G.R. No.
164791 June 29, 2010 eight-month extension of [the] contract with all its terms and conditions on a month-to-
SELWYN F. LAO and EDGAR MANANSALA, Petitioners,
 month basis at a monthly rental of ₱23,000.00.
vs.

SPECIAL PLANS, INC., Respondent.
DECISION
DEL CASTILLO, J.:
In Roman Law, compensation was the reciprocal extinction of claims between mutual
debtors. In the earlier stages of that system the practice did not exist as a matter of right
but its application was discretionary with the judex. Later the praetor applied it by
incorporating into the formula, which he prepared for the judex, an exception doli, that is,
an authorization to take into account any circumstances which would render inequitable
the enforcement of the claim. The effect was to cause a dismissal of the claim, however
large, if a counterclaim, however small, was proven and the indirect result was to compel
the actor (plaintiff) to deduct the counterclaim in advance.1
Factual Antecedents
Petitioners Selwyn F. Lao (Lao) and Edgar Manansala (Manansala), together with
Benjamin Jim (Jim), entered into a Contract of Lease2 with respondent Special Plans,
Inc. (SPI) for the period January 16, 1993 to January 15, 1995 over SPI’s building at No.
354 Quezon Avenue, Quezon City. Petitioners intended to use the premises for their
karaoke and restaurant business known as "Saporro Restaurant".
Upon expiration of the lease contract, it was renewed for a period of eight months at a
rental rate of ₱23,000.00 per month.
On June 3, 1996, SPI sent a Demand Letter3 to the petitioners asking for full payment of
rentals in arrears.
Receiving no payment, SPI filed on July 23, 1996 a Complaint4 for sum of money with
the Metropolitan Trial Court (MeTC) of Quezon City, claiming that Jim and petitioners
have accumulated unpaid rentals of ₱118,000.00 covering the period March 16, 1996 to
August 16, 1996.
After service of summons, petitioners filed their Verified Answer5faulting SPI for making
them believe that it owns the leased property. They likewise asserted that SPI did not
deliver the leased premises in a condition fit for petitioners’ intended use. Thus,
petitioners claimed that they were constrained to incur expenses for necessary repairs
as well as expenses for the repair of structural defects, which SPI failed and refused to
reimburse. Petitioners prayed that the complaint be dismissed and judgment on their
counterclaims be rendered ordering SPI to pay them the sum of ₱422,920.40 as actual
damages, as well as moral damages, attorney’s fees and exemplary damages.
After the issues were joined, trial on the merits ensued. As culled from the MeTC
Decision, the following account was presented by SPI:
Delfin Cruz, president of Special Plans, Inc. testified that on January 7, 1993, plaintiff-
corporation and herein defendants entered into a two-year Contract of Lease (Exhibit "A"
inclusive, with sub-markings) starting January 16, 1993 until January 15, 1995, involving
a portion of said plaintiff-corporation’s office building which used to be the Bahay Namin
Food and Drinks at 354 Quezon Avenue, Quezon City. Defendants used the leased
premises for their karaoke and restaurant business known as Saporro Restaurant. Upon
[expiration of the lease], defendants, through defendant Lao requested in writing (Exhibit
"B") for a renewal of the contract of lease, but plaintiff-corporation agreed only for an
This witness further testified that while defendants paid the sum of ₱23,000.00 in August
1996 they nevertheless failed to pay the agreed rental since March 16, 1996, thus the
accumulated unpaid rentals shot up to ₱118,000.00. Plaintiff-corporation demanded
upon defendants payment therefor in a letter dated June 3, 1996 (Exhibit "D" inclusive
with sub-markings).
On cross, Delfin Cruz admitted that plaintiff-corporation did not inform defendants that it
was not the owner of the leased premises during the signing of the contract of lease and
that said defendants did not inform him of the structural defects of the subject premises,
including the repair works conducted thereon.
