G.R. No.
L-32640 December 29, 1930 Venancio Ignacio to the effect that the impact of the ship with the wharf was due to the excessive
WALTER A. SMITH & CO., INC., plaintiff-appellant,
vs.
CADWALLADER GIBSON LUMBER COMPANY, defendant-appellee.
Jose Erquiaga for appellant.
DeWitt, Perkins and Brady for appellee.
VILLAMOR, J.:
On August 30, 1926, the steamer Helen C, belonging to the defendant, the Cadwallader Gibson
Lumber Co., under the command of Captain Miguel Lasal, in the course of its maneuvers to moor at
the plaintiff's wharf in the port of Olutanga, Zamboanga, struck said wharf, partially demolishing it
and throwing the timber piled thereon into the water. Whereupon the plaintiff brought the instant
action to recover of the defendant the sum of P9,705.83 as damages for the partial demolition of the
wharf and for the loss of the timber piled thereon.
The defendant denied the plaintiff's causes of action, and in defense alleged that the demolition of
the wharf was due to the excessive weight of thousands of board feet of timber piled upon it by the
plaintiff to be loaded and shipped on the steamer Helen C and to the bad condition of the piles
supporting said wharf.
In view of the evidence adduced by both parties, the trial court held that the defendant was not liable
for the partial collapse of the plaintiff's wharf, and for the loss of the timber piled thereon, dismissing
the complaint with costs against the plaintiff.
The judge who took cognizance of this cause held:
The evidence shows that said wharf was built in 1921 and repaired in 1925. The repairs,
according to the deposition of Wilson C. Smith, a witness for the plaintiff, consisted in
replacing 6 bents of piles leaving more than 9 old bents of piles without being replaced.
Therefore, the wharf of the plaintiff was old. The court is inclined to believe that the
steamer Helen C slightly struck the dock but not with force, for it was difficult for her to
strike it with force, as hereinbefore stated, and due to the bad condition of the dock the
slight impact was sufficient to destroy it. The bent of the piles toward the east side of the
dock, as may be seen from the pictures Exhibits E and F, after its destruction, does not
necessarily mean that the destruction of the wharf was caused by a strong impact, as the
weight of the 60,000 board feet of lumber piled thereon, after such slight impact by the
steamer against the dock, might have caused said piles to lean toward that side.
We are of opinion that this finding is supported by the evidence. In this connection, it is to be noted
that the witness, Dionisio Pascua (for the plaintiff) testified that the 60,000 board feet occupied one-
fourth of the wharf. In other words, by the testimony of the plaintiff's witnesses it has been proved
that the plaintiff company piled up on the wharf a quantity of timber which exceeded its capacity of
resistance, because if the whole wharf had a capacity of 100,000 board feet of timber, one-fourth of
it could sustain one-fourth of that amount, or, about 25,000 board feet of timber. But it appears that
the plaintiff company loaded 60,000 board feet, weighing over 100 tons, within a space capable of
supporting only 25,000 board feet. This must have helped to bring about the collapse of the wharf on
the eastern side and the consequent sliding down of the timber piled up on one side.
The court below did not make any definite finding as to the negligence of the captain, but the plaintiff
apparently infers that there was negligence on his part, considering the testimony of its witness
force with which the captain, ordered the winches to work. This was denied by the captain, testifying
for the defendant. If, to this denial, we add the facts found by the trial court that said captain
dropped two anchors from the prow and the kedge-anchor from the poop, and besides, fastened two
lines of cables to the piles ordinarily used by vessels in docking at that wharf, as preliminary to
drawing the vessel alongside the wharf, it will be seen that said winches must have been carefully
operated, and if any force was employed in working them, it was doubtless due to the fact that the
vessel had already dropped anchor and could not move rapidly and the drawing of the vessel up to
the wharf was against the stream which flowed from east to west. We do not believe that the mere
statement of the witness Ignacio who has not been shown to possess technical knowledge of the
maneuvers for docking vessels, is sufficient to justify a holding that the force employed by the
winches on that occasion was excessive under the circumstances of the case, especially so if the
captain's testimony is to be considered, that the winches were carefully operated.
The witnesses for the plaintiff state that the steamer Helen C struck the wharf twice, but the trial
court, after examining the evidence, found said testimony to be exaggerated.
As has been stated, the plaintiff seeks to recover against the owner of the steamer Helen C, with
whom it had not contractual relations basing its action on the acts of Captain Lasa who was in
command of the vessel when docking at the plaintiff's wharf in Olutanga, Zamboanga. In support of
its contention, the plaintiff cites the doctrine laid down in the case of Ohta Development Co. vs.
Steamship Pompey (49 Phil., 117), wherein it was held that the defendant company, as ship-owner,
was liable for the indemnities arising from the lack of skill or from negligence of the captain.
In the case cited, the steamship Pompey, under the command of Captain Alfredo Galvez, was carrying
cargo consisting principally of flour and rice for the plaintiff. The ship docked with her bow facing the
land and fastened her cables to the posts on the pier. The evidence shows that heretofore other ships
docking alongside said pier had the bow facing the land and fastened a cable to a tree situated farther
west on the beach, a precaution taken to avoid the ship getting too close to the pier. When the
Pompey docked, at the time in question, she did not fasten the cable to the tree on the shore, nor
drop her kedge-anchors from the prow. After being docked, they proceeded to unload the flour and
rice which were first deposited on the pier and later transported to the plaintiff's warehouse on land,
where it was officially receipted for. The work of discharging and hauling the cargo to the plaintiff's
warehouse was accomplished without any intervention on the part of the plaintiff and exclusively by
laborers and the crew of the ship. The unloading of the cargo on to the pier was hastily done and
there being but fifteen or twenty laborers engaged in hauling it to the plaintiff's warehouse, a large
amount of cargo accumulated on the dock. At 11:10 that morning, the pier sank with all the
merchandise.
As may be noted, the facts in that case were different from those in the case in question. In the
former a contract of marine transportation existed between the plaintiff and the defendant, whereas
in the latter no previous contractual relation existed between the parties. For this reason, the case of
Ohta Development Co. was decided upon articles 587 and 618 of the Code of Commerce. But the
instant case, dealing, as it does, with an obligation arising from culpa aquiliana or negligence, must be
decided in accordance with articles 1902 and 1903 of the Civil Code.
Article 1902 of the Civil Code prescribes:
Any person who by an act or omission causes damage to another by his fault or negligence
shall be liable for the damage so done.
And article 1903 of the said Code states:
The obligation imposed by the next preceding article is enforcible, not only for personal acts
and omissions, but also for those of persons for whom another is responsible.
The father, or in case of his death, or incapacity, the mother, is liable for any damages
caused by the minor children who live with them.
Guardians are liable for damages done by minors or incapacitated persons subject to their
authority and living with them.
Owners or directors of any establishment or business are, in the same way, liable for any
damages caused by their employees while engaged in the branch of the service in which
employed, or on occasion of the performance of their duties.
The State is subject to the same liability when it acts through a special agent, but not if the
damage shall have been caused by the official upon whom properly devolved the duty of
doing the act performed, in which case the provisions of the next preceding article shall be
applicable.
Finally, teachers or directors of arts and trades are liable for any damages caused by their
pupils or apprentices while they are under their custody.
The liability imposed by this article shall cease in case the persons subject thereto prove that
they exercised all the diligence of a good father of a family to prevent the damaged.
In the case of Maryland Casualty Co. vs. Matson Nav. Co. (177 Cal., 610, 612), in an action similar to
the present, the court held:
. . . the plaintiff could only recover, if at all, upon a sufficient showing of negligence on the
part of the defendants in the handling of their ship, as a result of which the injury
complained of arose; and if the finding of the trial court, to the effect that there was no
negligence in respect to the matter complained of on the part of the defendants, is sustained
by sufficient evidence, there is an end to the plaintiff's case.
The same doctrine was upheld by the Supreme Court of Spain in its judgment of June 23, 1900, in
deciding a case similar to the one at bar, where the plaintiff was a third person without any
contractual relation with the defendant before the acts were committed which gave rise to the
complaint. In that judgment, the court said:
. . . the action for damages caused by an act or omission arising from fault or negligence,
requires an allegation of one or the other of said causes, which is the basis of said action,
according to articles 1089, 1093, 1902, and 1903 of the Civil Code; and such proof must be
made by the plaintiff in accordance with the general principle of evidence regarding
obligations as laid down in article 1214; and it is not sufficient merely to suggest — what at
any rate cannot be admitted — that from the mere existence of damage, liability must be
presumed and that the defendant must rebut such a presumption.
And Manresa, committing on article 1902 of the Civil Code, among other things, says the following:
Among the questions most frequently raised and upon which the majority of cases have
been decided with respect to the application of this liability, are those referring to the
determination of the damage or prejudice, and to the fault or negligence of the person
responsible therefor.
These are the two indispensable factors in the obligations under discussion, for without
damage or prejudice there can be no liability, and although this element is present no
indemnity ca be awarded unless arising from some person's fault or negligence.
With respect to the determination of damages, it must be definite and the injury must not
be occasioned by the performance of an obligation or by acts or omissions of the injured
party himself; and for the proof of the fault or negligence, mere suggestions or inadmissible
presumptions will not suffice, but such evidence must be adduced as to exclude all doubt
regarding their existence and relation to the injury, for, in order to give rise to an obligation,
there must be between the fault or negligence and the evil resulting therefrom a casual
relations. (12 Manresa, 601,602.).
In Cangco vs. Manila Railroad Co. (38 Phil., 768), this court held that article 1903 of the Civil Code is
not applicable to obligations arising from contracts, but only to obligations arising without any
agreement; or, to employ technical language, that article refers only to culpa aquiliana and not
to culpa contractual.
Manresa (vol. VIII, page 67) in his commentaries on articles 1103 and 1104 of the Civil Code
clearly sets forth this distinction, which was also recognized by this court in the case of
Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil., 359). In commenting upon article 1093 (Vol.
VIII, page 30) Manresa points out the difference between "culpa substantive and
independent, which, by itself, gives rise to an obligation between persons not formerly
bound by any other obligation" and culpa considered as an "incident in the performance of
an obligation which already existed. . . .
In the Rakes case (supra), this court based its decision expressly on the principle that article 1903 of
the Civil Code is not applicable to a culpa not arising from a contract.
On this point the court said:
The acts to which these articles (1902 and 1903 of the Civil Code) are applicable are
understood to be those not growing out or preexisting duties of the parties to one another.
But where relations already formed give rise to duties, whether springing from contract or
quasi contract, then breaches of those duties are subject to articles 1101, 1103, and 1104 of
the same Code. (Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil., 359, 365.).
It is not true that proof of due diligence and care in the selection of and instructions to a servant
relieves the master of liability for the former's acts; on the contrary, such proof shows that the
liability never existed. As Manresa (vol. VIII, page 68) says, the liability arising from an extra-
contractual wrong is always based upon a voluntary act or omission, which, while free from any
wrongful intent, and due to mere negligence or carelessness, causes damaged to another. A master
who takes all possible precaution in selecting his servants or employees, bearing in mind the
qualifications necessary for the performance of the duties to be entrusted to them, and instructs
them with equal care, complies with his duty to all third parties to whom he is not bound under
contract, and incurs no liability if, by reason of the negligence of such servants though it be during the
performance of their duties as such, third parties should suffer damages. It is true that under article
1903 of the Civil Code, the law presumes that the master, if regarded as an establishment, has been
negligent in the selection of, or instruction to, its servants, but that is a mere juris
tantum presumption and is destroyed by the evidence of due care and diligence in this respect.
The Supreme court of Porto Rico, construing identical provisions in the Civil Code of Porto Rico, held
that these articles are applicable only to cases of extra-contractual wrong. (Carmona vs. Cuesta, 20
Porto Rico Reports, 215.)
This distinction was clearly stated by this court in Bahia vs. Litonjua and Leynes (930 Phil., 624),
wherein the action was based on the defendant's extra-contractual liability for damages occasioned
by the carelessness of an employee of his, in the performance of his duty as such. This court, after G.R. No. L-21749 September 29, 1967
citing the last paragraph of article 1903 of the Civil Code, held: REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
From this article two things are apparent: (1) That when an injury is caused by the negligence vs.
of a servant or employee there instantly arises a presumption of law that there was LUZON STEVEDORING CORPORATION, defendant-appellant.
negligence on the part of the master or employer either in the selection of the servant or Office of the Solicitor General for plaintiff-appellee.
employee, or in supervision over him after the selection, or both; and (2) that the H. San Luis and L.V. Simbulan for defendant-appellant.
presumption is juris tantum and not juris et de jure, and consequently, may be rebutted. it
follows necessarily that if the employer shows to the satisfaction of the court that in
selection and supervision he has exercised the care and diligence of a good father of a
family, the presumption is overcome and he is relieved from liability.lawphi1>net REYES, J.B.L., J.:
This theory bases the responsibility of the master ultimately on his own negligence and not The present case comes by direct appeal from a decision of the Court of First Instance of Manila (Case
on that of his servant. This is the notable peculiarity of the Spanish law of negligence. It is, of No. 44572) adjudging the defendant-appellant, Luzon Stevedoring Corporation, liable in damages to
course, in striking contrast to the American doctrine that, in relations with strangers, the the plaintiff-appellee Republic of the Philippines.
negligence of the servant is conclusively the negligence of the master. In the early afternoon of August 17, 1960, barge L-1892, owned by the Luzon Stevedoring Corporation
The opinion of this court is thus expressed, to the effect that in case of extra-contractual wrong, some was being towed down the Pasig river by tugboats "Bangus" and "Barbero"1 also belonging to the
fault personally imputable to the defendant must exist, and that the last paragraph of article 1903 same corporation, when the barge rammed against one of the wooden piles of the Nagtahan bailey
only establishes a rebuttable presumption and is on all fours with Manresa's authoritative opinion bridge, smashing the posts and causing the bridge to list. The river, at the time, was swollen and the
(Vol. XII, page 611), that the liability created by article 1903 is enforced by reason of non- current swift, on account of the heavy downpour of Manila and the surrounding provinces on August
performance of duties inherent in the special relations of authority or superiority existing between 15 and 16, 1960.
the person liable for the damage done and the person who by his act or omission has caused it. Sued by the Republic of the Philippines for actual and consequential damage caused by its
The defendant contends in its answer that the captain and all the officers of the steamer Helen employees, amounting to P200,000 (Civil Case No. 44562, CFI of Manila), defendant Luzon
C were duly licensed and authorized to hold their respective positions at the time when the wharf in Stevedoring Corporation disclaimed liability therefor, on the grounds that it had exercised due
question collapsed, and that said captain, officers, and all the members of the crew of the steamer diligence in the selection and supervision of its employees; that the damages to the bridge were
had been chosen for their reputed skill in directing and navigating the steamer Helen C, safely, caused by force majeure; that plaintiff has no capacity to sue; and that the Nagtahan bailey bridge
carefully, and efficiently. The evidence shows that Captain Lasa at the time the plaintiff's wharf is an obstruction to navigation.
collapse was a duly licensed captain, authorized to navigate and direct a vessel of any tonnage, and After due trial, the court rendered judgment on June 11, 1963, holding the defendant liable for the
that the appellee contracted his services because of his reputation as a captain, according to F. C. damage caused by its employees and ordering it to pay to plaintiff the actual cost of the repair of the
Cadwallader. This being so, we are of opinion that the presumption of liability against the defendant Nagtahan bailey bridge which amounted to P192,561.72, with legal interest thereon from the date of
has been overcome by the exercise of the care and diligence of a good father of a family in selecting the filing of the complaint.
Captain Lasa, in accordance with the doctrines laid down by this court in the cases cited above, and Defendant appealed directly to this Court assigning the following errors allegedly committed by the
the defendant is therefore absolved from all liability.lawphi1>net court a quo, to wit:
By virtue of the foregoing, the judgment appealed from must be as it is hereby, affirmed, with costs I — The lower court erred in not holding that the herein defendant-appellant had exercised
against the appellant. So ordered. the diligence required of it in the selection and supervision of its personnel to prevent
Johnson, Street, Malcolm, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur. damage or injury to others.1awphîl.nèt
II — The lower court erred in not holding that the ramming of the Nagtahan bailey bridge by
barge L-1892 was caused by force majeure.
III — The lower court erred in not holding that the Nagtahan bailey bridge is an obstruction,
if not a menace, to navigation in the Pasig river.
IV — The lower court erred in not blaming the damage sustained by the Nagtahan bailey
bridge to the improper placement of the dolphins.
V — The lower court erred in granting plaintiff's motion to adduce further evidence in chief
after it has rested its case.
VI — The lower court erred in finding the plaintiff entitled to the amount of P192,561.72 for
damages which is clearly exorbitant and without any factual basis.
However, it must be recalled that the established rule in this jurisdiction is that when a party appeals
directly to the Supreme Court, and submits his case there for decision, he is deemed to have waived
the right to dispute any finding of fact made by the trial Court. The only questions that may be raised
are those of law (Savellano vs. Diaz, L-17441, July 31, 1963; Aballe vs. Santiago, L-16307, April 30,
1963; G.S.I.S. vs. Cloribel, L-22236, June 22, 1965). A converso, a party who resorts to the Court of
Appeals, and submits his case for decision there, is barred from contending later that his claim was
beyond the jurisdiction of the aforesaid Court. The reason is that a contrary rule would encourage the
undesirable practice of appellants' submitting their cases for decision to either court in expectation of
favorable judgment, but with intent of attacking its jurisdiction should the decision be unfavorable
(Tyson Tan, et al. vs. Filipinas Compañia de Seguros) et al., L-10096, Res. on Motion to Reconsider,
March 23, 1966). Consequently, we are limited in this appeal to the issues of law raised in the
appellant's brief.
Taking the aforesaid rules into account, it can be seen that the only reviewable issues in this appeal
are reduced to two:
1) Whether or not the collision of appellant's barge with the supports or piers of the
Nagtahan bridge was in law caused by fortuitous event or force majeure, and
2) Whether or not it was error for the Court to have permitted the plaintiff-appellee to
introduce additional evidence of damages after said party had rested its case.
As to the first question, considering that the Nagtahan bridge was an immovable and stationary
object and uncontrovertedly provided with adequate openings for the passage of water craft,
including barges like of appellant's, it is undeniable that the unusual event that the barge,
exclusively controlled by appellant, rammed the bridge supports raises a presumption of negligence
on the part of appellant or its employees manning the barge or the tugs that towed it. For in the
ordinary course of events, such a thing does not happen if proper care is used. In Anglo American
Jurisprudence, the inference arises by what is known as the "res ipsa loquitur" rule (Scott vs. London
Docks Co., 2 H & C 596; San Juan Light & Transit Co. vs. Requena, 224 U.S. 89, 56 L. Ed., 680; Whitwell
vs. Wolf, 127 Minn. 529, 149 N.W. 299; Bryne vs. Great Atlantic & Pacific Tea Co., 269 Mass. 130; 168
N.E. 540; Gribsby vs. Smith, 146 S.W. 2d 719).
The appellant strongly stresses the precautions taken by it on the day in question: that it assigned
two of its most powerful tugboats to tow down river its barge L-1892; that it assigned to the task the
more competent and experienced among its patrons, had the towlines, engines and equipment
double-checked and inspected; that it instructed its patrons to take extra precautions; and concludes
that it had done all it was called to do, and that the accident, therefore, should be held due to force
majeure or fortuitous event.
These very precautions, however, completely destroy the appellant's defense. For caso
fortuito or force majeure(which in law are identical in so far as they exempt an obligor from
liability)2 by definition, are extraordinary events not foreseeable or avoidable, "events that could
not be foreseen, or which, though foreseen, were inevitable" (Art. 1174, Civ. Code of the
Philippines). It is, therefore, not enough that the event should not have been foreseen or anticipated,
as is commonly believed, but it must be one impossible to foresee or to avoid. The mere difficulty to
foresee the happening is not impossibility to foresee the same: "un hecho no constituye caso
fortuito por la sola circunstancia de que su existencia haga mas dificil o mas onerosa la accion
diligente del presento ofensor" (Peirano Facio, Responsibilidad Extra-contractual, p. 465;
Mazeaud Trait de la Responsibilite Civil, Vol. 2, sec. 1569). The very measures adopted by appellant
prove that the possibility of danger was not only foreseeable, but actually foreseen, and was
not caso fortuito.
Otherwise stated, the appellant, Luzon Stevedoring Corporation, knowing and appreciating the perils
posed by the swollen stream and its swift current, voluntarily entered into a situation involving
obvious danger; it therefore assured the risk, and can not shed responsibility merely because the
precautions it adopted turned out to be insufficient. Hence, the lower Court committed no error in
holding it negligent in not suspending operations and in holding it liable for the damages caused.
It avails the appellant naught to argue that the dolphins, like the bridge, were improperly located.
Even if true, these circumstances would merely emphasize the need of even higher degree of care on
appellant's part in the situation involved in the present case. The appellant, whose barges and tugs
travel up and down the river everyday, could not safely ignore the danger posed by these allegedly
improper constructions that had been erected, and in place, for years.
On the second point: appellant charges the lower court with having abused its discretion in the
admission of plaintiff's additional evidence after the latter had rested its case. There is an insinuation
that the delay was deliberate to enable the manipulation of evidence to prejudice defendant-
appellant.
We find no merit in the contention. Whether or not further evidence will be allowed after a party
offering the evidence has rested his case, lies within the sound discretion of the trial Judge, and this
discretion will not be reviewed except in clear case of abuse.3
In the present case, no abuse of that discretion is shown. What was allowed to be introduced, after
plaintiff had rested its evidence in chief, were vouchers and papers to support an item of P1,558.00
allegedly spent for the reinforcement of the panel of the bailey bridge, and which item already
appeared in Exhibit GG. Appellant, in fact, has no reason to charge the trial court of being unfair,
because it was also able to secure, upon written motion, a similar order dated November 24, 1962,
allowing reception of additional evidence for the said defendant-appellant.4
WHEREFORE, finding no error in the decision of the lower Court appealed from, the same is hereby
affirmed. Costs against the defendant-appellant.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Bengzon, J.P. J., on leave, took no part.
G.R. No. 101762 July 6, 1993
VERMEN REALTY DEVELOPMENT CORPORATION, petitioner,
vs.
THE COURT OF APPEALS and SENECA HARDWARE CO., INC., respondents.
Ramon P. Gutierrez for petitioner.
Adriano Velasco for private respondent.
BIDIN, J.:
Petitioner seeks a review of the decision of the Court of Appeals in CA-G.R. CV No. 15730, which set
aside the decision of the Regional Trial Court of Quezon City, Branch 92 in Civil Case No. Q-45232. The
dispositive portion of the assailed decision reads as follows:
WHEREFORE, the decision a quo is set aside. As prayed for by plaintiff-appellant, the
"Offsetting Agreement" (Exhibit "E" or "2") is hereby rescinded. Room 601 of Phase
I of the Vermen Pines Condominium should be returned by plaintiff-appellant to
defendant-appellee upon payment by the latter of the sum of P330,855.25 to the
former, plus damages in the sum of P5,000.00 and P50.00 for the furnishings of
Phase I of Condo (sic) Units Nos. 601 and 602, and three (3) day rental of Room 402
during the Holy Week of 1982, respectively. In addition, defendant-appellee is
hereby ordered to pay plaintiff-appellant, who was compelled to litigate and hire
the services of counsel to protect its interests against defendant-appellee's violation
of their Offsetting Agreement, the sum of P10,000.00 as an award for attorney's fee
(sic) and other expenses of litigation. The claim for unrealized profits in a sum
equivalent to 10% to 20% percent or P522,000.00 not having been duly proved, is
therefore DENIED. No costs. (Rollo, p. 31)
On March 2, 1981, petitioner Vermen Realty and Development Corporation, as First Party, and
private respondent Seneca Hardware Co., Inc., as Second Party, entered into a contract
denominated as "Offsetting Agreement". The said agreement contained the following stipulations:
1. That the FIRST PARTY is the owner/developer of VERMEN PINES CONDOMINIUM
located at Bakakeng Road, Baguio City;
2. That the SECOND PARTY is in business of construction materials and other
hardware items;
3. That the SECOND PARTY desires to buy from the FIRST PARTY two (2) residential
condominium units, studio type, with a total floor area of 76.22 square meter (sic)
more or less worth TWO HUNDRED SEVENTY SIX THOUSAND (P276,000.00) PESOS
only;
4. That the FIRST PARTY desires to but from the SECOND PARTY construction
materials mostly steel bars, electrical materials and other related items worth FIVE
HUNDRED FIFTY TWO THOUSAND (P552,000.00) PESOS only;
5. That the FIRST PARTY shall pay the SECOND PARTY TWO HUNDRED SEVENTY SIX
THOUSAND (P276,000.00) PESOS in cash upon delivery of said construction
materials and the other TWO HUNDRED SEVENTY SIX THOUSAND (P276,000.00)
PESOS shall be paid in the form of two (2) residential condominium units, studio
type, with a total floor area of 76.22 square meter (sic) more or less also worth
P276,000.00;
6. That, for every staggered delivery of construction materials, fifty percent (50%)
shall be paid by the FIRST PARTY to the SECOND PARTY C.O.D. and, fifty percent
(50%) shall be credited to the said condominium unit in favor of the SECOND PARTY;
7. That the SECOND PARTY shall deliver to the FIRST PARTY said construction
materials under the agreed price and conditions stated in the price quotation
approved by both parties and made an integral part of this document;
8. That the SECOND PARTY is obliged to start delivering to the FIRST PARTY all items
in the purchase order seven (7) days from receipt of said purchase order until such
time that the whole amount of P552,000.00 is settled;
9. That the place of delivery shall be Vermen Pines Condominium at Bakakeng Road,
Baguio City;
10. That the freight cost of said materials shall be borne fifty percent (50%) by the
FIRST PARTY and fifty percent (50%) by the SECOND PARTY;
11. That the FIRST PARTY pending completion of the VERMEN PINES
CONDOMINIUM PHASE II which is the subject of this contract, shall deliver to the
SECOND PARTY the possession of residential condominium, Phase I, Unit Nos. 601
and 602, studio type with a total area of 76.22 square meters or less, worth
P276,000.00;
12. That after the completion of Vermen Pines Condominium Phase II, the SECOND
PARTY shall be given by the FIRST PARTY the first option to transfer from Phase I to
Phase II under the same price, terms and conditions. (Rollo, pp. 26-28).
As found by the appellate court and admitted by both parties, private respondent had paid petitioner
the amount of P110,151.75, and at the same time delivered construction materials worth
P219,727.00. Pending completion of Phase II of the Vermen Pines Condominiums, petitioner
delivered to private respondent units 601 and 602 at Phase I of the Vermen Pines Condominiums
(Rollo, p. 28). In 1982, the petitioner repossessed unit 602. As a consequence of the repossession, the
officers of the private respondent corporation had to rent another unit for their use when they went
to Baguio on April 8, 1982. On May 10, 1982, the officers of the private respondent corporation
requested for a clarification of the petitioner's action of preventing them and their families from
occupying condominium unit 602.
In its reply dated May 24, 1982, the petitioner corporation averred that Room 602 was leased to
another tenant because private respondent corporation had not paid anything for purchase of the
condominium unit. Petitioner corporation demanded payment of P27,848.25 representing the
balance of the purchase price of Room 601.
In 1983, the loan application for the construction of the Vermen Pines Condominium Phase II was
denied. Consequently, construction of the condominium project stopped and has not been resumed
since then.
On June 21, 1985, private respondent filed a complaint with the Regional Trial Court of Quezon City
(Branch 92) for rescission of the Offsetting Agreement with damages. In said complaint, private
respondent alleged that petitioner Vermen Realty Corporation had stopped issuing purchase orders
of construction materials after April, 1982, without valid reason, thus resulting in the stoppage of
deliveries of construction materials on its (Seneca Hardware) part, in violation of the Offsetting
Agreement.
In its Answer filed on August 15, 1985, petitioner alleged that the fault lay with private respondent
(plaintiff therein): although petitioner issued purchase orders, it was private respondent who could
not deliver the supplies ordered, alleging that they were out of stock. (However, during a hearing on
January 28, 1987, the Treasurer of petitioner corporation, when asked where the purchase orders
were, alleged that she was going to produce the same in court, but the same was never produced
(Rollo, p. 30). Moreover, private respondent quoted higher prices for the construction materials
which were available. Thus, petitioner had to resort to its other suppliers. Anent the query as to why
Unit 602 was leased to another tenant, petitioner averred that this was done because private
respondent had not paid anything for it.
As of December 16, 1986, private respondent had paid petitioner P110,151.75 in cash, made
deliveries of construction materials worth P219,727.00, leaving a balance of P27,848.25 representing
the purchase price of unit 601 (Rollo, p. 28). The price of one condominium unit was P138,000.00.
After conducting hearings, the trial court rendered a decision dismissing the complaint and ordering
the plaintiff (private respondent in this petition) to pay defendant (petitioner in this petition) on its
counterclaim in the amount of P27,848.25 representing the balance due on the purchase price of
condominium unit 601.
On appeal, respondent court reversed the trial court's decision as adverted to above.
Petitioner now comes before us with the following assignment of errors:
I but only for such substantial and fundamental breach as would defeat the very object of the parties
THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS REVIEWABLE BY
THIS HONORABLE COURT, WHEN IT SUPPLANTED CONTRARY TO THE EVIDENCE ON
RECORD, THE TRIAL COURT'S CONCLUSIONS THAT PETITIONER DID NOT VIOLATE
THE "OFFSETTING AGREEMENT" IT ENTERED INTO WITH THE SENECA HARDWARE
CO., INC. WITH ITS TOTALLY BASELESS "PERCEPTION" THAT IT WAS PETITIONER
WHICH DISCONTINUED TO ISSUE PURCHASE ORDERS DUE TO THE STOPPAGE OF
THE CONSTRUCTION OF PHASE II OF THE CONDOMINIUM PROJECT WHEN THE
LOAN ON THE SAID PROJECT WAS STOPPED.
II
THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS REVIEWABLE BY
THIS HONORABLE COURT, WHEN IT CONCLUDED THAT IT WAS PETITIONER WHICH
BREACHED THE "OFFSETTING AGREEMENT" BECAUSE IT DID NOT SEND PURCHASE
ORDERS TO PRIVATE RESPONDENT AND DISCONTINUED THE CONSTRUCTION OF
THE CONDOMINIUM PROJECT DESPITE THE FACT THAT THE EXHIBITS ATTESTING TO
THIS FACT WAS FORMALLY OFFERED IN EVIDENCE IN COURT AND MENTIONED BY IT
IN ITS DECISION.
III
THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS REVIEWABLE BY
THIS HONORABLE COURT, WHEN IT CONCLUDED THAT IT WAS PETITIONER WHICH
BREACHED THE "OFFSETTING AGREEMENT" DESPITE THE ADMISSION MADE BY
PRIVATE RESPONDENT'S OWN WITNESS THAT PETITIONER HAD THE DISCRETION TO
ORDER OR NOT TO ORDER THE CONSTRUCTION MATERIAL (SIC) FROM THE
FORMER. (Rollo, p. )
The issue presented before the Court is whether or not the circumstances of the case warrant
rescission of the Offsetting Agreement as prayed for by Private Respondent when he instituted the
case before the trial court.
We rule in favor of private respondent. There is no controversy that the provisions of the Offsetting
Agreement are reciprocal in nature. Reciprocal obligations are those created or established at the
same time, out of the same cause, and which results in a mutual relationship of creditor and debtor
between parties. In reciprocal obligations, the performance of one is conditioned on the
simultaneous fulfillment of the other obligation (Abaya vs. Standard Vacuum Oil Co., 101 Phil. 1262
[1957]). Under the agreement, private respondent shall deliver to petitioner construction materials
worth P552,000.00 under the conditions set forth in the Offsetting Agreement. Petitioner's obligation
under the agreement is three-fold: he shall pay private respondent P276,000.00 in cash; he shall
deliver possession of units 601 and 602, Phase I, Vermen Pines Condominiums (with total value of
P276,000.00) to private respondent; upon completion of Vermen Pines Condominiums Phase II,
private respondent shall be given option to transfer to similar units therein.
Article 1191 of the Civil Code provides the remedy of rescission in (more appropriately, the term is
"resolution") in case of reciprocal obligations, where one of the obligors fails to comply with that is
incumbent upon him.
The general rule is that rescission of a contract will not be permitted for a slight or causal breach,
in executing the agreement. The question of whether a breach of contract is substantial depends
upon the attendant circumstances (Universal Food Corp. vs. Court of Appeals, 33 SCRA 1, [1970]).
In the case at bar, petitioner argues that it was private respondent who failed to perform its
obligation in the Offsetting Agreement. It averred that contrary to the appellate court's ruling, the
mere stoppage of the loan for the construction of Phase II of the Vermen Pines Condominiums should
not have had any effect on the fulfillment of the obligations set forth in the Offsetting Agreement.
Petitioner moreover stresses that contrary to private respondent's averments, purchase orders were
sent, but there was failure to deliver the materials ordered because they were allegedly out of stock.
Petitioner points out that, as admitted by private respondent's witness, petitioner had the discretion
to order or not to order constructions materials, and that it was only after petitioner approved the
price, after making a canvass from other suppliers, that the latter would issue a purchase order.
Petitioner argues that this was the agreement, and therefore the law between the parties, hence,
when no purchase orders were issued, no provision of the agreement was violated.
Private respondent, on the other hand, points out that the subject of the Offsetting Agreement is
Phase II of the Vermen Pines Condominiums. It alleges that since construction of Phase II of the
Vermen Pines Condominiums has failed to begin (Rollo, p. 104), it has reason to move for rescission of
the Offsetting Agreement, as it cannot forever wait for the delivery of the condominium units to it.
It is evident from the facts of the case that private respondent did not fail to fulfill its obligation in
the Offsetting Agreement. The discontinuance of delivery of construction materials to petitioner
stemmed from the failure of petitioner to send purchase orders to private respondent. The
allegation that petitioner had been sending purchase orders to private respondent, which the latter
could not fill, cannot be given credence. Perhaps in the beginning, it would send purchase orders to
private respondent (as evidenced by the purchase orders presented in court), and the latter would
deliver the construction materials ordered. However, according to private respondent, after April,
1982, petitioner stopped sending purchase orders. Petitioner failed to refute this allegation. When
petitioner's witness, Treasurer of the petitioner corporation, was asked to produce the purchase
orders in court, the latter promised to do so, but this was never complied with.
On the other hand, petitioner would never able to fulfill its obligation in allowing private respondent
to exercise the option to transfer from Phase I to Phase II, as the construction of Phase II has ceased
and the subject condominium units will never be available.
The impossibility of fulfillment of the obligation on the part of petitioner necessitates resolution of
the contract for indeed, the non-fulfillment of the obligation aforementioned constitutes
substantial breach of the Offsetting Agreement. The possibility of exercising the option of whether
or not to transfer to condominium units in Phase II was one of the factors which were considered
by private respondent when it entered into the agreement. Since the construction of the Vermen
Pines Condominium Phase II has stopped, petitioner would be in no position to perform its
obligation to give private respondent the option to transfer to Phase II. It would be the height of
injustice to make private respondent wait for something that may never come.
WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioner.
SO ORDERED.
Feliciano, Davide, Jr., Romero and Melo, JJ., concur.
G.R. No. 129760 December 29, 1998
RICARDO CHENG, petitioner,
vs.
RAMON B. GENATO and ERNESTO R. DA JOSE & SOCORRO DA JOSE, respondents.
MARTINEZ, J.:
This petition for review on certiorari seeks to annul and set aside the Decision of the Court of Appeals
(CA) 1 dated July 7, 1997 in CA-G.R. No. CV No. 44706 entitled "Ricardo Cheng, plaintiff-appellee vs.
Ramon B. Genato, defendant-appellant, Ernesto R. Da Jose & Socorro B. Da Jose, Intervenors-
Appellants" which reversed the ruling of the Regional Trial Court, Branch 96 of Quezon City dated
January 18, 1994. The dispositive portion of the CA Decision reads:
WHEREFORE, based on the foregoing, appealed decision is hereby REVERSED and
SET ASIDE and judgment is rendered ordering;
1. The dismissal of the complaint;
2. The cancellation of the annotations of the defendant-appellant's Affidavit to
Annul Contract to Sell and plaintiff-appellee's Notice of Adverse Claim in the subject
TCT's, namely, TCT No. T-76.196 (M) and TCT No. T-76.197 (M);
3. Payment by the intervenors-appellants of the remaining balance of the purchase
price pursuant to their agreement with the defendant-appellant to suspend
encashment of the three post-dated checks issued since 1989.
4. Ordering the execution by the defendant-appellant Genato of the Deed of
Absolute Sale over the subject two lots covered by TCT No. T-76.196 (M) and TCT
No. T-76.197 (M) in favor of intervenors-appellants Spouses Da Jose;
5. The return by defendant-appellant Genato of the P50,000.00 paid to him by the
plaintiff-appellee Cheng, and
6. Payment by plaintiff-appellee Cheng of moral damages to herein intervenors-
appellants Da Jose of P100,000.00, exemplary damages of P50,000.00, attorney's
fees of P50,000.00, and costs of suit; and to defendant-appellant, of P100,000.00 in
exemplary damages, P50,000.00 in attorney's fees. The amounts payable to the
defendant-appellant may be compensated by plaintiff appellee with the amount
ordered under the immediately foregoing paragraph which defendant-appellant has
to pay the plaintiff-appellee.
SO ORDERED. 2
The antecedents of the case are as follows:
Respondent Ramon B. Genato (Genato) is the owner of two parcels of land located at Paradise Farms,
San Jose del Monte, Bulacan covered by TCT No. T-76.196 (M) 3 and TCT No. T-76.197 (M) 4 with an
aggregate area of 35,821square meters, more or less.
On September 6, 1989, respondent Genato entered into an agreement with respondent-spouses
Ernesto R. Da Jose and Socorro B. Da Jose (Da Jose spouses) over the above-mentioned two parcels of
land. The agreement culminated in the execution of a contract to sell for which the purchase price
was P80.00 per square meter. The contract was in a public instrument and was duly annotated at the
back of the two certificates of title on the same day. Clauses 1and 3 thereof provide:
1. That the purchase price shall be EIGHTY (P80.00) PESOS, Philippine Currency per
square meter, of which the amount of FIFTY THOUSAND (P50,000.00) PESOS shall
 be paid by the VENDEE to the VENDOR as partial down payment at the time of
execution of this Contract to Sell.
xxx xxx xxx
3. That the VENDEE, Thirty (30) DAYS after the execution of this contract, and only
after having satisfactorily verified and confirmed the truth and authenticity of
documents, and that no restrictions, limitations, and developments imposed on
and/or affecting the property subject of this contract shall be detrimental to his
interest, the VENDEE shall pay to the VENDOR, NINE HUNDRED FIFTY THOUSAND
(P950,00.00) PESOS. Philippine Currency, representing the full payment of the
agreed Down Payment, after which complete possession of the property shall be
given to the VENDEE to enable him to prepare the premises and any development
therein.
On October 4, 1989, the Da Jose spouses, not having finished verifying the titles mentioned in clause
3 as aforequoted, asked for and was granted by respondent Genato an extension of another 30 days
— or until November 5, 1989. However, according to Genato, the extension was granted on condition
that a new set of documents is made seven (7) days from October 4, 1989. 6 This was denied by the
Da Jose spouses.
Pending the effectivity of the aforesaid extension period, and without due notice to the Da Jose
spouses, Genato executed an Affidavit to Annul the Contract to Sell, 7 on October 13, 1989.
Moreover, no annotation of the said affidavit at the back of his titles was made right away. The
affidavit contained, inter alia, the following paragraphs;
xxx xxx xxx
That it was agreed between the parties that the agreed downpayment of
P950,000.00 shall be paid thirty (30) days after the execution of the Contract, that is
on or before October 6, 1989;
The supposed VENDEES failed to pay the said full downpayment even up to this
writing, a breach of contract;
That this affidavit is being executed to Annul the aforesaid Contract to Sell for the
vendee having committed a breach of contract for not having complied with the
obligation as provided in the Contract to Sell; 8
On October 24, 1989, herein petitioner Ricardo Cheng (Cheng) went to Genato's residence and
expressed interest in buying the subject properties. On that occasion, Genato showed to Ricardo
Cheng copies of his transfer certificates of title and the annotations at the back thereof of his contract
to sell with the Da Jose spouses. Genato also showed him the aforementioned Affidavit to Annul the
Contract to Sell which has not been annotated at the back of the titles.
Despite these, Cheng went ahead and issued a check for P50,000.00 upon the assurance by Genato
that the previous contract with the Da Jose spouses will be annulled for which Genato issued a
handwritten receipt (Exh. "D"), written in this wise:
10/24/89
Received from Ricardo Cheng
the Sum of Fifty Thousand Only (P50.000-)
as partial for T-76196 (M)
T-76197 (M) area 35.821 Sq.m.
Paradise Farm, Gaya-Gaya, San Jose Del Monte
P70/m2 Bulacan
plus C. G. T. etc.
Check # 470393 (SGD.) Ramon B. Genato
10/24/89 9
On October 25, 1989, Genato deposited Cheng's check. On the same day, Cheng called up Genato
reminding him to register the affidavit to annul the contract to sell. 10
The following day, or on October 26, 1989, acting on Cheng's request, Genato caused the registration
of the Affidavit to Annul the Contract to Sell in the Registry of Deeds, Meycauayan, Bulacan as
primary entry No. 262702. 11
While the Da Jose spouses were at the Office of the Registry of Deeds of Meycauayan, Bulacan on
October 27, 1989, they met Genato by coincidence. It was only then that the Da Jose spouses
discovered about the affidavit to annul their contract. The latter were shocked at the disclosure and
protested against the rescission of their contract. After being reminded that he (Genato) had given
them (Da Jose spouses) an additional 30-day period to finish their verification of his titles, that the
period was still in effect, and that they were willing and able to pay the balance of the agreed down
payment, later on in the day, Genato decided to continue the Contract he had with them. The
agreement to continue with their contract was formalized in a conforme letter dated October 27,
1989.
Thereafter, Ramon Genato advised Ricardo Cheng of his decision to continue his contract with the Da
Jose spouses and the return of Cheng's P50,000.00 check. Consequently, on October 30, 1989,
Cheng's lawyer sent a letter 12 to Genato demanding compliance with their agreement to sell the
property to him stating that the contract to sell between him and Genato was already perfected and
threatening legal action.
On November 2, 1989, Genato sent a letter 13 to Cheng (Exh. "6") enclosing a BPI Cashier's Check for
P50,000.00 and expressed regret for his inability to "consummate his transaction" with him. After
having received the letter of Genato on November 4, 1989, Cheng, however, returned the said check
to the former via RCPI telegram 14 dated November 6, 1989, reiterating that "our contract to sell your
property had already been perfected."
Meanwhile, also on November 2, 1989, Cheng executed an affidavit of adverse claim 15 and had it
annotated on the subject TCT's.
On the same day, consistent with the decision of Genato and the Da Jose spouses to continue with
their Contract to Sell of September 6, 1989, the Da Jose spouses paid Genato the complete down
payment of P950,000.00 and delivered to him three (3) postdated checks (all dated May 6, 1990, the
stipulated due date) in the total amount of P1,865,680.00 to cover full payment of the balance of the
agreed purchase price. However, due to the filing of the pendency of this case, the three (3)
postdated checks have not been encashed.
On December 8, 1989, Cheng instituted a complaint 16 for specific performance to compel Genato to
execute a deed of sale to him of the subject properties plus damages and prayer for preliminary
attachment. In his complaint, Cheng averred that the P50,000.00 check he gave was a partial
payment to the total agreed purchase price of the subject properties and considered as an earnest
money for which Genato acceded. Thus, their contract was already perfected.
In Answer 17 thereto, Genato alleged that the agreement was only a simple receipt of an option-bid
deposit, and never stated that it was a partial payment, nor is it an earnest money and that it was
subject to condition that the prior contract with the Da Jose spouses be first cancelled.
The Da Jose spouses, in their Answer in Intervention, 18 asserted that they have a superior right to the
property as first buyers. They alleged that the unilateral cancellation of the Contract to Sell was
without effect and void. They also cited Cheng's bad faith as a buyer being duly informed by Genato
of the existing annotated Contract to Sell on the titles.
After trial on the merits, the lower court ruled that the receipt issued by Genato to Cheng unerringly
meant a sale and not just a priority or an option to buy. It cannot be true that the transaction was
subjected to some condition or reservation, like the priority in favor of the Da Jose spouses as first
buyer because, if it were otherwise, the receipt would have provided such material condition or
reservation, especially as it was Genato himself who had made the receipt in his own hand. It also
opined that there was a valid rescission of the Contract to Sell by virtue of the Affidavit to Annul the
Contract to Sell. Time was of the essence in the execution of the agreement between Genato and
Cheng, under this circumstance demand, extrajudicial or judicial, is not necessary. It falls under the
exception to the rule provided in Article 1169 19 of the Civil Code. The right of Genato to unilaterally
rescind the contract is said to be under Article 1191 20 of the Civil Code. Additionally, after reference
was made to the substance of the agreement between Genato and the Da Jose spouses, the lower
court also concluded that Cheng should be preferred over the intervenors-Da Jose spouses in the
purchase of the subject properties. Thus, on January 18, 1994 the trial court rendered its decision the
decretal portion of which reads:
WHEREFORE, judgment is hereby rendered:
1. Declaring the contract to sell dated September 6, 1989 executed between
defendant Ramon Genato, as vendor, and intervenors Spouses Ernesto and Socorro
Da Jose, as vendees, resolved and rescinded in accordance with Art. 1191, Civil
Code, by virtue of defendant's affidavit to annul contract to sell dated October 13,
1989 and as the consequence of intervenors' failure to execute within seven (7)
days from October 4, 1989 another contract to sell pursuant to their mutual
agreement with defendant;
2. Ordering defendant to return to the intervenors the sum of P1,000,000.00, plus
interest at the legal rate from November 2, 1989 until full payment;
3. Directing defendant to return to the intervenors the three (3) postdated checks
immediately upon finality of this judgment;
4. Commanding defendant to execute with and in favor of the plaintiff Ricardo
Cheng, as vendee, a deed of conveyance and sale of the real properties described
and covered in Transfer Certificates of Title No. T-76-196 (M) and T-76.197 (M) of
the Registry of Deeds of Bulacan, Meycauayan Branch, at the rate of
P70.000/square meter, less the amount of P50,000.00 alreaddy paid to defendant,
which is considered as part of the purchase price, with the plaintiff being liable for
payment of the capital gains taxes and other expenses of the transfer pursuant to
the agreement to sell dated October 24, 1989; and
5 Ordering defendant to pay the plaintiff and the intervenors as follows:
a/ P50,000.00, as nominal damages, to plaintiff;
b/ P50,000.00, as nominal damages, to
intervenors;
c/ P20,000.00, as and for attorney's fees, to
plaintiff;
d/ P20,000.00, as and for attorney's fees, to
intervenors; and
e/ Cost of the suit.
xxx xxx xxx
Not satisfied with the aforesaid decision, herein respondents Ramon Genato and Da Jose spouses
appealed to the court a quo which reversed such judgment and ruled that the prior contract to sell in
favor of the Da Jose spouses was not validly rescinded; that the subsequent contract to sell between
Genato and Cheng, embodied in the handwritten receipt, was without force and effect due to the
failure to rescind the prior contract; and that Cheng should pay damages to the respondents herein
being found to be in bad faith.
Hence this petition.21
This petition for review, assails the Court of Appeals' Decision on the following grounds: (1) that the
Da Jose spouses' Contract to Sell has been validly rescinded or resolved; (2) that Ricardo Cheng's own
contract with Genato was not just a contract to sell but one of conditional contract of sale which gave
him better rights, thus precluding the application of the rule on double sales under Article 1544, Civil
Code; and (3) that, in any case, it was error to hold him liable for damages.
The petition must be denied for failure to show that the Court of Appeals committed a reversible
error which would warrant a contrary ruling.
No reversible error can be ascribed to the ruling of the Court of Appeals that there was no valid and
effective rescission or resolution of the Da Jose spouses Contract to Sell, contrary to petitioner's
contentions and the trial court's erroneous ruling.
In a Contract to Sell, the payment of the purchase price is a positive suspensive condition, the failure
of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor
to convey title from acquiring an obligatory force.22 It is one where the happening of the event gives
rise to an obligation. Thus, for its non-fulfillment there will be no contract to speak of, the obligor
having failed to perform the suspensive condition which enforces a juridical relation. In fact with this
circumstance, there can be no rescission of an obligation that is still non-existent, the suspensive
condition not having occurred as yet.23 Emphasis should be made that the breach contemplated in
Article 1191 of the New Civil Code is the obligor's failure to comply with an obligation already extant,
not a failure of a condition to render binding that obligation. 24
Obviously, the foregoing jurisprudence cannot be made to apply to the situation in the instant case
because no default can be ascribed to the Da Jose spouses since the 30-day extension period has not
yet expired. The Da Jose spouses' contention that no further condition was agreed when they were
granted the 30-days extension period from October 7, 1989 in connection with clause 3 of their
contract to sell dated September 6, 1989 should be upheld for the following reason, to wit; firstly, If
this were not true, Genato could not have been persuaded to continue his contract with them and
later on agree to accept the full settlement of the purchase price knowing fully well that he himself
imposed such sine qua non condition in order for the extension to be valid; secondly, Genato could
have immediately annotated his affidavit to annul the contract to sell on his title when it was
executed on October 13, 1989 and not only on October 26, 1989 after Cheng reminded him of the
annotation; thirdly, Genato could have sent at least a notice of such fact, there being no stipulation
authorizing him for automatic rescission, so as to finally clear the encumbrance on his titles and make
it available to other would be buyers. It likewise settles the holding of the trial court that Genato
"needed money urgently."
Even assuming in gratia argumenti that the Da Jose spouses defaulted, as claimed by Genato, in their
Contract to Sell, the execution by Genato of the affidavit to annul the contract is not even called for.
For with or without the aforesaid affidavit their non-payment to complete the full downpayment of
the purchase price ipso facto avoids their contract to sell, it being subjected to a suspensive
condition. When a contract is subject to a suspensive condition, its birth or effectivity can take place
only if and when the event which constitutes the condition happens or is fulfilled. 25 If the suspensive
condition does not take place, the parties would stand as if the conditional obligation had never
existed. 26
Nevertheless, this being so Genato is not relieved from the giving of a notice, verbal or written, to the
Da Jose spouses for his decision to rescind their contract. In many cases, 27 even though we upheld the
validity of a stipulation in a contract to sell authorizing automatic rescission for a violation of its terms
and conditions, at least a written notice must be sent to the defaulter informing him of the same. The
act of a party in treating a contract as cancelled should be made known to the other. 28 For such act is
always provisional. It is always subject to scrutiny and review by the courts in case the alleged
defaulter brings the matter to the proper courts. In University of the Philippines vs. De Los
Angeles,29 this Court stressed and we quote:
In other words, the party who deems the contract violated may consider it resolved
or rescinded, and act accordingly, without previous court action, but it proceeds at
its own risk. For it is only the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or was not correct in
law. But the law definitely does not require that the contracting party who believes
itself injured must first file suit and wait for a judgment before taking extrajudicial
steps to protect its interest. Otherwise, the party injured by the other's breach will
have to passively sit and watch its damages accumulate during the pendency of the
suit until the final judgment of rescission is rendered when the law itself requires
that he should exercise due diligence to minimize its own damages (Civil Code,
Article 2203).
This rule validates, both in equity and justice, contracts such as the one at bat, in order to avoid and
prevent the defaulting party from assuming the offer as still in effect due to the obligee's tolerance
for such non-fulfillment. Resultantly, litigations of this sort shall be prevented and the relations
among would-be parties may be preserved. Thus, Ricardo Cheng's contention that the Contract to Sell
between Genato and the Da Jose spouses was rescinded or resolved due to Genato's unilateral
rescission finds no support in this case.
Anent the issue on the nature of the agreement between Cheng and Genato, the records of this case
are replete with admissions30 that Cheng believed it to be one of a Contract to Sell and not one of
Conditional Contract of Sale which he, in a transparent turn-around, now pleads in this Petition. This
ambivalent stance of Cheng is even noted by the appellate court, thus:
At the outset, this Court notes that plaintiff-appellee was inconsistent in
characterizing the contract he allegedly entered into. In his complaint. 31 Cheng
alleged that the P50,000.00 down payment was earnest money. And next, his
testimony32 was offered to prove that the transaction between him and Genato on
October 24, 1989 was actually a perfected contract to sell.33
Settled is the rule that an issue which was not raised during the trial in the court below cannot be
raised for the first time on appeal.34 Issues of fact and arguments not adequately brought to the
attention of the trial court need not be and ordinarily will not be considered by a reviewing court as
they cannot be raised for the first time on appeal. 35 In fact, both courts below correctly held that the
receipt which was the result of their agreement, is a contract to sell. This was, in fact Cheng's
contention in his pleadings before said courts. This patent twist only operates against Cheng's posture
which is indicative of the weakness of his claim.
But even if we are to assume that the receipt, Exh. "D," is to be treated as a conditional contract of
sale, it did not acquire any obligatory force since it was subject to suspensive condition that the
earlier contract to sell between Genato and the Da Jose spouses should first be cancelled or
rescinded — a condition never met, as Genato, to his credit, upon realizing his error, redeemed
himself by respecting and maintaining his earlier contract with the Da Jose spouses. In fact, a careful
reading of the receipt, Exh. "D," alone would not even show that a conditional contract of sale has
been entered by Genato and Cheng. When the requisites of a valid contract of sale are lacking in said
receipt, therefore the "sale" is neither valid or enfoceable. 36
To support his now new theory that the transaction was a conditional contract of sale, petitioner
invokes the case of Coronel vs. Court of Appeals 37 as the law that should govern their Petition. We do
not agree. Apparently, the factual milieu in Coronel is not on all fours with those in the case at bar.
In Coronel, this Court found that the petitioners therein clearly intended to transfer title to the buyer
which petitioner themselves admitted in their pleading. The agreement of the parties therein was
definitively outlined in the "Receipt of Down Payment" both as to property, the purchase price, the
delivery of the seller of the property and the manner of the transfer of title subject to the specific
condition that upon the transfer in their names of the subject property the Coronels will execute the
deed of absolute sale.
Whereas, in the instant case, even by a careful perusal of the receipt, Exh. "D," alone such kind of
circumstances cannot be ascertained without however resorting to the exceptions of the Rule on
Parol Evidence.
To our mind, the trial court and the appellate court correctly held that the agreement between
Genato and Cheng is a contract to sell, which was, in fact, petitioner connection in his pleadings
before the said courts. Consequently, both to mind, which read:
Art. 1544. 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 movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in
good faith was first in possession; and in the absence thereof, to the person who
presents he oldest title, provided there is good faith.
However, a meticulous reading of the aforequoted provision shows that said law is not apropos to
the instant case. This provision connotes that the following circumstances must concur:
(a) The two (or more) sales transactions in issue must pertain to exactly the same
subject matter, and must be valid sales transactions.
(b) The two (or more) buyers at odds over the rightful ownership of the subject
matter must each represent conflicting interests; and
(c) The two (or more) buyers at odds over the rightful ownership of the subject
matter must each have bought from the very same seller.
These situations obviously are lacking in a contract to sell for neither a transfer of ownership nor a
sales transaction has been consummated. The contract to be binding upon the obligee or the vendor
depends upon the fulfillment or non-fulfillment of an event.
Notwithstanding this contrary finding with the appellate court, we are of the view that the governing
principle of Article 1544, Civil Code, should apply in this situation. Jurisprudence 38 teaches us that the
governing principle is PRIMUS TEMPORE, PORTIOR JURE (first in time, stronger in right). For not only
was the contract between herein respondents first in time; it was also registered long before
petitioner's intrusion as a second buyer. This principle only applies when the special rules provided in
the aforcited article of the Civil Code do not apply or fit the specific circumstances mandated under
said law or by jurisprudence interpreting the article.
The rule exacted by Article 1544 of the Civil Code for the second buyer to be able to displace the first
buyer are:
(1) that the second buyer must show that he acted in good faith (i.e. in ignorance of the first sale and
of the first buyer's rights) from the time of acquisition until title is transferred to him by registration
or failing registration, by delivery of possession;39
(2) the second buyer must show continuing good faith and innocence or lack of knowledge of the first
sale until his contract ripens into full ownership through prior registration as provided by law. 40
Thus, in the case at bar, the knowledge gained by the Da Jose spouses, as first buyers, of the new
agreement between Cheng and Genato will not defeat their rights as first buyers except where
Cheng, as second buyer, registers or annotates his transaction or agreement on the title of the
subject properties in good faith ahead of the Da Jose spouses. Moreover, although the Da Jose
spouses, as first buyers, knew of the second transaction it will not bar them from availing of their
rights granted by law, among them, to register first their agreement as against the second buyer.
In contrast, knowledge gained by Cheng of the first transaction between the Da Jose spouses and
Genato defeats his rights even if he is first to register the second transaction, since such knowledge
taints his prior registration with bad faith.
"Registration", as defined by Soler and Castillo, means any entry made in the books of the registry,
including both registration in its ordinary and strict sense, and cancellation, annotation, and even
marginal notes.41 In its strict acceptation, it is the entry made in the registry which records solemnly
and permanently the right of ownership and other real rights. 42 We have ruled43 before that when a
Deed of Sale is inscribed in the registry of property on the original document itself, what was done
with respect to said entries or annotations and marginal notes amounted to a registration of the sale.
In this light, we see no reason why we should not give priority in right the annotation made by the Da
Jose spouses with respect to their Contract to Sell dated September 6, 1989.
Moreover, registration alone in such cases without good faith is not sufficient. Good faith must
concur with registration for such prior right to be enforceable. In the instant case, the annotation
made by the Da Jose spouses on the titles of Genato of their "Contract To Sell" more than satisfies
this requirement. Whereas in the case of Genato's agreement with Cheng such is unavailing. For even
before the receipt, Exh. "D," was issued to Cheng information of such pre-existing agreement has
been brought to his knowledge which did not deter him from pursuing his agreement with Genato.
We give credence to the factual finding of the appellate court that "Cheng himself admitted that it
was he who sought Genato in order to inquire about the property and offered to buy the same. 44 And
since Cheng was fully aware, or could have been if he had chosen to inquire, of the rights of the Da
Jose spouses under the Contract to Sell duly annotated on the transfer certificates of titles of Genato,
it now becomes unnecessary to further elaborate in detail the fact that he is indeed in bad faith in
entering into such agreement. As we have held in Leung Yee vs. F.L. Strong Machinery Co.:45
One who purchases real estate with knowledge of a defect . . . of title in his vendor
cannot claim that he has acquired title thereto in good faith as against . . . . an
interest therein; and the same rule must be applied to one who has knowledge of
facts which should have put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his vendor. A purchaser
cannot close his eyes to facts which should put a reasonable man upon his guard,
and then claim that he acted in good faith under the belief that there was no defect
in the title of the vendor. His mere refusal to believe that such defect exists, or his
willful closing of his eyes to the possibility of the existence of a defect in his
vendor's title, will not make him an innocent purchaser for value, if it afterwards
develops that the title was in fact defective, and it appears that he had such notice
of the defect as would have led to its discovery had he acted with that measure of
precaution which may reasonably be required of a prudent man in a like situation.
Good faith, or lack of it, is in its last analysis a question of intention; but in
ascertaining the intention by which one is actuated on a given occasion, we are
necessarily controlled by the evidence as to the conduct and outward acts by which
alone the inward motive may with safety, be determined. So it is that "the honesty
of intention," "the honest lawful intent," which constitutes good faith implies a
"freedom from knowledge and circumstances which ought to put a person on
inquiry," and so it is that proof of such knowledge overcomes the presumption of
good faith in which the courts always indulge in the absence of the proof to the
contrary. "Good faith, or the want of it, is not a visible, tangible fact that can be
seen or touched, but rather a state or condition of mind which can only be judge of
by actual or fancied tokens or signs." (Wilder vs. Gilman, 55 Vt. 504, 505; Cf.
Cardenas vs. Miller, 108 Cal., 250; Breaux-Renoudet, Cypress Lumber Co. vs. Shadel,
52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromely, 119 Mich., 8, 10, 17.)
(Emphasis ours)
Damages were awarded by the appellate court on the basis of its finding that petitioner "was in bad
faith when he filed the suit for specific performance knowing fully well that his agreement with
Genato did not push through.46 Such bad faith, coupled with his wrongful interference with the
contractual relations between Genato and the Da Jose spouses, which culminated in his filing of the
present suit and thereby creating what the counsel for the respondents describes as "a prolonged
and economically unhealthy gridlock47 on both the land itself and the respondents' rights provides
ample basis for the damages awarded. Based on these overwhelming evidence of bad faith on the
part of herein petitioner Ricardo Cheng, we find that the award of damages made by the appellate
court is in order.
WHEREFORE, premises considered, the instant petition for review is DENIED and the assailed decision
is hereby AFFIRMED EN TOTO.
SO ORDERED.
[G.R. No. 128669. October 4, 2002]
MAMERTA VDA. DE JAYME, vs. HON. COURT OF APPEALS, respondents.
DECISION
QUISUMBING, J.:
This petition assails the decision[2] dated September 19, 1996, of the Court of Appeals in CA-G.R.
CV No. 46496 and its resolution[3] dated February 21, 1997, denying the motion for
reconsideration. Said decision had affirmed that of the Regional Trial Court of Cebu City, Branch 15, in
Civil Case No. CEB-21369 for Annulment of Contract and Damages with Prayer for the Issuance of
Preliminary Injunction. [4]
The following facts are borne by the records:
The spouses Graciano and Mamerta Jayme are the registered owners of Lot 2700, situated in
the Municipality of Mandaue (now Mandaue City), Cebu, consisting of 2,568 sq.m. and covered by
Transfer Certificate of Title No. 8290.
On January 8, 1973, they entered into a Contract of Lease[5] with George Neri, president of
Airland Motors Corporation (now Cebu Asiancars Inc.), covering one-half of Lot 2700. The lease was
for twenty (20) years.
The terms and conditions of the lease contract[6] stipulated that Cebu Asiancars Inc. (hereafter,
Asiancars) may use the leased premises as a collateral to secure payment of a loan which Asiancars
may obtain from any bank, provided that the proceeds of the loan shall be used solely for the
construction of a building which, upon the termination of the lease or the voluntary
surrender of the leased premises before the expiration of the contract, shall automatically
become the property of the Jayme spouses (the lessors).
A Special Power of Attorney[7] dated January 26, 1974, was executed in favor of respondent
George Neri, who used the lot to secure a loan of P300,000 from the General Bank and Trust
Company. The loan was fully paid on August 14, 1977.[8]
In October 1977, Asiancars obtained a loan of P6,000,000 from the Metropolitan Bank and Trust
Company (MBTC). The entire Lot 2700 was offered as one of several properties given as collateral for
the loan. As mortgagors, the spouses signed a Deed of Real Estate Mortgage[9] dated November 21,
1977 in favor of MBTC. It stated that the deed was to secure the payment of a loan obtained by
Asiancars from the bank.
To assure the Jayme spouses, Neri and the other officers of Asiancars, namely Benny Liongben
Lee, William Leong Koc Lee, Connie U. Neri, Edward James Lee, Roberto Uykim and Charles P. Uykim,
executed an undertaking[10] dated November 7, 1977. In it they promised, in their personal capacities
and/or in representation of Cebu Asiancars, Inc., to compensate Mr. & Mrs. Graciano Jayme for any
and all or whatever damage they may sustain or suffer by virtue and arising out of the mortgage to
MBTC of the aforestated parcel of land.[11] In addition, Neri wrote a letter dated September 1,
1981[12] addressed to Mamerta Jayme acknowledging her confidence and help extended to him, his
family and Asiancars. He promised to pay their indebtedness to MBTC before the loan was due.
Meeting financial difficulties and incurring an outstanding balance on the loan, Asiancars
conveyed ownership of the building on the leased premises to MBTC, by way of dacion en
pago.[13] The building was valued at P980,000 and the amount was applied as partial payment for the
loan. There still remained a balance of P2,942,449.66, which Asiancars failed to pay.
Eventually, MBTC extrajudicially foreclosed the mortgage. A public auction was held on February
4, 1981. MBTC was the highest bidder for P1,067,344.35. A certificate of sale was issued and was
registered with the Register of Deeds on February 23, 1981.
Meanwhile, Graciano Jayme died, survived by his widow Mamerta and their children. As a result
of the foreclosure, Gracianos heirs filed a civil complaint, [14] in January of 1982, for Annulment of
Contract with Damages with Prayer for Issuance of Preliminary Injunction, against respondent
Asiancars, its officers and incorporators and MBTC. Later, in 1999, Mamerta Jayme also passed away.
Petitioners claim that Neri and Asiancars did not tell them that the indebtedness secured by the
mortgage was for P6,000,000 and that the security was the whole of Lot 2700. Petitioners allege that
the deed presented to the Jayme spouses was in blank, without explanation on the stipulations
contained therein, except that its conditions were identical to those of the stipulations when they
mortgaged half the lots area previously with General Bank. Petitioners also alleged that the Jayme
spouses were illiterate and only knew how to sign their names. That because they did not know how
to read nor write, and had given their full trust and confidence to George Neri, the spouses were
deceived into signing the Deed of Real Estate Mortgage. Their intention as well as consent was only to
be bound as guarantors.
Respondents deny that any fraud was employed, nor was there a scheme to make the spouses
sign as mortgagors instead of guarantors. They aver that the spouses were fully advised and
compensated for the use of their property as collateral with MBTC; that they voluntarily signed the
deed of mortgage upon the request of George Neri, whom they previously trusted and who fulfilled
his promise to pay the loan to General Bank and who obtained the release of the same property by
faithfully paying his indebtedness with General Bank.
After trial, the RTC rendered a decision, disposing as follows:
WHEREFORE, in view of the foregoing evidences, arguments and considerations, this Court hereby
renders judgment as follows:
1. Declaring the Real Estate Mortgage executed by the Jaymes in favor of Metrobank
as valid and binding;
2. Declaring the Undertaking executed by George Neri, Benny Leongben Lee already
deceased, William Leong Koc, Connie U. Neri, Edward James Lee, Roberto Uykim, and
Charles P. Uykim on November 7, 1977 to be valid and binding as well upon the
signatories thereof;
3. Allowing the Jaymes to redeem the mortgaged property, Lot 2700 covered by TCT 8290
of the Register of Deeds of Mandaue City for the amount of P2,942,448.66 plus interest
at the rate of 6% per annum within ninety (90) days from date of finality of this
judgment until paid. However, if the plaintiffs fail to redeem said property, then let a
Certificate of Sale/definite Deed of Sale be issued in favor of Metropolitan Bank and
Trust Co. covering said Lot 2700;
4. Holding the defendants George Neri, William Leong Koc, Connie U. Neri, Edward James
Lee, Roberto Uykim, and Charles Uykim jointly liable on their Undertaking dated
November 7, 1977 as they are hereby required to reimburse the Jaymes the amount
that the Jaymes will pay to Metropolitan Bank and Trust Co. for the redemption;
5. Requiring the defendants George Neri, William Leong Koc, Connie U. Neri, Edward James
Lee, Roberto Uykim and Charles Uykim to pay jointly attorneys fees to the Jaymes in
the amount of P50,000.00;
 6. Requiring the defendants George Neri, William Leong Koc, Connie U. Neri, Edwards
James Lee, Roberto Uykim and Charles Uykim to pay jointly the cost of this suit.
SO ORDERED.[15]
Petitioners and respondent MBTC elevated the case to the Court of Appeals, which affirmed the
ruling of the RTC, with modifications stated in this wise:
1. Declaring valid and binding the Real Estate Mortgage executed by plaintiffs in favor of
defendant MBTC;
2. Declaring valid the foreclosure of the mortgage and the foreclosure sale;
3. Declaring that the period to redeem Lot 2700 had expired on February 23, 1982 without
plaintiffs redeeming it;
4. Ordering the Sheriff of Mandaue City to issue a definite Deed of Sale covering Lot 2700
in favor of defendant MBTC;
5. Declaring valid and binding the dacion en pago executed by defendant Asiancars in favor
of defendant MBTC;
6. Declaring defendant MBTC as owner of the building on Lot 2700;
7. Ordering defendant MBTC to pay to plaintiffs the amount of P92,083.33 for the use of
the land from December 18, 1981 to February 23, 1982, with six percent (6%) interest
per annum until paid;
8. Ordering defendant Asiancars, Neris, Uykims, Lee and Koc to pay jointly and severally
the plaintiffs the (a) actual value of the lot in the amount of P3,852,000.00; (b)
P400,000.00 moral damages; (c) P150,000.00 exemplary damages and P100,000.00
attorneys fee, all with six percent (6%) interest per annum until fully paid;
9. Cost against defendants Asiancars, Neris, Uykims, Lee and Koc.
SO ORDERED.[16]
Petitioners filed a motion for reconsideration, which the CA denied. Hence, this petition which
assigns the following errors:
I Two main issues are for our resolution. First, whether or not the REM should be annulled on the
THAT WITH GRAVE ABUSE OF DISCRETION, AMOUNTING TO EXCESS OF JURISDICTION, THE LOWER
COURT GROSSLY AND SERIOUSLY ERRED IN DECLARING VALID AND BINDING THE REAL ESTATE
MORTGAGE EXECUTED BY THE PLAINTIFFS IN FAVOR OF THE MBTC, FOR SAID DECLARATION IS
ILLEGAL AND NOT WELL-FOUNDED IN LAW BECAUSE IT ULTIMATELY VIOLATED ARTS. 2058, 2076 AND
2077, CIVIL CODE OF THE PHILIPPINES, SINCE THE REAL ESTATE MORTGAGE, EXH. G, IS NOT LEGALLY
A REAL ESTATE MORTGAGE, BUT RATHER A DEED OF GUARANTY, CONSIDERING THAT THE PLAINTIFF
MAMERTA VDA. DE JAYME AND HER HUSBAND GRACIANO JAYME, NOW DECEASED, SIGNED
INNOCENTLY THE SAID DOCUMENT AS GUARANTORS/ACCOMODATORS ONLY AND DEFINITELY NOT
AS DEBTORS/MORTGAGORS;
II
THAT WITH GRAVE ABUSE OF DISCRETION, THE LOWER COURT ERRED IN DECLARING THE PERIOD TO
REDEEM LOT NO. 2700 HAD EXPIRED ON FEBRUARY 23, 1982, WITHOUT THE PLAINTIFFS REDEEMING
IT FOR SUCH DECLARATION IS NOT WELL-FOUNDED IN LAW AND IN FACT;
III
THAT WITH GRAVE ABUSE OF DISCRETION, THE LOWER COURT ERRED IN DECLARING VALID AND
BINDING THE DACION EN PAGO EXECUTED BY DEFENDANT CEBU ASIAN- CARS IN FAVOR OF
DEFENDANT MBTC, FOR SAID DECLARATION IS ILLEGAL AND IS CLEARLY FOUNDED ON WANTON BAD
FAITH COMMITTED BY BOTH PARTIES, IN VIOLATION OF ART. 1312, CIVIL CODE OF THE PHILIPPINES
AND SEC. 10, ART. III, CONSTITUTION OF THE PHILIPPINES;
IV
GRANTING ARGUENDO THAT THE DACION EN PAGO IS VALID, STILL THE LOWER COURT COMMITTED
GRAVE ABUSE OF DISCRETION, BY NOT DECLARING THAT THE P574,690.00 INDEBTEDNESS,
INCLUDING INTEREST AND ADDITIONAL CHARGES OF CEBU ASIANCARS WAS COMPLETELY
EXTINGUISHED OR PAID OFF, BY WAY OF DACION EN PAGO PURSUANT TO ARTS. 1255, 2076 AND
2077 OF THE CIVIL CODE OF THE PHILIPPINES.
V
THAT THE LOWER COURT COMMITTED GRAVE ABUSE OF DISCRETION, AMOUNTING TO EXCESS OF
JURISDICTION, IN DECLARING VALID AND BINDING THE MORTGAGE AND THE CORRESPONDING
FORECLOSURE, FOR SAID DECLARATION IS ILLEGAL, IN VIOLATION OF ARTS. 1231 (5), 1245 AND 1255,
CIVIL CODE AND BY THE INDUBITABLE EVIDENCE OF ALL THE PARTIES TESTIMONIAL AND
DOCUMENTARY, TO THE EFFECT THAT THE SIX (6) MILLION INDEBTEDNESS OF CEBU ASIANCARS WAS
OVERPAID, THUS MBTC ALSO VIOLATED ARTS. 2142, CIVIL CODE OF THE PHILIPPINES;
VI
THAT WITH GRAVE ABUSE OF DISCRETION, THE LOWER COURT ERRED BY VIOLATING EXH. C, THE
CONTRACT OF LEASE, WHICH IS THE LAW BETWEEN THE PARTIES, AND INSTEAD, DELIBERATELY
DECLARED VALID AND BINDING THE MORTGAGE EXH. G, AND THE FORECLOSURE OF MORTGAGE,
AND IN NOT ORDERING MBTC TO VACATE THE PREMISES UPON THE TERMINATION OF THE
CONTRACT OF LEASE ON JANUARY 9, 1993 PURSUANT TO EXH. C, AND LIKEWISE PAY RENTAL
THEREAFTER, FOR ITS USE AT P96,300.00 MONTHLY UNTIL MBTC ACTUALLY VACATES THE
PREMISES.[17]
On March 13, 2002, the Court set a hearing on this petition, and parties were given thirty days
for simultaneous submission of their respective memoranda. Petitioners additionally submitted
reply/rejoinder and respondent MBTC also submitted its rejoinder sur-rejoinder.
ground of vitiated consent; and second, whether or not the dacion en pago by Asiancars in favor of
MBTC is valid and binding despite the stipulation in the lease contract that ownership of the building
will vest on the Jaymes at the termination of the lease.
The facts show that the spouses affixed their signature on the Deed of Real Estate Mortgage, in
the presence of two instrumental witnesses, and duly notarized by Atty. Rodolfo Y. Cabrera. As a
notarized document, it has in its favor the presumption of regularity, and to overcome this
presumption, there must be evidence that is clear, convincing and more than merely preponderant
that there was irregularity in its execution; otherwise, the document should be upheld. [18]
The Deed of Real Estate Mortgage entered into by the Jayme spouses partake of a Third Party
Mortgage under Art. 2085 (3) of the Civil Code which reads:
The following requisites are essential to the contracts of pledge and mortgage: xxx (3) That the
persons constituting the pledge or mortgage have the free disposal of their property, and in the
absence thereof, that they be legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property.
In the case of Lustan vs. CA, et al.,[19] this Court recognized the abovecited provision and held
that so long as valid consent was given, the fact that the loans were solely for the benefit of (the
debtor) would not invalidate the mortgage with respect to petitioners property. In consenting thereto
even granting that petitioner may not be assuming personal liability for the debt, her property shall
nevertheless secure and respond for the performance of the principal obligation.
Clearly, the law recognizes instances when persons not directly parties to a loan agreement may
give as security their own properties for the principal transaction. In this case, the spouses should not
be allowed to disclaim the validity of a transaction they voluntarily and knowingly entered into for the
simple reason that such transaction turned out prejudicial to them later on.
Both the trial and appellate courts found that no fraud attended the execution of the deed of
mortgage. This is a factual finding that binds this Court. Further, the records clearly show that the
spouses Jayme agreed to use their property as collateral for Neris loan because Neri had their full
trust and confidence. Mamerta herself testified that she and her husband were assured by Neris
promise that he would take full responsibility for whatever happens to the property of the spouses
and that he would comply with his obligations to the bank. [20]
The spouses were assisted by their own lawyer, Atty. Cirilo Sanchez, in all their transactions,
including the ones with Asiancars and MBTC. Atty. Sanchez even signed as an instrumental witness to
a Special Power of Attorney executed by the spouses in favor of Neri, authorizing the latter to
mortgage the same property to MBTC. Although the said SPA was eventually not used because MBTC
required that the spouses themselves execute the REM, still, the fact remains that the spouses were
already set on allowing the mortgage. In addition, we note that Nelia Sanchez, the daughter of the
spouses and one of the petitioners herein, admitted that their parents consulted her and her siblings
before their parents executed the Deed.[21]
With the assistance of a lawyer and consultation with their literate children, the spouses though
illiterate could not feign ignorance of the stipulations in the deed. Patently, theirs was not a vitiated
consent. It could not now be justifiably asserted by petitioners that the Jayme spouses only intended
to be bound as guarantors and not as mortgagors.
In this jurisdiction, when the property of a third person which has been expressly mortgaged to
guarantee an obligation to which the said person is a stranger, said property is directly and jointly
liable for the fulfillment thereof, in the same manner as the mortgaged property of the debtor
himself.[22]
In the case at bar, when Asiancars failed to pay its obligations with MBTC, the properties given
as security (one of them being the land owned by the Jaymes) became subject to foreclosure. When
several things are given to secure the same debt in its entirety, all of them are liable for the debt, and
the creditor does not have to divide his action by distributing the debt among the various things
pledged or mortgaged. Even when only a part of the debt remains unpaid, all the things are liable for
such balance.[23]
At the time of the foreclosure, Asiancars had a remaining balance of P2,010,633.28. Thus, MBTC
had every right to effect the extrajudicial foreclosure of the mortgaged properties to satisfy its claim.
The appellate court found that the spouses lost their right to redeem their property. Under
Section 78 of the General Banking Act then in force, [24] the mortgagor or debtor whose real property
has been foreclosed and sold at public auction, has the right to redeem the property within one year
from the sale of the real estate as a result of the foreclosure. The reckoning date in the case of a
registered land is from the date of registration of the certificate of sale. [25] If no redemption is timely
made, the buyer in a foreclosure sale becomes the absolute owner of the property purchased. [26] In
this case, the certificate of sale was registered on February 23, 1981, giving petitioners until February
23, 1982 to redeem the property. This they failed to do, hence, ownership of the property already
vested in the purchaser, private respondent MBTC.
Much as we sympathize with petitioners plight, we are unable to find merit in their plea for the
annulment of the deed of sale covering Lot 2700 as a result of foreclosure of mortgage. Petitioners
failed to show the required quantum of evidence that they were fraudulently made to sign as
mortgagors. As early as Vales v. Villa, 35 Phil. 769 (1916), this Court has sounded a note of warning to
litigants:
The law furnishes no protection to the inferior simply because he is inferior any more than it protects
the strong because he is strong. The law furnishes protection to both alike to one no more or less
than the other. It makes no distinction between the wise and the foolish, the great and the small, the
strong and the weak. The foolish may lose all they have to the wise; but that does not mean that the
law will give it back to them again. Courts cannot follow one every step of his life and extricate him
from bad bargains, protect him from unwise investments, relieve him from one-sided contracts, or
annul the effects of foolish acts.[27]
Petitioners however, are not without recourse for the loss of their property. Although they
cannot go after respondent MBTC, they have in their favor the undertaking executed by George Neri
and other members of his family. The undertaking also bound respondent Asiancars, as well as its
officers who were signatories to the aforesaid Undertaking, to reimburse petitioners for the damages
they suffered by reason of the mortgage.
The alienation of the building by Asiancars in favor of MBTC for the partial satisfaction of its
indebtedness is, in our view, also valid. The ownership of the building had been effectively in the
name of the lessee-mortgagor (Asiancars), though with the provision that said ownership be
transferred to the Jaymes upon termination of the lease or the voluntary surrender of the
premises. The lease was constituted on January 8, 1973 and was to expire 20 years thereafter, or on
January 8, 1993. The alienation via dacion en pago was made by Asiancars to MBTC on December 18,
1980, during the subsistence of the lease. At this point, the mortgagor, Asiancars, could validly
exercise rights of ownership, including the right to alienate it, as it did to MBTC.
Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of the obligation. [28] It is a special mode of
payment where the debtor offers another thing to the creditor who accepts it as equivalent of
payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale,
that is the creditor is really buying the thing or property of the debtor, payment for which is to be
charged against the debtors debt. As such, the essential elements of a contract of sale, namely,
consent, object certain, and cause or consideration must be present. In its modern concept, what
actually takes place in dacion en pago is an objective novation of the obligation where the thing
offered as an accepted equivalent of the performance of an obligation is considered as the object of
the contract of sale, while the debt is considered as the purchase price. In any case, common consent
is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt
or obligation.[29]
We also find that the Court of Appeals did not err in considering MBTC as a purchaser in good
faith. MBTC had no knowledge of the stipulation in the lease contract. Although the same lease was
registered and duly annotated on the certificate of title of Lot 2700, MBTC was charged with
constructive knowledge only of the fact of lease of the land and not of the specific provision
stipulating transfer of ownership of the building to the Jaymes upon termination of the lease. There
was no annotation on the title of any encumbrance.[30] While the alienation was in violation of the
stipulation in the lease contract between the Jaymes and Asiancars, MBTCs own rights could not be
prejudiced by Asiancars actions unbeknownst to MBTC. Thus, the transfer of the building in favor of
MBTC was properly held valid and binding by respondent Court of Appeals.
One point, however, has to be cleared. The appellate court ordered MBTC to pay rentals to
petitioners at the rate of P25.00 monthly per square meter. For the Asiancars building stood on the
lot owned by the petitioners, until the time MBTC also consolidated its ownership over the
lot. Rentals would have to be paid starting on December 18, 1980, when the buildings ownership was
transferred to MBTC, until February 23, 1982, when MBTC finally consolidated its ownership over Lot
2700. Hence, we agree that there was error in the computation of rentals by the CA. [31] From
December 18, 1980 until February 23, 1982, is a period of 1 year, 2 months and 5 days. Thus, MBTC
should pay to petitioners rentals for the use of the occupied lot, [32] consisting of 1,700 sq. m. at the
monthly rate of P25.00 per sq. m. for that period, in the total amount of P602,083.33, with six (6)
percent interest per annum until fully paid.
Finally, we are in agreement that bad faith attended Asiancars transfer of the building to
MBTC. Asiancars was well aware of its covenant with the Jaymes that the buildings ownership was to
be transferred to the Jaymes upon termination of the lease. Indeed, petitioners suffered mental
anxiety and nervous shock upon learning that the ownership of the building standing on their
property had already been transferred to MBTC. The apparent disregard of petitioners right by
Asiancars and other private respondents provides enough basis for an award of moral as well as
exemplary damages[33] by the appellate court.
WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED with the
MODIFICATION that private respondent MBTC is ordered to pay petitioners rentals in the total
amount of P602,083.33, with six (6) percent interest per annum until fully paid.In all other respects,
the assailed decision and resolution of the Court of Appeals are AFFIRMED.
SO ORDERED.
SPS. JAIME BENOS G.R. No. 172259
SPS. GREGORIO LAWILAO
December 5, 2006
YNARES-SANTIAGO, J.:
This petition for review under Rule 45 of the Rules of Court assails the December 5, 2005
Decision[1] of the Court of Appeals in CA-G.R. SP No. 78845, affirming the Judgment[2] dated July 1,
2003 of the Regional Trial Court of Bontoc, Mountain Province, Branch 35, in Civil Case No. 1091. The
Regional Trial Court reversed the Decision[3] dated November 14, 2002 of the Municipal Circuit Trial
Court of Bauko, Mountain Province in Civil Case No. 314, and ordered the consolidation of ownership
of subject property in the name of respondent-spouses Gregorio and Janice Gail Lawilao. Also assailed
is the March 17, 2006 Resolution[4] denying petitioners motion for reconsideration.
The antecedent facts are as follows:
On February 11, 1999, petitioner-spouses Jaime and Marina Benos (the Benos spouses) and
respondent-spouses Gregorio and Janice Gail Lawilao (the Lawilao spouses) executed a Pacto de
Retro Sale[5] where the Benos spouses sold their lot covered by Tax Declaration No. 25300 and the
building erected thereon for P300,000.00, one half of which was to be paid in cash to the Benos
spouses and the other half to be paid to the bank to pay off the loan of the Benos spouses which was
secured by the same lot and building. Under the contract, the Benos spouses could redeem the
property within 18 months from date of execution by returning the contract price, otherwise, the sale
would become irrevocable without necessity of a final deed to consolidate ownership over the
property in the name of the Lawilao spouses.
After paying the P150,000.00, the Lawilao spouses immediately took possession of the
property and leased out the building thereon. However, instead of paying the loan to the bank, Janice
Lawilao restructured it twice. Eventually, the loan became due and demandable.
On August 14, 2000, a son of the Benos spouses paid the bank P159,000.00 representing the
principal and interest. On the same day, the Lawilao spouses also went to the bank and offered to pay
the loan, but the bank refused to accept the payment. The Lawilao spouses then filed with the
Municipal Circuit Trial Court a petition[6] docketed as Civil Case No. 310 for consignation against the
bank and simultaneously deposited the amount of P159,000.00. Upon the banks motion, the court
dismissed the petition for lack of cause of action.
Subsequently, the Lawilao spouses filed with the Municipal Circuit Trial Court a complaint
docketed as Civil Case No. 314, for consolidation of ownership. This complaint is the precursor of the
instant petition. The Benos spouses moved to dismiss on grounds of lack of jurisdiction and lack of
cause of action but it was denied and the parties went to trial.
On November 14, 2002, the Municipal Circuit Trial Court rendered judgment in favor of the
Benos spouses, the dispositive portion of which states:
IN THE LIGHT of all the foregoing considerations, for lack of legal and
factual basis to demand consolidation of ownership over the subject property, the
above-entitled case is hereby ordered dismissed.
No pronouncement as to damages on the ground that no premium should
be assessed on the right to litigate.

