code, a contract otherwise valid may
nonetheless be subsequently rescinded by reason
of injury to third persons, like creditors. The status
of creditors could be validly accorded the
Bonnevies for they had substantial interests that
were prejudiced by the sale of the subject property
to the petitioner without recognizing their right of
first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy
granted by law to the contracting parties and even
to third persons, to secure reparation for damages
caused to them by a contract, even if this should be
valid, by means of the restoration of things to their
condition at the moment prior to the celebration of
said contract. It is a relief allowed for the protection
of one of the contracting parties and even third
persons from all injury and damage the contract
may cause, or to protect some incompatible and
preferent right created by the contract. Rescission
implies a contract which, even if initially valid,
produces a lesion or pecuniary damage to
someone that justifies its invalidation for reasons of
equity.
 It is true that the acquisition by a third person of the
property subject of the contract is an obstacle to the
action for its rescission where it is shown that such
third person is in lawful possession of the subject of
the contract and that he did not act in bad faith.
However, this rule is not applicable in the case
before us because the petitioner is not considered
a third party in relation to the Contract of Sale nor
may its possession of the subject property be
regarded as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee
in the Contract of Sale. Moreover, the petitioner
cannot be deemed a purchaser in good faith for the
record shows that it categorically admitted it was
aware of the lease in favor of the Bonnevies, who
were actually occupying the subject property at the
time it was sold to it. Although the Contract of Lease
was not annotated on the transfer certificate of title
in the name of the late Jose Reynoso and Africa
Reynoso, the petitioner cannot deny actual
knowledge of such lease which was equivalent to
and indeed more binding than presumed notice by
registration.
A purchaser in good faith and for value is one who
buys the property of another without notice that
some other person has a right to or interest in such
property and pays a full and fair price for the same
at the time of such purchase or before he has notice
of the claim or interest of some other person in the
property. Good faith connotes an honest intention
to abstain from taking unconscientious advantage
of another. Tested by these principles, the
petitioner cannot tenably claim to be a buyer in
good faith as it had notice of the lease of the
property by the Bonnevies and such knowledge
should have cautioned it to look deeper into the
agreement to determine if it involved stipulations
that would prejudice its own interests.
The petitioner insists that it was not aware of the
right of first priority granted by the Contract of
Lease. Assuming this to be true, we nevertheless
agree with the observation of the respondent court
that:
If Guzman-Bocaling failed to
inquire about the terms of the
Lease Contract, which
includes Par. 20 on priority
right given to the Bonnevies, it
had only itself to blame.
Having known that the
property it was buying was
under lease, it behooved it as
a prudent person to have
required Reynoso or the
broker to show to it the
Contract of Lease in which
Par. 20 is contained.25
Petitioners assert the alleged impossibility of performance
because the entire property is indivisible property. It was
petitioner Carmelo which fixed the limits of the property it was
leasing out. Common sense and fairness dictate that instead
of nullifying the agreement on that basis, the stipulation
should be given effect by including the indivisible
appurtenances in the sale of the dominant portion under the
right of first refusal. A valid and legal contract where the
ascendant or the more important of the two parties is the
landowner should be given effect, if possible, instead of being
nullified on a selfish pretext posited by the owner. Following
the arguments of petitioners and the participation of the owner
in the attempt to strip Mayfair of its rights, the right of first
refusal should include not only the property specified in the
contracts of lease but also the appurtenant portions sold to
Equatorial which are claimed by petitioners to be indivisible.
Carmelo acted in bad faith when it sold the entire property to
Equatorial without informing Mayfair, a clear violation of
Mayfair's rights. While there was a series of exchanges of
letters evidencing the offer and counter-offers between the
parties, Carmelo abandoned the negotiations without giving
Mayfair full opportunity to negotiate within the 30-day period.
Accordingly, even as it recognizes the right of first refusal, this
Court should also order that Mayfair be authorized to exercise
its right of first refusal under the contract to include the entirety
of the indivisible property. The boundaries of the property sold
should be the boundaries of the offer under the right of first
refusal. As to the remedy to enforce Mayfair's right, the Court
disagrees to a certain extent with the concluding part of the
dissenting opinion of Justice Vitug. The doctrine enunciated
in Ang Yu Asuncion vs.Court of Appeals should be modified,
if not amplified under the peculiar facts of this case.
As also earlier emphasized, the contract of sale between
Equatorial and Carmelo is characterized by bad faith, since it
was knowingly entered into in violation of the rights of and to
the prejudice of Mayfair. In fact, as correctly observed by the
Court of Appeals, Equatorial admitted that its lawyers had
studied the contract of lease prior to the sale. Equatorial's
knowledge of the stipulations therein should have cautioned it
to look further into the agreement to determine if it involved
stipulations that would prejudice its own interests.
Since Mayfair has a right of first refusal, it can exercise the
right only if the fraudulent sale is first set aside or rescinded.
All of these matters are now before us and so there should be
no piecemeal determination of this case and leave festering
sores to deteriorate into endless litigation. The facts of the
case and considerations of justice and equity require that we
order rescission here and now. Rescission is a relief allowed
for the protection of one of the contracting parties and even
third persons from all injury and damage the contract may
cause or to protect some incompatible and preferred right by
the contract.26 The sale of the subject real property by
Carmelo to Equatorial should now be rescinded considering
that Mayfair, which had substantial interest over the subject
property, was prejudiced by the sale of the subject property to
Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulated period.27
This Court has always been against multiplicity of suits where
all remedies according to the facts and the law can be
included. Since Carmelo sold the property for P11,300,000.00
to Equatorial, the price at which Mayfair could have purchased
the property is, therefore, fixed. It can neither be more nor
less. There is no dispute over it. The damages which Mayfair
suffered are in terms of actual injury and lost opportunities.
The fairest solution would be to allow Mayfair to exercise its
right of first refusal at the price which it was entitled to accept
or reject which is P11,300,000.00. This is clear from the
records.
To follow an alternative solution that Carmelo and Mayfair
may resume negotiations for the sale to the latter of the
disputed property would be unjust and unkind to Mayfair
because it is once more compelled to litigate to enforce its
right. It is not proper to give it an empty or vacuous victory in
this case. From the viewpoint of Carmelo, it is like asking a
fish if it would accept the choice of being thrown back into the
river. Why should Carmelo be rewarded for and allowed to
profit from, its wrongdoing? Prices of real estate have
skyrocketed. After having sold the property for
P11,300,000.00, why should it be given another chance to sell
it at an increased price?
Under the Ang Yu Asuncion vs. Court of Appeals decision,
the Court stated that there was nothing to execute because a
 contract over the right of first refusal belongs to a class of
preparatory juridical relations governed not by the law on
contracts but by the codal provisions on human relations. This
may apply here if the contract is limited to the buying and
selling of the real property. However, the obligation of
Carmelo to first offer the property to Mayfair is embodied in a
contract. It is Paragraph 8 on the right of first refusal which
created the obligation. It should be enforced according to the
law on contracts instead of the panoramic and indefinite rule
on human relations. The latter remedy encourages multiplicity
of suits. There is something to execute and that is for Carmelo
to comply with its obligation to the property under the right of
the first refusal according to the terms at which they should
have been offered then to Mayfair, at the price when that offer
should have been made. Also, Mayfair has to accept the offer.
This juridical relation is not amorphous nor is it merely
preparatory. Paragraphs 8 of the two leases can be executed
according to their terms.