Antonio San Mateo, vice-president for legal affairs of plaintiff-corporation, averred that he
made the demand to pay upon defendants for their failure to settle their agreed monthly
rentals starting March 16, 1996 to August 15, 1996; and that for the period covering
September 16, 1995 to October 15, 1995, defendants paid only ₱20,000.00, hence, the
balance of ₱3,000.00 (Exhibit "E").6
In their defense, Jim and petitioners proffered the following:
Meanwhile, defendant Benjamin Jim testified that he was one of the signatories [to] the
original contract of lease involving the subject premises whose facilities, including the
roof, were already dilapidated: thus prompting the group to renovate the same. After a
year of operation, Saporro lost so he decided to back out but defendant Lao convinced
him to stay with the group for another x x x year. But the business lost even more so he
finally called it quits with the consent of the group. He pulled out his audio-video
equipment, refrigerator, and air-conditioning unit on January 2, 1995, thirteen (13) days
before the expiration of the contract of lease. He further denied having signed the
request for the extension of the contract.1avvphi1
On cross, he stated that he did not sign documents for and in behalf of Saporro; and,
that he allowed defendant Lao and Victor San Luis to sign for the group.
Testifying for defendant Jim, Atty. Maria Rosario Carmela Nova declared that defendant
Jim sought her services on August 30, 1996 for the recovery of his money invested at
Mount Fuji and Saporro but Atty. Cesa, who acted as counsel for defendants Lao and
Manansala, refused to return the same in a letter-reply dated September 23, 1996
(Exhibit "1-Jim" inclusive with sub-markings).
Defendant Selwyn Lao testified that the group was not able to inspect the leased
premises since Delfin Cruz had no key thereon during the signing of the contract of lease
on January 7, 1993. He stated that paragraph 6 of the said contract provides that the
LESSEE shall maintain the leased premises, including the parking lot, in good, clean and
sanitary condition and shall make all necessary repairs thereon at his own expense
except repairs of structural defects which shall be the responsibility of the LESSOR
(Exhibit "1-Lao and Manansala"). When the group took possession of the leased
premises on January 16, 1993, the equipment and furniture, among others, were found
to be not in good condition. The trusses, roof and ceiling of the premises were already
dilapidated. Rain seeped through the floor. When the group talked with Delfin Cruz about
the condition of the leased property, the latter would just tell the former not to worry
about it.
The group conducted structural and necessary repairs thereon, thus incurring the sum of
₱545,000.00 (Exhibit "2-Lao and Manansala" inclusive, with sub-markings), ₱125,000.00
of which was spent on structural defects, as follows:
Roofing repair - ₱ 45,000.00 (Exhibit "2-A")
Ceiling repair - 50,000.00 (Exhibit "2-B")
Flooring repair - 20,000.00 (Exhibit "2-C")
Waterproofing - 10,000.00 (Exhibit "2-D")
Defendant Lao further testified that Delfin Cruz told him to proceed with the repair work
without informing him (Lao) that plaintiff-corporation was not the owner of the leased
premises. The witness added that the group paid the sum of ₱23,000.00 on July 21,
1996 for the period March 16, 1996 to April 15, 1996.
On cross, he averred that he sought the expertise of Gregorio Tamayo to repair the
premises for ₱545,000.00; and that he had a verbal authority to sign for and in behalf of
defendant Jim who took his audio-video equipment on January 2, 1996.
Presented at the witness stand to testify for defendant Lao and Manansala, Gregorio
Tamayo admitted that defendant Lao sought his services to undertake both structural
and finishing works on the subject property at a cost of ₱545,00.00.
On cross, he declared that he was the subcontractor of defendant Lao.7
Ruling of the Metropolitan Trial Court
On December 15, 1999,the MeTC rendered its Decision8 finding that the unpaid rentals
stood at only ₱95,000.00. It also found that SPI is solely responsible for repairing the
structural defects of the leased premises, for which the petitioners spent ₱125,000.00. It
held that even assuming that petitioners did not notify SPI about the structural defects
and the urgency to repair the same, Article 1663 of the Civil Code allows the lessee to
make urgent repairs in order to avoid an imminent danger at the lessor’s cost. Hence,
the MeTC dismissed the complaint for lack of cause of action. The dispositive portion of
the Decision reads:
Wherefore, in view of the foregoing considerations, let this case be, as it is, hereby
ordered DISMISSED for lack of cause of action. No costs.
The counterclaim and cross-claim of the defendants are likewise DENIED for lack of
merit.
SO ORDERED.9
Ruling of the Regional Trial Court
Aggrieved, SPI filed an appeal before the RTC of Quezon City. Both parties filed their
respective memoranda.10 However, on November 24, 2000, counsel for SPI filed his
Withdrawal of Appearance11 with the conformity of SPI, through its Vice President
Antonio L. San Mateo.12 In an Order13 dated January 5, 2001, the RTC granted the
Withdrawal of Appearance and ordered that all notices, orders and other court processes
in the case be forwarded to SPI at its address at 354 Quezon Avenue, Quezon City.
