VIRATA v.

SANDIGANBAYAN

Facts:

Petitioner Cesar E. A. Virata is one of the defendants in Civil Case No. 0035, entitled Republic of the Philippines versus Benjamin
(Kokoy) Romualdez, et. al.. The case, which was filed by the Presidential Commission on Good Government against fifty three
persons (53) including Virata, involves the recovery of ill-gotten wealth during the reign President Marcos.

The complaint against the defendants was amended three times. The last amended complaint filed with the Sandiganbayan, known
as the expanded Second Amended Complaint, states the following relevant allegations against petitioner Virata “that Defendants
Benjamin (Kokoy) Romualdez and Juliette Gomez Romualdez, in unlawful concert with Defendants Ferdinand E. Marcos and
Imelda R. Marcos, unjustly enriched themselves at the expense of plaintiff and the Filipino people by:

14.b.) gave MERALCO undue advantage (i) by effecting the increase of power rates, and (ii) by reducing the electric
franchise tax from 5% to 2% of gross receipts and the tariff duty on fuel oil imports by public utilities from 20% to 10%,
resulting in substantial savings for MERALCO but without any significant benefit to the consumers of electric power.

14.g.) secured, in a veiled attempt to justify MERALCO's anomalous acquisition of the electric cooperatives, the approval
by Defendant Ferdinand E. Marcos and his cabinet of the so-called "Three-Year Program for the Extension of
MERALCO's Services to Areas Within the 60-Kilometer Radius of Manila," which required government capital investment
amounting to millions of pesos;

14.m.) manipulated, with the collaboration of Philguarantee officials led by Chairman Cesar E. A. Virata, the formation of
Erecton Holdings, Inc. without infusing additional capital solely for the purpose of making it assume the obligation of
Erectors Incorporated with Philguarantee in the amount of P527,387,440.71 with insufficient Securities/collaterals just to
enable Erectors Inc. to appear viable and to borrow more capitals.

17. The following Defendants acted as dummies, nominees and/or agents by allowing themselves (i) as instruments in
accumulating ill-gotten wealth through government policies prejudicial to plaintiff, or (ii) to be directors of corporations
beneficially held and/or controlled by Defendants Ferdinand E. Marcos, Imelda R. Marcos, Benjamin (Kokoy) T.
Romualdez and Julliette Gomez Ramualdez in order (to) conceal and prevent recovery of assets illegally obtained.

Asserting that the foregoing allegations are vague and are not averred with sufficient definiteness as to enable him to effectively
prepare his responsive pleading, petitioner Virata filed a motion for a bill of particulars.

In a Resolution promulgated, the Sandiganbayan partially granted the said motion by requiring the Republic to submit a bill of
particulars concerning the charges against petitioner Virata stated only in paragraph 17 (acting as dummy, nominee and/or agent)
and paragraph 18 (gross abuse of authority and violation of laws and the Constitution) of the expanded Second Amended
Complaint. However, as to the other charges, the Sandiganbayan declared that these accusations are clear and specific enough to
allow Virata to submit an intelligent responsive pleading, hence, the motion for a bill of particulars respecting the foregoing three
charges was denied.

In view of the Sandiganbayan's order of August 4, 1992, the Republic through the Office of the Solicitor General submitted the bill of
particulars dated October 22, 1992, called as the Limited Bill of Particulars which was signed by a certain Ramon A. Felipe IV, who
was designated in the bill of particulars as "private counsel".

Way back on September 1, 1992, Virata, who was dissatisfied with the Sandiganbayan Resolution of August 4, 1992, filed a petition
for certiorari (G.R. No. 106527) with this Court questioning the Sandiganbayan's denial of his motion for a bill of particulars. The
PCGG submitted the bill of particulars dated November 3, 1993, which was apparently signed by a certain Reynaldo G. Ros, who
was named in the bill of particulars as "deputized prosecutor" of the PCGG.

Virata filed on November 23, 1993 his comment on the bill of particulars with motion to dismiss the expanded Second Amended
Complaint. He alleges that both the bills of particulars are pro forma and should be stricken off the records. According to him, the bill
of particulars dated November 3, 1993 is merely a rehash of the assertions made in the expanded Second Amended Complaint.
Furthermore, a reading of the Limited Bill of Particulars shows that it alleges new imputations which are immaterial to the charge of
being a dummy, nominee or agent, and that Virata acted, not as a dummy, nominee or agent of his co-defendants as what is
charged in the complaint, but as a government officer of the Republic.

Dissatisfied, Virata filed this instant petition for certiorari under Rule 65 of the Rules of Court to challenge the foregoing Resolution of
the Sandiganbayan.

Issue: 1. Whether the Sandiganbayan committed GAD in admitting the Bill of Particulars submitted by the Repuublic. – Yes.
2. Whether the Sol-Gen and the PCGG are authorized by law to deputize a counsel to file the Bill of Particulars in behalf of the
Repiblic. - No.

Rationale:
1. The instant petition meritorious. The rule is that a complaint must contain the ultimate facts constituting plaintiff's cause of action.
As long as a cause of action exists even though the allegations therein are vague, and dismissal of the action is not the proper
remedy when the pleading is ambiguous because the defendant may ask for more particulars.

As such, the Rules of Court provide that a party may move for more definite statement or for a bill of particulars of any matter which
is not averred with sufficient definiteness or particularity to enable him properly to prepare his responsive pleading or to prepare for
trial. Such motion shall point out the defects complained of and the details desired. Under this Rule, the remedy available to a party
who seeks clarification of any issue or matter vaguely or obscurely pleaded by the other party, is to file a motion, either for a more
definite statement or for a bill of particulars. An order directing the submission of such statement or bill, further, is proper where it
enables the party movant intelligently to prepare a responsive pleading, or adequately to prepare for trial.

A bill of particulars is a complementary procedural document consisting of an amplification or more particularized outline of a
pleading, and being in the nature of a more specific allegation of the facts recited in the pleading. It is the office of the bill of
particulars to inform the opposite party and the court of the precise nature and character of the cause of action or defense which the
pleader has attempted to set forth and thereby to guide his adversary in his preparations for trial, and reasonably to protect him
against surprise at the trial. It gives information of the specific proposition for which the pleader contends, in respect to any material
and issuable fact in the case, and it becomes a part of the pleading which it supplements. It has been held that a bill of particulars
must inform the opposite party of the nature of the pleader's cause of action or defense, and it must furnish the required items of the
claim with reasonable fullness and precision. Generally, it will be held sufficient if it fairly and substantially gives the opposite party
the information to which he is entitled, as required by the terms of the application and of the order therefor. It should be definite and
specific and not contain general allegations and conclusions. It should be reasonably certain and as specific as the circumstances
will allow.