On the question of interest payments on the principal amount
of P11,300,000.00, it must be borne in mind that both Carmelo
and Equatorial acted in bad faith. Carmelo knowingly and
deliberately broke a contract entered into with Mayfair. It sold
the property to Equatorial with purpose and intend to withhold
any notice or knowledge of the sale coming to the attention of
Mayfair. All the circumstances point to a calculated and
contrived plan of non-compliance with the agreement of first
refusal.
On the part of Equatorial, it cannot be a buyer in good faith
because it bought the property with notice and full knowledge
that Mayfair had a right to or interest in the property superior
to its own. Carmelo and Equatorial took unconscientious
advantage of Mayfair.
Neither may Carmelo and Equatorial avail of considerations
based on equity which might warrant the grant of interests.
The vendor received as payment from the vendee what, at the
time, was a full and fair price for the property. It has used the
P11,300,000.00 all these years earning income or interest
from the amount. Equatorial, on the other hand, has received
rents and otherwise profited from the use of the property
turned over to it by Carmelo. In fact, during all the years that
this controversy was being litigated, Mayfair paid rentals
regularly to the buyer who had an inferior right to purchase the
property. Mayfair is under no obligation to pay any interests
arising from this judgment to either Carmelo or Equatorial.
WHEREFORE, the petition for review of the decision of the
Court of Appeals, dated June 23, 1992, in CA-G.R. CV No.
32918, is HEREBY DENIED. The Deed of Absolute Sale
between petitioners Equatorial Realty Development, Inc. and
Carmelo & Bauermann, Inc. is hereby deemed rescinded;
petitioner Carmelo & Bauermann is ordered to return to
petitioner Equatorial Realty Development the purchase price.
The latter is directed to execute the deeds and documents
necessary to return ownership to Carmelo and Bauermann of
the disputed lots. Carmelo & Bauermann is ordered to allow
Mayfair Theater, Inc. to buy the aforesaid lots for
P11,300,000.00.
SO ORDERED.
ROSENDO O. CHAVES, Plaintiff-Appellant, v.
FRUCTUOSO GONZALES
1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-
PERFORMANCE; FIXING OF PERIOD BEFORE FILING OF
COMPLAINT FOR NON-PERFORMANCE, ACADEMIC. Where the
time for compliance had expired and there was breach of contract by
non-performance, it was academic for the plaintiff to have first petitioned
the court to fix a period for the performance of the contract before filing
his complaint.
2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF
THE CIVIL CODE OF THE PHILIPPINES. Where the defendant
virtually admitted non-performance of the contract by returning the
typewriter that he was obliged to repair in a non-working condition, with
essential parts missing, Article 1197 of the Civil Code of the Philippines
cannot be invoked. The fixing of a period would thus be a mere formality
and would serve no purpose than to delay.
3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR. Where
the defendant-appellee contravened the tenor of his obligation because
he not only did not repair the typewriter but returned it "in shambles, he
is liable for the cost of the labor or service expended in the repair of the
typewriter, which is in the amount of P58.75, because the obligation or
contract was to repair it. In addition, he is likewise liable under Art. 1170
of the Code, for the cost of the missing parts, in the amount of P31.10,
for in his obligation to repair the typewriter he was bound, but failed or
neglected, to return it in the same condition it was when he received it.
4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEYS FEES NOT
RECOVERABLE; NOT ALLEGED OR PROVED IN INSTANT CASE.
Claims for damages and attorneys fees must be pleaded, and the
existence of the actual basis thereof must be proved. As no findings of
fact were made on the claims for damages and attorneys fees, there is
no factual basis upon which to make an award therefor.
5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST
INSTANCE TO SUPREME COURT; ONLY QUESTIONS OF LAW
REVIEWABLE. Where the appellant directly appeals from the
decision of the trial court to the Supreme Court on questions of law, he
is bound by the judgment of the court a quo on its findings of fact.
DECISION
REYES, J.B.L., J.:
This is a direct appeal by the party who prevailed in a suit for breach of
oral contract and recovery of damages but was unsatisfied with the
decision rendered by the Court of First Instance of Manila, in its Civil
Case No. 65138, because it awarded him only P31.10 out of his total
claim of P690 00 for actual, temperate and moral damages and
attorneys fees.
The appealed judgment, which is brief, is hereunder quoted in
full:jgc:chanrobles.com.ph
"In the early part of July, 1963, the plaintiff delivered to the defendant,
who is a typewriter repairer, a portable typewriter for routine cleaning
and servicing. The defendant was not able to finish the job after some
time despite repeated reminders made by the plaintiff. The defendant
merely gave assurances, but failed to comply with the same. In October,
1963, the defendant asked from the plaintiff the sum of P6.00 for the
purchase of spare parts, which amount the plaintiff gave to the
defendant. On October 26, 1963, after getting exasperated with the
delay of the repair of the typewriter, the plaintiff went to the house of the
defendant and asked for the return of the typewriter. The defendant
delivered the typewriter in a wrapped package. On reaching home, the
plaintiff examined the typewriter returned to him by the defendant and
found out that the same was in shambles, with the interior cover and
some parts and screws missing. On October 29, 1963. the plaintiff sent
a letter to the defendant formally demanding the return of the missing
parts, the interior cover and the sum of P6.00 (Exhibit D). The following
day, the defendant returned to the plaintiff some of the missing parts,
the interior cover and the P6.00.
"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas
Business Machines, and the repair job cost him a total of P89.85,
including labor and materials (Exhibit C).
"On August 23, 1965, the plaintiff commenced this action before the City
Court of Manila, demanding from the defendant the payment of P90.00
as actual and compensatory damages, P100.00 for temperate
damages, P500.00 for moral damages, and P500.00 as attorneys fees.
"In his answer as well as in his testimony given before this court, the
defendant made no denials of the facts narrated above, except the claim
of the plaintiff that the typewriter was delivered to the defendant through
a certain Julio Bocalin, which the defendant denied allegedly because
the typewriter was delivered to him personally by the plaintiff.
"The repair done on the typewriter by Freixas Business Machines with
the total cost of P89.85 should not, however, be fully chargeable against
the defendant. The repair invoice, Exhibit C, shows that the missing
parts had a total value of only P31.10.
"WHEREFORE, judgment is hereby rendered ordering the defendant to
pay the plaintiff the sum of P31.10, and the costs of suit.
"SO ORDERED."cralaw virtua1aw library
The error of the court a quo, according to the plaintiff-appellant, Rosendo
O. Chaves, is that it awarded only the value of the missing parts of the
typewriter, instead of the whole cost of labor and materials that went into
the repair of the machine, as provided for in Article 1167 of the Civil
Code, reading as follows:jgc:chanrobles.com.ph
"ART. 1167. If a person obliged to do something fails to do it, the same
shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the
tenor of the obligation. Furthermore it may be decreed that what has
been poorly done he undone."cralaw virtua1aw library
On the other hand, the position of the defendant-appellee, Fructuoso
Gonzales, is that he is not liable at all, not even for the sum of P31.10,
because his contract with plaintiff-appellant did not contain a period, so
that plaintiff-appellant should have first filed a petition for the court to fix
the period, under Article 1197 of the Civil Code, within which the
defendant appellee was to comply with the contract before said
defendant-appellee could be held liable for breach of contract.