On March 12, 2001, the RTC rendered a Decision14 affirming with modification the MeTC
Decision by ordering petitioners to pay SPI the amount of ₱95,000.00 for unpaid rentals.
15The RTC disagreed with the MeTC on the aspect of off-setting the amount allegedly
spent by petitioners for the repairs of the structural defects of subject property with their
unpaid rentals. The dispositive portion of the RTC Decision reads:
FROM THE GOING MILLIEU, premises considered, the lower court’s (Branch 38)
decision dated December 15, 1999 is modified to the effect that Defendants Selwyn Lao
and Edgar Manansala are ordered to pay to the plaintiff-corporation the amount of Ninety
Five Thousand (₱95,000.00) pesos for unpaid rentals. With respect to the other aspect
of the decision, there being no cogent reason to disturb the lower court’s ruling, the
same stands.
SO ORDERED.16
Ruling of the Court of Appeals
On April 25, 2003, petitioners Lao and Manansala filed a Petition for Review with the CA.
17 Jim did not join them. Hence, the appealed Decision of the RTC had become final
insofar as Jim is concerned.
On June 30, 2003, the CA rendered a Decision18 affirming in toto the RTC Decision.
Petitioners moved for reconsideration, but it was denied in a Resolution19 dated August
9, 2004.
Issues
Petitioners do not take issue that the unpaid rentals amount to ₱95,000.00.20
Nonetheless, they assert that the amount of ₱545,000.00 they spent for repairs,
₱125,000.00 of which was spent on structural repairs, should be judicially compensated
against the said unpaid rentals amounting to ₱95,000.00.21 On the other hand, SPI avers
that petitioners have not shown proof that they spent these amounts.22
Our Ruling
The petition is without merit.
The Civil Code provides that compensation shall take place when two persons, in their
own right, are creditors and debtors of each other.23 In order for compensation to be
proper, it is necessary that:
1. Each one of the obligors be bound principally and that he be at the same
time a principal creditor of the other;
2. Both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been
stated;
3. The two debts are due:
4. The debts are liquidated and demandable;
5. Over neither of them be any retention or controversy, commenced by third
parties and communicated in due time to the debtor. 24
Petitioners failed to properly discharge their burden to show that the debts are liquidated
and demandable. Consequently, legal compensation is inapplicable.
A claim is liquidated when the amount and time of payment is fixed.25 If
acknowledged by the debtor, although not in writing, the claim must be treated as
liquidated.26 When the defendant, who has an unliquidated claim, sets it up by way of
counterclaim, and a judgment is rendered liquidating such claim, it can be compensated
against the plaintiff’s claim from the moment it is liquidated by judgment.27 We have
restated this in Solinap v. Hon. Del Rosario28 where we held that compensation takes
place only if both obligations are liquidated.
In addition, paragraph 6 of the contract of lease between the petitioners and the
respondent reads:
The lessee shall maintain the leased premises including the parking lot in good, clean
and sanitary condition and shall make all the necessary repairs thereon at their own
expense except repairs of the structural defects which shall be the responsibility of the
lessor. x x x (Emphasis supplied)
As the contract contrastingly treats necessary repairs, which are on the account of the
lessee, and repairs of structural defects, which are the responsibility of the lessor,
the onus of the petitioners is two-fold: (1) to establish the existence, amount and
demandability of their claim; and (2) to show that these expenses were incurred in the
repair of structural defects.
Respecting these issues, petitioner Lao testified as follows:29
Q: When you took possession of the premises on January 16, 1993, were you able to
notice or discover anything about the structure of the premises, if any?
A: Being an engineer, when I took possession of the premises I have noticed the
structure of the premises specially the trusses and the roof and the ceiling were already
dilapidated.
Q: What else if any were you able to discover?
A: We discovered that when it is raining, water [seeped] through the floor and it caused a
lot of mess especially the carpet getting wet.
Q: What did you do next after having discovered the defects in the premises?
A: I tried to talk to Mr. Cruz regarding our position because based on our agreement the
rental is high because according to him we can move in immediately without so much
cost to our company that’s why the 3 of us came up only with ₱120,000.00 for the
immediate operation of the Karaoke but Mr. Cruz told us never mind, pag-usapan na
natin sa ibang araw yan.