Guided by the foregoing rules and principles, both the bill of particulars and the Limited Bill of Particulars are couched in such
general and uncertain terms as would make it difficult for petitioner to submit an intelligent responsive pleading to the complaint and
to adequately prepare for trial. It is apparent from the foregoing allegations that the Republic did not furnish Virata the following
material matters which are indispensable for him to be placed in such a situation wherein he can properly be informed of the
charges against him: a) Did Virata, who was only one of the members of the Board, act alone in approving the Resolution? Who
really approved the Resolution, Virata or the Monetary Board?; b) What were these outstanding loan obligations of the three
corporations concerned? Who were the creditors and debtors of these loan obligations? How much were involved in the
restructuring of the loan obligations? What made the transaction a 'sweetheart' or 'behest' accommodation?; and c) How was the
acquisition of MERALCO by Meralco Foundation, Inc. related to the Resolution restructuring the loan obligations of the three
corporations?

There are certain matters in the foregoing allegations which lack in substantial particularity. The following are the specific matters
which the Republic failed to provide, to wit: a) What made the transaction 'disadvantageous' to the government? The allegation that
it was disadvantageous is a conclusion of law that lacks factual basis. How did MERALCO gain the P206.2 million? The Republic
should have provided for more specifics how was the transaction favorable to MERALCO?; b) What were these foreign obligations
of MERALCO which were assumed by the government? Who were the creditors in these obligations? When were these obligations
contracted? How much were involved in the assumption of foreign obligations by the government?; and c) By the presence of the
provision of the contract quoted by the Republic, what made the agreement a 'sweetheart' deal? The allegation that the agreement
is a 'sweetheart deal' is a general statement that needs further amplification.

In like manner, the statement of facts fails to provide the following relevant matters: a) What was this $33.5 million proposed behest
loan? What were its terms? Who was supposed to be the grantor of this loan?; b) What were these short term loans? Who were the
parties to these transactions? When were these transacted? How was this $ 33.5 million behest loan related to the short term
loans?

As clearly established by the foregoing discussion, the two bills of particulars filed by the Republic failed to properly amplify the
charges leveled against Virata because, not only are they mere reiteration or repetition of the allegations set forth in the expanded
Second Amended Complaint, but, to the large extent, they contain vague, immaterial and generalized assertions which are
inadmissible under our procedural rules.

2. The Limited Bill of Particulars dated October 22, 1992 signed by Ramon Felipe IV and the Bill of Particulars dated November 3,
1993 signed by Reynaldo Ros are valid pleadings which are binding upon the Republic because the two lawyer-signatories are
legally deputized and authorized by the Office of the Solicitor General and the Presidential Commission on Good Government to
sign and file the bills of particulars concerned.

The Administrative Code of 1987, which virtually reproduces the powers and functions of the OSG enumerated in P.D. No. 478 (The
Law Defining the Powers and Functions of the Office of the Solicitor General): “Sec. 35. Powers and Functions, . . . . It (the OSG)
shall have the power to (8) Deputize legal officers of government departments, bureaus, agencies and offices to assist the Solicitor
General and appear or represent the Government in cases involving their respective offices, brought before the courts and exercise
supervision and control over such legal officers with respect to such cases.” Thus, the Solicitor General acted within the legal
bounds of its authority when it deputized Attorney Felipe IV to file in behalf of the Republic the bill of particulars concerning the
charges stated in paragraph 17 and 18 of the expanded Second Amended Complaint.
BANCO FILIPINO vs. CA Case Digest

BANCO FILIPINO vs. COURT OF APPEALS

332 SCRA 241

FACTS: Elsa Arcilla and her husband, Calvin Arcilla secured on three occasions, loans
from the Banco Filipino Savings and Mortgage bank in the amount of Php.107,946.00
as evidenced by the “Promissory Note” executed by the spouses in favor of the said
bank. To secure payment of said loans, the spouses executed “Real Estate Mortgages”
in favor of the appellants (Banco Filipino) over their parcels of land. The appellee
spouses failed to pay their monthly amortization to appellant. On September 2, 1985 the
appellee’s filed a complaint for “Annulment of the Loan Contracts, Foreclosure Sale with
Prohibitory and Injunction” which was granted by the RTC. Petitioners appealed to the
Court of Appeals, but the CA affirmed the decision of the RTC.

ISSUE: Whether or not the CA erred when it held that the cause of action of the private
respondents accrued on October 30, 1978 and the filing of their complaint for annulment
of their contracts in 1085 was not yet barred by the prescription

RULING: The court held that the petition is unmeritorious. Petitioner’s claim that the
action of the private respondents have prescribed is bereft of merit. Under Article 1150
of the Civil Code, the time for prescription of all kinds of action where there is no special
provision which ordains otherwise shall be counted from the day they may be brought.
Thus the period of prescription of any cause of action is reckoned only from the date of
the cause of action accrued. The period should not be made to retroact to the date of
the execution of the contract, but from the date they received the statement of account
showing the increased rate of interest, for it was only from the moment that they
discovered the petitioner’s unilateral increase thereof.

DATE OF DISCOVERY FROM THE COMPLETION OF THE SURVEY

ALICE VITANGCOL and NORBERTO VITANGCOL, Petitioners, v. NEW VISTA PROPERTIES, INC.,
MARIA ALIPIT, REGISTER OF DEEDS OF CALAMBA, LAGUNA, and the HONORABLE COURT OF
APPEALS Respondents.
DECISION

FACTS : Subject of the instant controversy is Lot No. 1702 covered by Transfer Certificate of Title (TCT)
No. (25311) 2528 of the Calamba, Laguna Registry in the name of Maria A. Alipit and Clemente A. Alipit,
married to Milagros

On June 18, 1989, Maria and Clemente A. Alipit, with the marital consent of the latters wife, executed a
Special Power of Attorney[4] (SPA) constituting Milagros A. De Guzman as their attorney-in-fact to sell
their property described in the SPA as located at Bo. Latian, Calamba, Laguna covered by TCT No.
(25311) 2538 with Lot No. 1735 consisting of 242,540 square meters more or less. Pursuant to her
authority under the SPA, De Guzman executed on August 9, 1989 a Deed of Absolute Sale[5] conveying
to New Vista Properties, Inc. (New Vista) a parcel of land with an area of 242,540 square meters situated
in Calamba, Laguna.
Following the sale, New Vista immediately entered the subject lot, fenced it with cement posts and barbed
wires, and posted a security guard to deter trespassers. he controversy arose more than a decade later
when respondent New Vista learned that the parcel of land it paid for and occupied, i.e., Lot No. 1702,
was being claimed by petitioners Vitangcol on the strength of a Deed of Absolute Sale for Lot No. 1702
under TCT No. (25311) 2528 entered into on August 14, 2001 by and between Vitangcol and Maria Alipit.
Consequent to the Vitangcol-Maria Alipit sale, TCT No. (25311) 2528 was canceled and TCT No. T-
482731 issued in its stead in favor of Vitangcol on August 15, 2001.