Because the plaintiff appealed directly to the Supreme Court and the
appellee did not interpose any appeal, the facts, as found by the trial
court, are now conclusive and non-reviewable. 1
The appealed judgment states that the "plaintiff delivered to the
defendant . . . a portable typewriter for routine cleaning and servicing" ;
that the defendant was not able to finish the job after some time despite
repeated reminders made by the plaintiff" ; that the "defendant merely
gave assurances, but failed to comply with the same" ; and that "after
getting exasperated with the delay of the repair of the typewriter", the
plaintiff went to the house of the defendant and asked for its return,
which was done. The inferences derivable from these findings of fact are
that the appellant and the appellee had a perfected contract for cleaning
and servicing a typewriter; that they intended that the defendant was to
finish it at some future time although such time was not specified; and
that such time had passed without the work having been accomplished,
far the defendant returned the typewriter cannibalized and unrepaired,
which in itself is a breach of his obligation, without demanding that he
should be given more time to finish the job, or compensation for the work
he had already done. The time for compliance having evidently expired,
and there being a breach of contract by non-performance, it was
academic for the plaintiff to have first petitioned the court to fix a period
for the performance of the contract before filing his complaint in this
case. Defendant cannot invoke Article 1197 of the Civil Code for he
virtually admitted non-performance by returning the typewriter that he
was obliged to repair in a non-working condition, with essential parts
missing. The fixing of a period would thus be a mere formality and would
serve no purpose than to delay (cf. Tiglao. Et. Al. V. Manila Railroad Co.
98 Phil. 18l).
It is clear that the defendant-appellee contravened the tenor of his
obligation because he not only did not repair the typewriter but returned
it "in shambles", according to the appealed decision. For such
contravention, as appellant contends, he is liable under Article 1167 of
the Civil Code. jam quot, for the cost of executing the obligation in a
proper manner. The cost of the execution of the obligation in this case
should be the cost of the labor or service expended in the repair of the
typewriter, which is in the amount of P58.75. because the obligation or
contract was to repair it.
In addition, the defendant-appellee is likewise liable, under Article 1170
of the Code, for the cost of the missing parts, in the amount of P31.10,
for in his obligation to repair the typewriter he was bound, but failed or
neglected, to return it in the same condition it was when he received it.
Appellants claims for moral and temperate damages and attorneys fees
were, however, correctly rejected by the trial court, for these were not
alleged in his complaint (Record on Appeal, pages 1-5). Claims for
damages and attorneys fees must be pleaded, and the existence of the
actual basis thereof must be proved. 2 The appealed judgment thus
made no findings on these claims, nor on the fraud or malice charged to
the appellee. As no findings of fact were made on the claims for
damages and attorneys fees, there is no factual basis upon which to
make an award therefor. Appellant is bound by such judgment of the
court, a quo, by reason of his having resorted directly to the Supreme
Court on questions of law.
IN VIEW OF THE FOREGOING REASONS, the appealed judgment is
hereby modified, by ordering the defendant-appellee to pay, as he is
hereby ordered to pay, the plaintiff-appellant the sum of P89.85, with
interest at the legal rate from the filing of the complaint. Costs in all
instances against appellee Fructuoso Gonzales.
ACINTO TANGUILIG doing business under the name and style
J.M.T. ENGINEERING AND GENERAL
MERCHANDISING, petitioner, vs. COURT OF APPEALS
and VICENTE HERCE JR., respondents.
DECISION
BELLOSILLO, J.:
This case involves the proper interpretation of the contract entered
into between the parties.
Sometime in April 1987 petitioner Jacinto M. Tanguilig doing
business under the name and style J. M. T. Engineering and General
Merchandising proposed to respondent Vicente Herce Jr. to construct a
windmill system for him. After some negotiations they agreed on the
construction of the windmill for a consideration of P60,000.00 with
a one-year guaranty from the date of completion and acceptance by
respondent Herce Jr. of the project. Pursuant to the agreement
respondent paid petitioner a down payment of P30,000.00 and an
installment payment of P15,000.00, leaving a balance of P15,000.00.
On 14 March 1988, due to the refusal and failure of respondent to
pay the balance, petitioner filed a complaint to collect the amount. In
his Answer before the trial court respondent denied the claim saying that
he had already paid this amount to the San Pedro General
Merchandising Inc. (SPGMI) which constructed the deep well to which
the windmill system was to be connected. According to respondent,
since the deep well formed part of the system the payment he tendered
to SPGMI should be credited to his account by petitioner. Moreover,
assuming that he owed petitioner a balance of P15,000.00, this should
be offset by the defects in the windmill system which caused the
structure to collapse after a strong wind hit their place. [1]
Petitioner denied that the construction of a deep well was included
in the agreement to build the windmill system, for the contract price
of P60,000.00 was solely for the windmill assembly and its installation,
exclusive of other incidental materials needed for the project. He also
disowned any obligation to repair or reconstruct the system and insisted
that he delivered it in good and working condition to respondent who
accepted the same without protest. Besides, its collapse was
attributable to a typhoon, a force majeure,which relieved him of any
liability.
In finding for plaintiff, the trial court held that the construction of
the deep well was not part of the windmill project as evidenced clearly
by the letter proposals submitted by petitioner to respondent.[2] It noted
that "[i]f the intention of the parties is to include the construction of the
deep well in the project, the same should be stated in the proposals. In
the absence of such an agreement, it could be safely concluded that the
construction of the deep well is not a part of the project undertaken by
the plaintiff."[3] With respect to the repair of the windmill, the trial court
found that "there is no clear and convincing proof that the windmill
system fell down due to the defect of the construction."[4]
 The Court of Appeals reversed the trial court. It ruled that the
construction of the deep well was included in the agreement of the
parties because the term "deep well" was mentioned in both proposals.
It also gave credence to the testimony of respondent's witness Guillermo
Pili, the proprietor of SPGMI which installed the deep well, that petitioner
Tanguilig told him that the cost of constructing the deep well would be
deducted from the contract price of P60,000.00. Upon these premises
the appellate court concluded that respondent's payment of P15,000.00
to SPGMI should be applied to his remaining balance with petitioner thus
effectively extinguishing his contractual obligation. However, it rejected
petitioner's claim of force majeure and ordered the latter to reconstruct
the windmill in accordance with the stipulated one-year guaranty.
His motion for reconsideration having been denied by the Court of
Appeals, petitioner now seeks relief from this Court. He raises two
issues: firstly, whether the agreement to construct the windmill system
included the installation of a deep well and, secondly,whether petitioner
is under obligation to reconstruct the windmill after it collapsed.
We reverse the appellate court on the first issue but sustain it on
the second.
The preponderance of evidence supports the finding of the trial
court that the installation of a deep well was not included in the proposals
of petitioner to construct a windmill system for respondent. There were
in fact two (2) proposals: one dated 19 May 1987 which pegged the
contract price at P87,000.00 (Exh. "1"). This was rejected by
respondent. The other was submitted three days later, i.e., on 22 May
1987 which contained more specifications but proposed a lower contract
price of P60,000.00 (Exh. "A"). The latter proposal was accepted by
respondent and the construction immediately followed. The pertinent
portions of the first letter-proposal (Exh. "1") are reproduced hereunder
- of Pili that Herce Jr. wrote him a letter is unsubstantiated. The alleged
In connection with your Windmill System and Installation, we would like
to quote to you as follows:
One (1) Set - Windmill suitable for 2 inches diameter deepwell, 2 HP,
capacity, 14 feet in diameter, with 20 pieces blade, Tower 40 feet high,
including mechanism which is not advisable to operate during extra-
intensity wind. Excluding cylinder pump.