Q: What happened next after you were [able] to talk to Mr. Cruz?
A: The group decided not to waste time because our rental expenses are already
running so, we decided that I will [be] the one to shoulder first the construction and repair
of the premises.
Q: How much did you spend and were you able to repair the defects?
A: I was able to repair the defects but it caused me a lot of time and money because
usually repairs cannot be controlled and my expenses reached more than ₱500,000.00.
Q: I am showing to you a document can you please go over it and identify it if this is the
document?
A: This is the contract signed by me and the sub-contractor who was assigned to
renovate and prepare the whole structure.
Q: According to this document you submitted a quotation?
A: Yes, sir.
Q: And whose signature appears above the name Gregorio Tamayo?
A: The signature of an engineer/contractor, sir.
Q: Among the list of scope of work can you please specify the repairs done x x x.
A: It was indicated here that the roofing repair works costs around ₱45,000.00; the
ceiling repair works is ₱50,000.00; the floor repair works is ₱50,000.00; and the water
proofing works is ₱10,000.00.
Q: And what happened to the repairs?
A: It was completed, sir.
xxxx
Q: All in all how much did it cost you in Exh. "2"?
A: More than ₱500,00.00 sir.
xxxx
Q: With respect to the roofing repair works, the ceiling repair works, the flooring repair
works and the water proofing works, all in all how much is total amount you incurred in
these repairs?
A: ₱ 140,000.00 sir
xxxx
Q: And, what happened next after informing the lessor.
A: He told me that I being an engineer/contractor, just proceed with the repair works and
then he said, saka na lang pag-usapan yan maliit lang naman na bagay yan.
Q: Were you able to talk to him some other day with respect to these repairs?
A: Yes, sir.
Q: What happened when you were able to talk to Mr. Cruz?
A: He is shy on us sometime but don’t talk to us, sir.
On the basis of Lao’s testimony, the MeTC found that "the group conducted structural
and necessary repairs thereon, incurring the sum of ₱545,000.00, ₱125,000.00 of which
was spent on structural defects."
We are not persuaded. The evidence presented by the petitioners failed to establish by
preponderant evidence that they have indeed spent the amounts they claim. Based on
the arguments presented by both parties, we agree with the observation of the CA that:
Petitioners did not present any convincing evidence of proof which could support their
allegation on structural defects and the subsequent repairs made on the leased
premises, i.e. documentary evidence (receipts of payments made to subcontractor the appellate court solely to maintain the appealed decision on other grounds, but not for
Tamayo for the repairs made on the building) except for the self-serving testimony of the purpose of reversing or modifying the judgment in SPI's favor and giving it other
petitioner Lao. They (petitioners) merely submitted an estimated statement of account reliefs.351avvphi1
which did not show that there were actual expenses made for the alleged structural
defects. Neither were they able to submit proofs of actual expenses made on the alleged We find on record that SPI’s counsel, with the concurrence of its Vice President,
structural defects. Besides, it is contrary to human experience that a lessee would withdrew his appearance on November 24, 2000. The RTC granted said withdrawal in its
continually renew the lease contract if the subject property were not in good condition Order dated January 5, 2001. Subsequently, the case was decided by the RTC and
free from structural defects. appealed by the petitioners to the CA. In due time, the CA rendered judgment on the
same and petitioners filed this Petition for Review on Certiorari. SPI did not interpose an
Further, the testimony of Tamayo, the alleged subcontractor who made the repairs on the appeal from the RTC Decision nor from the CA Decision. After more than six years, on
leased premises did not convince Us that there were repairs made thereat since he September 13, 2007, a new law firm entered its appearance as counsel of SPI.36 SPI
failed to present any receipts of acknowledgments of payments which was allegedly now claims that it was not able to appeal the Decision of the RTC and subsequently of
made to him.30 the CA which failed to impose 3% monthly interest as provided in the Contract of Lease
because it never received said Decisions, considering that its counsel has migrated to
Further manifesting the present appeal’s lack of merit, petitioner Lao, as shown above in another country and that petitioners misled the courts about SPI’s address.37
his testimony, did not define the lessor’s and the lessees’ understanding of the
demarcation between "repairs of structural defects" and "necessary repairs." Even We are not persuaded. SPI failed to exercise due diligence in keeping itself updated on
petitioners’ second witness, Gregorio Tamayo, the contractor who supposedly performed the developments of the case. That its erstwhile counsel has not communicated for a
the repair work on the leased premises, did not credibly and categorically testify on long period of time and has migrated abroad, should have cautioned it that something
classification of structural repairs: was amiss with the case. By that time, SPI should have initiated moves to locate its
counsel or to inquire from the court on the progress of the case. It should have ensured
Q: Insofar as you are concerned, what do you mean by structural? that its address on record with the court is updated and current. Thus, it has been
equally stressed that litigants represented by counsel should not expect that all they
A: Because when I inspect the building…
need to do is sit back, relax and await the outcome of the case.38 Instead, they should
Q: In this room, what is the structural defect? give the necessary assistance to their counsel and exercise due diligence to monitor the
status of the case for what is at stake is ultimately their interest.