Alarmed by the foregoing turn of events, New Vista lost no time in protecting its rights by, first, filing a
notice of adverse claim over TCT No. T-482731, followed by commencing a suit for quieting of title before
the RTC. By Order of November 25, 2003, the trial court denied Vitangcols and Maria Alipits separate
motions to dismiss the amended complaint. As there held by the RTC, the amended complaint[10]
sufficiently stated a cause of action as shown therein that after the purchase and compliance with its legal
obligations relative thereto, New Vista was immediately placed in possession of the subject lot, but which
Maria Alipit, by herself, later sold to Vitangcol to New Vistas prejudice

On August 14, 2006, the appellate court rendered the assailed Decision reversing the December 21,
2004 RTC Order

ISSUE : WON THE DECISION AND THE RESOLUTION OF THE TWELFTH DIVISION OF THE COURT
OF APPEALS UNDER CHALLENGE ARE CONTRARY TO LAW

HELD : The Rules of Court defines cause of action as the act or omission by which a party violates a right
of another. It contains three elements: (1) a right existing in favor of the plaintiff; (2) a correlative duty on
the part of the defendant to respect that right; and (3) a breach of the defendants duty.[19] It is, thus, only
upon the occurrence of the last element that a cause of action arises, giving the plaintiff a right to file an
action in court for recovery of damages or other relief.[20].

Lack of cause of action is, however, not a ground for a dismissal of the complaint through a motion to
dismiss under Rule 16 of the Rules of Court, for the determination of a lack of cause of action can only be
made during and/or after trial. What is dismissible via that mode is failure of the complaint to state a
cause of action. Sec. 1(g) of Rule 16 of the Rules of Court provides that a motion may be made on the
ground that the pleading asserting the claim states no cause of action.

The rule is that in a motion to dismiss, a defendant hypothetically admits the truth of the material
allegations of the ultimate facts contained in the plaintiffs complaint.[21] When a motion to dismiss is
grounded on the failure to state a cause of action, a ruling thereon should, as rule, be based only on the
facts alleged in the complaint.[22] However, this principle of hypothetical admission admits of exceptions.
Among others, there is no hypothetical admission of conclusions or interpretations of law which are false;
legally impossible facts; facts inadmissible in evidence; facts which appear by record or document
included in the pleadings to be unfounded;[23] allegations which the court will take judicial notice are not
true;[24] and where the motion to dismiss was heard with submission of evidence which discloses facts
sufficient to defeat the claim.[25]

Dabuco vs CA

FACTS: The Lazarrabal family were the registered owners of the properties, subject matter of this
case. In 1991, on different occasions, the subject properties were sold to the Ruben Baculi, Editha
Belocura, Lira Puno, Rafael Lapuz, Ladrioro Montealto, Joel Masecampo, Delsa N. Manay, Ilderim
Castañares, Maria Theresa Puno, [and] Jill Mendoza. On June 27, 1994, GABI Multi-Purpose
Cooperative, a registered non-stock, non-profit cooperative filed a civil complaint against DABUCO,
et al. who were found residing and/or tilling the subject properties. The trial court issued a TRO
enjoining Dabuco, et al. to desist from further development of GABI’s properties. The trial court then
lifted the TRO upon failure of GABI to prove its title over the properties. Dabuco et al. filed their
answer alleging that GABI had no personality to sue since they do not appear to be buyer of the
properties neither were the properties titled in its name. Dabuco filed a Motion to Dismiss on the
ground of lack of cause of action, GABI has no personality to sue and lack of jurisdiction. The trial
court dismissed the case. GABI appealed to the CA and the decision was reversed. The success of
this petition rests on the validity of the dismissal by the trial court. Petitioners assert that there was
sufficient reason to dismiss the action below on the ground that GABI had no cause of action against
petitioners. They also aver in the alternative that the Complaint by GABI was properly dismissed on
the ground that it failed to state a cause of action. As a preliminary matter, we wish to stress the
distinction between the two grounds for dismissal of an action: failure to state a cause of action, on
the one hand, and lack of cause of action, on the other hand. The former refers to the insufficiency of
allegation in the pleading, the latter to the insufficiency of factual basis for the action. Failure to state
a cause may be raised in a Motion to Dismiss under Rule 16, while lack of cause may be raised any
time. Dismissal for failure to state a cause can be made at the earliest stages of an action. Dismissal
for lack of cause is usually made after questions of fact have been resolved on the basis of
stipulations, admissions or evidence presented.

ISSUE: Whether or not the dismissal of the trial court on the ground of lack of cause of action was
proper

ELD: The dismissal by the trial court was not proper. We note that the issue of sufficiency of GABI's
cause of action does not appear to have been passed upon by the appellate court in its assailed
decision. It appears that the trial court dismissed the case on the ground that GABI was not the
owner of the lands or one entitled to the possession thereof, and thus had no cause of action. In
dismissal for lack of cause of action, the court in effect declared that plaintiff is not entitled to a
favorable judgment inasmuch as one or more elements of his cause of action do not exist in fact.
Because questions of fact are involved, courts hesitate to declare a plaintiff as lacking in cause of
action. Such declaration is postponed until the insufficiency of cause is apparent from a
preponderance of evidence. Usually, this is done only after the parties have been given the
opportunity to present all relevant evidence on such questions of fact. We do not here rule on
whether GABI has a cause of action against petitioners. What we are saying is that the trial court's
ruling, to the effect that GABI had no title to the lands and thus had no cause of action, was
premature. Indeed, hearings were conducted. And the view of the Court of Appeals was that such
hearings were sufficient. The Court disagrees with the appellate court's ruling. The hearing of July
27, 1994 was on the propriety of lifting the restraining order. At such preliminary hearing, the trial
court required GABI to produce Certificates of Title to the lands in its name. GABI admitted that it did
not have such Certificates, only Deeds of Sale from the registered owners. Anent petitioners' thesis
that dismissal of the complaint by the trial court was proper of failure to state a cause of action, we,
likewise, find no valid basis to sustain the same. Dismissal of a Complaint for failure to state a cause
of action is provided for by the Rules of Court. In dismissal for failure to state a cause, the inquiry is
into the sufficiency, not the veracity, of the material allegations. The test is whether the material
allegations, assuming these to be true, state ultimate facts which constitute plaintiff's cause of action,
such that plaintiff is entitled to a favorable judgment as a matter of law. The general rule is that
inquiry is confined to the four corners of the complaint, and no other. This general rule was applied
by the Court of Appeals. Said court stated: It is a well-settled rule that in determining the sufficiency
of the cause of action, ONLY the facts alleged in the complaint and no others, should be considered.
In determining the existence of a cause of action, only the statements in the complaint may properly
be considered. If the complaint furnish sufficient basis by which the complaint may be maintained,
the same should not be dismissed regardless of the defenses that may be assessed [ sic ] by
defendants- appellees. There are well-recognized exceptions to the rule that the allegations are
hypothetically admitted as true and inquiry is confined to the face of the complaint. There is no
hypothetical admission of the veracity of allegations if their falsity is subject to judicial notice, or if
such allegations are legally impossible, or if these refer to facts which are inadmissible in evidence,
or if by the record or document included in the pleading these allegations appear unfounded. Also,
inquiry is not confined to the complaint if there is evidence which has been presented to the court by
stipulation of the parties, or in the course of hearings related to the case.