UNIT CONTRACT PRICE P87,000.00
The second letter-proposal (Exh. "A") provides as follows:
In connection with your Windmill system Supply of Labor Materials and
Installation, operated water pump, we would like to quote to you as
follows -
One (1) set - Windmill assembly for 2 inches or 3 inches deep-well
pump, 6 Stroke, 14 feet diameter, 1-lot blade materials, 40 feet Tower
complete with standard appurtenances up to Cylinder pump, shafting
U.S. adjustable International Metal.
One (1) lot - Angle bar, G. I. pipe, Reducer Coupling, Elbow Gate valve,
cross Tee coupling.
One (1) lot - Float valve.
One (1) lot - Concreting materials foundation.
F. O. B. Laguna
Contract Price P60,000.00
Notably, nowhere in either proposal is the installation of a deep
well mentioned, even remotely. Neither is there an itemization or
description of the materials to be used in constructing the deep
well. There is absolutely no mention in the two (2) documents that a
deep well pump is a component of the proposed windmill system. The
contract prices fixed in both proposals cover only the features
specifically described therein and no other. While the words "deep
well" and "deep well pump" are mentioned in both, these do not indicate
that a deep well is part of the windmill system. They merely describe the
type of deep well pump for which the proposed windmill would be
suitable. As correctly pointed out by petitioner, the words "deep
well" preceded by the prepositions "for" and "suitable for" were meant
only to convey the idea that the proposed windmill would be appropriate
for a deep well pump with a diameter of 2 to 3 inches. For if the real
intent of petitioner was to include a deep well in the agreement to
construct a windmill, he would have used instead the
conjunctions "and" or "with." Since the terms of the instruments are
clear and leave no doubt as to their meaning they should not be
disturbed.
Moreover, it is a cardinal rule in the interpretation of contracts
that the intention of the parties shall be accorded primordial
consideration[5] and, in case of doubt, their contemporaneous and
subsequent acts shall be principally considered.[6] An examination of
such contemporaneous and subsequent acts of respondent as well as
the attendant circumstances does not persuade us to uphold him.
Respondent insists that petitioner verbally agreed that the contract
price of P60,000.00 covered the installation of a deep well pump. He
contends that since petitioner did not have the capacity to install the
pump the latter agreed to have a third party do the work the cost of
which was to be deducted from the contract price. To prove his point, he
presented Guillermo Pili of SPGMI who declared that petitioner
Tanguilig approached him with a letter from respondent Herce Jr. asking
him to build a deep well pump as "part of the price/contract which
Engineer (Herce) had with Mr. Tanguilig."[7]
We are disinclined to accept the version of respondent. The claim
letter was never presented in court by private respondent for reasons
known only to him. But granting that this written communication existed,
it could not have simply contained a request for Pili to install a deep well;
it would have also mentioned the party who would pay for the
undertaking. It strains credulity that respondent would keep silent on this
matter and leave it all to petitioner Tanguilig to verbally convey to
Pili that the deep well was part of the windmill construction and that its
payment would come from the contract price of P60,000.00.
We find it also unusual that Pili would readily consent to build a
deep well the payment for which would come supposedly from the
windmill contract price on the mere representation of petitioner, whom
he had never met before, without a written commitment at least from the
former. For if indeed the deep well were part of the windmill project, the
contract for its installation would have been strictly a matter between
petitioner and Pili himself with the former assuming the obligation to pay
the price. That it was respondent Herce Jr. himself who paid for the deep
well by handing over to Pili the amount of P15,000.00 clearly indicates
that the contract for the deep well was not part of the windmill project but
a separate agreement between respondent and Pili. Besides, if the price
of P60,000.00 included the deep well, the obligation of respondent was
to pay the entire amount to petitioner without prejudice to any action that
Guillermo Pili or SPGMI may take, if any, against the latter. Significantly,
when asked why he tendered payment directly to Pili and not to
petitioner, respondent explained, rather lamely, that he did it "because
he has (sic) the money, so (he) just paid the money in his possession."[8]
Can respondent claim that Pili accepted his payment on
behalf of petitioner? No. While the law is clear that "payment shall
be made to the person in
whose favor the obligation has been constituted, or his successor
in interest, or any person authorized toreceive it,".[9] It does not
appear from the record that Pili and/or SPGMI was so authorized.
Respondent cannot claim the benefit of the law concerning
"payments made by a third person."[10] The Civil Code provisions do not
apply in the instant case because no creditor-debtor relationship
between petitioner and Guillermo Pili and/or SPGMI has been
established regarding the construction of the deep well. Specifically,
witness Pili did not testify that he entered into a contract with petitioner
for the construction of respondent's deep well. If SPGMI was really
commissioned by petitioner to construct the deep well, an agreement
particularly to this effect should have been entered into.
The contemporaneous and subsequent acts of the parties
concerned effectively belie respondent's assertions. These
circumstances only show that the construction of the well by SPGMI was
for the sole account of respondent and that petitioner merely supervised
the installation of the well because the windmill was to be connected to
it. There is no legal nor factual basis by which this Court can impose
upon petitioner an obligation he did not expressly assume nor ratify.
The second issue is not a novel one. In a long line of cases[11] this
Court has consistently held that in order for a party to claim exemption
from liability by reason of fortuitous event under Art. 1174 of the Civil
Code the event should be the sole and proximate cause of the loss or
destruction of the object of the contract. In Nakpil vs. Court of
Appeals,[12] four (4) requisites 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 unforeseeable or unavoidable; (c) the event must
be such as to render it impossible for the debtor to fulfill his obligation in
a normal manner; and, (d) the debtor must be free from any participation
in or aggravation of the injury to the creditor.
Petitioner failed to show that the collapse of the windmill was due
solely to a fortuitous event. Interestingly, the evidence does not disclose
that there was actually a typhoon on the day the windmill collapsed.
Petitioner merely stated that there was a "strong wind." But a strong
wind in this case cannot be fortuitous - unforeseeable nor
unavoidable. On the contrary, a strong wind should be present in places
where windmills are constructed, otherwise the windmills will not turn.
The appellate court correctly observed that "given the newly-
constructed windmill system, the same would not have collapsed had
there been no inherent defect in it which could only be attributable to the
appellee."[13] It emphasized that respondent had in hisfavor the
presumption that "things have happened according to the ordinary
course of nature and the ordinary habits of life."[14] This presumption has
not been rebutted by petitioner.
Finally, petitioner's argument that private respondent was already
in default in the payment of his outstanding balance of P15,000.00 and
hence should bear his own loss, is untenable. In reciprocal obligations,
neither party incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon him.[15] When
the windmill failed to function properly it became incumbent upon
petitioner to institute the proper repairs in accordance with the guaranty
stated in the contract. Thus, respondent cannot be said to have incurred
in delay; instead, it is petitioner who should bear the expenses for the
reconstruction of the windmill. Article 1167 of the Civil Code is explicit
on this point that if a person obliged to do something fails to do it, the
same shall be executed at his cost.
WHEREFORE, the appealed decision is MODIFIED. Respondent
VICENTE HERCE JR. is directed to pay petitioner JACINTO M.
TANGUILIG the balance of P15,000.00 with interest at the legal rate
from the date of the filing of the complaint. In return, petitioner is ordered
to "reconstruct subject defective windmill system, in accordance with the
one-year guaranty"[16]and to complete the same within three (3) months
from the finality of this decision.