A: Rocks on the wall.
WHEREFORE, the instant petition is DENIED. The June 30, 2003 Decision of the Court
Q: It has something to do with the foundation? of Appeals in CA-G.R. SP No. 76631 ordering the petitioners to pay ₱95,000.00 as
unpaid rentals and the August 9, 2004 Resolution denying the motion for reconsideration
A: Maybe, sir.31 (Emphasis supplied) are AFFIRMED.
The petitioners attempted to prove that they spent for the repair of the roofing, ceiling
and flooring, as well as for waterproofing. However, they failed to appreciate that, as per
their lease contract, only structural repairs are for the account of the lessor, herein
respondent SPI. In which case, they overlooked the need to establish that aforesaid
repairs are structural in nature, in the context of their earlier agreement. It would have
been an altogether different matter if the lessor was informed of the said structural
repairs and he implicitly or expressly consented and agreed to take responsibility for the
said expenses. Such want of evidence on this respect is fatal to this appeal.
Consequently, their claim remains unliquidated and, legal compensation is inapplicable.
For failure to timely appeal the RTC Decision before the CA and subsequently the latter’s
Decision before this Court, SPI can no longer ask for affirmative reliefs.
In its Memorandum, SPI prays that petitioners be ordered to pay 3% interest monthly as
stipulated in the Contract for Lease, plus attorney’s fees. However, as SPI did not appeal
the RTC Decision before the appellate court, we cannot act on the same.
It is well-settled that a party who has not appealed from a Decision cannot seek any
relief other than what is provided in the judgment appealed from.32 SPI did not appeal,
thus it cannot obtain from the appellate court any affirmative relief other than those
granted in the Decision of the court below.33 It can only advance any argument that it
may deem necessary to defeat petitioners’ claim or to uphold the Decision that is being
disputed, and it can assign errors in its brief if such is required to strengthen the views
expressed by the court a quo.34 These assigned errors, in turn, may be considered by
G.R. No. L-30204 October 29, 1976
PACIFIC MERCHANDISING CORPORATION, plaintiff-appellee,
 obligations in its favor by the Leo Enterprises, Inc.;
vs.
 6. That the bond applied for was in fact executed in favor of the pIaintiff rith third-party
CONSOLACION INSURANCE & SURETY CO., INC., defendant-appellee,
CONSOLACION INSURANCE & SURETY CO., INC., third party plaintiff-appellee,
 allegations of the preceding paragraph and a copy of the said bond is attached a ANNEX 'A'
vs.
 to the third party complaint;
GREGORIO V. PAJARILLO, third party defendant-appellant.
Vicente T. Velasco, Jr. & Associates for plaintiff-appellee.
Castro, Panlaque & De Pano for defendant and third-party plaintiff-appellee.
Yuseco, Abdon & Yuseco for third-party defendant-appellant.
ANTONIO, J.:
Appeal, on a question of law, from the judgment of the Court of First Instance Of Manila,
dated August 8, 1964, affirming the decision of the City Court in Civil Case No. 117811. The
issue arose from the following facts:
In Civil Case No. 117811, which was an action instituted by Pacific Merchandising Corporation
(plaintiff-appellee) to collect the sum of P2,562.88 from Consolacion Insurance & Surety Co.,
Inc., (defendant- appellee) who in turn filed a third-party complaint against Gregorio V.
Pajarillo (third-party defendant-appellant). the City Court of Manila rendered judgment on April
6, 1964, the dispositive portion of which reads, in part, thus:
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiff
and against the defendant, ordering the latter to pay the former the sum of P2,562.88 with
interest thereon at the rate of 12% per annum from May 30, 1963 until fully paid, P100.00 as
for attorney's fees, plus the costs of suit; condemning third defendant to pay third-party
plaintiff for whatever sums or amounts tlie latter paid the plaintiff on account of this
judgment.