LETICIA NAGUIT AQUINO v. CESAR B. QUIAZON, GR No. 201248, 2015-03-11

Facts:
Issues:
Whether the CA erred in affirming the dismissal of petitioners' complaint on the ground of
lack of cause of action or failure to state a cause of action.
Ruling:
As a preliminary matter, we wish to stress the distinction between the two grounds for
dismissal of an action: failure to state a cause of action, on the one hand, and lack of cause
of action, on the other hand. The former refers to the insufficiency of allegation in... the
pleading, the latter to the insufficiency of factual basis for the action. Failure to state a cause
may be raised in a Motion to Dismiss under Rule 16, while lack of cause may be raised any
time. Dismissal for failure to state a cause can be made at the earliest stages of an... action.
Dismissal for lack of cause is usually made after questions of fact have been resolved on
the basis of stipulations, admissions or evidence presented
Exceptions and Section 6 of Rule 16 not applicable... exceptions to the general rule
A review of the first ground under paragraph 6 of the answer reveals that respondents
alleged that "[p]laintiffs have no valid, legal and sufficient cause of action against the
defendants." It is at this point that it must again be emphasized that it is not "lack or...
absence of cause of action" that is a ground for dismissal of the complaint under Rule 16,
but rather, that "the complaint states no cause of action."[33] The issue submitted to the
court was, therefore, the determination of the sufficiency of the... allegations in the
complaint to constitute a cause of action and not whether those allegations of fact were
true, as there was a hypothetical admission of facts alleged in the complaint.[34] An
affirmative defense, raising the ground that there is no... cause of action as against the
defendants poses a question of fact that should be resolved after the conduct of the trial on
the merits.[35] A reading of respondents' arguments in support of this ground readily
reveals that the arguments relate not to... the failure to state a cause of action, but to the
existence of the cause of action, which goes into the very crux of the controversy and is a
matter of evidence for resolution after a full-blown hearing.
a preliminary hearing on a motion to... dismiss is proscribed when the ground is failure to
state a cause of action.
Principles:
distinction between the grounds of "failure to state a cause of action" and "lack of cause of
action"
The ground of "lack of cause of action," as already explained, however, is not one of the
grounds for a motion to dismiss under Rule 16, and hence, not proper for resolution during
a preliminary hearing held pursuant to Section 6.
test for determining the existence of a cause of action... whether or not, admitting
hypothetically the truth of the allegations of fact made in the complaint, a judge may validly
grant the relief... demanded in the complaint.
In resolving whether or... not the complaint stated a cause of action, the trial court should
have limited itself to examining the sufficiency of the allegations in the complaint. It was
proscribed from inquiring into the truth of the allegations in the complaint or the authenticity
of any of the... documents referred or attached to the complaint, as these were deemed
hypothetically admitted by the respondents.
The affirmative defense that the Complaint stated no cause of action, similar to a motion to
dismiss based on the same ground, requires a hypothetical admission of the facts alleged in
the Complaint.
First, there is no hypothetical admission of (a) the veracity of allegations if... their falsity is
subject to judicial notice; (b) allegations that are legally impossible; (c) facts inadmissible in
evidence; and (d) facts which appear, by record or document included in the pleadings, to
be unfounded.[28] Second, inquiry is not... confined to the complaint if culled (a) from
annexes and other pleadings submitted by the parties;[29] (b) from documentary evidence
admitted by stipulation which disclose facts sufficient to defeat the claim; or (c) from
evidence admitted in the course of... hearings related to the case.
Pointing to the exception that inquiry was not confined to the complaint if evidence had
been presented in the course of hearings related to the case, the CA ruled that it was within
the trial court's discretion to receive and consider other evidence aside from the
allegations... in the complaint in resolving a party's affirmative defense. It held that this
discretion was recognized under Section 6 of Rule 16 of the Rules of Court, which allowed
the court to conduct a preliminary hearing, motu proprio, on the defendant's affirmative
defense if no... corresponding motion to dismiss was filed. This section reads in part:
Section 6. Pleading grounds as affirmative defenses. - If no motion to dismiss has been
filed, any of the grounds for dismissal provided for in this Rule may be pleaded as an
affirmative defense in the answer and, in the discretion of the court, a... preliminary hearing
may be had thereon as if a motion to dismiss had been filed.
It is at this point that it must again be emphasized that it is not "lack or... absence of cause
of action" that is a ground for dismissal of the complaint under Rule 16, but rather, that "the
complaint states no cause of action."
Thus, in a preliminary hearing on a motion to dismiss or on the affirmative defenses raised
in an answer, the parties are allowed to present evidence except... when the motion is
based on the ground of insufficiency of the statement of the cause of action which must be
determined on the basis only of the facts alleged in the complaint and no other.

Pilipinas Shell Petroleum Corporation vs John Bordman

eeply imbedded in our jurisprudence is the doctrine that the factual

findings of the Court of Appeals (CA) affirming those of the trial court are,

subject to some exceptions, binding upon this Court. Otherwise stated,

only questions of law, not of facts, may be raised before this Court in

petitions for review under Rule 45 of the Rules of Court. Nonetheless, in

the interest of substantial justice, the Court delved into both the factual and

the legal issues raised in the present case and found no reason to overturn

the CAs main Decision. Furthermore, under the peculiar factual

circumstances of the instant appeal, this Court holds that the period for

reckoning the prescription of the present cause of action began only when

respondent discovered with certainty the short deliveries made by

petitioner.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of

Court, assailing the August 20, 2002 Decision[2] and August 29, 2003
Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 46974. The
challenged Decision disposed as follows:
WHEREFORE, premises considered, the assailed decision
dated August 30, 1991 of the RTC, Branch 26, Manila in Civil Case
No. 13419 is hereby AFFIRMED with the MODIFICATION that the
award of exemplary damages and attorneys fees be both reduced
to P100,000.00.
 The order dated December 9, 1991 is likewise AFFIRMED.[4]

The assailed Resolution denied reconsideration.