SO ORDERED.
HEIRS OF RAMON C. GAITE VS THE PLAZA, INC.
VILLARAMA, JR., J.:
This is a petition for review under Rule 45 of the 1997 Rules of Civil Procedure,
as amended, which seeks to reverse and set aside the Decision [1] dated June 27,
2006 and Resolution[2] dated April 20, 2007 of the Court of Appeals (CA) in
CA-G.R. CV No. 58790. The CA affirmed with modification the
Decision[3] dated July 3, 1997 of the Regional Trial Court (RTC) of Makati
City, Branch 63, in Civil Case Nos. 1328 (43083) and 40755.
The facts are as follows:
On July 16, 1980, The Plaza, Inc. (The Plaza), a corporation engaged in the
restaurant business, through its President, Jose C. Reyes, entered into a
contract[4] with Rhogen Builders (Rhogen), represented by Ramon C. Gaite, for
the construction of a restaurant building in Greenbelt, Makati, Metro Manila for
the price of P7,600,000.00. On July 18, 1980, to secure Rhogens compliance with
its obligation under the contract, Gaite and FGU Insurance Corporation (FGU)
executed a surety bond in the amount of P1,155,000.00 in favor of The
Plaza. On July 28, 1980, The Plaza paid P1,155,000.00 less withholding taxes as
down payment to Gaite. Thereafter, Rhogen commenced construction of the
restaurant building.
In a letter dated September 10, 1980, Engineer Angelito Z.
Gonzales, the Acting Building Official of the Municipality of Makati, ordered
Gaite to cease and desist from continuing with the construction of the building
for violation of Sections 301 and 302 of the National Building Code (P.D.
1096) and its implementing rules and regulations.[5] The letter was referred to
The Plazas Project Manager, Architect Roberto L. Tayzon.
On September 15, 1980, Engr. Gonzales informed Gaite that the
building permit for the construction of the restaurant was revoked for non-
compliance with the provisions of the National Building Code and for the
additional temporary construction without permit.[6] The Memorandum Report
of Building Inspector Victor Gregory enumerated the following violations of
Rhogen in the construction of the building:
1) No permit for Temporary Structure.
2) No notice of concrete pouring.
3) Some workers have no safety devices.
4) The Secretary and Construction Foreman refused to
[receive] the Letter of Stoppage dated September
10, 1980.
5) Mr. Ramon Gaite [is] questioning the authority of the
Building Officials Inspector.
6) Construction plans use[d] on the job site is not in
accordance to the approved plan.[7]
On September 19, 1980, the Project Manager (Tayzon) in his
Construction Memo #23 reported on his evaluation of Progress Billing #1
submitted by Rhogen. Tayzon stated that actual jobsite assessment showed that
the finished works fall short of Rhogens claimed percentage of accomplishment
and Rhogen was entitled to only P32,684.16 and not P260,649.91 being
demanded by Rhogen. Further, he recommended that said amount payable to
Rhogen be withheld pending compliance with Construction Memo #18,
resolution of cases regarding unauthorized withdrawal of materials from jobsite
and stoppage of work by the Municipal Engineers Office of Makati.[8]
On October 7, 1980, Gaite wrote Mr. Jose C. Reyes, President of
The Plaza regarding his actions/observations on the stoppage order issued. On
the permit for temporary structure, Gaite said the plans were being readied for
submission to the Engineering Department of the Municipality of Makati and
the application was being resent to Reyes for his appropriate action. As to the
notice for concrete pouring, Gaite said that their construction set-up provides
for a Project Manager to whom the Pouring Request is first submitted and
whose job is to clear to whoever parties are involved (this could still be worked
out with the Building Inspector). Regarding the safety devices for workers,
Gaite averred that he had given strict rules on this but in the course of
construction some workers have personal preferences. On the refusal of the
secretary and construction foreman to receive the stoppage order
dated September 10, 1980, Gaite took responsibility but insisted it was not a
violation of the National Building Code. Likewise, questioning the authority of
the Building Inspector is not a violation of the Code although Gaite denied he
ever did so. Lastly, on the construction plans used in the jobsite not being in
accordance with the approved plan, Gaite said he had sent Engr. Cristino V.
Laurel on October 3, 1980 to Reyes office and make a copy of the only
approved plan which was in the care of Reyes, but the latter did not give it to
Engr. Laurel. Gaite thus thought that Reyes would handle the matter by
himself.[9]
On the same day, Gaite notified Reyes that he is suspending all
construction works until Reyes and the Project Manager cooperate to resolve
the issue he had raised to address the problem.[10] This was followed by another
letter dated November 18, 1980 in which Gaite expressed his sentiments on
their aborted project and reiterated that they can still resolve the matter with
cooperation from the side of The Plaza.[11] In his reply-letter dated November
24, 1980, Reyes asserted that The Plaza is not the one to initiate a solution to
the situation, especially after The Plaza already paid the agreed down payment
of P1,155,000.00, which compensation so far exceeds the work completed by
Rhogen before the municipal authorities stopped the construction for several
violations. Reyes made it clear they have no obligation to help Rhogen get out
of the situation arising from non-performance of its own contractual
undertakings, and that The Plaza has its rights and remedies to protect its
interest.[12]
Subsequently, the correspondence between Gaite and Reyes
involved the custody of remaining bags of cement in the jobsite, in the course
of which Gaite was charged with estafa for ordering the removal of said
items. Gaite complained that Reyes continued to be uncooperative in refusing
to meet with him to resolve the delay. Gaite further answered the estafa charge
by saying that he only acted to protect the interest of the owner (prevent
spoilage/hardening of cement) and that Reyes did not reply to his request for
exchange.[13]
On January 9, 1981, Gaite informed The Plaza that he is terminating
their contract based on the Contractors Right to Stop Work or Terminate
Contracts as provided for in the General Conditions of the Contract. In his letter,
Gaite accused Reyes of not cooperating with Rhogen in solving the problem
concerning the revocation of the building permits, which he described as a
minor problem. Additionally, Gaite demanded the payment of P63,058.50 from
The Plaza representing the work that has already been completed by Rhogen. [14]
On January 13, 1981, The Plaza, through Reyes, countered that it
will hold Gaite and Rhogen fully responsible for failure to comply with the
terms of the contract and to deliver the finished structure on the stipulated
date. Reyes argued that the down payment made by The Plaza was more than
enough to cover Rhogens expenses.[15]
In a subsequent letter dated January 20, 1981, Reyes adverted to
Rhogens undertaking to complete the construction within 180 calendar days
from July 16, 1980 or up to January 12, 1981, and to pay the agreed payment
of liquidated damages for every month of delay, chargeable against the
performance bond posted by FGU. Reyes invoked Section 121 of the Articles
of General Conditions granting the owner the right to terminate the contract if
the contractor fails to execute the work properly and to make good such
deficiencies and deducting the cost from the payment due to the
contractor. Reyes also informed Gaite that The Plaza will continue the
completion of the structure utilizing the services of a competent contractor but
will charge Rhogen for liquidated damages as stipulated in Article VIII of the
Contract. After proper evaluation of the works completed by Rhogen, The Plaza
shall then resume the construction and charge Rhogen for all the costs and
expenses incurred in excess of the contract price. In the meantime that The
Plaza is still evaluating the extent and condition of the works performed by
Rhogen to determine whether these are done in accordance with the approved
plans, Reyes demanded from Gaite the reimbursement of the balance of their
initial payment of P1,155,000.00 from the value of the works correctly
completed by Rhogen, or if none, to reimburse the entire down payment plus
expenses of removal and replacement. Rhogen was also asked to turn over the
jobsite premises as soon as possible.[16] The Plaza sent copy of said letter to
FGU but the latter replied that it has no liability under the circumstances and
hence it could not act favorably on its claim against the bond. [17]
Builders also in the CFI of Rizal for nullification of the project development
contract executed prior to the General Construction Contract subject of Civil
Case No. 40755, which was allegedly in violation of the provisions of R.A. No.