No costs.
SO ORDERED.[7]
The Lawilao spouses appealed before the Regional Trial Court which reversed the Municipal
Circuit Trial Court and declared the ownership of the subject property consolidated in favor of the
Lawilao spouses.[8]
The Benos spouses appealed to the Court of Appeals which affirmed the Regional Trial Court
on December 5, 2005. The dispositive portion of the Decision reads:
WHEREFORE, the petition for review is DISMISSED for lack of sufficient merit. The decision
rendered by the Regional Trial Court, Branch 35, Bontoc, Mountain Province in Civil Case No. 1091
on 1 July 2003, reversing the decision of the Municipal Circuit Trial Court of Bauko-
Sabangan, Mountain Province in (Civil Case No.) 314, is AFFIRMED.
SO ORDERED.[9]
The appellate court denied petitioners motion for reconsideration, hence, the instant
petition on the following assignment of errors:
4.0. It was error for the Regional Trial Court and, subsequently, the Court
of Appeals to rule that respondents can consolidate ownership over the subject
property.
4.1. It was likewise error for said lower courts not to have ruled that the
contract between the parties is actually an equitable mortgage.[10]
The Benos spouses argue that consolidation is not proper because the Lawilao spouses
violated the terms of the contract by not paying the bank loan; that having breached the terms of the
contract, the Lawilao spouses cannot insist on the performance thereof by the Benos spouses; that
the contract was actually an equitable mortgage as shown by the inadequacy of the consideration for
the subject property; and that respondent-spouses remedy should have been for recovery of the loan
or foreclosure of mortgage.
The Lawilao spouses, on the other hand, assert that the Pacto de Retro Sale reflected the
parties true agreement; that the Benos spouses cannot vary its terms and conditions because they
did not put in issue in their pleadings its ambiguity, mistake or imperfection as well as its failure to
express the parties true intention; that the Benos spouses admitted its genuineness and due
execution; and that the delivery of the property to the Lawilao spouses after the execution of the
contract shows that the agreement was a sale with a right of repurchase and not an equitable
mortgage.
The Lawilao spouses also claim that they complied with their obligation when they offered
to pay the loan to the bank and filed a petition for consignation; and that because of the failure of the
Benos spouses to redeem the property, the title and ownership thereof immediately vested in them
(Lawilao spouses).
The issue for resolution is whether the Lawilao spouses can consolidate ownership over the
subject property.
The petition is impressed with merit.
In ruling for respondents, the Court of Appeals held that: (1) the pacto de retro sale was perfected
because the parties voluntarily agreed upon the object thereof and the price; (2) the Lawilao spouses
acquired possession over the property immediately after execution of the pacto de retro sale; (3) the
pacto de retro sale does not provide for automatic rescission in case the Lawilao spouses fail to pay
the full price; (4) the Benos spouses did not rescind the contract after the Lawilao spouses failed to
pay the P150,000.00 loan; (5) Janice Lawilao offered to pay the loan and deposited P150,000.00 to
the bank although the period for payment had expired thus, complying with Article 1592 of the Civil
Code allowing payment even after expiration of the period as long as no demand for rescission of the
contract had been made either judicially or by a notarial act; (6) the title and ownership of the
Lawilao spouses became absolute when the Benos spouses failed to repurchase the lot within the
redemption period; and (7) the payment by the Benos spouses son of P159,000.00 to the bank does
not amount to a repurchase as it violates Article 1616 of the Civil Code requiring the vendor to return
to the vendee the price of the sale, the expenses of the contract and other necessary and useful
expenses.[11]
Contrary to the aforesaid findings, the evidence shows that the Lawilao spouses did not make a valid
tender of payment and consignation of the balance of the contract price. As correctly found by the
Regional Trial Court:
As matters stand, no valid tender of payment and/or consignation of the P150,000.00 which the
Appellant (Lawilaos) still owes the Appellee (Benos) has been effected by the former. The amount of
P159,000.00 deposited with the MCTC is in relation to Civil Case No. 310 earlier dismissed by said
court, and not to the instant action. Hence, this Court cannot automatically apply such sum in
satisfaction of the aforesaid debt of the Appellant and order the Appellee creditor to accept the
same.[12] (Emphasis supplied)
The Lawilao spouses did not appeal said finding, and it has become final and binding on them.
Although they had repeatedly alleged in their pleadings that the amount of P159,000.00 was still with
the trial court which the Benos spouses could withdraw anytime, they never made any step to
withdraw the amount and thereafter consign it. Compliance with the requirements of tender and
consignation to have the effect of payment are mandatory. Thus
Tender of payment is the manifestation by debtors of their desire to
comply with or to pay their obligation. If the creditor refuses the tender of payment
without just cause, the debtors are discharged from the obligation by the
consignation of the sum due. Consignation is made by depositing the proper
amount to the judicial authority, before whom the tender of payment and the
announcement of the consignation shall be proved. All interested parties are to be
notified of the consignation. Compliance with these requisites
is mandatory.[13] (Emphasis supplied)
In the instant case, records show that the Lawilao spouses filed the petition for consignation against
the bank in Civil Case No. 310 without notifying the Benos spouses. The petition was dismissed for
lack of cause of action against the bank. Hence, the Lawilao spouses failed to prove their offer to pay
the balance of the purchase price and consignation. In fact, even before the filing of the consignation
case, the Lawilao spouses never notified the Benos spouses of their offer to pay.
 Thus, as far as the Benos are concerned, there was no full and complete payment of the
contract price, which gives them the right to rescind the contract pursuant to Articles 1191 in relation
to Article 1592 of the Civil Code, which provide:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons
who have acquired the thing, in accordance with Articles 1385 and 1388 of the
Mortgage Law.
Art. 1592. In the sale of immovable property, even though it may have
been stipulated that upon failure to pay the price at the time agreed upon the
rescission of the contract shall of right take place, the vendee may pay, even after
the expiration of the period, as long as no demand for rescission of the contract has
been made upon him either judicially or by a notarial act. After the demand, the
court may not grant him a new term.
In the instant case, while the Benos spouses did not rescind the Pacto de Retro Sale through a
notarial act, they nevertheless rescinded the same in their Answer with Counterclaim where they
stated that:
14. Plaintiffs did not perform their obligation as spelled out in the Pacto de
Retro Sale (ANNEX A), particularly the assumption of the obligation of defendants to
the Rural Bank of Bontoc. Defendants were the ones who paid their loan through
their son, ZALDY BENOS. As a result, ANNEX A is rendered null and of no
effect. Therefore, the VENDEE a retro who is one of plaintiffs herein cannot
consolidate her ownership over the property subject of the null and ineffective
instrument.
15. Since plaintiffs did not perform their corresponding obligation under
ANNEX A, defendants have been all too willing to return the amount of ON[E]
HUNDRED FIFTY THOUSAND PESOS (P150,000.00) and reasonable interest thereon
to plaintiffs.But plaintiffs refused to accept the same.
With the filing of this answer, defendants pray that this serves as a notice
of tender of payment, and they shall consign the amount with the proper court as
soon as it is legally feasible.[14]
They also prayed that the Municipal Circuit Trial Court render judgment [d]eclaring the
Pacto de Retro Sale rescinded or ineffective or void for lack of, or insufficient consideration. [15]
In Iringan v. Court of Appeals,[16] we ruled that even a crossclaim found in the Answer could
constitute a judicial demand for rescission that satisfies the requirement of the law. Similarly, the
counterclaim of the Benos spouses in their answer satisfied the requisites for the judicial rescission of
the subject Pacto de Retro Sale.
The Municipal Circuit Trial Court thus correctly dismissed the complaint for consolidation of
ownership filed by the Lawilao spouses for their failure to comply with the conditions of the Pacto de
Retro Sale. Nevertheless, it refused to declare the rescission of the Pacto de Retro Sale as prayed for
in the counterclaim of the Benos spouses, stating that:
How about the other obligations and/or rights owing to either party by
virtue of the Pacto de Retro Sale? This, the court opines that it can not delve into
without overstepping the limits of his functions there being appropriate
remedies. It is hornbook in our jurisprudence that a right in law may be enforced
and a wrong way be remedied but always through the appropriate action. [17]
The issue of rescission having been put in issue in the answer and the same having been
litigated upon without objections by the Lawilao spouses on grounds of jurisdiction, the Municipal
Circuit Trial Court should have ruled on the same and wrote finis to the controversy.
Thus, as a necessary consequence of its ruling that the Lawilao spouses breached the terms
of the Pacto de Retro Sale, the Municipal Circuit Trial Court should have rescinded the Pacto de
Retro Sale and directed the Benos spouses to return P150,000.00 to the Lawilao spouses, pursuant to
our ruling in Cannu v. Galang,[18] to wit:
Petitioners maintain that inasmuch as respondents-spouses Galang were
not granted the right to unilaterally rescind the sale under the Deed of Sale with
Assumption of Mortgage, they should have first asked the court for the rescission
thereof before they fully paid the outstanding balance of the mortgage loan with
the NHMFC. They claim that such payment is a unilateral act of rescission which
violates existing jurisprudence.
In Tan v. Court of Appeals, this court said:
. . . [T]he power to rescind obligations is implied in
reciprocal ones in case one of the obligors should not comply with
what is incumbent upon him is clear from a reading of the Civil
Code provisions. However, it is equally settled that, in the
absence of a stipulation to the contrary, this power must be
invoked judicially; it cannot be exercised solely on a partys own
judgment that the other has committed a breach of the
 obligation. Where there is nothing in the contract empowering
the petitioner to rescind it without resort to the courts, the
petitioners action in unilaterally terminating the contract in this
case is unjustified.
It is evident that the contract under consideration does not contain a
provision authorizing its extrajudicial rescission in case one of the parties fails to
comply with what is incumbent upon him. This being the case, respondents-
spouses should have asked for judicial intervention to obtain a judicial declaration
of rescission. Be that as it may, and considering that respondents-spouses Answer
(with affirmative defenses) with Counterclaim seeks for the rescission of the Deed
of Sale with Assumption of Mortgage, it behooves the court to settle the matter
once and for all than to have the case re-litigated again on an issue already heard
on the merits and which this court has already taken cognizance of. Having found
that petitioners seriously breached the contract, we, therefore, declare the same is
rescinded in favor of respondents-spouses.
As a consequence of the rescission or, more accurately, resolution of the
Deed of Sale with Assumption of Mortgage, it is the duty of the court to require the
parties to surrender whatever they may have received from the other. The parties
should be restored to their original situation.
The record shows petitioners paid respondents-spouses the amount of
P75,000.00 out of the P120,000.00 agreed upon. They also made payments to
NHMFC amounting to P55,312.47. As to the petitioners alleged payment to CERF
Realty of P46,616.70, except for petitioner Leticia Cannus bare allegation, we find
the same not to be supported by competent evidence. As a general rule, one who
pleads payment has the burden of proving it. However, since it has been admitted
in respondents-spouses Answer that petitioners shall assume the second mortgage
with CERF Realty in the amount of P35,000.00, and that Adelina Timbang,
respondents-spouses very own witness, testified that same has been paid, it is but
proper to return this amount to petitioners. The three amounts total P165,312.47 -
- the sum to be returned to petitioners.
WHEREFORE, the petition is GRANTED. The Decision dated December 5, 2005 and Resolution
dated March 17, 2006 of the Court of Appeals in CA-G.R. SP No. 78845, affirming the Judgment
dated July 1, 2003 of the Regional Trial Court of Bontoc, Mountain Province, Branch 35, in Civil Case
No. 1091, are REVERSED and SET ASIDE. The Decision dated November 14, 2002 of the Municipal
Circuit Trial Court of Bauko, Mountain Province in Civil Case No. No. 314 dismissing respondents
complaint for consolidation of ownership and damages is REINSTATED WITH THE MODIFICATION that
the Pacto de Retro Sale dated February 11, 1999 is declared rescinded and petitioners are ordered to
return the amount of P150,000.00 to respondents. No costs.
SO ORDERED.
DEVELOPMENT BANK G.R. No. 150097
OF THE PHILIPPINES,
Petitioner,
Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
LICUANAN,
February 26, 2007
DECISION
CORONA, J.:
In this petition for review on certiorari,[1] petitioner Development Bank of the Philippines assails the
February 9, 2001 decision[2] and September 17, 2001 resolution[3] of the Court of Appeals (CA) in CA-
G.R. CV No. 37784.
Respondent spouses Alejandro and Adelaida Licuanan were granted a piggery loan in the
amount of P4,700 by petitioner, evidenced by a promissory note dated September 20, 1974 and
secured by a real estate mortgage[4] over a 980-square meter parcel of land with a two-storey
building. The loans maturity date was September 23, 1979.[5]
Petitioner granted respondents an additional loan of P12,000 evidenced by a promissory
note dated May 29, 1975 payable on or before the year 1980. This was secured by a real estate
mortgage over four parcels of land situated in Pangasinan covered by TCT Nos. 109825, 109762,
109763 and 109764.[6]
On October 2, 1975, petitioner granted respondent spouses another loan of P22,000 evidenced by a
promissory note maturing on October 3, 1985. This was secured by a real estate mortgage executed
in favor of petitioner over three parcels of land covered by TCT Nos. 112608, 112607 and 112609, all
of the Registry of Deeds of Pangasinan.[7]
On August 6, 1979, petitioner and respondents restructured the P12,000 loan, extending the maturity
date from June 22, 1979 to June 22, 1982. On the same date, respondents executed a promissory
note for P12,320.73 and another for P6,519.90.[8]
On July 6, 1981, petitioner sent a letter by registered mail to respondents informing them
that, since the conditions of the mortgage had been breached, petitioner would have the mortgaged
properties sold by the sheriff under Act 3135. The total amount due from the three loans had by then
ballooned to P75,298.32.[9]
On July 20, 1981, petitioner filed an application for extrajudicial foreclosure. [10] The
mortgaged properties were sold in a public auction on December 16, 1981. Petitioner, as the highest
bidder, acquired them for a total of P16,340. The certificate of sale was registered on January 25,
1982.[11]
On February 4, 1983, petitioner consolidated its ownership over the properties. After more
than a year or on October 16, 1984, petitioner wrote respondents by registered mail, informing them
that the properties (now acquired assets of the bank) would be disposed of by public auction. On
November 11, 1984, petitioner published an advertisement stating that on November 14, 1984, the
properties would be sold by oral bidding. On this date, however, there were no bidders.[12]
On November 16, 1984, petitioner sent respondents a letter informing them that the
properties could be reacquired by negotiated sale for cash or installment. [13] Three days later,
however, on November 19, 1984, the properties were sold through negotiated sale to one Emelita A.
Peralta. Respondents were informed of the sale by petitioner through a letter dated December 6,
1984.
On the same day, petitioner executed a deed of conditional sale in favor of Peralta. [14] On
December 11, 1984, respondents offered to repurchase the properties from petitioner but they had
already been sold to Peralta.[15]
Respondents then filed a complaint for recovery of real properties and damages on July 18,
1985 in the Regional Trial Court (RTC) of Lingayen, Pangasinan, Branch 39 against petitioner and
Peralta. [16] The RTC rendered judgment dated September 17, 1991 in favor of respondents.
The trial court found that there was no demand for payment prior to the extrajudicial
foreclosure. Thus, the foreclosure proceedings were null and void. It ordered Peralta
to reconvey the properties to respondents subject to Peraltas right to be paid by respondents the
amount of P104,000 in consideration of such reconveyance. It also held that petitioner did not
deal fairly with respondents making it liable for nominal and moral damages to the latter. The RTC
further ordered petitioner to pay respondents attorneys fees and litigation expenses.
On appeal, the CA affirmed the RTC but decreased the amount of nominal damages
from P75,000 to P50,000.[17]
Hence this petition.[18]
The main issues to be resolved are the following:
1) whether a demand for payment of the loans was made before the mortgage was
foreclosed;
2) whether demand is necessary to make respondents guilty of default;
3) whether or not respondents are liable for the deficiency claim of petitioner and
4) whether or not petitioner is liable for damages.
The issue of whether demand was made before the foreclosure was effected is essential. If
demand was made and duly received by the respondents and the latter still did not pay, then they
were already in default and foreclosure was proper. However, if demand was not made, then the
loans had not yet become due and demandable. This meant that respondents had not defaulted in
their payments and the foreclosure by petitioner was premature. Foreclosure is valid only when the
debtor is in default in the payment of his obligation.[19]
Whether or not demand was made is a question of fact. In petitions for review on certiorari
under Rule 45, only questions of law may be raised by the parties and passed upon by this
Court.[20] Factual findings of the trial court, when adopted and confirmed by the CA, are binding and
conclusive on this Court and will generally not be reviewed on appeal. [21] Inquiry into the veracity of
the CAs factual findings and conclusions is not the function of the Supreme Court for the Court is not
a trier of facts.[22] Neither is it our function to re-examine and weigh anew the respective evidence of
the parties.[23] While this Court has recognized several exceptions to this rule,[24] none of these
exceptions finds application here.
Both the CA and RTC found that demand was never made. No compelling reason
whatsoever has been shown by petitioner for this Court to review and reverse the trial courts
findings and conclusions, as affirmed by the CA.
Petitioner asserts that demand was unnecessary because the maturity dates of all loans
were specified, i.e., the notes expressly stated the specific dates when the amortizations were to fall
due.[25]
We disagree.
Unless demand is proven, one cannot be held in default. [26] Petitioners cause of action did
not accrue on the maturity dates stated in the promissory notes. It is only when demand to pay is
made and subsequently refused that respondents can be considered in default and petitioner obtains
the right to file an action to collect the debt or foreclose the mortgage.[27] As we held in China
Banking Corporation v. Court of Appeals:[28]
Well-settled is the rule that since a cause of action requires, as essential
elements, not only a legal right of the plaintiff and a correlative duty of the
defendant but also an act or omission of the defendant in violation of said legal
right, the cause of action does not accrue until the party obligated refuses,
expressly or impliedly, to comply with its duty.
Otherwise stated, a cause of action has three elements, to wit, (1) a right in
favor of the plaintiff by whatever means and under whatever law it arises or is
created; (2) an obligation on the part of the named defendant to respect or not to
violate such right; and (3) an act or omission on the part of such
 defendant violative of the right of the plaintiff or constituting a breach of the
obligation of the defendant to the plaintiff.
It bears stressing that it is only when the last element occurs that a cause
of action arises. Accordingly, a cause of action on a written contract accrues only
when an actual breach or violation thereof occurs.
Applying the foregoing principle to the instant case, we rule that private
respondents cause of action accrued only on July 20, 1995, when its demand for
payment of the Home Notes was refused by petitioner. It was only at that time, and
not before that, when the written contract was breached and private respondent
could properly file an action in court.
The cause of action cannot be said to accrue on the uniform maturity date of
the Home Notes as petitioner posits because at that point, the third essential element
of a cause of action, namely, an act or omission on the part of petitioner violative of the
right of private respondent or constituting a breach of the obligation of petitioner to
private respondent, had not yet occurred.[29] (emphasis supplied)
The acceleration clause of the promissory notes stated that [i]n case of non-payment of
this note or any portion of it on demand, when due, on account of this note, the entire obligation
shall become due and demandable .[30] Hence, the maturity dates only indicate when payment can
be demanded. It is the refusal to pay after demand that gives the creditor a cause of action
against the debtor.
Since demand, which is necessary to make respondents guilty of default, was never made on
respondents, the CA and RTC correctly ruled that the foreclosure was premature and therefore null
and void.
In arguing that the foreclosure was valid, petitioner also avers that respondents
are estopped from questioning the validity of the foreclosure sale since they offered to repurchase
the foreclosed properties.[31] We are not persuaded. The reason why respondents offered to
repurchase the properties was clearly stated in their letter to petitioner:
I am very much interested in repurchasing back these properties because
they are the only properties which my family have and because our house is located
inside this property and for this matter I am willing to pay [for] these properties in
cash which I already told the bank when I went there.[32]
Besides, we have already ruled that an offer to repurchase should not be construed as a waiver of the
right to question the sale.[33] Instead, it must be taken as an intention to avoid further litigation and
thus is in the nature of an offer to compromise. [34] By offering to redeem the properties, respondents
can attain their ultimate objective: to pay off their debt and regain ownership of their lands. [35]
Moreover, it was petitioner, in its November 16, 1984 letter, which informed
respondents that the properties were available for sale. Respondents merely took up petitioners
offer for them to reacquire their properties.
Petitioner assigns as error the failure of the CA to rule on its deficiency claim. It alleged that
the price the mortgaged property was sold for (P104,000) was less than the amount of respondents
indebtedness (P131,642.33), thus it is entitled to claim the difference (P27,642.33) with
interest. Respondents cannot be held liable for the deficiency claim. While it is true that in
extrajudicial foreclosure of mortgage, the mortgagee has the right to recover the deficiency from the
debtor,[36] this presupposes that the foreclosure must first be valid.[37]
The last issue is whether the award of moral and nominal damages, expenses of litigation
and attorneys fees is proper. Crucial to the determination of the propriety of the award of damages
are the findings of the RTC, which were affirmed by the CA, on the matter of bad faith:
Apart from the precipitate foreclosure proceedings, the Court observes
that certain acts of [petitioner] were most certainly less than fair and less than
honest, which negates the rehabilitation (prior name of the bank) or development
aspect or purpose of [petitioner]. These certainly caused serious anxiety and
wounded feelings to [respondents]. They are: -
FIRST. [Petitioner] granted a loan of P4,700.00; then a second loan
of P12,000.00 re-structured to P18,840.61; and a third loan of P22,200.00, or a total
of P45,740.61 during the period from September 1974 to October 2,
1975. Obviously, these loans were granted because the market value of the
collaterals exceeds P100,000.00 and [petitioners] appraisal value is more or
less P80,000.00. However, six (6) years later, when the value must have appreciated
in terms of pesos, the [petitioner] bidded for a [measly] P16,000.00 and [claimed] a
deficiency. That it was [measly] and shocking to the conscience was conclusively
proven by the fact that [Peralta] offered and did in fact buy the properties
for P104,000.00 barely three (3) years later. To the mind of the Court, the
actuations of the bank must have been revolting to [respondents] and to honest
men, especially considering that [petitioner] is a government financial institution,
capitalized with the money of the people, and created principally to assist
agricultural producers xxx in developing their farms xxx to accelerate national
progress, more than to realize profit.
SECOND. [Respondents] are simple-minded persons in the country side. It
strikes the court as odd and certainly less than candid WHY on AUGUST 6, 1979,
[petitioner] restructured the second loan which will mature on May 1980, but did
not restructure the first loan which was due to mature on September 23, 1979 or
 barely one month hence. It appears that the result lulled [respondents] into a false respect. Said findings are final and conclusive upon the Supreme Court except,
sense of security and a feeling of relief that the entire loan accommodation will inter alia, where the findings of the Court of Appeals and the trial court are contrary
mature in 1985.And then like a bolt of lightning from a clear sky, [respondents] to each other.[39]
were hit with [foreclosure] proceedings, causing them to suffer sleepless nights.