The Facts

Petitioner Pilipinas Shell Petroleum Corporation (Pilipinas Shell) is a

corporation engaged in the business of refining and processing petroleum
products.[5] The invoicing of the products was made by Pilipinas Shell, but
delivery was effected through Arabay, Inc., its sole distributor at the time
material to the present case.[6] From 1955 to 1975, Respondent John
Bordman Ltd. of Iloilo, Inc. (John Bordman) purchased bunker oil in
drums from Arabay.[7] When Arabay ceased its operations in 1975, Pilipinas
Shell took over and directly marketed its products to John Bordman.[8]

On August 20, 1980, John Bordman filed against Pilipinas Shell a

civil case for specific performance. The former demanded the latters short
deliveries of fuel oil since 1955; as well as the payment of exemplary
damages, attorneys fees and costs of suit. [9] John Bordman alleged that
Pilipinas Shell and Arabay had billed it at 210 liters per drum, while other
oil companies operating in Bacolod had
billed their customers at 200 liters per drum. On July 24, 1974, when
representatives from John Bordman and Arabay conducted a volumetric
test to determine the quantity of fuel oil actually delivered, the drum used
could only fill up to 190 liters, instead of 210 liters, or a short delivery rate
of 9.5%.[10] After this volumetric test, Arabay reduced its billing rate to 200
(instead of 210) liters per drum, except for 4 deliveries between August 1
and September 9, 1974, when the billing was at 190 liters per drum.[11]

On January 23, 1975, another volumetric test allegedly showed that

the drum could contain only 187.5 liters.[12] On February 1, 1975, John
Bordman requested from Pilipinas Shell that 640,000 liters of fuel oil,
representing the latters alleged deficient deliveries, be credited to the
formers account.[13] The volume demanded was adjusted to 780,000 liters,
upon a realization that the billing rate of 210 liters per drum had been
effective since 1966.

On October 24, 1977 and November 9, 1977, representatives from

John Bordman, the auditor of the Iloilo City Commission on Audit, pump
boat carriers, and truck drivers conducted actual measurements of fuel
loaded on tanker trucks as transferred to dented drums at mouth full. They
found that the drums could contain 180 liters only.[14] In its Complaint,
John Bordman prayed for the appointment of commissioners to ascertain
the volume of short deliveries.[15]

On October 21, 1980, Pilipinas Shell and Arabay filed their Answer
with Counterclaim.[16] They specifically denied that fuel oil deliveries had
been less than those billed.[17] Moreover, the drums used in the volumetric
tests were allegedly not representative of the ones used in the actual
deliveries.[18]

By way of affirmative defense, Pilipinas Shell and Arabay countered

that John Bordman had no cause of action against them.[19] If any existed, it
had been waived or extinguished; or otherwise barred by prescription,
laches, and estoppel.[20]

During the pretrial, the parties agreed to limit the issues to the
following: (1) whether the action had prescribed, and (2) whether there had
been short deliveries in the quantities of fuel oil.[21] John Bordmans Motion
for Trial by Commissioner was granted by the RTC, [22] and the court-
appointed commissioner submitted her Report on April 20, 1988.[23]

On April 3, 1989, Pilipinas Shell and Arabay filed a Motion for

Resolution of their affirmative defense of prescription.[24] Because
prescription had not been established with certainty, the RTC ordered
them on November 6, 1989, to present evidence in support of their
defense.[25]

On August 30, 1991, the RTC issued a Decision in favor of

respondent.[26] Pilipinas Shell and Arabay were required to deliver to John
Bordman 916,487.62 liters of bunker fuel oil, to pay actual damages
of P1,000,000; exemplary damages of P500,000; attorneys fees of P500,000;
and the costs of suit.[27] The basis of the trial courts decision was predicated
on the following pronouncement:
Since [respondent] had fully paid their contract price at 210 liters per
drum, then the [petitioner] should deliver to the [respondent] the
undelivered volume of fuel oil from 1955 to 1974, which is 20 liters
per drum; and 10 liters per drum from 1974 to 1977. Per the invoice
receipts submitted, the total volume of fuel oil which [petitioner] have
failed to deliver to [respondent] is 916,487.62 liters.[28]

Pilipinas Shell appealed to the CA, alleging that John Bordman had
failed to prove the short deliveries; and that the suit had been barred by
estoppel, laches, and prescription.[29]

Ruling of the Court of Appeals

Upholding the trial court, the CA overruled petitioners objections to the

evidence of respondent in relation to the testimonies of the latters
witnesses and the results of the volumetric tests.[30] The CA noted that
deliveries from 1955 to 1977 had been admitted by petitioner; and the fact
of deficiency, established by respondent.[31]

The appellate court also debunked petitioners claims of estoppel and

laches. It held that the stipulation in the product invoices stating that
respondent had received the products in good order was not
controlling.[32] On the issue of prescription, the CA ruled that the action
had been filed within the period required by law.[33]
Hence, this Petition.[34]

The Issues

Petitioner states the issues in this wise:

I.

Respondents allegation that the Petition must be summarily

dismissed for containing a false, defective and unauthorized
verification and certification against forum shopping is patently
unmeritorious, as the requisites for a valid verification and
certification against forum shopping have been complied with.

II.

The Decisions of the court a quo and of the Honorable Court of

Appeals were clearly issued with grave abuse of discretion, based
as they are on an unmistakable misappreciation of facts clearly
appearing in the records of the case.

A.

The Honorable Court of Appeals erred giving full faith and

credence to the testimony of respondents sole witness, who
was neither an expert witness nor one with personal
knowledge of the material facts.

B.

The Honorable Court of Appeals erred in ruling that the

testimony of respondents sole witness was not controverted
and that the results of his volumetric tests were not
disproved by petitioner as the records of the court a
quo indubitably show that petitioner disputed the testimony
of said witness in every material respect.

C.
 The court a quo and the Honorable Court of Appeals erred
when it failed to hold that the results of the volumetric tests
conducted by respondents sole witness are not worthy of full
faith and credence, considering that drums subjected to said
tests in 1974 and 1975 were not the same with, or otherwise
similar to those used by petitioner in the deliveries made to
respondent since 1955.

D.

The Honorable Court of Appeals erred in holding that

petitioners unilateral reduction of billing rates constitutes an
implied admission of the fact of short deliveries. The
reduction was made for no other purpose than as a business
accommodation of a valued client.

III.

The court a quo, as well as the Honorable Court of Appeals, gravely

erred in not ruling that respondents claims of alleged short deliveries
for the period 1955 to 1976 were already barred by prescription.

IV.

The Honorable Court of Appeals and the court a quo erred in not
ruling that respondents claims are barred by estoppel and laches
considering that respondent failed to assert its claim for about
twenty-five (25) years.

V.

The Honorable Court of Appeals erred in awarding to respondent

compensatory damages, exemplary damages, attorneys fees and
cost of suit, when petitioner has not otherwise acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner.[35]

The Courts Ruling

In the main, the Petition has no merit, except in regard to the CAs grant of
exemplary damages.

First Issue:
Validity of Verification and Certification

Preliminarily, the Court shall tackle respondents allegation that

petitioners verification and certification against forum shopping had not
complied with, and were in fact made in contravention of, Section 4 of Rule 45
of the Rules of Court.[36] Respondent alleges that Romeo B. Garcia, vice-
president of Pilipinas Shell, had no authority to execute them.[37]

The records, however, show that petitioners president conferred

upon its vice-president the power to institute actions. As certified by the
assistant board secretary, the delegation was authorized by petitioners
board of directors.[38] The power to institute actions necessarily included
the power to execute the verification and certification against forum
shopping, as required in a petition for review before this Court.