545 (Architectural Law of the Philippines).[21] After the reorganization of the
Judiciary in 1983, the cases were transferred to the RTC of Makati and
eventually consolidated.
On July 3, 1997, Branch 63 of the RTC Makati rendered its decision
granting the claims of The Plaza against Rhogen, the Gaites and FGU, and the
cross-claim of FGU against Rhogen and the Gaites. The trial court ruled that
the Project Manager was justified in recommending that The Plaza withhold
payment on the progress billings submitted by Rhogen based on his evaluation
that The Plaza is liable to pay only P32,684.16 and not P260,649.91. The other
valid grounds for the withholding of payment were the pending estafa case
against Gaite, non-compliance by Rhogen with Construction Memorandum No.
18 and the non-lifting of the stoppage order.[22]
Regarding the non-lifting of the stoppage order, which the trial court
said was based on simple infractions, the same was held to be solely attributable
to Rhogens willful inaction. Instead of readily rectifying the violations, Rhogen
continued with the construction works thereby causing more damage. The trial
court pointed out that Rhogen is not only expected to be aware of standard
requirements and pertinent regulations on construction work, but also expressly
bound itself under the General Construction Contract to comply with all the
laws, city and municipal ordinances and all government regulations. Having
failed to complete the project within the stipulated period and comply with its
obligations, Rhogen was thus declared guilty of breaching the Construction
Contract and is liable for damages under Articles 1170 and 1167 of the Civil
Code.[23]
The dispositive portion of the trial courts decision reads:
WHEREFORE, in Civil Case No. 40755, defendants
Ramon Gaite, Cynthia Gaite and Rhogen Builders are
jointly and severally ordered to pay plaintiff:
1. the amount of P525,422.73 as actual
damages representing owner-furnished
materials with legal interest from the
time of filing of the complaint until full
payment;
2. the amount of P14,504.66 as actual
damages representing expenses for
uprooting with interest from the time of
filing the complaint until full payment;
3. the amount of P1,155,000.00 as actual
damages representing the
downpayment with legal interest from
the time of filing the complaint until
full payment;
4. the amount of P150,000.00 for moral
damages;

5. the amount of P100,000.00 for

On March 3, 1981, The Plaza notified Gaite that it could no longer exemplary damages;
credit any payment to Rhogen for the work it had completed because the
evaluation of the extent, condition, and cost of work done revealed that in 6. the amount of P500,000.00 as
addition to the violations committed during the construction of the building, the liquidated damages;
structure was not in accordance with plans approved by the government and
accepted by Ayala. Hence, The Plaza demanded the reimbursement of the down 7. the amount of P100,000.00 as
payment, the cost of uprooting or removal of the defective structures, the value reasonable attorneys fees; and,
of owner-furnished materials, and payment of liquidated damages.[18]
8. the cost of suit.

On March 26, 1981, The Plaza filed Civil Case No. 40755 for
breach of contract, sum of money and damages against Gaite and FGU in the
Court of First Instance (CFI) of Rizal.[19] The Plaza later amended its complaint
to include Cynthia G. Gaite and Rhogen.[20] The Plaza likewise filed Civil Case
No. 1328 (43083) against Ramon C. Gaite, Cynthia G. Gaite and/or Rhogen
Under the surety bond, defendants Rhogen and FGU are
jointly and severally ordered to pay plaintiff the amount
of P1,155,000.00 with legal interest from the time of
filing the complaint until full payment. In the event [that]
FGU pays the said amount, third-party defendants are
 jointly and severally ordered to pay the same amount to III. THE REGIONAL TRIAL COURT ERRED IN
FGU plus P50,000.00 as reasonable attorneys fees, the ORDERING DEFENDANT-APPELLANT
latter having been forced to litigate, and the cost of suit. RAMON GAITE TO PAY THE AMOUNT OF
P525,422.73 FOR THE OWNER
Civil Case No. 1328 is hereby ordered dismissed with no FURNISHED MATERIALS.
pronouncement as to cost.
IV. THE REGIONAL TRIAL COURT ERRED IN
SO ORDERED.[24] ORDERING DEFENDANT-APPELLANT
RAMON GAITE TO PAY PLAINTIFF-
APPELLEE THE AMOUNT OF P14,504.66
AS ALLEGED EXPENSES FOR
Dissatisfied, Ramon and Cynthia Gaite, Rhogen and FGU appealed
UPROOTING THE WORK HE
to the CA.[25] In view of the death of Ramon C. Gaite on April 21, 1999, the CA
PERFORMED.
issued a Resolution dated July 12, 2000 granting the substitution of the former
by his heirs Cynthia G. Gaite, Rhoel Santiago G. Gaite, Genevieve G. Gaite and
Roman Juan G. Gaite.[26] V. THE REGIONAL TRIAL COURT ERRED IN
ORDERING DEFENDANT-APPELLANT
RAMON GAITE TO REFUND THE DOWN
In their appeal, the heirs of Ramon C. Gaite, Cynthia G. Gaite and PAYMENT OF P1,155,000.00 PLAINTIFF-
Rhogen assigned the following errors, to wit: APPELLEE PAID HIM.

I. THE TRIAL COURT ERRED IN VI. THE REGIONAL TRIAL COURT ERRED IN
DECLARING THAT THE GROUNDS AWARDING MORAL DAMAGES TO
RELIED UPON BY DEFENDANT- PLAINTIFF-APPELLEE.
APPELLANT RHOGEN BUILDERS IN
TERMINATING THE CONTRACT ARE VII. THE REGIONAL TRIAL COURT ERRED IN
UNTENABLE; AWARDING EXEMPLARY DAMAGES TO
PLAINTIFF-APPELLEE.
II. THE TRIAL COURT ERRED IN
DECLARING THAT THE NON-LIFTING OF VIII. THE REGIONAL TRIAL [COURT] ERRED IN
THE STOPPAGE ORDER OF THE THEN AWARDING LIQUIDATED DAMAGES TO
MUNICIPAL GOVERNMENT PLAINTIFF-APPELLEE.
OF MAKATI WAS SOLELY
ATTRIBUTABLE TO DEFENDANT-
IX. THE REGIONAL TRIAL COURT ERRED IN
APPELLANT RHOGENS WILLFUL
AWARDING ATTORNEYS FEES TO
INACTION;
PLAINTIFF-APPELLEE.