THIRD. A letter dated November 16, 1984 was addressed to [respondents] The lower court also found that respondents property rights were invaded or violated, [40] hence the
informing them practically that they are given the priority to recover their grant of nominal damages was also proper.
properties by negotiated sale. And yet before the letter was sent, or on November
14, 1984 the [petitioner] had already negotiated with [Peralta] for the latter to buy Respondents are likewise entitled to the award of attorneys fees and expenses of litigation
the assets for P104,000.00 in installment and as a matter of fact the Contract for since the premature foreclosure by petitioner compelled them to incur expenses to protect their
Conditional Sale was executed on November 19, 1984 even before the letter was interest.[41]
received by [respondents].[Heart-rending] was the plea of [respondents] which we
quote: - WHEREFORE, we hereby AFFIRM the decision of the Court of Appeals in CA-G.R. CV No.
37784.
I am very much interested in repurchasing back these
properties because they are the only properties which my family Costs against petitioner.
have and because our house is located inside this property and for
this matter I am willing to pay [for] these properties in cash which SO ORDERED.
I already told the bank when I went there. (underscoring supplied)

Nevertheless, such supplications fell on deaf ears and did not even merit
sympathy from a heartless [petitioner]. At the very least, the letter of 16 November
1984 was a very bad joke gleefully made in bad taste and foisted on the hapless
[respondents]. It added insult to injury.

And to top it all, [petitioner] even has the temerity to allege in paragraph 2
of its compulsory counterclaim that as of November 7, 1984 the total obligations of
[respondents] on account of their loans with [petitioner] amounted
to P131,642.33 and making a deficiency claim of P27,642.33 plus daily interest
of P9.61 beginning November 8, 1984 which [respondents] are allegedly still liable
to pay the [petitioner]. This is unconscionable.

Certainly, there is abundant evidence that the rights of [respondents] have

been violated or invaded with unconcerned ruthlessness by the [petitioner]. [38]

Both the RTC and CA found that there was factual basis for the moral damages adjudged
against petitioner. They found that petitioner was guilty of bad faith in its actuations against
respondents. Again, this is a factual matter binding and conclusive on this Court:

It is settled that bad faith must be duly proved and not merely presumed.
The existence of bad faith, being a factual question, and the Supreme Court not
being a trier of facts, the findings thereon of the trial court as well as of the Court of
Appeals shall not be disturbed on appeal and are entitled to great weight and
G.R. No. 102096 August 22, 1996
CARMELA CUIZON * Y MONTALBAN, petitioner,
vs.
COURT OF APPEALS AND SPOUSES GERARDO AND MARIA PARAY, respondents.
TORRES, JR., J.:p
In contractual relations, the law allows the parties much leeway and considers their agreement to be
the law between them. This is because "courts cannot follow one every step of his life and extricate
him from bad bargains . . . relieve him from one-sided contracts, or annul the effects of foolish acts. 1
This is an aspect to be resolved in this case.
Petitioner seeks to review and set aside the Decision2 of the respondent Court of Appeals dated
September 27, 1991 (CA-GR. No. 17228) which reversed and annulled the January 20, 1988 decision
of the Regional Trial Court of Cebu City (Civil Case No. CEB-3835) and the Resolution promulgated on
September 27, 1991 which denied her Motion for Reconsideration.
The following antecedent facts, as found by the trial court, are culled from the testimony of, and the
documents presented by petitioner:
Plaintiff is a businesswoman engaged in general merchandising under the
trademark Tropic Philippines Food. In 1983, she was introduced to defendants-
spouses Gerardo and Maria Paray, who are in the real estate business, by a certain
Romy Verano, a mutual friend. When the friendship between the two parties
developed, Maria Paray proposed to Carmela Kuizon that the spouses Paray would
execute Special Power of Attorney in favor of plaintiff for five parcels of land with
an aggregate area of 3,803 square meters, owned by defendants, which the plaintiff
is to mortgage in her name using those same parcels of land as collaterals. The
defendants at that time were in dire need of money to pay off their bank
obligations. Plaintiff acceded to the plans after much persuasion on the agreement
that Carmela Kuizon pay for the amortization of the loan and that for whatever
amounts covered by the loans released from time to time, turned over to the
defendants by plaintiff, the defendants will immediately convey to the plaintiff,
each lot within the amount received by them computed at a mutually agreed price
of P170.00 per square meter. As an inducement to the proposal and in partial
compliance with their agreement, defendants executed in favor of plaintiff a Deed
of Sale of Real Property over Lot. No. 800-A-1-B under TD No. 34504 (Exhibit M-
Deed of Sale dated June 6, 1983 — for P25,000.00 over TCT No. 84791, Lot No. 800-
A-1-B, 314 sq. m.). Defendants also executed Special Power of Attorney, notarized
June 30, 1983 over TCT Nos. 84793, 84792 and 84794 covering Lots Nos. 800-A-3,
800-A-2 and 800-A-4 (Exhibit C), and registered with the Register of Deeds). After
said SPA (Exhibit C) was executed, plaintiff secured loan from the Rural Bank of
Compostela for P50,000 with maturity dated on April 22, 1984 covering Lot No. 800-
A-4 as collateral (Exhibit D and D-1 Discount and Disclosure Statement of Loan
Transaction issued to Carmela Montalban by the Rural Bank of Compostela (Cebu)
for P50,000.00 with net proceeds of P43,459.50; and Real Estate Mortgage
executed by Carmela and Antonio Montalban in favor of Rural Bank of Compostela
(Ceb) [sic]. Subsequently, plaintiff secured an IBRD loan from the same Rural Bank
of Compostela for P183,910.00 maturing on October 19, 1983 with Lots No. [sic]
800-A-3, 800-A-2 and 800-A-4, part of the proceeds of which she used to pay the
previous loan of P50,000.00 with the same bank (Exhibits F, F-1 and F-2 — Discount
and Disclosure Statement on Loan Transaction issued to plaintiff by Rural Bank of
Compostela for IBRD loan of P188,910.00 dated November 25, 1983 with net
proceeds of P183,242.70; Promissory Note for P188,910.00 executed by plaintiff;
and Real Estate Mortgage executed by Carmela and Antonio Montalban over Lots
Nos. [sic] 800-A-4, 800-A-2 and 800-A-3). Later, defendants executed another
Special Power of Attorney notarized August 19, 1983 for Tax Declaration No. 01-
03242 under TCT No. 74735 covering Lot No. 720-A (Exhibit B) and registered with
the Register of Deeds (Exhibit B-3), with said SPA (Exhibit B) plaintiff was able to
secure a loan from Isla Bank in the amount of P60,000.00 to mature on February 27,
1984 (Exhibit E — Certified true copy of Discount Statement by Isla Bank for loan of
P60,000.00 by plaintiff of net proceeds of P52,256.64; and Exhibit E-1-certified true
copy of the Real Estate Mortgage executed by plaintiff in favor of Isla Bank over Lot
No. 720-A to guarantee loan of P60,000.00). Defendants again issued another
Special Power of Attorney (Exhibit-A) notarized on May 23, 1984 over Lot No. 800-
A-1 covered by TD No. 01-34503 in favor of plaintiff and duly notarized by the
Register of Deeds (Exhibit-A-3). Plaintiff, with said SPA, secured a loan from J.
Finance in the amount of P44,941.75 with maturity date on November 30, 1985
(Exhibit A-2-letter and transmittal dated May 30, 1984 from J. Finance Corporation
for loan of P44,941.75 with net proceeds of P35,000.00; and Exhibit N-1 Deed of
Real Estate Mortgage executed by Carmela and Antonio Montalban in favor of J.
Finance over Lot No. 800-A-I-4). For Lot No. 800-A-1B which was earlier conveyed
by defendants to plaintiff in a Deed of Sale (Exhibit M), defendants pressured
plaintiff to secure a housing loan with DBP in the amount of P201,000.00 (Exhibits G
and G-1-certified true copy of Promissory Note for P103,200.00 and P97,800.00,
respectively, dated February 8, 1984) using the same lots as collateral, with
defendants promising to convey to plaintiff the adjacent Lot No. 800-A-1-A to serve
as lawn for the house erected: pictures of the house were presented as Exhibits L, L-
1, L-2, L-3.
For the several loans entered into by plaintiff a total amount of P492,002.04 was
actually received by plaintiff as against the total loan of P544,851.75 summarized as
follows:
a) P50,000.00 — loan from R.B. of Compostela, net of
P43,859.50
b) P60,000.00 — from Isla Bank, net proceeds of
P52,326.24
c) P188,910.00 — IBRD loan, net proceeds of
P183,242.70
d) P201,000.00 — DBP loan, net proceeds of
P177,573.60
e) P44,941.75 — from J. Finance, net proceeds of
P35,000.00
 P544,851.75 — P492,902.04
(total loan) (total net)
From the net proceeds of P492,002.04, plaintiff remitted to defendants
P198,000.00 which was duly receipted . . .
. . . The receipted amount of P198,00.00 is broken down as follows:
a. Exhibit I — handwritten receipt issued by Maria Paray for P20,000.00 dated May
25, 1983. This was considered the down payment for the consideration of
P25,000.00 for Lot No. 800-A-1-B conveyed by defendants to plaintiff under Deed of
Sale (Exhibit M).
b. Exhibit J — handwritten receipt issued by Maria Paray for P78,000.00 dated
November 28, 1983. The balance of P5,000.00 for Lot No. 800-A-1-B was paid from
this payment of P78,000.00 (Exhibit J).
c. Exhibit K — handwritten receipt of Maria Paray for P100,000.00 dated February
14, 1984.
xxx xxx xxx
After plaintiff remitted the P20,000.00 (Exhibit I of defendant), Mrs. Paray
borrowed plaintiff's title to a lot in Ozamis City, under TCT No. 8648 (Exhibit N dated
May 28, 1983), and in turn Mrs. Paray handed to plaintiff the Deed of Sale for Lot
No. 800-A-1-B, together with two documents, a Deed of Agreement (Annex A of
Answer) and a Supplemental Agreement (Annex B of Answer) for plaintiff to sign.
The Supplemental Agreement in effect prohibited plaintiff from selling the land
unless with consent of defendant spouses. Plaintiff initially refused to sign the Deed
of Agreement as the purchase price indicated P25,170.00 with a down payment of
P20,000.00 but the balance reflected was P33,380.00 instead of only P5,000.00, but
upon defendants plea, she affixed her signature and issued a postdated check for
P33,380.00 to accommodate defendants with the understanding that those will be
deducted from the loan releases and her assurance that these documents won't be
notarized. . . .3
Petitioner admitted that out of the P492,002.04 net proceeds of the loans, P194,002.04 were used in
the building of her house on Lot No. 800-A-1-B,4 the land which was then subject to the DBP housing
loan, and P100,000.00 were allegedly given to the bank fixers as grease money for the release of the
loans.5 From 1983 to 1984, she also paid P2,342.63 worth of realty taxes6 on the collaterals and
complied with her obligation of paying loan amortization in the amount of P109,916.28. 7 When she
demanded that a deed of sale be executed over Lot No. 800-A-1-A,8 the lot which was adjacent to Lot
No. 800-A-1-B, private respondents refused to convey said lot claiming that an accounting or
liquidation of the loans and the lands she used as collaterals must first be
made.9
On May 5, 1985, petitioner filed a complaint10 for specific performance with damages against private
respondents. She alleged, inter alia, that in compliance with their agreement, she turned over to
private respondents P198,000.00 of loan proceeds, 11 deducting the purchase price of P25,120.00 for
Lot No. 800-A-1-B from P198,000.00, private respondents were still obligated to convey to petitioner
a total of no less than 1,017 square meters of land 12representing the amount of P172,880.00
(P198,000.00 minus P25,120.00) computed at a mutually agreed price of P170.00 per square meter.
She asked specifically for the conveyance of the 250 square meter Lot No. 800-A-1-A to provide a
spacious lawn to the house built on Lot No. 800-A-1-B13 and to pay back the amount of P130,380.00
(P172,800.00 minus the price of P42,500.00 for Lot No. 800-A-1-A), or in the alternative to pay back
the amount of P172,880.00 plus interest.14
In their Answer,15 private respondents claim that petitioner undertook to buy their six parcels of land
with a total area of 4,117 square meters for P699,890.00 at a price of P170.00 per square meter. 16 In
violation of their agreement that the purchase price would be paid out of the loans secured from
various financial institutions, petitioner remitted to private respondents the amount of P198,000.00
only out of the total loan of P544,851.75.17 As to Lot No. 800-A-1-B, they denied that its purchase
price was P25,120.00 as claimed by petitioner. They insisted that with the down payment of
P20,000.00, petitioner still had a balance of P33,380.00. So petitioner had to issue a postdated check
of P33,380.00 and execute a Deed of Agreement offering her real property (TCT No. 8648) as a
security for the balance of P33,380.00.18 They also alleged that petitioner incurred loans and
advances from them in the amount of P76,200.00 which were used by petitioner in the construction
of her house on Lot No. 800-A-1-B.19
On December 4, 1985, a third party complaint20 was filed by private respondents against Antonio
Montalban (Montalban, for brevity). It appears that the real estate mortgage contracts entered into
by petitioner with the banks showed that Montalban signed with petitioner as mortgagors and
appeared on these documents as the husband of petitioner. Private respondents alleged that since
their properties had been encumbered pursuant to the obligations entered into by Montalban and
petitioner,21 Montalban should be held solidarily liable with petitioner for their claims adverted to in
the complaint.22
Montalban denied any marital relationship with petitioner contending in his Answer to Third Party
Complaint23 that it was private respondents who insisted that he should appear as husband of
petitioner to facilitate the release of the loans sought by private respondents. He acceded only by
way of an accommodation to the request of the private respondents because they (private
respondents) could not be granted the subject loans in their names as they had outstanding
obligations with other financial institutions.24
After trial on the merits, the trial court rendered a decision 25 in favor of petitioner. The dispositive
portion of which reads:
WHEREFORE, this Court finds in favor of plaintiff and against defendants.
Defendants are hereby ordered to:
1. Immediately return to plaintiff Owner's duplicate copy of TCT No. T-8648
covering the latter's Ozamis lot free from all liens and encumbrances;
2. Convey to plaintiff Lot. Nos. 800-A-1-A under Tax Declaration No. 03242, 800-A-4
under Tax Declaration No. 0133513, 800-A-3 under Tax Declaration No. 33515, Lot
800-A-2 under Tax Declaration No. 33516. If said loands [sic] have been transferred
to third parties, defendants shall pay plaintiff the price of said lot or lots which have
been transferred to third parties, which is hereby fixed at P170.00 per square meter
with interest at the legal rate from date of transfer to third parties;
3. Reimburse plaintiff with the taxes paid on the lands which is P2,343.63 with
interest at the legal rate;
4. Pay plaintiff moral damages of P100,000.00; exemplary damages of P50,000.00;
attorney's fees of P25,000.00; litigation expenses of P10,000.00 plus costs.
 Third Party Complaint is hereby dismissed with costs against defendants-third party
plaintiffs.
SO ORDERED.
Dissatisfied with the decision of the trial court, private respondents filed an appeal with the Court of
Appeals. After due consideration of the parties' respective Briefs, 26 respondent court promulgated
the questioned decision27 on June 25, 1991, the dispositive portion of which reads:
WHEREFORE, the decision dated January 20, 1988 is hereby annulled and set aside
and another one is rendered, as follows:
1. Sustaining the validity and effectiveness of the sale of Lot 800-A-1-B in favor of
appellee;
2. Ordering appellants to return to appellee the owner's duplicate of TCT T-8648;
3. Ordering appellants to execute a Deed Of Absolute Sale in favor of appellee over
Lot 800-A-1-A at P300.00/sq. m., within thirty (30) days from the finality of this
decision;
4. Ordering appellee to cause the discharge and free lots 800-A-2, 800-A-3 and 800-
A-4 from mortgages, liens and encumbrances within thirty (30) days from the
finality of this decision;
5. If appellee fails to discharge said lots from the mortgages, liens and
encumbrances, then appellee is ordered to pay their value at P300/sq. m. within
thirty (30) days from the finality of this decision; and,
6. Without pronouncement as to costs.
SO ORDERED.
The Motion for Reconsideration28 filed by petitioner was denied by the respondent court for lack of
merit, by virtue of a Resolution29 dated September 27, 1991.
Petitioner, impugns said decision and resolution of the Court of Appeals and, filed this petition
for certiorari30 on October 19, 1991. The comment31 thereto was filed by private respondents on
December 19, 1991. Petitioner filed a reply32 dated November 28, 1991. By the Resolution 33 of this
Court dated January 15, 1992, the parties were required to submit their respective memoranda. A
manifestation34 was submitted by petitioner stating that she is adopting the petition dated October
17, 1991 and her reply as her memorandum, which manifestation was noted by Resolution 35 of
October 28, 1992. Private respondents filed their memorandum36 on February 24, 1992 while
petitioner submitted her memorandum on February 15, 1993. 3 7
In her Memorandum, petitioner submitted the following arguments:
1. The respondents court illegally made a contract between the parties in rendering the questioned
decision which is diametrically opposed to the evidence presented by the parties in the court a quo.
2. The issues raised in the instant petition are purely legal and, therefore, cognizable by this
Honorable Court.
The petition is meritorious.
While it has always been the policy of this Court to review only errors of law from decisions elevated
to it from the Court of Appeals in a petition for certiorari under Rule 45 of the Revised Rules of Court,
this rule is not absolute. Thus, in Floro vs. Llenado,38 we stated:
In a petition to review the decision of the Court of Appeals under the Rule 45 of the
Rules of Court, the jurisdiction of the Court is ordinarily confined to reviewing errors
of law committed by the Court of Appeals, its findings of fact being conclusive on
the Court. There are however exceptional circumstances that would compel the
Court to review the findings of fact of the Court of Appeals, summarized
in Remalante vs. Tibe and subsequent cases as follows: 1) when the inference made
is manifestly mistaken, absurd or impossible; 2) when there is grave abuse of
discretion; 3) when the finding is grounded entirely on speculations, surmises or
conjectures; 4) when the judgment of the Court of Appeals are based on
misapprehension of facts; 5) when the findings of facts are conflicting; 6) When the
Court of Appeals in making its findings went beyond the issues of the case and the
same is contrary to the admissions of both appellant and appellee; 7) when the
findings of the Court of Appeals are contrary to those of the trial court; 8) when the
findings of facts are conclusions without citations of specific evidence on which they
are based; 9) when the Court of Appeals manifestly overlooked certain relevant
facts not disputed by the parties and which if properly considered would justify a
different conclusion; and 10) when the findings of fact by the Court of Appeals are
premised in the absence of evidence and are contradicted by the evidence on
record.
It appears that the instant case is within the purview of the seventh exception. The respondent
court's findings and conclusions are clearly contrary to those of the trial court.
The first issue to be resolved is the determination of the real agreement of the parties. Petitioner
claims that their verbal agreement was for her to secure loans from financial institutions using private
respondents' real properties as collaterals. Though petitioner would pay the loan amortization, the
proceeds of the loan would be shared by them and whatever amount actually received by private
respondents would then be treated as purchase price of the lot covered by the loan releases at an
agreed price of P170.00 per square meter,39 hence, the number of lots that would be conveyed
depends on the amount of loan proceeds actually received by private respondents. Denying these
assertions, private respondents alleged that petitioner orally agreed to buy the six subject lots for
P699,890.00 at a rate of P170.00 per square meter,40 the purchase price of which would be paid by
the loan proceeds that would be secured by petitioner using the same lots as securities. They alleged
that the transfer of the lots would be made only upon completion of payment. 41
Upon a painstaking review of the records, this Court is persuaded to affirm petitioner's claim.
In arriving at a sensible meaning of the agreement of the parties, the first thrust of the Court is to
discover and ascertain the intention of the contracting parties. And in order to judge the intention of
the contracting parties, their contemporaneous and subsequent acts shall be principally considered. 42
Private respondents admitted to have conveyed to petitioner Lot No. 800-A-1-B as an initial step to
consummate their agreement43 although petitioner gave a partial amount only of the total purchase
price of P699,890.00. Where the parties to a contract have given a practical construction by their
conduct, as by acts in partial performance, such construction may be considered by the court in
determining its meaning and ascertaining the mutual intention of the parties at the time of the
contracting.44 If it were true as private respondents claim that their agreement was for the transfer of
the subject lots only upon payment of the full consideration of P699,890.00, why then did private
respondents execute a deed of sale over Lot No. 800-A-1-B although they knew too well that a partial
amount only of the purchase price was paid. No credible explanation was given by private
respondents. The act of executing the Deed of Sale of Real Property (Exhibit M) by the private
respondents obviously destroys their claim that their agreement was for the conveyance of the
parcels of land only upon full payment of the purchase price. This circumstance is decisive and we are SUPPLEMENTAL AGREEMENT TO THE DEED OF
convinced that their intention was that every lot covered by the loan proceeds given from time to AGREEMENT DATED JUNE 6, 1983
time by petitioner to private respondents, are to be transferred to the petitioner. xxx xxx xxx
Respecting Lot No. 800-A-1-B, petitioner claims that the consideration for the same is only That I, CARMELA R. KUIZON, . . . do hereby agree, consent, accede to the spouses,
P25,1200.00 as reflected in the Deed of Sale of Real Property while private respondents aver that it GERARDO PARAY and MARIA S. PARAY . . . , THAT:
should be P53,380.00 as can be gleaned from the Deed of Agreement. The relevant portions of the I cannot dispose by sale Lot 800-A-1-B containing an area of THREE HUNDRED
Deed of Sale of Real Property,45 Deed of Agreement46and Supplemental Agreement to the Deed of FOURTEEN SQUARE METERS (314) more or less;
Agreement dated June 6, 1983,4 7 which are the three contracts involved in the sale of the subject lot, That if ever I wanted to dispose by SALE, I would secure the consent and approval of
are reproduced as follows for clarity: the spouses, GERARDO PARAY and MARIA S. PARAY.
DEED OF SALE OF REAL PROPERTY xxx xxx xxx
xxx xxx xxx The Deed of Sale is duly notarized while the Deed of Agreement and the Supplemental Agreement
That we, GERARDO PARAY and MARIA S. PARAY, . . . in consideration of the sum of are not notarized. All the three documents are dated June 6, 1983. Sustaining private respondent's
TWENTY FIVE THOUSAND ONE HUNDRED TWENTY (P25,120.00) PESOS Philippine view, the respondent court found that since the agreed price is P170.00 per square meter, the cost of
Currency, to us in hand paid by CARMELA R. KUIZON, . . . do hereby SELL, CEDE, the lot which has an area of 314 square meters would be P53,380.00.48 With a down payment of
TRANSFER, AND CONVEY unto CARMELA R. KUIZON . . . that certain portion of land . P20,000.00, there would be an outstanding balance of P33,380.00. 49 This is the reason according to
. . particularly described as follows: respondent court why the parties had to execute the Deed of Agreement to reflect the balance of
TRANSFER CERTIFICATE OF TITLE P33,380.00 and why petitioner had to issue the UCPB check No. CBU-293316 for the same amount,
NO. 84791 payable to the order of Maria Paray, which however, was not encashed due to unavailability of
TAX DECLARATION NO. 01-33512 funds.50
Property Index No. 152-1-14-0004 It is well settled that in construing a written agreement, the reason behind and the circumstances
xxx xxx xxx surrounding its execution are of paramount importance to place the interpreter in the situation
TECHNICAL DESCRIPTION occupied by the parties concerned at the time the writing was executed.51 Admittedly, the intention
Lot 800-A-1-B, Psd-07-01-008471 of the contracting parties should always prevail because their will has the force of law between
A parcel of land (Lot 800-A-1-B of the subdivision plan Psd-07-008401 . . .) . . . ; them. 52 The respondent court apparently failed to consider certain relevant facts and circumstances
containing an area of THREE HUNDRED FOURTEEN (314) SQUARE METERS . . . . surrounding the execution of the documents involved which, if appreciated, would clearly indicate
xxx xxx xxx the intention of the parties and would result to a different conclusion. First, the sale of Lot No. 800-A-
DEED OF AGREEMENT 1-B was an incentive given to petitioner who acquiesced to the proposal of private respondents of
xxx xxx xxx securing loans for them by using their lands as collaterals. As compared to the other five lots which
That we, GERARDO PARAY and MARIA S. PARAY, . . . ; and CARMELA R. KUIZON, . . . , had a price of P170.00 per square meter, Lot No. 800-A-1-B had a lower cost of P25,120.00 precisely
due to the Deed of Sale of Lot 800-A-1-B, Psd-07-008401, . . . , executed by to serve as an inducement of private respondents for petitioner to agree to their transaction. As
GERARDO PARAY and MARIA S. PARAY in favor of CARMELA R. KUIZON, do hereby testified to by petitioner:
agree . . . : Atty. Fernandez:
1. . . . Did you agree to the proposal which you narrated?
2. That the consideration of the Deed of Sale is TWENTY FIVE THOUSAND ONE Kuizon:
HUNDRED TWENTY (P25,120.00) Philippine Currency, the down payment in the Well, at first I was hesitant firstly because I have no experience in borrowing money
amount of TWENTY THOUSAND (P20,000.00) PESOS, Philippine Currency; and the especially as much as P50,000.00 secondly, although I was looking for a bigger
remaining balance is THIRTY THREE THOUSAND THREE HUNDRED EIGHTY space I did not have the need for five parcels of land, however Mrs. Paray kept
(P33,380.00) Pesos, Philippine Currency; coming back to me to get the money from the bank to induce me to agree to that
3. That as security and collateral of the said deed of sale, the vendee, CARMELA R. proposal, Mrs. Paray assured she and her husband would immediately execute a
KUIZON offered as her collateral to the balance of THIRTY THREE THOUSAND THREE Deed of Absolute Sale, upon downpayment of P20,000.00 on Lot-800-A-1-B under
HUNDRED PESOS Lot No. Tax Declaration No. 34504 consisting of 314 square meters and that they would sell
5284 . . . , covered by TRANSFER CERTIFICATE OF TITLE NO. T-8648; in an area of it to me at the price of only P25,000.00 as a further incentive to my applying for the
THIRTY THOUSAND NINE HUNDRED ELEVEN . . . loan and paying it myself.
xxx xxx xxx xxx xxx xxx
 Atty. Fernandez:
xxx xxx xxx
What prompted you to agree on the defendants' proposal?
Kuizon:
She told me that she will sell their lot for P25,000.00 and will accept a down
payment of P20,000.00.
Atty. Fernandez:
What lot are you referring to?
Kuizon:
Lot 800-A-1-B.53
Second, petitioner and private respondents in executing the Deed of Agreement did not intend to be
bound by the provisions thereof. The alleged balance of P33,380.00 was indicated in the Deed of
Agreement because private respondents wanted petitioner to issue a postdated check for the same
amount to pay the former's obligations. Thus, the UCPB check which was issued afterwards, was not
intended for the payment of the alleged balance of P33,380.00 as appearing in the Deed of
Agreement but was made by petitioner to enhance the standing of private respondents to their
creditors. Petitioner's testimony in this regard is enlightening. Thus,
Atty. Fernandez:
So after this receipt was signed or was made out by Mrs. Paray to you, what
happened if any?
Kuizon:
On June 6, 1983 defendants returned to me with the Deed of Sale.
Atty. Fernandez:
Are you referring to this Exhibit M?
Kuizon:
Yes Sir. Together with the Deed of Sale, they handed the deed of agreement which
is Annex A to their Answer and supplemental agreement which is Annex B to their
Answer.
Atty. Fernandez:
When they returned to you with these documents what happened if any?
Kuizon:
They told me that they will give me this Deed of Sale but I have to sign these two
documents. I told them that I could sign the Supplemental Agreement because it
prohibits me from selling the land unless the balance of P5,000.00 is being paid off.
I told them I could sign this because I have no intention of selling this lot. But I told
them I could not sign the Deed of Agreement because it did no tell the truth that
the purchase price of Lot 800-A-1-B was only P25,000.00.
Atty. Fernandez:
When you told Mrs. Paray that you will not sign Annex A of their Answer what
happened next, what did you do?
Kuizon:
When I told her I could not sign Annex A she said that the P33,380.00 was just
indicated there because she wanted me to issue a postdated check, such amount to
pay off certain obligation of the same amount, anyway she said that this will be
charged against any loan releases, so because I trusted them I must issue a
postdated check Annex C to the Answer, . . .
Atty. Fernandez:
So when Mrs. Paray explained to you that P33,380.00 only represented certain
obligation, what did you do if any?
Kuizon:
She told me that the P33,380.00 was just indicated there because she wanted to
pay certain obligation in such amount that she wanted me to issue a postdated
check from the P33,380.00 which is just to support the check.54
Third, private respondents did not deny any of these statements of petitioners. They gave no sensible
explanation regarding the discrepancy in the consideration between the Deed of Sale and Deed of
Agreement and no reason whatsoever was given as to why the Deed of Agreement, unlike the Deed
of Sale, was not notarized, although both had the same date. Their allegation that upon request of
petitioner the amount of P25,120.00 was placed in the Deed of Sale as the consideration of the sale
so that petitioner would pay lesser taxes deserves scant consideration because as pointed out
correctly by the trial court the liability to pay capital gains tax falls not on the buyer but on the seller,
the private respondents in this case.
Considering these circumstances, we find that the Deed of Sale is the embodiment of the parties' true
agreement. The consideration in the sale of Lot 800-A-1-B is P25,120.00 only which as appearing on
record was fully paid by petitioner. The Deed of Agreement was executed merely to suit private
respondents' nefarious motive of boosting their credit image with an understanding that it was not to
become binding and operative between themselves. At most it was a simulated agreement, 55 which is
not really designed nor intended by the parties to produce legal effects. As a fictitious and simulated
agreement it lacks valid consent so essential to a valid and enforceable contract.
In compliance with their agreement, petitioner remitted to private respondents the sum of
P198,000.00 which represent the loan proceeds secured by her. Deducting the sum of P25,120.00
which was the price of Lot No. 800-A-1-B from the abovestated amount, there is still a remaining
balance of P172,800.00 in the hands of private respondents. With this available amount she
specifically asked in her Complaint for the conveyance of Lot No. 800-A-1-A to provide a lawn space
to Lot No. 800-A-1-B which was just adjacent to it. Private respondents were also willing to sell Lot
No. 800-A-1-A as can be deduced from the allegations in their Answer. These circumstances were
amply taken into account by respondent court which properly considered and appreciated the
foregoing manifestations of the parties when it ruled for the execution of a deed of sale over Lot No.
800-A-1-A. The respondent court stated:
It is observed in appellee's first cause of action, in connection with her general
quest that appellants be directed to execute deeds of absolute sale, that she
specifically mentioned lot 800-A-1-A containing an area of 250 sq. m., alleging in
paragraph 1.13 of her complaint, that when she offered lot 800-A-1-B to the
prospective buyers, they signified their intention to buy that lot ". . . only if adjacent
Lot No. 800-A-1-A was included in the sale to provide a loan thereto". In connection
with such specific quest, there is in appellant's answer, specifically paragraph 3-(j),
that "when plaintiff negotiated to discontinue the agreement and offered to
proceed only with the sale of lots nos. 800-A-1-B and 800-A-1-A with 314 and 250
square meters in area respectively, defendants demanded that they would return
 the excess minus the cost of the two lots . . . provided that all other properties be
cleared of all the encumbrances, liabilities and mortgages since they were not
benefitted by the same. . . .
In the light of the above manifest submissions of the contending parties, in their
respective prayer, most specially the underlined portion in appellants' answer, it is
appropriate, fair and just to require appellants to execute a deed of sale in favor of
appellee over Lot 800-A-1-A, containing an area of 250 sq. m., . . .
While we agree with the foregoing observations of respondent court, we do not find it proper to use
the fair market value of P300.00 per square meter as the price of Lot 800-A-1-A or for a total cost of
P75,000.00. This is not in accord with the contract between the parties. It is not the province of the
court to alter a contract by construction or to make a new contract for the parties; its duty is confined
to the interpretation of the one which they have made for themselves without regard to its wisdom
or folly as the court cannot supply material stipulations or read into the contract words which it does
not contain.56
Their agreement is that every parcel of land covered by the loan releases would be conveyed at an
agreed price of P170.00 per square meter. As testified to by private respondent Maria Paray, to wit:
Q What transpired when Carmela Kuizon was introduced to you?
A Carmela Kuizon told me that she is going to buy my land.
Q Was there in effect an agreement to buy the land?
A There was.
Q For what price was the land to be purchased?
A At P170.00 per square meter.57
This price of P170.00 per square meter was confirmed by petitioner. She declared:
Atty. Fernandez:
My question your honor is at what point did you agree to fix the price of P170.00?
xxx xxx xxx
Kuizon:
Well, before the SPAs were executed the price we agreed was P130.00 but after the
execution of the SPAs they increased the price from P130 to P170.00 per square
meter.58
It is undisputed that the selling price of the real property involved as agreed upon by the parties is
P170.00 per square meter. That which is agreed to in a contract is the law between the parties. Thus,
obligations arising from contracts have the force of law between the contracting parties and should
be complied with in good faith. 59 This, not withstanding the findings of the respondent court to the
effect that —
. . . it is appropriate, fair and just to require appellants to execute a deed of sale in
favor of appellee over lot 800-A-1-A, containing an area of 250 sq. m. at P300.00/sq.
m. which is the present "fair market value" of the property . . . (Decision, p. 28).
We cannot make a new contract for the parties in the case at bar. Neither can "present
market value" result to a novation, which cannot be presumed; neither can we disturb the
consensuality of a contract of sale where the rights and obligations of the parties are
determined at the time it was entered into, but above all, courts are not to play as decision-
makers as to the terms of a business contract when it is not asked to play that role. The
sanctity of contracts must be respected and delicately preserved.
Consequently, from the amount of P198,000.00, the sums of P25,120.00 which is the consideration
for the sale of Lot No. 800-A-1-B and, P42,500.00 which is the purchase price of Lot No. 800-A-1-A,
shall be deducted thereby leaving a balance of P130,380.00. In the Answer of private respondents,
they demanded for the payment of P76,200.07 which represents the advances or loans extended to
petitioner in finishing the construction of her house on Lot No. 800-A-1-B. On this, we agree with the
findings of the respondent court upholding the validity of the loans in the amount of
P67,326.07,60 which shall be deducted from the balance of P130,380.00. We find the evidence for
private respondents as adequate to establish their cause of action against the petitioner. As it is, the
mere denial of petitioner cannot outweigh the strength of the documentary evidence presented by
and the positive testimony of private respondents. As a jurist once said, "I would sooner trust the
smallest slip of paper for truth than the strongest and most retentive memory ever bestowed on
moral man."61 In De Gala vs. De Gala,62 this Court stated, thus:
. . . It is a general rule of evidence, that all other things being equal, affirmative
testimony is stronger than negative; in other words, that the testimony of a credible
witness, that he saw or heard a particular thing at a particular time and place is
more reliable than that of an equally reliable witness who, with the same
opportunities, testifies that he did not hear or see the same thing at the same time
and place.
Petitioner would like us to believe that the P100,000.00 allegedly given as grease money to bank
fixers would be credited against the account of private respondents. 63 Petitioner claims that this
amount was given to bank personnel to facilitate the approval of the loans. Admittedly, the sum of
P100,000.00 as alleged by petitioner was part of the total net proceeds of the loan in the amount of
P492,002.04. The respondent court seasonably denied this claim of petitioner. Bare allegations which
are not supported by any evidence, documentary or otherwise, sufficient to support her claim fall
short to satisfy the degree of proof needed. We likewise agree with the findings of the respondent
court which reads in part, viz:
Appellee moreover claimed to have given P100,000.00 to appellants, which was
handed every now and then in the amount of P20,000.00 or P30,000.00, and
admittedly that the same was not receipted for. She has not explain why she did
not demand a receipt, when, on the contrary, she demanded receipts for the
P20,000.00, the P78,000.00, and the P100,000.00 when she delivered them on May
25, 1983; November 28, 1983; and February 14, 1984 (exhibits I, J and K). As
appellee so expressed, that amount were given as "grease money" to facilitate the
approval and release of the loans themselves. For this reason, that sum cannot be
credited against the account of appellants, and unfair, unjust and uncalled for to
consider the same as representative/part of the purchase price of appellants'
properties. . .64
Petitioner also claims that she was forced by private respondents to construct the house on Lot No.
800-A-1-B, hence, the amount of P194,002.04 which were used in the building of the house should
likewise be credited against the account of private respondents and be considered as part of the
purchase price of the real properties involved. Simply stated, this allegation does not deserve any
credence. We take note of the fact that petitioner was already the owner of Lot No. 800-A-1-B as
early as June, 1983 when the Deed of Sale over said lot was executed and delivered to her by private
respondents. By law, all works, sowing and plating are presumed made by the owner and at his
expense, unless the contrary is proved.65 No convincing and sufficient evidence whatsoever was commission of what the law knows as an actionable wrong, before the courts are
presented by petitioner to rebut the presumption. On the contrary she admitted that she spent an authorized to lay hold of the situation and remedy it.
additional amount of P100,000.0066 in building the house. She also incurred loans from private We have, as a final note considered the remediable aspects of the instant case as far as the law and
respondents and used them in the construction of the house. These circumstances clearly show that the circumstances would allow and permit.
she of her own volition decided to build the house on Lot No. 800-A-1-B. IN VIEW OF THE FOREGOING PREMISES, the appealed decision is hereby AFFIRMED with
We are not, however, inclined to toe the line of the trial court's finding that private respondents are modifications:
liable for fraud. Fraud is the deliberate or intentional evasion of the normal fulfillment of an 1. Ordering private respondents to execute a Deed of Absolute Sale over Lot No. 800-A-1-A at a price
obligation.67 The mere failure of private respondents to execute a deed of sale because they of P170.00 per square meter within thirty (30) days from finality of the decision;
demanded first an accounting of the lots used as collaterals by petitioner and the amount of loans 2. Ordering private respondents to reimburse petitioner the amount of P63,053.93 with legal interest
secured68 could not be considered as fraud. Fraud is never presumed. It must be alleged and within 30 days from finality of the decision.
proven69 Fraus est odiosa et non praesumenda. Fraud is negated when private respondents had Without pronouncement as to costs.
partially performed their obligation when they executed a deed of sale over Lot No. 800-A-1-B. SO ORDERED.
Likewise, as appearing on record, private respondents intimated their willingness to execute a deed
of sale over Lot No. 800-A-1-A. The testimony of private respondent Maria Paray confirms this, thus:
REDIRECT EXAMINATION
BY ATTY. VALENTINO LEGASPI
Now, you stated in your cross examination that you refused to transfer a part of the
lands even though you have received already P198,000.00, my question is, what
was the offer of Carmela Kuizon with respect to the land which were not covered by
the payment which is the subject of the mortgage?
Mrs. Maria Paray:
What Carmela Kuizon suggested to me is that I would execute in her favor a Deed of
Absolute Sale for the area of 250 sq. m. but what I can say is that the title covering
this lot has been mortgage by her to J Finance so I think it would not be wise for me
as yet to execute that Deed of Sale in her favor.
Atty. Valentino Legaspi:
In this connection did Carmela Kuizon agree to release other titles not covered by
the payment?
xxx xxx xxx
Mrs. Maria Paray:
What Carmela Kuizon told me is that, if I will execute a Deed of Sale in her favor for
the area of 250 square meters she would pay off her other obligations, get the title
and return the titles to me.
Atty. Valentino Legaspi:
And what was your answer?
Mrs. Maria Paray:
I went to see her lawyer Atty. Fernandez and I told Atty. Fernandez to please call his
client Carmela Kuizon to pay off to clear the titles so that the titles will be returned
to me and that I will be ready to execute a Deed of Sale of the 250 sq. m. 70
Lest we unnecessarily traverse the fact-finding role of the trial court, we echo once more what has
been said in Vales vs. Villa (35 Phil. 76) thus:
Men may do foolish things, make rediculous contracts, use miserable judgment, and
lose money by them — indeed, all they have in the world; but not for that alone can
the law intervene and restore. There must be, in addition, a violation of law, the
G.R. No. L-20175 October 30, 1967
MARIA A. GARCIA, ET AL., petitioners,
vs.
RITA LEGARDA, INC., respondent.
Picazo and Agcaoili for petitioners.
Gregorio Fajardo for respondent.
DIZON, J.:
Appeal taken by the spouses Maria A. Garcia and Marcelino A. Timbang — hereinafter referred to as
petitioners — from the decision of the Court of Appeals in CA-G.R. No. 27194-R reversing the one
rendered on January 9, 1960 by the Court of First Instance of Manila in Civil Case No. 1962 entitled
"Maria A. Garcia, et al. vs. Rita Legarda, Inc." The latter is a corporation organized under Philippine
laws, and is engaged in the sale and resale of residential lots in Manila and suburbs. We shall refer to
it hereinafter as the respondent.
On May 20, 1953 the petitioners instituted the civil case mentioned above against the respondent to
have certain contracts numbered 322, 324, and 965 declared as existing and subsisting; to compel the
respondent to accept payments tendered by them; and to recover moral and exemplary damages and
attorney's fees in the amounts of P6,000.00 and P1,500.00, respectively.
The three causes of action alleged in their complaint involved the three parcels of land subject matter
of the contracts aforesaid. Each had an area of about 150 square meters, and formed part of the Rita
Legarda Estate situated in Manila, and subdivided into lots sold on installment basis.
(1) Contract to Sell No. 322 (Exhs. A and A-1) covering Lot 40, Block 8-CC, was executed by the
respondent in favor of Emiliano Orellana on March 1, 1947. On June 26, 1947, the latter transferred
all his rights, and interest thereunder to Encarnacion Vito who, in turn, on November 3 of the same
year, made a similar transfer of rights in favor of Delfin Bacho. Finally, on May 29, 1948, Bacho also
transferred all his rights and interest to the petitioners.
(2) On March 1, 1947, Contract to Sell No. 324 (Exh. 2) covering Lot No. 20, Block 5-CC was executed
by respondent in favor of Jesusa Felix. Two months later, Felix, with the written consent of the
respondent, sold her rights and interest to petitioners.
(3) Contract to Sell No. 965 (Exh. 3) covering Lot No. 27, Block 5-CC was executed by the respondent
in favor of Angela Alvarez Solomon on January 8, 1948. With the written consent of the former,
Solomon also sold her rights and interest to the petitioners on May 11, 1948.
In its answer to the complaint, the respondent averred that in relation to the Contracts to Sell Nos.
822, 965 and 324, petitioners paid on November 7, 1951 the 53rd, 43rd and 53rd installments,
respectively, corresponding to the installments for the month of July, 1951; that the petitioners, as of
June 11, 1952, had failed to pay the stipulated monthly installments for Contracts Nos. 322 and 324
corresponding to the period from August, 1951 through June, 1952, and in the case of Contract No.
965, from August, 1951 through May, 1952; that despite several demands for payment of arrears
made between December, 1951 and June, 1952 by the respondent, the petitioners had failed to pay
the amounts due; and that upon the expiration of the 90-day grace period on June 11, 1952
stipulated in the sixth paragraph of the contracts, the respondent had cancelled them. The answer
also prayed for an award of damages and attorney's fees in the sum of P2,000.00.
On April 20, 1954 the petitioners filed a reply denying that they were in arrears as to their obligations
under the three contracts and, further averred as affirmative defense that the cancellation thereof
was unlawful and arbitrary.
After trial the Court rendered judgment declaring Contracts Nos. 322, 324 and 965 as existing and
subsisting; ordering the respondent to accept the payments tendered by the petitioners and to pay
attorney's fees in the sum of P1,500.00. but denied the award of moral and exemplary damages.
From this decision the respondent appealed to the Court of Appeals from whose decision — reversing
that of the lower court — the instant appeal was taken.
Petitioners now urge Us, in turn, to reverse the decision of the Court of Appeals, claiming that the
latter had committed the following errors:
I. The Honorable Court of Appeals erred in declaring that the respondent Rita Legarda, Inc.
had not waived its rights to cancel its contracts with the petitioners on the ground that it had
previously accepted late payments of the installments due on such contracts.
II. The Honorable Court of Appeals erred in declaring that par. 9 of the contracts in question
is not in violation of Art. 1308 of the New Civil Code.
III. The Honorable Court of Appeals erred in not declaring that the respondent Rita Legarda,
Inc., after having tolerated and accepted previously late payments on the installments due
on the contracts, suddenly and without suitable warning and giving of further opportunity to
pay the same could not and should not have precipitously decided to forfeit, as it actually
forfeited, all the payments which have already been made to it by petitioners.
IV. The Honorable Court of Appeals erred in reversing and in not affirming the decision of the
Court of First Instance of Manila in its entirety.
The second assignment of error is based on petitioners' contention that the questioned stipulations
of the contracts are in violation of the provisions of Article 1308 of the New Civil Code, while the first
and third are based on the claim that the respondent having previously accepted late payments of
installments due on the contracts aforesaid, must be deemed to have waived its right to cancel said
contracts on the ground of late payment of installments, and that, at any rate, after having tolerated
and accepted said late payments, it was arbitrary on its part to cancel the contracts suddenly and
without suitable warning. The fifth and last assignment of error is merely a consequence of the
others.
Article 1308 of the New Civil Code reads as follows:
The contract must bind both contracting parties; its validity or compliance cannot be left to
the will of one of them.
The above legal provision is a virtual reproduction of Article 1256 of the old Civil Code but it was so
phrased as to emphasize the principle that the contract must bind both parties. This, of course, is
based firstly, on the principle that obligations arising from contracts have the force of law between
the contracting parties and secondly, that there must be mutuality between the parties based on
their essential equality to which is repugnant to have one party bound by the contract leaving the
other free therefrom (8 Manresa 556). Its ultimate purpose is to render void a contract containing a
condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties.
Paragraph 6 of the contracts in question — which is the one claimed to be violative of the legal
provision above quoted — reads as follows:
SIXTH — In case the party of the SECOND PART fails to satisfy any monthly installments, or
any other payments herein agreed upon, he is granted a month of grace within which to
make the retarded payment, together with the one corresponding to the said month of
grace; it is understood, however, that should the month of grace herein granted to the party
 of the SECOND PART expire, without the payments corresponding to both months having That prior to the cancellation it had in fact accepted payment of installments in arrears was but
been satisfied, an interest of 10% per annum will be charged on the amounts he should have another act of forbearance on its part to give the petitioners an additional opportunity to keep the
paid; it is understood further, that should a period of 90 days elapse, to begin from the contracts alive. Rather than give rise to the presumption that by such act of humanity it waived its
expiration of the month of grace herein mentioned, and the party of the SECOND PART has right to cancel the contracts, it strengthens its right to do so, considering that even after such act of
not paid all the amounts he should have paid with the corresponding interest up to that accommodation beneficial to the petitioners, the latter subsequently defaulted again and again in the
date, the party of the FIRST PART has the right to declare this contract cancelled and of no fulfillment of their obligation.
effect, and as consequence thereof, the party of the FIRST PART may dispose of the parcel or It is, of course, painful for the petitioners to lose not only the right they had acquired under the
parcels of land covered by this contract in favor of other persons, as if this contract had contracts but also whatever amounts they had already paid thereunder, but such consequences had
never been entered into. In case of such cancellation of this contract, all the amounts paid in been foreseen by the contracting parties. To avoid them, all that petitioners had to do — as already
accordance with this agreement together with all the improvements made on the premises, said heretofore — was to comply with their part of the bargain. Having failed to do so, they really
shall be considered as rents paid for the use and occupation of the above mentioned have no valid reason to complain. That one contracting party appears to have made a poor bargain is
premises, and as payment for the damages suffered by failure of the party of the SECOND no reason for setting aside the agreement (Fernandez vs. Manila Railroad, 14 Phil. 274, 287).
PART to fulfill his part of this agreement; and the party of the SECOND PART hereby WHEREFORE, the appealed judgment being in accordance with law and the facts of the case, the
renounces all his right to demand or reclaim the return of the same and obliges himself to same is hereby affirmed.
peacefully vacate the premises and deliver the same to the party of the FIRST PART. Concepcion, C.J., Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro, Angeles and
The above stipulation, to our mind, merely gives the vendor "the right to declare this contract Fernando, JJ.,concur.
cancelled and of no effect" upon fulfillment of the conditions therein set forth. It does not leave the
validity or compliance of the contract entirely "to the will of one of the contracting parties"; the
stipulation or agreement simply says that in case of default in the payment of installments by the
vendee, he shall have (1) "a month of grace", and that (2) should said month of grace expire without
the vendee paying his arrears, he shall have another "period of 90 days" to pay "all the amounts he
should have paid", etc., then the vendor "has the right to declare this contract cancelled and of no
effect." We have heretofore upheld the validity of similar stipulations. In Taylor vs. Ky Tieng Piao, etc.,
43 Phil. 873, 876-878 the ruling was that a contract expressly giving to one party the right to cancel,
the same if a resolutory condition therein agreed upon — similar to the one under consideration — is
not fulfilled, is valid, the reason being that when the contract is thus cancelled, the agreement of the
parties is in reality being fulfilled. Indeed, the power thus granted can not be said to be immoral,
much less unlawful, for it could be exercised — not arbitrarily — but only upon the other contracting
party committing the breach of contract of non-payment of the installments agreed upon. Obviously,
all that said party had to do to prevent the other from exercising the power to cancel the contract
was for him to comply with his part of the contract. And in this case, after the maturity of any
particular installment and its non-payment, the contract gave him not only a month grace but an
additional period of 90 days.
Having arrived at the above conclusions, We now come to the question of whether or not by having
previously accepted payments of overdue installments the respondent had waived its right to declare
the contracts cancelled and of no effect.
In this connection the record shows that on June 11, 1952 when the Contracts to Sell Nos. 234 and
965 were cancelled, the vendees were ten months in arrears and that in the case of contract to Sell
No. 322 the vendees had never resumed payment of a single installment from the date when, upon
their petition, said contract was reinstated on September 28, 1952. The contracts under
consideration are not of absolute sale but mere contracts to sell — on installment. They give the
respondent's (vendor) the right to declare the contracts cancelled and of no effect — as in fact it did
— upon fulfillment of certain conditions. All said conditions — so the record shows — have been
fulfilled. Consequently, respondent's (vendor) right to cancel the contracts can not be doubted.
G.R. No. 163654 October 8, 2014
BPI EXPRESS CARD CORPORATION,* Petitioner,
vs.
MA. ANTONIA R. ARMOVIT, Respondent.
DECISION
BERSAMIN, J.:
This case involves a credit card holder's claim for damages arising from the suspension of her credit
privileges due to her supposed failure to reapply for their reactivation. She has insisted that she was
not informed of the condition for reactivation.
The Case
Petitioner BPI Express Credit Card Corporation (BPI Express Credit) seeks the reversal of and assails
the adverse decision promulgated on February 26, 2004,1 whereby the Court of Appeals (CA) affirmed
the judgment rendered on April 22, 1996 by the Regional Trial Court, Branch 216, in Quezon City,
(RTC) adjudging it liable to pay moral and exemplary damages, attorney’s fees and costs of suit to its
credit card holder Ma. Antonia R. Armovit, the respondent herein. 2
Antecedents
Armovit, then a depositor of the Bank of the Philippine Islands at its Cubao Branch, was issued by BPI
Express Credit a pre-approved BPI Express Credit Card (credit card) in 1989with a credit limit of
₱20,000.00 that was to expire atthe end of March 1993.3 On November 21, 1992, she treated her
British friends from Hong Kongto lunch at Mario’s Restaurant in the Ortigas Center in Pasig. As the
host, she handed to the waiter her credit card to settle the bill, but the waiter soon returned to
inform her that her credit card had been cancelled upon verification with BPI Express Credit and
would not be honored. Inasmuch asshe was relying on her credit card because she did not then carry
enough cash that day, her guests were made to share the bill to her extreme embarrassment.
Outraged, Armovit called BPI Express Credit to verify the status of her credit card. She learned that
her credit card had been summarily cancelled for failure to pay her outstanding obligations. She
vehemently denied having defaulted onher payments. Thus, by letter dated February 3, 1993, 4 she
demanded compensation for the shame, embarrassment and humiliation she had suffered in the
amount of ₱2,000,000.00.
In its reply letter dated February 5, 1993,5 BPI Express Credit claimed that it had sent Armovit a
telegraphic message on March 19, 1992 requesting her to pay her arrears for three consecutive
months, and that she did not comply with the request, causing it totemporarily suspend her credit
card effective March 31, 1992.6 It further claimed that she had been notified of the suspension and
cautioned to refrain from using the credit card to avoid inconvenience or embarrassment;7 and that
while the obligation was settled by April, 1992, she failed to submit the required application form in
order to reactivate her credit card privileges. Thus, BPI Express Credit countered that her demand for
monetary compensation had no basis in fact and in law.
On March 12, 1993, Armovit received a telegraphic message from BPI Express Credit apologizing for
its error of inadvertently including her credit card in Caution List No. 225 dated March 11, 1993 sent
to its affiliated merchants.8
As a result, Armovit sued BPI Express Credit for damages in the RTC, insisting that she had been a
credit card holder in good standing, and that she did not have any unpaid bills at the time of the
incident.
In its answer with counterclaim,9 BPI Express Credit raised the defense of lack of cause of action,and
maintained that Armovit had defaulted in her obligations for three consecutive months, thereby
causing the temporary suspension of her credit card in accordance with the terms and conditions of
the credit card.10 It pointed out that Armovit had been duly notified of the suspension; that for her
failure to comply with the requirement for the submission of the application form and other
documents as directed in its letter dated April 8, 1992, 11 her credit card had not been reactivated and
had remained in the list of suspended cards at the time she used it on November 21, 1992; and
thatthe telegraphic message of March 11, 1993, which was intended for another client whose credit
card had been erroneously included in the caution list, was mistakenly sent to her. 12
Judgment of the RTC
In the judgment rendered April 22, 1996, 13 the RTC, ruling in favor of Armovit, observed that the
terms and conditions governing the issuance and use of the credit card embodied in the application
formhad been furnished to her for the first time only on April 8, 1992, or after her credit card
privileges had already been suspended; that, accordingly, she could not be blamed for not complying
with the same; that even if she had been notified of the temporary suspension of her credit card, her
payment on April 1, 1992 had rendered the continued suspension of her credit card unjustified; and
that there was no clear showing that the submission of the application form had been a condition
precedent to the lifting of its suspension.
Finding BPI Express Credit guilty ofnegligence and bad faith, the RTC ordered it to pay Armovit moral
damages of ₱100,000.00; exemplary damages and attorney’s fees each in the amount of ₱10,000.00;
and the costs of suit.
Decision of the CA
Both parties appealed to the CA.
On February 26, 2004, the CA promulgated its assailed decision, 14 concurring with the RTC, and
declaredthat because Armovit had not signed any application form in the issuance and renewals of
her credit card from 1989 up to 1992, she could not have known the terms and conditions embodied
in the application form even ifthe credit card had specified that its use bound the holder to its terms
and conditions. It did not see merit in BPI Express Credit’s contention that the submission of a new
application form was a pre-requisite for the lifting ofthe suspension of her credit card, inasmuch as
such condition was not stated in a clear and unequivocal manner in its letter dated April 8, 1992. It