In any event, the policy of liberal interpretation of procedural rules

compels us to give due course to the Petition.[39] There appears to be no
intention to circumvent the need for proper verification and certification,
which are intended to assure the truthfulness and correctness of the allegations
in the Petition and to discourage forum shopping.[40]
 Second Issue:
Appreciation of Facts

As a general rule, questions of fact may not be raised in a petition for

review.[41] The factual findings of the trial court, especially when affirmed

by the appellate court, are binding and conclusive on the Supreme

Court.[42]Nevertheless, this rule has certain exceptions,[43] which petitioner

asserts are present in this case.[44] The Court reviewed the evidence

presented and revisited the applicable pertinent rules. Being intertwined,

the issues raised by petitioner relating to the evidence will be discussed

together.

Objection to Respondents Witness

Petitioner claims that the trial court erred in giving credence to the

testimony of respondents witness, Engineer Jose A. Macarubbo. The

testimony had allegedly consisted of his personal opinion. Under the Rules
of Evidence, the opinion of a witness is not admissible, unless it is given by

an expert.[45] Macarubbo was allegedly not an expert witness; neither did he

have personal knowledge of material facts.[46]

We clarify. Macarubbo testified that sometime in May 1974, respondent

had contacted him to review the reception of fuel at its lime plant. He

discovered that Arabay had been billing respondent at 210 liters per drum,

while other oil companies billed their customers at 200 liters per

drum.[47] On July 24, 1974, he and Jerome Juarez, branch manager of

Pilipinas Shell, conducted a volumetric test to determine the amount of

fuel that was actually being delivered to respondent.[48] On January 25,

1975, the test was again conducted in the presence of Macarubbo, Juarez

and Manuel Ravina (Arabays sales supervisor).[49]

From the foregoing facts, it is evident that Macarubbo did not testify as an

expert witness. The CA correctly noted that he had testified based on his

personal knowledge and involvement in discovering the short

deliveries.[50] His testimony as an ordinary witness was aptly allowed by the

appellate court under the following rule on admissibility:

Sec. 36. Testimony generally confined to personal knowledge;
hearsay excluded. A witness can testify only to those facts which he
knows of his personal knowledge; that is, which are derived from his
own perception, except as otherwise provided in these rules.[51]

Challenge to Volumetric Tests

Petitioner disputes the CAs finding that it had failed to disprove the results

of the volumetric tests conducted by respondent. The former claims that it

was able to controvert the latters evidence.[52]

During the July 24, 1974 volumetric test, representatives of both

petitioner and respondent allegedly agreed to conduct two tests using

drums independently chosen by each.[53] Respondent allegedly chose the

worst-dented drum that could fill only up to 190 liters. The second drum,

which was chosen by petitioner, was not tested in the presence of

Macarubbo because of heavy rain.[54] It supposedly filled up to 210 liters,

however.[55]

The issue, therefore, relates not to the submission of evidence, but to

its weight and credibility. While petitioner may have submitted evidence, it

failed to disprove the short deliveries. The lower courts obviously gave

credence to the volumetric tests witnessed by both parties as opposed to

those done solely by petitioner.

 Petitioner also challenges the reliability of the volumetric tests on the

grounds of failure to simulate the position of the drums during

filling[56] and the fact that those tested were not representative of the ones

used from 1955 to 1974.[57] These contentions fail to overturn the short

deliveries established by respondent.

The evidence of petitioner challenging the volumetric tests was

wanting. It did not present any as regards the correct position of the drums

during loading. Notably, its representative had witnessed the two tests

showing the short deliveries.[58] He therefore had the opportunity to correct

the position of the drums, if indeed they had been incorrectly positioned.

Further, there was no proof that those used in previous years were all good

drums with no defects. Neither was there evidence that its deliveries from

1955 had been properly measured.

From the foregoing observations, it is apparent that the evidence

presented by both parties preponderates in favor of respondent. The Court

agrees with the following observations of the CA:

[Petitioner] posits that its fuel deliveries were properly
measured and/or calibrated. To the mind of this Court, regardless of
what method or manner the deliveries were made, whether pre-
packed drums, by the dip stick method or through ex-jetty, the fact
remains that [petitioner] failed to overcome the burden of proving
 that indeed the drums used during the deliveries contain 210 liters.
The [petitioner], to support its claim, adduced no evidence.
Moreover, it failed to disprove the results of the volumetric tests.[59]

Having sustained the finding of short deliveries, the Court finds it no

longer necessary to address the contention of petitioner that its subsequent

reduction of billings constituted merely a business accommodation.[60]

Third Issue:
Prescription

Action Based on Contract

Petitioner avers that respondents action -- a claim for damages as a result

of over-billing -- has already prescribed. Respondents claim supposedly

constitutes a quasi-delict, which prescribes in four years.[61]

We do not agree. It is elementary that a quasi-delict, as a source of an

obligation, occurs only when there is no preexisting contractual relation

between the parties.[62] The action of respondent

for specific performance was founded on short deliveries, which had arisen

from its Contract of Sale with petitioner, and from which resulted the
formers obligation in the present case. Any action to enforce a breach of

that Contract prescribes in ten years.[63]

Prescriptive Period Counted from

the Accrual of the Cause of Action

Petitioner avers that the action of respondent, even if based on a Contract,

has nevertheless already prescribed, because more than ten years had lapsed

since 1955 to August 20, 1970 -- the period of short deliveries that the

latter seeks to recover.[64] Respondents request for fuel adjustments on

October 24, 1974, February 1, 1975, April 3, 1975, and September 22,

1975, were not formal demands that would interrupt the prescriptive

period, says petitioner.

The Court shall first address the contention that formal demands were not

alleged in the Complaint. This argument was not raised in the courts a quo;

thus, it cannot be brought before this tribunal.[65] Well settled is the rule

that issues not argued in the lower courts cannot be raised for the first time

on appeal.[66] At any rate, it appears from the records that respondents

letters to petitioner dated October 24, 1974 and February 1, 1975 were

formal and written extrajudicial demands that interrupted the prescriptive

period.[67] Nevertheless, the interruption has no bearing on the prescriptive

period, as will be shown presently.

Cause of Action Defined

Actions based upon a written contract should be brought within ten years

from the time the right of action accrues.[68] This accrual refers to the cause

of action, which is defined as the act or the omission by which a party

violates the right of another.[69]

Jurisprudence is replete with the elements of a cause of action: (1) a

right in favor of the plaintiff by whatever means and under whatever law it

arises or is created; (2) an obligation on the part of the named defendant to

respect or not to violate the right; and (3) an act or omission on the part of

the defendant violative of the right of the plaintiff or constituting a breach

of an obligation to the latter.[70] It is only when the last element occurs that

a cause of action arises.[71]

Applying the foregoing elements, it can readily be determined that a

cause of action in a contract arises upon its breach or

violation.[72] Therefore, the period of prescription commences, not from

the date of the execution of the contract, but from the occurrence of the breach.

The cause of action resulting from a breach of contract is dependent

on the facts of each particular case. The following cases involving

prescription illustrate this statement.