By virtue of the appeal interposed by the third-party defendant Gregorio V. Pajarillo, the case
was elevated, on May 12, 1964, to the Court of First Instance of Manila. On July 21, 1964, the
parties, through their respective counsel, submitted the following Stipulation of Facts:
1. That on the 19th day of October, 1962, a Writ of Execution as isstica Iy the Court of First
Instance of Manila under Civil Case No. 49691, entitled Pacific Merchandising Corporation vs.
Leo Enterprises, Inc., a copy of the said Writ of Execution is attached as ANNEX Ato the
complaint;
2. That by virtue of the aforesaid Writ of Execution, the Sheriff of Manila levied and attached
the following:
'l. Second Hand AUTOMATICKET Machine No. MG-31833;and
'2. Cinema Projectors Complete, trademark SIMPLEX PEERLESS MAGNARC NOS. 52625
and 62387' which items were advertised for sale on March 2, 1963, copy of Notice of sale
attached as ANNEX 'B' to the Complaint;
3. That Atty. Greg V. Pajarillo was appointed on March 2, 1963 as Receiver of all the assets,
properties and equipment of Paris Theatre, olwrated by Leo Enterprises, Inc. under Civil Case
No. 50201 entitled Gregorio V. Pajarillo vs. Leo Enterprises, Inc.;
4. That the sale at public auction of the above described properties was postponed and was
later cancelled due to thc representation of Atty. Greg V. Pajarillo as Receiver of Paris Theatre
operated by Leo Enterprises, Inc. in which he undertook the 1anient of the judgment rendered
in favor of the plaintiff against Leo Enterprises, Inc. as Ier undertaking dated March 11, 1963,
copy of which is attached as ANNEX 'C' to the complaint;
5. That on or about hie third of March, 1963, third-party defendant Pajarillo approached the
third-party plaintiff and applied for a surety bond in the amount of P5,000.00 to be rated in
favor of the abovenamed plaintiff in order to guarantee to said plaintiff the payment of
defendant Pajarillo as principal and third-party plaintiff as surety in the context of the
7. That to protect thirrd party plaintiff against damage and injury, the third party defendant
Pajarillo executed in favor of the former an INDEMNITY AGREEMENT, copy of which is
attached as ANNEX 'B' to third party complaint; tlie trms of which aie incorporated by
reference;
8. That the plaintiff received from hie aid principal, Greg V. Pajarillo the sum of P2,000.00
leaving a balance of P2,562.88 still unpaid aside from interest at the rate of 1% per month and
atto lnen s f cluiaient to 25% of tht amount due as provided for in said undertaking (ANNEX 'C'
to tlie complaint);
9. That on July 1, 1963, a decision was rendered tne court of First Instance of Manila in Civil
case No. 50201, copy of' which is attached its ANNEX 'A' to Answer to Third Party Complaint,
by virtue of which Greg V. Pajarillo, as said Received stololcl making payments to plaintiff;
10. That the said decision in Civl Case No. 50201 dated July 1, 1963 was appealed lix
defendant Leo Enterprises, Inc. to the court of Appeals and that the records kere eleattd to the
aid ApiIiat court on August 27, 1963;
11. That on October 9, 1963, plaintiff's counsel demanded from the said principal, Greg V.
Paiarillo, the payment of the installments corresponding to the months of May, June, July,
August and September, 1963, which remain unpaid in spite of said demand, copy of said
letter being, attached as ANNEX 'E' to the complaint;
12. That the defendant was duly notified of the demand made on the principal, Greg V.
Pajarillo and in spite of said notice the defendant has failed and refused to pay the unpaid
obligation;
13. That on December 19, 1963, plaintiff's counsel demanded from the defendant the
payment of the unpaid obligation of the principal, Greg V. Pajarillo but refused and failed to
pay the same in spite of said demand;
14. That when reminded by third-party plaintiff regarding his obligations in favor of the plaintiff,
the third-party defendant, Greg V. Pajarillo replied that he no longer was bound to pay
because he had ceased to be the receiver of Paris Theatre operated by Leo Enterprises, Inc.