noted that the letter of apology mentioning another inadvertence committed, even if it claimed the
letter of apology as intended for another card holder, still highlighted BPI Express Credit’s negligence
in its dealings with her account. Anent Armovit’s appeal, the CA did not increase the amounts of
damages for lack of basis, observing that moral and exemplary damages were awarded not to enrich
her at the expense of BPI Express Credit but to alleviate the anxiety and embarrassment suffered.
BPI Express Credit’s motion for reconsideration was denied through the resolution promulgated on
May 14, 2004.15
Hence, this appeal by petition for review on certiorari.
Issue
The sole issue is whether or not the CA erred in sustaining the award of moral and exemplary
damages in favor of Armovit.
Ruling of the Court
The petition for review lacks merit.
The relationship between the credit card issuer and the credit card holder is a contractual one that is credit card issuer. Consequently, the terms and conditions have to be construed against BPI Express
governed by the terms and conditions found in the card membership agreement. 16 Such terms and Credit as the party who drafted the contract.27
conditions constitute the law between the parties. In case of their breach, moral damages may be Bereft of the clear basis to continuewith the suspension of the credit card privileges of Armovit, BPI
recovered where the defendant is shown to have acted fraudulently or in bad faith. 17 Malice or bad Express Credit acted in wanton disregard of its contractual obligations with her. We concur with the
faith implies a conscious and intentional design to do a wrongful actfor a dishonest purpose or moral apt observation by the CA that BPI Express Credit’s negligence was even confirmed by the telegraphic
obliquity.18 However, a conscious or intentional design need not always be present because message it had addressed and sent to Armovit apologizing for the inconvenience caused in
negligence may occasionally be so gross as to amount to malice or bad faith. 19 Hence, bad faith in the inadvertently including her credit card in the caution list. It was of no consequence that the
context of Article 2220 of the Civil Code includes gross negligence. 20 telegraphic message could have been intended for another client, as BPI Express Credit apparently
BPI Express Credit contends thatit was not grossly negligent in refusing to lift the suspension of sought to convey subsequently, because the tenor ofthe apology included its admission of negligence
Armovit’s credit card privileges inasmuch as she had not complied with the requisite submission of a in dealing with its clients, Armovit included. Indeed, BPI Express Credit did not observe the prudence
new application form; and that under the circumstances its negligence, if any, was not so gross as to expected of banks whose business was imbued with public interest.
amount to malice or bad faith following the ruling in Far East Bank and Trust Company v. Court of We hold that the CA rightly sustained the award of ₱100,000.00 as moral damages. To us, too, that
Appeals.21 amount was fair and reasonable under the circumstances. Similarly, the grant of exemplary damages
The Court disagrees with the contentions of BPI Express Credit.1âwphi1 The Terms and Conditions was warranted under Article 2232 of the New Civil Code because BPI Express Credit acted in a
Governing the Issuance and Use of the BPI Express Credit Card 22 printed on the credit card application reckless and oppressive manner. Finally, with Armovit having been forced to litigate in order to
form spelled out the terms and conditions of the contract between BPI Express Credit and its card protect her rights and interests, she was entitled to recover attorney's fees and expenses
holders, including Armovit. Such terms and conditions determined the rights and obligations of the oflitigation.28
parties.23 Yet, a review of such terms and conditions did not reveal that Armovit needed to submit her WHEREFORE, the Court AFFIRMS the decision promulgated on February 26, 2004; and ORDERS the
new application as the antecedent condition for her credit card to be taken out of the list of petitioner to pay the costs of suit.
suspended cards. SO ORDERED.
Considering that the terms and conditions nowhere stated that the card holder must submit the new
application form in order to reactivate her credit card, to allow BPI Express Credit toimpose the duty
to submit the new application form in order to enableArmovit to reactivate the credit card would
contravene the Parol Evidence Rule.24 Indeed, there was no agreement between the parties to add
the submission of the new application form as the means to reactivate the credit card. When she did
not promptly settle her outstanding balance, BPI Express Credit sent a message on March 19, 1992
demanding payment with the warning that her failure to pay would force it to temporarily suspend
her credit card effective March 31, 1992. It then sent another demand letter dated March 31, 1992
requesting her to settle her obligation in order to lift the suspension of her credit card and prevent its
cancellation. In April 1992, she paid her obligation. In the context of the contemporaneous and
subsequent acts of the parties, the only condition for the reinstatement of her credit card was the
payment of her outstanding obligation.25 Had it intended otherwise, BPI Express Credit would have
surelyu informed her of the additional requirement in its letters of March 19, 1992 and March 31,
1992. That it did not do so confirmed that they did not agree on having her submit the new
application form as the condition to reactivate her credit card.
The letter of BPI Express Credit dated April 8, 1992 did not clearly and categorically inform Armovit
that the submission of the new application form was the pre-condition for the reactivation of her
credit card. The statement in the letter (i.e., "… accomplish the enclosed application form and provide
us with informations/documents that can help our Credit Committee in reevaluating your
existingfacility with us.") merely raised doubt as to whether the requirement had really been a pre-
condition or not. With BPI Express Credit being the party causing the confusion, the interpretation of
the contract could not be donein its favor.26 Moreover, it cannot be denied that a credit card contract
is considered as a contract of adhesion because its terms and conditions are solely prepared by the
 G.R. No. 128690 January 21, 1999 paid for these movies because as you very well know that non-primetime
ABS-CBN BROADCASTING CORPORATION, petitioner, advertising rates are very low. These are the unaired titles in the first contract.
vs. 1. Kontra Persa [sic].
HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION, INC., and 2. Raider Platoon.
VICENTE DEL ROSARIO, respondents. 3. Underground guerillas
4. Tiger Command
DAVIDE, JR., CJ.: 5. Boy de Sabog
In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter ABS-CBN) 6. Lady Commando
seeks to reverse and set aside the decision 1 of 31 October 1996 and the resolution 2 of 10 March 7. Batang Matadero
1997 of the Court of Appeals in CA-G.R. CV No. 44125. The former affirmed with modification the 8. Rebelyon
decision 3 of 28 April 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case I hope you will consider this request of mine.
No. Q-92-12309. The latter denied the motion to reconsider the decision of 31 October 1996. The other dramatic films have been offered to us before and have been rejected
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows: because of the ruling of MTRCB to have them aired at 9:00 p.m. due to their very
In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement (Exh. "A") adult themes.
whereby Viva gave ABS-CBN an exclusive right to exhibit some Viva films. Sometime As for the 10 titles I have choosen [sic] from the 3 packages please consider
in December 1991, in accordance with paragraph 2.4 [sic] of said agreement stating including all the other Viva movies produced last year. I have quite an attractive
that —. offer to make.
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva Thanking you and with my warmest regards.
films for TV telecast under such terms as may be agreed upon by the parties hereto, (
provided, however, that such right shall be exercised by ABS-CBN from the actual S
offer in writing. i
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president g
Charo Santos-Concio, a list of three(3) film packages (36 title) from which ABS-CBN n
may exercise its right of first refusal under the afore-said agreement (Exhs. "1" par, e
2, "2," "2-A'' and "2-B"-Viva). ABS-CBN, however through Mrs. Concio, "can tick off d
only ten (10) titles" (from the list) "we can purchase" (Exh. "3" - Viva) and therefore )
did not accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs. C
Concio are not the subject of the case at bar except the film ''Maging Sino Ka Man." h
For further enlightenment, this rejection letter dated January 06, 1992 (Exh "3" - a
Viva) is hereby quoted: r
6 January 1992 o
Dear Vic,
This is not a very formal business letter I am writing to you as I would like to express S
my difficulty in recommending the purchase of the three film packages you are a
offering ABS-CBN. n
From among the three packages I can only tick off 10 titles we can purchase. Please t
see attached. I hope you will understand my position. Most of the action pictures in o
the list do not have big action stars in the cast. They are not for primetime. In line s
with this I wish to mention that I have not scheduled for telecast several action -
pictures in out very first contract because of the cheap production value of these C
movies as well as the lack of big action stars. As a film producer, I am sure you o
understand what I am trying to say as Viva produces only big action pictures. n
In fact, I would like to request two (2) additional runs for these movies as I can only c
schedule them in our non-primetime slots. We have to cover the amount that was
 i On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for
o a writ of preliminary injunction and/or temporary restraining order against private respondents
On February 27, 1992, defendant Del Rosario approached ABS-CBN's Ms. Concio,
with a list consisting of 52 original movie titles (i.e. not yet aired on television)
including the 14 titles subject of the present case, as well as 104 re-runs (previously
aired on television) from which ABS-CBN may choose another 52 titles, as a total of
156 titles, proposing to sell to ABS-CBN airing rights over this package of 52 originals
and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cash and
P30,000,000.00 worth of television spots (Exh. "4" to "4-C" Viva; "9" -Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBN general manager, Eugenio
Lopez III, met at the Tamarind Grill Restaurant in Quezon City to discuss the package
proposal of Viva. What transpired in that lunch meeting is the subject of conflicting
versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly agreed that ABS-
CRN was granted exclusive film rights to fourteen (14) films for a total consideration
of P36 million; that he allegedly put this agreement as to the price and number of
films in a "napkin'' and signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-
26, 77-78, June 8, 1992). On the other hand, Del Rosario denied having made any
agreement with Lopez regarding the 14 Viva films; denied the existence of a napkin
in which Lopez wrote something; and insisted that what he and Lopez discussed at
the lunch meeting was Viva's film package offer of 104 films (52 originals and 52 re-
runs) for a total price of P60 million. Mr. Lopez promising [sic]to make a counter
proposal which came in the form of a proposal contract Annex "C" of the complaint
(Exh. "1"·- Viva; Exh. "C" - ABS-CBN).
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president
for Finance discussed the terms and conditions of Viva's offer to sell the 104 films,
after the rejection of the same package by ABS-CBN.
On April 07, 1992, defendant Del Rosario received through his secretary, a
handwritten note from Ms. Concio, (Exh. "5" - Viva), which reads: "Here's the draft
of the contract. I hope you find everything in order," to which was attached a draft
exhibition agreement (Exh. "C''- ABS-CBN; Exh. "9" - Viva, p. 3) a counter-proposal
covering 53 films, 52 of which came from the list sent by defendant Del Rosario and
one film was added by Ms. Concio, for a consideration of P35 million. Exhibit "C"
provides that ABS-CBN is granted films right to 53 films and contains a right of first
refusal to "1992 Viva Films." The said counter proposal was however rejected by
Viva's Board of Directors [in the] evening of the same day, April 7, 1992, as Viva
would not sell anything less than the package of 104 films for P60 million pesos
(Exh. "9" - Viva), and such rejection was relayed to Ms. Concio.
On April 29, 1992, after the rejection of ABS-CBN and following several negotiations
and meetings defendant Del Rosario and Viva's President Teresita Cruz, in
consideration of P60 million, signed a letter of agreement dated April 24, 1992.
granting RBS the exclusive right to air 104 Viva-produced and/or acquired films
(Exh. "7-A" - RBS; Exh. "4" - RBS) including the fourteen (14) films subject of the
present case. 4
Republic Broadcasting Corporation 5 (hereafter RBS ), Viva Production (hereafter VIVA), and Vicente
Del Rosario. The complaint was docketed as Civil Case No. Q-92-12309.
On 27 May 1992, RTC issued a temporary restraining order 6 enjoining private respondents from
proceeding with the airing, broadcasting, and televising of the fourteen VIVA films subject of the
controversy, starting with the film Maging Sino Ka Man, which was scheduled to be shown on private
respondents RBS' channel 7 at seven o'clock in the evening of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an
order 7 directing the issuance of a writ of preliminary injunction upon ABS-CBN's posting of P35
million bond. ABS-CBN moved for the reduction of the bond, 8 while private respondents moved for
reconsideration of the order and offered to put up a counterbound. 9
In the meantime, private respondents filed separate answers with counterclaim. 10 RBS also set up a
cross-claim against VIVA..
On 3 August 1992, the RTC issued an order 11 dissolving the writ of preliminary injunction upon the
posting by RBS of a P30 million counterbond to answer for whatever damages ABS-CBN might suffer
by virtue of such dissolution. However, it reduced petitioner's injunction bond to P15 million as a
condition precedent for the reinstatement of the writ of preliminary injunction should private
respondents be unable to post a counterbond.
At the pre-trial 12 on 6 August 1992, the parties, upon suggestion of the court, agreed to explore the
possibility of an amicable settlement. In the meantime, RBS prayed for and was granted reasonable
time within which to put up a P30 million counterbond in the event that no settlement would be
reached.
As the parties failed to enter into an amicable settlement RBS posted on 1 October 1992 a
counterbond, which the RTC approved in its Order of 15 October 1992. 13
On 19 October 1992, ABS-CBN filed a motion for reconsideration 14 of the 3 August and 15 October
1992 Orders, which RBS opposed. 15
On 29 October 1992, the RTC conducted a pre-trial. 16
Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a
petition17challenging the RTC's Orders of 3 August and 15 October 1992 and praying for the issuance
of a writ of preliminary injunction to enjoin the RTC from enforcing said orders. The case was
docketed as CA-G.R. SP No. 29300.
On 3 November 1992, the Court of Appeals issued a temporary restraining order 18 to enjoin the
airing, broadcasting, and televising of any or all of the films involved in the controversy.
On 18 December 1992, the Court of Appeals promulgated a decision 19 dismissing the petition in CA -
G.R. No. 29300 for being premature. ABS-CBN challenged the dismissal in a petition for review filed
with this Court on 19 January 1993, which was docketed as G.R. No. 108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-192-1209.
Thereafter, on 28 April 1993, it rendered a decision 20 in favor of RBS and VIVA and against ABS-CBN
disposing as follows:
WHEREFORE, under cool reflection and prescinding from the foregoing, judgments
is rendered in favor of defendants and against the plaintiff.
(1) The complaint is hereby dismissed;
 (2) Plaintiff ABS-CBN is ordered to pay defendant RBS the
following:
a) P107,727.00, the amount of premium paid by
RBS to the surety which issued defendant RBS's
bond to lift the injunction;
b) P191,843.00 for the amount of print
advertisement for "Maging Sino Ka Man" in
various newspapers;
c) Attorney's fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary
damages;
(3) For defendant VIVA, plaintiff ABS-CBN is ordered to pay
P212,000.00 by way of reasonable attorney's fees.
(4) The cross-claim of defendant RBS against defendant VIVA is
dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged
agreement between Lopez III and Del Rosario was subject to the approval of the VIVA Board of
Directors, and said agreement was disapproved during the meeting of the Board on 7 April 1992.
Hence, there was no basis for ABS-CBN's demand that VIVA signed the 1992 Film Exhibition
Agreement. Furthermore, the right of first refusal under the 1990 Film Exhibition Agreement had
previously been exercised per Ms. Concio's letter to Del Rosario ticking off ten titles acceptable to
them, which would have made the 1992 agreement an entirely new contract.
On 21 June 1993, this Court denied21 ABS-CBN's petition for review in G.R. No. 108363, as no
reversible error was committed by the Court of Appeals in its challenged decision and the case had
"become moot and academic in view of the dismissal of the main action by the court a quo in its
decision" of 28 April 1993.
Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals claiming that there was a
perfected contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the
subject films. Private respondents VIVA and Del Rosario also appealed seeking moral and exemplary
damages and additional attorney's fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract
between ABS-CBN and VIVA had not been perfected, absent the approval by the VIVA Board of
Directors of whatever Del Rosario, it's agent, might have agreed with Lopez III. The appellate court
did not even believe ABS-CBN's evidence that Lopez III actually wrote down such an agreement on a
"napkin," as the same was never produced in court. It likewise rejected ABS-CBN's insistence on its
right of first refusal and ratiocinated as follows:
As regards the matter of right of first refusal, it may be true that a Film Exhibition
Agreement was entered into between Appellant ABS-CBN and appellant VIVA under
Exhibit "A" in 1990, and that parag. 1.4 thereof provides:
1.4 ABS-CBN shall have the right of first refusal to the next
twenty-four (24) VIVA films for TV telecast under such terms as
may be agreed upon by the parties hereto, provided, however,
that such right shall be exercised by ABS-CBN within a period of
fifteen (15) days from the actual offer in writing (Records, p. 14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still
be subject to such terms as may be agreed upon by the parties thereto, and that
the said right shall be exercised by ABS-CBN within fifteen (15) days from the actual
offer in writing.
Said parag. 1.4 of the agreement Exhibit "A" on the right of first refusal did not fix
the price of the film right to the twenty-four (24) films, nor did it specify the terms
thereof. The same are still left to be agreed upon by the parties.
In the instant case, ABS-CBN's letter of rejection Exhibit 3 (Records, p. 89) stated
that it can only tick off ten (10) films, and the draft contract Exhibit "C" accepted
only fourteen (14) films, while parag. 1.4 of Exhibit "A'' speaks of the next twenty-
four (24) films.
The offer of V1VA was sometime in December 1991 (Exhibits 2, 2-A. 2-B; Records,
pp. 86-88; Decision, p. 11, Records, p. 1150), when the first list of VIVA films was
sent by Mr. Del Rosario to ABS-CBN. The Vice President of ABS-CBN, Ms. Charo
Santos-Concio, sent a letter dated January 6, 1992 (Exhibit 3, Records, p. 89) where
ABS-CBN exercised its right of refusal by rejecting the offer of VIVA.. As aptly
observed by the trial court, with the said letter of Mrs. Concio of January 6, 1992,
ABS-CBN had lost its right of first refusal. And even if We reckon the fifteen (15) day
period from February 27, 1992 (Exhibit 4 to 4-C) when another list was sent to ABS-
CBN after the letter of Mrs. Concio, still the fifteen (15) day period within which
ABS-CBN shall exercise its right of first refusal has already expired.22
Accordingly, respondent court sustained the award of actual damages consisting in the cost of print
advertisements and the premium payments for the counterbond, there being adequate proof of the
pecuniary loss which RBS had suffered as a result of the filing of the complaint by ABS-CBN. As to the
award of moral damages, the Court of Appeals found reasonable basis therefor, holding that RBS's
reputation was debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-
showing of the film "Maging Sino Ka Man." Respondent court also held that exemplary damages were
correctly imposed by way of example or correction for the public good in view of the filing of the
complaint despite petitioner's knowledge that the contract with VIVA had not been perfected, It also
upheld the award of attorney's fees, reasoning that with ABS-CBN's act of instituting Civil Case No, Q-
92-1209, RBS was "unnecessarily forced to litigate." The appellate court, however, reduced the
awards of moral damages to P2 million, exemplary damages to P2 million, and attorney's fees to
P500, 000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal because it was
"RBS and not VIVA which was actually prejudiced when the complaint was filed by ABS-CBN."
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending
that the Court of Appeals gravely erred in
I
. . . RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER
AND PRIVATE RESPONDENT VIVA NOTWITHSTANDING PREPONDERANCE OF
EVIDENCE ADDUCED BY PETITIONER TO THE CONTRARY.
II
 . . . IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE
RESPONDENT RBS.
III
. . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE
RESPONDENT RBS.
IV
. . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under
the 1990 Film Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that
we give credence to Lopez's testimony that he and Del Rosario met at the Tamarind Grill Restaurant,
discussed the terms and conditions of the second list (the 1992 Film Exhibition Agreement) and upon
agreement thereon, wrote the same on a paper napkin. It also asserts that the contract has already
been effective, as the elements thereof, namely, consent, object, and consideration were established.
It then concludes that the Court of Appeals' pronouncements were not supported by law and
jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court of
Appeals, 23 which cited Toyota Shaw, Inc. v. Court of Appeals, 24 Ang Yu Asuncion v. Court of
Appeals, 25 and Villonco Realty Company v. Bormaheco. Inc.26
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the
premium on the counterbond of its own volition in order to negate the injunction issued by the trial
court after the parties had ventilated their respective positions during the hearings for the purpose.
The filing of the counterbond was an option available to RBS, but it can hardly be argued that ABS-
CBN compelled RBS to incur such expense. Besides, RBS had another available option, i.e., move for
the dissolution or the injunction; or if it was determined to put up a counterbond, it could have
presented a cash bond. Furthermore under Article 2203 of the Civil Code, the party suffering loss or
injury is also required to exercise the diligence of a good father of a family to minimize the damages
resulting from the act or omission. As regards the cost of print advertisements, RBS had not
convincingly established that this was a loss attributable to the non showing "Maging Sino Ka Man";
on the contrary, it was brought out during trial that with or without the case or the injunction, RBS
would have spent such an amount to generate interest in the film.
ABS-CBN further contends that there was no clear basis for the awards of moral and exemplary
damages. The controversy involving ABS-CBN and RBS did not in any way originate from business
transaction between them. The claims for such damages did not arise from any contractual dealings
or from specific acts committed by ABS-CBN against RBS that may be characterized as wanton,
fraudulent, or reckless; they arose by virtue only of the filing of the complaint, An award of moral and
exemplary damages is not warranted where the record is bereft of any proof that a party acted
maliciously or in bad faith in filing an action. 27 In any case, free resort to courts for redress of wrongs
is a matter of public policy. The law recognizes the right of every one to sue for that which he
honestly believes to be his right without fear of standing trial for damages where by lack of sufficient
evidence, legal technicalities, or a different interpretation of the laws on the matter, the case would
lose ground. 28 One who makes use of his own legal right does no injury. 29 If damage results front the
filing of the complaint, it is damnum absque injuria. 30 Besides, moral damages are generally not
awarded in favor of a juridical person, unless it enjoys a good reputation that was debased by the
offending party resulting in social humiliation.31
As regards the award of attorney's fees, ABS-CBN maintains that the same had no factual, legal, or
equitable justification. In sustaining the trial court's award, the Court of Appeals acted in clear
disregard of the doctrines laid down in Buan v. Camaganacan 32 that the text of the decision should
state the reason why attorney's fees are being awarded; otherwise, the award should be disallowed.
Besides, no bad faith has been imputed on, much less proved as having been committed by, ABS-CBN.
It has been held that "where no sufficient showing of bad faith would be reflected in a party' s
persistence in a case other than an erroneous conviction of the righteousness of his cause, attorney's
fees shall not be recovered as cost." 33
On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA
absent any meeting of minds between them regarding the object and consideration of the alleged
contract. It affirms that the ABS-CBN's claim of a right of first refusal was correctly rejected by the
trial court. RBS insist the premium it had paid for the counterbond constituted a pecuniary loss upon
which it may recover. It was obliged to put up the counterbound due to the injunction procured by
ABS-CBN. Since the trial court found that ABS-CBN had no cause of action or valid claim against RBS
and, therefore not entitled to the writ of injunction, RBS could recover from ABS-CBN the premium
paid on the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove to be more
expensive, as the loss would be equivalent to the cost of money RBS would forego in case the P30
million came from its funds or was borrowed from banks.
RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of
the film "Maging Sino Ka Man" because the print advertisements were put out to announce the
showing on a particular day and hour on Channel 7, i.e., in its entirety at one time, not a series to be
shown on a periodic basis. Hence, the print advertisement were good and relevant for the particular
date showing, and since the film could not be shown on that particular date and hour because of the
injunction, the expenses for the advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured
injunctions purely for the purpose of harassing and prejudicing RBS. Pursuant then to Article 19 and
21 of the Civil Code, ABS-CBN must be held liable for such damages. Citing Tolentino,34 damages may
be awarded in cases of abuse of rights even if the act done is not illicit and there is abuse of rights
were plaintiff institutes and action purely for the purpose of harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and exemplary damages, private
respondents RBS cited People v. Manero,35 where it was stated that such entity may recover moral
and exemplary damages if it has a good reputation that is debased resulting in social humiliation. it
then ratiocinates; thus:
There can be no doubt that RBS' reputation has been debased by ABS-CBN's acts in
this case. When RBS was not able to fulfill its commitment to the viewing public to
show the film "Maging Sino Ka Man" on the scheduled dates and times (and on two
occasions that RBS advertised), it suffered serious embarrassment and social
humiliation. When the showing was canceled, late viewers called up RBS' offices
and subjected RBS to verbal abuse ("Announce kayo nang announce, hindi ninyo
naman ilalabas," "nanloloko yata kayo") (Exh. 3-RBS, par. 3). This alone was not
something RBS brought upon itself. it was exactly what ABS-CBN had planned to
happen.
The amount of moral and exemplary damages cannot be said to be excessive. Two
reasons justify the amount of the award.
 The first is that the humiliation suffered by RBS is national extent. RBS operations as
a broadcasting company is [sic] nationwide. Its clientele, like that of ABS-CBN,
consists of those who own and watch television. It is not an exaggeration to state,
and it is a matter of judicial notice that almost every other person in the country
watches television. The humiliation suffered by RBS is multiplied by the number of
televiewers who had anticipated the showing of the film "Maging Sino Ka Man" on
May 28 and November 3, 1992 but did not see it owing to the cancellation. Added
to this are the advertisers who had placed commercial spots for the telecast and to
whom RBS had a commitment in consideration of the placement to show the film in
the dates and times specified.
The second is that it is a competitor that caused RBS to suffer the humiliation. The
humiliation and injury are far greater in degree when caused by an entity whose
ultimate business objective is to lure customers (viewers in this case) away from the
competition. 36
For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the
Court of Appeals do not support ABS-CBN's claim that there was a perfected contract. Such factual
findings can no longer be disturbed in this petition for review under Rule 45, as only questions of law
can be raised, not questions of fact. On the issue of damages and attorneys fees, they adopted the
arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected contract between VIVA
and ABS-CBN, and (2) whether RBS is entitled to damages and attorney's fees. It may be noted that
the award of attorney's fees of P212,000 in favor of VIVA is not assigned as another error.
I.
The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two
persons whereby one binds himself to give something or to render some service to another 37 for a
consideration. there is no contract unless the following requisites concur: (1) consent of the
contracting parties; (2) object certain which is the subject of the contract; and (3) cause of the
obligation, which is established.38 A contract undergoes three stages:
(a) preparation, conception, or generation, which is the period of negotiation and
bargaining, ending at the moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties come
to agree on the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of the terms
agreed upon in the contract. 39
Contracts that are consensual in nature are perfected upon mere meeting of the minds, Once there is
concurrence between the offer and the acceptance upon the subject matter, consideration, and
terms of payment a contract is produced. The offer must be certain. To convert the offer into a
contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be
plain, unequivocal, unconditional, and without variance of any sort from the proposal. A qualified
acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection of the
original offer. Consequently, when something is desired which is not exactly what is proposed in the
offer, such acceptance is not sufficient to generate consent because any modification or variation
from the terms of the offer annuls the offer.40
When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to
discuss the package of films, said package of 104 VIVA films was VIVA's offer to ABS-CBN to enter into
a new Film Exhibition Agreement. But ABS-CBN, sent, through Ms. Concio, a counter-proposal in the
form of a draft contract proposing exhibition of 53 films for a consideration of P35 million. This
counter-proposal could be nothing less than the counter-offer of Mr. Lopez during his conference
with Del Rosario at Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVA's offer, for it
was met by a counter-offer which substantially varied the terms of the offer.
ABS-CBN's reliance in Limketkai Sons Milling, Inc. v. Court of
Appeals 41 and Villonco Realty Company v. Bormaheco, Inc., 42 is misplaced. In these cases, it was held
that an acceptance may contain a request for certain changes in the terms of the offer and yet be a
binding acceptance as long as "it is clear that the meaning of the acceptance is positively and
unequivocally to accept the offer, whether such request is granted or not." This ruling was, however,
reversed in the resolution of 29 March 1996, 43 which ruled that the acceptance of all offer must be
unqualified and absolute, i.e., it "must be identical in all respects with that of the offer so as to
produce consent or meeting of the minds."
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer
were not material but merely clarificatory of what had previously been agreed upon. It cited the
statement in Stuart v. Franklin Life Insurance Co.44 that "a vendor's change in a phrase of the offer to
purchase, which change does not essentially change the terms of the offer, does not amount to a
rejection of the offer and the tender of a counter-offer." 45However, when any of the elements of the
contract is modified upon acceptance, such alteration amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVA's offer. Hence, they underwent a
period of bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft
contract, VIVA through its Board of Directors, rejected such counter-offer, Even if it be
conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind
VIVA, as there was no proof whatsoever that Del Rosario had the specific authority to do so.
Under Corporation Code,46 unless otherwise provided by said Code, corporate powers, such as the
power; to enter into contracts; are exercised by the Board of Directors. However, the Board may
delegate such powers to either an executive committee or officials or contracted managers. The
delegation, except for the executive committee, must be for specific purposes, 47 Delegation to
officers makes the latter agents of the corporation; accordingly, the general rules of agency as to the
bindings effects of their acts would
48
apply. For such officers to be deemed fully clothed by the corporation to exercise a power of the
Board, the latter must specially authorize them to do so. That Del Rosario did not have the authority
to accept ABS-CBN's counter-offer was best evidenced by his submission of the draft contract to
VIVA's Board of Directors for the latter's approval. In any event, there was between Del Rosario and
Lopez III no meeting of minds. The following findings of the trial court are instructive:
A number of considerations militate against ABS-CBN's claim that a contract was
perfected at that lunch meeting on April 02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred
to the price and the number of films, which he wrote on a napkin. However, Exhibit
"C" contains numerous provisions which, were not discussed at the Tamarind Grill, if
Lopez testimony was to be believed nor could they have been physically written on
a napkin. There was even doubt as to whether it was a paper napkin or a cloth
napkin. In short what were written in Exhibit "C'' were not discussed, and therefore
could not have been agreed upon, by the parties. How then could this court compel
the parties to sign Exhibit "C" when the provisions thereof were not previously
agreed upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the
contract was 14 films. The complaint in fact prays for delivery of 14 films. But
Exhibit "C" mentions 53 films as its subject matter. Which is which If Exhibits "C"
reflected the true intent of the parties, then ABS-CBN's claim for 14 films in its
complaint is false or if what it alleged in the complaint is true, then Exhibit "C" did
not reflect what was agreed upon by the parties. This underscores the fact that
there was no meeting of the minds as to the subject matter of the contracts, so as
to preclude perfection thereof. For settled is the rule that there can be no contract
where there is no object which is its subject matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. "D")
states:
We were able to reach an agreement. VIVA gave us the exclusive
license to show these fourteen (14) films, and we agreed to pay
Viva the amount of P16,050,000.00 as well as grant Viva
commercial slots worth P19,950,000.00. We had already
earmarked this P16, 050,000.00.
which gives a total consideration of P36 million (P19,950,000.00 plus
P16,050,000.00. equals P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q. What was written in this napkin?
A. The total price, the breakdown the known Viva movies, the 7
blockbuster movies and the other 7 Viva movies because the price
was broken down accordingly. The none [sic] Viva and the seven
other Viva movies and the sharing between the cash portion and
the concerned spot portion in the total amount of P35 million
pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-CBN's claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit "C"
to Mr. Del Rosario with a handwritten note, describing said Exhibit "C" as a "draft."
(Exh. "5" - Viva; tsn pp. 23-24 June 08, 1992). The said draft has a well defined
meaning.
Since Exhibit "C" is only a draft, or a tentative, provisional or preparatory writing
prepared for discussion, the terms and conditions thereof could not have been
previously agreed upon by ABS-CBN and Viva Exhibit "C'' could not therefore legally
bind Viva, not having agreed thereto. In fact, Ms. Concio admitted that the terms
and conditions embodied in Exhibit "C" were prepared by ABS-CBN's lawyers and
there was no discussion on said terms and conditions. . . .
As the parties had not yet discussed the proposed terms and conditions in Exhibit
"C," and there was no evidence whatsoever that Viva agreed to the terms and
conditions thereof, said document cannot be a binding contract. The fact that Viva
refused to sign Exhibit "C" reveals only two [sic] well that it did not agree on its
terms and conditions, and this court has no authority to compel Viva to agree
thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at
the Tamarind Grill was only provisional, in the sense that it was subject to approval
by the Board of Directors of Viva. He testified:
Q. Now, Mr. Witness, and after that Tamarind meeting ... the
second meeting wherein you claimed that you have the meeting
of the minds between you and Mr. Vic del Rosario, what
happened?
A. Vic Del Rosario was supposed to call us up and tell us
specifically the result of the discussion with the Board of
Directors.
Q. And you are referring to the so-called agreement which you
wrote in [sic] a piece of paper?
A. Yes, sir.
Q. So, he was going to forward that to the board of Directors for
approval?
A. Yes, sir. (Tsn, pp. 42-43, June 8, 1992)
Q. Did Mr. Del Rosario tell you that he will submit it to his Board
for approval?
A. Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del
Rosario had no authority to bind Viva to a contract with ABS-CBN until and unless its
Board of Directors approved it. The complaint, in fact, alleges that Mr. Del Rosario
"is the Executive Producer of defendant Viva" which "is a corporation." (par. 2,
complaint). As a mere agent of Viva, Del Rosario could not bind Viva unless what he
did is ratified by its Board of Directors. (Vicente vs. Geraldez, 52 SCRA 210; Arnold
vs. Willetsand Paterson, 44 Phil. 634). As a mere agent, recognized as such by
plaintiff, Del Rosario could not be held liable jointly and severally with Viva and his
inclusion as party defendant has no legal basis. (Salonga vs. Warner Barner [sic] ,
COLTA , 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are clear
admissions that what was supposed to have been agreed upon at the Tamarind Grill
between Mr. Lopez and Del Rosario was not a binding agreement. It is as it should
be because corporate power to enter into a contract is lodged in the Board of
Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva
board, whatever agreement Lopez and Del Rosario arrived at could not ripen into a
valid contract binding upon Viva (Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA
763). The evidence adduced shows that the Board of Directors of Viva rejected
Exhibit "C" and insisted that the film package for 140 films be maintained (Exh. "7-
1" - Viva ). 49
The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films
under the 1990 Film Exhibition Agreement and that the meeting between Lopez and Del Rosario was
a continuation of said previous contract is untenable. As observed by the trial court, ABS-CBN right of
first refusal had already been exercised when Ms. Concio wrote to VIVA ticking off ten films, Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was
sent, was for an entirely different package. Ms. Concio herself admitted on cross-
examination to having used or exercised the right of first refusal. She stated that
the list was not acceptable and was indeed not accepted by ABS-CBN, (TSN, June 8,
1992, pp. 8-10). Even Mr. Lopez himself admitted that the right of the first refusal
may have been already exercised by Ms. Concio (as she had). (TSN, June 8, 1992,
pp. 71-75). Del Rosario himself knew and understand [sic] that ABS-CBN has lost its
rights of the first refusal when his list of 36 titles were rejected (Tsn, June 9, 1992,
pp. 10-11) 50
II
However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages.
Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or compensatory damages.
Except as provided by law or by stipulation, one is entitled to compensation for actual damages only
for such pecuniary loss suffered by him as he has duly proved. 51 The indemnification shall
comprehend not only the value of the loss suffered, but also that of the profits that the obligee failed
to obtain. 52 In contracts and quasi-contracts the damages which may be awarded are dependent on
whether the obligor acted with good faith or otherwise, It case of good faith, the damages
recoverable are those which are the natural and probable consequences of the breach of the
obligation and which the parties have foreseen or could have reasonably foreseen at the time of the
constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he
shall be responsible for all damages which may be reasonably attributed to the non-performance of
the obligation. 53 In crimes and quasi-delicts, the defendant shall be liable for all damages which are
the natural and probable consequences of the act or omission complained of, whether or not such
damages has been foreseen or could have reasonably been foreseen by the defendant.54
Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of
temporary or permanent personal injury, or for injury to the plaintiff's business standing or
commercial credit.55
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict.
It arose from the fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause
of action. Thus paragraph 12 of RBS's Answer with Counterclaim and Cross-claim under the heading
COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action
RBS. As a result thereof, RBS suffered actual damages in the amount of
P6,621,195.32. 56
Needless to state the award of actual damages cannot be comprehended under the above law on
actual damages. RBS could only probably take refuge under Articles 19, 20, and 21 of the Civil Code,
which read as follows:
Art. 19. 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.
Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to
another, shall indemnify the latter for tile same.
Art. 21. Any person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for
the damage.
It may further be observed that in cases where a writ of preliminary injunction is issued, the damages
which the defendant may suffer by reason of the writ are recoverable from the injunctive bond. 57 In
this case, ABS-CBN had not yet filed the required bond; as a matter of fact, it asked for reduction of
the bond and even went to the Court of Appeals to challenge the order on the matter, Clearly then, it
was not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible for the
premium RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for "Maging Sino Ka Man" for lack of
sufficient legal basis. The RTC issued a temporary restraining order and later, a writ of preliminary
injunction on the basis of its determination that there existed sufficient ground for the issuance
thereof. Notably, the RTC did not dissolve the injunction on the ground of lack of legal and factual
basis, but because of the plea of RBS that it be allowed to put up a counterbond.
As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees may be
recovered as actual or compensatory damages under any of the circumstances provided for in Article
2208 of the Civil Code. 58
The general rule is that attorney's fees cannot be recovered as part of damages because of the policy
that no premium should be placed on the right to litigate.59 They are not to be awarded every time a
party wins a suit. The power of the court to award attorney's fees under Article 2208 demands
factual, legal, and equitable justification.60Even when claimant is compelled to litigate with third
persons or to incur expenses to protect his rights, still attorney's fees may not be awarded where no
sufficient showing of bad faith could be reflected in a party's persistence in a case other than
erroneous conviction of the righteousness of his cause. 61
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217
thereof defines what are included in moral damages, while Article 2219 enumerates the cases where
they may be recovered, Article 2220 provides that moral damages may be recovered in breaches of
contract where the defendant acted fraudulently or in bad faith. RBS's claim for moral damages could
possibly fall only under item (10) of Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
Moral damages are in the category of an award designed to compensate the claimant for actual injury
suffered. and not to impose a penalty on the wrongdoer.62 The award is not meant to enrich the
complainant at the expense of the defendant, but to enable the injured party to obtain means,
diversion, or amusements that will serve to obviate then moral suffering he has undergone. It is
aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and should
be proportionate to the suffering inflicted.63 Trial courts must then guard against the award of
exorbitant damages; they should exercise balanced restrained and measured objectivity to avoid
suspicion that it was due to passion, prejudice, or corruption on the part of the trial court. 64
The award of moral damages cannot be granted in favor of a corporation because, being an artificial
person and having existence only in legal contemplation, it has no feelings, no emotions, no senses, It
cannot, therefore, experience physical suffering and mental anguish, which call be experienced only
by one having a nervous system. 65 The statement in People v. Manero 66 and Mambulao Lumber
Co. v. PNB 67 that a corporation may recover moral damages if it "has a good reputation that is
debased, resulting in social humiliation" is an obiter dictum. On this score alone the award for
damages must be set aside, since RBS is a corporation.
The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code.
These are imposed by way of example or correction for the public good, in addition to moral,
temperate, liquidated or compensatory damages. 68 They are recoverable in criminal cases as part of
the civil liability when the crime was committed with one or more aggravating circumstances; 69 in
quasi-contracts, if the defendant acted with gross negligence; 70 and in contracts and quasi-contracts,
if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. 71
It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract,
delict, or quasi-delict, Hence, the claims for moral and exemplary damages can only be based on
Articles 19, 20, and 21 of the Civil Code.
The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or
duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another.
Article 20 speaks of the general sanction for all other provisions of law which do not especially
provide for their own sanction; while Article 21 deals with acts contra bonus mores, and has the
following elements; (1) there is an act which is legal, (2) but which is contrary to morals, good custom,
public order, or public policy, and (3) and it is done with intent to injure. 72
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a
conscious and intentional design to do a wrongful act for a dishonest purpose or moral
obliquity. 73 Such must be substantiated by evidence. 74
There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly
convinced of the merits of its cause after it had undergone serious negotiations culminating in its
formal submission of a draft contract. Settled is the rule that the adverse result of an action does
not per se make the action wrongful and subject the actor to damages, for the law could not have
meant to impose a penalty on the right to litigate. If damages result from a person's exercise of a
right, it is damnum absque injuria.75
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-
G.R. CV No, 44125 is hereby REVERSED except as to unappealed award of attorney's fees in favor of
VIVA Productions, Inc.1âwphi1.nêt
No pronouncement as to costs.
SO ORDERED.
[G.R. No. 126812. November 24, 1998]
GOLDENROD, INC., petitioner vs. COURT OF APPEALS, PIO BARRETTO & SONS, INC.,
PIO BARRETTOREALTY DEVELOPMENT, INC., and ANTHONY QUE, respondents.
DECISION
BELLOSILLO, J.:
In the absence of a specific stipulation, may the seller of real estate keep the earnest money to
answer for damages in the event the sale fails due to the fault of the prospective buyer?
Pio Barretto and Sons, Inc. (BARRETTO & SONS) owned forty-three (43) parcels of registered
land with a total area of 18,500 square meters located at Carlos Palanca St., Quiapo, Manila, which
were mortgaged with the United Coconut Planters Bank (UCPB). In 1988, the obligation of the
corporation with UCPB remained unpaid making foreclosure of the mortgage imminent.
Goldenrod, Inc. (GOLDENROD), offered to buy the property from BARRETTO & SONS. On 25
May 1988, through its president Sonya G. Mathay, petitioner wrote respondent Anthony Que,
President of respondent BARRETTO & SONS, as follows:
Thank you for your reply to our letter offering to buy your property in Echague (C. Palanca) Quiapo.
We are happy that you have accepted our offer except the two amendments concerning the payment
of interest which should be monthly instead of semi-annually and the period to remove the trusses,
steel frames etc. which shall be 180 days instead of 90 days only. Please be advised that we agree to
your amendments.
As to your other query, we prefer that the lots be reconsolidated back to its (sic) mother titles.
Enclosed is the earnest money of P1 million which shall form part of the purchase price.
Payment of the agreed total consideration shall be effected in accordance with our offer as you have
accepted and upon execution of the necessary documents of sale to be implemented after the said
reconsolidation of the lots.
Kindly acknowledge receipt of the earnest money.
When the term of existence of BARRETTO & SONS expired, all its assets and liabilities including
the property located in Quiapo were transferred to respondent Pio Barretto Realty Development, Inc.
(BARRETTO REALTY). Petitioners offer to buy the property resulted in its agreement with
respondent BARRETTO REALTY that petitioner would pay the following amounts: (a) P24.5 million
representing the outstanding obligations of BARRETTO REALTY with UCPB on 30 June 1988, the
deadline set by the bank for payment; and, (b) P20 million which was the balance of the purchase
price of the property to be paid in installments within a 3-year period with interest at 18% per
annum.
Petitioner did not pay UCPB the P24.5 million loan obligation of BARRETTO REALTY on the
deadline set for payment; instead, it asked for an extension of one (1) month or up to 31 July 1988 to
settle the obligation, which the bank granted. On 31 July 1988, petitioner requested another
extension of sixty (60) days to pay the loan. This time the bank demurred.
In the meantime BARRETTO REALTY was able to cause the reconsolidation of the forty-three (43)
titles covering the property subject of the purchase into two (2) titles covering Lots 1 and 2, which
were issued on 4 August 1988. The reconsolidation of the titles was made pursuant to the request of
petitioner in its letter to private respondents on 25 May 1988. Respondent BARRETTO REALTY
allegedly incurred expenses for the reconsolidation amounting to P250,000.00.
 On 25 August 1988 petitioner sought reconsideration of the denial by the bank of its request for
extension of sixty (60) days by asking for a shorter period of thirty (30) days. This was again denied by
UCPB.
On 30 August 1988 Alicia P. Logarta, President of Logarta Realty and Development Corporation
(LOGARTA REALTY), which acted as agent and broker of petitioner, wrote private respondent
Anthony Que informing him on behalf of petitioner that it could not go through with the purchase
of the property due to circumstances beyond its fault, i.e., the denial by UCPB of its request for
extension of time to pay the obligation.In the same letter, Logarta also demanded the refund of the
earnest money of P1 million which petitioner gave to respondent BARRETTO REALTY.
On 31 August 1988 respondent BARRETTO REALTY sold to Asiaworld Trade Center Phils., Inc.
(ASIAWORLD), Lot 2, one of the two (2) consolidated lots, for the price of P23 million. On 13 October
1988 respondent BARRETTO REALTY executed a deed transferring by way of dacion the property
reconsolidated as Lot 1 in favor of UCPB, which in turn sold the property to ASIAWORLD for P24
million.
On 12 December 1988 Logarta again wrote respondent Que demanding the return of the
earnest money to GOLDENROD. On 7 February 1989 petitioner through its lawyer reiterated its
demand, but the same remained unheeded by private respondents. This prompted petitioner to file a
complaint with the Regional Trial Court of Manila against private respondents for the return of the
amount of P1 million and the payment of damages including lost interests or profits. In their answer,
private respondents contended that it was the agreement of the parties that the earnest money
of P1 million would be forfeited to answer for losses and damages that might be suffered by private
respondents in case of failure by petitioner to comply with the terms of their purchase agreement.
On 15 March 1991 the trial court rendered a decision[1] ordering private respondents jointly and
severally to pay petitioner P1,000,000.00 with legal interest from 9 February 1989 until fully
paid, P50,000.00 representing unrealized profits and P10,000.00 as attorneys fees. The trial court
found that there was no written agreement between the parties concerning forfeiture of the earnest
money if the sale did not push through. It further declared that the
earnest money given by petitioner to respondent BARRETTO REALTY was intended to form part of the
purchase price; thus, the refusal of the latter to return the money when the sale was not
consummated violated Arts. 22 and 23 of the Civil Code against unjust enrichment.
Obviously dissatisfied with the decision of the trial court, private respondents appealed to the
Court of Appeals which reversed the trial court and ordered the dismissal of the complaint; hence,
this petition.
Petitioner alleges that the Court of Appeals erred in disregarding the finding of the trial court
that the earnest money given by petitioner to respondent BARRETTO REALTY should be returned to
the former. The absence of an express stipulation that the same shall be forfeited in favor of the
seller in case the buyer fails to comply with his obligation is compelling. It argues that the forfeiture
of the money in favor of respondent BARRETTO REALTY would amount to unjust enrichment at the
expense of petitioner.
We sustain petitioner. Under Art. 1482 of the Civil Code, whenever earnest money is given in a
contract of sale, it shall be considered as part of the purchase price and as proof of the perfection
of the contract. Petitioner clearly stated without any objection from private respondents that the
earnest money was intended to form part of the purchase price. It was an advance payment which
must be deducted from the total price. Hence, the parties could not have intended that the earnest
money or advance payment would be forfeited when the buyer should fail to pay the balance ofthe
price, especially in the absence of a clear and express agreement thereon. By reason of its failure to
make payment petitioner, through its agent, informed private respondents that it would no longer
push through with the sale. In other words, petitioner resorted to extrajudicial rescission of its
agreement with private respondents.
In University of the Philippines v. de los Angeles,[2] the right to rescind contracts is not absolute
and is subject to scrutiny and review by the proper court. We held further, in the more recent case of
Adelfa Properties, Inc. v. Court of Appeals,[3] that rescission of reciprocal contracts may be
extrajudicially rescinded unless successfully impugned in court. If the party does not oppose the
declaration of rescission of the other party, specifying the grounds therefor, and it fails to reply or
protest against it, its silence thereon suggests an admission of the veracity and validity of the
rescinding party's claim.
Private respondents did not interpose any objection to the rescission by petitioner of the
agreement. As found by the Court of Appeals, private respondent BARRETTO REALTY even sold Lot 2
of the subject consolidated lots to another buyer, ASIAWORLD, one day after its President Anthony
Que received the broker's letter rescinding the sale. Subsequently, on 13 October 1988 respondent
BARRETTO REALTY also conveyed ownership over Lot 1 to UCPB which, in turn, sold the same to
ASIAWORLD.
Article 1385 of the Civil Code provides that rescission creates the obligation to return the things
which were the object of the contract together with their fruits and interest. The vendor is
therefore obliged to return the purchase price paid to him by the buyer if the latter rescinds the
sale,[4] or when the transaction was called off and the subject property had already been sold to a
third person, as what obtained in this case.[5]Therefore, by virtue of the extrajudicial rescission of
the contract to sell by petitioner without opposition from private respondents who, in turn, sold
the property to other persons, private respondent BARRETTO REALTY, as the vendor, had the
obligation to return the earnest money of P1,000,000.00 plus legal interest from the date it received
notice of rescission from petitioner, i.e., 30 August 1988, up to the date of the return or payment. It
would be most inequitable if respondent BARRETTO REALTY would be allowed to retain petitioners
payment of P1,000,000.00 and at the same time appropriate the proceeds of the second sale made to
another.[6]
WHEREFORE, the Petition is GRANTED. The decision of the Court of Appeals is REVERSED and
SET ASIDE. Private respondent Pio Barretto Realty Development, Inc. (BARRETTO REALTY), its
successors and assigns are ordered to return to petitioner Goldenrod, Inc. (GOLDENROD), the amount
of P1,000,000.00 with legal interest thereon from 30 August 1988, the date of notice of extrajudicial
rescission, until the amount is fully paid, with costs against private respondents.
SO ORDERED.
Davide Jr. (Chairman), Vitug, Panganiban, and Quisumbing JJ., concur