III. THE TRIAL COURT ERRED IN FAILING TO

X. THE REGIONAL TRIAL COURT ERRED IN
CONSIDER THAT IT WAS THE WILLFUL
HOLDING DEFENDANT-APPELLANT
INACTION OF PLAINTIFF-APPELLEE
FGU INSURANCE CORPORATION
WHICH MADE IT IMPOSSIBLE FOR
LIABLE TO PLAINTIFF-APPELLEE.[28]
DEFENDANTAPPELLANT RHOGEN TO
PERFORM ITS OBLIGATIONS UNDER
THE CONTRACT;
On June 27, 2006, the CA affirmed the Decision of the trial court
IV. THE TRIAL COURT ERRED IN AWARDING but modified the award of damages as follows:
ACTUAL DAMAGES AS WELL AS
MORAL, EXEMPLARY, AND WHEREFORE, the Decision dated July 3,
LIQUIDATED DAMAGES AND 1997 rendered by the Regional Trial Court of Makati
ATTORNEYS FEES SINCE THERE WERE City, Branch 63 in Civil Case Nos. 40755 and 1328
NO FACTUAL AND LEGAL BASES is AFFIRMED with the modification that: (a) the
THEREFOR; AND award for actual damages representing the owner-
furnished materials and the expenses for uprooting are
V. THE TRIAL COURT ERRED IN FAILING deleted, and in lieu thereof, the amount of P300,000.00
TO AWARD ACTUAL, MORAL AND as temperate damages is awarded; and (b) the awards for
EXEMPLARY DAMAGES AND moral, exemplary, liquidated and attorneys fees are
ATTORNEYS FEES IN FAVOR OF likewise deleted.
DEFENDANTS-APPELLANTS.[27]
SO ORDERED.[29]

For its part, FGU interposed the following assignment of errors:

According to the CA, The Plaza cannot now be demanded to comply
I. THE REGIONAL TRIAL COURT ERRED with its obligation under the contract since Rhogen has already failed to comply
IN NOT RULING THAT DEFENDANT- with its own contractual obligation. Thus, The Plaza had every reason not to
APPELLANT RAMON GAITE VALIDLY pay the progress billing as a result of Rhogens inability to perform its
TERMINATED THE CONTRACT obligations under the contract. Further, the stoppage and revocation orders were
BETWEEN HIM AND PLAINTIFF- issued on account of Rhogens own violations involving the construction as
APPELLEE. found by the local building official.Clearly, Rhogen cannot blame The Plaza
for its own failure to comply with its contractual obligations. The CA stressed
that Rhogen obliged itself to comply with all the laws, city and municipal
II. THE REGIONAL TRIAL COURT ERRED IN
ordinances and all government regulations insofar as they are binding upon or
HOLDING DEFENDANT-APPELLANT
affect the parties [to the contract] , the work or those engaged thereon. [30] As
RAMON GAITE RESPONSIBLE FOR THE
such, it was responsible for the lifting of the stoppage and revocation orders. As
STOPPAGE OF THE CONSTRUCTION.
to Rhogens act of challenging the validity of the stoppage and revocation orders,
the CA held that it cannot be done in the present case because under Section
307 of the National Building Code, appeal to the Secretary of the Department
of Public Works and Highways (DPWH) whose decision is subject to review
by the Office of the President -- is available as remedy for Rhogen.[31]
However, the CA modified the award of damages holding that the
claim for actual damages of P525,422.73 representing the damaged owner-
furnished materials was not supported by any evidence. Instead, the CA granted
temperate damages in the amount of P300,000.00. As to moral damages, no
specific finding for the factual basis of said award was made by the trial court,
and hence it should be deleted. Likewise, liquidated damages is not proper
considering that this is not a case of delay but non-completion of the
project. The Plaza similarly failed to establish that Rhogen and Gaite acted with
malice or bad faith; consequently, the award of exemplary damages must be
deleted. Finally, there being no bad faith on the part of the defendants, the award
of attorneys fees cannot be sustained.[32]
The motion for reconsideration of the aforesaid Decision was denied
in the Resolution dated April 20, 2007 for lack of merit. Hence, this appeal.
Before us, petitioners submit the following issues:
I.
Whether or not the Court of Appeals acted without or in
excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when it
found that Petitioner Rhogen had no factual or legal basis
to terminate the General Construction Contract.
II.
Whether or not the Court of Appeals acted without or in
excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when, as
a consequence of its finding that Petitioners did not have
valid grounds to terminate the Construction Contract, it
directed Petitioners to return the downpayment paid by
The Plaza, with legal interest.
III.
Whether or not the Court of Appeals acted without or in
excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when, in
addition thereto, it awarded temperate damages to The
Plaza.
IV.
Whether or not the Court of Appeals acted without or in
excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when it
failed to award damages in favor of Petitioners.[33]
Petitioners contend that the CA gravely erred in not holding that there were
valid and legal grounds for Rhogen to terminate the contract pursuant to Article
1191 of the Civil Code and Article 123 of the General Conditions of the
Construction Contract.Petitioners claim that Rhogen sent Progress Billing No.
1 dated September 10, 1980 and demanded payment from The Plaza in the net
amount of P473,554.06 for the work it had accomplished from July 28,
1980 until September 7, 1980. The Plaza, however, failed to pay the said
amount. According to petitioners, Article 123 of the General Conditions of the
Construction Contract gives The Plaza seven days from notice within which to
pay the Progress Billing; otherwise, Rhogen may terminate the
contract. Petitioners also invoke Article 1191 of the Civil Code, which states
that the power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.
We deny the petition.
Reciprocal obligations are those which arise from the same cause, and in which
each party is a debtor and a creditor of the other, such that the obligation of one
is dependent upon the obligation of the other. They are to be performed
simultaneously such that the performance of one is conditioned upon the
simultaneous fulfillment of the other. Respondent The Plaza predicated its
action on Article 1191[34] of the Civil Code, which provides for the remedy of
rescission or more properly resolution, a principal action based on breach of
faith by the other party who violates the reciprocity between them. The breach
contemplated in the provision is the obligors failure to comply with an existing
obligation. Thus, the power to rescind is given only to the injured party. The
injured party is the party who has faithfully fulfilled his obligation or is ready
and willing to perform his obligation.[35]
The construction contract between Rhogen and The Plaza provides for
reciprocal obligations whereby the latters obligation to pay the contract price or
progress billing is conditioned on the formers performance of its undertaking to
complete the works within the stipulated period and in accordance with
approved plans and other specifications by the owner. Pursuant to its
contractual obligation, The Plaza furnished materials and paid the agreed down
payment. It also exercised the option of furnishing and delivering construction
materials at the jobsite pursuant to Article III of the Construction
Contract. However, just two months after commencement of the project,
construction works were ordered stopped by the local building official and the
building permit subsequently revoked on account of several violations of
the National Building Code and other regulations of the municipal authorities.
Petitioners reiterate their position that the stoppage order was
unlawful, citing the fact that when the new contractor (ACK Construction, Inc.)
took over the project, the local government of Makati allowed the construction
of the building using the old building permit; moreover, the basement depth of
only two meters was retained, with no further excavation made. They cite the
testimony of the late Ramon Gaite before the trial court that at the time, he had
incurred the ire of then Mayor of Makati because his (Gaite) brother was the
Mayors political opponent; hence, they sought to file whatever charge they
could against him in order to call the attention of his brother. This political
harassment defense was raised by petitioners in their Amended Answer. Gaites
testimony was intended to explain the circumstances leading to his decision to
terminate the construction contract and not to question the revocation of the
building permit. As the available remedy was already foreclosed, it was thus
error for the CA to suggest that Rhogen should have appealed the stoppage and
revocations orders issued by the municipal authorities to the DPWH and then
to the OP.[36]
Article 123 of the Articles of General Conditions states the grounds for the
termination of the work or contract by the Contractor:
123. CONTRACTORS RIGHT TO STOP WORK OR
TERMINATE
CONTRACT
If work should be stopped under order of any court, or
other public authority, for period of three (3)
months through no act or fault of
Contractor or of anyone employed by him, or
if Owners Representative should fail to issue
any certificate of payment within seven (7) days
after its maturity and presentation of any sum
certified by Owners Representative or awarded
arbitrator, then contractor, may, stop work or
terminate Contract, recover from Owner
payment for work executed, loss sustained upon
any plant or materials, reasonable profit,
damages.[37] (Emphasis supplied.)