by virtue of the decision of the Court in Civil Case No. 50201 cited above, and for this reason,
third- party plaintiff refused to pay the demand of the plaintiff 2
On the basis of the foregoing Stipulation of Facts, the Court of First Instance rendered
judgment on August 8, 1964, which judgment was amended on August 25, 1964, affirming the
appealed decision of the City Court .2*
The trial court predicated its judgment on the following considerations: (1) Since the unpaid
claim represents the cost of certain materials used in the construction of the Paris Theatre,
the possession of which reverted to Gregorio V. Pajarillo as owner of said property by virtue of
the judgment in Civil Case No. 50201, "it is only simple justice that Pajarillo should pay for the
said claim. otherwise he would be enriching himself by having the said building without paying
plaintiff for the cost of certain materials that went into its construction"; (2) "under Section 7 of
Rule 61 of the former Rules of Court, one of the powers of a receiver i8 to pay outstanding
debts, and since the said plaintiff's claim has been outstanding since August 27, 1962, if not
before, Pajarillo should have paid the same long before the alleged termination of the
receivership on July 1, 1963"; (3) the procedure outlined in Section 8 of the Rule, namely, that
whenever the court "shall determine that the necessity for a receiver no longer exists, it shall,
after due notice to all interested parties and hearing, settle the accounts of the receiver, direct
the delivery of the funds and other property in his hands to the persons adjudged entitled to
receive them, and order the discharge of the receiver from further duty as such," has not been
followed; and (4) when Gregorio V. Pajarillo undertook to pay the amount owed to plaintiff
(Annex "C") and executed the surety bond (Annex "D") in favor of plaintiff, he 4 6 stepped into
the shoes" of the dr Leo Enterprises, Inc., .4 and the properties of the said debtor having all
subsequently passed on to Pajarillo, there is no reason, legal or otherwise, for relieving
defendants of their said undertaking."
The court a quo likewise declared that (1) "the receivership was not terminated by virtue of the
appeal interposed by Leo Enterprises, Inc., one of the defendants in Civil Case No. 50201,
because a decision which is appealed cannot be the subject of execution"; (2) "granting
arguendo that the decision is final and executory, the said decision cannot bind nor can it be
enforced against the plaintiff in the present case because it is not a party in Civil Case No.
50201"; and (3) "when Atty. Pajarillo assumed the obligation of Leo Enterprises, Inc., as a
Receiver, there was a subrogation of the party liable and, therefore, the plaintiff cannot
enforce the judgment in Civil Case No. 49691 against Leo Enterprises, Inc."
From the foregoing judgment, third-party defendant Gregorio V. Pajarillo interposed an appeal
to the Court of Appeals. The aforesaid Appellate Court, in turn certified the same to this Court
on the ground that there is no question of fact involved, but only one of law.
The legal question is whether or not third party defendant-appellant Gregorio V. Pajarillo is,
under the facts and circumstances obtaining, liable to plaintiff for the unpaid amount claimed.
Upon the resolution of this issue will in turn depend the liability of defendant-third-party plaintiff
Consolacion Insurance & surety Co., Inc. under the Surety Bond, on the basis of which it was
ordered by the court a quo to pay the amount involved to plaintiff-appellee.
1. A receiver is not an agent or representative of any party to the action. He is an officer of the
court exercising his functions in the interest of neither plaintiff nor defendant, but for the
common benefit of all the parties in interest. 3 He performs his duties "subject to the control of
the Court," and every question involved in the receivership may be determined by the court
taking cognizance of the receivership proceedings. 4 Thus, "a receiver, strictly speaking, has
no right or power to make any contract binding the property or fund in his custody or to pay
out funds in his hands without the authority or approval of the court ... . 5 As explained by
Justice Moran, speaking for the Court in a 1939 case 6 ... The custody of the receiver is the
custody of the court. His acts and possession are the acts and possession of the court, and
his contracts and liabilities are, in contemplation of law, the contracts and liabilities of the
court. As a necessary consequence, receiver is f subject to the control and supervision of the
court at every step in his management of the property or funds placed in his hands. ... 7 He
cannot operate independently of the court, and cannot enter into any contract without its
approval.