G.R. No. 202262, July 08, 2015
JOSE C. GO, GOTESCO PROPERTIES, INC., GO TONG ELECTRICAL SUPPLY, INC., EVER EMPORIUM,
INC., EVER GOTESCO RESOURCES AND HOLDINGS, INC., GOTESCO TYAN MING DEVELOPMENT, INC.,
EVERCREST CEBU GOLF CLUB, NASUGBU RESORTS, INC., GMCC UNITED DEVELOPMENT
CORPORATION, AND GULOD RESORT, INC., Petitioners, v. BANGKO SENTRAL NG PILIPINAS, AND
REGISTER OF DEEDS OF NASUGBU BATANGAS, Respondents.
DECISION
BERSAMIN, J.:
By this appeal, the petitioners businessman Jose C. Go and eight corporations connected with him,
namely: Gotesco Properties, Inc., Go Tong Electrical Supply, Inc., Ever Emporium, Inc., Ever Gotesco
Resources and Holdings, Inc., Gotesco Tyan Ming Development, Inc., Evercrest Cebu Golf Club,
Nasugbu Resorts, Inc., GMCC United Development Corporation and Gulod Resort, Inc. - challenge the
decision promulgated on December 20, 2011, 1 whereby the Court of Appeals (CA) dismissed their
petition for certiorari for being moot and academic, and upheld the orders issued on June 4,
20092 and August 6, 20093 by the Regional Trial Court, Branch 39, in Manila (RTC) allowing
respondent Bangko Sentral ng Pilipinas (Bangko Sentral) to levy on execution the properties indicated
in the parties' court approved compromise agreement.
Antecedents
The genesis of this case is traced to the decision of the Court promulgated on June 29, 2011 in G.R.
No. 148483 entitled Bangko Sentral ng Pilipinas v. Orient Commercial Banking Corporation, et.
al.4 The facts relevant to our adjudication are reported therein, as follows:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
On February 13, 1998, herein respondent Orient Commercial Banking Corporation (OCBC) declared a
bank holiday on account of its inability to pay all its obligations to depositors, creditors and
petitioner Bangko Sentral ng Pilipinas (BSP).
On March 17, 1998, OCBC filed a petition for rehabilitation with the Monetary Board. The bank was
placed under receivership and the Philippine Deposit Insurance Corporation (PDIC) was designated as
Receiver. Pursuant to the Monetary Board's Resolution No. 1427, PDIC took over all the assets,
properties, obligations and operations of OCBC. Respondent Jose C. Go, the principal and biggest
stockholder of OCBC, with his affiliates companies (respondent corporations), challenged the said
action of the PDIC before the RTC of Manila, Branch 44 (Civil Case No. 98-91265). Said case was
dismissed and the dismissal was appealed to the CA.
During the pendency of Civil Case No. 98-91265, the Monetary Board adopted Resolution No. 602
dated May 1999 directing the Receiver to proceed with the liquidation of OCBC. In June, 1999, the
PDIC instituted Special Proceeding No. 99-94328 before the RTC of Manila, Branch 51 entitled "In Re:
Petition for Assistance in the Liquidation of Orient Commercial Banking Corporation, Philippine
Deposit Insurance Corporation, Petitioner."
On December 17, 1999, petitioner filed in the RTC of Manila (Branch 12) a complaint for sum of
money with preliminary attachment (Civil Case No. 99-95993) against the respondents seeking to
recover deficiency obligation owed by OCBC which then stood at P1,273,959,042.97 with interest at
8.894% per annum, overdraft obligation at P1,028,000,000.00, attorney's fees and cost of suit.
On January 14, 2000, the RTC of Manila, Branch 12 issued an Order in Civil Case No. 99-95993
granting petitioner's motion for preliminary attachment. On January 19, 2000, following the posting
of P50 million attachment bond issued by the Government Service Insurance System (GSIS), the
corresponding writ was issued ordering the Deputy Sheriffs to attach the real and personal properties
of respondents to the value of petitioner's demand in the amount of P2,301,951,042.97, exclusive of
interest and costs, as security for the said claim.5 (citations omitted)
Eventually, the controversy reached the Court and during the pendency of the appeal, the parties
entered into a compromise agreement, the pertinent provisions of which were as
follows:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
I. AMOUNT TO BE SETTLED
In consideration of this Compromise Agreement and subject to faithful compliance by the defendants
of the terms hereof, the parties herein have agreed that the total amount of Deficiency Claim and
Overdraft payable by defendants to plaintiff shall be equivalent to PESOS: TWO BILLION NINE
HUNDRED SEVENTY-FOUR MILLION NINE HUNDRED THREE THOUSAND (PhP2,974,903.00) (sic) which
amount shall be paid by the defendants in the following manner:LawlibraryofCRAlaw
A. A down payment shall be made by the defendants through the DACION of certain real estate
properties more particularly described in Annex "B" hereof.
a ii) The parties shall execute separate DEEDS OF DACION over the real estate properties
described in Annex "B" upon the execution of the Agreement;
a ii) All Capital Gains Tax on the properties for DACION shall be payable by the defendants
but Documentary Stamp Tax, Transfer Tax and all registration fees on the DACION shall for
the account of plaintiff.
B. The balance remaining after the DACION of the real estate properties shall be paid by the
defendants within a period of ten (10) years but extendible for another five (5) years
provided that the defendants shall religiously comply with the amortization schedule (Annex
"C" hereof) for a continuous period of two (2) years from date of first amortization.
b i) The foregoing outstanding balance shall be charged interest at 91-day T-Bill rate upon
execution of this Compromise Agreement repriced every three (3) months for a period of 10
years and payable monthly in arrears.
C. Additional Properties for Execution
c i) To ensure payment of the monthly amortizations due under this Compromise
Agreement, defendants Ever Crest Golf Clob Resort, Inc., and Mega Heights, Inc., have
 agreed to have its real properties with improvements covered by TCT Nos. T-68963, T-6890, of Bangko Sentral over the properties acquired by or vested in Bangko Sentralpursuant
T-68966 and TD ARPN-AA-1702 00582 and AA-17023-005 shall be subject of existing writ of to Compromise Agreement and all other documents executed between the parties in connection
attachment to secure the faithful payment of the outstanding obligation herein mentioned, therewith.
until such obligation shall have been fully paid by defendants to plaintiff.
x x x6 (Emphasis Supplied)
c ii) That all the corporate approvals for the execution of this Compromise agreement by The RTC eventually approved the compromise agreement on December 29, 2003, 7 and the approval
Ever Crest Golf Club Resort, Inc., and Mega Heights, Inc., consisting of stockholders resulted in the denial of the petition in G.R. No. 148483.
resolution and Board of Directors approval have already been obtained at the time of the
execution of this Agreement. But the controversy was not laid to rest by the execution of the compromise agreement because Go
did not comply with its provisions. This prompted Bangko Sentral to move for the execution of the
c iii) Failure on the part of the defendants to fully settle their outstanding obligations and to compromise agreement8 against the properties of Ever Crest Golf Club Resort, Inc. (Ever
comply with any of the terms of this Compromise Agreement shall entitle the plaintiff to
immediately ask for a Writ of Execution against all assets of the Ever Crest Golf Club Resort, Crest) and Mega Heights, Inc. (Mega Heights) which were levied upon by the sheriff. Initially, the RTC
Inc., and Mega Heights, Inc., now or hereafter arising upon the signing of this Compromise denied Bangko Sentral's motion to execute on December 12, 2008, 9 but on Bangko Sentral's motion
Agreement. for reconsideration, the RTC relented and granted the motion. The writ of execution was issued on
I. DISMISSAL OF ALL PENDING CASES July 6, 2009.