Petitioners may not justify Rhogens termination of the contract upon
grounds of non-payment of progress billing and uncooperative attitude of
respondent The Plaza and its employees in rectifying the violations which were
the basis for issuance of the stoppage order. Having breached the contractual
obligation it had expressly assumed, i.e., to comply with all laws, rules and
regulations of the local authorities, Rhogen was already at fault. Respondent
The Plaza, on the other hand, was justified in withholding payment on Rhogens
first progress billing, on account of the stoppage order and additionally due to
disappearance of owner-furnished materials at the jobsite. In failing to have the
stoppage and revocation orders lifted or recalled, Rhogen should take full
responsibility in accordance with its contractual undertaking, thus:
 In the performance of the works, services, and
obligations subject of this Contract, the CONTRACTOR
binds itself to observe all pertinent and applicable laws,
rules and regulations promulgated by duly constituted
authorities and to be personally, fully and solely liable
for any and all violations of the same.[38] (Emphasis
supplied.)
Significantly, Rhogen did not mention in its communications to
Reyes that Gaite was merely a victim of abuse by a local official and this was
the primary reason for the problems besetting the project. On the contrary, the
site appraisal inspection conducted on February 12 and 13, 1981 in the presence
of representatives from The Plaza, Rhogen, FGU and Municipal Engineer
Victor Gregory, disclosed that in addition to the violations committed by
Rhogen which resulted in the issuance of the stoppage order, Rhogen built the
structure not in accordance with government approved plans and/or without
securing the approval of the Municipal Engineer before making the changes
thereon.[39]
Such non-observance of laws and regulations of the local authorities
affecting the construction project constitutes a substantial violation of the
Construction Contract which entitles The Plaza to terminate the same, without
obligation to make further payment to Rhogen until the work is finished or
subject to refund of payment exceeding the expenses of completing the works.
This is evident from a reading of Article 122 which states:
122. OWNERS RIGHT TO TERMINATE
CONTRACT
A. If Contractor should be adjudged bankrupt,
or if he should make general assignment
for benefit of his creditors, or if receiver
should be appointed on account of his
insolvency, or if he should persistently or
repeatedly refuse or should fail, except in
cases for which extension of time is
provided, to supply enough properly
skilled workmen or proper materials, or
if he should fail to make prompt payment
to Sub-Contractors or for materials of
labor, or persistently disregard laws,
ordinances, or instructions of Owners
Representative or otherwise be guilty of
substantial violation of any provision
of [the] Contract, then Owner, upon
certification by Owners Representative
that sufficient cause exists to justify such
action, may, without prejudice to any
right or remedy, after giving Contractor
seven days written notice, terminate
contract with Contractor, take
possession of premises, materials,
tools, appliances, thereon, finish work
by whatever method he may deem
expedient. In such cases, Contractor
shall not be entitled to receive any
further payment until work is
finished.
B. If unpaid balance of Contract sum shall
exceed expense of finishing work
including compensation for additional
managerial and administrative services,
such excess, paid to Contractor. Refund
the difference to Owner if such
expense shall exceed unpaid
balance.[40] (Emphasis supplied.)
Upon the facts duly established, the CA therefore did not err in holding
that Rhogen committed a serious breach of its contract with The Plaza, which
justified the latter in terminating the contract. Petitioners are thus liable for
damages for having breached their contract with respondent The Plaza. Article
1170 of the Civil Code provides that those who in the performance of their
obligations are guilty of fraud, negligence or delay and those who in any manner
contravene the tenor thereof are liable for damages.
Petitioners assail the order for the return of down payment, asserting
that the principle of quantum meruit demands that Rhogen as contractor be paid
for the work already accomplished.
We disagree.
Under the principle of quantum meruit, a contractor is allowed to
recover the reasonable value of the thing or services rendered despite the lack
of a written contract, in order to avoid unjust enrichment. Quantum
meruit means that in an action for work and labor, payment shall be made in
such amount as the plaintiff reasonably deserves. To deny payment for a
building almost completed and already occupied would be to permit unjust
enrichment at the expense of the contractor.[41]
Rhogen failed to finish even a substantial portion of the works due
to the stoppage order issued just two months from the start of
construction. Despite the down payment received from The Plaza, Rhogen,
upon evaluation of the Project Manager, was able to complete a meager
percentage much lower than that claimed by it under the first progress billing
between July and September 1980. Moreover, after it relinquished the project
in January 1981, the site inspection appraisal jointly conducted by the Project
Manager, Building Inspector Engr. Gregory and representatives from FGU and
Rhogen, Rhogen was found to have executed the works not in accordance with
the approved plans or failed to seek prior approval of the Municipal
Engineer.Article 1167 of the Civil Code is explicit on this point that if a person
obliged to do something fails to do it, the same shall be executed at his cost.
Art. 1167. If a person obliged to do
something fails to do it, the same shall be executed at his
cost.
This same rule shall be observed if he does it
in contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been
poorly done be undone.
In addition, Article 122 of the Articles of General Conditions provides that the
contractor shall not be entitled to receive further payment until the work is
finished. As the works completed by Rhogen were not in accordance with
approved plans, it should have been executed at its cost had it not relinquished
the project in January 1981. The CA thus did not err in sustaining the trial courts
order for the return of the down payment given by The Plaza to Rhogen.
As to temperate damages, Article 2224 of the Civil Code provides
that temperate or moderate damages, which are more than nominal but less than
compensatory damages, may be recovered when the court finds that some
pecuniary loss has been suffered but its amount cannot, from the nature of the
case, be proved with certainty. The rationale behind temperate damages is
precisely that from the nature of the case, definite proof of pecuniary loss cannot
be offered. When the court is convinced that there has been such loss, the judge
is empowered to calculate moderate damages, rather than let the complainant
suffer without redress from the defendants wrongful act. [42] Petitioners
contention that such award is improper because The Plaza could have presented
receipts to support the claim for actual damages, must fail considering that
Rhogen never denied the delivery of the owner-furnished materials which were
under its custody at the jobsite during the work stoppage and before it
terminated the contract. Since Rhogen failed to account either for those items
which it had caused to be withdrawn from the premises, or those considered
damaged or lost due spoilage, or disappeared for whatever reason there was no
way of determining the exact quantity and cost of those materials. Hence, The
Plaza was correctly allowed to recover temperate damages.
Upon the foregoing, we find petitioners claim for actual, moral and exemplary
damages and attorneys fees lacking in legal basis and undeserving of further
discussion.
WHEREFORE, the petition is DENIED. The Decision dated June
27, 2006 and the Resolution dated April 20, 2007 of the Court of Appeals in
CA-G.R. CV No. 58790 are AFFIRMED.
With costs against petitioners.

SO ORDERED.