Nabus v. Court of Appeals[73] dealt with an action to rescind a Contract

of Sale. The cause of action arose at the time when the last installment was

not paid. Since the case was filed ten years after that date, the action was

deemed to have prescribed.[74]

In Elido v. Court of Appeals,[75] the overdraft Agreement stipulated that

the obligation was payable on demand. Thus, the breach started only when

that judicial demand was made. This rule was applied recently to China

Banking Corporation v. Court of Appeals,[76] which held that the prescriptive

period commenced on the date of the demand, not on the maturity of the
certificate of indebtedness. In that case, the certificate had stipulated that

payment should be made upon presentation.

 Banco Filipino Savings & Mortgage Bank v. Court of Appeals[77] involved a

Contract of Loan with real estate mortgages, whereby the creditor could

unilaterally increase the interest rate. When the debtor failed to pay the

loan, the creditor foreclosed on the mortgage. The Court ruled that the

cause of action for the annulment of the foreclosure sale should be

counted from the date the debtor discovered the increased interest rate.[78]

In Cole v. Gregorio,[79] the agreement to buy and sell was conditioned

upon the conduct of a preliminary survey of the land to verify whether it

contained the area stated in the Tax Declaration. Both the agreement and

the survey were made in 1963. The Court ruled that the right of action for

specific performance arose only in 1966, when the plaintiff discovered the

completion of the survey.[80]

Serrano v. Court of Appeals[81]dealt with money claims arising from a

Contract of Employment, which would prescribe in three years from the

time the cause of action accrued.[82] The Court noted that the cause of
action had arisen when the employer made a definite denial of the

employees claim. It was deemed that the issues had not yet been joined
prior to the definite denial of the claim, because the employee could have

still been reinstated.[83]

Naga Telephone Co. v. Court of Appeals[84] involved the reformation of a

Contract. Among others, the grounds for the action filed by the plaintiff

included allegations that the contract was too one-sided in favor of the

defendant, and that certain events had made the arrangement

inequitable.[85] The Court ruled that the cause of action for a reformation

would arise only when the contract appeared disadvantageous.[86]

Cause of Action in
the Present Case

The Court of Appeals noted that, in the case before us, respondent

had been negotiating with petitioner since 1974. Accordingly, the CA ruled

that the cause of action had arisen only in 1979, after a manifestation of

petitioners denial of the claims.[87]

The nature of the product in the present factual milieu is a major

factor in determining when the cause of action has accrued. The delivery of

fuel oil requires the buyers dependence upon the seller

for the correctness of the volume. When fuel is delivered in drums, a buyer

readily assumes that the agreed volume can be, and actually is, contained in

those drums.

Buyer dependence is common in many ordinary sale transactions, as

when gasoline is loaded in the gas tanks of motor vehicles, and when

beverage is purchased in bottles and ice cream in bulk containers. In these

cases, the buyers rely, to a considerable degree, on the sellers representation

that the agreed volumes are being delivered. They are no longer expected

to make a meticulous measurement of each and every delivery.

To the mind of this Court, the cause of action in the present case

arose on July 24, 1974, when respondent discovered the short deliveries with

certainty. Prior to the discovery, the latter had no indication that it was not

getting what it was paying for. There was yet no issue to speak of; thus, it

could not have brought an action against petitioner. It was only after the

discovery of the short deliveries that respondent got into a position to

bring an action for specific performance. Evidently then, that action was

brought within the prescriptive period when it was filed on August 20,

1980.
 Fourth Issue:
Estoppel

Petitioner alleges, in addition to prescription, that respondent is estopped

from claiming short deliveries.[88] It is argued that, since the initial deliveries

had been made way back in 1955, the latter belatedly asserted its right only

in 1980, or after twenty-five years. Moreover, respondent should allegedly

be bound by the Certification in the delivery Receipts and Invoices that

state as follows:
RECEIVED ABOVE PRODUCT(S) IN GOOD CONDITION. I
HAVE INSPECTED THE COMPARTMENTS OF THE BULK
LORRY, WHEN FULL AND EMPTY, AND FOUND THEM IN
ORDER.[89]

Estoppel by Laches

Estoppel by laches is the failure or neglect for an unreasonable length

of time to do that which, by the exercise of due diligence, could or should
have been done earlier.[90] Otherwise stated, negligence or omission to
assert a right within a reasonable time warrants a presumption that the
party has abandoned or declined the right.[91] This principle is based on
grounds of public policy, which discourages stale claims for the peace of
society.[92]
 Respondent cannot be held guilty of delay in asserting its right during

the time it did not yet know of the short deliveries. The facts in the present

case show that after the discovery of the short deliveries, it immediately

sought to recover the undelivered fuel from petitioner.[93] Laches

refers, inter alia, to the length of time in asserting a claim. The Court,

therefore, agrees with the lower courts that respondents claim was not lost

by laches.

Alleged Certification Not a Bar

It is not disputed that the alleged Certification stating that respondent

received the fuel oil in good condition is in the nature of a contract of

adhesion.[94] The statement was in fine print at the lower right of petitioners

invoices.[95] It was made in the form and language prepared by petitioner.

The latters customers, including respondent, were required to sign the

statement upon every delivery. The primary purpose of an invoice,

however, is merely to evidence delivery and receipt of the goods stated in

it.
 While the Court has sustained the validity of similar stipulations in

other contracts, it has also recognized that reliance on them cannot be

favored when the facts and circumstances warrant the contrary.[96] Noting

the nature of the product in the present factual milieu, as discussed earlier

in the claim of prescription, the dependence of the buyer upon the seller

makes the stipulation inapplicable.

Indeed, it would be too cumbersome and impractical for respondent

to measure the fuel oil in each and every drum delivered. Nonetheless,

upon delivery by petitioner, the former was obliged to sign the Certification

in the invoice. In signing it, respondent could not have waived the right to

a legitimate claim for hidden defects. Thus, it is not estopped from

recovering short deliveries.

Doubts in the interpretation of stipulations in contracts of adhesion

should be resolved against the party that prepared them. This principle

especially holds true with regard to waivers, which are not presumed, but

which must be clearly and convincingly shown.[97]

Fourth Issue:
Exemplary Damages and Attorneys Fees
In the last error assigned, petitioner challenges the Order for specific

performance and the awards of exemplary damages and attorneys fees in

favor of respondent.[98] The directive for the delivery of 916,487.62 liters of

bunker oil will no longer be taken up because, as discussed earlier, this fact

is borne out by the evidence.

The CA sustained the award of exemplary damages because of petitioners

wanton refusal to deliver the shortages of fuel oil after the demand was

made.[99] Similarly, attorneys fees were imposed, because respondent had

been compelled to litigate to protect its interests.[100] Both awards, however,

were each reduced from P500,000 to P100,000.[101]

Exemplary Damages Not Proper

Exemplary damages are imposed as a corrective measure[102] when the

guilty party has acted in a wanton, fraudulent, reckless, oppressive, or

malevolent manner.[103] These damages are awarded in accordance with the

sound discretion of the court.[104]

Petitioner argues that its refusal to deliver the shortages of fuel was

premised on good faith.[105] Indeed, records reveal that it had reviewed

respondents requests for the delivery of shortages before declining

them.[106] It likewise readily granted respondents requests to conduct

volumetric tests. It simply had the mistaken belief that it was not liable for

any shortages. Unfortunately, the evidence showed the contrary.