xxxx The petitioners and Ever Crest then brought a petition for certiorari in the CA, imputing grave abuse
of discretion amounting to lack or excess of jurisdiction to the RTC for issuing the writ of execution
II. FUNDS UNDER GARNISHMENT against Ever Crest despite its not having been a party to the compromise agreement, and for ruling
that Go had violated the terms of the compromise agreement (C.A. G.R. No. SP 109927).10 They
xxxx further challenged the following issuances of the sheriff, namely: (a) the notice of levy upon realty
pursuant to the writ of execution dated July 6, 2009; and (b) the notice of sale on execution of real
III. REPRESENTATION AND WARRANTIES property dated July 15, 2009.
LawlibraryofCRAlaw
The CA issued a 60-day temporary restraining order (TRO) in C.A. G.R. No. SP 109927, but did not
X X X ultimately issue a writ of preliminary injunction. Upon the lapse of the period of 60 days, however,
the public auction pushed through, and the properties of Ever Crest were sold to Bangko Sentral as
It has obtained the respective Board of Directors approval and other corporate authorizations for its the highest bidder. The transfer certificates of title (TCTs) in the name of Ever Crest were cancelled,
execution, signing and delivery of this Compromise Agreement and its attachments. and new TCTs were then issued to Bangko Sentral as the new owner.