... El depositario no puede obrar independientemente del jusgado; contrata bajo el control del
mismo; sin su autorizacion o aprobaci6n expresa, el depositario no puede perfeccionar
ningun contrato. ... 8
2. In the case at bar, appellant Pajarillo does not dispute the fact that he never secured the
court's approal of either the agreement of March 11, 1963, with Pacific Merchandising
Corporation or of his Indemnity Agreement with the Consolacion Insurance & Surety Co., Inc.
on March 14, 1963, in consideration of the performance bond submitted by the latter to Pacific
Merchandising Corporation to guarantee the payment of the obligation. As the person to
whom the possession of the theater and its equipment was awarded by the court in Civil Case
No. 50201, it was certainly to his personal profit and advantage that the sale at public auction
of the liquipment of the theater was prevented by his execution of the aforesaid agreement
and submission of the afore-mentioned bond. In order to bind the property or fund in his
hands as receiver, he should have applied for and obtained from the court authority to enter
into the aforesaid contract. 9 Unauthorized contracts of a receiver do not bind the court in
charge of receivership. They are the receiver's own contracts and are not recognized by the
courts as contracts of the receivership. 10 Consequently, the aforesaid agreement and
undertaking entered into by appellant Pajarillo not having been approved or authorized by the
receivership court should, therefore, be considered as his personal undertaking or obligation.
Certainly, if such agreements were known by the receivership court, it would not have
terminated the receivership without due notice to the judgment creditor as required by Section
8 of Rule 59 of the Rules of Court. This must be assumed because of the legal presumption
that official duty has been regularly performed. 11 Indeed, if it were true that he entered into
the agreement and undertaking as a receiver, he should have, as such receiver, submitted to
the court an account of the status of the properties in his hands including the outstanding
obligations of the receivership. 12 Had he done so, it is reasonable to assume that the
judgment creditor would have opposed the termination of the receivership, unless its claim
was paid. Having failed to perform his duty, to the prejudice of the creditor, appellant should
not be permitted to take advantage of his own wrong. The judgment creditor having been
induced to enter into the aforesaid agreement by appellant Pajarillo it was the duty of the
latter to comply with is end of the bargain. He not only failed to perform his undertaking, but
now attempts to evade completely his liability. Under such circumstances, appellant is not
entitled to equitable relief. No ground for equitable relief can be found in a case where a party
has not only failed to perform the conditions upon which he alone obtained the execution of
the contract, but where it is clear that he never, at any time, intended to perform them.13
3. Moreover, it will be recalled that the obligation due the Pacific Merchandising Corporation
represented the cost of materials used in the construction of the Paris Theatre. There can not
be any question that such improvements, in the final analysis, redounded to the advantage
and personal profit of appellant Pajarillo because the judgment in Civil Case No. 50201, which
was in substance affirmed by the Appellate Court, ordered that the "possession of the lands,
building equipment, furniture, and accessories ..." of the theater be transferred to said
appellant as owner thereof.
As the trial court aptly observed "... it is only simple justice that Pajarillo should pay
for the said claim, otherwise he would be enriching himself without paying plaintiff for the cost
of certain materials that went into its construction. ... It is argLicd however, that he did so only
as a receiver of Leo Pajarillo by virtue of the judgment in Civil Case No. 50201 all of the
properties of Leo Enterprises, Inc. passed on to Pajarillo by virtue of the judgment in Civil
Case No. %201 ...". This Roman Law principle of "Nemo Cum alterious detrimento locupletari
protest" is embodied in Article 22 (Human Relations), 14 and Articles 2142 to 2175
(QuasiContracts) of the New Civil Code. Long before the enactment of this Code, however,
the principle of unjust enrichment which is basic in every legal system, was already expressly
recognized in this jurisdiction.
As early as as 1903, in Perez v. Pomar, 15 this Court ruled that where one has rendered
services to another, and these services are accepted by the latter, in the absence of proof that
the service ",as rendered gratuitously, it is but just that he should pay a reasonable
remuneration therefore because "it is a wellknown principle of law, that no one should be
permitted to enrich himself to the damage of another." Similarly in 1914, this Court declared
that in this jurisdiction, even in the absence of statute," ... under the general principle that one
person may not enrich himself at the expense of another, a judgment creditor would not be
permitted to retain the purchase price of land sold as the property of the judgment debtor after
it has been made to appear that the judgment debtor had no title to the land and that the
purchaser had failed to secure title thereto ... 16 The foregoing equitable principle which
springs from hie fountain of good conscience are applicable to the case at bar.
ACCORDINGLY, in view of the foregoing, the judgment unirilleal is httcf AFFIRMED. Costs
against appellant.