Absent any showing of bad faith on the part of petitioner, exemplary

damages cannot be imposed upon it.

Attorneys Fees Allowed

Petitioner claims that the award of attorneys fees was tied up with the

award for exemplary damages.[107] Since those damages were not

recoverable, then the attorneys fees allegedly had no legal basis.

While attorneys fees are recoverable when exemplary damages are

awarded, the former may also be granted when the court deems it just and

equitable.[108] The grant of attorneys fees depends on the circumstances of

each case and lies within the discretion of the court. They may be awarded
when a party is compelled to litigate or to incur expenses to protect its

interest by reason of an unjustified act by the other.[109]

The Court agrees that the award of P100,000 as attorneys fees is very

reasonable;[110] in fact, it is almost symbolic, as it will not totally recompense

respondent for the actual fees spent to prosecute its cause. The case has

dragged on unnecessarily despite petitioners failure to present

countervailing evidence during the trial. Moreover, respondent was

compelled to litigate, notwithstanding its attempt at an amicable settlement

from the time it discovered the shortages in 1974 until the actual filing of

the case in 1980.[111]

WHEREFORE, the Petition is hereby DENIED. The assailed

Decision and Resolution are AFFIRMED with the
slight MODIFICATION that the award of exemplary damages is deleted.
Costs against petitioner.

SO ORDERED.

NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY, VS. THE COURT OF
APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE, INC. (CASURECO II)

1994 February 24
230 SCRA 351
FACTS: Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as
well as long distance service in Naga City while private respondent Camarines Sur II Electric
Cooperative, Inc. (CASURECO II) is a private corporation established for the purpose of operating
an electric power service in the same city.

On November 1, 1977, the parties entered into a contract for the use by petitioners in the operation
of its telephone service the electric light posts of private respondent in Naga City. In consideration
therefor, petitioners agreed to install, free of charge, ten (10) telephone connections for the use by
private respondent. After the contract had been enforced for over ten (10) years, private respondent
filed with the Regional Trial Court against petitioners for reformation of the contract with damages,
on the ground that it is too one-sided in favor of petitioners; that it is not in conformity with the
guidelines of the National Electrification Administration (NEA); that after eleven (11) years of
petitioners' use of the posts, the telephone cables strung by them thereon have become much
heavier with the increase in the volume of their subscribers; that a post now costs as much as
P2,630.00; so that justice and equity demand that the contract be reformed to abolish the inequities
thereon.

As second cause of action, private respondent alleged that starting with the year 1981, petitioners
have used 319 posts outside Naga City, without any contract with it; that at the rate of P10.00 per
post, petitioners should pay private respondent for the use thereof the total amount of P267,960.00
from 1981 up to the filing of its complaint; and that petitioners had refused to pay private respondent
said amount despite demands. And as third cause of action, private respondent complained about
the poor servicing by petitioners.

The trial court ruled, as regards private respondent’s first cause of action, that the contract should be
reformed by ordering petitioners to pay private respondent compensation for the use of their posts in
Naga City, while private respondent should also be ordered to pay the monthly bills for the use of the
telephones also in Naga City. And taking into consideration the guidelines of the NEA on the rental
of posts by telephone companies and the increase in the costs of such posts, the trial court opined
that a monthly rental of P10.00 for each post of private respondent used by petitioners is reasonable,
which rental it should pay from the filing of the complaint in this case on January 2, 1989. And in like
manner, private respondent should pay petitioners from the same date its monthly bills for the use
and transfers of its telephones in Naga City at the same rate that the public are paying.

On private respondent's second cause of action, the trial court found that the contract does not
mention anything about the use by petitioners of private respondent's posts outside Naga City.
Therefore, the trial court held that for reason of equity, the contract should be reformed by including
therein the provision that for the use of private respondent's posts outside Naga City, petitioners
should pay a monthly rental of P10.00 per post, the payment to start on the date this case was filed,
or on January 2, 1989, and private respondent should also pay petitioners the monthly dues on its
telephone connections located outside Naga City beginning January, 1989. And with respect to
private respondent's third cause of action, the trial court found the claim not sufficiently proved.

The Court of Appeals affirmed the decision of the trial court, but based on different grounds to wit:
(1) that Article 1267 of the New Civil Code is applicable and (2) that the contract was subject to a
potestative condition which rendered said condition void.

ISSUE: Whether or not the principle of Rebus Sic Stantibus is applicable in the case at bar.

RULING: No. Article 1267 speaks of "service" which has become so difficult. Taking into
consideration the rationale behind this provision, the term "service" should be understood as
referring to the "performance" of the obligation.
In the present case, the obligation of private respondent consists in allowing petitioners to use its
posts in Naga City, which is the service contemplated in said article. Furthermore, a bare reading of
this article reveals that it is not a requirement thereunder that the contract be for future service with
future unusual change. According to Senator Arturo M. Tolentino, Article 1267 states in our law the
doctrine of unforseen events. This is said to be based on the discredited theory of rebus sic
stantibus in public international law; under this theory, the parties stipulate in the light of certain
prevailing conditions, and once these conditions cease to exist the contract also ceases to exist.
Considering practical needs and the demands of equity and good faith, the disappearance of the
basis of a contract gives rise to a right to relief in favor of the party prejudiced.

The allegations in private respondent's complaint and the evidence it has presented sufficiently
made out a cause of action under Article 1267. The Court, therefore, release the parties from their
correlative obligations under the contract. However, the disposition of the present controversy does
not end here. The Court has to take into account the possible consequences of merely releasing the
parties therefrom: petitioners will remove the telephone wires/cables in the posts of private
respondent, resulting in disruption of their essential service to the public; while private respondent, in
consonance with the contract will return all the telephone units to petitioners, causing prejudice to its
business.

The Court shall not allow such eventuality. Rather, the Court requires, as ordered by the trial court:
1) petitioners to pay private respondent for the use of its posts in Naga City and in the towns of
Milaor, Canaman, Magarao and Pili, Camarines Sur and in other places where petitioners use
private respondent's posts, the sum of ten (P10.00) pesos per post, per month, beginning January,
1989; and 2)private respondent to pay petitioner the monthly dues of all its telephones at the same
rate being paid by the public beginning January, 1989. The peculiar circumstances of the present
case, as distinguished further from the Occeña case, necessitates exercise of a equity jurisdiction.
By way of emphasis, the Court reiterates the rationalization of respondent court that:

". . . In affirming said ruling, we are not making a new contract for the parties herein, but we find it
necessary to do so in order not to disrupt the basic and essential services being rendered by both
parties herein to the public and to avoid unjust enrichment by appellant at the expense of plaintiff . . .
"

Decision affirmed.