The execution and delivery of this Compromise agreement and all other documents and deeds Eventually, the CA dismissed C.A.-G.R. No. SP 109927 through the assailed judgment promulgated on
related thereto and the performance and observance by the parties of the respective terms and December 20, 2011,11 disposing thusly:LawlibraryofCRAlaw
conditions thereof, shall not contravene or violate any provision of term of any contract or ChanRoblesVirtualawlibrary
agreement entered into by the parties with any third party, nor contravene any provision or term of WHEREFORE, premises considered, the instant petition is DISMISSED for being moot and academic.
its Articles of Incorporation and By-Laws.
No pronouncement as to costs.
It shall defend the title and peaceful possession by Bangko Sentral of the Properties against all claims
of third persons, and shall indemnify and hold Bangko Sentral free and harmless from any and all SO ORDERED.cralawlawlibrary12
losses, claims, damages, liabilities and expenses which it might suffer or incur as a result of this The CA later denied the petitioners' motion for reconsideration filed on January 6, 201213 through the
Compromise Agreement or any document or agreement entered into in connection therewith. resolution promulgated on June 14, 2012.14redarclaw
Issue
It shall not execute or enter into any agreement or contract with any third party involving
the properties which in any way, diminish, impair, prejudice or affect the rights, title and interest
Hence, this appeal by the petitioners,15 in which they pose the sole issue of whether or not the CA Here, the petitioners are estopped by deed by virtue of the execution of the compromise agreement.
correctly dismissed the petition for certiorari for being moot and academic. They were the ones who had offered the properties of Ever Crest to Bangko Sentral, and who had
Ruling of the Court also assured that all the legalities and formalities for that purpose had been obtained. They should
not now be allowed to escape or to evade their responsibilities under the compromise agreement
The appeal lacks merit. just to prevent the levy on execution of Ever Crest's properties.

The petitioners argue that the issuance of the order of execution was tainted with grave abuse of
discretion because the execution was directed against the properties of Ever Crest despite Ever Crest
being neither a defendant in the cases between Bangko Sentral and Go, nor a signatory to the
compromise agreement.
The argument is bereft of substance.
First of all, the petitioners and Ever Crest themselves firmly committed in the compromise
agreement, supra, to have their properties with their improvements be made subject to the writ of
attachment in order "to secure the faithful payment of the outstanding obligation herein mentioned,
until such obligation shall have been fully paid by defendants to plaintiff," and expressly assured
Bangko Sentral in the same compromise agreement that "all the corporate approvals for the
execution of this Compromise agreement by Ever Crest Golf Club Resort, Inc., and Mega Heights, Inc.,
consisting of stockholders resolution and Board of Directors approval have already been obtained at
the time of the execution of this Agreement." They warranted in the compromise agreement that:
"Failure on the part of the defendants to fully settle their outstanding obligations and to comply with
any of the terms of this Compromise Agreement shall entitle the plaintiff to immediately ask for a Writ
of Execution against all assets of the Ever Crest Golf Club Resort, Inc., and Mega Heights, Inc., now or
hereafter arising upon the signing of this Compromise Agreement."16 By such express commitments,
the petitioners and Ever Crest were estopped from claiming that the properties of Ever Crest and
Mega Heights could not be the subject of levy pursuant to the writ of execution issued by the RTC. In
other words, they could not anymore assail the RTC for authorizing the enforcement of the judgment
on the compromise agreement against the assets of Ever Crest.
There are three kinds of estoppels, to wit: (1) estoppel in pais; (2) estoppel by deed; and (3) estoppel
by laches. Under the first kind, a person is considered in estoppel if by his conduct, representations,
admissions or silence when he ought to speak out, whether intentionally or through culpable
negligence, "causes another to believe certain facts to exist and such other rightfully relies and acts
on such belief, as a consequence of which he would be prejudiced if the former is permitted to deny
the existence of such facts." Under estoppel by deed, a party to a deed and his privies are precluded
from denying any material fact stated in the deed as against the other party and his privies. Under
estoppel by laches, an equitable estoppel, a person who has failed or neglected to assert a right for
an unreasonable and unexplained length of time is presumed to have abandoned or otherwise
declined to assert such right and cannot later on seek to enforce the same, to the prejudice of the
other party, who has no notice or knowledge that the former would assert such rights and whose
condition has so changed that the latter cannot, without injury or prejudice, be restored to his former
state.17redarclaw
And, secondly, the petitioners as well as Ever Crest and Mega Heights were contractually prohibited
from challenging the levy on the assets of Ever Crest. Through the compromise agreement, the
petitioners warranted that they would defend Bangko Sentral's title and peaceful possession of such
levied properties against all claims of third persons. Their warranty was expressly made applicable to
the properties subject of the dacion as well as to the properties of Ever Crest and Mega Heights
subject of the preliminary attachment. Considering that the petitioners asserted that Ever Crest was a
third party or stranger to the compromise agreement, they were contractually mandated to resist the
adverse claim of Ever Crest and to defend the validity and efficacy of the levy on execution. As such,
they could not validly raise any issue that would defeat the rights of Bangko Sentral in such
properties.
The term grave abuse of discretion connoted whimsical and capricious exercise of judgment as was
equivalent to excess, or lack of jurisdiction.18 The abuse must be so patent and gross as to amount to
an evasion of a positive duty or to a virtual refusal to perform a duty enjoined by law, or to act at all
in contemplation of law, as where the power was exercised in an arbitrary and despotic manner by
reason of passion or hostility.19 In light of this understanding of the term grave abuse of discretion,
the CA did not err in dismissing the petition for certiorari because the petitioners did not show how
the RTC could have been guilty of gravely abusing its discretion amounting to lack or excess of
jurisdiction for allowing the execution of the properties designated as security for an obligation
contracted since 1998.
WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMS the decision
promulgated on December 20, 2011 in CA-G.R. No. SP 109927 by the Court of Appeals;
and DIRECTSthe petitioners to pay the costs of suit.
SO ORDERED.cralaw

G.R. No. 163654 October 8, 2014
BPI EXPRESS CARD CORPORATION,* Petitioner,
vs.
MA. ANTONIA R. ARMOVIT, Respondent.
DECISION
BERSAMIN, J.:
This case involves a credit card holder's claim for damages arising from
the suspension of her credit privileges due to her supposed failure to
reapply for their reactivation. She has insisted that she was not informed of
the condition for reactivation.
The Case
Petitioner BPI Express Credit Card Corporation (BPI Express Credit)
seeks the reversal of and assails the adverse decision promulgated on
February 26, 2004,1 whereby the Court of Appeals (CA) affirmed the
judgment rendered on April 22, 1996 by the Regional Trial Court, Branch
216, in Quezon City, (RTC) adjudging it liable to pay moral and exemplary
damages, attorney’s fees and costs of suit to its credit card holder Ma.
Antonia R. Armovit, the respondent herein.2
Antecedents
Armovit, then a depositor of the Bank of the Philippine Islands at its Cubao
Branch, was issued by BPI Express Credit a pre-approved BPI Express
Credit Card (credit card) in 1989with a credit limit of ₱20,000.00 that was
to expire atthe end of March 1993.3 On November 21, 1992, she treated
her British friends from Hong Kongto lunch at Mario’s Restaurant in the
Ortigas Center in Pasig. As the host, she handed to the waiter her credit
card to settle the bill, but the waiter soon returned to inform her that her
credit card had been cancelled upon verification with BPI Express Credit
and would not be honored. Inasmuch asshe was relying on her credit card
because she did not then carry enough cash that day, her guests were
made to share the bill to her extreme embarrassment.
Outraged, Armovit called BPI Express Credit to verify the status of her
credit card. She learned that her credit card had been summarily cancelled
for failure to pay her outstanding obligations. She vehemently denied
having defaulted onher payments. Thus, by letter dated February 3,
1993,4 she demanded compensation for the shame, embarrassment and
humiliation she had suffered in the amount of ₱2,000,000.00.
In its reply letter dated February 5, 1993,5 BPI Express Credit claimed that
it had sent Armovit a telegraphic message on March 19, 1992 requesting
her to pay her arrears for three consecutive months, and that she did not
comply with the request, causing it totemporarily suspend her credit card
effective March 31, 1992.6 It further claimed that she had been notified of
the suspension and cautioned to refrain from using the credit card to avoid
inconvenience or embarrassment;7 and that while the obligation was
settled by April, 1992, she failed to submit the required application form in
order to reactivate her credit card privileges. Thus, BPI Express Credit
countered that her demand for monetary compensation had no basis in
fact and in law.
On March 12, 1993, Armovit received a telegraphic message from BPI
Express Credit apologizing for its error of inadvertently including her credit
card in Caution List No. 225 dated March 11, 1993 sent to its affiliated
merchants.8
As a result, Armovit sued BPI Express Credit for damages in the RTC,
insisting that she had been a credit card holder in good standing, and that
she did not have any unpaid bills at the time of the incident.
In its answer with counterclaim,9 BPI Express Credit raised the defense of
lack of cause of action,and maintained that Armovit had defaulted in her
obligations for three consecutive months, thereby causing the temporary
suspension of her credit card in accordance with the terms and conditions
of the credit card.10 It pointed out that Armovit had been duly notified of the
suspension; that for her failure to comply with the requirement for the
submission of the application form and other documents as directed in its
letter dated April 8, 1992,11 her credit card had not been reactivated and
had remained in the list of suspended cards at the time she used it on
November 21, 1992; and thatthe telegraphic message of March 11, 1993,
which was intended for another client whose credit card had been
erroneously included in the caution list, was mistakenly sent to her.12
Judgment of the RTC
In the judgment rendered April 22, 1996,13 the RTC, ruling in favor of
Armovit, observed that the terms and conditions governing the issuance
and use of the credit card embodied in the application formhad been
furnished to her for the first time only on April 8, 1992, or after her credit
card privileges had already been suspended; that, accordingly, she could
not be blamed for not complying with the same; that even if she had been
notified of the temporary suspension of her credit card, her payment on
April 1, 1992 had rendered the continued suspension of her credit card
unjustified; and that there was no clear showing that the submission of the
application form had been a condition precedent to the lifting of its
suspension.
Finding BPI Express Credit guilty ofnegligence and bad faith, the RTC
ordered it to pay Armovit moral damages of ₱100,000.00; exemplary
damages and attorney’s fees each in the amount of ₱10,000.00; and the
costs of suit.
Decision of the CA
Both parties appealed to the CA.
On February 26, 2004, the CA promulgated its assailed
decision,14 concurring with the RTC, and declaredthat because Armovit had
not signed any application form in the issuance and renewals of her credit
card from 1989 up to 1992, she could not have known the terms and
conditions embodied in the application form even ifthe credit card had
specified that its use bound the holder to its terms and conditions. It did not
see merit in BPI Express Credit’s contention that the submission of a new
application form was a pre-requisite for the lifting ofthe suspension of her
credit card, inasmuch as such condition was not stated in a clear and
unequivocal manner in its letter dated April 8, 1992. It noted that the letter
of apology mentioning another inadvertence committed, even if it claimed
the letter of apology as intended for another card holder, still highlighted
BPI Express Credit’s negligence in its dealings with her account. Anent
Armovit’s appeal, the CA did not increase the amounts of damages for lack
of basis, observing that moral and exemplary damages were awarded not
to enrich her at the expense of BPI Express Credit but to alleviate the
anxiety and embarrassment suffered.
BPI Express Credit’s motion for reconsideration was denied through the
resolution promulgated on May 14, 2004.15
Hence, this appeal by petition for review on certiorari.
Issue
The sole issue is whether or not the CA erred in sustaining the award of
moral and exemplary damages in favor of Armovit.
Ruling of the Court
The petition for review lacks merit.
The relationship between the credit card issuer and the credit card holder
is a contractual one that is governed by the terms and conditions found in
the card membership agreement.16 Such terms and conditions constitute
the law between the parties. In case of their breach, moral damages may
be recovered where the defendant is shown to have acted fraudulently or
in bad faith.17 Malice or bad faith implies a conscious and intentional design
to do a wrongful actfor a dishonest purpose or moral obliquity.18 However, a
conscious or intentional design need not always be present because
negligence may occasionally be so gross as to amount to malice or bad
faith.19 Hence, bad faith in the context of Article 2220 of the Civil Code
includes gross negligence.20
BPI Express Credit contends thatit was not grossly negligent in refusing to
lift the suspension of Armovit’s credit card privileges inasmuch as she had
not complied with the requisite submission of a new application form; and
that under the circumstances its negligence, if any, was not so gross as to
amount to malice or bad faith following the ruling in Far East Bank and
Trust Company v. Court of Appeals.21
The Court disagrees with the contentions of BPI Express Credit. The 1âw phi 1
Terms and Conditions Governing the Issuance and Use of the BPI
Express Credit Card22 printed on the credit card application form spelled
out the terms and conditions of the contract between BPI Express Credit
and its card holders, including Armovit. Such terms and conditions
determined the rights and obligations of the parties.23 Yet, a review of such
terms and conditions did not reveal that Armovit needed to submit her new
application as the antecedent condition for her credit card to be taken out
of the list of suspended cards.
Considering that the terms and conditions nowhere stated that the card
holder must submit the new application form in order to reactivate her
credit card, to allow BPI Express Credit toimpose the duty to submit the
new application form in order to enableArmovit to reactivate the credit card
would contravene the Parol Evidence Rule.24 Indeed, there was no
agreement between the parties to add the submission of the new
application form as the means to reactivate the credit card. When she did
not promptly settle her outstanding balance, BPI Express Credit sent a
message on March 19, 1992 demanding payment with the warning that
her failure to pay would force it to temporarily suspend her credit card
effective March 31, 1992. It then sent another demand letter dated March
31, 1992 requesting her to settle her obligation in order to lift the
suspension of her credit card and prevent its cancellation. In April 1992,
she paid her obligation. In the context of the contemporaneous and
subsequent acts of the parties, the only condition for the reinstatement of
her credit card was the payment of her outstanding obligation.25 Had it
intended otherwise, BPI Express Credit would have surelyu informed her
of the additional requirement in its letters of March 19, 1992 and March 31,
1992. That it did not do so confirmed that they did not agree on having her
submit the new application form as the condition to reactivate her credit
card.
The letter of BPI Express Credit dated April 8, 1992 did not clearly and
categorically inform Armovit that the submission of the new application
form was the pre-condition for the reactivation of her credit card. The
statement in the letter (i.e., "… accomplish the enclosed application form
and provide us with informations/documents that can help our Credit
Committee in reevaluating your existingfacility with us.") merely raised
doubt as to whether the requirement had really been a pre-condition or
not. With BPI Express Credit being the party causing the confusion, the
interpretation of the contract could not be donein its favor.26 Moreover, it
cannot be denied that a credit card contract is considered as a contract of
adhesion because its terms and conditions are solely prepared by the
credit card issuer. Consequently, the terms and conditions have to be
construed against BPI Express Credit as the party who drafted the
contract.27
Bereft of the clear basis to continuewith the suspension of the credit card
privileges of Armovit, BPI Express Credit acted in wanton disregard of its
contractual obligations with her. We concur with the apt observation by the
CA that BPI Express Credit’s negligence was even confirmed by the
telegraphic message it had addressed and sent to Armovit apologizing for
the inconvenience caused in inadvertently including her credit card in the
caution list. It was of no consequence that the telegraphic message could
have been intended for another client, as BPI Express Credit apparently
sought to convey subsequently, because the tenor ofthe apology included
its admission of negligence in dealing with its clients, Armovit included.
Indeed, BPI Express Credit did not observe the prudence expected of
banks whose business was imbued with public interest.
We hold that the CA rightly sustained the award of ₱100,000.00 as moral
damages. To us, too, that amount was fair and reasonable under the
circumstances. Similarly, the grant of exemplary damages was warranted
under Article 2232 of the New Civil Code because BPI Express Credit
acted in a reckless and oppressive manner. Finally, with Armovit having
been forced to litigate in order to protect her rights and interests, she was
entitled to recover attorney's fees and expenses oflitigation.28

WHEREFORE, the Court AFFIRMS the decision promulgated on February

26, 2004; and ORDERS the petitioner to pay the costs of suit.

SO ORDERED.